Item 1. Business
We are an immuno-oncology company focused on the development and commercialization of
individualized immunotherapies for the treatment of cancer based on our proprietary precision immunotherapy technology platform
called Arcelis.
Our most advanced product candidate is rocapuldencel-T (formerly referred to as AGS-003),
which we are developing for the treatment of metastatic renal cell carcinoma, or mRCC, and other cancers. We are conducting a pivotal
Phase 3 clinical trial of rocapuldencel-T plus sunitinib or another therapy for the treatment of newly diagnosed mRCC under a special
protocol assessment, or SPA, with the Food and Drug Administration, or FDA. We refer to this trial as the ADAPT trial. We dosed
the first patient in the ADAPT trial in May 2013 and completed enrollment of the trial in July 2015. In February 2017, the independent
data monitoring committee, or IDMC, for the ADAPT trial recommended that the trial be discontinued for futility based on its planned
interim data analysis. The IDMC concluded that the trial was unlikely to demonstrate a statistically significant improvement in
overall survival in the combination treatment arm, utilizing the intent-to-treat population, the primary endpoint of the study.
In conjunction with our clinical and scientific advisors, we are analyzing the preliminary ADAPT trial data set and plan to discuss
the data with the FDA. We have continued to conduct the ADAPT trial while we conduct our ongoing data review and plan to have discussions
with the FDA. We expect that we will make a determination as to the next steps for the rocapuldencel-T clinical program based on
this review and discussions. We are also currently supporting an investigator-initiated Phase 2 trial in patients with early stage
RCC. Depending upon the results of our ongoing analysis of the data from the ADAPT trial and discussions with the FDA, and subject
to our obtaining financing,we plan to support an investigator-initiated Phase 2 trial in bladder cancer and a Phase 2 trial of
rocapuldencel-T in combination with a checkpoint inhibitor in mRCC.
We are developing AGS-004, our second Arcelis-based product candidate, for the treatment
of HIV. We have completed Phase 1 and Phase 2 trials funded by government grants and a Phase 2b trial that was funded in full by
the National Institutes of Health, or NIH, and the National Institute of Allergy and Infectious Diseases, or NIAID. We are currently
supporting an ongoing investigator-initiated clinical trial of AGS-004 in adult HIV patients evaluating the use of AGS-004 in combination
with a latency reversing drug for HIV eradication, which is being funded by the NIH and NIAID, and plan to support an investigator-initiated
Phase 2 clinical trial of AGS-004 evaluating AGS-004 for long-term viral control in pediatric patients provided that results from
our ongoing trial in adult HIV patients are favorable.
Our Arcelis Platform
Our proprietary Arcelis precision immunotherapy technology platform utilizes biological
components from a patient’s own cancer cells or virus to generate individualized immunotherapies. These immunotherapies employ
specialized white blood cells called dendritic cells to activate an immune response specific to the patient’s own disease.
Arcelis is based on the work of Dr. Ralph Steinman, winner of the 2011 Nobel Prize in medicine for the discovery of the role
of dendritic cells in the immune system. We believe that our Arcelis-based immunotherapies may be applicable to a wide range of
cancers and infectious diseases and have the following attributes that we consider critical to a successful immunotherapy:
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target a patient’s disease-specific antigens, including mutated
antigens, or neoantigens, to elicit a potent immune response that is specific to the patient’s own disease;
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overcome the immune suppression that exists in cancer and infectious
disease patients;
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induce memory T-cells, a specialized type of immune cell that is known
to correlate with improved clinical outcomes for cancer and HIV patients;
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have minimal toxicity; and
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can be produced using a centralized manufacturing process.
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Despite our recent setback, we continue to believe that our immunotherapies combine the
advantages of other approaches to immunotherapy, including approaches to facilitate antigen recognition and approaches to overcome
immune suppression such as checkpoint inhibition, while addressing limitations that these approaches present.
Our Development Programs
The following table summarizes our development programs for rocapuldencel-T and AGS-004.
Product Candidate
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Primary Indication
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Status
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Rocapuldencel-T
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mRCC
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Ongoing ADAPT trial; enrollment completed in July 2015; IDMC recommended study discontinuation; data analysis
ongoing with plans to meet with the FDA and determine the
next steps for the rocapuldencel-T program
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Planned Phase 2 clinical trial, in combination with a checkpoint inhibitor, expected to open for enrollment
in the first half of 2017 subject to the ongoing analysis of data from the ADAPT trial and discussions with the FDA
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as well as obtaining financing necessary to support such trial
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Early stage RCC (neoadjuvant)
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Ongoing investigator-initiated Phase 2 clinical trial; preliminary data expected in the second half of
2017
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Advanced solid tumors
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Planned investigator-initiated Phase 2 clinical trial in muscle invasive bladder cancer, expected to open
for enrollment in the first half of 2017 subject to the ongoing analysis of data from the ADAPT trial and discussions with the
FDA
, as well as obtaining financing necessary to support such trial
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AGS-004
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HIV
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Ongoing second stage of investigator-initiated clinical trial in combination with vorinostat
for HIV eradication
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Planned investigator-initiated Phase 2 clinical trial for long-term viral control in pediatric patients
expected in 2017
provided that results from ongoing trial in adult HIV patients are favorable
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We hold all commercial rights to rocapuldencel-T and AGS-004 in all geographies other
than rights to rocapuldencel-T in Russia and the other states comprising the Commonwealth of Independent States, which we exclusively
licensed to Pharmstandard International S.A., or Pharmstandard, rights to rocapuldencel-T for the treatment of mRCC in South Korea,
which we exclusively licensed to Green Cross Corp., or Green Cross, and rights to rocapuldencel-T in China, Hong Kong, Taiwan
and Macau, which we exclusively licensed to Lummy (Hong Kong) Co. Ltd., or Lummy HK. We have granted to MEDcell Co., Ltd., a wholly-owned
subsidiary of Medinet Co. Ltd., hereinafter referred to together as “Medinet,” an exclusive license to manufacture
rocapuldencel-T for the treatment of mRCC in Japan.
Rocapuldencel-T
We are developing rocapuldencel-T for the treatment of mRCC and other cancers. We are
conducting the ADAPT trial of rocapuldencel-T plus sunitinib / targeted therapy for the treatment of newly diagnosed mRCC under
an SPA with the FDA. We dosed the first patient in the ADAPT trial in May 2013. In July 2015 we completed enrollment in the ADAPT
trial, enrolling 462 patients with the goal of generating 290 events for the primary endpoint of overall survival. We enrolled
these patients at 107 clinical sites in North America, Europe and Israel. Under the ADAPT trial protocol, these patients were randomized
between the rocapuldencel-T plus sunitinib / targeted therapy combination arm and sunitinib / targeted therapy alone control arm
on a two-to-one basis. In February 2017, the IDMC for the ADAPT trial recommended that the trial be discontinued for futility based
on its planned interim data analysis. The IDMC concluded that the study was unlikely to demonstrate a statistically significant
improvement in overall survival in the combination treatment arm, utilizing the intent-to-treat population, the primary endpoint
of the study. In conjunction with our clinical and scientific advisors, we are analyzing the preliminary ADAPT trial data set and
plan to discuss the data with the FDA. We have continued to conduct the ADAPT trial while we conduct our ongoing data review and
plan to have discussions with the FDA. We expect that we will make a determination as to the next steps for the rocapuldencel-T
clinical program based on this review and discussions.
In addition to the ADAPT trial, we are currently supporting an ongoing investigator-initiated
Phase 2 clinical trial designed to evaluate treatment with rocapuldencel-T in patients with early stage RCC prior to nephrectomy.
This trial was opened for enrollment in late 2014 and five patients were enrolled as of March 16, 2017. We expect that a total
of 10 patients will be enrolled in this trial. This trial provides the opportunity to observe the impact of rocapuldencel-T on
the immune response in both the peripheral blood and in the primary tumor that is removed after rocapuldencel-T treatment, the
latter as evidenced by the presence of tumor infiltrating lymphocytes in the tumor. Additionally, we have developed a protocol
for a Phase 2 clinical trial of rocapuldencel-T in combination with a checkpoint inhibitor for the treatment of patients with metastatic
renal cell carcinoma, but have not yet initiated this trial pending analysis of the data from the ADAPT trial and discussions with
the FDA and subject to our obtaining financing.
Beyond renal cell carcinoma, we plan to support an additional investigator-initiated
Phase 2 clinical trial of rocapuldencel-T in muscle invasive bladder cancer depending upon the results of our ongoing analysis
of the data from the ADAPT trial and discussions with the FDA and subject to our obtaining financing. The trial would have two
phases: a pre-treatment phase and a treatment phase. In the pre-treatment phase, tumor tissue will be obtained via a transurethral
resection of the bladder tumor, which will then be used to extract RNA for the manufacture of rocapuldencel-T. In the treatment
phase, rocapuldencel-T will be given before tumor resection and combined with standard-of-care cytotoxic chemotherapy. Booster
doses of rocapuldencel-T will continue after tumor resection. As with the neoadjuvant renal cancer trial, we have the unique opportunity
to observe any meaningful impact of rocapuldencel-T on the immune response in the peripheral blood and immune responses infiltrating
the primary tumor.
AGS-004
We are developing AGS-004 for the treatment of HIV and are focusing this program on
the use of AGS-004 in combination with other therapies for the eradication of HIV. We believe that by combining AGS-004 with therapies
that are being developed to expose the virus in latently infected cells to the immune system, we can potentially eradicate the
virus. The current standard of care, antiretroviral drug therapy, or ART, can reduce levels of HIV in a patient’s blood,
increase the patient’s life expectancy and improve the patient’s quality of life. However, ART cannot eliminate the
virus, which persists in latently infected cells, remains undetectable by the immune system and can recur. In addition, ART requires
daily, life-long treatment and can have significant side effects.
We are supporting an investigator-initiated clinical trial of AGS-004 in up to 12 adult
HIV patients to evaluate the use of AGS-004 in combination with one of these latency reversing therapies for the eradication of
HIV at the University of North Carolina. This trial is being conducted in two stages. Stage 1 of this trial has been completed
and was designed to study immune response kinetics to AGS-004 in patients on continuous ART. These data were used to better define
the optimal dosing strategy in combination with a latency reversing therapy in the ongoing Stage 2. We expect that some patients
in Stage 1 will rollover into Stage 2, which is studying AGS-004 in combination with one of the latency reversing drugs. The patient
clinical costs for the first stage of this trial were funded by Collaboratory of AIDS Researchers for Eradication, or CARE. The
NIH Division of AIDS has approved $6.6 million in funding for the second stage of this trial.
We also plan to explore the use of AGS-004 monotherapy to provide long-term control of
HIV viral load in otherwise immunologically healthy patients and eliminate their need for ART. Accordingly, if initial data from
Stage 2 of the ongoing adult eradication study are favorable, we expect to support an investigator-initiated Phase 2 clinical trial
of AGS-004 monotherapy in pediatric patients infected with HIV who have otherwise healthy immune systems and have been treated
with ART since birth or shortly thereafter and, as a result, are lacking the antiviral memory T-cells to combat the virus. The
commencement of this trial is subject to supportive data obtained from the adult eradication trial and approval of the protocol
by the principal investigator(s), institutional review boards, the IMPAACT Network leadership and the FDA and to the agreement
by the NIH to fund the trial costs not related to AGS-004 manufacturing. Assuming the supportive data and the necessary approvals
are obtained, we expect to come to a determination as to whether to conduct this trial in 2017.
Strategy
Our goal is to become a leading biopharmaceutical company focused on discovering, developing
and commercializing individualized immunotherapies for the treatment of a wide range of cancers. Key elements of our strategy
are:
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complete clinical development and seek marketing approval of rocapuldencel-T for the treatment of mRCC,
subject to our ongoing analysis of the preliminary ADAPT trial data set and our discussions with the FDA, and our obtaining financing
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expand clinical development of rocapuldencel-T in other cancers, including
early stage RCC and advanced solid tumors;
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commercialize rocapuldencel-T in North America independently and with
third parties outside North America;
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lease, build out and equip a facility or otherwise arrange for the commercial
manufacture of our products based on our Arcelis platform;
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continue clinical development of AGS-004 for the treatment of HIV, potentially
through government funding or other third party funding, and collaborate with third parties for commercialization on a worldwide
basis; and
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pursue expansion of our broad intellectual property protection for our
Arcelis precision immunotherapy technology platform, product candidates and proprietary manufacturing processes through U.S.
and international patent filings and maintenance of trade secret confidentiality.
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Immunotherapy to Treat Cancer and Infectious Diseases
Cancer cells occur frequently in the human body, yet are effectively controlled by T-cells
in the immune system, which recognize proteins produced by the cancer cells, known as antigens, as abnormal and kill the associated
cancer cells. Two specific types of T- cells are necessary for an effective anti-cancer immune response: CD8+ T-cells, which kill
cancer cells, and CD4+ T-cells, which provide a “help” signal that activates and directs the CD8+ T-cell response.
Cancer cells utilize several strategies to escape detection by the immune system and
T-cells. For example, cancer cells secrete factors that act systemically to prevent T-cells from responding to activation signals,
resulting in the inability of T-cells to carry out their role of killing cancer cells. Chronic viral infections such as HIV or
hepatitis C present the same challenges to the immune system as cancer because the immune system must overcome this disease-induced
immune suppression to recognize and respond to virus-infected cells.
Immunotherapy is intended to stimulate and enhance the body’s natural mechanism
for recognizing and killing cancer cells and virus-infected cells. Current immunotherapeutic approaches to treat cancer can generally
be separated into two different mechanisms of action: approaches to facilitate antigen recognition and approaches to overcome
immune suppression.
Approaches to Facilitate Antigen Recognition
Cancer immunotherapies that use an antigen-based approach are designed to stimulate
an immune response against one or more tumor-associated antigens. In most cases, the tumor-associated antigens that are being
targeted are non-mutated, or normal, antigens, which are usually well tolerated by the immune system. In the context of cancer,
these normal antigens are either produced at abnormally high levels or predominantly in tumor cells, or both. The goal of antigen-based
immunotherapies is to activate the patient’s own immune system to seek out and kill the cancer cells that carry the targeted
antigen. Sanpower Group’s Provenge (sipuleucel-T) for metastatic castrate-resistant prostate cancer is the only antigen-based
immunotherapy that has been approved by the FDA. Because these immunotherapies are designed to target specific antigens, they
are less likely to have toxicity than traditional cancer therapies. However, antigen-based immunotherapies based on shared or
commonly overexpressed antigens may have limited efficacy because they are only able to target one or a limited number of antigens,
which may or may not be present in the patient’s cancer cells, and do not capture mutated antigens specific to that patient’s
tumor that can drive tumor growth.
Approaches to Overcome Immune Suppression
Immunotherapies that rely on approaches to overcome immune suppression are designed to
overcome immunosuppression in patients by blocking signaling pathways that prevent T-cell activation and function. The class of
monoclonal antibody-based immunotherapies known as checkpoint inhibitors are being developed on the basis of this approach. For
example, Bristol-Myers Squibb’s first FDA-approved immunotherapy Yervoy (ipilimumab), a treatment for patients with unresectable
or metastatic melanoma, is designed to act by blocking the function of a protein expressed in activated T-cells called CTLA4, which
acts as a T-cell “off” switch. By blocking the function of CTLA4, the patient’s T-cells can become activated,
resulting in an immune response against tumors. Another pathway that immunotherapies are being developed to address is the PD-1/PD-L1
pathway. In this pathway, activated T-cells expressing the protein PD-1 are disabled when binding occurs between PD-1 and its ligand,
PD-L1, which is expressed on tumor cells. Approved anti-PD-1/PDL-1 pathway checkpoint inhibitors and those being developed are
designed to interrupt this pathway by binding to the PD-1 protein or the PD-L1 ligand to prevent them from binding with each other.
Two anti-PD-1/PDL-1 pathway checkpoint inhibitors, Bristol-Myers Squibb’s nivolumab (Opdivo) and Merck’s pembrolizumab
(Keytruda), are FDA approved for patients with several types of cancers, including, in the case of nivolumab, second line therapy
of patients with mRCC. However, not all patients respond to anti-PD-1/PDL-1 checkpoint inhibitors, and, in most cases, patients
whose tumors predominantly express PD-L1 are most likely to respond. Immunotherapies that use checkpoint inhibition have demonstrated
the ability to effectively overcome immunosuppression and enable T-cells to function against tumor cells and potentially virus-infected
cells. However, these therapies are administered systemically to enable T-cells to function and are not designed to target tumor-specific
differences, such as the unique mutations of an individual’s tumor. This lack of specificity can negatively impact healthy
tissue and cause significant side effects.
Designing Immunotherapies Using Our Arcelis Platform
We believe that our proprietary Arcelis precision immunotherapy technology platform enables
us to produce individualized immunotherapies that can combine the advantages of these approaches to immunotherapy while addressing
the limitations and disadvantages of these approaches. We have designed our Arcelis platform to create product candidates which
have attributes that we believe are critical to a successful immunotherapy:
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Target disease-specific antigens, including mutated antigens.
The immunotherapy should target antigens, including unique mutated antigens, associated with the patient’s disease.
We believe that immunotherapies that target only non-mutated, or commonly shared, tumor-associated antigens will be limited
in terms of efficacy as non-mutated antigens are generally poor at stimulating immune responses. Our Arcelis precision immunotherapy
technology platform uses messenger RNA, or mRNA, from the patient’s own cancer or virus to yield an individualized immunotherapy
that contains the patient’s disease-specific antigens, including mutated antigens, and is designed to elicit a potent
immune response specific to the patient’s own disease.
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Overcome disease-induced immune suppression.
The immunotherapy
must be able to generate an effective immune response in patients whose immune systems are compromised by their disease. Both
tumors and HIV are known to impair the functionality of CD4+ T helper cells, which aid their escape from CD8+ T-cell attack.
Our Arcelis-based immunotherapies do not require fully functioning CD4+ helper T-cells to mount an immune response with effective
anti-tumor or anti- viral activity as we add the protein known as CD40 ligand, or CD40L, to provide the signaling that the
CD4+ helper T-cells would otherwise provide.
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Induce memory T-cells.
The immunotherapy should be able
to induce specific T-cells, such as CD8+CD28+ memory T-cells, which are known to correlate with improved clinical outcomes
for cancer and HIV patients. These memory T-cells are long lived and necessary for a durable immune response. Our Arcelis
process produces dendritic cells that secrete IL-12, which is necessary to induce and expand patient-specific CD8+CD28+ memory
T-cells. These memory T-cells are able to seek out and kill cancer or virus-infected cells that express the antigens identical
to those displayed on the surface of the dendritic cells.
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Have minimal toxicity.
The immunotherapy should have minimal
toxicity, which would potentially enable it to be combined with other therapies for cancer and infectious diseases. The mechanism
of action of Arcelis-based products induces patient- and disease-specific memory T-cells. The antigen source and the dendritic
cells that are both used for the therapy are both derived from the individual patient. This target customization
and specificity is less likely to impact healthy tissue and cause toxicity. Our Arcelis-based product candidates have been
well tolerated in clinical trials in more than 375 patients with no serious adverse events attributed to our immunotherapies.
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Our Arcelis precision immunotherapy technology platform is focused on dendritic cells
which present antigens to the attention of the human immune system, including, in particular, T-cells, and are critical to the
immune system’s recognition of proteins derived from cancer cells or virus-infected cells. Dendritic cells are capable of
internalizing cancer or virus protein antigens and displaying fragments of these protein antigens on their surface as small peptides.
The dendritic cells then present these peptide antigens to T-cells. This allows the T-cells to bind to these peptide antigens
and, in the case of cancer, target and kill cancer cells expressing these antigens and, in the case of infectious disease, target
and kill virus-infected cells to control the spread of infectious virus.
The following graphic illustrates the processes comprising our Arcelis precision immunotherapy
platform:
At the clinical site
. As shown in the graphic above, the manufacture of
our Arcelis-based immunotherapies requires two components derived from the patient:
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A disease sample: In the case of cancer, the sample consists of
tumor cells, and in the case of infectious disease, the sample consists of blood containing the virus. The disease sample
is generally collected at the time of diagnosis or initial treatment.
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Monocytes: Monocytes are a type of white blood cell, which are obtained
through a laboratory procedure called leukapheresis that occurs after diagnosis and at least three weeks prior to initiating
treatment with our immunotherapy.
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At the manufacturing facility
. The tumor cells or the blood sample and the
leukapheresis product are shipped to the manufacturing facility following collection at the clinical site. After receipt of these
components at the facility, we take the following steps:
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We isolate the patient’s disease mRNA, which carries the genetic
information to recreate the patient’s disease antigens, from the disease sample and amplify the mRNA so that only a
small disease sample is required to manufacture the immunotherapy.
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Separately, we extract the monocytes from the leukapheresis product and
culture them using a proprietary process to produce matured dendritic cells.
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We then combine the matured dendritic cells with a solution of the patient’s
isolated mRNA and a proprietary synthetic CD40L RNA. We apply a brief electric pulse to the solution in a process referred
to as electroporation, which enables the patient’s mRNA and the CD40L RNA to pass into, or load, the dendritic cells.
The dendritic cells process the CD40L RNA into CD40L protein, enabling the dendritic cells to secrete IL-12, a cytokine required
to induce and expand CD8+CD28+ memory T-cells.
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We then further culture the mRNA-loaded dendritic cells so that these
cells allow for antigen expression from the patient’s mRNA and presentation in the form of peptides on the surface of
the dendritic cells. These mature, loaded dendritic cells are formulated using the patient’s plasma that was collected
during the leukapheresis to become the Arcelis-based product. Typically, several years of doses are produced for each patient.
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After verifying the quality of the product, we vial, cryogenically freeze
and then ship individual patient doses to the clinic, where each is thawed and administered by intradermal injection.
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Patient treatment
. Upon injection into the skin of the patient, the mature,
loaded dendritic cells are intended to migrate to the lymph nodes near the site of the injection. It is at these lymph nodes that
the dendritic cells come into contact with T-cells. This interaction with the loaded dendritic cells is intended to cause a measurable
increase in patient- and disease-specific memory T-cells.
We believe that our Arcelis precision immunotherapy technology
platform allows us to create individualized immunotherapies that may be capable of treating a wide range of cancers and infectious
diseases using a centralized manufacturing process. Specifically, our Arcelis platform typically allows us to:
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produce several years of customized therapy on average for a patient
from a small disease sample and a single leukapheresis from that patient;
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produce additional years of therapy for a patient at a later date with an additional leukapheresis enabling
the collection of additional monocytes, but without requiring an additional disease sample from the
patient;
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use a single manufacturing facility for North America, which is possible
because our Arcelis process can utilize monocytes obtained through leukapheresis within four days of the procedure, and doses
of our immunotherapies can be shipped frozen in a cryoshipper that can maintain the target temperature for at least ten days;
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cryopreserve the multiple doses generated from the single manufacturing
process for each patient in a direct injectable formulation that allows the doses to remain stable and usable for up to five
years; and
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produce immunotherapies that can be administered by intradermal injection
in an outpatient procedure.
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Rocapuldencel-T for the Treatment of Metastatic Renal Cell Carcinoma and Other Cancers
We are developing rocapuldencel-T for use in combination with sunitinib and other therapies
for the treatment of mRCC. Sunitinib is an oral small molecule drug sold under the trade name Sutent and is the current standard
of care for initial treatment, or first-line treatment, of mRCC following diagnosis. In April 2012, the FDA notified us that we
have obtained fast track designation for rocapuldencel-T for the treatment of mRCC.
We are conducting the ADAPT trial of rocapuldencel-T plus sunitinib / targeted therapy
compared to sunitinib / targeted therapy monotherapy for the treatment of newly diagnosed mRCC under an SPA with the FDA. In July
2015 we completed enrollment in the ADAPT trial, enrolling 462 patients with the goal of generating 290 events for the primary
endpoint of overall survival. In February 2017, the IDMC for the ADAPT trial recommended that the trial be discontinued for futility
based on its planned interim data analysis. The IDMC concluded that the study was unlikely to demonstrate a statistically significant
improvement in overall survival in the combination treatment arm, utilizing the intent-to-treat population, the primary endpoint
of the study. In conjunction with our clinical and scientific advisors, we are analyzing the preliminary ADAPT trial data set and
plan to discuss the data with the FDA. We have continued to conduct the ADAPT trial while we conduct our ongoing data review and
have discussions with FDA. We expect that we will make a determination as to the next steps for the rocapuldencel-T clinical program
based on this review and discussions.
We are supporting investigator initiated Phase 2 clinical trials designed to evaluate
treatment with rocapuldencel-T in patients with early stage RCC prior to nephrectomy and plan to support investigator initiated
Phase 2 clinical trials of rocapuldencel-T in mRCC and muscle invasive bladder cancer, depending upon the results of our ongoing
analysis of the data from the ADAPT trial and discussions with the FDA, and subject to our obtaining financing.
Renal Cell Carcinoma
RCC is the most common type of kidney cancer. The American Cancer Society, or ACS estimates
that there were approximately 63,000 new cases of kidney cancer and approximately 14,000 deaths from this disease in the United
States in 2016. The National Comprehensive Cancer Network, or NCCN estimates that 90% of kidney cancer cases are RCC. For patients
with RCC that had metastasized by the time RCC was first diagnosed, a condition referred to as newly diagnosed mRCC, the five-year
survival rate has historically been approximately 12%.
ACS statistics indicate that approximately 25% of newly diagnosed RCC patients present
with mRCC in the United States. Additional patients who were initially diagnosed with earlier stage RCC may also progress to mRCC
as these patients suffer relapses. The NCCN estimates between 20% to 30% of patients with early stage RCC will relapse within
three years of surgical excision of the primary tumor. Although the National Cancer Institute, or NCI, does not provide prevalence
of RCC by stage, based on the NCCN’s three-year relapse rate, we estimate that there may be up to an additional 10,000 to
15,000 cases of mRCC identified annually in the United States. Combining newly diagnosed mRCC patients with patients who relapse,
we estimate that there may be between 20,000 to 25,000 new cases of mRCC in the United States each year. We estimate, based on
publicly available information, including 2013 quarterly and annual reports of companies that market other therapies approved
for mRCC, that the current worldwide mRCC market for these other therapies exceeds $2 billion.
Physicians generally diagnose mRCC by examining a tumor biopsy under a microscope. Upon
evaluation of the visual appearance of the tumor cells, a pathologist will classify the mRCC into clear cell or non-clear cell
types. According to the NCCN, approximately 80% of all RCC diagnoses are clear cell RCC. Because clear cell types are the most
common type of tumor cell, most of the more recently approved therapies for mRCC have limited their clinical trials to patients
with the clear cell type of tumor cell. However, the FDA has not limited the approval of these therapies to clear cell types of
mRCC, so they may be used for both clear cell and non-clear cell types.
mRCC Patient Classification
Upon diagnosis, the prognosis for patients with mRCC is classified into three overall
disease risk profiles — favorable, intermediate and poor — using objective prognostic risk factors. These risk factors
were originally developed by researchers at Memorial Sloane Kettering Cancer Center and subsequently revised by Dr. Daniel
Heng from the University of Calgary’s Baker Cancer Center and contributors from the International Metastatic Renal Cell Carcinoma
Database Consortium, or the Consortium, based on clinical data from patients treated with sunitinib and other therapies. These
risk factors, which we refer to as the Heng risk factors, have been correlated to adverse overall survival in mRCC and include:
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time from diagnosis to the initiation of systemic therapeutic treatment
of less than one year, which is indicative of more aggressive disease. We refer to this risk factor as the less than one year
to treatment risk factor;
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low levels of hemoglobin, a protein in the blood that carries oxygen;
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elevated corrected calcium levels;
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diminished overall patient performance status or physical functioning;
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elevated levels of neutrophils, a type of white blood cell; and
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elevated platelet count.
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Patients exhibiting zero risk factors at the time of treatment are included in the favorable
risk group; patients exhibiting one or two risk factors are included in the intermediate risk group; and patients exhibiting three
or more risk factors are included in the poor risk group. Even when treated with standard of care therapies such as sunitinib,
patients in the intermediate risk group have an expected survival of less than two years, and patients in the poor risk group
have an expected survival of less than one year. In January 2013, Dr. Heng published in
Lancet Oncology
the following
data from the Consortium database regarding overall survival of mRCC patients in these three risk groups treated with sunitinib
and other therapies:
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in 157 favorable risk patients, the median overall survival was 43.2
months;
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•
|
in 440 intermediate risk patients, the median overall survival was 22.5
months; and
|
|
•
|
in 252 poor risk patients, the median overall survival was 7.8 months.
|
Current Treatment
The initial treatment for most mRCC patients when the primary tumor is intact is surgical
removal of the tumor, usually requiring partial or complete removal of the affected kidney, referred to as nephrectomy. The NCCN
generally recommends systemic treatment with approved therapies for mRCC patients following nephrectomy for patients whose tumors
have metastasized or for patients who present with mRCC upon diagnosis or as a result of a relapse from an earlier stage of RCC.
Historically, mRCC has been treated with non-specific, cytokine-based immunotherapies
such as interferon
a
and IL-2, which have demonstrated a clinical benefit in a small
percentage of mRCC patients. However, these therapies lack specificity and have been demonstrated to have severe toxicities, which
can lead to cardiopulmonary, neuropsychiatric, dermatologic, renal, hepatic and hematologic side effects and limits their use.
For example, although high-dose IL-2 is the only therapy to have demonstrated durable complete mRCC remissions, its toxicity restricts
its use to a small minority of patients and for a short duration.
Several targeted therapies, such as Sutent (sunitinib), Votrient (pazopanib), Torisel
(temsirolimus), Nexavar (sorafenib), Avastin (bevacizumab) plus interferon-
a
, Afinitor
(everolimus), Inlyta (axitinib), Opdivo (nivolumab) and Cabometyx (cabozantinib) are approved for the treatment of mRCC. While
most of these targeted therapies have been evaluated in first-line treatment of mRCC, Sutent demonstrated a higher rate of progression
free survival and overall survival in its pivotal Phase 3 clinical trial than that shown by the other targeted therapies in their
pivotal Phase 3 clinical trials. According to an independent market research survey conducted during the second half of 2014 of
87 US-based medical oncologists and new prescription data (IMS), Sutent was the first-line drug of choice for approximately half
of newly treated advanced RCC patients. In addition, the data showed that the use of Votrient was increasing as initial therapy
for advanced RCC.
Although most of these targeted therapies have demonstrated prolonged progression free
survival as compared to interferon-
a
, they are rarely associated with durable remissions
or enhanced long-term survival, particularly in patients who are classified as intermediate or poor risk at the time of treatment.
In addition, each of these targeted therapies has shortcomings that limit their use in the treatment of mRCC, including significant
toxicities, such as neutropenia and other hematologic toxicities, fatigue, diarrhea, hand-foot syndrome, hypertension and other
cardiovascular effects. The overlapping and combined toxicities of the targeted therapies have prevented their use in combination
therapies. For instance, researchers conducting a Phase 1 clinical trial of the combination of sunitinib and temsirolimus discontinued
the trial due to toxicities. We believe that the inability to date to combine these therapies without additive toxicity and the
absence of durable remissions and prolonged survival in patients with intermediate and poor risk disease indicates there is an
unmet need for novel therapeutic approaches for mRCC that can improve efficacy without adding any appreciable toxicity. We determined
to conduct the ADAPT trial based on our earlier belief that the combination of rocapuldencel-T with sunitinib or other therapies
had the potential to address this unmet need.
Development Status
We are conducting our pivotal Phase 3 ADAPT trial of rocapuldencel-T. We have previously
conducted three clinical trials of rocapuldencel-T and its predecessor product, including a Phase 2 trial and two Phase 1 trials.
To date, we have administered rocapuldencel-T to over 300 patients in these trials. We submitted to the FDA an investigational
new drug application, or IND, for rocapuldencel-T in March 2003.
Pivotal Phase 3 ADAPT Trial of rocapuldencel-T
. We are conducting the pivotal
Phase 3 ADAPT clinical trial of rocapuldencel-T plus sunitinib/ targeted therapy for the treatment of newly diagnosed mRCC under
an SPA with the FDA. We dosed the first patient in May 2013 and completed enrollment of the trial in July 2015.
The ADAPT trial is a randomized, multicenter, open label trial of rocapuldencel-T in
combination with sunitinib / targeted therapy compared to sunitinib / another therapy monotherapy. We enrolled 462 patients with
the goal of generating 290 events for the primary endpoint of overall survival. We enrolled these patients at 107 clinical sites
in North America, Europe and Israel. Under the ADAPT trial protocol, these patients were randomized between the rocapuldencel-T
plus sunitinib / targeted therapy combination arm and the sunitinib / targeted monotherapy control arm on a two-to-one basis. The
primary endpoint of the ADAPT trial is overall survival. Secondary endpoints include progression free survival, overall response
rate and safety. In February 2017, the IDMC for the ADAPT trial recommended that the trial be discontinued for futility based on
its planned interim data analysis. The IDMC concluded that the study was unlikely to demonstrate a statistically significant improvement
in overall survival in the combination treatment arm, utilizing the intent-to-treat population, the primary endpoint of the study.
In conjunction with our clinical and scientific advisors, we are analyzing the preliminary ADAPT trial data set and plan to discuss
the data with the FDA. We have continued to conduct the ADAPT trial while we conduct our ongoing data review and have discussions
with FDA. We expect that we will make a determination as to the next steps for the rocapuldencel-T clinical program based on this
review and discussions. .
Our design for the ADAPT trial required enrollment of adult patients who have been newly
diagnosed with mRCC with primary tumor intact and metastatic disease following nephrectomy, who have predominantly clear cell RCC
based upon the tumor collected at nephrectomy, and who have not received any prior therapies for RCC. Participating patients were
required to be suitable candidates for sunitinib therapy and have either poor risk or intermediate risk disease at presentation,
with the less than one year to treatment risk factor and not more than four Heng risk factors in total. As part of the ADAPT trial
design, the two arms of the trial weree balanced based upon known prognostic risk factors. Patients were stratified by number of
risk factors (1, 2, 3 or 4) as well as whether they had measurable versus non-measurable metastatic disease following nephrectomy.
The patient population in the ADAPT trial is generally comparable to the patient population treated in our Phase 2 combination
therapy clinical trial. Approximately 77% of the patients enrolled in the ADAPT trial are intermediate risk patients (1-2 risk
factors) and 23% are poor risk (3-4 risk factors).
Under the ADAPT trial protocol, patients in the rocapuldencel-T plus sunitinib/ targeted
therapy arm are dosed with rocapuldencel-T once every three weeks for five doses, followed by a booster dose every three months.
In accordance with its label, sunitinib dosing is administered in six-week cycles, consisting of four weeks on drug and two weeks
on drug holiday. Rocapuldencel-T dosing is initiated at the end of the initial six-week sunitinib cycle. The first dose of rocapuldencel-T
is administered prior to the start of sunitinib dosing in the second sunitinib cycle. This dosing regimen is identical to the dosing
regimen used in our Phase 2 combination therapy clinical trial of rocapuldencel-T and sunitinib, except that the start of the sixth
dose is scheduled for week 24 to better provide patients the opportunity to receive a total of eight doses across 48 weeks. Patients
in the sunitinib monotherapy control arm receive sunitinib on the same dosing schedule as patients receive sunitinib in the rocapuldencel-T-sunitinib
combination arm.
Under the ADAPT trial protocol, rocapuldencel-T is administered for at least 48 weeks
so that patients receive at least eight doses of rocapuldencel-T. Dosing will cease prior to 48 weeks if two events of disease
progression or unacceptable toxicity occur or upon the joint decision of the patient and the investigator. If after 48 weeks of
dosing of rocapuldencel-T a patient has stable disease or is responding to treatment, dosing will continue once every three months
until disease progression. If an investigator determines to discontinue sunitinib, either due to disease progression or toxicity,
the investigator can, at any time during the ADAPT trial after the first six-week cycle of sunitinib, initiate second-line therapy
with one of the other approved therapies, including pazopanib, axitinib, everolimus or temsirolimus. In the event of discontinuation
of sunitinib for patients in the combination therapy arm, such patients would continue with rocapuldencel-T dosing in combination
with the second-line therapy. In our Phase 2 combination therapy clinical trial, dosing ceased upon the first event of disease
progression and second-line therapy was not permitted.
A graphic of the trial design is shown below.
Other Development Activities.
We believe that rocapuldencel-T may be capable
of treating a wide range of cancers and we are evaluating or plan to evaluate rocapuldencel-T in clinical trials in additional
cancer indications. Development of rocapuldencel-T in these other indications will in part depend upon our ongoing review of the
ADAPT study data and discussions with the FDA, and subject to us obtaining the financing necessary to support such trials.
•
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|
We are supporting an investigator-initiated Phase 2 clinical trial designed to evaluate treatment with
rocapuldencel-T in patients with early stage RCC prior to nephrectomy. This trial was opened for enrollment of patients in late
2014. Five patients have been enrolled in the trial as of March 16, 2017, with a total enrollment targeted for 10 patients. We
expect that preliminary data for this study will be available in the second half of 2017.
|
•
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|
We plan to support an investigator-initiated Phase 2 clinical trial of rocapuldencel-T
in muscle invasive bladder cancer that was opened in the fourth quarter of 2016 subject to ongoing analysis of the data from the
ADAPT trial and discussions with the FDA, as well as us obtaining financing necessary to support such trial.
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•
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|
We also plan to conduct a Phase 2 clinical trial of rocapuldencel-T in combination with a checkpoint inhibitor
in mRCC, which we expect to open for enrollment in the first half of 2017 subject to the ongoing analysis of the data from the
ADAPT trial and discussions with the FDA
, as well as us obtaining financing necessary to support
such trial.
|
Phase 2 Combination Therapy Clinical Trial
. From July 2008 to October 2009,
we enrolled 21 newly diagnosed mRCC patients in a single arm, multicenter, open label Phase 2 clinical trial of rocapuldencel-T
in combination with sunitinib. We conducted this clinical trial at nine clinical sites in the United States and Canada. Our design
for the trial required adult patients with previously untreated mRCC, no prior nephrectomy or at least one accessible lesion for
biopsy, a histologically confirmed predominantly clear cell tumor, and suitability for sunitinib therapy. The primary endpoint
of the trial was complete response rate. Secondary endpoints included progression free survival, overall survival, safety, clinical
benefit rate and immune response.
Patients in the trial generally received one initial six-week cycle of sunitinib, consisting
of four weeks on drug and two weeks on drug holiday, prior to initiating the combined treatment with rocapuldencel-T. Patients
then received a dose of rocapuldencel-T every three weeks for a total of five doses, while also continuing three additional six-week
cycles of sunitinib. This 24-week induction phase was followed by a booster phase during which patients received a dose of rocapuldencel-T
once every three months and continued to receive sunitinib in six-week cycles until disease progression.
The following table summarizes certain key data from the 11 intermediate risk and 10
poor risk patients enrolled in the Phase 2 combination therapy clinical trial.
Outcome
|
|
|
(N=21)
|
|
Median OS (1)
|
|
30.2 months
|
Median PFS (2)
|
|
11.2 months
|
Complete response (3)
|
|
0 patients
|
Partial response (4)
|
|
9 patients
|
Stable disease (5)
|
|
4 patients
|
Immune response
|
|
CD8+ CD28+ memory T-cells correlated with OS, PFS and reduced metastatic tumor
burden; IL-2 and interferon-
g
(IFN-
g
)
recovery
|
_________________
(1)
|
Overall survival, or OS, is the length of time from the initiation of
treatment to the patient’s death.
|
(2)
|
Progression free survival, or PFS, is the length of time from treatment initiation to the
worsening of the patient’s disease or the patient’s death.
|
(3)
|
Complete response is the disappearance of all measurable target lesions
and non-target lesions.
|
(4)
|
Partial response is the overall tumor regression based on a decrease of at least 30% in
the overall amount of measurable tumor mass in the body and improvement or no change in non-target lesions.
|
(5)
|
Stable disease is neither sufficient decrease in tumor size to qualify as a partial response
nor sufficient increase in tumor size to qualify as disease progression.
|
Particular observations from these data and the trial, which have informed our further
clinical development of rocapuldencel-T, include:
Efficacy Analysis
|
•
|
Seven patients survived for more than 4.5 years following enrollment in this trial. Two of these patients remained alive as of December 31, 2016 and both have had a sustained clinical response spanning nearly eight years and remain on rocapuldencel-T in combination with continued targeted therapy.
|
|
•
|
Five poor risk patients did not receive five doses of rocapuldencel-T
due to early disease progression. Median overall survival in the 16 patients who received at least five doses of rocapuldencel-T
was 36.0 months.
|
|
•
|
Median overall survival in the 11 intermediate risk patients was 61.9
months. Median overall survival in the 10 poor risk patients was 9.1 months.
|
|
•
|
The following graphic shows data and follow-up as of December 31, 2015,
the number of months that each patient in the Phase 2 clinical trial survived from the time of enrollment in the trial.
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•
|
Of the nine patients who exhibited a partial response, five patients
exhibited partial responses during the 24-week induction phase, including two patients who exhibited partial responses prior
to initiation of treatment with rocapuldencel-T. The other three patients exhibited partial responses after prolonged dosing
with rocapuldencel-T during the booster phase. We do not believe that these late occurring partial responses have been observed
in clinical trials of sunitinib alone. As a result, we believe that these late responses may relate to the immunologic effects
of prolonged rocapuldencel-T dosing and rocapuldencel-T’s effect on CD8+ CD28+ memory T-cells.
|
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•
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We observed a statistically significant correlation between increased
progression free survival and prolonged survival (p<0.001). Statistical significance is determined by methods that establish
the p-value of the results. Typically, results are considered statistically significant if they have a p-value of 0.05 or
less, meaning that there is less than a one-in-20 likelihood that the observed results occurred by chance.
|
Immune Response Analysis
|
•
|
In the 14 patients in the trial who received at least five doses of rocapuldencel-T
and could be evaluated for memory T-cell response, we observed a statistically significant correlation between the increase
in the number of CD8+ CD28+ memory T-cells over the initial five doses of rocapuldencel-T and survival (p<0.002), progression
free survival (p<0.031) and reduced metastatic tumor burden (p<0.045). The following graphics show, for each of these
14 patients, the increase in their tumor-specific memory T-cells that they exhibited as measured immediately prior to their
first dose of rocapuldencel-T and immediately following the patient’s fifth dose of rocapuldencel-T, or the absence
of such increase, as compared to such patient’s survival.
|
Phase 2 Combination Therapy Clinical Trial of rocapuldencel-T:
Correlation of Immune Response and Overall Survival
|
•
|
Rocapuldencel-T was found to have positive impact on immune cell function
and restoration of cellular immunity in a majority of patients, including an increase in levels of IL-2 and IFN-
g
.
|
Safety
|
•
|
The adverse events in this trial associated with rocapuldencel-T were
generally only mild injection site reactions, while the toxicities associated with sunitinib were consistent with those expected
from treatment with sunitinib alone.
|
The original design for the Phase 2 clinical trial called for the recruitment of 50 patients
to generate 38 fully evaluable patients. However, in October 2009, we terminated enrollment in this trial early due to a lack of
funding. As a result, only 21 patients were enrolled and received at least one dose of rocapuldencel-T. In addition, the trial
was originally designed to enroll patients with favorable and intermediate risk disease profiles. Instead, the actual population
enrolled consisted entirely of patients with intermediate or poor risk disease profiles who had the less than one year to treatment
risk factor. Because the patient population had poorer prognoses when they entered the trial than we expected and we did not have
a sufficient number of evaluable patients, we did not perform the statistical analysis to determine whether the primary endpoint
of complete response rate was achieved. As a result, if we submit a biologics license application, or BLA to the FDA for rocapuldencel-T,
we expect the data from this trial to be considered by the FDA for the purpose of evaluating the safety and feasibility of rocapuldencel-T,
but that it will only have a limited impact on the FDA’s ultimate assessment of the efficacy of rocapuldencel-T.
Based on our experience with the Phase 2 clinical trial, we concluded that the secondary
endpoints in the trial, progression free survival and overall survival, along with immune response, were the appropriate endpoints
to consider for measuring the efficacy of rocapuldencel-T in combination with sunitinib in patients with mRCC in our pivotal Phase
3 clinical trial.
Rocapuldencel-T Phase 2 Combination Therapy Clinical Trial, as Compared to Independent
Third Party mRCC Data
. At ASCO in June 2013, Dr. Heng presented data from the Consortium database regarding overall
survival and progression free survival for intermediate and poor risk patients treated with sunitinib and other targeted therapies,
including data with respect to 1,189 intermediate and poor risk patients with the less than one year to treatment risk factor.
Using the overall survival data from the Consortium database presented in June 2013 and
published in April 2014, a summary comparison of this data with our Phase 2 clinical trial of rocapuldencel-T in combination with
sunitinib is set forth in the graphic below. This graphic compares the median overall survival data from the Consortium intermediate
and poor risk patients with the less than one year to treatment risk factor with the median overall survival data from the 21 patients
in our Phase 2 clinical trial of rocapuldencel-T in combination with sunitinib, all of whom had the less than one year to treatment
risk factor. A majority of the Consortium patients and the patients in our Phase 2 clinical trial had one or more additional risk
factors.
1.1Ko JJ et al. First-, second-, third-line therapy for mRCC: Benchmarks
for trial design from the IMDC.
Br J Cancer
. April 2014:1-6.
2. Amin et al.
Journal for ImmunoTherapy of Cancer
. 2015;3:14
(21 April 2015).
|
Progression free survival for intermediate and poor risk patients in the Consortium
database with the less than one year to treatment risk factor was 5.6 months, as compared to the 11.2 months of median progression
free survival that we observed in the 21 patients in our Phase 2 clinical trial of rocapuldencel-T in combination with sunitinib.
Although we believe comparisons between our data and these collections of data are useful
in evaluating the overall results of our Phase 2 clinical trial, the treatment of the Consortium patients was conducted at different
sites, at different times and in different patient populations than the treatment in our Phase 2 combination therapy trial. The
treatment also differed because certain of the Consortium patients received therapies other than sunitinib as first-line treatment.
All of the patients in our Phase 2 clinical trial received sunitinib as first-line treatment. Our ongoing pivotal Phase 3 combination
therapy clinical trial of rocapuldencel-T is the first trial that we have conducted that directly compares rocapuldencel-T and
sunitinib or other targeted therapies as a combination therapy against sunitinib as monotherapy. Results of this head-to-head comparison
in our phase 3 ADAPT trial differed significantly from the comparisons presented above and elsewhere in this Annual Report on Form
10-K.
AGS-004 for the Treatment of Human Immunodeficiency Virus
We are developing AGS-004, our second Arcelis-based product candidate, for the treatment
of HIV. We have completed three clinical trials of AGS-004. These include Phase 1 and Phase 2 clinical trials that were funded
by government grants and a Phase 2b trial that was funded in full by the NIH.
Based on the clinical data that we have generated to date, we have determined to focus
our development program on the use of AGS-004 in combination with other therapies to achieve complete virus eradication and the
use of AGS-004 monotherapy to provide long-term control of HIV viral load in immunologically healthy patients and eliminate their
need for ART.
Human Immunodeficiency Virus
HIV is characterized by a chronic viral infection and an associated deterioration of
immune function. Specifically, the virus disables and kills crucial human immune cells called CD4+ T-cells. CD4+ T-cells are necessary
to generate and maintain antiviral T-cells, including the CD8+CD28+ memory T cells that aid in the killing of virus-infected cells.
Over time, this viral impact on an infected person’s immune system outpaces the body’s natural ability to replace
CD4+ T-cells and immunodeficiency results. As a result, the longer a person has been infected with the virus, the more functionally
impaired these cells become.
At the same time, HIV infection causes the immune cells in HIV patients, including CD4+
T-cells and CD8+ T-cells that are not killed by the virus, to be in a chronic state of activation. The persistent state of
immune activation in HIV patients results in chronic inflammation. We believe that this inflammation plays a role in the elevated
rates of age-related comorbidities, including malignancies and cardiovascular disease observed in HIV patients. In addition, the
activation of the CD4+ T-cells supports virus replication which leads to the production of new virus and increased viral load.
HIV is a persistent virus that can rapidly adapt to its environment by mutating and
creating HIV variants that are drug resistant and can evade immune attack. As a result, there are a large number of mutated variants
of HIV existing in any one infected individual and no two individuals have identical viral sequences.
According to the World Health Organization, the number of people living with HIV in
the world was approximately 35 million in 2013. The Centers for Disease Control and Prevention estimates that more than 1.2 million
people are currently living with HIV in the United States and the number of new cases of HIV infection in the United States is
expected to remain constant at approximately 50,000 cases per year.
Current treatments for HIV.
In 1996, triple combinations of oral medications
known as ART were demonstrated to substantially reduce the levels of virus in the blood of patients with HIV. Since then, the
introduction of new drug classes of ART and combination drug treatment strategies has enhanced treatment for HIV.
ART in HIV-infected patients can decrease levels of HIV in the blood to below the limits
of detection, increase life expectancy and improve quality of life. However, there continues to be an unmet need for HIV therapies
for the following reasons:
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•
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ART can have significant side effects. The most recent U.S. guidelines
on ART treatment contain a number of tables of adverse effects of combination regimens and how to manage them. Some combinations
present potentially life-threatening complications and other complications that are chronic, cumulative and overlapping, and
sometimes irreversible.
|
|
•
|
ART requires life-long daily treatment. The risks of long-term daily
administration of ART remain unknown but are potentially significant. In addition, the requirement for life-long daily treatment
has made strict adherence to the treatment regime difficult. Poor compliance has led to the development of drug resistant
HIV variants that are ineffectively controlled by the available armamentarium of ART.
|
|
•
|
ART cannot eradicate the virus and, therefore, does not cure HIV-infected patients. For example, up to
20% of patients receiving ART fail to achieve normal CD4+ T-cell counts, resulting in a continued weakened immune system. In addition,
certain patients are not able to achieve effective control of the virus using current treatment regimens. ART cannot eradicate
the virus because the virus persists in latently infected cells. These cells, which constitute the HIV latent reservoir, do not
consistently express HIV antigens in a manner or a compartment that permits effective control. Instead, these cells serve as a
source privileged from ART control for virus replication and viral rebound in the absence of ART. Following discontinuation of
treatment with ART, HIV viral levels return to levels observed prior to treatment with ART within 12 weeks of treatment interruption.
|
AGS-004 Opportunity
We believe, based on the mechanism of action of AGS-004 and the clinical data that we
have generated, that AGS-004 has the potential to address this unmet need for the following reasons:
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•
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Potential to Eradicate HIV in Combination with Latency Reversing Drugs
. A
number of companies and academic groups are evaluating drugs that can potentially activate the latently infected cells to
increase viral antigen expression and make the cells vulnerable to elimination by the immune system. We believe that treating
HIV-infected patients, who are being successfully treated with ART, with a combination of AGS-004 and one of these latency
reversing drugs could lead to activation of antigen expression from the latently infected cells along with a potent memory
T-cell response that is specific to the patient’s own unique viral antigens. We believe that this approach could potentially
result in complete eradication of the patient’s virus.
|
|
•
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Long-Term Viral Load Control in Immunologically Healthy Patients
. We
believe that AGS-004 may allow for long-term virus control and eliminate the need for life-long treatment with ART in infected
patients who have minimal immune suppression but no T-cell response against their virus. We have designed AGS-004 to induce
CD8+ CD28+ memory T-cells that are specific to the patient’s own unique viral antigens, do not require CD4+ T-cell help
to kill viral cells and do not result in CD4+ T-cell activation which typically increases viral replication and viral load.
As reported in
Clinical & Experimental Immunology
, researchers have demonstrated that elevated levels of CD8+CD28+
memory T-cells in the blood are a statistically significant predictor of long-term non-progression in HIV-infected patients
not treated with ART drugs. As a result, we believe that inducing these memory T-cells may lead to viral control. Patients
with minimal immune suppression and no T-cell response include pediatric patients who have been successfully treated with
ART drugs since birth or shortly thereafter and have generally healthy immune systems.
|
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•
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Minimal Toxicity
. AGS-004 has been well tolerated in clinical
trials with no serious adverse events being attributed to it. As a result, we believe we can combine AGS-004 with other HIV
therapies without additional toxicities.
|
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•
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Lack of Chronic Inflammation
. We have designed AGS-004 to
elicit a patient-specific and disease-specific immune response that does not cause any additional inflammation. In our clinical
trials of AGS-004, AGS-004 has not induced changes in markers that are associated with chronic inflammation in HIV patients.
|
Description and Development Status
AGS-004 is an individualized immunotherapy based on our Arcelis precision immunotherapy
technology platform. It is produced by electroporating dendritic cells with mRNA encoding for patient-specific HIV antigens that
have been derived from a patient’s virus-infected blood and with RNA that encodes the CD40L protein. The process for producing
AGS-004 is the same process as is used to produce rocapuldencel-T, with the one key difference being that rocapuldencel-T contains
all of the antigens from a patient’s tumor cells while AGS-004 contains potentially all variants unique to each individual
patient of four selected HIV antigens (Gag, Nef, Vpr and Rev). We designed AGS-004 to include these antigens because immunity
to them has been observed in long-term non-progressors and elite controllers, two groups of rare patients able to control virus
replication without ART. Because no two patients share identical HIV antigen sequences and there are a large number of mutated
variants of HIV existing in each infected patient, by using mRNA that is specific to the patient’s virus and that captures
potentially all of the unique patient-specific variants of each antigen in the sample obtained, we believe our immunotherapy maximizes
the relevance of the immune responses induced in each patient.
We have conducted three clinical trials of AGS-004, which include:
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·
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a phase 2b clinical trial of AGS-004;
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·
|
a phase 2a clinical trial of AGS-004; and
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·
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a phase 1 clinical trial of AGS-004.
|
We submitted to the FDA an IND for AGS-004 in August 2008.
We are focusing our development program for AGS-004 on the use of AGS-004 in combination
with latency reversing therapies to achieve complete virus eradication. Latently infected cells differ from other infected cells
in that the HIV genome is permanently integrated into the chromosomal DNA of the latently infected cells. These latently infected
cells persist long-term and constitute the HIV latent reservoir, which serves as a source privileged from ART control for virus
replication and viral rebound in the absence of antiretroviral therapy. As a result, demonstration that latently infected cells
can be targeted by immune responses induced by AGS-004 is essential to our development strategy pertaining to virus eradication.
Adult Eradication Trial.
We are supporting an investigator-initiated clinical
trial of AGS-004 in 12 adult HIV patients who are being treated with ART to evaluate the use of AGS-004 to eradicate the virus.
The trial is being conducted by co-investigator Dr. David Margolis, Professor of Medicine at the University of North Carolina.
Dr. Margolis is the leader of CARE, and has been a pioneer in the research of HIV latent reservoir reversing treatments. The
trial is being conducted in two stages. Stage 1 of this trial has been completed and was designed to study immune response kinetics
to AGS-004 in patients on continuous ART. These data were used to better define the optimal dosing strategy in combination with
a latency reversing therapy in the ongoing Stage 2. We expect that some patients in Stage 1 will rollover into Stage 2, which is
studying AGS-004 in combination with one of the latency reversing drugs. The patient clinical costs for the first stage of this
trial were funded by CARE. The NIH Division of AIDS has approved $6.6 million in funding for the second stage of this trial.
Planned Pediatric Functional Cure Trial
. We believe that a patient population
that could benefit from AGS-004 monotherapy consists of 14+ year old, HIV-infected individuals who have been treated with ART
since birth or shortly thereafter. These individuals are characterized by having very small HIV latent reservoirs and otherwise
healthy immune systems, while lacking antiviral CD8+ CD28+ memory T-cell responses. We believe that successfully inducing antiviral
CD8+ CD28+ memory T-cell responses in these patients could allow for long-term viral load control and eliminate the need for life-long
antiretroviral therapy. We plan to support an investigator-initiated Phase 2 clinical trial of AGS-004 in pediatric HIV patients
to evaluate the use of AGS-004 monotherapy to allow for long-term control of viral load and eliminate the need for ART. We are
currently developing the clinical protocol for this trial to immunize pediatric HIV patients who were infected at birth and treated
with antiretroviral therapy at or near birth. We are developing this clinical protocol in collaboration with Drs. Katherine Luzuriaga,
University of Massachusetts, and Deborah Persaud, John Hopkins Medical Center, both specializing in pediatric virology. The commencement
of this trial is subject to supportive data obtained from the adult eradication trial and approval of the protocol by the principal
investigator(s), institutional review boards, the IMPAACT Network leadership and the FDA and to the agreement by the NIH to fund
the trial costs not related to AGS-004 manufacturing. Assuming the supportive data and the necessary approvals are obtained, we
expect this trial to open in 2017.
Phase 2b Clinical Trial
. In January 2015, we completed a randomized, placebo
controlled, double blind Phase 2b clinical trial of AGS-004 in chronically infected patients on ART that we opened for enrollment
in July 2010. We designed this trial to confirm the data obtained in an earlier Phase 2a clinical trial in which AGS-004 led to
a reduction in virus replication. We initially planned to enroll 42 chronically infected patients in the Phase 2b trial at nine
clinical sites in the United States and Canada with the intent to generate 36 events for the primary endpoint analysis. However,
due to a higher than anticipated dropout rate by patients who were unable to complete the full 12 week treatment interruption period
provided for by the trial, we needed to enroll 53 patients in the trial to generate 36 events for the primary endpoint analysis.
These patients were randomized between AGS-004 treatment and a placebo control on a two-to-one basis.
HIV infection is classified as “chronic” or “acute” based on
how long the patient has been infected prior to starting ART. Patients with chronic HIV infection are patients who have initiated
ART after at least six months from the time of initial infection. Patients with acute HIV infection are patients who have initiated
ART less than 45 days after initial infection. This trial enrolled adult patients with chronic HIV-1 infection and undetectable
viral loads as a result of treatment with ART. Patients also had to have adequate CD4+ T-cell counts and a pre-ART plasma viral
sample to be used to manufacture AGS-004.
In this trial, patients first received intradermal doses of AGS-004 or placebo every
four weeks for a total of four doses, together with their ART. Following the fourth dose of AGS-004 or placebo, patients discontinued
their ART but continued to receive AGS-004 or placebo every four weeks for 12 weeks. We refer to this period as the treatment
interruption period. Patients who demonstrated control of viral replication under 10,000 copies/ml and maintained CD4+ T-cell
counts above 350 cells/mm
3
could remain off ART and continue their treatment interruption past 12 weeks. Following
the end of treatment interruption, all patients were eligible for continued treatment with the combination of AGS-004 and ART.
A schematic of the trial design is shown below.
Phase 2b Study Design for the Chronically Infected Cohort
The primary endpoint of the trial was a comparison of the median viral load in the AGS-004-treated
patients with the median viral load in patients receiving placebo after 12 weeks of ART treatment interruption. Under this protocol,
the primary endpoint required that there was a
³
1.1 log 10 difference in median
viral load between the AGS-004-treated cohort compared to the placebo-treated cohort. A 1.1 log 10 reduction means a 92% lower
virus concentration in the AGS-004-treated cohort compared to the placebo-treated cohort. Secondary endpoints included comparisons
between AGS-004-treated patients and the patients receiving placebo with respect to change in viral load from pre-ART to the end
of 12 weeks of treatment interruption, duration of treatment interruption, changes in CD4+ T-cell counts and safety.
In September 2011, we added to the trial a single arm, open-label, unblinded cohort
of up to 12 patients with acute HIV-1 infection and undetectable viral loads as a result of treatment with ART. We evaluated AGS-004
in this patient population to assess AGS-004 in patients who initiated ART during the acute phase of infection and as a result
may have sustained less immune damage. Patients in this cohort were dosed in the same manner as patients in the chronically infected
arm of the clinical trial. However, in this cohort, patients had to demonstrate a positive CD8+ CD28+ anti-HIV memory T-cell response
in order to become eligible to enter the 12 week treatment interruption period. The primary endpoints for this cohort included
the time to detectable viral load during the ART interruption period and comparison of changes in CD4+ T-cell counts during the
ART interruption period between the acute cohort and the chronic cohort. Six patients were enrolled in this cohort. All six patients
demonstrated a positive CD8+ CD28+ memory T-cell response and initiated treatment interruption. For the five of six patients that
re-initiated ART after treatment interruption, there were no significant declines in CD4+ T cells between the interruption date
and the re-initiation date. All six patients experienced viral rebound during treatment interruption with the times to detectable
viral load ranging from two to eight weeks and the duration of treatment interruption for those patients who reinitiated ART ranged
from approximately one month to approximately nine months. In addition, three of six patients had a decrease in circulating CD4+
T cells containing HIV DNA of 25%, 47% and 63%, respectively, when measured after three doses of AGS-004 while on ART.
In the Phase 2b trial, 54 patients received the full four doses of AGS-004 or placebo
during the first four weeks together with their ART. Of these patients, 36 patients continued on AGS-004 or placebo for the full
12-week treatment interruption period, 23 of whom received AGS-004.
In January 2015, we announced top-line results from the trial. The primary endpoint
of the trial was not achieved.
However, we believe that data from the trial provided evidence of the ability of AGS-004
to induce memory T-cell responses which may have directly impacted the latent viral reservoir. Of the evaluated 22 patients who
received AGS-004 and completed the 12-week treatment interruption period, 15 patients, or approximately 70 percent, had positive
antiviral memory T-cell responses prior to beginning the treatment interruption versus zero percent of placebo patients. Within
the AGS-004 treatment group, those patients that had antiviral memory T-cell responses had significantly fewer CD4+ T-cells with
integrated HIV DNA when compared to non-responders. These findings relate directly to the utilization of AGS-004 in our ongoing
adult eradication study and our planned pediatric study, where one of the key objectives is to decrease the latent HIV reservoir.
Safety analysis
In this trial, AGS-004 was well tolerated. No AGS-004-related serious adverse events
were reported. The most common adverse event was mild injection site reactions. During the antiretroviral treatment interruption,
no notable differences in incidence of adverse events occurred compared to when patients were receiving AGS-004 in combination
with antiretroviral drug therapy.
NIH and NIAID Contract
. Our development of AGS-004 has received significant
funding from the U.S. federal government. In September 2006, we entered into a multi-year research contract with the NIH and the
National Institute of Allergy and Infectious Diseases, or NIAID, to design, develop and clinically test an autologous HIV immunotherapy
capable of eliciting therapeutic immune responses. We are using funds from this contract to develop AGS-004. Under this contract,
as it has been amended, the NIH and the NIAID have committed to fund up to $39.8 million, including reimbursement of our direct
expenses and allocated overhead and general and administrative expenses of up to $38.4 million and payment of specified amounts
totaling up to $1.4 million upon our achievement of specified development milestones. We have recorded total revenue of $38.1
million through December 31, 2016 under the NIH agreement. As of December 31, 2016, there was up to $1.9 million of
potential revenue remaining to be earned under the agreement. This commitment extends until July 2018.
We have agreed to a statement of work under the contract, and are obligated to furnish
all the services, qualified personnel, material, equipment, and facilities, not otherwise provided by the U.S. government, needed
to perform the statement of work. In accordance with the laws applicable to government intellectual property rights under federal
contracts, we have a right under our contract with the NIH to elect to retain title to inventions conceived or first reduced to
practice under the NIH and NIAID contract, subject to the right of the U.S. government to a royalty-free license to practice or
have practiced for or on behalf of the United States the subject invention throughout the world. The government also has special
statutory “march-in” rights to license or to require us to license such inventions to third parties under limited
circumstances. In addition, we may not grant to any person the exclusive right to use or sell any such inventions in the United
States unless such person agrees that any products embodying the subject invention or produced through the use of the subject
invention will be manufactured substantially in the United States.
Manufacturing
We currently manufacture our Arcelis-based products, rocapuldencel-T
and AGS-004, for use in our clinical trials of those product candidates at our facilities in Durham, North Carolina, which we refer
to as our Technology Drive and Patriot Center facilities. These facilities include manufacturing suites for the production of products
using our Arcelis technology platform. We have designed these suites to comply with the FDA’s current good manufacturing
practice, or cGMP, requirements. We have manufactured the product for our development and clinical trial activities associated
with rocapuldencel-T and AGS-004 to date, and are manufacturing the product for the ADAPT trial using our current processes at
our current facilities.
In January 2017, we entered into a ten-year lease agreement with
two five-year renewal options for 40,000 square feet of manufacturing and office space at the Center for Technology Innovation,
or CTI, on the Centennial Campus of North Carolina State University in Raleigh, North Carolina. We had intended to utilize this
facility to manufacture rocapuldencel-T to support submission of a BLA to the FDA and to support initial commercialization of rocapuldencel-T.
To provide for capacity expansion beyond the initial few years following
potential launch of rocapuldencel-T, we had planned for the build-out and equip a second facility, which we refer to as the Centerpoint
facility. In August 2014, we entered into a ten-year lease agreement with renewal options. Under the lease agreement, we agreed
to lease certain land and an approximately 125,000 square-foot building to be constructed in Durham County, North Carolina. We
initially intended this facility to house our corporate headquarters and commercial manufacturing before we entered into the lease
for the CTI facility. The shell of the new facility was constructed on a build-to-suit basis in accordance with agreed upon specifications
and plans and was completed in June 2015. However, the build-out and equipping of the interior of the facility was suspended as
we pursued financing arrangements.
Due to the recent IDMC recommendation to discontinue the ADAPT study,
we are currently reassessing our manufacturing plans. We have therefore initiated discussions with the landlords of our CTI facility
and our Centerpoint facility regarding these leases. We believe that our current Technology Drive and Patriot Center facilities
are sufficient for the manufacture of rocapuldencel-T and AGS-004 to support our ongoing clinical trials and any likely near-term
clinical trials that we may initiate.
We have granted exclusive manufacturing rights for rocapuldencel-T to Pharmstandard
in Russia and the other states comprising the Commonwealth of Independent States, to Green Cross in South Korea, to Medinet in
Japan and to Lummy HK in China, Hong Kong, Taiwan and Macau. We have also agreed to enter into an agreement with Pharmstandard
for the manufacture of rocapuldencel-T in the European market.
Sales and Marketing
We hold exclusive commercial rights to all of our product candidates in all geographies
other than rights to rocapuldencel-T in Russia and the other states comprising the Commonwealth of Independent States, which are
held by Pharmstandard, rights to rocapuldencel-T for the treatment of mRCC in South Korea, which are held by Green Cross and rights
to rocapuldencel-T in China, Hong Kong, Taiwan and Macau, which are held by Lummy HK. We have granted to Medinet an exclusive
license to manufacture in Japan rocapuldencel-T for the treatment of mRCC.
We currently intend to retain North American marketing rights for rocapuldencel-T and
any future oncology products that we may develop. To maximize the value of these rights, we would expect to build a commercial
infrastructure for such products comprised of medical, marketing and sales teams as well as a customer service function to manage
patient access and logistics partners associated with rocapuldencel-T production and distribution. Our commercial infrastructure
would also include personnel who manage reimbursement activities with third party payors, such as managed care organizations,
group purchasing organizations, oncology group networks and government accounts. We currently have limited commercial capabilities
and few in-house personnel specializing in these functions. Outside North America, we plan to seek to enter into collaboration
agreements with other pharmaceutical or biotechnology firms to commercialize rocapuldencel-T.
For AGS-004, we plan to seek to enter into collaboration agreements with other pharmaceutical
or biotechnology firms to commercialize this product candidate on a worldwide basis.
Competition
The biotechnology and pharmaceutical industries are highly competitive. There are many
pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged
in the research and development of products that may be similar to or competitive with our products. There are a number of multinational
pharmaceutical companies and large biotechnology companies currently marketing or pursuing the development of products or product
candidates targeting the same indications as our product candidates. It is probable that the number of companies seeking to develop
products and therapies for the treatment of unmet needs in these indications will increase. Some of these competitive products
and therapies are based on scientific approaches that are the same as or similar to our approaches, and others are based on entirely
different approaches.
Many of our competitors, either alone or with their strategic partners, have substantially
greater financial, technical and human resources than we do and significantly greater experience in the discovery and development
of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Our
competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and
may render our product candidates obsolete or non-competitive. We anticipate that we will face intense and increasing competition
as new drugs enter the market and advanced technologies become available. We expect any products that we develop and commercialize
to compete on the basis of, among other things, efficacy, safety, convenience of administration and delivery, price, the level
of generic competition and the availability of reimbursement from government and other third party payors.
mRCC
Historically, mRCC was treated with chemotherapy, radiation and hormonal therapies,
as well as cytokine-based therapies such as interferon-
µ
and IL-2. More recently,
the FDA has approved several targeted therapies as monotherapies for mRCC, including Nexavar (sorafenib), marketed by Bayer Healthcare
Pharmaceuticals, Inc. and Onyx Pharmaceuticals, Inc.; Sutent (sunitinib) and Inlyta (axitinib), marketed by Pfizer, Inc.; Avastin
(bevacizumab), marketed by Genentech, Inc., a member of the Roche Group; Votrient (pazopanib) and Afinitor (everolimus), marketed
by Novartis Pharmaceuticals Corporation; Torisel (temsirolimus), marketed by Pfizer and most recently, Opdivo (nivolumab), marketed
by Bristol-Myers Squibb and Cabometyx (cabozantinib), marketed by Exelixis, for second-line mRCC. In addition, we estimate that
there are numerous therapies for mRCC in clinical development by many public and private biotechnology and pharmaceutical companies
targeting numerous different cancer types and stages. A number of these are in late stage development including Opdivo (nivolumab)
plus Yervoy (ipilimumab) in combination for first-line mRCC, which are currently being compared in a Phase 3 trial to sunitinib.
In addition, if a standalone therapy for mRCC were developed that demonstrated improved efficacy over currently marketed first-line
therapies with a favorable safety profile and without the need for combination therapy, such a therapy might pose a significant
competitive threat to rocapuldencel-T.
Other Oncology Indications
We estimate that there are numerous other cancer immunotherapy products in clinical development
by many public and private biotechnology and pharmaceutical companies targeting numerous different cancer types. A number of these
product candidates are in late-stage clinical development or have recently been approved in different cancer types including two
recently approved checkpoint inhibitor-based immunotherapies, Nivolumab which is marketed by Bristol-Myers Squibb and Pembrolizumab,
which is marketed by Merck. These newer immunotherapies are in addition to the targeted therapies, chemotherapeutics, radiation
therapy, hormonal therapies and cytokine-based therapies used in the treatment in a wide range of oncology indications.
HIV
There are numerous FDA-approved treatments for HIV, primarily antiretroviral therapies,
marketed by large pharmaceutical companies. In addition, generic competition has recently developed as patent exclusivity periods
for older drugs have expired, with more than 15 generic bioequivalents currently on the market. The presence of these generic
drugs is resulting in price pressure in the HIV therapeutics market. Currently, there are no approved therapies for the eradication
of HIV. We expect that major pharmaceutical companies that currently market antiretroviral therapy products or other companies
that are developing HIV product candidates may seek to develop products for the eradication of HIV.
Intellectual Property
Our success depends in part on our ability to obtain and maintain proprietary protection
for our products and product candidates, technology and know-how, to operate without infringing the proprietary rights of others
and to prevent others from infringing our proprietary rights. We are seeking a range of patent and other protections for our product
candidates and platform technology. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing
opportunities to develop and maintain our proprietary position.
Patents
We own or exclusively license 14 U.S. patents and five U.S. patent applications, as
well as approximately 60 foreign counterparts, covering our Arcelis precision immunotherapy technology platform and Arcelis-based
product candidates.
We use our Arcelis precision immunotherapy technology platform to generate individualized
mRNA-loaded dendritic cell immunotherapies. As described above, the process of obtaining a disease sample and dendritic cells
from a patient, using those materials to manufacture an individualized drug product and shipping the drug product to the clinical
site for use in the treatment of the patient involves many important steps. These steps include:
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amplifying mRNA from a disease sample obtained from the patient;
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differentiating dendritic cell precursors (monocytes) isolated from the
patient into immature dendritic cells;
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maturing the immature dendritic cells in culture and loading the mature
dendritic cells with the amplified mRNA and CD40L protein; and
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formulating the matured, loaded dendritic cells in the patient’s
plasma with cryoprotectants to protect the cells in the resulting drug product when the drug product is frozen and thawed.
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We have sought to protect these steps or the equipment related to carrying out one or
more of these steps through patents or trade secrets. We have also sought to protect the resultant drug product through patents.
These patents and patent applications are directed to one or more aspects of our Arcelis
precision immunotherapy technology platform or Arcelis-based products. Specifically, these patents and patent applications are
collectively directed to:
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Arcelis-based compositions of matter and products;
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methods of manufacturing Arcelis-based products;
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methods of using Arcelis-based products for treatment of tumors;
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compositions that we use in the manufacture of Arcelis-based AGS-004
products; and
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equipment
would be used for assisting the automated manufacture of Arcelis-based
products.
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We believe that all of the above aspects of our Arcelis precision immunotherapy technology
platform are required to successfully and efficiently produce our Arcelis-based product candidates and are covered by a combination
of our patents, patent applications, trade secrets and know-how. The U.S. patents expire between 2021 and 2029, and the U.S. patent
applications, if issued, would expire between 2025 and 2029, the counterpart patents in Europe and Japan expire between 2017 and
2027, and the counterpart patent applications in Europe and Japan, if issued, would expire between 2025 and 2027. Included in
these patents and patent applications are:
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two European patents and two Japanese patents that are collectively directed
toward the composition of matter of Arcelis-based products (dendritic cells loaded with RNA from tumors or pathogens), and
methods of manufacture of these products. The patents in Europe and Japan expire in 2017.
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six U.S. patents, one U.S. patent application and corresponding patent
application in Europe and patent in Japan collectively directed towards an automated apparatus for the manipulation of nucleic
acids in a closed container, components thereof and related methods of use. The U.S. and Japanese patents expire in 2027,
and the patent applications in the United States and Europe, if issued, would expire in 2027.
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one U.S. patent and corresponding European and Japanese patents collectively
directed towards cryoconserved dendritic cells and related methods of manufacture. The U.S., European and Japanese patents
expire in 2021.
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four U.S. patents and two U.S. patent applications, two corresponding
European patents, two corresponding Japanese patents and a corresponding patent application in Europe collectively directed
towards methods of maturing dendritic cells and the composition of matter of dendritic cells that have undergone this maturation
process. The U.S. patents expire in 2026 and the U.S. applications, if issued, would expire in 2025, the European patents
expire in 2025 and 2027, the Japanese patents expire in 2025 and 2027 and the patent application in Europe, if issued, would
expire in 2025.
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one U.S. patent and corresponding patent application in Europe and patent
in Japan collectively directed towards methods of manufacture of dendritic cells from monocytes stored for more than six hours
and up to four days without freezing and the composition of matter of dendritic cells that have been manufactured from these
monocytes. The U.S. patent will expire in 2029, the Japanese patent will expire in 2026 and the patent application in Europe,
if issued, would expire in 2026.
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one U.S. patent and one U.S. patent application, two patents in Europe
and one patent in Japan are collectively directed towards the composition of matter of AGS-004 and related methods of manufacture.
The U.S. patent expires in 2026. The U.S. patent application if issued, would expire in 2025. The European and Japanese patents
will expire in 2025.
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one U.S. patent and one U.S. patent application are directed towards
the composition of matter and related methods of use of some of the primers that we use in the manufacture of AGS-004. The
U.S. patent and U.S. patent application, if issued, will expire in 2028.
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In addition, if the use of Arcelis-based products for the treatment of RCC and HIV are
approved by the FDA, then, depending upon factors such as the timing and duration of FDA review and the timing and conditions
of FDA approval, as well as factors such as patent claim scope, some of our issued U.S. patents (or patents that may issue from
our pending U.S. patent applications) may be eligible for limited patent term extension under the Hatch-Waxman Act.
Trade Secrets
In addition to patents, we rely on trade secrets and know-how to develop and maintain
our competitive position. For example, significant aspects of the process by which we manufacture or plan to automate manufacturing
of our Arcelis-based drug product candidates are based on unpatented trade secrets and know-how. Trade secrets and know-how can
be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and
invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These
agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant
us ownership of technologies that are developed through a relationship with a third party. We also seek to preserve the integrity
and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and
electronic security of our information technology systems. Although 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.
Key Licenses
We are party to a number of license agreements that are important to our business.
Duke University
. Pursuant to a 2000 agreement with Duke University, we hold
an exclusive worldwide license to specified patents, patent applications and know-how owned or otherwise controlled by Duke, including
for use in the development, manufacture and commercialization of dendritic cells loaded with tumor or pathogen RNA. Under the
agreement, we:
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must pay all costs of prosecution and maintenance of the licensed patent
rights;
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must pay an annual minimum royalty to Duke beginning with the calendar
year beginning the second January 1 after first approval of a licensed product approved by the FDA or a comparable regulatory
authority in a foreign country or any sale of a licensed product that does not require regulatory approval; and
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must pay low single-digit percentage royalties, subject to reduction
in specified circumstances, to Duke on net sales of licensed products, which are creditable against the annual minimum royalty.
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We are required to use reasonable commercial diligence to research, develop and market
licensed products, to develop manufacturing capabilities, and to sublicense those patent rights for applications which we are
not pursuing. If we fail to satisfy these obligations and do not cure such failure after receiving written notice from Duke, Duke
may terminate the agreement or convert it to a nonexclusive license.
We may terminate our agreement with Duke at any time upon three months’ written
notice. The agreement will terminate upon expiration of the last to expire of the patent rights licensed under the agreement.
The U.S. patents licensed under the agreement expired in April 2016 and the patents licensed under the agreement in Europe and
Japan expire April 30, 2017. Either party may terminate the agreement upon written notice for fraud, willful misconduct or illegal
conduct of the other party that materially adversely affects the terminating party. If either party fails to fulfill any of its
material obligations under the agreement, subject to a cure process specified in the agreement, the non-breaching party may terminate
the agreement. A party’s ability to cure a breach will only apply to the first two breaches. In addition, the agreement
will terminate if we become insolvent, bankrupt or placed in the hands of a receiver or trustee.
Development and Commercialization Agreements
An important part of our business strategy is to enter into arrangements with third
parties for the development and commercialization of our product candidates.
Pharmstandard.
In August 2013, in connection with the purchase of shares
of our series E preferred stock by Pharmstandard, we entered into an exclusive royalty-bearing license agreement with Pharmstandard.
Under this license agreement, we granted Pharmstandard and its affiliates a license, with the right to sublicense, to develop,
manufacture and commercialize rocapuldencel-T and other products for the treatment of human diseases, which are developed by Pharmstandard
using our individualized immunotherapy platform, in the Russian Federation, Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan,
Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan, which we refer to as the Pharmstandard Territory. We also
provided Pharmstandard with a right of first negotiation for development and commercialization rights in the Pharmstandard Territory
to specified additional products we may develop.
Under the terms of the license agreement, Pharmstandard licensed us rights to clinical
data generated by Pharmstandard under the agreement and granted us an option to obtain an exclusive license outside of the Pharmstandard
Territory to develop and commercialize improvements to our Arcelis technology generated by Pharmstandard under the agreement,
a non-exclusive worldwide royalty-free license to Pharmstandard improvements to manufacture products using our Arcelis technology
and a license to specified follow-on licensed products generated by Pharmstandard outside of the Pharmstandard Territory, each
on terms to be negotiated upon our request for a license. In addition, Pharmstandard agreed to pay us pass-through royalties on
net sales of all licensed products in the low single digits until it has generated a specified amount of aggregate net sales.
Once the net sales threshold is achieved, Pharmstandard will pay us royalties on net sales of specified licensed products, including
rocapuldencel-T, in the low double digits below 20%. These royalty obligations last until the later of the expiration of specified
licensed patent rights in a country or the twelfth anniversary of the first commercial sale in such country on a country by country
basis and no further royalties on specified other licensed products. After the net sales threshold is achieved, Pharmstandard
has the right to offset a portion of the royalties Pharmstandard pays to third parties for licenses to necessary third party intellectual
property against the royalties that Pharmstandard pays to us.
The agreement will terminate upon expiration of the royalty term, upon which all licenses
will become fully paid up perpetual exclusive licenses. Either party may terminate the agreement for the other party’s uncured
material breach or if specified conditions occur relating to the other party’s insolvency or bankruptcy and we may terminate
the agreement if Pharmstandard challenges or assists a third party in challenging specified patent rights of ours. If Pharmstandard
terminates the agreement upon our material breach or bankruptcy, Pharmstandard is entitled to terminate our licenses to improvements
generated by Pharmstandard, upon which we may come to rely for the development and commercialization of rocapuldencel-T and other
licensed products outside of the Pharmstandard Territory, and Pharmstandard is entitled to retain its licenses from us and to
pay us substantially reduced royalty payments following such termination.
In November 2013, we entered into an agreement with Pharmstandard under which Pharmstandard
purchased additional shares of our series E preferred stock. Under this agreement, we agreed to enter into a manufacturing rights
agreement for the European market with Pharmstandard and that the manufacturing rights agreement would provide for the issuance
of warrants to Pharmstandard to purchase 499,788 shares of our common stock at an exercise price of $5.82 per share. As of March
16, 2017, we had not entered into this manufacturing rights agreement or issued the warrants.
Green Cross.
In July 2013, in connection with the purchase of our series
E preferred stock by Green Cross, we entered into an exclusive royalty-bearing license agreement with Green Cross. Under this
agreement we granted Green Cross a license to develop, manufacture and commercialize rocapuldencel-T for mRCC in South Korea.
We also provided Green Cross with a right of first negotiation for development and commercialization rights in South Korea to
specified additional products we may develop.
Under the terms of the license, Green Cross has agreed to pay us $500,000 upon the initial
submission of an application for regulatory approval of a licensed product in South Korea, $500,000 upon the initial regulatory
approval of a licensed product in South Korea and royalties ranging from the mid-single digits to low double digits below 20% on
net sales until the fifteenth anniversary of the first commercial sale in South Korea. In addition, Green Cross has granted us
an exclusive royalty free license to develop and commercialize all Green Cross improvements to our licensed intellectual property
in the rest of the world, excluding South Korea, except that, as to such improvements for which Green Cross makes a significant
financial investment and that generate significant commercial benefit in the rest of the world, we are required to negotiate in
good faith a reasonable royalty that we will be obligated to pay to Green Cross for such license. Under the terms of the agreement,
we are required to continue to develop and to use commercially reasonable efforts to obtain regulatory approval for rocapuldencel-T
in the United States.
The agreement will terminate upon expiration of the royalty term, which is 15 years
from the first commercial sale, upon which all licenses will become fully paid up perpetual non-exclusive licenses. Either party
may terminate the agreement for the other party’s uncured material breach or if specified conditions occur relating to the
other party’s insolvency or bankruptcy and we may terminate the agreement if Green Cross challenges or assists a third party
in challenging specified patent rights of ours. If Green Cross terminates the agreement upon our material breach or bankruptcy,
Green Cross is entitled to terminate our licenses to improvements and retain its licenses from us and to pay us substantially
reduced milestone and royalty payments following such termination.
Medinet.
In December 2013, we entered into a license agreement with Medinet.
Under this agreement, we granted Medinet an exclusive, royalty-free license to manufacture in Japan rocapuldencel-T and other
products using our Arcelis technology solely for the purpose of the development and commercialization of rocapuldencel-T and these
other products for the treatment of mRCC. We refer to this license as the manufacturing license. In addition, under this agreement,
we granted Medinet an option to acquire a nonexclusive, royalty-bearing license under our Arcelis technology to sell in Japan
rocapuldencel-T and other products for the treatment of mRCC. We refer to the option as the sale option and the license as the
sale license.
The sale option expired on April 30, 2016. As a result, Medinet may only manufacture
rocapuldencel-T and these other products for us or our designee. We have agreed to negotiate in good faith a supply agreement
under which Medinet would supply us or our designee with rocapuldencel-T and these other products for development and sale for
the treatment of mRCC in Japan. During the term of the manufacturing license, we may not manufacture rocapuldencel-T or these
other products for us or any designee for development or sale for the treatment of mRCC in Japan.
In consideration for the manufacturing license, Medinet paid us $1.0 million. Medinet
also loaned us $9.0 million in connection with us entering into the agreement. We have agreed to use these funds in the development
and manufacturing of rocapuldencel-T and the other products. Medinet also agreed to pay us milestone payments of up to a total
of $9.0 million upon the achievement of developmental and regulatory milestones and $5.0 million upon the achievement of a sales
milestone related to rocapuldencel-T and these products.
We borrowed the $9.0 million pursuant to an unsecured promissory note that bears interest
at a rate of 3.0 % per annum. The principal and interest under the note are due and payable on December 31, 2018. Under
the terms of the note and the manufacturing license agreement, any milestone payments related to the developmental and regulatory
milestones that become due will be applied first to the repayment of the loan. The first milestone with a $1.0 million payment
was achieved in July 2015 and the second milestone with a $2.0 million payment was achieved in June 2016, reducing the outstanding
principal of the loan as of December 31, 2016 to $6.0 million. We have the right to prepay the loan at any time. If we have not
repaid the loan by December 31, 2018, then we have agreed to grant to Medinet a non-exclusive, royalty-bearing license to
make and sell Arcelis products in Japan for the treatment of cancer. In such event, the amounts owing under the loan as of December 31,
2018 may constitute pre-paid royalties under the license or would be due and payable. Royalties under this license would be paid
until the expiration of the licensed patent rights in Japan at a rate to be negotiated. If we cannot agree on the royalty rate,
we have agreed to submit the matter to arbitration.
Under the agreement, we have the right to revoke both the manufacturing license and the
sale license to be granted to Medinet or the sale license only. If we exercise this right, we will be obligated to make a one-time
payment to Medinet calculated based on the nonroyalty payments made to us by Medinet under the agreement, repay the outstanding
amount due under the loan and assume certain obligations of Medinet, and Medinet will be obligated to assist us in transitioning
the relevant rights in Japan to us or a party that we designate. If we exercise our revocation right with respect to the sale license
only, the one-time payment will equal the total amount of nonroyalty payments. If we exercise our revocation right with respect
to the manufacturing license and the sale license, the one-time payment will equal 150% or 200% of the nonroyalty payments depending
on the timing of the exercise of the revocation right.
The agreement will terminate upon expiration of the royalty term, upon which all licenses
will become fully paid up, perpetual non-exclusive licenses. Either party may terminate the agreement for the other party’s
uncured material breach or if specified conditions occur relating to the other party’s insolvency or bankruptcy, and we
may terminate the agreement if Medinet challenges or assists a third party in challenging specified patent rights of ours. If
Medinet terminates the agreement upon our material breach or bankruptcy, Medinet is entitled to terminate our licenses to improvements
and retain its royalty-bearing licenses from us.
Lummy
.
On April 7, 2015, we and Lummy HK entered into a license
agreement pursuant to which we granted to Lummy HK an exclusive license under the Arcelis technology, including patents, know-how
and improvements to manufacture, develop and commercialize products for the treatment of cancer in China, Hong Kong, Taiwan and
Macau. Lummy HK also has a right of first negotiation with respect to a license under the Arcelis technology for the treatment
of infectious diseases in China, Hong Kong, Taiwan and Macau. This agreement was subsequently amended in December 2016.
Under the terms of the license agreement, the parties will share relevant data, and
we will have a right to reference Lummy HK data for purposes of its development programs under the Arcelis technology. In addition,
Lummy HK has granted to us an exclusive, royalty-free license under and to any and all Lummy HK improvements to the Arcelis technology
conceived or reduced to practice by Lummy HK and Lummy HK data to develop and/or commercialize products outside China, Hong Kong,
Taiwan and Macau, an exclusive, royalty-free license under and to any and all INDs and other regulatory approvals and Lummy HK
trademarks used for an Arcelis-Based Product to develop and/or commercialize an Arcelis-Based Product outside China, Hong Kong,
Taiwan and Macau and a non-exclusive, worldwide, royalty-free license under any Lummy HK improvements and Lummy HK data to manufacture
Arcelis-Based Products anywhere in the world. Lummy HK has the right to reference our data, INDs and other regulatory filings
and submissions for the purpose of developing and obtaining regulatory approval of licensed products in China, Hong Kong, Taiwan
and Macau.
Pursuant to the license agreement, Lummy HK will pay us royalties on net sales and up
to an aggregate of up to $20.5 million upon the achievement of manufacturing, regulatory and commercial milestones. The license
agreement will terminate upon expiration of the last to expire royalty term for all Arcelis-Based Products, with each royalty
term being the longer of the expiration of the last valid patent claim covering the applicable Arcelis-Based Product and 10 years
from the first commercial sale of such Arcelis-Based Product. Either party may terminate the license agreement for the other party’s
uncured material breach or if specified conditions occur relating to the other party’s insolvency or bankruptcy. We
may terminate the license agreement if Lummy HK challenges or assists a third party in challenging specified patent rights of
ours. If Lummy HK terminates the license agreement upon our material breach or bankruptcy, Lummy HK is entitled to terminate the
licenses it granted to us and retain its licenses from us with respect to Arcelis-Based Products then in development or being
commercialized, subject to Lummy HK’s continued obligation to pay royalties and milestones with respect to such Arcelis-Based
Products.
Invetech.
On October, 29, 2014, we entered into a development agreement with Invetech
Pty Ltd, or Invetech. The development agreement supersedes and replaces the development agreement entered into by the parties as
of July 20, 2005. Under the development agreement, Invetech agreed to continue to develop and provide prototypes of the automated
production system to be used for the manufacture of our Arcelis-based products, or the Production Systems. Development services
will be performed on a proposal by proposal basis. Invetech has agreed to defer 30% of its fees, but such deferral may not exceed
$5,000,000. We are paying these deferred fees (plus interest of 7% per annum) pursuant to an installment plan (eight installments
payable within the first two years after December 31, 2016). We are currently renegotiating the terms of the development agreement
related to the deferred fees, and are in discussions with Invetech regarding the repayment of the fees, including the potential
conversion of some or all of the outstanding fees into equity of the Company.
The development agreement requires the parties to discuss in good faith Invetech’s
supply of Production Systems for use in manufacturing commercial product. We have an obligation to purchase $25.0 million worth
of Production Systems, components, subsystems and spare parts for commercial use. Once that obligation has been satisfied,
we have the right to have a third party supply Production Systems for use in manufacturing commercial product, provided that Invetech
has a right of first refusal with respect to any offer by a third party and we may not accept an offer from a third party unless
that offer is at a price that is less than that offered by Invetech and otherwise under substantially the same or better terms. We
will own all intellectual property arising from the development services (with the exception of existing Invetech intellectual
property incorporated therein-under which we will have a license). The term of the development agreement will continue until
the completion of the development of the Production Systems. The development agreement can be terminated early by either party
because of a technical failure or by us without cause.
Saint-Gobain.
In January 2015, we entered into a development agreement with Saint-Gobain
Performance Plastics Corporation, or Saint Gobain, that was subsequently amended in December 2015 and 2016. Under the agreement,
Saint-Gobain agreed to develop a range of disposables for use in our automated production systems to be used for the manufacture
of our Arcelis-based products, which we refer to as the Disposables. We expect total development fees and expenses incurred under
the Saint-Gobain Agreement to be approximately $8.6 million, of which $2.1 million has been paid to date and $6.5 million has been
accrued as of December 31, 2016. We have also agreed separately to purchase $3.5 million in Disposables under the agreement during
2017. The Saint-Gobain agreement requires the parties to execute a commercial supply agreement under which Saint-Gobain would become
the exclusive supplier of Disposables for the manufacture of our products treating solid tumors for no less than fifteen years
by March 31, 2017. The Saint-Gobain agreement will continue until December 31, 2017, but can be terminated earlier by written agreement
of the parties because of a material default, including the failure to execute the commercial supply agreement, or a failure to
achieve a performance milestone. We are currently in discussions with Saint Gobain regarding modification of the terms for the
commercial supply agreement and payment of the development fees including a potential conversion of some or all of the outstanding
fees into equity of the Company.
Cellscript.
In December 2015, we entered into a development and supply agreement
with Cellscript, LLC. Under the agreement, Cellscript has agreed to develop cGMP processes for the manufacture and production
of CD40L RNA, a ribonucleic acid used in the production of our Arcelis -based products, and to manufacture and produce CD40L RNA.
In consideration for these development and production services, we have agreed to pay
Cellscript total fees of $4,600,000. Upon the execution of the agreement, we made an initial payment to Cellscript of $2,000,000
through the issuance to Cellscript of 906,194 shares of our common stock. The balance of these fees are payable to Cellscript,
at our option, in cash, common stock or a combination of cash and common stock upon the achievement of development milestones.
Any shares of common stock issued pursuant to the agreement are subject to a lock-up period of 180 days from the date of issuance
of such shares to Cellscript.
Under the terms of the agreement, Cellscript shall be the sole and exclusive manufacturer
and supplier to us of CD40L RNA, and we will make agreed upon cash payments to Cellscript for CD40L RNA produced for us during
the term of the Agreement. Under the agreement, Cellscript shall also be our sole and exclusive supplier of enzymes and various
kits comprising enzymes for transcription, capping and/or polyadenylation of RNA. We will make agreed upon cash payments to Cellscript
amounts for each kit that is purchased under the agreement.
The agreement will continue until the earlier of (i) December 31, 2017 or (ii) the effective
date of a commercial supply agreement negotiated in good faith by the parties, but can be earlier terminated by either party due
to a material breach or upon bankruptcy of the other party.
Government Regulation
Government authorities in the United States, at the federal, state and local level,
and in other countries extensively regulate, among other things, the research, development, testing, manufacture, including any
manufacturing changes, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import and
export of pharmaceutical and biological products such as those we are developing and may market. The processes for obtaining regulatory
approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes and regulations,
require the expenditure of substantial time and financial resources.
U.S. Drug and Biological Product Approval Process
In the United States, the FDA regulates drugs and biological products under the federal
Food, Drug, and Cosmetic Act, or FDCA, the Public Health Service Act, or PHSA, and implementing regulations. The process of obtaining
regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations
requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements
at any time during the product development process, approval process or after approval, may subject an applicant to a variety
of administrative or judicial sanctions, such as the FDA’s refusal to approve pending applications, withdrawal of an approval,
imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal
penalties.
The process required by the FDA before a drug or biological product may be marketed
in the United States generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation
studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;
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submission to the FDA of an IND which must become effective before human
clinical trials may begin;
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approval by an independent institutional review board, or IRB, at each
clinical site before each trial may be initiated;
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performance of adequate and well-controlled human clinical trials in
accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug or biological product
for each indication;
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submission to the FDA of a new drug application, or NDA, or a BLA;
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satisfactory completion of an FDA advisory committee review, if applicable;
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satisfactory completion of an FDA inspection of the manufacturing facility
or facilities at which the product is produced to assess compliance with cGMP, and to assure that the facilities, methods
and controls are adequate to preserve the drug’s identity, strength, quality and purity; and
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FDA review and approval of the NDA or BLA.
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Preclinical Studies
. Preclinical studies include laboratory evaluation of
product chemistry, toxicity and formulation, as well as animal studies to assess its potential safety and efficacy. An IND sponsor
must submit the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical
data or literature, among other things, to the FDA as part of an IND. Some preclinical testing may continue even after the IND
is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises
concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such
a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission
of an IND may not result in the FDA allowing clinical trials to commence.
Clinical Trials
. Clinical trials involve the administration of the investigational
new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include
the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial.
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 protocol for each clinical trial and any subsequent
protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in
the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information
about certain clinical trials must be submitted within specific timeframes to the NIH for public dissemination on their ClinicalTrials.gov
website.
Human clinical trials are typically conducted in three sequential phases, which may
overlap or be combined:
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Phase 1: The drug or biological product is initially introduced into
healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption,
metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness.
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Phase 2: The drug or biological product is administered to a limited
patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product
for specific targeted diseases and to determine dosage tolerance and optimal dosage.
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Phase 3: The drug or biological product is administered to an expanded
patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate
enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit
profile of the product, and to provide adequate information for the labeling of the product.
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Progress reports detailing the results of the clinical trials must be submitted at least
annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not
be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate
a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable
health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial
is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious
harm to patients.
Special Protocol Assessment
. The SPA process is designed to facilitate the
FDA’s review and approval of drug and biological products by allowing the FDA to evaluate the proposed design and size of
Phase 3 clinical trials that are intended to form the primary basis for determining a drug or biological product’s efficacy.
Upon specific request by a clinical trial sponsor, the FDA will evaluate the trial protocol and respond to a sponsor’s questions
regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request.
The FDA ultimately assesses whether the trial protocol design and planned analysis of the trial adequately address objectives
in support of a regulatory submission. All agreements and disagreements between the FDA and the sponsor regarding an SPA must
be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA.
Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed
under an SPA, the FDA may revoke or alter its agreement under the following circumstances:
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public health concerns emerge that were unrecognized at the time of the
protocol assessment;
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a sponsor fails to follow a protocol that was agreed upon with the FDA;
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the relevant data, assumptions, or information provided by the sponsor
in a request for SPA change are found to be false statements or misstatements or are found to omit relevant facts; or
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the FDA and the sponsor agree in writing to modify the trial protocol
and such modification is intended to improve the study.
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Marketing Approval
. Assuming successful completion of the required clinical
testing, the results of the preclinical and clinical studies, together with detailed information relating to the product’s
chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA or BLA
requesting approval to market the product for one or more indications. In most cases, the submission of an NDA or BLA is subject
to a substantial application user fee.
In addition, under the Pediatric Research Equity Act of 2003, or PREA, as amended and
reauthorized, an NDA, BLA or supplement to an NDA or BLA for certain types of new drug or biological products must contain data
that are adequate to assess the safety and effectiveness of the drug or biological product for the claimed indications in all
relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product
is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of
some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric
data requirements. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan
designation.
The Food and Drug Administration Safety and Innovation Act, or FDASIA, amended the FDCA
and requires that a sponsor who is planning to submit a marketing application for a drug or biological product that includes a
new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric
Study Plan, or PSP, within sixty days of an end-of-phase 2 meeting or as may be agreed between the sponsor and FDA. The initial
PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and
design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information,
and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric
studies along with supporting information. FDA and the sponsor must reach agreement on the PSP. A sponsor can submit amendments
to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from
nonclinical studies, early phase clinical trials, or other clinical development programs.
The FDA also could require submission of a risk evaluation and mitigation strategy,
or REMS, plan to mitigate any identified or suspected serious risks. The REMS plan could include medication guides, physician
communication plans, assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries,
or other risk minimization tools.
The FDA conducts a preliminary review of all NDAs and BLAs within the first 60 days
after submission before accepting them for filing to determine whether they are sufficiently complete to permit substantive review.
The FDA may request additional information rather than accept an NDA or BLA for filing. In this event, the application must be
resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for
filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA or BLA
to determine, among other things, whether the product is safe and effective (described as safe, pure and potent for BLAs) and
the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued
safety, purity and potency. The FDA is required to refer an application for a novel drug or biological product to an advisory
committee or explain why such referral was not made. An advisory committee is a panel of independent experts, including clinicians
and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved
and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations
carefully when making decisions.
Before approving an NDA or BLA, the FDA typically will 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 an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure
compliance with GCP and integrity of the clinical data submitted.
The testing and approval process requires substantial time, effort and financial resources,
and each may take several years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible
to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely
basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to develop our product candidates and secure
necessary governmental approvals, which could delay or preclude us from marketing our products.
If the FDA’s evaluation of the NDA or BLA and inspection of the manufacturing
facilities and clinical trial sites are favorable, the FDA may issue an approval letter, or, in some cases, a complete response
letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final
approval of the NDA or BLA and may require additional clinical or preclinical testing in order for FDA to reconsider the application.
If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An
approval letter authorizes commercial marketing of the drug or biological product with specific prescribing information for specific
indications. Even with submission of this additional information, the FDA ultimately may decide that the application does not
satisfy the regulatory criteria for approval.
Even if the FDA approves a product, it may limit the approved indications for use for
the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval
studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing
and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions
or other risk management mechanisms, which can materially affect the potential market and profitability of the product. The FDA
may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After
approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional
labeling claims, are subject to further testing requirements and FDA review and approval.
Special FDA Expedited Review and Approval Programs
. The FDA has various
programs, including fast track designation, accelerated approval and priority review, that are intended to expedite or simplify
the process for the development and FDA review of drug and biological products that are intended for the treatment of serious
or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these
programs is to provide important new drugs to patients earlier than under standard FDA review procedures.
To be eligible for a fast track designation, the FDA must determine, based on the request
of a sponsor, that a product is intended to treat a serious aspect of a serious or life threatening disease or condition and will
fill an unmet medical need. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy
where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors.
In addition, the FDA may give a priority review designation to drugs or biological products
that provide safe and effective therapy where no satisfactory alternative exists or a significant improvement compared to marketed
products in the treatment, diagnosis or prevention of a disease. For products regulated by the Center for Biologics Evaluation
and Research, or CBER, the product must be intended to treat a serious or life- threatening disease or condition. A priority review
means that the targeted time for the FDA to review an application is six months, rather than ten months. Most products that are
eligible for fast track designation are also likely to be considered appropriate to receive a priority review.
Under the provisions of the Food and Drug Administration Safety and Innovation Act,
or FDASIA, enacted in 2012, a sponsor also can request designation of a product candidate as a “breakthrough therapy.”
A breakthrough therapy is defined as a drug or biological product that is intended, alone or in combination with one or more other
drugs or biological products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates
that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints,
such as substantial treatment effects observed early in clinical development. Products designated as breakthrough therapies are
also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice,
intended to expedite the development and review of an application for approval of a breakthrough therapy.
Even if a product qualifies for one or more of these programs, the FDA may later decide
that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will
not be shortened.
Post-Approval Requirements
. Any drug or biological products manufactured
or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among
other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion
and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new
indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual user fee
requirements for any marketed products and the establishments at which such products are manufactured, as well as new application
fees for supplemental applications with clinical data.
The FDA may impose a number of post-approval requirements as a condition of approval
of an NDA or BLA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance
to further assess and monitor the product’s safety and effectiveness after commercialization. Regulatory approval of oncology
products often requires that patients in clinical trials be followed for long periods to determine the overall survival benefit
of the drug or biologic.
In addition, drug manufacturers and other entities involved in the manufacture and distribution
of approved drugs and biological products are required to register their establishments with the FDA and state agencies, and are
subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes
to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations
also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon
us and any third party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money,
and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory
requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes,
or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information;
imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions
under a REMS program. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, complete
withdrawal of the product from the market or product recalls;
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fines, warning letters or holds on post-approval clinical trials;
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refusal of the FDA to approve pending applications or supplements to
approved applications, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export
of products; or
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injunctions or the imposition of civil or criminal penalties.
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The FDA strictly regulates marketing, labeling, advertising and promotion of products
that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of
the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off label
uses, and a company that is found to have improperly promoted off label uses may be subject to significant liability.
In addition, the distribution of prescription pharmaceutical and biological products
is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the
federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA
and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability
in distribution.
Exclusivity and Approval of Competing Products
Non-Patent Exclusivity
. Under the Patient Protection and Affordable Care
Act, or PPACA, newly- approved biological products may benefit from statutory periods of non-patent data and marketing exclusivity.
The PPACA, among other things, permits the FDA to approve biosimilar or interchangeable versions of biological products through
an abbreviated approval pathway following periods of data and marketing exclusivity. Biological products that are considered to
be “reference products” are granted two overlapping periods of data and marketing exclusivity: a four-year period
during which no abbreviated biologics license application, or abbreviated BLA, relying upon the reference product may be submitted
to the FDA, and a twelve-year period during which no abbreviated BLA relying upon the reference product may be approved by FDA.
For purposes of the PPACA, a reference product is defined as the single biological product licensed under a full BLA against which
a biological product is evaluated in an application submitted under an abbreviated BLA.
We believe that our investigational products, if approved via full BLAs, will be considered
“reference products” that are entitled to both four-year and twelve-year exclusivity under the PPACA. The FDA, however,
has not issued any regulations or final guidance explaining how it will implement the PPACA, including the exclusivity provisions
for reference products. Since February 2012, the FDA has issued six draft guidance documents that provide its preliminary thoughts
on how to interpret and implement the abbreviated BLA provisions of the PPACA. The FDA has requested public comments on these
draft guidance documents, including the proper interpretation of PPACA exclusivity provisions. It is thus possible that the FDA
will decide to interpret the PPACA in such a way that our products are not considered to be reference products for purposes of
the PPACA or be entitled to any period of data or marketing exclusivity. Even if our products are considered to be reference products
and obtain exclusivity under the PPACA, another company nevertheless could also market a competing version of any of our biological
products if such company can complete, and the FDA permits the submission of and approves, a full BLA. Although protection under
PPACA will not prevent the submission or approval of another “full” BLA, the applicant would be required to conduct
its own preclinical and adequate and well-controlled clinical trials to demonstrate safety, purity, and potency (i.e., effectiveness).
Pediatric Exclusivity
. Pediatric exclusivity is another type of non-patent
marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing
protection to the term of any existing regulatory exclusivity, including the four- and 12-year non-patent exclusivity periods
described above. This six-month exclusivity may be granted based on the voluntary completion of a pediatric study or studies in
accordance with an FDA-issued “Written Request” for such a study or studies.
Orphan Drug Designation and Exclusivity
. Under the Orphan Drug Act, the
FDA may grant orphan drug designation to a drug (including a biologic) intended to treat a rare disease or condition, which is
generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals
in the United States and for which there is no reasonable expectation that the cost of developing and making available in the
United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan
drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity
of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.
If a product that has orphan drug designation subsequently receives the first FDA approval
for 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 NDA or full BLA, to market the same drug for the same indication
for seven years. For purposes of small molecule drugs, the FDA defines “same drug” as a drug that contains the same
active moiety and is intended for the same use as the previously approved orphan drug. For purposes of large molecule drugs, the
FDA defines “same drug” as a drug that contains the same principal molecular structural features, but not necessarily
all of the same structural features, and is intended for the same use as the drug in question. Notwithstanding the above definitions,
a drug that is clinically superior to an orphan drug will not be considered the “same drug” and thus will not be blocked
by orphan drug exclusivity.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for
a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing
rights in the United States may be lost if the FDA later determines that the request for designation was materially defective
or if the manufacturer is unable to assure sufficient quantities of the drug to meet the needs of patients with the rare disease
or condition.
The FDA also administers a clinical research grants program, whereby researchers may
compete for funding to conduct clinical trials to support the approval of drugs, biologics, medical devices, and medical foods
for rare diseases and conditions. An application for an orphan grant should propose one discrete clinical trial to facilitate
FDA approval of the product for a rare disease or condition. The study may address an unapproved new product or an unapproved
new use for a product already on the market.
Foreign Regulation
Although we do not currently market any of our products outside the United States and
have no current plans to engage in product commercialization outside the United States, we may decide to do so in the future.
In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements
of other countries regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization,
commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain
the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence clinical trials or
marketing of the product in those countries. The approval process varies from country to country and can involve additional product
testing and additional administrative review periods, and may be otherwise complicated by some of our products and product candidates
being controlled substances. The time required to obtain approval in other countries might differ from and be longer than that
required to obtain FDA approval. Regulatory approval in one country does not ensure regulatory approval in another, but a failure
or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any drug
products for which we obtain regulatory approval. Sales of any of our product candidates, if approved, will depend, in part, on
the extent to which the costs of the products will be covered by third party payors, including government health programs such
as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor
will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the
payor will pay for the drug product once coverage is approved. Third party payors may limit coverage to specific drug products
on an approved list, or formulary, which might not include all of the approved drugs for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved
for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost- effectiveness
of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Our product candidates
may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does
not imply that an adequate reimbursement rate will be approved. Third party reimbursement may not be sufficient to enable us to
maintain price levels high enough to realize an appropriate return on our investment in product development.
The containment of healthcare costs has become a priority of federal, state and foreign
governments, and the prices of drugs have been a focus in this effort. Third party payors are increasingly challenging the prices
charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services,
in addition to their safety and efficacy. If these third party payors do not consider our products to be cost-effective compared
to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the
level of payment may not be sufficient to allow us to sell our products at an appropriate return on investment. The U.S. government,
state legislatures and foreign governments have shown significant interest in implementing cost-containment programs to limit
the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for
substitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive
policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals such as the drug product
candidates that we are developing and could adversely affect our net revenue and results.
Pricing and reimbursement schemes vary widely from country to country. Some countries
provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion
of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies.
For example, the European Union provides options for its member states to restrict the range of drug products for which their
national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European
Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls
on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own
prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly
prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products.
In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing
within a country. There can be no assurance that any country that has price controls or reimbursement limitations for drug products
will allow favorable reimbursement and pricing arrangements for any of our products.
The marketability of any products for which we receive regulatory approval for commercial
sale may suffer if the government and third party payors fail to provide adequate coverage and reimbursement. In addition, emphasis
on managed care in the United States has increased and we expect will continue to increase the pressure on drug pricing. Coverage
policies, third party reimbursement rates and drug pricing regulation may change at any time. In particular, the PPACA and a related
reconciliation bill, which we collectively refer to as the Affordable Care Act or ACA, contain provisions that may reduce the
profitability of drug products, including, for example, increased rebates for covered outpatient drugs sold to Medicaid programs,
extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries, and
annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Even if favorable coverage
and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage
policies and reimbursement rates may be implemented in the future.
New Legislation and Regulations
From time to time, legislation is drafted, introduced and passed in Congress that could
significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products regulated
by the FDA. For example, the FDASIA and PPACA provisions discussed above were enacted in 2012 and 2010, respectively.
Numerous statements made by President Trump and members of the U.S. Congress indicate
that it is likely that legislation will be passed by Congress and signed into law by President Trump that repeals the PPACA, in
whole or in part, and/or introduces a new form of health care reform. It is unclear at this point what the scope of such legislation
will be and when it will become effective. Because of the uncertainty surrounding this replacement health care reform legislation,
we cannot predict with any certainty the likely impact of the PPACA’s repeal or the adoption of any other health care reform
legislation on our business. Whether or not there is alternative health care legislation enacted in the United States, there is
likely to be significant disruption to the health care market in the coming months and years.
In addition to potential for new legislation, FDA regulations and policies are often
revised or interpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict
whether further legislative changes will be enacted, or FDA regulations, guidance, policies or interpretations changed or what
the impact of such changes, if any, may be.
Segment and Geographic Information
Operating segments are defined as components of an enterprise engaging in business activities
from which it may earn revenues and incur expenses, for which discrete financial information is available and whose operating
results are regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
We view our operations and manage our business in one operating segment and all of our operations are in North America.
Employees
As of January 31, 2017, we had 122 employees, including 24 in research and development,
10 in clinical development, 66 in manufacturing and 22 in general and administrative functions. In March 2017, we announced that
our board of directors approved a workforce action plan designed to streamline operations and reduce our operating expenses. Under
this plan, we expect to reduce our workforce by 46 employees (or 38%) from 122 employees to 76 employees. None of our employees
is subject to a collective bargaining agreement or represented by a labor or trade union. We believe that our relations with our
employees are good.
Corporate Information
We were incorporated in the State of Delaware on May 8, 1997. Our principal executive
offices are located at 4233 Technology Drive, Durham, North Carolina 27704, and our telephone number is (919) 287-6300.
Available Information
We file with the Securities and Exchange Commission, or SEC, annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or
furnished pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange Act of 1934, as amended. The public may obtain these
filings at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information
regarding Argos and other companies that file materials with the SEC electronically. As soon as practicable after filing with the
SEC, copies of our reports on Forms 10-K, Forms 10-Q and Forms 8-K may also be obtained, free of charge, electronically through
the investor relations portion of our web site, www.argostherapeutics.com/investor-relations/sec-filings/default.aspx.
We webcast our earnings calls on our investor relations website. Additionally, we provide
notifications of news or announcements regarding our financial performance, including SEC filings, investor events and press and
earnings releases, on the investor relations portion of our website. Further corporate governance information, including our corporate
governance guidelines, board committee charters, Code of Business Conduct and Ethics that applies to our directors, officers and
employees, including our principal executive officer, principal financial officer, or persons performing similar functions, is
also available on our investor relations website under the heading “Corporate Governance.” The contents of our website
are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file
with the SEC.
Item 1A. Risk Factors
We operate in a dynamic and rapidly changing business environment that involves multiple
risks and substantial uncertainty. The following discussion addresses risks and uncertainties that could cause, or contribute
to causing, actual results to differ from expectations in material ways. In evaluating our business, investors should pay particular
attention to the risks and uncertainties described below and in other sections of this Annual Report on Form 10-K and in our subsequent
filings with the SEC. These risks and uncertainties, or other events that we do not currently anticipate or that we currently
deem immaterial also may affect our results of operations, cash flows and financial condition. The trading price of our common
stock could also decline due to any of these risks, and you could lose all or part of your investment.
Risks Related to the Development and Regulatory Approval of
Our Product Candidates
We have depended heavily on the success of our two product candidates, rocapuldencel-T
and AGS-004. Clinical trials of our product candidates may not be successful. If we are unable to commercialize our product candidates
or experience significant delays in doing so, our business will be materially harmed.
We currently have no products approved for sale. We have invested a significant portion
of our efforts and financial resources in the development of rocapuldencel-T for the treatment of metastatic renal cell carcinoma,
or mRCC, and other cancers and AGS-004 for the treatment of HIV. In February 2017, we announced that the Independent Data Monitoring
Committee, or IDMC, for our pivotal Phase 3 ADAPT clinical trial of rocapuldencel-T in combination with sunitinib / standard-of-care
for the treatment of mRCC recommended that the study be discontinued for futility based on its planned interim data analysis. The
IDMC concluded that the study was unlikely to demonstrate a statistically significant improvement in overall survival in the combination
treatment arm, utilizing the intent-to-treat population, the primary endpoint of the study. In conjunction with our clinical and
scientific advisors, we are analyzing the preliminary ADAPT trial data set and plan to discuss the data with the U.S. Food and
Drug Administration, or FDA. We have continued the ADAPT trial while we conduct our ongoing data review and have discussions with
FDA. We expect that we will make a determination as to the next steps for the rocapuldencel-T clinical program based on this review
and discussions.
Our ability to generate product revenues, which we do not expect will occur for at least
the next several years, if ever, will depend heavily on the successful development and commercialization of our product candidates,
including rocapuldencel-T, if we determine to proceed with its development. The success of our product candidates will depend
on several factors, including the following:
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successful completion of clinical trials, including clinical results
that are statistically significant as well as clinically meaningful in the context of the indications for which we are developing
our product candidates;
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receipt of marketing approvals from the FDA and similar regulatory authorities
outside the United States;
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establishing commercial manufacturing capabilities through the lease,
build-out and equipping of a facility for the commercial manufacture of products based on our Arcelis precision immunotherapy
technology platform;
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maintaining patent and trade secret protection and regulatory exclusivity
for our product candidates, both in the United States and internationally;
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launching commercial sales of the products, if and when approved, whether
alone or in collaboration with others;
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commercial acceptance of our products, if and when approved, by patients,
the medical community and third party payors;
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obtaining and maintaining healthcare coverage and adequate reimbursement;
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effectively competing with other therapies; and
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a continued acceptable safety profile of the products following any marketing
approval.
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If we do not achieve one or more of these factors in a timely manner or at all, we could
experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm
our business.
If clinical trials of our product candidates, such as our ADAPT trial of rocapuldencel-T,
fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States
or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately
be unable to complete, the development and commercialization of our product candidates.
Before obtaining regulatory approval for the sale of our product candidates, we must
conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing
is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of
one or more of our clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials
may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict
final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many
companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have
nonetheless failed to obtain marketing approval of their products.
To date, we have not completed a randomized clinical trial of rocapuldencel-T against
a placebo or a comparator therapy. Our phase 2 trial of rocapuldencel-T was a single arm trial in which only 21 patients received
the combination of rocapuldencel-T and sunitinib. Our ADAPT trial of rocapuldencel-T is a randomized trial designed to compare
directly the combination of rocapuldencel-T and sunitinib or another therapy to treatment with sunitinib or another therapy monotherapy.
Under the protocol for the trial, the data from the trial needed to demonstrate an increase in median overall survival of approximately
six months for the rocapuldencel-T plus sunitinib / targeted therapy arm as compared to the sunitinib / targeted therapy monotherapy
control arm in order to show statistical significance and achieve the primary endpoint of the trial. The IDMC concluded that the
study was unlikely to demonstrate a statistically significant improvement in overall survival in the combination treatment arm,
utilizing the intent-to-treat population, the primary endpoint of the study. However, even demonstration of statistical significance
and achievement of the primary endpoint of the trial would not assure approval by the FDA or similar regulatory authorities outside
the United States.
In designing the ADAPT trial we considered other reported clinical trials and data from
the International Metastatic Renal Cell Carcinoma Database Consortium, or the Consortium. However, results from two different trials
or between a trial and an analysis of a treatment database often cannot be reliably compared. Accordingly, patients in our ADAPT
trial who received treatment with sunitinib / targeted therapy monotherapy may not have results similar to patients studied in
other clinical trials of sunitinib or to patients in the Consortium database who were treated with sunitinib or other therapies.
If the patients in our ADAPT trial who received sunitinib / targeted therapy alone have results which are better than the results
that occurred in other clinical trials of sunitinib or the results described in the Consortium database, we may not demonstrate
a sufficient clinical benefit from rocapuldencel-T in combination with sunitinib and other therapies to allow the FDA to approve
rocapuldencel-T for marketing. Moreover, if the patients in our ADAPT trial who received the combination of rocapuldencel-T and
sunitinib / targeted therapy have results which are worse than the results that occurred in our Phase 2 clinical trial, we may
not demonstrate a sufficient benefit from the combination therapy to allow the FDA to approve rocapuldencel-T for marketing.
For drug and biological products, the FDA typically requires the successful completion
of two adequate and well-controlled clinical trials to support marketing approval because a conclusion based on two such trials
will be more reliable than a conclusion based on a single trial. In the case of rocapuldencel-T, we intended to seek approval based
upon the results of a single pivotal Phase 3 clinical trial, our ADAPT trial, because rocapuldencel-T is intended for life threatening
disease. The FDA reviewed our plans to conduct our ADAPT trial under its special protocol assessment, or SPA, process. In February
2013, the FDA advised us in a letter that it had completed its review of our plans under the SPA process. The FDA also informed
us that in order for a single trial to support approval of an indication, the trial must be well conducted, and the results of
the trial must be internally consistent, clinically meaningful and statistically persuasive.
In February 2017, we announced that the IDMC for our pivotal Phase 3 ADAPT clinical
trial of rocapuldencel-T in combination with sunitinib/standard-of-care for the treatment of mRCC recommended that the study
be discontinued for futility based on its planned interim data analysis. We have continued the ADAPT trial while we conduct
our ongoing data review and have discussions with the FDA. We expect that we will make a determination as to the next steps
for the rocapuldencel-T clinical program based on this review and discussions. If, upon the conclusion of our review of the
data for the ADAPT trial and our discussions with the FDA, we determine that continued development of rocapuldencel-T is not
warranted, we expect that we would terminate the ADAPT trial and our rocapuldencel-T development program. If instead we
decide to pursue the development of rocapuldencel-T, one or more additional clinical trials or other testing is highly likely
to be necessary. Such additional clinical trials and other testing and development efforts may be complicated and expensive
and may significantly delay our program. Moreover, we we may not have sufficient resources to complete such further
development of rocapuldencel-T.
As
a general matter, if we are required to conduct additional clinical
trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully
complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive
or are only modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as
broad as intended or desired;
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obtain approval with labeling that includes significant use restrictions
or safety warnings, including boxed warnings;
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be subject to additional post-marketing testing requirements;
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be subject to restrictions on how the product is distributed or used;
or
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have the product removed from the market after obtaining marketing approval.
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If we experience any of a number of possible unforeseen events
in connection with our clinical trials, potential marketing or commercialization of our product candidates could be delayed or
prevented.
We may experience numerous unforeseen events during, or as a result of, clinical trials
that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates. For example, in
February 2017, we announced that the IDMC for our pivotal Phase 3 ADAPT clinical trial of rocapuldencel-T in combination with sunitinib
/ standard-of-care for the treatment of mRCC recommended that the study be discontinued for futility based on its planned interim
data analysis. Unforeseen events that could delay or prevent our ability to receive regulatory approval or commercialize our product
candidates include:
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regulators or institutional review boards may not authorize us or our
investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we may have delays in reaching or fail to reach agreement on acceptable
clinical trial contracts or clinical trial protocols with prospective trial sites;
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clinical trials of our product candidates may produce negative or inconclusive
results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development
programs;
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the number of patients required for clinical trials of our product candidates
may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may
drop out of these clinical trials at a higher rate than we anticipate; for example, in our Phase 2b clinical trial of AGS-004,
we experienced a higher dropout rate than we anticipated due to the higher than expected number of patients who did not complete
the full 12 week antiretroviral treatment interruption required by the protocol for the trial;
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our third party contractors may fail to comply with regulatory requirements
or meet their contractual obligations to us in a timely manner, or at all;
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we may decide, or regulators or institutional review boards may require
us or our investigators to, suspend or terminate clinical research for various reasons, including noncompliance with regulatory
requirements or a finding that the participants are being exposed to unacceptable health risks;
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the cost of clinical trials of our product candidates may be greater
than we anticipate; and
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the supply or quality of our product candidates or other materials necessary
to conduct clinical trials of our product candidates may be insufficient or inadequate.
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In addition, the patients recruited for clinical trials of our product candidates may
have a disease profile or other characteristics that are different than we expect and different than the clinical trials were
designed for, which could adversely impact the results of the clinical trials. For instance, our Phase 2 combination therapy clinical
trial of rocapuldencel-T in combination with sunitinib was originally designed to enroll patients with favorable disease risk
profiles and intermediate disease risk profiles and with a primary endpoint of complete response rate. However, the actual trial
population consisted entirely of patients with intermediate disease risk profiles and poor disease risk profiles. This is a population
for which published research has shown that sunitinib alone, as well as other of the therapies for mRCC, rarely if ever produce
complete responses in mRCC, and in our Phase 2 clinical trial in this population, the combination therapy of rocapuldencel-T and
sunitinib did not show a complete response rate that met the endpoint of the trial.
Our product development costs will also increase if we experience delays in testing
or obtaining marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be
restructured or will be completed on schedule, or at all. For example, in response to our submission of an investigational
new drug application, or IND, for AGS-004, the FDA raised safety concerns regarding the analytical treatment interruption
contemplated by our protocol for our Phase 2 clinical trial of AGS-004, and required a one-year safety follow-up after the
final dose for each patient. This resulted in the need for an amendment to the trial protocol and a four-month delay prior to
initiating the Phase 2 clinical trial in the United States. In addition, the IDMC for our pivotal Phase 3 ADAPT clinical
trial of rocapuldencel-T in combination with sunitinib/standard-of-care for the treatment of mRCC recommended that the study
be discontinued for futility based on its planned interim data analysis. We plan to discuss the data with the FDA and, based
on further data analysis and such discussions, expect to make a determination as to the next steps for the rocapuldencel-T
clinical program. If we decide to continue to pursue the development of rocapuldencel-T, one or more additional clinical
trials or other testing is highly likely to be necessary, which may be complicated and expensive.
In addition to additional costs, significant clinical trial delays also could shorten
any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring
products to market before we do and impair our ability to commercialize our product candidates and may harm our business and results
of operations.
The FDA has reviewed the protocol for our ADAPT trial of rocapuldencel-T in combination
with sunitinib / targeted therapy under the SPA process. However, agreement by the FDA with the protocol under the SPA process
would not guarantee the FDA will grant marketing approval
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even if rocapuldencel-T had achieved
the primary endpoint in the ADAPT trial.
The FDA has reviewed, under the SPA process, the protocol for our ADAPT trial of rocapuldencel-T
in combination with sunitinib / targeted therapy. The SPA process is designed to facilitate the FDA’s review and approval
of drug and biological products by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are
intended to form the primary basis for determining a drug candidate’s efficacy.
In February 2012, we received a letter from the FDA advising us that the FDA had completed
its review of our protocol for the ADAPT trial under the SPA process. In the letter, the FDA stated that it had determined that
the protocol sufficiently addressed the trial’s objectives and that the trial was adequately designed to provide the necessary
data to support a submission for marketing approval. However, in February 2017, we announced that the IDMC for our ADAPT clinical
trial of rocapuldencel-T in combination with sunitinib / standard-of-care recommended that the study be discontinued for futility
based on its planned interim data analysis. The IDMC concluded that the study was unlikely to demonstrate a statistically significant
improvement in overall survival in the combination treatment arm, utilizing the intent-to-treat population, the primary endpoint
of the study.
However, even if rocapuldencel-T had achieved the primary endpoint in the ADAPT trial,
an SPA does not guarantee that rocapuldencel-T would have received marketing approval. The FDA may raise issues related to safety,
trial conduct, bias, deviation from the protocol, statistical power, patient completion rates, changes in scientific or medical
parameters or internal inconsistencies in the data prior to making its final decision. The FDA may also seek the guidance of an
outside advisory committee prior to making its final decision. Many companies which have been granted SPAs have ultimately failed
to obtain final approval to market their products.
In its February 2012 letter, the FDA informed us that in order for a single trial to
support approval of an indication, the trial must be well conducted, and the results of the trial must be internally consistent,
clinically meaningful and statistically very persuasive. If the results for the primary endpoint are not robust, are subject to
confounding factors, or are not adequately supported by other trial endpoints, the FDA may refuse to approve our BLA based upon
a single clinical trial. Particularly in light of the recommendation by the IDMC that the ADAPT trial be terminated for futility
with regard to the primary endpoint, it is highly unlikely, even if the ADAPT trial were continued and subsequent data were more
favorable, that the FDA would not require one or more additional clinical trials before, or as a condition for, approving rocapuldencel-T.
If we experience delays or difficulties in the enrollment of patients in our clinical
trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates
if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the
FDA or similar regulatory authorities outside the United States. In particular, if we determine to proceed with the development
of rocapuldencel-T after analyzing the preliminary ADAPT trial data set and discussing the data with the FDA, the recommendation
by the IDMC that the ADAPT study be terminated for futility may negatively impact our ability to enroll patients in ongoing and
future clinical trials of rocapuldencel-T.
Our competitors may have ongoing clinical trials for product candidates that could be
competitive with our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll
in clinical trials of our competitors’ product candidates. For example, during the Phase 1/2 monotherapy clinical trial
of rocapuldencel-T that we conducted, our ability to enroll patients in the trial was adversely affected by the FDA’s approval
of sorafenib and sunitinib, because patients did not want to receive, and physicians were reluctant to administer, rocapuldencel-T
as an experimental monotherapy once new therapies that showed efficacy in clinical trials were introduced to the market and became
widely available.
Patient enrollment is affected by other factors including:
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severity of the disease under investigation;
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eligibility criteria for the trial in question;
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perceived risks and benefits of the product candidate under study;
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efforts to facilitate timely enrollment in clinical trials;
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patient referral practices of physicians;
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the ability to monitor patients adequately during and after treatment;
and
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proximity and availability of clinical trial sites for prospective patients.
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The actual amount of time for full enrollment of our clinical trials could be longer
than planned. Enrollment delays in any of our clinical trials may result in increased development costs for our product candidates,
which would cause the value of the company to decline and limit our ability to obtain additional financing. Our inability to enroll
a sufficient number of patients for any of our other clinical trials would result in significant delays or may require us to abandon
one or more clinical trials altogether.
We are developing AGS-004 for use in combination with latency reversing drugs
to eradicate HIV. If latency reversing drugs are not successfully developed for HIV on a timely basis or at all, we will be unable
to develop AGS-004 for this use or will be delayed in doing so. In addition, because there are currently no products approved
for HIV eradication, we cannot be certain of the clinical trials that we will need to conduct or the regulatory requirements that
we will need to satisfy in order to obtain marketing approval of AGS-004 for this purpose.
We are focusing our development program for AGS-004 on the use of AGS-004 in combination
with latency reversing drugs, including Vorinostat, to eradicate HIV. We plan to rely on these latency reversing drugs because
we recognize that the ultimate objective of virus eradication is unlikely to be achieved with immunotherapy alone because the
immune system is not able to recognize the HIV virus in latently infected cells with a low level or lack of expression of HIV
antigens.
Several companies and academic groups are evaluating latency reversing drugs that can
potentially activate latently infected cells to increase viral antigen expression and make the cells vulnerable to elimination
by the immune system. We are not a party to any arrangements with these companies or academic groups. If these companies or academic
groups determine not to develop latency reversing drugs for this purpose because the drugs do not sufficiently increase viral
antigen expression or have unacceptable toxicities, or these companies or academic groups otherwise determine to collaborate with
other developers of immunotherapies on a combination therapy for complete virus eradication, we will not be able to complete our
AGS-004 development program. In addition, if these companies or academic groups do not proceed with such development on a timely
basis, our AGS-004 program correspondingly would be delayed.
A number of the latency reversing drugs being evaluated for use in HIV patients are
currently approved in the United States and elsewhere for use in the treatment of specified cancer indications. For instance,
Vorinostat is approved for cutaneous T-cell lymphoma. If these drugs are not approved by the FDA or equivalent foreign regulatory
authorities for use in HIV, the FDA and these other regulatory authorities may not approve AGS-004 without the latency reversing
drug having received marketing approval for HIV. If the FDA and these other regulatory authorities approve AGS-004 without the
approval of the latency reversing drug for HIV, the use of AGS-004 in combination with the latency reversing drug for virus eradication
would require sales of the latency reversing drug for off-label use. In such event, the success of the combination of AGS-004
and the latency reversing drug would be subject to the willingness of physicians, patients, healthcare payors and others in the
medical community to use the latency reversing drug for off-label use and of government authorities and third party payors to
pay for the combination therapy. In addition, we would be limited in our ability to market the combination for its intended use
if the latency reversing drug were to be used off-label.
Currently, there are no products approved for the eradication of HIV. As a result, we
cannot be certain as to the clinical trials we will need to conduct or the regulatory requirements that we will need to satisfy
in order to obtain marketing approval of AGS-004 for the eradication of HIV.
If serious adverse or inappropriate side effects are identified during the development
of our product candidates, we may need to abandon or limit our development of some of our product candidates.
All of our product candidates are still in preclinical or clinical development and their
risk of failure is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in
humans or will receive regulatory approval. If our product candidates are associated with undesirable side effects or have characteristics
that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which
the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.
In addition, such effects or characteristics could cause an institutional review board or regulatory authorities to interrupt,
delay or halt clinical trials of one or more of our product candidates, require us to conduct additional clinical trials or other
tests or studies, and could result in a more restrictive label, or the delay or denial of marketing approval by the FDA or comparable
foreign regulatory authorities.
Our Arcelis-based product candidates are immunotherapies that are based on a novel
technology utilizing a patient’s own tissue. This may raise development issues that we may not have anticipated or be able
to resolve, regulatory issues that could delay or prevent approval or personnel issues that may prevent us from further developing
and commercializing our product candidates.
Rocapuldencel-T and AGS-004 are based on our novel Arcelis precision immunotherapy technology
platform. In the course of developing this platform and these product candidates, we have encountered difficulties in the development
process. For example, we terminated the development of MB-002, the predecessor to rocapuldencel-T, when the results from the initial
clinical trial of MB-002 indicated that the product candidate only corrected defects in the production of one of two critical cytokines
required for effective immune response. In addition, in February 2017, the IDMC for our ADAPT clinical trial of rocapuldencel-T
in combination with sunitinib / standard-of-care recommended that the study be discontinued for futility based on its planned interim
data analysis. There can be no assurance that additional development problems will not arise in the future which we may not have
anticipated or be able to resolve or which may cause significant delays in development.
In addition, regulatory approval of novel product candidates such as our Arcelis-based
product candidates manufactured using novel manufacturing processes such as ours can be more expensive and take longer than for
other, more well-known or extensively studied pharmaceutical or biopharmaceutical products, due to our and regulatory agencies’
lack of experience with them. The FDA has only approved one individualized immunotherapy product to date. This lack of experience
may lengthen the regulatory review process, require us to conduct additional studies or clinical trials, increase our development
costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these product
candidates or lead to significant post-approval limitations or restrictions.
The novel nature of our product candidates also means that fewer people are trained
in or experienced with product candidates of this type, which may make it difficult to find, hire and retain capable personnel
for research, development and manufacturing positions.
Development of our individualized Arcelis-based product candidates is subject
to significant uncertainty because each product candidate is derived from source material that is inherently variable. This variability
could reduce the effectiveness of our Arcelis-based product candidates, delay any FDA approval of any of our Arcelis-based product
candidates, cause us to change our manufacturing methods and adversely affect the commercial success of any approved Arcelis-based
products.
The disease samples from the patients to be treated with our Arcelis-based products
vary from patient to patient. This inherent variability may adversely affect our ability to manufacture our products because each
tumor or virus sample that we receive and process will yield a different product. As a result, we may not be able to consistently
produce a product for every patient and we may not be able to treat all patients effectively. Such inconsistency could delay FDA
or other regulatory approval of our Arcelis-based product candidates or, if approved, adversely affect market acceptance and use
of our Arcelis-based products. If we have to change our manufacturing methods to address any inconsistency, we may have to perform
additional clinical trials, which would delay FDA or other regulatory approval of our Arcelis-based product candidates and increase
the costs of development of our Arcelis-based product candidates.
The inherent variability of the disease samples from the patients to be treated with
our Arcelis-based products may further adversely affect our ability to manufacture our products because variability in the source
material for our product candidates, such as tumor cells or viruses, may cause variability in the composition of other cells in
our product candidates. Such variability in composition or purity could adversely affect our ability to establish acceptable release
specifications and the development and regulatory approval processes for our product candidates may be delayed, which would increase
the costs of development of our Arcelis-based product candidates.
If we are not able to obtain, or if there are delays in obtaining, required regulatory
approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially
impaired.
Failure to obtain regulatory approval for either of our product candidates will prevent
us from commercializing the product candidate. We have not received regulatory approval to market any of our product candidates
in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain regulatory approvals
and expect to rely on third party contract research organizations to assist us in this process. Securing FDA approval requires
the submission of extensive preclinical and clinical data and supporting information to the FDA for each therapeutic indication
to establish the product candidate’s safety and efficacy. Securing FDA approval also requires the submission of information
about the product manufacturing process to, and inspection of manufacturing facilities by, the FDA. Our product candidates may
not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or
other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.
The process of obtaining regulatory approvals, both in the United States and abroad,
is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially
based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. To date, the FDA
has only approved one individualized immunotherapy product. Changes in clinical guidelines or regulatory approval policies during
the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for
each submitted product application, may cause delays in the approval or rejection of an application. The FDA has substantial discretion
in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and
require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical
and clinical testing could delay, limit or prevent regulatory approval of a product candidate. Any regulatory approval we ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially
viable.
If we experience delays in obtaining approval or if we fail to obtain approval of our
product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will
be materially impaired.
Failure to obtain regulatory approval in international jurisdictions would prevent
our product candidates from being marketed abroad.
We are a party to arrangements with third parties, and intend to enter into additional
arrangements with third parties, under which they would market our products outside the United States. In order to market and
sell our products in the European Union and many other jurisdictions, we or such third parties must obtain separate regulatory
approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can
involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval.
The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval.
In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before
the product can be approved for sale in that country. We or these third parties may not obtain approvals from regulatory authorities
outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities
in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval
by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for regulatory approvals
and may not receive necessary approvals to commercialize our products in any market.
A fast track designation by the FDA may not actually lead to a faster development,
regulatory review or approval process.
If a product is intended for the treatment of a serious or life-threatening condition
and the product demonstrates the potential to address an unmet need for this condition, the treatment sponsor may apply for FDA
fast track designation. In April 2012, the FDA notified us that we obtained fast track designation for rocapuldencel-T for the
treatment of mRCC. Fast track designation does not ensure that we will experience a faster development, regulatory review or approval
process compared to conventional FDA procedures. Additionally, the FDA may withdraw fast track designation if it believes that
the designation is no longer supported by data from our clinical development program.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception. We expect to incur losses
for at least the next several years and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Our net loss was $53.3
million for the year ended December 31, 2014, $74.8 million for the year ended December 31, 2015 and $53.0 million for the year
ended December 31, 2016. As of December 31, 2016, we had an accumulated deficit of $332.0 million. To date, we have financed
our operations primarily through public offerings of common stock, private placements of common stock, preferred stock and warrants,
convertible debt financings, debt from financial institutions, government contracts, government and other third party grants and
license and collaboration agreements. We have devoted substantially all of our efforts to research and development, including
clinical trials. We have not completed development of any product candidates.
We have devoted a significant portion of our financial resources to the development of
rocapuldencel-T. In conjunction with our clinical and scientific advisors, we are analyzing the preliminary ADAPT trial data set
and plan to discuss the data with the FDA. We have continued the ADAPT trial while we conduct our ongoing data review and have
discussions with FDA. We expect that we will make a determination as to the next steps for the rocapuldencel-T clinical program
based on this analysis and discussions. Our determination as to our next steps will necessarily impact the amount of expenses we
incur and the size of our operating losses for the foreseeable future.
In March 2017, we announced that our board of directors had approved a workforce action
plan designed to streamline operations and reduce our operating expenses. Under this plan, we expect to reduce our workforce by
46 employees (or 38%) from 122 employees to 76 employees. The principal objective of the reduction is to enable us to conserve
our financial resources while we conduct our ongoing review of the preliminary ADAPT trial data set and discuss the data with the
FDA. We anticipate incurring approximately $1.3 million in total costs associated with the workforce reduction and that such costs
will be incurred over the second and third quarters of 2017. We expect that the workforce reduction will decrease our annual operating
costs by $5.7 million once the plan is fully implemented.
If we determine to proceed with the development of our product candidates, including
rocapuldencel-T, we anticipate that our expenses will increase substantially if and as we:
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continue our ADAPT trial of rocapuldencel-T for the treatment of mRCC or initiate other clinical trials
of rocapuldencel-T
for the treatment of mRCC, following our analysis of the preliminary ADAPT trial
data set and our discussions with the FDA;
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continue to support ongoing investigator-initiated clinical trials of rocapuldencel-T and AGS-004;
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support investigator-initiated clinical trials of rocapuldencel-T and
AGS-004;
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initiate and conduct additional trials of rocapuldencel-T and AGS-004
for the treatment of cancers and HIV;
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seek regulatory approvals for our product candidates that successfully
complete clinical trials;
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lease, build out and equip a facility for the commercial manufacture
of products based on our Arcelis precision immunotherapy technology platform;
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establish a sales, marketing and distribution infrastructure to commercialize
products for which we may obtain regulatory approval;
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maintain, expand and protect our intellectual property portfolio;
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continue our other research and development efforts;
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hire additional clinical, quality control, scientific and management
personnel; and
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add operational, financial and management information systems and personnel,
including personnel to support our product development and planned commercialization efforts.
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To become and remain profitable, we must develop and eventually commercialize a product
or products with significant market potential. This development and commercialization will require us to be successful in a range
of challenging activities, including successfully completing preclinical testing and clinical trials of our product candidates,
obtaining regulatory approval for these product candidates, building out and equipping a commercial manufacturing facility and
manufacturing, marketing and selling those products for which we may obtain regulatory approval. We are only in the preliminary
stages of some of these activities. We may never succeed in these activities and may never generate revenues that are significant
or large enough to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of the company and could
impair our ability to raise capital, expand our business, maintain our research and development efforts or continue our operations.
A decline in the value of our company could also cause you to lose all or part of your investment.
We are making a determination as to the next steps for the rocapuldencel-T clinical
program that could significantly impact our future operations and financial position.
We are in the process of making a determination as to the next steps for the
rocapuldencel-T clinical program. This evaluation may result in changes to our current business strategy and future
operations. As part of this process, we are reviewing alternatives with a goal of maximizing the value of our company. We could
determine to engage in one or more potential transactions, such as the sale of our company, a strategic partnership with one
or more parties or the licensing, sale or divestiture of some of our assets or proprietary technologies, or to continue to
operate our business in accordance with our existing business strategy. Pending any decision to change strategic direction,
we are continuing to conduct our ongoing clinical trials while managing our cash position. We cannot provide any commitment
as to the timing of our determination or the strategy we may adopt. If we determine to change our business strategy or to
seek to engage in a strategic transaction, our future business, prospects, financial position and operating results could be
significantly different than those in historical periods or projected by our management. Because of the significant
uncertainty regarding our future plans, we are not able to accurately predict the impact of a potential change in our
existing business strategy.
We will need substantial additional funding. If we are unable to raise capital
when needed, we would be forced to delay, reduce, terminate or eliminate our product development programs, including plans to
lease, build out and equip a commercial manufacturing facility or our commercialization efforts and to take other actions to reduce
our operating expenses.
We have no external sources of funds other than our contract
with the NIH and NIAID for the development of AGS-004, and we expect our expenses to increase in connection with our ongoing activities,
particularly if we decide to continue our ADAPT trial of rocapuldencel-T for the treatment of mRCC, initiate other clinical trials
of rocapuldencel-T for mRCC, support ongoing investigator-initiated clinical trials of rocapuldencel-T and AGS-004, support planned
investigator-initiated clinical trials of rocapuldencel-T and AGS-004, initiate and conduct additional clinical trials of rocapuldencel-T
and AGS-004 for the treatment of cancers and HIV and seek regulatory approval for our product candidates. In addition, if we obtain
regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales,
marketing, manufacturing and distribution. Furthermore, we expect to continue to incur additional costs associated with operating
as a public company. Accordingly, we will need to obtain substantial additional funding if we wish to continue our operations.
If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce, terminate or eliminate
our product development programs or our commercialization efforts and to take other actions to reduce our operating expenses.
As of December 31, 2016, we had cash and cash equivalents of $53.0 million and
working capital of $24.9 million. We do not currently have sufficient cash resources to pay our obligations as they become due.
In March 2017, we entered into a payoff letter with Horizon Technology Finance Corporation and Fortress Credit Co LLC, the lenders
under our venture loan and security agreement, pursuant to which we paid a total of $23.1 million to the lenders, representing
the principal balance and accrued interest outstanding under the loan agreement in repayment of our outstanding obligations under
the loan agreement. In addition, in March 2017, we announced that our board of directors approved a workforce action plan designed
to streamline operations and reduce our operating expenses. We anticipate incurring approximately $1.3 million in total costs
associated with the workforce reduction contemplated by the plan and that such costs will be incurred over the second and third
quarters of 2017. We expect that the workforce reduction will decrease our annual operating costs by $5.7 million once the plan
is fully implemented. We have also initiated discussions with Saint Gobain Performance Plastics Corporation, or Saint Gobain,
and Invetech Pty Ltd, or Invetech, regarding the fees that we owe them, including potentially the conversion by them of some or
all of the outstanding fees into equity of the Company. However, even taking these measures into account, we do not have sufficient
cash resources to pay all of our accrued obligations in full or to continue our business operations beyond April 2017. Therefore,
we will need to raise additional capital by April 2017 in order to continue to operate our business beyond that time. Alternatively,
we may seek to engage in one or more potential transactions, such as the sale of our company, a strategic partnership with one
or more parties or the licensing, sale or divestiture of some of our assets or proprietary technologies, but there can be no assurance
that we will be able to enter into such a transaction or transactions on a timely basis or on terms that are favorable to us.
Under these circumstances, we may instead determine to dissolve and liquidate our assets or seek protection under the bankruptcy
laws. If we decide to dissolve and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what
extent we will be able to pay our debts, and, accordingly, it is further unclear whether and to what extent any resources will
be available for distributions to stockholders.
Our future capital requirements will depend on many factors, including:
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our determination as to the next steps for the rocapuldencel-T
clinical program, following our analysis of the preliminary ADAPT trial data set and our discussions with the FDA regarding
our pivotal Phase 3 ADAPT clinical trial;
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the progress and results of our ongoing and planned investigator initiated clinical trials of rocapuldencel-T
that we support;
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the progress and results of the ongoing investigator-initiated clinical
trial of AGS-004 in combination with vorinostat for HIV eradication and the planned investigator-initiated clinical trial
of AGS-004 that we support and our ability to obtain additional funding under our NIH and NIAID contract for our AGS-004 program;
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the development, initiation and support of additional clinical trials
of rocapuldencel-T and AGS-004 in mRCC or other indications;
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the scope, progress, results and costs of preclinical development, laboratory
testing and clinical trials for our other product candidates;
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the costs and timing of our leasing, build-out and equipping of a commercial manufacturing facility or
of alternative arrangements for commercial manufacturing and any costs and liabilities associated with financing arrangements entered
into to fund the costs of these activities;
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the costs, timing and outcome of regulatory submissions and review of
our product candidates;
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the costs of commercialization activities, including product sales, marketing,
manufacturing and distribution, for any of our product candidates for which we receive regulatory approval;
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the potential need to repay the $6.0 million remaining outstanding under
the loan under our license agreement with Medinet Co. Ltd. and its wholly-owned subsidiary, MEDcell Co., Ltd, which we refer
to together as Medinet;
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the potential need to repay approximately $5.8 million in fees remaining outstanding
under our commercial arrangement with Invetech and $4.0M under our development agreement with Saint Gobain;
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revenue, if any, received from commercial sales of our product candidates,
should any of our product candidates be approved by the FDA or a similar regulatory authority outside the United States;
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the costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing our intellectual property rights and defending intellectual property-related claims;
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the extent to which we acquire or invest in other businesses, products
and technologies;
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our ability to obtain government or other third party funding for the
development of our product candidates; and
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our ability to establish collaborations on favorable terms, if at all,
particularly arrangements to develop, market and distribute rocapuldencel-T outside North America and arrangements for the
development and commercialization of our non-oncology product candidates, including AGS-004.
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Conducting preclinical testing and clinical trials is a time-consuming, expensive and
uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory
approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our
commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several
years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Additional
financing may not be available to us on acceptable terms, or at all.
Our independent registered public accounting firm included an explanatory paragraph
relating to our ability to continue as a going concern in its report on our audited financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2016.
Our report from our independent registered public accounting firm for the year ended
December 31, 2016 includes an explanatory paragraph stating that our losses from operations and required additional funding to
finance our operations raise substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient
funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and
we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our
assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely
that investors will lose all or a part of their investment. If we seek additional financing to fund our business activities in
the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing
sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all.
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.
Until such time, if ever, as we can generate substantial product revenues, we expect
to finance our cash needs through a combination of equity offerings, debt financings, government contracts, government and other
third party grants or other third party funding, marketing and distribution arrangements and other collaborations, strategic 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 of these securities may include liquidation or other preferences that adversely
affect your rights as a stockholder. For example, in 2016 we issued and sold securities in a private placement financing, under
a sales agreement with Cowen & Company, LLC and in a public follow-on offering each of which resulted in dilution to our existing
stockholders.
Debt financing, if available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring
dividends.
We may also seek to collaborate with third parties for the manufacturing, development
or commercialization of rocapuldencel-T outside of North America. We also may seek government or other third party funding for
the continued development of AGS-004 and to collaborate with third parties for the development and commercialization of AGS-004.
If we raise additional funds through government or other third party funding, marketing and distribution arrangements or other
collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to
our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be
favorable to us. If the loan from Medinet becomes due and we do not repay it, we have agreed to grant Medinet a non-exclusive,
royalty-bearing license to make and sell Arcelis products in Japan for the treatment of cancer.
Our ability to use our net operating loss carry-forwards and tax credit carryforwards
may be limited.
The utilization of the net operating loss and tax credit carryforwards may be subject
to limitation under the rules regarding a change in stock ownership as determined by the Internal Revenue Code, and state and
foreign tax laws. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the utilization
of net operating loss carryforwards, other tax carryforwards, and certain built-in losses upon an ownership change as defined
under that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of
certain of our stockholders by more than 50 percentage points over a three-year testing period. If we have undergone a Section 382
ownership change, an annual limitation would be imposed on certain of our tax attributes, including net operating loss and capital
loss carryforwards, and certain other losses, credits, deductions or tax basis. We believe that we experienced an ownership change
during 2014 under Section 382. Due to the Section 382 limitation resulting from the ownership change, $28.2 million of our U.S.
federal net operating losses are expected to expire unused. Additionally, our U.S. federal tax credits and state net operating
losses may be limited. The amount of U.S. federal net operating losses expected to expire due to the Section 382 limitation has
been derecognized in our consolidated financial statements as of December 31, 2016. We may also experience ownership changes in
the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to
use our pre-change net operating loss carry-forwards and other tax credit carryforwards to offset U.S. federal taxable income
may be subject to limitations, which potentially could result in increased future tax liability to us.
Risk Related to the Commercialization of our Product Candidates
We have no history of commercializing pharmaceutical products, which may make
it difficult to evaluate the prospects for our future viability.
Our operations to date have been limited to financing and staffing our company, developing
our technology and product candidates and establishing collaborations. We have not yet demonstrated an ability to successfully
complete a pivotal clinical trial, compile an acceptable regulatory submission, obtain marketing approvals, manufacture a commercial
scale product or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions
about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and
commercializing pharmaceutical products.
In addition, we may encounter unforeseen expenses, difficulties, complications, delays
and other known and unknown factors. We will need to transition at some point from a company with research and development focus
to a company capable of supporting commercial activities. We may not be successful in such a transition.
Even if rocapuldencel-T or AGS-004 receives regulatory approval, it may fail to
achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary
for commercial success.
We have never commercialized a product candidate. Even if rocapuldencel-T or AGS-004
receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare
payors and others in the medical community. Gaining market acceptance for our Arcelis-based products may be particularly difficult
as, to date, the FDA has only approved one individualized immunotherapy and our Arcelis-based products are based on a novel technology.
If these products do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may
not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend
on a number of factors, including:
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efficacy and potential advantages compared to alternative treatments;
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the ability to offer our product candidates for sale at competitive prices;
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convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies
and of physicians to prescribe these therapies;
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the strength of sales, marketing and distribution support;
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the approval of other new products for the same indications;
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the ability of our product to be combined with emerging standards of care;
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availability and amount of reimbursement from government payors, managed
care plans and other third party payors;
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adverse publicity about the product or favorable publicity about competitive
products;
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clinical indications for which the product is approved; and
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the prevalence and severity of any side effects.
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If any of our product candidates receives marketing approval and we, or others,
later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously
identified, our ability to market the product could be compromised.
Clinical trials of our product candidates are conducted in carefully defined subsets
of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate
an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, in a broader patient
population or alternatively fail to identify undesirable side effects. If, following approval of a product candidate, we, or others,
discover that the product is less effective than previously believed or causes undesirable side effects that were not previously
identified, any of the following adverse events could occur:
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regulatory authorities may withdraw their approval of the product or
seize the product;
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we may be required to recall the product or change the way the product
is administered;
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additional restrictions may be imposed on the marketing of, or the manufacturing
processes for, the particular product;
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regulatory authorities may require the addition of labeling statements,
such as a “black box” warning or a contraindication;
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we may be required to create a Medication Guide outlining the risks of
the previously unidentified side effects for distribution to patients;
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additional restrictions may be imposed on the distribution or use of
the product via a risk evaluation and mitigation strategy, or REMS;
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we could be sued and held liable for harm caused to patients;
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the product may become less competitive; and
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our reputation may suffer.
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Any of these events could have a material and adverse effect on our operations and business
and could adversely impact our stock price.
If we are unable to establish sales and marketing capabilities or enter into agreements
with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates
if and when they are approved.
We have only limited commercial capabilities and have no experience in the sale, marketing
or distribution of pharmaceutical products. To achieve commercial success for any approved product, we must either develop a sales
and marketing organization, outsource these functions to third parties or enter into collaborations or other arrangements with
third parties for the distribution or marketing of our product candidates should such candidates receive marketing approval.
There are risks involved with both establishing our own sales and marketing capabilities
and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force
is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which
we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely
or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot
retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include:
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our inability to recruit and retain adequate numbers of effective sales
and marketing personnel;
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the inability of sales personnel to obtain access to or persuade adequate
numbers of physicians to prescribe any future products;
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the lack of complementary products to be offered by sales personnel,
which may put us at a competitive disadvantage relative to companies with more extensive product lines;
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unforeseen costs and expenses associated with creating an independent
sales and marketing organization; and
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inability to establish customer service and access services, including
potential supply chain and specialty pharmacy arrangements.
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If we enter into arrangements with third parties to perform sales, marketing and distribution
services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to
market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with
third parties to sell and market our product candidates or doing so on terms that are favorable to us. We likely will have little
control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our
products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration
with third parties, we will not be successful in commercializing our product candidates.
We face substantial competition, which may result in others discovering, developing
or commercializing products before or more successfully than we do.
The development and commercialization of new drug products is highly competitive. We
face competition with respect to our current product candidates, and will face competition with respect to any products that we
may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and
biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market
and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing
our product candidates. Potential competitors also include academic institutions, government agencies and other public and private
research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development,
manufacturing and commercialization.
Some of these competitive products and therapies are based on scientific
approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Many marketed
therapies for the indications that we are currently pursuing, or indications that we may in the future seek to address using our
Arcelis precision immunotherapy technology platform, are widely accepted by physicians, patients and payors, which may make it
difficult for us to replace them with any products that we successfully develop and are permitted to market.
The FDA has approved several targeted therapies as monotherapies for mRCC, including
Nexavar (sorafenib), marketed by Bayer Healthcare Pharmaceuticals, Inc. and Onyx Pharmaceuticals, Inc.; Sutent (sunitinib) and
Inlyta (axitinib), marketed by Pfizer, Inc.; Avastin (bevacizumab), marketed by Genentech, Inc., a member of the Roche Group;
Votrient (pazopanib) and Afinitor (everolimus), marketed by Novartis Pharmaceuticals Corporation; Torisel (temsirolimus), marketed
by Pfizer and most recently, Opdivo (nivolumab), marketed by Bristol-Myers Squibb and Cabometyx (cabozantinib), marketed by Exelixis,
for second-line mRCC. In addition, we estimate that there are numerous therapies for mRCC in clinical development by many public
and private biotechnology and pharmaceutical companies targeting numerous different cancer types and stages. A number of these
are in late stage development including Opdivo (nivolumab) plus Yervoy (ipilimumab) in combination for first-line mRCC, which
are currently being compared in a Phase 3 trial to sunitinib. If a standalone therapy for mRCC were developed that demonstrated
improved efficacy over currently marketed first-line therapies with a favorable safety profile and without the need for combination
therapy, such a therapy might pose a significant competitive threat to rocapuldencel-T.
We are currently conducting our ADAPT trial of rocapuldencel-T plus sunitinib / targeted
therapy. We elected to study rocapuldencel-T in clinical trials in combination with sunitinib due in part to sunitinib being the
current standard-of-care for first-line treatment of mRCC. Although we do not expect to seek FDA approval of rocapuldencel-T solely
in combination with sunitinib and have provided that, under the protocol for the ADAPT trial, investigators may discontinue sunitinib
due to disease progression or toxicity and initiate second-line treatment with other approved compatible therapies, if we obtain
approval of rocapuldencel-T by the FDA, such FDA approval may be limited to the combination of rocapuldencel-T and sunitinib. In
such event, the commercial success of rocapuldencel-T would be linked to the commercial success of sunitinib. As a result, if sunitinib
ceases to be the standard-of-care for first-line treatment of mRCC or another event occurs that adversely affects sales of sunitinib,
the commercial success of rocapuldencel-T may be adversely affected.
We estimate that there are numerous other cancer immunotherapy products in clinical development
by many public and private biotechnology and pharmaceutical companies targeting numerous different cancer types. A number of these
product candidates are in late-stage clinical development or have recently been approved in different cancer types including two
recently approved checkpoint inhibitor-based immunotherapies, Nivolumab which is marketed by Bristol-Myers Squibb and Pembrolizumab,
which is marketed by Merck. These newer immunotherapies are in addition to the targeted therapies, chemotherapeutics, radiation
therapy, hormonal therapies and cytokine-based therapies used in the treatment in a wide range of oncology indications.
There are also numerous FDA-approved treatments for HIV, primarily antiretroviral therapies
marketed by large pharmaceutical companies. Generic competition has developed in this market as patent exclusivity periods for
older drugs have expired, with more than 15 generic drugs currently on the market. The presence of these generic drugs is resulting
in price pressure in the HIV therapeutics market and could affect the pricing of AGS-004. Currently, there are no approved therapies
for the eradication of HIV. We expect that major pharmaceutical companies that currently market antiretroviral therapy products
or other companies that are developing HIV product candidates may seek to develop products for the eradication of HIV.
Our competitors may develop products that are more effective, safer, more convenient
or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive. Our competitors
may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.
Many of our competitors have significantly greater financial resources and expertise
in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and
marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and device industries may
result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary
for, our programs.
Even if we are able to commercialize any product candidates, the products may
become subject to unfavorable pricing regulations, third party reimbursement practices or healthcare reform initiatives, which
would harm our business.
The regulations that govern marketing approvals, pricing and reimbursement for new drug
products vary widely from country to country. In the United States, recently passed legislation may significantly change the approval
requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval
of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or
product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing
governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in
a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy
time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse
pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates
obtain regulatory approval.
Our ability to commercialize any products successfully also will depend in part on the
extent to which reimbursement for these products and related treatments will be available from government health administration
authorities, private health insurers and other organizations. Government authorities and third party payors, such as private health
insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third party payors
have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly,
third party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging
the prices charged for medical products. We cannot be sure that reimbursement will be available for any product that we commercialize
and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any
product candidate for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult
because of the higher prices often associated with drugs administered under the supervision of a physician. If reimbursement is
not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for
which we obtain marketing approval.
There may be significant delays in obtaining reimbursement for newly approved drugs,
and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities
outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases
or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement
levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement
rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels
already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may
be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation
of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Third party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies.
Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any
approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital
needed to commercialize products and our overall financial condition.
Product liability lawsuits against us could cause us to incur substantial liabilities
and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our
product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may
develop. These risks may be even greater with respect to our Arcelis-based products which are manufactured using a novel technology.
None of our product candidates has been widely used over an extended period of time, and therefore our safety data are limited.
We derive the raw materials for manufacturing of our Arcelis-based product candidates from human cell sources, and therefore the
manufacturing process and handling requirements are extensive and stringent, which increases the risk of quality failures and
subsequent product liability claims.
If we cannot successfully defend ourselves against claims that our product candidates
or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims
may result in:
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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significant costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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the inability to commercialize any products that we may develop.
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We currently hold $10.0 million in product liability insurance coverage, which
may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage when we begin
commercializing our product candidates, if ever. Insurance coverage is increasingly expensive. We may not be able to maintain
insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
We may expend our limited resources to pursue a particular product candidate or
indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater
likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs
and product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other product
candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may
cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future
research and development programs and product candidates for specific indications may not yield any commercially viable products.
We have based our research and development efforts on our Arcelis precision immunotherapy
technology platform. Notwithstanding our large investment to date and potential future expenditures in our Arcelis platform, we
have not yet developed, and may never successfully develop, any marketed drugs using this approach. As a result of pursuing the
development of product candidates using our Arcelis platform, we may fail to develop product candidates or address indications
based on other scientific approaches that may offer greater commercial potential or for which there is a greater likelihood of
success.
In addition, we may not be successful in our efforts to identify or discover additional
product candidates that may be manufactured using our Arcelis platform. Research programs to identify new product candidates require
substantial technical, financial and human resources. These research programs may initially show promise in identifying potential
product candidates, yet fail to yield product candidates for clinical development.
If we do not accurately evaluate the commercial potential or target market for a particular
product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty
arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights
to such product candidate.
Risks Related to Our Dependence on Third Parties
Our reliance on government funding adds uncertainty to our research and commercialization
efforts and may impose requirements that increase the costs of commercialization and production of our government-funded product
candidates.
Our current development of AGS-004 for HIV is primarily funded by the NIH. We are dependent
upon further government funding for continued development of AGS-004. However, increased pressure on governmental budgets may
reduce the availability of government funding for programs such as AGS-004. In addition, contracts and grants from the U.S. government
and its agencies include provisions that give the government substantial rights and remedies, many of which are not typically
found in commercial contracts, including provisions that allow the government to:
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terminate agreements, in whole or in part, for any reason or no reason;
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reduce or modify the government’s obligations under such agreements
without the consent of the other party;
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claim rights, including intellectual property rights, in products and
data developed under such agreements;
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impose U.S. manufacturing requirements for products that embody inventions
conceived or first reduced to practice under such agreements;
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suspend or debar the contractor or grantee from doing future business
with the government or a specific government agency;
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pursue criminal or civil remedies under the False Claims Act, False Statements
Act and similar remedy provisions specific to government agreements; and
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limit the government’s financial liability to amounts appropriated
by the U.S. Congress on a fiscal-year basis, thereby leaving some uncertainty about the future availability of funding for
a program even after it has been funded for an initial period.
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Government agreements normally contain additional terms and conditions that may increase
our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions.
These include, for example:
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specialized accounting systems unique to government contracts and grants;
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mandatory financial audits and potential liability for price adjustments
or recoupment of government funds after such funds have been spent;
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public disclosures of certain contract and grant information, which may
enable competitors to gain insights into our research program; and
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mandatory socioeconomic compliance requirements, including labor standards,
non-discrimination and affirmative action programs and environmental compliance requirements.
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We expect to depend on collaborations with third parties for the development and
commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the
market potential of these product candidates.
We intended to commercialize rocapuldencel-T independently in North America and to collaborate
with other third parties to manufacture, develop or commercialize rocapuldencel-T outside North America. We have entered into
an exclusive license agreement with Pharmstandard International S.A., or Pharmstandard, for the development and commercialization
of rocapuldencel-T in Russia and the other states comprising the Commonwealth of Independent States and an exclusive license agreement
with Green Cross Corp., or Green Cross, for the development and commercialization of rocapuldencel-T for the treatment of mRCC
in South Korea and an exclusive license agreement with Lummy (Hong Kong) Co. Ltd., or Lummy HK, for the development, manufacture
and commercialization of rocapuldencel-T in China, Hong Kong, Taiwan and Macau. We have also entered into a license agreement
with Medinet under which we granted Medinet an exclusive license to manufacture in Japan rocapuldencel-T for the purpose of development
and commercialization for the treatment of mRCC.
We also plan to seek government or other third party funding for continued development
of AGS-004 and to collaborate with third parties to develop and commercialize AGS-004. Our likely collaborators for any development,
distribution, marketing, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies,
regional and national pharmaceutical companies and biotechnology companies.
Under our existing arrangements we have limited control, and under any additional arrangements
we may enter into with third parties we will likely have limited control, over the amount and timing of resources that our collaborators
dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements
will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Collaborations involving our product candidates would pose the following risks to us:
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collaborators have significant discretion in determining the efforts
and resources that they will apply to these collaborations;
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collaborators may not pursue development and commercialization of our
product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial
results, changes in the collaborator’s strategic focus or available funding, or external factors such as an acquisition
that diverts resources or creates competing priorities;
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collaborators may delay clinical trials, provide insufficient funding
for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials
or, require a new formulation of a product candidate for clinical testing;
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collaborators could independently develop, or develop with third parties,
products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive
products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive
than ours;
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a collaborator with marketing and distribution rights to one or more
products may not commit sufficient resources to the marketing and distribution of such product or products;
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collaborators may have the right to conduct clinical trials of our product
candidates without our consent and could conduct trials with flawed designs that result in data that adversely affect our
clinical trials, our ability to obtain marketing approval for our product candidates or market acceptance of our product candidates.
Pharmstandard, Green Cross, Medinet and Lummy HK each have this right under our license agreements with them;
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collaborators may hold rights that could preclude us from commercializing
our products in certain territories. For example, we have granted Medinet an exclusive license to manufacture in Japan rocapuldencel-T
for the treatment of mRCC. If we and Medinet are unable to agree to the terms of a supply agreement under these circumstances,
we will not be able to sell rocapuldencel-T in Japan unless we repurchase these rights from Medinet;
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collaborators may not properly maintain or defend our intellectual property
rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our
proprietary information or expose us to potential litigation;
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disputes may arise between the collaborators and us that result in the
delay or termination of the research, development or commercialization of our products or product candidates or that result
in costly litigation or arbitration that diverts management attention and resources; and
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collaborations may be terminated and, if terminated, may result in a
need for additional capital to pursue further development or commercialization of the applicable product candidates. For example,
our collaboration with Kyowa Hakko Kirin Co., Ltd. with respect to rocapuldencel-T and AGS-004 was terminated by our collaborator.
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Collaboration agreements may not lead to development or commercialization of product
candidates in the most efficient manner, or at all. In addition, there have been a significant number of recent business combinations
among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. If a present or
future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development
or commercialization program could be delayed, diminished or terminated.
If we are not able to establish additional collaborations, we may have to alter
any development and commercialization plans.
Our drug development programs and any potential commercialization of our product candidates
will require substantial additional cash to fund expenses. For some of our product candidates, we may collaborate with pharmaceutical
and biotechnology companies for the development and commercialization of those product candidates. For example, we have entered
into license agreements with third parties to develop, manufacture and/or commercialize rocapuldencel-T in Russia and the other
states comprising the Commonwealth of Independent States, South Korea, Japan, China, Hong Kong, Taiwan and Macau, we may seek
to collaborate with other third parties to develop and commercialize rocapuldencel-T in other parts of the world. We also intend
to collaborate with third parties to develop and commercialize AGS-004.
We face significant competition in seeking appropriate collaborators. Whether we reach
a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources
and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborator’s evaluation of a number
of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar
regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities
of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty
with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits
of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates
or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more
attractive than the one with us for our product candidate. We may also be restricted under existing license agreements from entering
into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and
document. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all.
If we are not able to obtain such funding or enter into collaborations for our product
candidates, we may have to curtail the development of such product candidates, reduce or delay a candidate’s development
program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales
or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.
If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may
not be able to further develop these product candidates or bring these product candidates to market and generate product revenue.
We rely on third parties to conduct our clinical trials, and those third parties
may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We do not independently conduct clinical trials of our product candidates. We rely on
third parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical
investigators, to perform this function. Our reliance on these third parties for clinical development activities reduces our control
over these activities but does not relieve us of our oversight responsibilities as sponsor of the trial. We remain responsible
for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for
the trial. Moreover, the FDA and other regulatory authorities require us to comply with standards, commonly referred to as Good
Clinical Practice, for conducting, recording and reporting the results of clinical trials to assure that data and reported results
are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We also are
required to register ongoing clinical trials and post the results of certain completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and
criminal sanctions. Furthermore, these third parties may also have relationships with other entities, some of which may be our
competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct
our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may
be delayed in obtaining, regulatory approvals for our product candidates and will not be able to, or may be delayed in our efforts
to, successfully commercialize our product candidates.
For instance, in December 2015 we received a notice from Health Canada that one of the
sites at which we were conducting our Phase 3 ADAPT trial in Canada had been found to be non-compliant with Good Clinical Practice
in Canada and that if the issues raised in the notice were not corrected, Health Canada could suspend our authorization to conduct
the ADAPT trial at all sites in Canada. We submitted a response to Health Canada and subsequently received a Completion of Response
notice from Health Canada stating that our corrective actions were satisfactory and that the matter was officially closed.
We also rely on other third parties to store and distribute product supplies for our
clinical trials. Any performance failure on the part of our existing or future distributors could delay clinical development or
regulatory approval of our product candidates or commercialization of our products, producing additional losses and depriving
us of potential product revenue.
Risks Related to the Manufacturing of Our Product Candidates
We will need to lease, build out and equip a facility to manufacture our Arcelis-based
products on a commercial scale. We do not have experience in manufacturing Arcelis-based products on a commercial scale. If,
due to our lack of manufacturing experience, we cannot manufacture our Arcelis-based products on a commercial scale successfully
or manufacture sufficient product to meet our expected commercial requirements, our business may be materially harmed.
We currently have manufacturing suites in our Technology Drive and Patriot Center facilities
in Durham, North Carolina. We manufacture our Arcelis-based product candidates for research and development purposes and for clinical
trials at these facilities.
In 2017, we entered into a ten-year lease agreement with two five-year renewal options for 40,000 square
feet of manufacturing and office space at the Center for Technology Innovation, or CTI, on the Centennial Campus of North Carolina
State University in Raleigh, North Carolina. We had intended to utilize this facility to manufacture rocapuldencel-T to support
submission of a BLA to the FDA and to support initial commercialization of rocapuldencel-T.
To provide for capacity expansion beyond the initial few years following
potential launch of rocapuldencel-T, we had planned to build-out and equip a second facility, which we refer to as the Centerpoint
facility. In August 2014, we entered into a ten-year lease agreement with renewal options. Under the lease agreement, we agreed
to lease certain land and an approximately 125,000 square-foot building to be constructed in Durham County, North Carolina. We
initially intended this facility to house our corporate headquarters and commercial manufacturing before we entered into the lease
for the CTI facility. The shell of the new facility was constructed on a build-to-suit basis in accordance with agreed upon specifications
and plans and was completed in June 2015. However, the build-out and equipping of the interior of the facility was suspended as
we pursued financing to arrangements to support the further build out of the facility.
Due to the recent IDMC recommendation to discontinue the ADAPT trial, we are currently
reassessing our manufacturing plans. We have therefore initiated discussions with the landlords of our CTI facility and our Centerpoint
facility regarding these leases. We believe that our Technology Drive and Patriot Center facilities are sufficient for the manufacture
of rocapuldencel-T and AGS-004 to support our ongoing clinical trials and any likely near-term clinical trials that we may initiate.
We expect that we would establish both manual and automated manufacturing processes in our commercial
manufacturing facilities if we determine to build out such facilities. We had decided to delay the implementation of our automated
manufacturing process until after initial commercialization of rocapuldencel-T, and thus planned to seek marketing approval of
rocapuldencel-T and, if approved, to initially commercially supply rocapuldencel-T using our manual manufacturing process. Prior
to implementing commercial manufacturing of rocapuldencel-T, we would be required to demonstrate that our commercial manufacturing
facility is constructed and operated in accordance with current good manufacturing practice. We would also be required to show
the comparability between rocapuldencel-T that we produce using the manual processes in our current facility and rocapuldencel-T
produced using the manual process in our new facility.
If we transition to automated manufacturing processes, we expect our
automated manufacturing processes will be based on existing functioning prototypes of automated devices for the production of
commercial quantities of our Arcelis-based product candidates. These devices can be used to perform substantially all steps required
for the manufacture of our Arcelis-based product candidates.
We do not have experience in manufacturing products on a commercial scale. In addition,
because we are aware of only one company that has manufactured an individualized immunotherapy product for commercial sale, there
are limited precedents from which we can learn. We may encounter difficulties in the manufacture of our Arcelis-based products
due to our limited manufacturing experience. These difficulties could delay the build-out and equipping of a commercial manufacturing
facility and regulatory approval of the manufacture of our Arcelis-based products using the facility, increase our costs or cause
production delays or result in us not manufacturing sufficient product to meet our expected commercial requirements, any of which
could damage our reputation and hurt our profitability. If we are unable to successfully increase our manufacturing capacity to
commercial scale, our business may be materially adversely affected.
If we fail to establish commercial manufacturing operations in compliance with
regulatory requirements, or augment our manufacturing personnel, we may not be able to initiate commercial operations or produce
sufficient product to meet our expected commercial requirements. We have delayed the implementation of our automated manufacturing
process and may not be able to use such process on a timely basis or at all.
In order to meet our business plan, which contemplated manufacturing our product first
using manual processes and later using automated processes for the commercial requirements of rocapuldencel-T and any other Arcelis-based
product candidates that might be approved, we planned to build out and equip a leased commercial manufacturing facility and add
manufacturing personnel in advance of any regulatory submission for approval of rocapuldencel-T. If we determine to continue our
plan to build out and equip a leased commercial manufacturing facility, we will require substantial capital expenditures and additional
regulatory approvals. In addition, it will be costly and time consuming to recruit necessary additional personnel.
If we are unable to successfully build out and equip a commercial manufacturing facility
in compliance with regulatory requirements or hire and train additional necessary manufacturing personnel appropriately, our filing
for regulatory approval of our product candidates may be delayed or denied.
We plan to delay the implementation of our automated manufacturing process until we complete
the clinical development of rocapuldencel-T and secure additional funding. Thus, if we are able to successfully complete the clinical
development of rocapuldencel-T and obtain marketing approval, we plan to initially commercially supply rocapuldencel-T using manual
manufacturing processes. Prior to implementing commercial manufacturing of rocapuldencel-T, we will be required to demonstrate
that the commercial manufacturing facility is constructed and operated in accordance with current Good Manufacturing Practice,
or cGMP. If we continue the development of rocapuldencel-T, we will also be required to show the comparability between rocapuldencel-T
that we produce using the manual processes in our current facility and rocapuldencel-T produced using the manual process in the
new facility.
Our implementation of automated processes could take longer, particularly if we are unable
to achieve any of the required tasks on a timely basis, or at all. We are collaborating with Invetech and Saint-Gobain to develop
the equipment and disposables necessary to implement the automated manufacturing processes for Arcelis-based products. If Invetech
or Saint-Gobain do not perform as expected under the agreements or the projects with Invetech or Saint-Gobain are unsuccessful
for any other reason, our timelines for the implementation of our automated manufacturing processes could be further delayed and
our business could be adversely affected.
Prior to implementing the automated manufacturing processes for Arcelis-based products,
we will be required to:
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demonstrate that the disposable components and sterilization and packaging
methods used in the manufacturing process are suitable for use in manufacturing in accordance with current good manufacturing
practice, or cGMP, and current Good Tissue Practices, or cGTP;
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build and validate processing equipment that complies with cGMP and
cGTP;
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equip a commercial manufacturing facility to accommodate the automated
manufacturing process;
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perform process testing with final equipment, disposable components
and reagents to demonstrate that the methods are suitable for use in cGMP and cGTP manufacturing;
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demonstrate consistency and repeatability of the automated manufacturing
processes in the production of rocapuldencel-T in our new facility to fully validate the manufacturing and control process
using the actual automated cGMP processing equipment; and
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demonstrate comparability between rocapuldencel-T that we produce using our manual processes
and rocapuldencel-T produced using the automated processes.
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We will need regulatory approval to use the automated manufacturing processes for commercial
purposes. If the FDA requires us to conduct a bridging study to demonstrate comparability between rocapuldencel-T that we produce
manually and rocapuldencel-T produced using the automated processes, the implementation of the automated manufacturing processes
and the filing for such approval will likely be delayed.
If we are unable to successfully implement the automated processes required and demonstrate
comparability between the rocapuldencel-T that we produce manually and the rocapuldencel-T produced using the automated processes,
our filing for regulatory approval of the commercial use of our automated manufacturing processes may be delayed or denied and
we may not be able to initiate commercial manufacturing using our automated manufacturing processes. In such event, our commercial
manufacturing costs will be higher than anticipated and we may not be able to manufacture sufficient product to meet our expected
commercial requirements.
Lack of coordination internally among our employees and externally with physicians,
hospitals and third- party suppliers and carriers, could cause manufacturing difficulties, disruptions or delays and cause us
to not have sufficient product to meet our clinical trial requirements or potential commercial requirements.
Manufacturing our Arcelis-based product candidates requires coordination internally
among our employees and externally with physicians, hospitals and third party suppliers and carriers. For example, a patient’s
physician or clinical site will need to coordinate with us for the shipping of a patient’s disease sample and leukapheresis
product to our manufacturing facility in a timely manner, and we will need to coordinate with them for the shipping of the manufactured
product to them. Such coordination involves a number of risks that may lead to failures or delays in manufacturing our Arcelis-based
product candidates, including:
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failure to obtain a sufficient supply of key raw materials of suitable
quality;
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difficulties in manufacturing our product candidates for multiple patients
simultaneously;
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difficulties in obtaining adequate patient-specific material, such as
tumor samples, virus samples or leukapheresis product, from physicians;
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difficulties in completing the development and validation of the specialized
assays required to ensure the consistency of our product candidates;
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failure to ensure adequate quality control and assurances in the manufacturing
process as we increase production quantities;
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difficulties in the timely shipping of patient-specific materials to
us or in the shipping of our product candidates to the treating physicians due to errors by third party carriers, transportation
restrictions or other reasons;
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destruction of, or damage to, patient-specific materials or our product
candidates during the shipping process due to improper handling by third party carriers, hospitals, physicians or us;
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destruction of, or damage to, patient-specific materials or our product
candidates during storage at our facilities; and
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destruction of, or damage to, patient-specific materials or our product
candidates stored at clinical and future commercial sites due to improper handling or holding by clinicians, hospitals or
physicians.
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If we are unable to coordinate appropriately, we may encounter delays or additional
costs in achieving our clinical and commercialization objectives, including in obtaining regulatory approvals of our product candidates
and supplying product, which could materially damage our business and financial position.
If our existing manufacturing facilities or any commercial manufacturing
facility that we use are damaged or destroyed, or production at one of these facilities is otherwise interrupted, our
business and prospects would be negatively affected.
We currently have two manufacturing facilities. If we build out and equip a commercial
manufacturing facility, it will be our only commercial manufacturing facility in North America. If our existing manufacturing facilities
or a new commercial manufacturing facility that we decide to build out and equip, or the equipment in either of these facilities,
is damaged or destroyed, we likely would not be able to quickly or inexpensively replace our manufacturing capacity and possibly
would not be able to replace it at all. Any new facility needed to replace either our existing manufacturing facility or a new
commercial manufacturing facility would need to comply with the necessary regulatory requirements, need to be tailored to our specialized
automated manufacturing requirements and require specialized equipment. We would need FDA approval before selling any products
manufactured at a new facility. Such an event could delay our clinical trials or, if any of our product candidates are approved
by the FDA, reduce or eliminate our product sales.
We maintain insurance coverage to cover damage to our property and equipment and to
cover business interruption and research and development restoration expenses. If we have underestimated our insurance needs with
respect to an interruption in our clinical manufacturing of our product candidates, we may not be able to adequately cover our
losses.
Risks Related to Our Intellectual Property
If we fail to comply with our obligations under our intellectual property licenses
with third parties, we could lose license rights that are important to our business.
We are a party to a number of intellectual property license agreements with third parties,
including with respect to each of rocapuldencel-T and AGS-004, and we may enter into additional license agreements in the future.
Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone
payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations under these licenses, our licensors
may have the right to terminate these license agreements, in which event we might not be able to market any product that is covered
by these agreements, or to convert the license to a non-exclusive license, which could materially adversely affect the value of
the product candidate being developed under the license agreement. Termination of these license agreements or reduction or elimination
of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms.
If we are unable to obtain and maintain patent protection for our technology and
products, or if our licensors are unable to obtain and maintain patent protection for the technology or products that we license
from them, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize
technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products
may be adversely affected.
Our success depends in large part on our and our licensors’ ability to obtain
and maintain patent protection in the United States and other countries with respect to our proprietary technology and products.
We and our licensors have sought to protect our proprietary position by filing patent applications in the United States and abroad
related to our novel technologies and products that are important to our business. This process is expensive and time-consuming,
and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely
manner. It is also possible that we will fail to identify patentable aspects of our research and development efforts before it
is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation,
filing and prosecution of patent applications, or to maintain the patents, covering technology or products that we license from
third parties and are reliant on our licensors. Therefore, we cannot be certain that these patents and applications will be prosecuted
and enforced in a manner consistent with the best interests of our business. If such licensors fail to maintain such patents,
or lose rights to those patents, the rights we have licensed may be reduced or eliminated.
The patent position of biotechnology and pharmaceutical companies generally is highly
uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result,
the issuance, scope, validity, enforceability and commercial value of our and our licensors’ patent rights are highly uncertain.
Our and our licensors’ pending and future patent applications may not result in patents being issued which protect our technology
or products or which effectively prevent others from commercializing competitive technologies and products. Changes in either
the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents
or narrow the scope of our patent protection.
Third parties could practice our inventions in territories where we do not have patent
protection. Furthermore, the laws of foreign countries may not protect our rights to the same extent as the laws of the United
States. For example, we own or exclusively license patents relating to our process of manufacturing an individualized drug product.
A U.S. patent may be infringed by anyone who, without authorization, practices the patented process in the United States or imports
a product made by a process covered by the U.S. patent. In foreign countries, however, importation of a product made by a process
patented in that country may not constitute an infringing activity, which would limit our ability to enforce our process patents
against importers in that country. Furthermore, the legal systems of certain countries, particularly certain developing countries,
do not favor the enforcement of patents and other intellectual property protection. This could make it difficult for us to stop
the infringement of our patents or the misappropriation of our other intellectual property rights. If competitors are able to
use our technologies, our ability to compete effectively could be harmed.
Furthermore, publications of discoveries in the scientific literature often lag behind
the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until
18 months after filing, or in some cases not at all. Therefore we cannot be certain that we or our licensors were the first to
make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were
the first to file for patent protection of such inventions.
Assuming the other requirements for patentability are met, in the United States, the
first to invent the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application
is generally entitled to the patent. Under the America Invents Act, or AIA, enacted in September 2011, the United States moved
to a first inventor to file system in March 2013. The United States Patent and Trademark Office only recently finalized the rules
relating to these changes and courts have yet to address the new provisions. These changes could increase the costs and uncertainties
surrounding the prosecution of our patent applications and the enforcement or defense of our patent rights. Furthermore, we may
become involved in interference proceedings, opposition proceedings, or other post-grant proceedings, such as reissue, reexamination
or inter partes review proceedings, which may challenge our patent rights or the patent rights of others. For example, we have
filed an application for reissue of one of our U.S. patents directed towards methods of manufacture of dendritic cells from monocytes
stored for more than six hours and up to four days without freezing. An adverse determination in any such proceeding or litigation
could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and
compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing
third party patent rights.
Even if our owned and licensed patent applications issue as patents, they may not issue
in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide
us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar
or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its scope,
validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United
States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, which could
limit our ability to or stop or prevent us from stopping others from using or commercializing similar or identical technology
and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required
for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire
before or shortly after such candidates are commercialized. For example, certain of the U.S. patents we exclusively license from
Duke University expired in 2016 and the European and Japanese patents exclusively licensed from Duke University expire in 2017.
As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing
products similar or identical to ours.
We may become involved in lawsuits to protect or enforce our patents, which could
be expensive, time consuming and unsuccessful.
Competitors may infringe our patents. To counter such infringement or unauthorized use,
we may be required to file infringement claims against third parties, which can be expensive and time consuming. In addition,
during an infringement proceeding, a court may decide that the patent rights we are asserting are invalid or 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 proceeding could put one or more of our patents at risk of being invalidated
or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual
property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this
type of litigation. In addition, our licensors may have rights to file and prosecute such claims and we are reliant on them.
Third parties may initiate legal proceedings alleging that we are infringing their
intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success
of our business.
Our commercial success depends upon our ability and the ability of our collaborators
to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary
rights of third parties. We cannot ensure that third parties do not have, or will not in the future obtain, intellectual property
rights such as granted patents that could block our ability to operate as we would like. There may be patents in the United States
or abroad owned by third parties that, if valid, may block our ability to make, use or sell our products in the United States
or certain countries outside the United States, or block our ability to import our products into the United States or into certain
countries outside the United States.
We may become party to, or threatened with, future adversarial proceedings or litigation
regarding intellectual property rights with respect to our products and technology. For example, third parties may assert infringement
claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third
party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing
and marketing our products and technology. However, we may be unable to obtain any required license on commercially reasonable
terms or even obtain a license at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing
the infringing technology or product. In addition, we could be found liable for monetary damages. A finding of infringement could
prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially
harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have
a similar negative impact on our business.
We have research licenses to certain reagents and their use in the development of our
product candidates. We would need commercial licenses to these reagents for any of our product candidates that receive approval
for sale in the United States. We believe that commercial licenses to these reagents will be available. However, if we are unable
to obtain any such commercial licenses, we may be unable to commercialize our product candidates without infringing the patent
rights of third parties. If we did seek to commercialize our product candidates without a license, these third parties could initiate
legal proceedings against us.
We may be subject to claims that our employees have wrongfully used or disclosed
alleged trade secrets of their former employers.
Many of our employees were previously employed at universities or other biotechnology
or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees
do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these
employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such
employee’s former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such
claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are
successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend substantial resources
and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual
property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their
normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial
adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses
and reduce the resources available for development activities. We may not have sufficient financial or other resources to adequately
conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
If we are unable to protect the confidentiality of our trade secrets, our business
and competitive position would be harmed.
In addition to seeking patents for some of our technology and products, we also rely
on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position.
The types of protections available for trade secrets are particularly important with respect to our Arcelis precision immunotherapy
technology platform’s manufacturing capabilities, which involve significant unpatented know-how. We seek to protect these
trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such
as our employees, corporate collaborators, outside scientific collaborators, sponsored researchers, contract manufacturers, consultants,
advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees
and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information,
including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable.
In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of
our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them
from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently
developed by a competitor, our competitive position would be harmed.
Risks Related to Legal Compliance Matters
Any product candidate for which we obtain marketing approval could be subject
to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements
or if we experience unanticipated problems with our products, when and if any of them are approved.
Any product candidate for which we obtain marketing approval, along with the manufacturing
processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to
continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety
and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to quality
control, quality assurance and corresponding maintenance of records and documents, cGTP requirements, requirements regarding the
distribution of samples to physicians and recordkeeping. Even if regulatory approval of a product candidate is granted, the approval
may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or
contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The
FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications
and in accordance with the provisions of the approved label. The FDA imposes stringent restrictions on manufacturers’ communications
regarding off-label use and if we do not market our products for their approved indications, we may be subject to enforcement
action for off-label marketing. In addition, later discovery of previously unknown problems with our products, manufacturers or
manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on such products, manufacturers or manufacturing processes;
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restrictions on the marketing of a product;
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restrictions on product distribution;
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requirements to conduct post-marketing clinical trials;
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warning or untitled letters;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications
that we submit;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of regulatory approvals;
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refusal to permit the import or export of our products;
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injunctions or the imposition of civil or criminal penalties.
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Our relationships with customers and third party payors will be subject to applicable
anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties,
program exclusion, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third party payors play a primary role in the recommendation
and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third party payors
and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain
the business or financial arrangements and relationships through which we market, sell and distribute our products for which we
obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
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the federal healthcare anti-kickback statute prohibits, among other things,
persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in
cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of,
any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid;
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the federal False Claims Act imposes civil penalties, including civil
whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to
the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or
conceal an obligation to pay money to the federal government;
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the federal Health Insurance Portability and Accountability Act of 1996,
as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability
for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual
terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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the federal false statements statute prohibits knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery
of or payment for healthcare benefits, items or services;
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the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act of 2010, the PPACA, or the Health Care Reform Law will require manufacturers
of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related
to physician payments and other transfers of value and physician ownership and investment interests; and
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analogous state laws and regulations, such as state anti-kickback and
false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed
by non-governmental third party payors, including private insurers, and some state laws require pharmaceutical companies to
comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians
and other health care providers or marketing expenditures.
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Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s
voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug
manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers
or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances,
many of which differ from each other in significant ways and often are not preempted by the federal Health Insurance Portability
and Accountability Act of 1996, or HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with
applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude
that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud
and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any
other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties,
damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring
of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be
not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs.
Numerous statements made by President Trump and members of the U.S. Congress indicate
that it is likely that legislation will be passed by Congress and signed into law by President Trump that repeals the PPACA, in
whole or in part, and/or introduces a new form of health care reform. It is unclear at this point what the scope of such legislation
will be and when it will become effective. Because of the uncertainty surrounding this replacement health care reform legislation,
we cannot predict with any certainty the likely impact of the PPACA’s repeal or the adoption of any other health care reform
legislation on our financial condition or operating results. Whether or not there is alternative health care legislation enacted
in the United States, there is likely to be significant disruption to the health care market in the coming months and years.
Recently enacted and future legislation may increase the difficulty and cost for
us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative
and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of
our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates
for which we obtain marketing approval.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation
expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales
prices for physician administered drugs. In addition, this legislation provided authority for limiting the number of drugs that
will be covered in any therapeutic class in certain cases. Cost reduction initiatives and other provisions of this and other more
recent legislation could decrease the coverage and reimbursement that is provided for any approved products. While the Medicare
Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy
and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from
the Medicare Modernization Act or other more recent legislation may result in a similar reduction in payments from private payors.
In March 2010, former President Obama signed into law the Health Care Reform Law, a sweeping
law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on
the health industry and impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law revises
the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid
drug rebates to states. Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescription
drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices
with health care practitioners. We will not know the full effects of the Health Care Reform Law until applicable federal and state
agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform
Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and
may also increase our regulatory burdens and operating costs. In addition, there have been recent public announcements by members
of the U.S. congress and the presidential administration regarding their plans to repeal and replace the Health Care Reform Law.
However, it remains unclear how a repeal or replacements of these programs might affect the prices we may obtain for any of our
product candidates for which regulatory approval is obtained.
Legislative and regulatory proposals have been made to expand post-approval requirements
and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes
will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes
on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of
the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent
product labeling and post-marketing testing and other requirements.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or
BPCIA, as part of the Health Care Reform Law, an abbreviated pathway for the approval of biosimilar and interchangeable biological
products was created. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar
biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing
brand product. Under the BPCIA, an application for a biosimilar product cannot be submitted to the FDA until four years, or approved
by the FDA until 12 years, after the original brand product identified as the reference product was approved under a BLA. The
new law is complex and is only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation
and meaning is subject to uncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such
processes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that if any of our product candidates were to be approved as biological products
under a BLA, such approved products should qualify for the four-year and 12-year periods of exclusivity. However, there is a risk
that the U.S. Congress could amend the BPCIA to significantly shorten these exclusivity periods as proposed by President Obama,
or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating
the opportunity for generic competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will
be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
If we fail to comply with environmental, health and safety laws and regulations,
we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including
those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes.
Our operations involve the use of hazardous and flammable materials, including chemicals and radioactive and biological materials.
Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials
and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury
resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed
our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover us for costs and
expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide
adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims
that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future
environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development
or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other
sanctions.
Risks Related to Employee Matters and Managing Growth
Our future success depends on our ability to retain our chief executive officer
and other key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on Jeffrey Abbey, our president and chief executive officer,
Charles Nicolette, our vice president of research and development and chief scientific officer, Lee F. Allen, our chief medical
officer and Richard Katz, our vice president and chief financial officer, as well as the other principal members of our management
and scientific teams. Although we have formal employment agreements with each of our executive officers, these agreements do not
prevent our executives from terminating their employment with us at any time. We do not maintain “key person” insurance
for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of
our research, development and commercialization objectives.
In March 2017, we announced that our board of directors approved a workforce action plan
designed to streamline operations and reduce our operating expenses. As part of the workforce action plan, Joan C. Winterbottom,
our vice president and chief human resources officer, will cease her employment with us effective in March 2017. With any change
in leadership and reduction in force, there is a risk to retention of employees, as well as the potential for disruption to business
operations, initiatives, plans and strategies.
Recruiting and retaining qualified personnel is critical to our success. We may not be
able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology
companies for similar personnel, our setback with respect to rocapuldencel-T, the implementation of our workforce action plan and
our limited cash resources. We also experience competition for the hiring of scientific and clinical personnel from universities
and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist
us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by
employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their
availability to us.
We have recently reduced the size of our organization, and we may encounter difficulties
in managing our business as a result of this reduction, or the attrition that may occur following this reduction, which could
disrupt our operations. In addition, we may not achieve anticipated benefits and savings from the reduction
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In March 2017, we announced that our board of directors approved a workforce action plan
designed to streamline operations and reduce our operating expenses. Under this plan, we expect to reduce our workforce by 46 employees
(or 38%) from 122 employees to 76 employees. The reduction in force, and the attrition that may occur following this reduction,
will result in the loss of institutional knowledge and expertise and the reallocation and combination of certain roles and responsibilities
across the organization, all of which could adversely affect our operations. Given the complexity and nature of our business,
we must continue to implement and improve our managerial, operational and financial systems, manage our facilities and continue
to recruit and retain qualified personnel. This will be made more challenging given the reduction in force described above and
additional measures we may take to reduce costs. As a result, our management may need to divert a disproportionate amount
of its attention away from our day-to-day strategic and operational activities, and devote a substantial amount of time to managing
these organizational changes. Further, the restructuring and possible additional cost containment measures may yield unintended
consequences, such as attrition beyond our intended reduction in force and reduced employee morale. In addition, the reduction
in force may result in employees who were not affected by the reduction in force seeking alternate employment which would result
in us seeking contract support at unplanned additional expense. In addition, we may not achieve anticipated benefits from
the reduction in force. Due to our limited resources, we may not be able to effectively manage our operations or recruit and
retain qualified personnel, which may result in weaknesses in our infrastructure and operations, risks that we may not be able
to comply with legal and regulatory requirements, loss of business opportunities, loss of employees and reduced productivity among
remaining employees. If our management is unable to effectively manage this transition and reduction in force and additional
cost containment measures, our expenses may be more than expected, and we may not be able to implement our business strategy.
Risks Related to Our Common Stock
Our executive officers, directors, affiliates of all officers and directors and
other of our affiliates who own our outstanding common stock maintain the ability to control all matters submitted to stockholders
for approval.
Our executive officers, directors, affiliates of our executive officers and directors
and other of our affiliates beneficially own, in the aggregate, shares representing approximately 61.53% of our outstanding common
stock as of February 28, 2017. As a result, if these stockholders were to choose to act together, they would be able to control
all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if
they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all
or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on
terms that other stockholders may desire.
Our largest stockholder, Pharmstandard, could exert significant influence over
us and could limit your ability to influence the outcome of key transactions, including any change of control.
Our largest stockholder, Pharmstandard, beneficially owns, in the aggregate, shares
representing approximately 39.52% of our outstanding common stock as of February 28, 2017. In addition, two members of our board
of directors are closely associated with Pharmstandard. As a result, we expect that Pharmstandard will be able to exert significant
influence over our business. Pharmstandard may have interests that differ from your interests, and it may vote in a way with which
you disagree and that may be adverse to your interests. The concentration of ownership of our capital stock may have the effect
of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive
a premium for their common stock as part of a sale of our company and may adversely affect the market price of our common stock.
Provisions in our corporate charter documents and under Delaware law could make
an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders
to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent
a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which
you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing
to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because
our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent
any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace
members of our board of directors. Among other things, these provisions:
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establish a classified board of directors such that not all members of
the board are elected at one time;
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allow the authorized number of our directors to be changed only by resolution
of our board of directors;
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limit the manner in which stockholders can remove directors from the
board;
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establish advance notice requirements for stockholder proposals that
can be acted on at stockholder meetings and nominations to our board of directors;
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require that stockholder actions must be effected at a duly called stockholder
meeting and prohibit actions by our stockholders by written consent;
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limit who may call stockholder meetings;
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authorize our board of directors to issue preferred stock without stockholder
approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a
potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
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require the approval of the holders of at least 75% of the votes that
all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.
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Moreover, because we are incorporated in Delaware, we are governed by the provisions
of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding
voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person
acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
An active trading market for our common stock may not be sustained.
Although our common stock is listed on The NASDAQ Global Market, an active trading market
for our shares may not be sustained. If an active market for our common stock is not sustained, it may be difficult for you to
sell your shares without depressing the market price for the shares or sell your shares at all. Any inactive trading market for
our common stock may also impair our ability to raise capital to continue to fund our operations by selling shares and may impair
our ability to acquire other companies or technologies by using our shares as consideration.
If our stock price continues to be volatile, purchasers of our common stock could
incur substantial losses.
Our stock price is likely to be volatile. For example, our stock has traded in a range
from a low of $1.05 and high of $13.97 during the period of February 7, 2014 through February 28, 2017. The stock market in general
and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to
the operating performance of particular companies. The market price for our common stock may be influenced by many factors, including:
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our determination with regard to the next steps for our rocapuldencel-T clinical program
based on our ongoing review of the preliminary ADAPT trial data set and our planned discussion with the FDA;
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results of clinical trials of our product candidates or those of our
competitors;
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the success of competitive products or technologies;
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potential approvals of our product candidates for marketing by the FDA
or equivalent foreign regulatory authorities or our failure to obtain such approvals;
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regulatory or legal developments in the United States and other countries;
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the results of our efforts to commercialize our product candidates;
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developments or disputes concerning patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the level of expenses related to any of our product candidates or clinical
development programs;
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the results of our efforts to discover, develop, acquire or in-license
additional product candidates or products;
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actual or anticipated changes in estimates as to financial results, development
timelines or recommendations by securities analysts;
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variations in our financial results or those of companies that are perceived
to be similar to us;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors and
issuance of new or changed securities analysts’ reports or recommendations;
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general economic, industry and market conditions; and
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the other factors described in this “Risk Factors” section.
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In addition, pharmaceutical companies have experienced significant share price volatility
in recent years, and securities class action litigation often follows a decline in the market price of a company’s securities.
If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources.
On March 14, 2017, a purported stockholder of the Company filed a putative class action
lawsuit in the United States District Court for the Middle District of North Carolina against us, our chief executive officer,
our chief financial officer, and our vice president of finance, entitled Jeffrey Maurer et al. v. Argos Therapeutics, Inc., et
al., Civil Action No. 1:17-cv-00216. The lawsuit purports to be brought on behalf of an alleged class of those who purchased
or otherwise acquired the Company’s securities between February 7, 2014 and February 21, 2017, and purports to allege claims
arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The
lawsuit generally alleges that the defendants violated the federal securities laws by, among other things, making material misstatements
or omissions concerning the progress of the ADAPT Phase 3 clinical trial of rocapuldencel-T (AGS-003), the planned biologics licensing
application for rocapuldencel-T and the prospects for approval. The complaint seeks, among other relief, unspecified compensatory
damages, attorneys’ fees, unspecified injunctive relief, and costs. We believe that we have valid defenses to the litigation,
and intend to engage in a vigorous defense. However, an unfavorable resolution of any of this matter may have a material
adverse effect on our results of operations and cash flows.
We will continue to incur increased costs as a result of operating as a public
company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance
practices.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish
a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company,
we will not be required to include an attestation report on internal control over financial reporting issued by our independent
registered public accounting firm. To achieve compliance with Section 404 of the Sarbanes-Oxley Act of 2002 within the prescribed
period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both
costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants
and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps
to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement
a continuous reporting and improvement process for internal control over financial reporting. If we identify one or more material
weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of
our financial statements.
We are an “emerging growth company,” and the reduced disclosure requirements
applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and may
remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted
and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not
emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act of 2002, not being required to comply with any requirement that may be adopted by the
Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive
compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved. In our 2016 Annual Report on Form 10-K, we did not include
all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot
predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our
common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may
be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage
of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company
to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have
irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will
be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Because we do not anticipate paying any cash dividends on our capital stock in
the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend
to retain all of our future earnings, if any, to finance the growth and development of our business. Capital appreciation, if any,
of our common stock will be your sole source of gain for the foreseeable future.
If securities or industry analysts do not publish research or publish inaccurate
or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common stock will depend on the research and reports that
securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be
no assurance that analysts will cover us, or provide favorable coverage. If one or more analysts downgrade our stock or change
their opinion of our stock to be less favorable, our share price would likely decline. In addition, if one or more analysts cease
coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could
cause our share price or trading volume to decline.