Overview
We are a clinical-stage biopharmaceutical
company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power
of a patient’s own immune system to eradicate cancer cells. Our lead program is an adoptive cell therapy utilizing tumor-infiltrating
lymphocytes (TIL), which are T cells derived from patients’ tumors, for the treatment of metastatic melanoma.
A patient's immune system, particularly their
TIL, plays an important role in identifying and killing cancer cells. TIL consist of a heterogeneous population of T cells that
can recognize a wide variety of cancer-specific mutations and can overcome tumor escape mechanisms. TIL therapy involves growing
a patient's TIL in special culture conditions outside the patient's body, or ex vivo, and then infusing the T cells back into
the patient followed by infusion of six doses of interleukin-2 (IL-2). By expanding a patient’s TIL ex vivo, away from the
immune-suppressive tumor microenvironment, the T cells can rapidly proliferate. As a result, billions of TIL, when infused back
into the patient, are better able to search out and potentially eradicate the tumor.
We have an on-going Phase 2 clinical trial
of our lead product candidate, LN-144, TIL for the treatment of metastatic melanoma. This single-arm study is enrolling patients
with melanoma whose disease has progressed following treatment with at least one systemic therapy. The trial opened for enrollment
during the second half of 2015 and is being conducted at eight sites. The purpose of the study is to evaluate the safety, and
efficacy of our autologous TIL infusion (LN-144). The trial’s primary objective is to characterize the safety of LN-144.
Secondary outcome measures efficacy of the LN-144 includes objective response and complete response rates. Additional secondary
or exploratory endpoints may be considered as well. Updates from this Phase 2 trial are planned to be released in 2017.
During 2015, we received orphan drug designation
for LN-144 in the United States to treat metastatic melanoma. This designation provides seven years of market exclusivity in the
United States, subject to certain limited exceptions. However, the orphan drug designation does not convey any advantage in or
shorten the duration of the regulatory review or approval process.
We are pursuing metastatic melanoma as our
first target indication because of the promising initial results in this indication generated by Dr. Steven Rosenberg, M.D., Ph.D.,
Chief of the Surgery Branch of the National Cancer Institute (NCI) and the commercial opportunity inherent in the significant
unmet need of this patient population. Melanoma is a common type of skin cancer, accounting for approximately 76,380 patients
diagnosed and 10,130 deaths each year in the United States according to the American Cancer Society’s Cancer Estimated 2016
Facts and Figures. According to the NCI’s Surveillance, Epidemiology and End Results (SEER) program, about 2-5% of patients
with melanoma have metastatic disease. Patients with metastatic melanoma following treatment under the current standards of care
have a particularly dire prognosis with very few curative treatment options.
In addition to our ongoing trial in metastatic
melanoma, we plan to initiate clinical trials of TIL therapy in several additional cancer indications in 2017, including cervical,
and head and neck cancer, and to initiate additional indications by the company as well as through collaborations which may include
glioblastoma and pancreatic cancer.
2016 Developments
In 2016, we underwent significant changes,
including the following:
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We submitted
an Investigational New Drug Application to conduct studies in cervical and head and neck
cancer. Those studies are expected to commence in 2017.
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We hired new
a Chief Executive Officer, Chief Financial Officer, Chief Medical Officer and Chief Scientific
Officer.
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We raised $100
million through the sale of equity in a private placement.
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We announced
a five-year extension of our Cooperative Research and Development Agreement (the “CRADA”)
with the National Cancer Institute (the “NCI”).
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We entered into
an exclusive license agreement with PolyBioCept AB (“PolyBioCept”) and a
related clinical trials agreement with the Karolinksa University Hospital.
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We presented
TIL technology data in four posters at the Society for Immunotherapy of Cancer (SITC)
Annual Meeting.
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We entered into
a new three-year manufacturing agreement with WuXi Apptech, Inc. (“WuXi”)
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We entered into
a new three-year manufacturing agreement with Lonza Walkersville, Inc (“Lonza”).
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We entered into
a new sponsored research agreement and clinical grant agreement with the H. Lee Moffitt
Cancer Center and Research Institute (“Moffitt”).
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We grew from
20 employees at the beginning of 2016 to over 51 by the end of the year.
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We moved our
corporate headquarters from New York, New York to San Carlos, California.
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Corporate Strategy
Our goal is to be a leader in the development
and commercialization of cell-based immunotherapies to treat solid tumors. We are developing a portfolio of TIL-based product
candidates with the potential to meaningfully improve survival and quality of life for cancer patients. Key elements of our strategy
include:
Expedite clinical development, regulatory
approval, and commercialization of our lead product candidate
Based on results from NCI-sponsored clinical
trials, we plan to advance our lead product candidate, LN-144, for the treatment of patients with metastatic melanoma. We filed
an IND with the U.S. Food and Drug Administration (FDA) in December 2014 to initiate a company-sponsored Phase 2 single-arm, multicenter
clinical trial of LN-144 in patients with metastatic melanoma. We began enrollment of this study in the second half of 2015 which
has continued throughout 2016. Interim data from this trial is expected to be announced in 2017.
If data from this company-sponsored Phase
2 trial is consistent with previous results from the NCI, we plan to initiate discussions with the FDA in 2017 about a registration
path for LN-144 and to thereafter conduct a multicenter pivotal trial. Assuming the results from the pivotal trial are positive,
we will discuss with the FDA the filing of a Biologic License Application (BLA) for approval of LN-144 as a treatment for patients
with metastatic melanoma. The FDA may grant accelerated approval for product candidates for serious conditions that fill an unmet
medical need based on a surrogate or intermediate clinical endpoint, including an objective response rate, because such response
rate is considered reasonably likely to predict a real clinical benefit of longer life. We believe our accelerated approval strategy
may be warranted given the limited options for patients with advanced melanoma. However, even if the FDA grants accelerated approval,
confirmatory trials may still be required by the FDA.
Continue collaboration with our partners, and
increase our internal research and development activities, to improve TIL manufacturing and develop new TIL therapies
We seek to work with government and academic
research institutions, as well as corporate partners, to supplement our own efforts to improve TIL manufacturing and develop TIL
therapies in new indications in clinical trials. In August 2016, we expanded our CRADA with the NCI for another 5-year term. This
collaboration with the NCI offers us the opportunity to identify new indications for unmodified TIL therapy based on human proof-of-concept
data, which significantly reduces the risk in our product portfolio. Our CRADA with the NCI is focused on the treatment of additional
solid tumor indications, including cervical, head and neck, lung, bladder, and breast cancer.
In addition, in December 2016, we entered into
a new three-year cooperative research agreement with Moffitt. Areas of research include an evaluation of the role of individual
effector cells in the expansion of TIL from primary solid tumors, the use of toll-like receptor (TLR) ligands in the expansion
of TIL from solid tumors, optimal expansion of TIL from various solid tumors, and phenotype and function analysis of patient blood
and tumor samples from clinical trials. At the same time, we also announced a new clinical grant agreement with Moffitt where
we would provide support for an ongoing clinical trial at Moffitt that combines TIL therapy with Opdivo® (nivolumab) for the
treatment of patients with metastatic melanoma.
With corporate partners, in 2015 we commenced
a research and clinical collaboration with Medimmune, Inc. to evaluate means to enhance TIL growth in vitro and to combine TIL
therapy with durvalumab, an anti-PDL1 antibody, in patients with solid tumor indications. In 2016, we entered into an exclusive
license agreement with PolyBioCept to license certain rights to patent applications related to a cytokine cocktail for expansion
of TIL. In connection with this license, we entered into a clinical trial agreement with Karolinska University Hospital
in Sweden to conduct two clinical trials in patients with pancreatic cancer and glioblastoma with TIL manufactured using the cytokine
cocktail.
Establish initial manufacturing capacity for
TIL products with contract manufacturing organizations
We continue to invest in improving the process
and efficiency of manufacturing our product candidates. Currently we use several contract manufacturing organizations (CMOs) to
supply our TIL-based products for our clinical trials. CMOs limit the amount of upfront capital investment; however, we may establish
our own manufacturing facilities in the future for better margins and rapid implementation of innovative changes. We intend to
carefully manage our cost structure, and reduce the long-term cost of manufacturing our products, although there can be no assurance
that we will be able to reduce our manufacturing costs to commercially attractive levels.
In 2016, we entered into a new three-year manufacturing
agreement with WuXi in order to increase our TIL manufacturing capacity in facilities with both clinical and commercial capability.
In addition to our agreement with WuXi, we have been working with Lonza since 2011 to manufacture our TIL product. Lonza has been
the manufacturer of LN-144 for our clinical trial in metastatic melanoma. We entered into a new three-year manufacturing agreement
with Lonza in 2016.
Pipeline
We are developing a portfolio of TIL-based
products for the treatment of solid tumors. Our lead pipeline candidate, LN-144, is an adoptive cell therapy using TIL to treat
patients with metastatic melanoma. In addition to LN-144, we intend to develop additional TIL-based pipeline products to treat
a variety solid tumors, as well as next-generation TIL therapies that are more potent and less costly to manufacture, and TIL
in combination with other immunotherapy drugs.
LN-144
We are developing LN-144 to treat metastatic
melanoma. Melanoma is a common type of skin cancer, accounting for approximately 76,380 patients diagnosed and 10,130 deaths each
year in the United States according to the American Cancer Society, Cancer Facts and Figures estimates for 2016. In our ongoing
Phase 2 trial, we are treating metastatic melanoma patients that have failed at least one previous treatment regimen.
Patients with metastatic melanoma following
treatment under the current standards of care have a particularly dire prognosis with very few curative treatment options. The
National Comprehensive Cancer Network (NCCN) has recently updated its recommendations for the treatment of patients with unresectable
or metastatic melanoma. Initial therapy can include checkpoint inhibitors either alone or in combination (ipilimumab, nivolumab,
pembrolimumab), targeted therapies for patients with BRAF mutations (dabrafenib/trametinib, vemurafenib/cobimetinib combinations
or single agents) or a clinical trial. For patients not responding or progressing and having an adequate clinical status, agents
selected from the previous list but of a different therapeutic class can be used as well as high dose IL-2 or a clinical trial.
Patients who do not respond to the current second-line therapies have very few treatment options and typically have a very poor
prognosis, with limited median survival measured in months.
LN-145
We are developing LN-145 to treat cervical
and head and neck cancers. In December 2015, we submitted an IND application with the FDA to conduct clinical trials of LN-145
in these cancers, and in February 2016 we announced that the IND was allowed thereby permitting us to begin clinical trials in
these indications with our product. We expect trials in these two indications to begin in 2017. According to the American Cancer
Society’s Cancer Facts and Figures estimates for 2016, it is estimated that approximately 12,990 women are diagnosed in
the United States every year with cervical cancer. If cervical cancer has spread to surrounding tissues or organs and/or the regional
lymph nodes, the five-year survival rate is 67.5%. If the cancer has spread to a distant part of the body, the five-year survival
rate is 16.8%. Head and neck cancer accounts for about 3% of all cancers in the United States. This year, an estimated 48,330
people will develop head and neck cancer. It is estimated that 9,570 deaths occurred in 2016.
TIL in Other Solid Tumor Indications
We are collaborating with the NCI to evaluate
unmodified TIL in other solid tumor indications such as ocular (uveal) melanoma, bladder, breast and lung cancer. We are also
collaborating with Karolinska University Hospital to conduct clinical trials of TIL manufactured using a novel cytokine cocktail
for expansion in pancreatic cancer and glioblastoma. These trials are expected to commence in 2017.
TIL in Combination with Other Immunotherapy
Drugs
Checkpoint inhibitors are a new class of immunotherapy
drugs which seek to overcome one of cancer’s main defenses against an immune system attack. Checkpoint inhibitors are antibodies
that block normal proteins on cancer cells, or the proteins on T cells (such as TIL) that respond to them. The result is to remove
the brakes that prevent T cells from recognizing cells as cancerous and leading an immune system assault on them. We are collaborating
with the NCI to evaluate TIL in combination with the checkpoint inhibitor Keytruda® (pembrolizumab) in a 170-patient clinical
trial in patients with advanced melanoma. We have also previously collaborated with Moffitt to evaluate TIL in combination with
the checkpoint inhibitor Yervoy® (ipilimumab) in a 12-patient clinical trial which is now completed and have recently announced
a collaboration with Moffitt to evaluate TIL in combination with the checkpoint inhibitor Opdivo® (nivolumab) in a 12-patient
clinical trial.
Immune system
The immune system recognizes danger signals
and responds to threats at a cellular level. The most significant components of the cellular aspect of the adaptive immune response
are T cells (or T lymphocytes), so called because they mature in the thymus and are distinguished from B cells which mature in
the bone marrow. T cells can be distinguished from other white blood cells by T cell receptors present on their cell surface.
These receptors contribute to tumor surveillance by helping T cells recognize infected cells as well as cancerous cells. T cells
are involved in both sensing and killing infected or cancerous cells, as well as coordinating the activation of other cells in
an immune response.
Although the immune system is designed to
identify foreign or abnormal proteins expressed on tumor cells, this process is often defective, or not operating optimally, in
cancer patients. The defective process sometimes occurs when the cancer cells closely resemble healthy cells and go unnoticed
or if tumors lose their protein expression. Additionally, cancer cells employ a number of mechanisms to escape immune detection
to suppress the effect of the immune response. Some tumors also encourage the production of regulatory T cells that prevent cytotoxic
T cells from attacking the cancer.
Cancer immunotherapy
Despite the progress that has been made over
the past several decades, effective treatment of cancer, especially solid tumors, continues to be challenging. Some reasons solid
tumors are so difficult to treat are: (i) in many solid tumors, multiple genes (as many as hundreds or thousands of genes) are
mutated, and solid tumors are heterogeneous, (ii) it is not always clear which particular mutations are critical, and (iii) tumors
can adapt and find a way to evade treatments that target a single mutation. In addition, the tumor can suppress the patient’s
natural immune response. When T cells with cancer-specific receptors are absent, present in low numbers, of poor quality or rendered
inactive by suppressive mechanisms employed by tumor tissue, the cancer can grow and spread to various organs. In addition, standard
of care treatments for cancer can be deleterious to T cells' ability to kill cancer.
We believe that adoptive cell therapy, with
the use of human cells as therapeutic entities to reengage the immune system, will be the next significant advancement in the
treatment of cancer. These cellular therapies may avoid the long-term side effects associated with current treatments and have
the potential to be effective regardless of the type of previous treatments patients have experienced. We believe TIL therapy
in particular has the potential to treat solid tumors by increasing the effectiveness and number of a patient's cancer-specific
T cells.
Tumor-infiltrating lymphocytes
Adoptive cell therapy with TIL involves (1)
harvesting T cells from a patient's tumor, (2) culturing and (3) expanding the number of TIL, and (4) infusing the functional
TIL back into the patient followed by treatment with IL-2. TIL are a heterogeneous population of T cells that can recognize and
kill cancer cells. Currently, the TIL manufacturing process that we are developing takes approximately five to six weeks from
receipt of the patient's tumor to infusion of the TIL back into the patient. We currently treat patients with a single infusion
of TIL after they receive a short chemotherapy lymphodepletion regimen, which is intended to improve the survival and proliferative
capacity of the newly infused T cells. After infusion, the TIL can proliferate inside a patient and potentially infiltrate the
tumor microenvironment to eliminate large numbers of cancer cells. TIL can overcome several mechanisms of tumor escape to which
endogenous T cells may be susceptible.
Clinical results with TIL in metastatic melanoma
To date, hundreds of metastatic melanoma patients
have already been treated with TIL therapy at different hospitals in the US, Europe, Canada, and Israel. At NCI, clinical responses
have been relatively consistent: approximately 50% of the melanoma patients treated with TIL have an objective response (i.e.
tumor regression of 50% or more), and approximately 24% of patients have a complete response with no evidence of disease remaining
after only one administration. Many patients respond to TIL therapy despite experiencing tumor progression after previously being
treated with other therapies.
In September 2015, Dr. Rosenberg, a recognized pioneer in immuno-oncology
and adoptive cell therapy using TIL, presented updated findings from a Phase 2 clinical trial of TIL therapy in metastatic melanoma
at the American Association for Cancer Research Inaugural International Cancer Immunotherapy Conference. Data was presented from
a 101 patient, Phase 2 clinical trial conducted at the NCI. In the trial, patients with advanced metastatic melanoma were
equally divided in two groups. Both groups were treated according to a standard TIL protocol using nonmyeloablative chemotherapy,
with the second group also receiving total body irradiation. 56% of the patients treated with TIL therapy achieved an objective
response. An objective response occurs when there is a complete remission or a partial remission of the tumor. Out of the 101
patients, 24 (24%) had experienced a complete remission and 23 of the 24 (96%) showed ongoing durability of this response at 30
to 47 months following treatment at the time of publication. Median follow-up time was approximately 40.9 months.
Overall survival (OS) was approximately 80% at 12 months, and median OS had not yet been achieved. Median progression-free
survival was approximately 10 months, and 35% of patients were without disease progression at 4 years. This observation was also
presented by Stephanie Goff at the 2016 ASCO meeting and published in the Journal of Clinical Oncology in June.
Overall Survival of
patients in TIL ± TBI study
Source: Goff, S.L. et al. Randomized,
Prospective Evaluation Comparing Intensity of Lymphodepletion Before Adoptive Transfer of Tumor-Infiltrating Lymphocytes for Patients
With Metastatic Melanoma. Journal of Clinical Oncology, 34(20), 2389-2397.
Clinical results with TIL in other solid tumor indications
Under our CRADA with the NCI, we are providing
research and development and clinical funding for the development of unmodified TIL therapy for a variety of solid tumor indications,
including cervical, head and neck, bladder, breast, and lung cancers. The NCI has completed a clinical trial involving TIL therapy
to treat advanced human papilloma virus (HPV)-positive cervical cancer. Data from this trial was published in the Journal of Clinical
Oncology in April 2015. Out of nine cervical cancer patients treated with HPV-TIL, two experienced complete remissions reported
as ongoing at 22 and 15 months. Another patient experienced a three-month partial remission. Additionally, the NCI has ongoing
trials to treat patients using TIL within lung cancer, bladder and breast cancer. Depending on results from the research and development
and clinical trials conducted at the NCI under our CRADA, we may pursue the development and regulatory approval of TIL therapy
for additional indications.
Safety
Overall, toxicities or adverse events during
TIL therapy have almost entirely been associated with the either the lymphodepletion regimen or the high-dose IL-2 therapy given
after TIL infusion as assessed by Rosenberg. Severe and life threatening toxicities due to TIL therapy occur mostly in the first
week after cell infusion but generally resolve within a few weeks. To date, some patients have experienced vitiligo and uveitis,
but there has been no other evidence of off-target effects associated with TIL therapy.
Toxicities which occur following administration
of IL-2 but are thought to be related to the cells include immune mediated events such as vitiligo, transient uveitis, hearing
loss, and vestibular dysfunction. The use of the non-myeloablative lymphodepletion regimen prior to cell administration increases
the toxicity of this treatment as myelosuppression occurs in all patients.
The standard approach to the administration
of high-dose IL-2 in all studies is to continue dosing until patients can no longer tolerate treatment, although the toxicities
observed with ‘adjuvant’ IL-2 to TILs with only a single cycle and 6 doses are limited. As noted by Goff et al., the
toxicities of treatment were largely a result of the known adverse effects of nonmyeloablative chemotherapy and administration
of high-dose IL-2. These toxicities may sometimes require intubation for protection of the patient’s airway. Although these
patients require significant supportive measures during this period, all toxicities are reversible and the overwhelming majority
of patients have suffered no long term sequelae following this treatment regimen.
Next generation TIL product strategies
We hold an exclusive license from the NCI
to a patent family directed to select TIL for various cell surface markers in order to treat patients with metastatic melanoma.
This next-generation TIL technology supports more potent and efficient TIL production by selecting for TIL that express various
activating receptors, including 4-1BB and PD-1. TIL that express these proteins are associated with higher tumor reactivity, so
potentially fewer of the enriched cells are needed to be therapeutically effective. Selected TIL technology has the potential
to reduce the time and cost of manufacturing.
In addition to selected TIL, we are evaluating
strategies to genetically engineer TIL, and to pre-condition tumors from which we expand TIL so that more TIL are present at the
time of tumor excision.
Process development and manufacturing
Our manufacturing and processing of TIL-based
product candidates is based on the NCI’s original manufacturing and processing of TIL, which we have modified so that it
can be reproduced in a Good Manufacturing Process (cGMP) environment. We believe we have streamlined and improved the NCI’s
original process to be able to produce TIL in a cGMP facility.
The processing of LN-144 begins with the collection
of the patient’s tumor, which is then sent to a central processing facility, where the T cells are isolated. These cells
are stimulated to proliferate, then propagated in cell culture flasks until sufficient cells are available for infusion back into
the patient. The TIL is then washed and put in media suitable for infusion at the cell processing site and shipped back to the
clinical center where they can be administered to the patient. In preparation for administration of the TIL, the patient undergoes
a short chemotherapy lymphodepletion regimen, which is intended to improve the survival and proliferative capacity of the newly
infused T cells. The following diagram illustrates our current TIL manufacturing process.
We have entered into Manufacturing Services
Agreements with Lonza and WuXi pursuant to which they have agreed to manufacture, package, ship and handle quality assurance and
quality control of certain clinical trials for our TIL products. The production line for LN-144 is established at Lonza and is
providing product for our Phase 2 trial in metastatic melanoma. Our production line at WuXi is available to manufacture TIL for
both a clinical and commercial setting. Cell processing activities will be conducted at both companies under current good manufacturing
processes, or cGMP, using qualified equipment and materials. We believe that all materials and components utilized in the production
of the final TIL product is readily available from qualified suppliers. We expect to rely on Lonza and WuXi to meet anticipated
clinical trial demands. In the future, we may rely on them or other third parties, or develop our own manufacturing capabilities
for the manufacturing and processing of TIL-based product candidates for our clinical trials. To meet projected needs for commercial
sale quantities, we may develop our own commercial manufacturing facility to supply and process products. Developing our own manufacturing
capabilities may require more costs than we anticipate or result in significant delays. If we are unable to develop our own manufacturing
capabilities, we will rely on contract manufacturers, including both current and alternate suppliers, to ensure sufficient capacity
is available for commercial purposes.
The Manufacturing and Services Agreement that
we entered into on November 23, 2016 with WuXi governs the terms under which we may, from time to time, engage WuXi, under separate
statements of work, to provide manufacturing and other services. The agreement will also govern certain work orders placed under
a prior cell therapy development and manufacturing that we entered into with WuXi in September 25, 2015. Each statement of work
describes the services to be performed by WuXi, the consideration to be paid for such services, and other details related thereto
the requested work. To date, we have entered into two such statements of work for two cGMP manufacturing suites to be established
and operated by WuXi for us, one of which is expected to be capable of being used for the commercial manufacture of our products.
The fee payable under the first statement of work for the use of one of the manufacturing suites during the first year of the
agreement, including the fees for the necessary personnel, was $2.5 million. Under the second statement of work, WuXi agreed to
establish and operate a second, dedicated facility for a late stage/commercial manufacturing cGMP suite to be established at WuXi’s
facilities, and we agreed to transfer our current tumor infiltrating lymphocyte manufacturing process to the dedicated cGMP cell
processing suite. The fee payable under the second statement of work for the use of one of the manufacturing suites during the
first year, including the fees for the necessary personnel, is $5.85 million. Under the two statements of work, we agreed to pay WuXi additional fees based on the amount of testing,
analysis, raw materials purchased and manufacturing/production services provided by WuXi.
The WuXi Manufacturing and Services Agreement
has a three-year term. However, we may terminate that agreement or any statement of work by providing written notice of termination
not less than 30 days in advance of the date of termination; provided, that we shall remain liable for any fees owed under any
outstanding statement of work, including termination fees. WuXi may terminate the agreement by providing written notice of termination
not less than 180 days in advance of the date of termination; provided, that, the Manufacturing and Services Agreement shall remain
in full force and effect with respect to any statements of work outstanding at the time that such termination becomes effective.
Orphan Drug Designation
During 2015, we received orphan drug designation
for LN-144 in the United States to treat metastatic melanoma. This designation provides seven years of market exclusivity in the
United States, subject to certain limited exceptions. However, the orphan drug designation does not convey any advantage in or
shorten the duration of the regulatory review or approval process.
Commercialization plan
We currently have no sales, marketing or commercial
product distribution capabilities. As we progress our clinical trials for our leading product candidates, we will build our own
sales and commercialization capabilities in support of commercialization of TIL.
We believe we can address physicians who treat
metastatic melanoma with a direct specialty sales force. In the U.S., there are approximately 76,380 patients diagnosed with melanoma
each year. According to SEER approximately 2-5% of patients with melanoma have metastatic disease. If LN-144 is approved, since
an important part of the TIL therapy regimen includes treatment with IL-2 after the patient receives their TIL, we expect to commercialize
the product in the U.S. with a focused specialty sales force targeting hospitals and clinics that have experience in treating
patients with IL-2.
Additionally, we are developing LN-145 to
treat cervical and head and neck cancers. We also anticipate that these patients will be treated at the same hospitals that have
experience in treating patients with IL-2. It is estimated that approximately 12,990 women are diagnosed in the U.S. every year
with cervical cancer. If cervical cancer has spread to surrounding tissues or organs and/or the regional lymph nodes, the five-year
survival rate is 67.5%. If the cancer has spread to a distant part of the body, the five-year survival rate is 16.8%. Head and
neck cancer accounts for about 3% of all cancers in the U.S. This year, an estimated 48,330 people will develop head and neck
cancer in this country. It was estimated that 9,570 deaths will occur in 2016 from this disease.
Outside the US, we have not yet defined our
commercial strategy for our TIL products. Our commercial strategy for markets outside the US may include the use of strategic
partners, distributors, a contract sales force or the establishment of our own commercial infrastructure. We plan to further evaluate
these alternatives as we approach approval for one of our product candidates.
As additional product candidates advance through
our pipeline, our commercial plans may change. Clinical data, size of the development programs, size of the target market, size
of a commercial infrastructure, intellectual property protection and manufacturing needs may all influence our U.S., Europe and
rest-of-world strategies.
Intellectual property
Intellectual property is of importance in
our field and in biotechnology generally. We seek to protect and enhance proprietary technology, inventions, and improvements
that are commercially important to the development of our business by seeking, maintaining, and defending patent rights, whether
developed internally or licensed from third parties. We plan also to rely on regulatory protection afforded through orphan drug
designations, data exclusivity, market exclusivity and patent term extensions where available. To achieve this objective, a strategic
focus for us has been to identify and license key patents that provide protection and serve as an optimal platform to enhance
our intellectual property and technology base.
We have also engaged in the development of
our own patent portfolio based on internal research and development activities in 2016. As a result, we now own a number of pending
patent applications in the fields of TIL therapy, TIL manufacturing processes, and TIL expansion methods, and we expect to further
develop our patent portfolio as a strategic focus in 2017.
Research, development and license agreements
Currently, our research and development is
conducted with the NCI under the CRADA, with Moffitt under our Collaborative Research Agreement, and at our own internal research
and development laboratory in Tampa, Florida. We also have clinical collaborations with the NCI under our CRADA, and with Moffitt
and Karolinska University Hospital under clinical trial agreements.
In addition, we have the exclusive, co-exclusive,
and non-exclusive licenses to certain patent rights with the National Institutes of Health (“NIH”), Moffitt and PolyBioCept
AB described below in this Annual Report.
Cooperative Research and Development Agreement with the NCI
In August 2011, we signed
a five-year CRADA with the NCI to work with Dr. Steven Rosenberg on developing adoptive cell immunotherapies that are designed
to destroy metastatic melanoma cells using a patient’s tumor infiltrating lymphocytes.
In January 2015, we executed
an amendment (the “Amendment”) to the CRADA to include four new indications. As amended, in addition to metastatic
melanoma, the CRADA included the development of TIL therapy for the treatment of patients with bladder, lung, triple-negative
breast, and HPV-associated cancers.
In August 2016, we entered
into a second amendment to the CRADA. The principal changes effected by the second amendment included (i) extending the term of
the CRADA by another five years to August 2021, and (ii) modifying the focus on the development of unmodified TIL as a stand-alone
therapy or in combination with FDA-licensed products and commercially available reagents routinely used for adoptive cell therapy.
The parties agreed to continue the development of improved methods for the generation and selection of TIL with anti-tumor reactivity
in metastatic melanoma, bladder, lung, breast, and HPV-associated cancers.
Each party to the CRADA individually owns
all inventions, data and materials produced solely by its employees in the course of performing the activities under the CRADA.
The parties jointly own any inventions and materials that are produced by employees of both parties in the course of performing
activities under the CRADA. Subject to certain conditions, this collaboration provides us with the first option to negotiate commercialization
licenses from the NIH to intellectual property relating to TIL-based product candidates conceived or first reduced to practice
in performance of the CRADA research plan. This includes the right to negotiate a license to intellectual property related to
TIL-based product candidates that are being tested in multiple clinical trials that we are funding under the CRADA. We may exercise
this right by providing written notice after either (1) we receive notice that a patent application covering an invention has
been filed, or (2) the date on which we file a patent application for an invention. We then have ten months to negotiate the license
with the NIH. These time periods may be extended by the U.S. Public Health Service upon good cause. Pursuant to the terms of the
CRADA, we are currently required to make quarterly payments of $0.5 million to the NCI for support of research activities. To
the extent we license patent rights relating to a TIL-based product candidate, we will be responsible for all patent-related expenses
and fees, past and future, relating to the TIL-based product candidate. In addition, we will be required to supply certain test
articles, including TIL, grown and processed under cGMP conditions, suitable for use in clinical trials, where we hold the IND
for such clinical trial. The extended CRADA has a five-year term expiring in August 2021. Although there can be no assurance,
we anticipate that we will renew the agreement on similar terms. The CRADA may be terminated at any time by mutual written consent.
We or NCI may unilaterally terminate the CRADA for any reason or for no reason at any time by providing written notice at least
60 days before the desired termination date.
Patent License Agreements with the National
Institutes of Health
Patent License Agreement Related to the
Development and Manufacture of TIL
Effective October 5, 2011,
we entered into a Patent License Agreement with the National Institutes of Health, an agency of the United States Public Health
Service within the Department of Health and Human Services (NIH), which Patent License Agreement was subsequently amended on February
9, 2015 and October 2, 2015. Pursuant to the License Agreement as amended, the NIH granted us licenses, including exclusive, co-exclusive,
and non-exclusive licenses, to certain technologies relating to autologous tumor infiltrating lymphocyte adoptive cell therapy
products for the treatment of metastatic melanoma, lung, breast, bladder and HPV-positive cancers. The Patent License Agreement
requires us to pay royalties based on a percentage of net sales (which percentage is in the mid-single digits), a percentage of
revenues from sublicensing arrangements, and lump sum benchmark royalty payments on the achievement of certain clinical and regulatory
milestones for each of the various indications and other direct costs incurred by the NIH pursuant to the agreement.
Exclusive Patent License Agreement Related
to TIL Selection
On February 10, 2015,
we entered into an Exclusive Patent License Agreement with the NIH under which we received an exclusive license to the NIH’s
rights to patent-pending technologies related to methods for improving adoptive cell therapy through more potent and efficient
production of TIL from melanoma tumors by selecting for T-cell populations that express various inhibitory receptors. Unless terminated
sooner, the license shall remain in effect until the last licensed patent right expires.
In consideration for the
exclusive rights granted under the Exclusive Patent License Agreement, we agreed to pay the NIH a non-refundable upfront licensing
fee. We also agreed to pay customary royalties based on a percentage of net sales of a licensed product (which percentage is in
the mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark payments upon the successful
completion of clinical studies involving licensed technologies, the receipt of the first FDA approval or foreign equivalent for
a licensed product or process resulting from the licensed technologies, the first commercial sale of a licensed product or process
in the United States, and the first commercial sale of a licensed product or process in any foreign country. We will also be responsible
for all costs associated with the preparation, filing, maintenance and prosecution of the patent applications and patents covered
by the license.
Research Collaboration Agreement with Moffitt
In September 2014, we
entered into a research collaboration agreement with Moffitt to jointly engage in transitional research and development of adoptive
tumor-infiltrating lymphocyte cell therapy with improved anti-tumor properties and process.
In December 2016, we entered
into a new three-year Sponsored Research Agreement with Moffitt. At the same time, we entered into a Clinical Grant Agreement
with Moffitt to support an ongoing clinical trial at Moffitt that combines TIL therapy with Opdivo® (nivolumab) for the treatment
of patients with metastatic melanoma.
Exclusive License Agreement with Moffitt
We entered into a license
agreement with Moffitt (the “Moffitt License Agreement”), effective as of June 28, 2014, under which we received a
world-wide license to Moffitt’s rights to patent-pending technologies related to methods for improving tumor-infiltrating
lymphocytes for adoptive cell therapy. Unless earlier terminated, the term of the license extends until the earlier of the expiration
of the last patent related to the licensed technology or 20 years after the effective date of the license agreement.
Pursuant to the Moffitt
License Agreement, we paid an upfront licensing fee and agreed to pay a patent issuance fee, upon the issuance of the first U.S.
patent covering the subject technology. In addition, we also agreed to pay milestone license fees upon completion of specified
milestones, customary royalties based on a specified percentage of net sales (which percentage is in the low single digits) and
sublicensing payments, as applicable, and annual minimum royalties beginning with the first sale of products based on the licensed
technologies, which minimum royalties will be credited against the percentage royalty payments otherwise payable in that year.
We also agreed to be responsible for all costs associated with the preparation, filing, maintenance and prosecution of the patent
applications and patents covered by the Moffitt License Agreement related to the treatment of any cancers in the United States,
Europe and Japan and in other countries selected that we and Moffitt agree to.
Exclusive License Agreement with PolyBioCept
In September 2016, we entered into an exclusive
and co-exclusive license agreement (the “PolyBioCept License Agreement”) with PolyBioCept AB, a corporation organized
under the laws of Sweden. PolyBioCept has filed two patent applications with claims related to a cytokine cocktail for use in
expansion of lymphocytes. Under the PolyBioCept License Agreement, we received the exclusive right and license to PolyBioCept’s
intellectual property to develop, manufacture, market and genetically engineer TIL produced by expansion, selection and enrichment
using a cytokine cocktail. The Company also received a co-exclusive license (with PolyBioCept) to develop, manufacture and market
genetically engineered TIL under the same intellectual property. The licenses are for the use in all cancers and are worldwide
in scope, with the exception that the uses in melanoma are not included for certain countries of the former Soviet Union.
We paid PolyBioCept a total of $2.5 million
as an up-front exclusive license payment and agreed to make milestone payments to PolyBioCept under the PolyBioCept License Agreement
if, and when, (i) certain product development milestones are achieved, (ii) certain regulatory approvals have been obtained from
the FDA and/or the European Medicines Agency (EMA), and (iii) certain product sales targets are achieved. The milestone payments
will be payable both in cash (U.S. dollars) and in shares of our common stock. If all of the foregoing product development, regulatory
approval and sales milestone payments are met, we will have to pay PolyBioCept an additional $8.7 million and will have to issue
to PolyBioCept a total of 2,219,376 shares of unregistered common stock. In addition to these potential payments, we agreed to
reimburse PolyBioCept for up to $0.2 million in expenses related to the transfer of know-how and to pay PolyBioCept $0.1 million
as a clinical trials management fee.
The PolyBioCept License Agreement has an initial
term of 30 years, and may be extended for additional five-year periods. The PolyBioCept License Agreement will automatically terminate
if this company files a petition for reorganization, bankruptcy or insolvency, is served with an involuntary petition in any insolvency
proceeding, and such petition is not dismissed within sixty (60) days after the filing thereof, becomes insolvent or discontinues
business, or makes an assignment for the benefit of creditors or any similar arrangement under any bankruptcy law. The PolyBioCept
License Agreement also may be terminated by PolyBioCept if we materially breach the agreement, if we challenge any of the patents
licensed under the agreement, or after a third material breach by us in any consecutive six-month period. The PolyBioCept License
Agreement also may be terminated by PolyBioCept if we do not achieve certain product development milestones or regulatory approvals,
except that in all cases other than or requirement to commence a Phase I Trial, PolyBioCept’s right to terminate can be
removed by paying PolyBioCept a milestone payment in lieu of meeting the milestone or obtaining the regulatory approval.
Clinical Trials Agreement with Karolinska University Hospital
In connection with the execution of the PolyBioCept
License Agreement, we also (i) entered into a clinical trials agreement with the Karolinska University Hospital to conduct clinical
trials in glioblastoma and pancreatic cancer at the Karolinska University Hospital, and (ii) agreed to enter into a sponsored
research agreement with the Karolinska Institute for the research of the cytokine cocktail in additional indications. In 2016
we paid Karolinska University Hospital $1.6 million under this agreement to conduct the clinical trials.
Competition
The biotechnology and pharmaceutical industries
put significant resources in developing novel and proprietary therapies for the treatment of cancer. We compete with many different
sources in the space of immunotherapy, including large and specialty pharmaceutical and biotechnology companies, academic research
institutions and governmental agencies and public and private research institutions, as well as companies developing novel targeted
therapies for cancer. Universities and public and private research institutions in the U.S. and Europe are also potential competitors.
For example, a Phase 3 study comparing TIL to standard ipilimumab in patients with metastatic melanoma is currently being conducted
in Europe by the Netherlands Cancer Institute, the Copenhagen County Herlev University Hospital, and the University of Manchester.
While these universities and public and private research institutions primarily have educational objectives, they may develop
proprietary technologies that lead to other FDA approved therapies or that secure patent protection. We anticipate that we will
face possibly increasing competition as new drugs and therapies enter the market and advanced technologies become available.
Due to their promising clinical therapeutic
effect in clinical exploratory trials, we anticipate substantial direct competition from other organizations developing advanced
T-cell therapies. In particular, we expect to compete with therapies with genetically engineered T cells rendered reactive against
tumor-associated antigens prior to their administration to patients. Genetically engineered T cells are being pursued by several
companies, including Adaptimmune, Celgene (in collaboration with bluebird bio), Kite Pharma, Juno Therapeutics, Novartis and others.
To date, these technologies have been applicable to hematologic malignancies, but it is conceivable that such genetic modification
may be applied further to TIL and create competition with Lion.
While other types of cancer immunotherapies
may potentially be used in combination with TIL, such as checkpoint blockers, to enhance efficacy, we also expect substantial
direct competition from other types of immunotherapies. We face competition from immunotherapy treatments offered by companies
such as Amgen, AstraZeneca, Bristol-Myers, Merck, and Roche. Immunotherapy is also being pursued by several biotechnology companies
as well as by large-cap pharmaceutical companies. We cannot predict whether other types of immunotherapies may be enhanced and
show greater efficacy and may have direct and substantial competition from such immunotherapies in the future.
Many potential competitors, either alone or
with their strategic partners, have substantially greater financial, technical and human resources than we do. Accordingly, our
competitors may be more successful than us in obtaining approval for treatments and achieving widespread market acceptance and
may render our treatments obsolete or non-competitive. Mergers and acquisitions in the biotechnology and pharmaceutical industries
may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete
with us in recruiting and retaining qualified scientific and management personnel and establishing clinical study sites and patient
registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller
or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large
and established companies.
Our commercial success may depend in part
on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions
and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operate
without infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from
making, using, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid
and enforceable patents or trade secrets that cover these activities. With respect to both licensed and company-owned intellectual
property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect
to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that
may be granted to us in the future will be commercially useful in protecting our commercial products and methods of manufacturing
the same. We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult
to protect.
We seek to protect our proprietary technology
and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors.
We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our
premises and physical and electronic security of our information technology systems. While we have confidence in these individuals,
organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach.
In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our
consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as
to the rights in related or resulting know-how and inventions.
Government regulations
The FDA and other regulatory authorities at
federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development,
testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record
keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biologics such
as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical
and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies
or seek approval or licensure of our product candidates. 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.
The process required by the FDA before biologic
product candidates may be marketed in the United States generally involves the following:
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completion of
preclinical laboratory tests and animal studies performed in accordance with the FDA’s
current Good Laboratory Practices, or GLP, regulation;
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submission to
the FDA of an investigational new drug application, or IND, which must become effective
before clinical trials may begin and must be updated annually or when significant changes
are made;
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approval by
an independent Institutional Review Board, or IRB, or ethics committee at each clinical
site before the trial is begun;
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performance
of adequate and well-controlled human clinical trials to establish the safety, and efficacy
of the proposed biologic product candidate for its intended purpose;
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preparation
of and submission to the FDA of a Biologics License Application, or BLA, after completion
of all pivotal clinical trials;
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satisfactory
completion of an FDA Advisory Committee review, if applicable;
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a determination
by the FDA within 60 days of its receipt of a BLA to file the application for review;
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satisfactory
completion of an FDA pre-approval inspection of the manufacturing facility or facilities
at which the proposed product is produced to assess compliance with current Good Manufacturing
Practices, or cGMP, and to assure that the facilities, methods and controls are adequate
to preserve the biological product’s continued safety, purity and potency, and
of selected clinical investigations to assess compliance with Good Clinical Practices;
and
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FDA review and
approval of the BLA to permit commercial marketing of the product for particular indications
for use in the United States, which must be updated annually when significant changes
are made.
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The testing and approval process requires
substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will
be granted on a timely basis, if at all. Prior to beginning the first clinical trial with a new product candidate, we must submit
an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans.
The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND
also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic
characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature
to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND
automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety
concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor
and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore
may or may not result in FDA authorization to begin a clinical trial.
Human immunotherapy products are a new category
of therapeutics. Because this is a relatively new and expanding area of novel therapeutic interventions, there can be no assurance
as to the length of the trial period, the number of patients the FDA will require to be enrolled in the trials in order to establish
the safety, efficacy, purity and potency of immunotherapy products, or that the data generated in these trials will be acceptable
to the FDA to support marketing approval.
Clinical trials involve the administration
of the investigational product to human subjects under the supervision of qualified investigators in accordance with current Good
Clinical Practices, or cGCPs, which include the requirement that all research subjects provide their informed consent for their
participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives
of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission
to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent
protocol amendments. Furthermore, an independent Institutional Review Board, or IRB, for each site proposing to conduct the clinical
trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at
that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial
at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that
the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified
experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether
or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical
trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy.
There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.
For purposes of BLA approval, human clinical
trials are typically conducted in three sequential phases that may overlap.
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Phase I- The
investigational product is initially introduced into healthy human subjects or patients
with the target disease or condition. These studies are designed to test the safety,
dosage tolerance, absorption, metabolism and distribution of the investigational product
in humans, the side effects associated with increasing doses, and, if possible, to gain
early evidence on effectiveness.
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Phase II- The
investigational product is administered to a limited patient population with a specified
disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing
schedule and to identify possible adverse side effects and safety risks. Multiple Phase
II clinical trials may be conducted to obtain information prior to beginning larger and
more expensive Phase III clinical trials.
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Phase III- The
investigational product is administered to an expanded patient population to further
evaluate dosage, to provide statistically significant evidence of clinical efficacy and
to further test for safety, generally at multiple geographically dispersed clinical trial
sites. These clinical trials are intended to establish the overall risk/benefit ratio
of the investigational product and to provide an adequate basis for product approval.
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Phase IV- In
some cases, the FDA may require, or companies may voluntarily pursue, additional clinical
trials after a product is approved to gain more information about the product. These
so-called Phase IV studies may be made a condition to approval of the BLA.
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Phase I, Phase II and Phase III testing may
not be completed successfully within a specified period, if at all, and there can be no assurance that the data collected will
support FDA approval or licensure of the product. Concurrent with clinical trials, companies may complete additional animal studies
and develop additional information about the biological characteristics of the product candidate, and must finalize a process
for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be
capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing
the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally,
appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate
does not undergo unacceptable deterioration over its shelf life.
BLA Submission and Review by the FDA
Assuming successful completion of all required
testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and
clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications.
The BLA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous
results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing,
controls, and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the
safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by investigators.
The submission of a BLA requires payment of a substantial User Fee to the FDA, and the sponsor of an approved BLA is also subject
to annual product and establishment user fees. These fees are typically increased annually. A waiver of user fees may be obtained
under certain limited circumstances.
Once a BLA has been submitted, the FDA’s
goal is to review the application within ten months after it accepts the application for filing, or, if the application relates
to an unmet medical need in a serious or life-threatening indication, six months after the FDA accepts the application for filing.
The review process is often significantly extended if the FDA requests additional information or clarification. The FDA reviews
a BLA to determine, among other things, whether a 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. The FDA
may convene an advisory committee to provide clinical insight on application review questions. Before approving a BLA, the FDA
will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless
it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure
consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically
inspect one or more clinical sites to assure compliance with cGCP. If the FDA determines that the application, manufacturing process
or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional
testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide
that the application does not satisfy the regulatory criteria for approval.
A sponsor may seek approval of its product
candidate under programs designed to accelerate the FDA’s review and approval of new drugs and biological products that
meet certain criteria. Specifically, new 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.
For a fast track product, the FDA may consider sections of the BLA for review on a rolling basis before the complete application
is submitted if relevant criteria are met. A fast track designated product candidate may also qualify for priority review, under
which the FDA sets the target date for FDA action on the BLA at six months after the FDA accepts the application for filing. Priority
review is granted when there is evidence that the proposed product would be a significant improvement in the safety or effectiveness
of the treatment, diagnosis, or prevention of a serious condition. If criteria are not met for priority review, the application
is subject to the standard FDA review period of 10 months after FDA accepts the application for filing. Priority review designation
does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.
Under the accelerated approval program, the
FDA may approve a BLA on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on
a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict
an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence
of the condition and the availability or lack of alternative treatments. Post-marketing studies or completion of ongoing studies
after marketing approval are generally required to verify the biologic’s clinical benefit in relationship to the surrogate
endpoint or ultimate outcome in relationship to the clinical benefit.
In addition, the Food and Drug Administration
Safety and Innovation Act, or FDASIA, which was enacted and signed into law in 2012, established the new breakthrough therapy
designation. A sponsor may seek FDA designation of its product candidate as a breakthrough therapy if the product candidate is
intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or
condition and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies
on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
Sponsors may request the FDA to designate a breakthrough therapy at the time of or any time after the submission of an IND, but
ideally before an end-of-phase II meeting with FDA. If the FDA designates a breakthrough therapy, it may take actions appropriate
to expedite the development and review of the application, which may include holding meetings with the sponsor and the review
team throughout the development of the therapy; providing timely advice to, and interactive communication with, the sponsor regarding
the development of the drug to ensure that the development program to gather the nonclinical and clinical data necessary for approval
is as efficient as practicable; involving senior managers and experienced review staff, as appropriate, in a collaborative, cross-disciplinary
review; assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development
program and to serve as a scientific liaison between the review team and the sponsor; and considering alternative clinical trial
designs when scientifically appropriate, which may result in smaller trials or more efficient trials that require less time to
complete and may minimize the number of patients exposed to a potentially less efficacious treatment. Breakthrough designation
also allows the sponsor to file sections of the BLA for review on a rolling basis.
Fast Track designation, priority review and
breakthrough therapy designation do not change the standards for approval but may expedite the development or approval process.
Orphan Drugs
In 2015, we received orphan drug status for
LN-144 in the treatment of patients with metastatic melanoma. We plan to seek orphan drug designation for some or all of our other
product candidates in specific orphan indications in which there is a medically plausible basis for the use of these products.
Under the Orphan Drug Act, the FDA may grant orphan designation
to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population
of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 individuals in the United
States and when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the
United States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested
before submitting a BLA. After the FDA grants orphan drug designation, the generic identify of the therapeutic agent and its potential
orphan use are disclosed publicly by the FDA.
If a product that has orphan drug designation
subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation,
the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including
a full BLA, to market the same 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 if FDA finds that the holder of the orphan drug exclusivity
has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with
the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a
different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition.
Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application user
fee. However, the orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review or
approval process.
A designated orphan drug many not receive
orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.
In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request
for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet
the needs of patients with the rare disease or condition.
Post-Approval Requirements
Any products for which we receive FDA approvals
are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse
experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution
requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer
advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s
approved uses (known as “off-label use”), limitations on industry-sponsored scientific and educational activities,
and requirements for promotional activities involving the internet. Although physicians may prescribe legally available products
for off-label uses, if the physicians deem to be appropriate in their professional medical judgment, manufacturers may not market
or promote such off-label uses.
In addition, quality control and manufacturing
procedures must continue to conform to applicable manufacturing requirements after approval to ensure the long-term stability
of the product. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding
maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers
and other entities involved in the manufacture and distribution of approved products 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 and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of
production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions
on a product, manufacturer, or holder of an approved BLA, including, among other things, recall or withdrawal of the product from
the market. In addition, changes to the manufacturing process are strictly regulated, and depending on the significance of the
change, may require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding
new indications and claims, are also subject to further FDA review and approval.
The FDA also may require post-marketing testing,
known as Phase 4 testing, and surveillance to monitor the effects of an approved product. Discovery of previously unknown problems
with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity,
judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors,
and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes
to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the
implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation,
may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under
development.
Other Healthcare Laws and Compliance
Requirements
Our sales, promotion, medical education and
other activities following product approval will be subject to regulation by numerous regulatory and law enforcement authorities
in the United States in addition to FDA, including potentially the Federal Trade Commission, the Department of Justice, the Centers
for Medicare and Medicaid Services, other divisions of the Department of Health and Human Services and state and local governments.
Our promotional and scientific/educational programs must comply with the federal Anti-Kickback Statute, the Foreign Corrupt Practices
Act, the False Claims Act, the Veterans Health Care Act, physician payment transparency laws, privacy laws, security laws, and
additional state laws similar to the foregoing.
The federal Anti-Kickback Statute prohibits,
among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration,
directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging
for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs.
The term remuneration has been interpreted broadly to include anything of value. The federal Anti-Kickback Statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers
on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution.
The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended
to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor.
Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not
make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on
a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices may not in all cases
meet all of the criteria for protection under a statutory exception or regulatory safe harbor.
Additionally, the intent standard under the
federal Anti-Kickback Statute was amended by the Patient Protection Affordable Care Act of 2010, as amended by the Health Care
and Education Reconciliation Act of 2010, collectively, the Affordable Care Act, to a stricter standard such that a person or
entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
In addition, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of
the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
The civil monetary penalties statute imposes
penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim
to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed
or is false or fraudulent.
Also, the U.S. Foreign Corrupt Practices Act
and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to
foreign officials for the purpose of obtaining or retaining business. We cannot assure you that our internal control policies
and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators
or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have
a negative impact on our business, results of operations and reputation.
The False Claims Act, or FCA, imposes liability
on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health
care program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that
are for services not provided as claimed, or for services that are not medically necessary. Actions under the FCA may be brought
by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the FCA can
result in significant monetary penalties and treble damages. The federal government is using the FCA, and the accompanying threat
of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the country,
for example, in connection with the promotion of products for unapproved uses and other sales and marketing practices. The federal
Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created federal criminal statutes that prohibit, among
other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party
payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious
or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
In addition, there has been a recent trend
of increased federal and state regulation of payments made to physicians and other healthcare providers. The Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care
Act, among other things, imposed new reporting requirements on drug manufacturers for payments or other transfers of value made
by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate
family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000
per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value
or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Certain
states also mandate implementation of commercial compliance programs, impose restrictions on drug manufacturer marketing practices
and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians and other healthcare professionals.
We may also be subject to data privacy and
security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health
Information Technology and Clinical Health Act, or HITECH, and their respective implementing regulations, including the final
omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission
of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards
directly applicable to “business associates,” defined as independent contractors or agents of covered entities that
create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of
a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business
associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions
in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal
civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of
which differ from each other in significant ways and may not have the same effect.
If our operations are found to be in violation
of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without
limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation
in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business
and our financial results.
Coverage and Reimbursement
Sales of pharmaceutical products depend significantly
on the availability of third-party coverage and reimbursement. Third-party payors include government health administrative authorities,
managed care providers, private health insurers and other organizations. Although we currently believe that third-party payors
will provide coverage and reimbursement for our product candidates, if approved, these third-party payors are increasingly challenging
the price and examining the cost-effectiveness of medical products and services. In addition, significant uncertainty exists as
to the reimbursement status of newly approved healthcare products. We may need to conduct expensive clinical studies to demonstrate
the comparative cost-effectiveness of our products. The product candidates that we develop may not be considered cost-effective.
It is time consuming and expensive for us to seek coverage and reimbursement from third-party payors. Moreover, a payor’s
decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Reimbursement
may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.
Healthcare Reform
The United States and some foreign jurisdictions
are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that
could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there
is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving
quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts
and has been significantly affected by major legislative initiatives.
In addition, other legislative changes have
been proposed and adopted since the Affordable Care Act was enacted. These changes include aggregate reductions to Medicare payments
to providers of up to 2% per fiscal year, starting in 2013, which will remain in effect through 2024 unless additional Congressional
action is taken. In January 2013, the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare
payments to several providers, including hospitals and cancer treatment centers, increased the statute of limitations period for
the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions
in Medicare and other healthcare funding, which could have a material adverse effect on customers for our product candidates,
if approved, and, accordingly, our financial operations.
Any reduction in reimbursement from Medicare
or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost
containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize
our drugs.
Foreign Regulation
In addition to regulations in the United
States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution
of our products to the extent we choose to develop or sell any products outside of the United States. The approval process varies
from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing
the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
In the EU, member states require both regulatory
clearances by the national competent authority and a favorable ethics committee opinion prior to the commencement of a clinical
trial. Under the EU regulatory systems, marketing authorization applications may be submitted under either a centralized or decentralized
procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all EU member
states. It is compulsory for medicines produced by certain biotechnological processes. Because our products are produced in that
way, we would be subject to the centralized process. Under the centralized procedure, pharmaceutical companies submit a single
marketing authorization application to the EMA. Once granted by the European Commission, a centralized marketing authorization
is valid in all EU member states, as well as the EEA countries Iceland, Liechtenstein and Norway. By law, a company can only start
to market a medicine once it has received a marketing authorization.
Employees
As of December 31, 2016, we had 51 employees,
of whom the majority are full-time, 14 held Ph.D. or M.D. degrees, 39 were engaged in research and development activities and
12 of whom were engaged in business development, finance, or administrative support. None of our employees are subject to a collective
bargaining agreement. We consider our relationship with our employees to be good. Our future performance depends significantly
upon the continued service of our key scientific, technical and senior management personnel.
Available Information
We maintain a website at www.lbio.com and
make available there, free of charge, our periodic reports filed with the Securities and Exchange Commission (“SEC”),
as soon as is reasonably practicable after filing. The public may read and copy any materials we file with the SEC at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at http:/www.sec.gov that contains reports, proxy
and information statements, and other information regarding issuers such as us that file electronically with the SEC.
The risks described
below may not be the only ones relating to our company. Additional risks that we currently believe are immaterial may also impair
our business operations. Our business, financial conditions and future prospects and the trading price of our common stock could
be harmed as a result of any of these risks. Investors should also refer to the other information contained or incorporated by
reference in this Annual Report on Form 10-K, including our financial statements and related notes, and our other filings from
time to time with the Securities and Exchange Commission.
Risks Related to Our
Business
We have a history of operating losses;
we expect to continue to incur losses and we may never be profitable.
We are a clinical-stage biotechnology company
focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient's
own immune system to eradicate cancer cells. We do not have products approved for commercial sale and have not generated revenue
from operations. As of December 31, 2016, we had an accumulated deficit of $157.1 million. In addition, during the fiscal year
ended December 31, 2016, we incurred a net loss of $52.9 million. Since our inception we have not generated any revenues from
operations. We do not expect to generate any meaningful product sales or royalty revenues for the foreseeable future. We expect
to incur significant additional operating losses in the future as we expand our development and clinical trial activities in support
of demonstrating the effectiveness of our products.
Our ability to achieve long-term profitability
is dependent upon obtaining regulatory approvals for our products and successfully commercializing our products alone or with
third parties. However, our operations may not be profitable even if any of our products under development are successfully developed
and produced and thereafter commercialized.
We have limited experience in operating
our current business, which makes it difficult to evaluate our business plan and our prospects.
We have only a limited operating history in
our current line of business on which a decision to invest in our Company can be based. The future of our Company currently is
dependent upon our ability to implement our business plan, as that business plan may be modified from time to time by our management.
While we believe that we have a sound business plan and research and development strategy, we have only a limited operating history
against which we can test our plans and assumptions, and investors therefore cannot evaluate the likelihood of our success.
We face the problems, expenses, difficulties,
complications and delays normally associated with a small, biotechnology company, many of which are beyond our control. Accordingly,
our prospects should be considered in light of the risks, expenses and difficulties frequently encountered in the establishment
of a new business developing technologies in an industry that is characterized by a number of market entrants and intense competition.
Because of our size and limited resources, we may not possess the ability to successfully overcome many of the risks and uncertainties
frequently encountered by early stage companies involved in the rapidly evolving field of immunotherapy. If our research and development
efforts are successful, we may also face the risks associated with the shift from development to commercialization of new products
based on innovative technologies. There can be no assurance that we will be successful in developing our new business.
We have limited experience as a company
conducting clinical trials.
Prior to 2015, all of the preclinical and
clinical trials relating to our product candidates had been conducted by the NCI. Although we have recruited a team that has experience
with clinical trials however, we as a company have limited experience in conducting clinical trials. In part because of this lack
of experience, we cannot be certain that planned clinical trials will begin or be completed on time, if at all. Large-scale trials
would require significant additional financial and management resources, and reliance on third-party clinical investigators, contract
research organizations, or CROs, contract manufacturing organizations or CMOs, or consultants. Relying on third-party clinical
investigators, CROs or CMOs may force us to encounter delays that are outside of our control.
We may encounter substantial delays
in our clinical trials, or may not be able to conduct our trials on the timelines we expect.
Clinical testing is expensive, time consuming,
and subject to uncertainty. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule,
if at all. We initiated our first company sponsored clinical trial in 2015 and have secured with the FDA an IND for the use of
LN-145 in cervical and head and neck cancers. Even as these trials progress, issues may arise that could suspend or terminate
such clinical trials. A failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies
may not be successful. Events that may prevent successful or timely completion of clinical development include:
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inability to generate sufficient preclinical data to
support the initiation of clinical studies;
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delays in reaching a consensus with regulatory agencies
on study design;
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the FDA may not allow us to use the clinical trial data
from a research institution to support an IND if we cannot demonstrate the comparability
of our product candidates with the product candidate used by the relevant research institution
in its clinical studies;
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delays in reaching agreement on acceptable terms with prospective
contract research organizations, or CROs, and clinical study sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs
and clinical study sites;
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delays in obtaining required Institutional Review Board,
or IRB, approval at each clinical study site;
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imposition of a temporary or permanent clinical hold by
regulatory agencies;
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delays in recruiting suitable patients to participate in
our clinical studies;
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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 current
good clinical practices, or cGCPs, requirements, or applicable regulatory guidelines
in other countries;
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patients dropping out of a study;
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occurrence of adverse events associated with the product
candidate that are viewed to outweigh its potential benefits;
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changes in regulatory requirements and guidance that require
amending or submitting new clinical protocols;
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changes in the standard of care on which a clinical development
plan was based, which may require new or additional trials;
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the cost of clinical studies of our product candidates being
greater than we anticipate;
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clinical studies of our product candidates producing negative
or inconclusive results, which may result in our deciding, or regulators requiring us,
to conduct additional clinical studies or abandon product development programs;
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transfer of manufacturing processes from the NCI to our
contract manufacturers or other larger-scale facilities operated by a contract manufacturing
organization, or CMO, and delays or failure by our CMOs or us to make any necessary changes
to such manufacturing process; and
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delays in manufacturing, testing, releasing, validating,
or importing/exporting sufficient stable quantities of our product candidates for use
in clinical studies or the inability to do any of the foregoing, including any quality
issues associated with the contract manufacturer.
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We also may conduct clinical and preclinical
research in collaboration with other biotechnology and biologics entities in which we combine our technologies with those of our
collaborators. Such collaborations may be subject to additional delays as a result of the management of the trials and the necessity
of obtaining additional approvals for therapeutics used in the combination trials. These combination therapies will require additional
testing and clinical trials will require additional FDA regulatory approval and will increase our future cost of expenses.
Any inability to successfully complete preclinical
and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we
make manufacturing or formulation changes to our product candidates, we may be required to, or we may elect to, conduct additional
studies to bridge our modified product candidates to earlier versions. Clinical study delays could also shorten any periods during
which our products have patent protection and may allow our competitors to bring products to market before we do, which could
impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
It may take longer and cost more to
complete our clinical trials than we project, or we may not be able to complete them at all.
For budgeting and planning purposes,
we have projected the date for the commencement, continuation and completion of our various clinical trials. However, a number
of factors, including scheduling conflicts with participating clinicians and clinical institutions, and difficulties in identifying
and enrolling patients who meet trial eligibility criteria, may cause significant delays. We may not commence or complete clinical
trials involving any of our products as projected or may not conduct them successfully.
During the second half of 2015, we opened
enrollment of our Company-sponsored, Phase 2 clinical trial to establish the feasibility of our lead product, LN-144, and to assess
its overall safety in patients with metastatic melanoma. However, we may experience difficulties in patient enrollment in our
clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends,
among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. In
addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic
areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some
patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors.
Accordingly, we cannot guarantee that the trial will progress as planned or as scheduled. Delays in patient enrollment may result
in increased costs or may affect the timing or outcome of our ongoing clinical trial and planned clinical trials, which could
prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.
We expect to rely on medical institutions,
academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials
involving our products. We will have less control over the timing and other aspects of these clinical trials than if we conducted
them entirely on our own. If we fail to commence or complete, or experience delays in, any of our planned clinical trials, our
stock price and our ability to conduct our business as currently planned could be harmed.
We currently anticipate that we will have
to rely on our manufacturing partners to manufacture our adoptive cell therapy products for clinical trials. If they fail to commence
or complete, or experiences delays in, manufacturing our adoptive cell therapy products, our planned clinical trials will be delayed,
which will adversely affect our stock price and our ability to conduct our business as currently planned.
Clinical trials
are expensive, time-consuming and difficult to design and implement, and our clinical trial costs may be higher than for more
conventional therapeutic technologies or drug products.
Clinical trials
are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because
our product candidates are based on new technologies and manufactured on a patient-by-patient basis, we expect that they will
require extensive research and development and have substantial manufacturing costs. In addition, costs to treat patients with
relapsed/refractory cancer and to treat potential side effects that may result from our product candidates can be significant.
Some clinical trial sites may not bill, or obtain coverage from, Medicare, Medicaid, or other third-party payors for some or all
of these costs for patients enrolled in our clinical trials, and we may be required by those trial sites to pay such costs. Accordingly,
our clinical trial costs are likely to be significantly higher per patient than those of more conventional therapeutic technologies
or drug products. In addition, our proposed personalized product candidates involve several complex and costly manufacturing and
processing steps, the costs of which will be borne by us. Depending on the number of patients we ultimately enroll in our trials,
and the number of trials we may need to conduct, our overall clinical trial costs may be higher than for more conventional treatments.
Our clinical
trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay regulatory
approval and commercialization.
The clinical trials
of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive and rigorous
review and regulation by numerous government authorities in the United States and in other countries where we intend to test and
market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates,
we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates
are both safe and effective for use in each target indication. In particular, because our product candidates are subject to regulation
as biological drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target indications.
Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its
intended use. The risk/benefit profile required for product licensure will vary depending on these factors and may include not
only the ability to show tumor shrinkage, but also adequate duration of response, a delay in the progression of the disease, and/or
an improvement in survival. For example, response rates from the use of our product candidates may not be sufficient to obtain
regulatory approval unless we can also show an adequate duration of response. Clinical testing is expensive and can take many
years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The
results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage
clinical trials. The results of studies in one set of patients or line of treatment may not be predictive of those obtained in
another. We expect there may be greater variability in results for products processed and administered on a patient-by-patient
basis, as anticipated for our product candidates, than for “off-the-shelf” products, like many other drugs. There
is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product
candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed
through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered
significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising
results in earlier trials. Most product candidates that begin clinical trials are never approved by regulatory authorities for
commercialization.
In addition, even
if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the
results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the
results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application,
we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support
of potential approval of our product candidates.
If we encounter
difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely
affected.
The timely completion
of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number
of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment in our clinical
trials for a variety of reasons, including:
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the size and nature of the patient population;
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the patient eligibility criteria defined in the protocol;
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the size of the study population required for analysis of the trial’s primary endpoints;
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the proximity of patients to trial sites;
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the design of the trial;
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our ability to recruit clinical trial investigators with the appropriate competencies and
experience;
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competing clinical trials for similar therapies or other new therapeutics not involving cell
based immunotherapy;
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clinicians’ and patients’ perceptions as to the potential advantages and side
effects of the product candidate being studied in relation to other available therapies, including any new drugs or treatments
that may be approved for the indications we are investigating;
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our ability to obtain and maintain patient consents; and
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the risk that patients enrolled in clinical trials will not complete a clinical trial.
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In addition, our
clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product
candidates, and this competition will reduce the number and types of patients available to us, because some patients who might
have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the
number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial
sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at
such clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for
cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and
approved immunotherapies, rather than enroll patients in any future clinical trial. In addition, potential enrollees may opt to
participate in alternate clinical trials because of the length of time between the time that their tumor is excised and the TIL
is infused back into the patient.
Even if we are able
to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment may result in increased costs or
may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely
affect our ability to advance the development of our product candidates.
Our product candidates may cause undesirable
side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their
commercial potential or result in significant negative consequences.
Undesirable side effects caused by our product
candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive
label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. Results of
our trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.
If unacceptable toxicities arise in the development
of our product candidates, we or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials
or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect
patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims.
In addition, these side effects may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting
from personalized cell therapy are not normally encountered in the general patient population and by medical personnel. Any of
these occurrences may harm our business, financial condition and prospects significantly.
The manufacture
of our product candidates is complex and we may encounter difficulties in production, particularly with respect to process development
or scaling-out of our manufacturing capabilities. If we, or any of our third-party manufacturers encounter such difficulties,
our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be
delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
Our product candidates
are biologics and the process of manufacturing our products is complex, highly- regulated and subject to multiple risks. The manufacture
of our product candidates involves complex processes, including harvesting tumor fragments from patients, genetically modifying
the cells ex vivo, multiplying the cells to obtain the desired dose, and ultimately infusing the cells back into a patient.
As a result of the complexities, the cost to manufacture biologics is generally higher than traditional small molecule chemical
compounds, and the manufacturing process is less reliable and is more difficult to reproduce. Our manufacturing process will be
susceptible to product loss or failure due to logistical issues associated with the collection of tumor cells, or starting material,
from the patient, shipping such material to the manufacturing site, shipping the final product back to the patient, and infusing
the patient with the product, manufacturing issues associated with the differences in patient starting tumors, interruptions in
the manufacturing process, contamination, equipment failure, improper installation or operation of equipment, vendor or operator
error, inconsistency in cell growth, and variability in product characteristics. Even minor deviations from normal manufacturing
processes could result in reduced production yields, product defects, and other supply disruptions. If for any reason we lose
a patient’s tumor, or later-developed product at any point in the process, the manufacturing process for that patient will
need to be restarted and the resulting delay may adversely affect that patient’s outcome. If microbial, viral, or other
contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are
made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.
Because our product
candidates are manufactured for each particular patient, we will be required to maintain a chain of identity with respect to the
patient’s tumor as it moves from the patient to the manufacturing facility, through the manufacturing process, and back
to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse patient
outcomes, loss of product, or regulatory action including withdrawal of our products from the market. Further, as product candidates
are developed through preclinical to late stage clinical trials towards approval and commercialization, it is common that various
aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes
and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could
cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical
trials.
Currently, our product
candidates are manufactured using processes by our third-party research institution collaborators that we may not intend to use
for more advanced clinical trials or commercialization. Although we are working to develop commercially viable processes, doing
so is a difficult and an uncertain task, and there are risks associated with scaling to the level required for advanced clinical
trials or commercialization, including, among others, cost overruns, potential problems with process scale-out, process reproducibility,
stability issues, lot consistency, and timely availability of raw materials. As a result of these challenges, we may experience
delays in our clinical development and/or commercialization plans. We may ultimately be unable to reduce the cost of goods for
our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are
commercialized.
We expect our manufacturing
strategy will involve the use of one or more CMOs, or establishing our own capabilities and infrastructure, including a manufacturing
facility. We would expect that development of our own manufacturing facility would provide us with enhanced control of material
supply for both clinical trials and the commercial market, enable the more rapid implementation of process changes, and allow
for better long-term margins. However, we have no experience as a company in developing a manufacturing facility and may never
be successful in developing our own manufacturing facility or capability. We may establish multiple manufacturing facilities as
we expand our commercial footprint to multiple geographies, which may lead to regulatory delays or prove costly. Even if we are
successful, our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages,
natural disasters, power failures, and numerous other factors that could prevent us from realizing the intended benefits of our
manufacturing strategy and have a material adverse effect on our business.
In addition, the
manufacturing process for any products that we may develop is subject to FDA and foreign regulatory authority approval process,
and we will need to contract with manufacturers who can meet all applicable FDA and foreign regulatory authority requirements
on an ongoing basis. If we or our CMOs are unable to reliably produce products to specifications acceptable to the FDA or other
regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain
regulatory approval for any of our product candidates, there is no assurance that either we or our CMOs will be able to manufacture
the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities
to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges
could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials,
increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of
goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects.
Cell-based
therapies rely on the availability of reagents, specialized equipment, and other specialty materials, which may not be available
to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source
vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.
Manufacturing our
product candidates will require many reagents, which are substances used in our manufacturing processes to bring about chemical
or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies
with limited resources and experience to support commercial biologics production. We currently depend on a limited number of vendors
for certain materials and equipment used in the manufacture of our product candidates. Some of these suppliers may not have the
capacity to support commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise be ill-equipped to
support our needs. We also do not have supply contracts with many of these suppliers and may not be able to obtain supply contracts
with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials and equipment to support
clinical or commercial manufacturing.
For some of these
reagents, equipment, and materials, we rely and may in the future rely on sole source vendors or a limited number of vendors.
An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements
affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages,
unexpected demands, or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which
could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either
of which could significantly harm our business.
As we continue to
develop and scale our manufacturing process, we expect that we will need to obtain rights to and supplies of certain materials
and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable
terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials
or find a suitable substitute, it would have a material adverse effect on our business. Even if we are able to alter our process
so as to use other materials or equipment, such a change may lead to a delay in our clinical development and/or commercialization
plans. If such a change occurs for product candidate that is already in clinical testing, the change may require us to perform
both
ex vivo
comparability studies and to collect additional data from patients prior to undertaking more advanced
clinical trials.
The deviations in our proposed new products
from existing products may require us to perform additional testing, which will increase the cost, and extend the time for obtaining
approval.
Our TIL based therapy is based on the adoptive
cell therapy (ACT) technology that we licensed from the NIH and that is presently available as a physician-sponsored investigational
therapy for the treatment of Stage IV metastatic melanoma in the U.S. at the NCI, MD Anderson Cancer Center, and Moffit. The current
method of treatment is very labor intensive and expensive, which has limited its widespread application. We are developing new
processes that we anticipate will enable more efficient manufacturing of our products. We may have difficulty demonstrating that
the products produced from our new processes are identical to the existing products. The FDA may require additional clinical testing
before permitting a larger clinical trial with the new processes, and also the product may not be as efficacious in the new clinical
trials. Cellular products are not considered as well characterized products because there are hundreds of markers present on these
cells, and even small changes in manufacturing processes could alter the cell types. It is unclear at this time which of those
markers are critical for success of these cells to combat cancer, so our ability to predict the outcomes with newer manufacturing
processes is limited. The changes that we may make to the existing manufacturing process may require additional testing, which
may increase costs and timelines associated with these developments.
In addition to developing a TIL based therapy
on existing ACT technology, we are currently evaluating the desirability of conducting clinical trials of our products in combination
with other existing drugs. These combination therapies will require additional testing and clinical trials will require additional
FDA regulatory approval and will increase our future cost of development.
We will be unable to commercialize our
products if our trials are not successful.
Our research and development programs are
at an early stage. We must demonstrate our products’ safety and efficacy in humans through extensive clinical testing. We
may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization
of our products, including but not limited to the following:
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safety and efficacy
results in various human clinical trials reported in scientific and medical literature
may not be indicative of results we obtain in our clinical trials;
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after reviewing
test results, we or our collaborators may abandon projects that we might previously have
believed to be promising;
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we, our collaborators
or regulators, may suspend or terminate clinical trials if the participating subjects
or patients are being exposed to unacceptable health risks; and
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the effects our
potential products have may not be the desired effects or may include undesirable side
effects or other characteristics that preclude regulatory approval or limit their commercial
use if approved.
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Clinical testing is very expensive, can take
many years, and the outcome is uncertain. It can take as much as 12 months or more before we learn the results from any clinical
trial using our adoptive cell therapy with TIL. The data collected from our clinical trials may not be sufficient to support approval
by the FDA of our TIL-based product candidates for the treatment of solid tumors. The clinical trials for our products under development
may not be completed on schedule and the FDA may not ultimately approve any of our product candidates for commercial sale. If
we fail to adequately demonstrate the safety and efficacy of any product candidate under development, we may not receive regulatory
approval for those products, which would prevent us from generating revenues or achieving profitability.
Our research and development efforts
have been to a large extent dependent upon the CRADA.
Although we opened our own research and development
laboratory in 2014, it may take time to fully develop our research and development capabilities. In addition, we conduct a portion
of our research and development under the CRADA we entered into with the NCI under the research and development CRADA, the NCI
currently engaged in research and development related to the development of improved methods of large scale TIL generation for
the ACT treatment of patients with metastatic melanoma, bladder, lung, triple-negative breast, and HPV-associated cancers. We
are obligated to make annual payments of $2.0 million under the CRADA. In addition, although the CRADA has a five-year term, either
party to the CRADA has the right to terminate the CRADA upon 60 days’ notice to the other party. As a result, no assurance
can be given that the NCI will not terminate, or that we will renew, the CRADA that expires in August 2021 and that the CRADA
will, therefore, remain in effect until we complete our desired research thereunder.
We expect to use the results of the NCI’s
research to support the filing with the FDA of investigational new drug applications, or INDs, to conduct more advanced clinical
trials of our products. However, we have limited control over the nature or timing of the NCI’s clinical trials and limited
visibility into their day-to-day activities. The research we are funding constitutes only a small portion of the NCI’s overall
research. Other research being conducted by Dr. Rosenberg may at times receive higher priority than research on our programs.
These factors could adversely affect the timing of our IND filings and our ability to conduct future planned clinical trials.
Under the CRADA, we have an option to negotiate
commercialization licenses from the NIH to intellectual property relating to TIL-based product candidates developed in the course
of the CRADA research plan. However, we would have to negotiate with the NIH for such a license. There can be no assurance that
we would be able to successfully complete such negotiations and ultimately acquire the rights to the intellectual property surrounding
the additional product candidates that we may seek to acquire. Further, to the extent we would like to negotiate a license to
a patent filed before the CRADA was entered into, another party may object to the NIH granting us a license during a 30-day public
notification period, and the NIH may decide not to grant us the license.
We will need additional financing in
order to complete the development and commercialization of our various product candidates.
Our research and development and our operating
costs have been substantial and are expected to increase. We expect to continue to spend substantial amounts to continue the clinical
development of LN-144 and LN-145 and our other product candidates. As of December 31, 2016, we had $166.5 million in cash, cash
equivalents and short-term investments. We believe that these funds will be sufficient to fund our operations for at least the
next 12 months from the date of this annual report. However, changing circumstances may cause us to increase our spending
significantly faster than we currently anticipate, and we may require additional capital for the further development and commercialization
of our product candidates and may need to raise additional funds sooner if we choose to expand more rapidly than we presently
anticipate.
We cannot be certain that additional funding
will be available on acceptable terms, or at all. We have no committed source of additional capital and if we are unable to raise
additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue
the development or commercialization of our product candidates or other research and development initiatives. Our license and
collaboration agreements may also be terminated if we are unable to meet the payment obligations under the agreements. We could
be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms
that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to product
candidates in markets where we may otherwise would seek to pursue our own development or commercialization.
Raising additional capital may cause
dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product
candidates.
We may seek additional capital through a combination
of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the
extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will
be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The
incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants,
such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property
rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional
funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies or product candidates, or grant licenses on terms unfavorable to us.
We are subject to extensive regulation,
which can be costly, time consuming and can subject us to unanticipated delays; even if we obtain regulatory approval for some
of our products, those products may still face regulatory difficulties.
All of our potential products, cell processing
and manufacturing activities, are subject to comprehensive regulation by the FDA in the United States and by comparable authorities
in other countries. The process of obtaining FDA and other required regulatory approvals, including foreign approvals, is expensive
and often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. In
addition, regulatory agencies may lack experience with our technologies and products, which may lengthen the regulatory review
process, increase our development costs and delay or prevent their commercialization.
No adoptive cell therapy using tumor infiltrating
lymphocytes has been approved for marketing in the FDA. Consequently, there is no precedent for the successful commercialization
of products based on our technologies. In addition, we have had only limited experience in filing and pursuing applications necessary
to gain regulatory approvals, which may impede our ability to obtain timely FDA approvals, if at all. We have not yet sought FDA
approval for any adoptive cell therapy product. We will not be able to commercialize any of our potential products until we obtain
FDA approval, and so any delay in obtaining, or inability to obtain, FDA approval would harm our business.
If we violate regulatory requirements at any
stage, whether before or after marketing approval is obtained, we may be fined, forced to remove a product from the market and
experience other adverse consequences including delay, which could materially harm our financial results. Additionally, we may
not be able to obtain the labeling claims necessary or desirable for the promotion of our products. We may also be required to
undertake post-marketing trials. In addition, if we or others identify side effects after any of our adoptive cell therapies are
on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our products may
be required.
We may not be able to license new TIL
technology from the NIH and others.
An important element of our intellectual property
portfolio is to license additional rights and technologies from the NIH. Our inability to license the rights and technologies
that we have identified, or that we may in the future identify, could have a material adverse impact on our ability to complete
the development of our products or to develop additional products. No assurance can be given that we will be successful in licensing
any additional rights or technologies from the NIH and others. Failure to obtain additional rights and licenses may detrimentally
affect our planned development of additional product candidates and could increase the cost, and extend the timelines associated
with our development of such other products.
The market opportunities for our product
candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
The FDA often approves new therapies initially
only for use in patients with relapsed or refractory metastatic disease. We expect to initially seek approval of our product candidates
in this setting. Subsequently, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval
in earlier lines of treatment and potentially as a first line therapy, but there is no guarantee that our product candidates,
even if approved, would be approved for earlier lines of therapy, and, prior to any such approvals, we may have to conduct additional
clinical trials.
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 second or third
line therapy, and who have the potential to benefit from treatment with our product 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 by third parties, 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. Additionally, the potentially addressable
patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates,
and may also be limited by the cost of our treatments and the reimbursement of those treatment costs by third-party payors. For
instance, we expect our lead product candidate, LN-144, to initially target a small patient population that suffers from metastatic
melanoma. Even if we obtain significant market share for our product candidates, because the potential target populations are
small, we may never achieve profitability without obtaining regulatory approval for additional indications.
We are required to pay substantial royalties
and lump sum benchmark payments under our license agreements with the NIH and PolyBioCept, and we must meet certain milestones
to maintain our license rights.
Under our license agreements with the NIH
for our adoptive cell therapy technologies, we are currently required to pay both substantial benchmark payments and royalties
to that institution based on our revenues from sales of our products utilizing the licensed technologies. Likewise, under our
license agreement with PolyBioCept, we are required to make lump sum payments if, and when certain product sales targets are achieved.
These payments could adversely affect the overall profitability for us of any products that we may seek to commercialize under
the NIH or PolyBioCept liceses. In order to maintain our license rights under the NIH and PolyBioCept license agreements, we will
need to meet certain specified milestones, subject to certain cure provisions, in the development of our product candidates. There
is no assurance that we will be successful in meeting all of the milestones in the future on a timely basis or at all.
Because our current products represent,
and our other potential product candidates will represent novel approaches to the treatment of disease, there are many uncertainties
regarding the development, the market acceptance, third-party reimbursement coverage and the commercial potential of our product
candidates.
There is no assurance that the approaches
offered by our products will gain broad acceptance among doctors or patients or that governmental agencies or third-party medical
insurers will be willing to provide reimbursement coverage for proposed product candidates. Moreover, we do not have verifiable
internal marketing data regarding the potential size of the commercial market for our product candidates, nor have we obtained
independent marketing surveys to verify the potential size of the commercial markets for our current product candidates or any
future product candidates. Since our current product candidates and any future product candidates will represent new approaches
to treating various conditions, it may be difficult, in any event, to accurately estimate the potential revenues from these product
candidates. Accordingly, we may spend large amounts of money trying to obtain approval for product candidates that have an uncertain
commercial market. The market for any products that we successfully develop will also depend on the cost of the product. We do
not yet have sufficient information to reliably estimate what it will cost to commercially manufacture our current product candidates,
and the actual cost to manufacture these products could materially and adversely affect the commercial viability of these products.
Our goal is to reduce the cost of manufacturing and providing our therapies. However, unless we are able to reduce those costs
to an acceptable amount, we may never be able to develop a commercially viable product. If we do not successfully develop and
commercialize products based upon our approach, or find suitable and economical sources for materials used in the production of
our products, we will not become profitable, which would materially and adversely affect the value of our common stock.
Our TIL therapy may be provided to patients
in combination with other agents provided by third parties. The cost of such combination therapy may increase the overall cost
of TIL therapy and may result in issues regarding the allocation of reimbursements between our therapy and the other agents, all
of which may affect our ability to obtain reimbursement coverage for the combination therapy from third party medical insurers.
No assurance can be given that we will
be able to develop a new, FDA-compliant, more efficient, lower cost manufacturing process upon which our business plan to commercialize
TIL-based products is dependent.
Pursuant to the CRADA, and in cooperation
with our contract manufacturers and potentially other manufacturers, we are developing improved methods for the generating and
selecting autologous TILs, and to develop methods for large-scale production of autologous TILs that are in accord with current
cGMP procedures. Developing a new, scaled-up, pharmaceutical manufacturing process that can more efficiently and cost effectively,
and in a more automated manner measure, produce and control the physical and/or chemical attributes of our products in a cGMP
facility is subject to many uncertainties and difficulties. We have never manufactured our adoptive cell therapy product candidate
on a commercial scale, nor have our partners. As a result, we cannot give any assurance that we will be able to establish a manufacturing
process that can produce our products at a cost or in quantities necessary to make them commercially viable. Moreover, our third-party
manufacturers will have to continually adhere to current cGMP regulations enforced by the FDA through its facilities inspection
program. If the facilities of these manufacturers cannot pass a pre-approval plant inspection, the FDA premarket approval of our
products will not be granted. In complying with cGMP and foreign regulatory requirements, we and any of our third-party manufacturers
will be obligated to expend time, money and effort in production, record-keeping and quality control to assure that our products
meet applicable specifications and other requirements. If we or any of our third-party manufacturers fail to comply with these
requirements, we may be subject to regulatory action. No assurance can be given that we will be able to develop such a manufacturing
process, or that our partners will thereafter be able to establish and operate such a production facility.
If product liability lawsuits are brought
against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability
as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products.
For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable
during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects
in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach
of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves
against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product
candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or
eventual outcome, liability claims may result in:
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decreased demand
for our product candidates;
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injury to our
reputation;
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withdrawal of
clinical trial participants;
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initiation of
investigations by regulators;
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costs to defend
the related litigation;
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a diversion
of management’s time and our resources;
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substantial
monetary awards to trial participants or patients;
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product recalls,
withdrawals or labeling, marketing or promotional restrictions;
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exhaustion of
any available insurance and our capital resources;
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the inability
to commercialize any product candidate; and
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a decline in
our share price.
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Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization
of products we develop, alone or with corporate collaborators. Our insurance policies may also have various exclusions, and we
may be subject to a product liability claim for which we have no coverage. While we have obtained clinical trial insurance for
our Phase 2 clinical trial of LN-144, we may have to pay amounts awarded by a court or negotiated in a settlement that exceed
our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital
to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses,
such indemnification may not be available or adequate should any claim arise.
We face significant competition from
other biotechnology and pharmaceutical companies and from non-profit institutions.
Competition in the field of cancer therapy
is intense and is accentuated by the rapid pace of technological development. Research and discoveries by others may result in
breakthroughs which may render our products obsolete even before they generate any revenue. There are products currently under
development by others that could compete with the products that we are developing. Many of our potential competitors have substantially
greater research and development capabilities and manufacturing, marketing, financial and managerial resources than we do. Our
competitors may:
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develop safer
or more effective immunotherapies and other therapeutic products;
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reach the market
more rapidly, reducing the potential sales of our products; or
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establish superior
proprietary positions.
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Potential competitors in the market for treating
metastatic melanoma are companies such as Bristol-Myers Squibb, Roche/Genentech, Merck, Amgen, Pfizer, and GlaxoSmithKline, which
already have products on the market or in development. Other companies, such as Novartis, Celgene, Kite Pharmaceuticals, Juno
Therapeutics, and Adaptimmune, which are focused on genetically engineered T-cell technologies to treat cancer, may also be competitors.
All of these companies, and most of our other current and potential competitors have substantially greater research and development
capabilities and financial, scientific, regulatory, manufacturing, marketing, sales, human resources, and experience than we do.
Many of our competitors have several therapeutic products that have already been developed, approved and successfully commercialized,
or are in the process of obtaining regulatory approval for their therapeutic products in the United States and internationally.
Universities and public and private research
institutions in the U.S. and Europe are also potential competitors. For example, a Phase 3 study comparing TIL to standard ipilimumab
in patients with metastatic melanoma is currently being conducted in Europe by the Netherlands Cancer Institute, the Copenhagen
County Herlev University Hospital, and the University of Manchester. While these universities and public and private research
institutions primarily have educational objectives, they may develop proprietary technologies that lead to other FDA approved
therapies or that secure patent protection that we may need for the development of our technologies and products.
Our lead product candidate, LN-144, is a therapy
for the treatment of refractory metastatic melanoma. Currently, there are numerous companies that are developing various alternate
treatments for melanoma. Accordingly, LN-144 faces significant competition in the melanoma treatment space from multiple companies.
Even if we obtain regulatory approval of LN-144, the availability and price of our competitors’ products could limit the
demand and the price we are able to charge for our melanoma therapy. We may not be able to implement our business plan if the
acceptance of our products is inhibited by price competition or the reluctance of physicians to switch from other methods of treatment
to our product, or if physicians switch to other new therapies, drugs or biologic products or choose to reserve our product for
use in limited circumstances.
We are dependent on third parties to
support our research, development and manufacturing activities and, therefore, subject to the efforts of these parties and our
ability to successfully collaborate with these third parties.
As a result of our current strategy to outsource
most of our manufacturing, we rely very heavily on third parties to perform for us the manufacturing of our products for our clinical
trials. We also license a significant portion of our technology from others and, at this time, do not own any intellectual properties
or technologies. We intend to rely upon our contract manufacturers to produce large quantities of materials needed for clinical
trials and potentially product commercialization. Third party manufacturers may not be able to meet our needs with respect to
timing, quantity or quality. If we are unable to contract for a sufficient supply of needed materials on acceptable terms, or
if we should encounter delays or difficulties in our relationships with manufacturers, our clinical testing may be delayed, thereby
delaying the submission of products for regulatory approval or the market introduction and subsequent sales of our products. Any
such delay may lower our revenues and potential profitability.
If any third party collaborator breaches or
terminates its agreement with us, or fails to conduct its activities in a timely manner, the commercialization of our products
under development could be slowed down or blocked completely. It is possible that our collaborators will change their strategic
focus, pursue alternative technologies or develop alternative products, either on their own or in collaboration with others, as
a means for developing treatments for the diseases targeted by our collaborative programs. The effectiveness of our collaborators
in marketing our products will also affect our revenues and earnings.
We intend to continue to enter into additional
third party collaborative agreements in the future. However, we may not be able to successfully negotiate any additional collaborative
arrangements. If established, these relationships may not be scientifically or commercially successful. In order to supplement
our own efforts to improve TIL manufacturing and develop TIL therapies in new indications in clinical trials, we currently work
with government and academic research institutions, medical institutions and corporate partners such as the NCI, Moffitt, Medimmune,
PolyBioCept and the Karolinska University Hospital. The success of these and future collaborations and joint development arrangements
may be subject to numerous risks and uncertainties, including the inability or unwillingness of our partners to perform in the
manner, or to the extent anticipated, and may also be subject to disagreements regarding the rights, interests, and performance
of the counterparties under our licenses and development agreements. No assurance can be given that we will be able to successfully
collaborate with our partners as anticipated and that our current and future collaborations and clinical trials will be completed
as contemplated.
Our internal
computer systems, or those used by our contract research organizations or other contractors or consultants, may fail or suffer
security breaches.
Despite the implementation
of security measures, our internal computer systems and those of our contract research organizations and other contractors and
consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication
and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an
event were to occur and cause interruptions in our operations, it could result in a disruption of our drug development programs.
For example, the loss of clinical study data from completed or ongoing clinical studies for a product candidate could result in
delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent
that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur liability and the further development of any product candidates could
be delayed.
We will need
to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
Our operations are
dependent upon the services of our executives and our employees who are engaged in research and development. The loss of the services
of our executive officers or senior research personnel could delay our product development programs and our research and development
efforts. In order to develop our business in accordance with our business plan, we will have to hire additional qualified personnel,
including in the areas of research, manufacturing, clinical trials management and regulatory affairs. We are continuing our efforts
to recruit and hire the necessary employees to support our planned operations in the near term. However, competition for qualified
employees among companies in the biotechnology and biopharmaceutical industry is intense, and no assurance can be given that we
will be able attract, hire, retain and motivate the highly skilled employees that we need. Future growth will impose significant
added responsibilities on members of management, including:
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identifying, recruiting, integrating, maintaining, and motivating additional employees;
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managing our internal development efforts effectively, including the clinical and FDA review
process for our product candidates, while complying with our contractual obligations to contractors and other third parties;
and
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improving our operational, financial and management controls, reporting systems, and procedures.
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Our future financial
performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage
any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day
activities in order to devote a substantial amount of time to managing these growth activities. Our efforts to manage our growth
are complicated by the fact that nearly all of our executive officers have joined us since February 2016. This lack of long-term
experience working together may adversely impact our senior management team’s ability to effectively manage our business
and growth.
We currently rely,
and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants
to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants
will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if
we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants
is compromised for any reason, our clinical trials may be extended, delayed, or terminated, and we may not be able to obtain regulatory
approval of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage
our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all.
If we are not able
to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may
not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly,
may not achieve our research, development, and commercialization goals on a timely basis, or at all.
If we engage
in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us
to incur debt or assume contingent liabilities, and subject us to other risks.
We may evaluate various
acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights,
technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:
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increased operating expenses and cash requirements;
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the assumption of additional indebtedness or contingent liabilities;
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the issuance of our equity securities;
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assimilation of operations, intellectual property and products of an acquired company, including
difficulties associated with integrating new personnel;
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the diversion of our management’s attention from our existing product programs and initiatives
in pursuing such a strategic merger or acquisition;
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retention of key employees, the loss of key personnel, and uncertainties in our ability to
maintain key business relationships;
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risks and uncertainties associated with the other party to such a transaction, including the
prospects of that party and their existing products or product candidates and regulatory approvals; and
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our inability to generate revenue from acquired technology and/or products sufficient to meet
our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.
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Depending on the
size and nature of future strategic acquisitions, we may acquire assets or businesses that require us to raise additional capital
or to operate or manage businesses in which we have limited experience. Making larger acquisitions that require us to raise additional
capital to fund the acquisition will expose us to the risks associated with capital raising activities. Acquiring and thereafter
operating larger new businesses will also increase our management, operating and reporting costs and burdens. In addition, if
we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and
acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate
suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products
that may be important to the development of our business.
We are a party to an SEC investigation
now known as “In the Matter of Certain Stock Promotions,” the consequences of which are still uncertain but which
are expected to result in a cease and desist order
.
As disclosed in Item 3. Litigation, below,
on April 23, 2014, we received a subpoena from the SEC that stated that the staff of the SEC was conducting an investigation then
designated as “
In the Matter of Galena Biopharma, Inc.
” File No. HO 12346 (now known as “
In the Matter
of Certain Stock Promotions
”) and that the subpoena was issued as part of the foregoing investigation. The Company has
been informed by the Staff of the SEC that the SEC’s investigation, in part, involves the conduct of our former Chief Executive
Officer, Manish Singh, during the period between September 2013 and April 2014. We understand that, as it pertains to our former
Chief Executive Officer, the investigation has focused on the failure by authors of certain articles about the Company to disclose
that they were compensated by one of our former investor relations firms. We understand that it is the position of the SEC Staff
that the conduct of the former Chief Executive Officer with respect to these articles will be imputed to us and, as a result,
that we are partially liable for the former Chief Executive Officer’s actions.
A number of articles have been written about
us that may be available on the internet and elsewhere. Investors considering an investment in our securities should review this
Annual Report and the other documents that we file with the SEC rather than relying on internet blogs or other similar articles
and publications.
In order to resolve this matter, in December
2016, we submitted an offer of settlement to the SEC under which we offered to (i) consent to the entry of an order requiring
the Company to cease and desist from any future violations of Sections 5(b), 17(a), and 17(b) of the Securities Act of 1933 and
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, without admitting or denying any allegations,
and (ii) pay $100,000 as a financial penalty. The proposed settlement is contingent upon reaching a final agreement with the SEC
and obtaining the approval of the Commissioners of the SEC, neither of which can be assured. If the offer of settlement is accepted,
a cease and desist order will be issued against us, which may impact some of our future activities, including our ability to conduct
certain types of securities private placements and to use a free writing prospectus in future public offerings. Based upon our
offer of settlement, we have only accrued $100,000 as a liability, and do not currently expect to accrue additional liabilities
related to this matter. If the SEC does not approve the settlement, we may need to enter into further discussions with the SEC
to resolve the investigated matters on different terms and conditions or possibly litigate the matter. Any further negotiations
or on-going legal proceedings could result in significant legal expenses, the diversion of management’s attention from our
business, damage to our business and reputation, and could subject us to a wide range of remedies, including an SEC enforcement
action and greater financial penalties.
Risks Related to Government Regulation
The FDA regulatory approval process is
lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of our
product candidates.
We have not previously submitted a BLA to the
FDA, or similar approval filings to comparable foreign authorities. A BLA must include extensive preclinical and clinical data
and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. The
BLA must also include significant information regarding the chemistry, manufacturing and controls for the product. We expect the
novel nature of our product candidates to create further challenges in obtaining regulatory approval. For example, the FDA has
limited experience with commercial development of cell therapies for cancer. Accordingly, the regulatory approval pathway for
our product candidates may be uncertain, complex, expensive and lengthy, and approval may not be obtained.
We may also experience delays in completing
planned clinical trials for a variety of reasons, including delays related to:
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the availability
of financial resources to commence and complete the planned trials;
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reaching agreement
on acceptable terms with prospective CROs and clinical trial sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs
and trial sites;
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obtaining approval
at each clinical trial site by an independent institutional review board, or IRB;
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recruiting suitable
patients to participate in a trial;
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having patients
complete a trial or return for post-treatment follow-up;
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clinical trial
sites deviating from trial protocol or dropping out of a trial;
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adding new clinical
trial sites; or
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manufacturing
sufficient quantities of qualified materials under cGMPs and applying them on a subject
by subject basis for use in clinical trials.
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We could also encounter delays if physicians
encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of
prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended
or terminated by us, the IRBs for the institutions in which such trials are being conducted, the Data Monitoring Committee for
such trial, or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical
trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial
site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse
side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative
actions or lack of adequate funding to continue the clinical trial. If we experience termination of, or delays in the completion
of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our
ability to generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our
costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate
revenue.
Obtaining and maintaining regulatory
approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval
of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval
of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval
in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect
on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable
regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate
in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods
different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical
studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions
outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction.
In some cases, the price that we intend to charge for our products is also subject to approval.
We may also submit marketing applications in
other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product
candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance
with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent
the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international
markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market
potential of our product candidates will be harmed.
Even if we receive regulatory approval
of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result
in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience
unanticipated problems with our product candidates.
Any regulatory approvals that we receive for
our product candidates will require surveillance to monitor the safety and efficacy of the product candidate. The FDA may also
require a risk evaluation and mitigation strategy in order to approve our product candidates, which could entail requirements
for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution
methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority
approves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage,
advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory
requirements. These requirements include submissions of safety and other post-marketing information and reports, registration,
as well as continued compliance with cGMPs and cGCPs for any clinical trials that we conduct post-approval. Later discovery of
previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with
our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among
other things:
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restrictions
on the marketing or manufacturing of our product candidates, withdrawal of the product
from the market, or voluntary or mandatory product recalls;
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fines, warning
letters or holds on clinical trials;
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refusal by the
FDA to approve pending applications or supplements to approved applications filed by
us or suspension or revocation of license approvals;
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product seizure
or detention, or refusal to permit the import or export of our product candidates; and
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injunctions
or the imposition of civil or criminal penalties.
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The FDA’s and other regulatory authorities’
policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval
of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing
requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may
lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
Coverage and reimbursement may be limited
or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product
candidates profitably.
Successful sales of our product candidates,
if approved, depend on the availability of coverage and adequate reimbursement from third-party payors. In addition, because our
product candidates represent new approaches to the treatment of cancer, we cannot accurately estimate the potential revenue from
our product candidates.
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.
Obtaining coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial
payors is 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. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited
to, 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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neither experimental
nor investigational.
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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 the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. 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. Patients are unlikely to use our product candidates unless coverage
is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates.
In the United States, no uniform policy of
coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products can
differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly
process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately,
with no assurance that coverage and adequate reimbursement will be obtained.
Third-party payors, whether domestic or foreign,
or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In both the
United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health
care system that could impact our ability to sell our products profitably. In particular, in 2010, the Healthcare Reform Act was
enacted. The Healthcare Reform Act and its implementing regulations, among other things, revised the methodology by which rebates
owed by manufacturers to the state and federal government for covered outpatient drugs and certain biologics, including our product
candidates, under the Medicaid Drug Rebate Program are calculated, increased the minimum Medicaid rebates owed by most manufacturers
under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals
enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription
drugs, and provided incentives to programs that increase the federal government’s comparative effectiveness research.
Other legislative changes have been proposed
and adopted in the United States since the Healthcare Reform Act was enacted. In August 2011, the Budget Control Act of 2011,
among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked
with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach
required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate
reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013 and will
remain in effect until 2024, unless additional congressional action is taken. In January 2013, President Obama signed into law
the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, reduced Medicare payments to several providers,
including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government
to recover overpayments to providers from three to five years.
There have been, and likely will continue to
be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare
and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing
efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain
or reduce costs of healthcare and/or impose price controls may adversely affect:
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the demand for
our product candidates, if we obtain regulatory approval;
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our ability
to set a price that we believe is fair for our products;
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our ability
to generate revenue and achieve or maintain profitability;
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the level of
taxes that we are required to pay; and
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the availability
of capital.
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Any reduction in reimbursement from Medicare
or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our
future profitability.
Our employees, independent contractors,
consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with
regulatory standards and requirements.
We are exposed to the risk of employee fraud
or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct
by these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the laws of the FDA and
other similar foreign regulatory bodies, provide true, complete and accurate information to the FDA and other similar foreign
regulatory bodies, comply with manufacturing standards we have established, comply with healthcare fraud and abuse laws in the
United States and similar foreign fraudulent misconduct laws, or report financial information or data accurately or to disclose
unauthorized activities to us. If we obtain FDA approval of any of our product candidates and begin commercializing those products
in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance
with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators
and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales
and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject
to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may
restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer
incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of
information obtained in the course of patient recruitment for clinical trials.
We have adopted a code of business conduct
and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and
prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from
governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It
is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current
or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations.
If 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 civil, criminal and administrative penalties,
damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare
programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any
of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and
commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents
of the healthcare laws mentioned above, among other foreign laws.
Risks Related to Our Intellectual Property
We may be involved in lawsuits to protect
or enforce our patents or the patents of our licensors, or lawsuits accusing our products of patent infringement, which could
be expensive, time-consuming and unsuccessful.
Competitors may infringe 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 one or more of our patents is not valid
or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents
do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our
patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk
of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be
a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us,
we may be enjoined from manufacturing, use, and marketing our products, or may have to pay substantial damages, including treble
damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign
our infringing products, which may be impossible or require substantial time and monetary expenditure.
Periodic maintenance fees on any issued patent
are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various
foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar
provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee
or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment
or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited
to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize
and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material
adverse effect on our business.
We may incur substantial costs as a
result of litigation or other proceedings relating to patent and other intellectual property rights.
The cost to us of any litigation or other
proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial. Some of our competitors
may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. If there
is litigation against us, we may not be able to continue our operations.
Should third parties file patent applications,
or be issued patents claiming technology also used or claimed by us, we may be required to participate in interference proceedings
in the United States Patent and Trademark Office (USPTO) to determine priority of invention. We may be required to participate
in interference proceedings involving our issued patents and pending applications. We may be required to cease using the technology
or to license rights from prevailing third parties as a result of an unfavorable outcome in an interference proceeding. A prevailing
party in that case may not offer us a license on commercially acceptable terms.
Issued patents covering our product candidates
could be found invalid or unenforceable if challenged in court or the USPTO.
If we or one of our licensing partners initiate
legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim
that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United
States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon
which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before
administrative bodies in the United States or abroad, even outside the context of litigation. 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 product 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, our patent counsel and the patent examiner were unaware during
prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least
part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material
adverse impact on our business.
If we are unable to protect our proprietary
rights, we may not be able to compete effectively or operate profitably.
Our success is dependent in part on maintaining
and enforcing the patents and other proprietary rights that we have licensed and may develop, and on our ability to avoid infringing
the proprietary rights of others. All of our intellectual property rights are licensed from another entity, and as such the preparation
and prosecution of these patents and patent applications was not performed by us or under our control. Furthermore, patent law
relating to the scope of claims in the biotechnology field in which we operate is still evolving and, consequently, patent positions
in our industry may not be as strong as in other more well-established fields. The patent positions of biotechnology companies
can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved.
No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date.
The issuance of a patent is not conclusive
as to its validity or enforceability and it is uncertain how much protection, if any, will be given to the patents we have licensed
from the NIH or from Moffitt if either the NIH, Moffitt or we attempt to enforce the patents and/or if they are challenged in
court or in other proceedings, such as oppositions, which may be brought in foreign jurisdictions to challenge the validity of
a patent. A third party may challenge the validity or enforceability of a patent after its issuance by the Patent Office. It is
possible that a competitor may successfully challenge our patents or that a challenge will result in limiting their coverage.
Moreover, the cost of litigation to uphold the validity of patents and to prevent infringement can be substantial. If the outcome
of litigation is adverse to us, third parties may be able to use our patented invention without payment to us. Moreover, it is
possible that competitors may infringe our patents or successfully avoid them through design innovation. To stop these activities,
we may need to file a lawsuit. These lawsuits are expensive and would consume time and other resources, even if we were successful
in stopping the violation of our patent rights. In addition, there is a risk that a court would decide that our patents are not
valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if
the validity of our patents were upheld, a court would refuse to stop the other party on the ground that its activities are not
covered by, that is, do not infringe, our patents.
Should third parties file patent applications,
or be issued patents claiming technology also used or claimed by our licensor(s) or by us in any future patent application, we
may be required to participate in interference proceedings in the USPTO to determine priority of invention for those patents or
patent applications that are subject to the first-to-invent law in the United States, or may be required to participate in derivation
proceedings in the USPTO for those patents or patent applications that are subject to the first-inventor-to-file law in the United
States. We may be required to participate in such interference or derivation proceedings involving our issued patents and pending
applications. We may be required to cease using the technology or to license rights from prevailing third parties as a result
of an unfavorable outcome in an interference proceeding or derivation proceeding. A prevailing party in that case may not offer
us a license on commercially acceptable terms.
We cannot prevent other companies from
licensing most of the same intellectual properties that we have licensed or from otherwise duplicating our business model and
operations.
The intellectual properties that we are using
to develop TIL-based cancer therapy products were licensed to us by the NIH. The issued or pending patents that the NIH licensed
to us are exclusive, and specific with respect to melanoma, breast, HPV-associated, bladder and lung cancers. No assurance can
be given that the NIH has not previously licensed, or that the NIH hereafter will not license to other biotechnology companies
some or all of the non-exclusive technologies available to us under the NIH License Agreement. In addition, one pending U.S. patent
application in the NIH License Agreement is not owned solely by the NIH. No assurance can be given that NIH’s co-owner of
the certain pending U.S. patent application in the License Agreement has not previously licensed, or that the co-owner thereafter
will not license, to other biotechnology companies some or all of the technologies available to us. Co-ownership of these intellectual
properties will create issues with respect to our ability to enforce the intellectual property rights in courts, and will create
issues with respect to the accountability of one entity with respect to the other.
Since the NCI, MD Anderson Cancer Center,
Moffit and others already use the ACT technology in therapy for the treatment of Stage IV metastatic melanoma, their methods and
data are also available to third parties, who may want to enter into our line of business and compete against us. We currently
do not own any exclusive rights on our entire product portfolio that could be used to prevent third parties from duplicating our
business plan or from otherwise directly competing against us. While additional technologies that may be developed under our CRADA
may be licensed to us on an exclusive basis, no assurance can be given that our existing exclusive rights and will be sufficient
to prevent others from competing with us and developing substantially similar products.
The use of our technologies could potentially
conflict with the rights of others.
Our potential competitors or others may have
or acquire patent rights that they could enforce against us. If they do so, then we may be required to alter our products, pay
licensing fees or cease activities. If our products conflict with patent rights of others, third parties could bring legal actions
against us or our collaborators, licensees, suppliers or customers, claiming damages and seeking to enjoin manufacturing, use
and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages
(including treble damages and attorneys’ fees for willful infringement), we could be required to obtain a license in order
to continue to manufacturing, promoting the use or marketing the affected products. We may not prevail in any legal action and
a required license under the patent may not be available on acceptable terms or at all.
We previously reported that we conducted
an extensive freedom-to-operate (FTO) analysis of the then current patent landscape with respect to our lead product candidate,
and based on that analysis, that we believe that we have FTO for our lead TIL product candidate. Because patent applications do
not publish for 18 months, and because the claims of patent families can change over time, no FTO analysis can be considered exhaustive.
We are undertaking additional FTO analyses of our manufacturing processes, our lead TIL products, and contemplated future processes
and products. However, the area of patent and other intellectual property rights in biotechnology remains an evolving area with
many risks and uncertainties. As such, we expect our FTO analyses will be ongoing.
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 dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical
industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In
addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent
U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights
of patent owners in certain situations. 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. While we do not believe that any of the patents owned or licensed by us will be found invalid based
on this decision, we cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of
our patents.
We have limited foreign intellectual
property rights and may not be able to protect our intellectual property rights throughout the world.
We have limited intellectual property rights
outside the United States. Filing, prosecuting and defending patents on product 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 technologies in jurisdictions where we
have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories
where we have patent protection, but enforcement is not as strong as that in the United States. These products 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 biopharmaceutical 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.
We may be subject to claims that our
employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have received confidential and proprietary
information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical
companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or
otherwise used or disclosed confidential information of these third parties or our employees’ former employers. Litigation
may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could
result in substantial cost and be a distraction to our management and employees.
Risks Related to Our Securities
Our existing directors and executive
officers hold a substantial amount of our common stock and may be able to influence significant corporate decisions.
As of December 31, 2016, our officers and
directors beneficially owned approximately 11% of our outstanding common stock. These stockholders, if they act together, may
be able to materially affect the outcome of matters presented to our stockholders, including the election of our directors and
other corporate actions such as:
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A merger with
or into another company;
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A sale of substantially
all of our assets; and
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Amendments to
our articles of incorporation.
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Additionally, the decisions of these stockholders may conflict
with our interests or those of our other stockholders and the market price of our stock may be adversely affected by market volatility.
Our stock price
may be volatile, and our stockholders' investment in our stock could decline in value.
The market price of our common stock is likely
to be volatile and could fluctuate widely in response to many factors, including but not limited to:
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announcements
of the results of clinical trials by us or our competitors;
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developments
with respect to patents or proprietary rights;
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announcements
of technological innovations by us or our competitors;
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announcements
of new products or new contracts by us or our competitors;
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actual or anticipated
variations in our operating results due to the level of development expenses and other
factors;
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changes in
financial estimates by securities analysts and whether our earnings meet or exceed such
estimates;
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conditions
and trends in the pharmaceutical, biotechnology and other industries;
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receipt, or
lack of receipt, of funding in support of conducing our business;
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regulatory
developments within, and outside of, the United States;
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litigation
or arbitration;
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general volatility
in the financial markets;
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general economic,
political and market conditions and other factors; and
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the occurrence
of any of the risks described in this Annual Report.
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You may experience future dilution as
a result of future equity offerings or other equity issuances.
We will have to raise additional capital in
the future. To raise additional capital, we may in the future offer additional shares of our common stock or other securities
convertible into or exchangeable for our common stock.
Future sales
of our common stock in the public market could cause our stock price to fall.
Our stock price could
decline as a result of sales of a large number of shares of our common stock or the perception that these sales could occur. These
sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate.
As of December 31,
2016, we had over 62 million shares of common stock outstanding, in addition we had over 22 million, stock options to purchase
common stock based on vesting requirements, warrants to purchase common stock and the conversion of preferred stock, that would
increase the number of common stock outstanding if these instruments were exercised or converted.
In addition, in the future, we may issue additional
shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition,
litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing
stockholders and could cause our stock price to decline.
If securities or industry analysts do
not publish research or reports about our company, or if they issue adverse or misleading opinions regarding us or our stock,
our stock price and trading volume could decline.
Although we have research coverage by securities
and industry analysts, if coverage is not maintained, the market price for our stock may be adversely affected. Our stock price
also may decline if any analyst who covers us issues an adverse or erroneous opinion regarding us, our business model, our intellectual
property or our stock performance, or if our clinical trials and operating results fail to meet analysts’ expectations.
If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which could cause our stock price or trading volume to decline and possibly adversely affect our ability to engage in
future financings
If we fail to maintain an effective
system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result,
we could become subject to sanctions or investigations by regulatory authorities and/or stockholder litigation, which could harm
our business and have an adverse effect on our stock price.
As a public reporting company, we are subject
to various regulatory requirements, including the Sarbanes-Oxley Act of 2002, which requires our management to assess and report
on our internal controls over financial reporting. Nevertheless, in future years, our testing, or the subsequent testing by our
independent registered public accounting firm, may reveal deficiencies in our internal controls that we would be required to remediate
in a timely manner so as to be able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we
are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year, we could be subject to sanctions
or investigations by the SEC, NASDAQ or other regulatory authorities which would require additional financial and management resources
and could adversely affect the market price of our common stock. In addition, material weaknesses in our internal controls could
result in a loss of investor confidence in our financial reports.
Our board could issue one or more additional
series of preferred stock without stockholder approval with the effect of diluting existing stockholders and impairing their voting
and other rights.
Our articles of incorporation authorize the
issuance of up to 50,000,000 shares of “blank check” preferred stock (of which only 17,000 have been designated as
the Series A Convertible Preferred Stock and 11,500,000 designated as Series B Convertible Preferred Stock) with designations,
rights and preferences as may be determined from time to time by our board of directors. Our board is empowered, without stockholder
approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which
could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock
could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our
board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt
to effect a change in control of our company.
We do not anticipate paying cash dividends
for the foreseeable future, and therefore investors should not buy our stock if they wish to receive cash dividends.
We have never declared or paid any cash dividends
or distributions on our common stock. We currently intend to retain our future earnings to support operations and to finance expansion
and, therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We may be subject to claims for rescission or damages in
connection with certain sales of shares of our common stock in the open market.
In January 2014, the SEC
declared effective a registration statement that we filed to cover the resale of shares issued and sold (or to be issued and sold)
by certain selling stockholders. On March 11, 2016, that registration statement (and the prospectus contained therein) became
ineligible for future use, and selling stockholders could no longer sell any shares of our common stock in open market transactions
by means of that prospectus. We believe that certain stockholders did sell up to 128,500 shares of our common stock in open market
transactions in May 2016 by means of the ineffective registration statement/prospectus. Accordingly, those sales were not made
in accordance with Sections 5 and 10(a)(3) of the Securities Act, and the purchasers of those shares may have rescission rights
(if they still own the shares) or claims for damages (if they no longer own the shares). In addition, we also may have indemnification
obligations to the selling stockholders. The amount of any such liability is uncertain.