Item 1A. Risk Factors
The
following important factors could cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on
Form 10-Q
or
elsewhere by management from time to time. The risk factors in this Quarterly Report have been revised to incorporate changes to our risk factors from those included in our Annual Report on Form
10-K
for the
fiscal year ended December 31, 2016. The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, which may be material, from the risk factors previously disclosed in Item 1A
of our Annual Report on Form
10-K
for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission.
RISKS RELATED TO OUR BUSINESS
Our plans to develop
and commercialize
non-viral
and viral adoptive cellular therapies based on engineered cytokines and novel chimeric antigen receptor, or CAR, T cell and natural killer, or NK, cell therapies as well as T cell
Receptor, or TCR, therapies can be considered as new approaches to cancer treatment, the successful development of which is subject to significant challenges.
We intend to employ technologies such as the technology licensed from MD Anderson pursuant to the MD Anderson License described above, and from Intrexon,
pursuant to the Channel Agreement and GvHD Agreement, to pursue the development and commercialization of
non-viral
and viral adoptive cellular therapies based on cytokines, T cells, NK cells, CARs and TCRs,
possibly under control of the RTS
®
and other switch technologies targeting both hematologic and solid tumor malignancies. Because this is a new approach to cancer immunotherapy and cancer
treatment generally, developing and commercializing product candidates subjects us to a number of challenges, including:
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obtaining regulatory approval from the FDA and other regulatory authorities that have very limited experience with the commercial development of genetically modified and/or unmodified
T-cell
and
NK-cell
therapies for cancer;
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developing and deploying consistent and reliable processes for engineering a patients and/or donors T cells or NK cells
ex vivo
and infusing the T cells or NK cells back into the patient;
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possibly conditioning patients with chemotherapy in conjunction with delivering each of the potential products, which may increase the risk of adverse side effects of the potential products;
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educating medical personnel regarding the potential side effect profile of each of the potential products, such as the potential adverse side effects related to cytokine release;
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addressing any competing technological and market developments;
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developing processes for the safe administration of these potential products, including long-term
follow-up
for all patients who receive the potential products;
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sourcing additional clinical and, if approved, commercial supplies for the materials used to manufacture and process the potential products;
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developing a manufacturing process and distribution network with a cost of goods that allows for an attractive return on investment;
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establishing sales and marketing capabilities after obtaining any regulatory approval to gain market acceptance;
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developing therapies for types of cancers beyond those addressed by the current potential products;
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maintaining and defending the intellectual property rights relating to any products we develop; and
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not infringing the intellectual property rights, in particular, the patent rights, of third parties, including competitors, such as developing
T-cell
and/or
NK-cell
therapies.
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We cannot be sure that immunotherapy technologies that we intend to develop in partnership with MD Anderson and
Intrexon will yield satisfactory products that are safe and effective, scalable, or profitable. Moreover, public perception of therapy safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence
the willingness of subjects to participate in clinical trials, or if approved, of physicians to subscribe to the novel treatment mechanics. Physicians, hospitals and third-party payors often are slow to adopt new products, technologies and treatment
practices that require additional upfront costs and training. Physicians may not be willing to undergo training to adopt this novel and personalized therapy, may decide the therapy is too complex to adopt without appropriate training and may choose
not to administer the therapy. Based on these and other factors, hospitals and payors may decide that the benefits of this new therapy do not or will not outweigh its costs.
We cannot assure you that we will be able to successfully address these challenges, which could prevent us from achieving our research, development and
commercialization goals.
*Our current product candidates are based on novel technologies and are supported by limited clinical data and we cannot
assure you that our current and planned clinical trials will produce data that supports regulatory approval of one or more of these product candidates.
Our Channel Agreement and GvHD Agreement with Intrexon described the terms of our use of Intrexons advanced transgene engineering platform for the
controlled and precise cellular production of anti-cancer effectors and for the development of therapeutic approaches for GvHD. The immuno-oncology effector platform in which we have acquired rights represents early-stage technology in the field of
human oncology biotherapeutics, with
Ad-RTS-IL-12
+ veledimex having completed two Phase 2 studies, in melanoma and breast
cancer. We are continuing to pursue intratumoral injection of
Ad-RTS-IL-12
+ veledimex in brain cancer. Although we plan to
leverage Intrexons immuno-oncology platform for additional products targeting key pathways used by cancers to grow and metastasize, we may not be successful in developing and commercializing these products for a variety of reasons.
Similarly, our genetically modified and/or
non-modified
T cell and/or NK cell product candidates are supported by
limited clinical data, all of which has been generated through trials conducted by MD Anderson, not by us. We plan to assume control of the overall clinical and regulatory development of our
T-cell
and
NK-cell
product candidates, and any failure to obtain, or delays in obtaining, sponsorship of new investigational new drug applications, or INDs, or in filing INDs sponsored by us for these or any other product
candidates we determine to advance could negatively affect the timing of our potential future clinical trials. Such an impact on timing could increase research and development costs and could delay or prevent obtaining regulatory approval for our
product candidates, either of which could have a material adverse effect on our business. Further, we did not control the design or conduct of the previous trials. It is possible that the FDA will not accept these previous trials as providing
adequate support for future clinical trials, whether controlled by us or third parties, for any of one or more reasons, including the safety, purity, and potency of the product candidate, the degree of product characterization, elements of the
design or execution of the previous trials or safety concerns, or other trial results. We may also be subject to liabilities arising from any treatment-related injuries or adverse effects in patients enrolled in these previous trials. As a result,
we may be subject to unforeseen third-party claims and delays in our potential future clinical trials. We may also be required to repeat in whole or in part clinical trials previously conducted by MD Anderson or other entities, which will be
expensive and delay the submission and licensure or other regulatory approvals with respect to any of our product candidates.
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In addition, the results of the limited clinical trials conducted by us, Intrexon and MD Anderson to date may not
be replicated in future clinical trials. Our
Ad-RTS-IL-12
+ veledimex and genetically modified and
non-modified
T-cell
and
NK-cell
product candidates, as well as other product candidates, may fail to show the desired safety and
efficacy in clinical development, and we cannot assure you that the results of any future trials will demonstrate the value and efficacy of our product candidates. Moreover, there are a number of regulatory requirements that we must satisfy before
we can continue clinical trials of CAR
+
T or other cellular therapy product candidates in the United States. Satisfaction of these requirements will entail substantial time, effort and financial
resources. Any time, effort and financial resources we expend on our
Ad-RTS-IL-12
+ veledimex and genetically modified and
non-modified
T cell and
NK-cell
product candidates and other early-stage product candidate development programs may adversely affect our ability to continue development and
commercialization of our immuno-oncology product candidates.
*We report interim data on certain of our clinical trials and we cannot assure you
that interim data will be predictive of either future interim results or final study results.
As part of our business, we provide updates related
to the development of our product candidates, which may include updates related to interim clinical trial data. To date, our clinical trials have involved small patient populations and because of the small sample size, the interim results of these
clinical trials may be subject to substantial variability and may not be indicative of either future interim results or final results.
If we cannot
compete successfully for market share against other biopharmaceutical companies, we may not achieve sufficient product revenues and our business will suffer.
The biopharmaceutical industry, and the rapidly evolving market for developing genetically engineered T cells and NK cells in particular, is characterized by
intense competition and rapid innovation. Genetically engineering T cells and NK cells faces significant competition in the CAR and TCR technology space from multiple companies and their collaborators, such as Novartis/University of Pennsylvania,
Bluebird bio/Celgene/Baylor College of Medicine, Kite Pharma/National Cancer Institute, Juno Therapeutics/Fred Hutchinson Cancer Research Center/Memorial Sloan-Kettering Cancer Center/Seattle Childrens Research Institute, Cellectis/Pfizer,
Adaptimmune/GSK, Celgene, NantKwest, Gritstone, Neon, BioNTech, and Advaxis. We also face competition from
non-cell
based treatments offered by other companies such as Amgen, AstraZeneca, Bristol-Myers,
Incyte, Merck, and Roche. In addition, our gene therapy, immuno-oncology products such as
Ad-RTS-IL-12
+ veledimex face
competition from VBL Therapeutics, Immunocellular Therapeutics, Merck, Genentech, Bristol-Myers, Arbor Pharmaceuticals, Tocagen, OncoSec and Insys Therapeutics. Even if we obtain regulatory approval of potential products, we may not be the first to
market and that may affect the price or demand for our potential products. Existing or future competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products, or may offer
comparable performance at a lower cost. Additionally, the availability and price of our competitors products could limit the demand and the price we are able to charge for our potential products. We may not be able to implement our business
plan if the acceptance of our potential products is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our potential products, or if physicians switch to other new drug or biologic products
or choose to reserve our potential products. Additionally, a competitor could obtain orphan product exclusivity from the FDA with respect to such competitors product. If such competitor product is determined to be the same product as one of
our potential products, that may prevent us from obtaining approval from the FDA for such potential products for the same indication for seven years, except in limited circumstances. If our products fail to capture and maintain market share, we may
not achieve sufficient product revenues and our business will suffer.
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We compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with
larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors have products already approved or in development. In addition, many of these competitors,
either alone or together with their collaborative partners, operate larger research and development programs or have substantially greater financial resources than we do, as well as significantly greater experience in:
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developing drugs and biopharmaceuticals;
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undertaking preclinical testing and human clinical trials;
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obtaining FDA and other regulatory approvals of drugs and biopharmaceuticals;
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formulating and manufacturing drugs and biopharmaceuticals; and
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launching, marketing, and selling drugs and biopharmaceuticals.
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Our commercial opportunity could be reduced
or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to
compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products.
Any termination of
our licenses with Intrexon or MD Anderson could result in the loss of significant rights and could harm our ability to develop and commercialize our product candidates.
We are dependent on patents,
know-how,
and proprietary technology that are licensed from others, particularly MD
Anderson and Intrexon. Any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our product candidates. Disputes may also arise between us and these licensors regarding intellectual
property subject to a license agreement, including those relating to:
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the scope of rights granted under the applicable license agreement and other interpretation-related issues;
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whether and the extent to which our technology and processes, and the technology and processes of Intrexon, MD Anderson and our other licensors, infringe on intellectual property of the licensor that is not subject to
the applicable license agreement;
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our right to sublicense patent and other rights to third parties pursuant to our relationships with our licensors and partners;
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whether we and/or Intrexon are complying with our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our potential products under the MD
Anderson License; and
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the allocation of ownership of inventions and
know-how
resulting from the joint creation or use of intellectual property by our licensors and by us.
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If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements, particularly with
MD Anderson and Intrexon, on acceptable terms, we may be unable to successfully develop and commercialize the affected potential products. We are generally also subject to all of the same risks with respect to protection of intellectual property
that we license as we are for intellectual property that we own. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize potential products under our applicable licenses could suffer.
There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as
well as administrative proceedings for challenging patents, including interference, derivation, and reexamination proceedings before the United States Patent and Trademark Office, or U.S. PTO, or oppositions and other comparable proceedings in
foreign jurisdictions. Recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented, which adds uncertainty to the possibility of challenge to our or our
licensors patents in the future.
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*We will require additional financial resources in order to continue ongoing development of our product
candidates; if we are unable to obtain these additional resources, we may be forced to delay or discontinue clinical testing of our product candidates.
We have not generated significant revenue and have incurred significant net losses in each year since our inception. For the six months ended June 30,
2017, we had a net loss of $28.3 million, and, as of June 30, 2017, we have incurred approximately $686.5 million of accumulated deficit since our inception in 2003. We expect to continue to incur significant operating expenditures
and net losses. Further development of our product candidates, including product candidates that we may develop under our Channel Agreement or GvHD Agreement with Intrexon, pursuant to the MD Anderson License or pursuant to the Ares Trading
Agreement, will likely require substantial increases in our expenses as we:
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continue to undertake clinical trials for product candidates;
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scale-up
the formulation and manufacturing of our product candidates;
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seek regulatory approvals for product candidates;
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work with regulatory authorities to identify and address program-related inquiries;
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implement additional internal systems and infrastructure;
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hire additional personnel;
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begin to advance candidates pursuant to the MD Anderson License; and
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commence providing funding for certain research and development activities of MD Anderson pursuant to the terms of the MD Anderson License.
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We continue to seek additional financial resources to fund the further development of our product candidates. If we are unable to obtain sufficient additional
capital, one or more of these programs could be placed on hold. Because we are currently devoting a significant portion of our resources to the development of immuno-oncology, further progress with the development of our other candidates may be
significantly delayed and may depend on the licensing of those compounds to third parties.
As of June 30, 2017, we have approximately
$97.2 million of cash and cash equivalents. Given our development plans, we anticipate cash resources will be sufficient to fund our operations into the fourth quarter of 2018, and we have no committed sources of additional capital at this
time. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our estimates
on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate. Management does not know whether additional financing will be on terms favorable or acceptable to us when needed, if at
all. If adequate additional funds are not available when required, or if we are unsuccessful in entering into partnership agreements for further development of our product candidates, management may need to curtail development efforts. Our
independent registered accounting firm expressed substantial doubt as to our ability to continue as a going concern in their report dated February 16, 2017 included in our Annual Report on Form
10-K
for
the fiscal year ended December 31, 2016; however, in connection with our May 2017 underwritten offering we received net proceeds of approximately $47.3 million, following the receipt of which, we expect that our cash resources will be
sufficient to fund our operations into the fourth quarter of 2018.
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*We need to raise additional capital to fund our operations. The manner in which we raise any additional
funds may affect the value of your investment in our common stock.
As of June 30, 2017, we have incurred approximately $686.5 million
of accumulated deficit and had approximately $97.2 million of cash and cash equivalents. Given our current development plans, we anticipate that our current cash resources will be sufficient to fund our operations into the fourth quarter of
2018. However, changes may occur that would consume our existing capital prior to then, including expansion of the scope of, and/or slower than expected progress of, our research and development efforts and changes in governmental regulation. Actual
costs may ultimately vary from our current expectations, which could materially impact our use of capital and our forecast of the period of time through which our financial resources will be adequate to support our operations. Also our estimates
include the advancement of our immuno-oncology product candidates in the clinic under our Channel Agreement and GvHD Agreement with Intrexon and our increased expenses as we begin to advance candidates pursuant to the MD Anderson License with MD
Anderson and commence providing funding for certain research and development activities of MD Anderson pursuant to the terms of the MD Anderson License, and we expect that the costs associated with these and any additional product candidates we
pursue will increase the level of our overall research and development expenses significantly going forward.
In addition to above factors, our actual
cash requirements may vary materially from our current expectations for a number of other factors that may include, but are not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs
associated with the development of our product candidates, our ability to secure partnering arrangements, and costs of filing, prosecuting, defending and enforcing our intellectual property rights. If we exhaust our capital reserves more quickly
than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to us or at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will
be forced to prioritize among them.
The unpredictability of the capital markets may severely hinder our ability to raise capital within the time periods
needed or on terms we consider acceptable, if at all. Moreover, if we fail to advance one or more of our current product candidates to later-stage clinical trials, successfully commercialize one or more of our product candidates, or acquire new
product candidates for development, we may have difficulty attracting investors that might otherwise be a source of additional financing.
Our need for
additional capital and limited capital resources may force us to accept financing terms that could be significantly dilutive to existing stockholders. To the extent that we raise additional capital by issuing equity securities, our stockholders may
experience dilution. In addition, we may grant future investors rights superior to those of our existing stockholders. If we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to
our technologies, product candidates or products, or grant licenses on terms that are not favorable to us. If we raise additional funds by incurring debt, we could incur significant interest expense and become subject to covenants in the related
transaction documentation that could affect the manner in which we conduct our business.
*Clinical trials are very expensive, time-consuming, and
difficult to design, initiate and implement.
Human clinical trials are very expensive and difficult to design, initiate and implement, in part
because they are subject to rigorous regulatory requirements. The clinical trial
start-up
and process itself is also time-consuming and results are inherently uncertain. We estimate that clinical trials of our
product candidates will take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to delay the start of, abandon or repeat clinical trials. The commencement and
completion of clinical trials may be delayed by several factors, including:
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Additional nonclinical data requests by regulatory agencies;
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Unforeseen safety issues;
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Determination of dosing issues;
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Lack of effectiveness during clinical trials;
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Slower than expected rates of patient recruitment and enrollment;
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Inability to monitor patients adequately during or after treatment;
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Inability or unwillingness of medical investigators to follow our clinical protocols; and
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Regulatory determinations to temporarily or permanently cease enrollment for other reasons not related to patient safety.
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Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be
successful. In addition, we or the FDA may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in our IND submission or in the conduct of these trials.
See also Risks Related to the Clinical Testing, Regulatory Approval and Manufacturing of our Product Candidates
Our product candidates are
in various stages of clinical trials, which are very expensive and time-consuming. We cannot be certain when we will be able to submit an MMA or BLA, to the EMA or FDA and any failure or delay in completing clinical trials for our product candidates
could harm our business.
We may not be able to obtain or maintain orphan drug exclusivity for our product candidates.
We have received orphan drug designation for
Ad-RTS-IL-12
+ veledimex for the treatment of malignant glioma in the United States, and we may be able to receive additional
orphan drug designation from the FDA and the European Medicines Agency, or EMA, for our other product candidates. In the United States, orphan designation is available to drugs intended to treat, diagnose or prevent a rare disease or condition that
affects fewer than 200,000 people in the United States at the time of application for orphan designation. Orphan designation qualifies the sponsor of the product for a tax credit and marketing incentives. The first sponsor to receive FDA marketing
approval for a drug with an orphan designation is entitled to a seven-year exclusive marketing period in the United States for that product for that indication and, typically, a waiver of the prescription drug user fee for its marketing application.
However, a drug that the FDA considers to be clinically superior to, or different from, the approved orphan drug, even though for the same indication, may also obtain approval in the United States during the seven-year exclusive marketing period.
Orphan drug exclusive marketing rights may also be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug. There is no guarantee that any
of our other product candidates will receive orphan drug designation or that, even if such product candidate is granted such status, the product candidates clinical development and regulatory approval process will not be delayed or will be
successful.
We may not be able to commercialize any products, generate significant revenues, or attain profitability.
To date, none of our product candidates have been approved for commercial sale in any country. The process to develop, obtain regulatory approval for, and
commercialize potential product candidates is long, complex, and costly. Unless and until we receive approval from the FDA and/or other foreign regulatory authorities for our product candidates, we cannot sell our drugs and will not have product
revenues. Even if we obtain regulatory approval for one or more of our product candidates, if we are unable to successfully commercialize our products, we may not be able to generate sufficient revenues to achieve or maintain profitability, or to
continue our business without raising significant additional capital, which may not be available. Our failure to achieve or maintain profitability could negatively impact the trading price of our common stock.
Ethical, legal and social concerns about synthetic biologically engineered products could limit or prevent the use of our product candidates.
Our product candidates use an immuno-oncology platform. Public perception about the safety and environmental hazards of, and ethical concerns
over, genetically engineered products could influence public acceptance of our product candidates. If we and our collaborators are not able to overcome the ethical, legal and social concerns relating to biological engineering, our product candidates
may not be accepted. These concerns could result in increased expenses, regulatory scrutiny, delays or other impediments to the public acceptance and commercialization of our product candidates. Our ability to develop and commercialize products
could be limited by public attitudes and governmental regulation.
The subject of genetically modified organisms has received negative publicity, which
has aroused public debate. This adverse publicity could lead to greater regulation and trade restrictions on the development and commercialization of genetically altered products. Further, there is a risk that our product candidates could cause
adverse health effects or other adverse events, which could also lead to negative publicity.
The biological platform that we use may have significantly
enhanced characteristics compared to those found in naturally occurring organisms, enzymes or microbes. While we believe we produce biological technologies only for use in a controlled laboratory and industrial environment, the release of such
biological technologies into uncontrolled environments could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse effect on our business and financial condition, and we may have exposure to
liability for any resulting harm.
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Our use of synthetic immuno-oncology to develop product candidates may become subject to increasing
regulation in the future.
Most of the laws and regulations concerning immuno-oncology relate to the end products produced using synthetic
biology, but that may change. For example, the Presidential Commission for the Study of Bioethical Issues recommended in December 2010 that the federal government oversee, but not regulate, synthetic biology research. The Presidential Commission
also recommended that the government lead an ongoing review of developments in the synthetic biology field and that the government conduct a reasonable risk assessment before the field release of synthetic organisms. Other findings and
recommendations have been published by the Presidential Commission through 2014. Immuno-oncology may become subject to additional government regulations as a result of the recommendations, which could require us to incur significant additional
capital and operating expenditures and other costs in complying with these laws and regulations.
*We will incur additional expenses in connection
with our Channel Agreement and GvHD Agreement with Intrexon Corporation.
The immuno-oncology platform, in which we have acquired rights for
cancer indications and for the development of therapeutic approaches for GvHD from Intrexon, includes two existing product candidates. Upon entry into the Channel Agreement and GvHD Agreement with Intrexon, we assumed responsibility for the clinical
development of these product candidates, and our cell therapy programs, which we expect will increase the level of our overall research and development expenses significantly going forward. Although all human clinical trials are expensive and
difficult to design and implement, we believe that due to complexity, costs associated with clinical trials for immuno-oncology products are greater than the corresponding costs associated with clinical trials for small-molecule candidates. In
addition to increased research and development costs, we may need to add headcount to support our Channel Agreement and GvHD Agreement endeavors, which would add to our general and administrative expenses going forward.
Although our forecasts for expenses and the sufficiency of our capital resources take into account our plans to develop the Intrexon products, the actual
costs associated therewith may be significantly in excess of forecasted amounts. In addition to the amount and timing of expenses related to the clinical trials, our actual cash requirements may vary materially from our current expectations for a
number of other factors that may include, but are not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs associated with the development of our product candidates and costs of
filing, prosecuting, defending and enforcing our intellectual property rights. If we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to us or
at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritize among them.
Failing to pay any dividends on our Series 1 preferred stock issued to Intrexon may have adverse consequences.
In June 2016, we amended our Channel Agreement and GvHD Agreement with Intrexon in order to, among other things, reduce the royalty rate on operating profits
payable by us to Intrexon from 50% to 20%. In consideration for these amendments, we issued to Intrexon shares of our Series 1 preferred stock, $0.001 par value per share, or Series 1 preferred stock, which include, among other things, a monthly
dividend of 1% payable in additional shares of Series 1 preferred stock. If we fail to pay such dividends when due, it would affect our eligibility to file Registration Statements on Form
S-3
and our status as
a well-known seasoned issuer, which may increase the expense and time associated with both the filing and effectiveness of future registration statements and the consummation of future financing transactions or other offerings of our
securities.
*Our common stockholders may experience additional dilution as a result of the Series 1 preferred stock issued to Intrexon.
The shares of our Series 1 preferred stock include a monthly dividend of 1% which shall accrue and be paid each month in the form of additional
shares of Series 1 preferred stock. For the three months ended June 30, 2017, we issued an aggregate of 3,313 shares, as dividends, of our Series 1 preferred stock to Intrexon, the holder of all the outstanding shares of our Series 1 preferred
stock representing monthly dividends due from April 1, 2017 through June 30, 2017. For the year ended December 31, 2016, we issued an aggregate of 6,184 shares, as dividends, of our Series 1 preferred stock representing monthly
dividends due from June 30, 2016 through December 31, 2016. As a result of the monthly dividend, the number of shares of outstanding Series 1 preferred stock will increase each month that they are outstanding. Since the number of shares of
our common stock issuable upon conversion of the Series 1 preferred stock is based on the
20-day
volume-weighted average price of our common stock immediately prior to the public announcement of the first
approval in the United States of (i) a ZIOPHARM Product under the Channel Agreement, (ii) a Product under the GvHD Agreement or (iii) a Product under the Ares Trading Agreement, if, at the time of such public announcement, the
20-day
volume-weighted average price of our common stock has not increased by more than the cumulative amount of the dividends on the shares of Series 1 preferred stock that we originally issued to Intrexon, then
our common stockholders may experience additional dilution as a result of the conversion of the Series 1 preferred stock into shares of our common stock.
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The holders of our Series 1 preferred stock are entitled to rights and preferences that are significantly
greater than the rights and preferences of the holders of our common stock, including payments upon a liquidation event, as well as dividend and registration rights associated with their shares.
The shares of Series 1 preferred stock that we issued to Intrexon in June 2016 in consideration for amending the Channel Agreement and GvHD Agreement are
entitled to a number of rights and preferences which our common stock do not and will not have. Among these rights and preferences is the right to receive a portion of all funds to be distributed in connection with a voluntary or involuntary
liquidation, dissolution or winding up of the Company or Deemed Liquidation Event, as defined in our Amended and Restated Certificate of Designation, Preferences and Rights of Series 1 preferred stock, or the Certificate of Designation (which
includes a change of control or the sale, lease transfer or exclusive license of all or substantially all of our assets), in proportion to the holders proportionate share of our common stock on an
as-converted
to common stock basis. For purposes of determining the Series 1 preferred stocks proportionate share on an
as-converted
basis in such a transaction,
it would be assumed that the Series 1 preferred stock is convertible into a number of shares of common stock equal to (i) the stated value of all outstanding shares of Series 1 preferred stock, divided by (ii) the volume weighted average
price of our common stock for the
20-day
period ending on the date of the public announcement of such voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event,
rounded down to the nearest whole share, unless such transaction occurred following the public announcement of the first approval in the United States of a ZIOPHARM Product under the Channel Agreement, a Product under the GvHD Agreement or a Product
under the Ares Trading Agreement, in which case the stated value would be divided by the volume weighted average price of the Companys common stock for the
20-day
period ending on the date of the public
announcement such approval. We refer to this proportionate share allocated to the holders of Series 1 preferred stock as the Series 1 Liquidation Amount. In addition, the Company may elect to redeem the shares of Series 1 preferred stock in
connection with or following a Deemed Liquidation Event at a price per share equal to the Series 1 Liquidation Amount. Since the conversion rate is based on the stated value of the shares of Series 1 preferred stock, which was initially
$120 million and increases at a rate of 1% per month, the holders of shares of our Series 1 preferred stock could receive a disproportionate amount of the proceeds of any voluntary or involuntary liquidation, dissolution or winding up of the
Company or Deemed Liquidation Event if our stock price has not sufficiently increased prior to the time that their proportionate share is calculated. Further, pursuant to the terms of a Securities Issuance Agreement we entered into with Intrexon in
connection with the issuance of the Series 1 preferred stock, we agreed that the holders of common stock issued upon the conversion of the shares of Series 1 preferred stock issued to Intrexon shall be entitled to piggy-back registration rights with
respect to any common stock registered by us following such conversion.
The Series 1 preferred stock contains protective provisions that may limit
our business flexibility.
For so long as any shares of Series 1 preferred stock are outstanding, we may not, without first obtaining the consent
of the holders of at least a majority of the Series 1 preferred stock then outstanding, voting together as a single class:
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amend our certificate of incorporation or the Certificate of Designation of the Series 1 preferred stock, in each case in a manner that adversely affects the powers, preferences or rights of the Series 1 preferred stock
in a manner that is more adverse than the effect on any other class or series of our capital stock;
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authorize, create, issue or obligate us to issue (by reclassification, merger or otherwise) any security (or any class or series thereof) that has any powers, preferences or rights senior to the Series 1 preferred stock
with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company, the payment of dividends or rights of redemption; or
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enter into any transaction (or series of related transactions) the effect of which would adversely affect the holders of the Series 1 preferred stock in a manner that is more adverse than the effect on any other class
or series of our capital stock.
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As a result, we will not be able to take any of these actions without first seeking and obtaining the
approval of the holders of our Series 1 preferred stock. In addition, we may not be able to obtain such approval in a timely manner or at all, even if we think that taking the action for which we seek approval is in our best interests. Any failure
to obtain such approval could harm our business and result in a decrease in the value of our common stock.
58
We may not be able to retain the exclusive rights licensed to us by Intrexon Corporation to develop and
commercialize products involving DNA administered to humans for expression of anti-cancer effectors for the purpose of treatment or prophylaxis of cancer.
Under the Channel Agreement, we use Intrexons technology directed towards in vivo expression of effectors in connection with the development of
Ad-RTS-IL-12
+ veledimex, our cell therapy programs and generally to research, develop and commercialize products, in each case in
which DNA is administered to humans for expression of anti-cancer effectors for the purpose of treatment or prophylaxis of cancer, which we collectively refer to as the Cancer Program. The Channel Agreement grants us a worldwide license to use
patents and other intellectual property of Intrexon in connection with the research, development, use, importing, manufacture, sale, and offer for sale of products involving DNA administered to humans for expression of anti-cancer effectors for the
purpose of treatment or prophylaxis of cancer, which we refer to collectively as the ZIOPHARM Products. Such license is exclusive with respect to any clinical development, selling, offering for sale or other commercialization of ZIOPHARM Products,
and otherwise is
non-exclusive.
Subject to limited exceptions, we may not sublicense the rights described without Intrexons written consent. Under the Channel Agreement, and subject to certain
exceptions, we are responsible for, among other things, the performance of the Cancer Program, including development, commercialization and certain aspects of manufacturing of ZIOPHARM Products.
Intrexon may terminate the Channel Agreement if we fail to use diligent efforts to develop and commercialize ZIOPHARM Products or if we elect not to pursue
the development of a Cancer Program identified by Intrexon that is a Superior Therapy as defined in the Channel Agreement. We may voluntarily terminate the Channel Agreement upon 90 days written notice to Intrexon. Upon termination of
the Channel Agreement, we may continue to develop and commercialize any ZIOPHARM Product that, at the time of commercialization:
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is being commercialized by us;
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has received regulatory approval;
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is a subject of an application for regulatory approval that is pending before the applicable regulatory authority; or
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is the subject of at least an ongoing Phase 2 clinical trial (in the case of a termination by Intrexon due to an uncured breach or a voluntary termination by us), or an ongoing Phase 1 clinical trial in the field (in
the case of a termination by us due to an uncured breach or a termination by Intrexon following an unconsented assignment by us or our election not to pursue development of a Superior Therapy);
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Our obligation to pay 20% of net profits or revenue and 50% of sublicensing revenue or royalties with respect to these retained products will
survive termination of the Channel Agreement, as described further in Note 6 to our financial statements (Commitments and Contingencies), as well as additional disclosures in our Annual Report on Form
10-K
under the heading
BusinessLicense Agreements, Intellectual Property and Other AgreementsExclusive Channel Partner Agreement with Intrexon Corporation for the Cancer Programs
.
There can be no assurance that we will be able to successfully perform under the Channel Agreement and if the Channel Agreement is terminated it may prevent
us from achieving our business objectives.
* The technology on which our Channel Agreements with Intrexon Corporation are based in part on early
stage technology in the field of human oncologic and autoimmune therapeutics.
Our Channel Agreements with Intrexon contemplate our use of
Intrexons advanced transgene engineering platform for the controlled and precise cellular production of anti-cancer effectors and for the development of therapeutic approaches for GvHD. The synthetic immuno-oncology effector platform in which
we have acquired rights represents early-stage technology in the field of human oncology biotherapeutic, with
Ad-RTS-IL-12
+
veledimex having completed two Phase 2 studies, in melanoma and breast cancer. We are continuing to pursue intratumoral injection of
Ad-RTS-IL-12
+ veledimex in brain cancer. Although we plan to leverage Intrexons synthetic immuno-oncology platform for
additional products targeting key pathways used by cancers to grow and metastasize, we may not be successful in developing and commercializing these products for a variety of reasons. The risk factors set forth herein that apply to our small
molecule drug candidates, which are in various stages of development, also apply to product candidates that we seek to develop under our Channel Agreement with Intrexon.
59
We will incur additional expenses in connection with our Channel Agreements with Intrexon Corporation.
The synthetic immuno-oncology platform, in which we have acquired rights for cancer indications and for the development of therapeutic approaches
for GvHD from Intrexon, includes two existing product candidates. Upon entry into the Channel Agreements with Intrexon, we assumed responsibility for the clinical development of these product candidates, which we expect will increase the level of
our overall research and development expenses significantly going forward. Although all human clinical trials are expensive and difficult to design and implement, we believe that due to complexity, costs associated with clinical trials for synthetic
immuno-oncology products are greater than the corresponding costs associated with clinical trials for small molecule candidates. In addition to increased research and development costs, prior to the adoption of our April 2013 workforce reduction
plan, we added headcount in part to support our Channel Agreement endeavors, and we may need to do so again in the future which would add to our general and administrative expenses going forward.
Although our forecasts for expenses and the sufficiency of our capital resources takes into account our plans to develop the Intrexon products, the actual
costs associated therewith may be significantly in excess of forecasted amounts. In addition to the amount and timing of expenses related to the clinical trials, our actual cash requirements may vary materially from our current expectations for a
number of other factors that may include, but are not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs associated with the development of our product candidates and costs of
filing, prosecuting, defending and enforcing our intellectual property rights. If we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to us or
at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritize among them.
We may not be able to retain the exclusive rights licensed to us by Intrexon Corporation to develop and commercialize products involving DNA
administered to humans for expression of anti-cancer effectors for the purpose of treatment or prophylaxis of cancer.
Under the Channel
Agreement, we use Intrexons technology directed towards in vivo expression of effectors in connection with the development of
Ad-RTS-IL-12+
veledimex and generally to research, develop and commercialize products, in each case in which DNA is administered
to humans for expression of anti-cancer effectors for the purpose of treatment or prophylaxis of cancer, which we collectively refer to as the Cancer Program. The Channel Agreement grants us a worldwide license to use patents and other intellectual
property of Intrexon in connection with the research, development, use, importing, manufacture, sale, and offer for sale of products involving DNA administered to humans for expression of anti-cancer effectors for the purpose of treatment or
prophylaxis of cancer, which we refer to collectively as the ZIOPHARM Products. Such license is exclusive with respect to any clinical development, selling, offering for sale or other commercialization of ZIOPHARM Products, and otherwise is
non-exclusive.
Subject to limited exceptions, we may not sublicense the rights described without Intrexons written consent. Under the Channel Agreement, and subject to certain exceptions, we are responsible
for, among other things, the performance of the Cancer Program, including development, commercialization and certain aspects of manufacturing of ZIOPHARM Products.
Intrexon may terminate the Channel Agreement if we fail to use diligent efforts to develop and commercialize ZIOPHARM Products or if we elect not to pursue
the development of a Cancer Program identified by Intrexon that is a Superior Therapy as defined in the Channel Agreement. We may voluntarily terminate the Channel Agreement upon 90 days written notice to Intrexon.
Our obligation to pay 20% to 50% of net profits or revenue as described further in our Annual Report on Form
10-K
under the heading
BusinessLicense Agreements, Intellectual Property and Other AgreementsExclusive Channel Partner Agreement with Intrexon Corporation
with respect to these retained products will survive
termination of the Channel Agreement.
There can be no assurance that we will be able to successfully perform under the Channel Agreement and if the
Channel Agreement is terminated it may prevent us from achieving our business objectives.
We will incur additional expenses in connection with our
License Agreement with The University of Texas M.D. Anderson Cancer Center
Pursuant to the MD Anderson License with MD Anderson, we, together
with Intrexon, obtained an exclusive, worldwide license to certain technologies owned and licensed by MD Anderson including technologies relating to novel CAR
+
T cell, NK cell and TCR cell
therapies arising from the laboratory of Laurence Cooper, M.D., Ph.D., who was then at MD Anderson, as well as either
co-exclusive
or
non-exclusive
licenses under
certain related technologies. Pursuant to the MD Anderson License, MD Anderson agreed to transfer to us certain existing research programs described in the MD Anderson License and we, together with Intrexon, entered into a research and development
agreement with MD Anderson pursuant to which we agreed to provide funding for certain research and development activities of MD Anderson for a period of three years from the date of the MD Anderson License, in an amount between $15.0 and
$20.0 million per year. In addition, we also expect to enter into additional collaboration and technology transfer agreements with MD Anderson and Intrexon to accelerate technology and clinical development of these product candidates. We expect
to increase the level of our overall research and development expenses significantly going forward as a result of each of these items.
60
Although our forecasts for expenses and the sufficiency of our capital resources takes into account our plans to
develop the technology licensed from MD Anderson and our obligations under the MD Anderson License, the MD Anderson License is still only beginning to be implemented, therefore the actual costs associated therewith may be significantly in excess of
forecasted amounts. In addition to the amount and timing of expenses related to our relationship with MD Anderson, our actual cash requirements may vary materially from our current expectations for a number of other factors that may include, but are
not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs associated with the development of our product candidates and costs of filing, prosecuting, defending and enforcing our
intellectual property rights. If we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to us or at all, we will be unable to proceed with
development of some or all of our product candidates on expected timelines and will be forced to prioritize among them.
We may not be able to
retain the rights licensed to us and Intrexon by The University of Texas M.D. Anderson Cancer Center to technologies relating to novel chimeric antigen receptor, or CAR, T cell therapies and other related technologies.
Under the MD Anderson License, we, together with Intrexon, received an exclusive, worldwide license to certain technologies owned and licensed by MD Anderson
including technologies relating to novel CAR
+
T cell, NK cell and TCR cell therapies arising from the laboratory of Laurence Cooper, M.D., Ph.D., who was then at MD Anderson, as well as either
co-exclusive
or
non-exclusive
licenses under certain related technologies. When combined with Intrexons technology suite and ZIOPHARMs clinically tested RheoSwitch
Therapeutic System
®
interleukin-12
modules, the resulting proprietary methods and technologies may help realize the promise of genetically modified CAR
+
T cell and other immune cells by controlling cell expansion and activation in the body, minimizing
off-target
and unwanted
on-target
effects and toxicity while maximizing therapeutic efficacy. The term of the MD Anderson License expires on the last to occur of (a) the expiration of all patents licensed thereunder, or
(b) the twentieth anniversary of the date of the MD Anderson License; provided, however, that following the expiration of the term, the Company and Intrexon shall then have a fully-paid up, royalty free, perpetual, irrevocable and sublicensable
license to use the licensed intellectual property thereunder.
After 10 years from the date of the MD Anderson License and subject to a
90-day
cure period, MD Anderson will have the right to convert the MD Anderson License into a
non-exclusive
license if we and Intrexon are not using commercially reasonable
efforts to commercialize the licensed intellectual property on a
case-by-case
basis. After five years from the date of the MD Anderson License and subject to a
180-day
cure period, MD Anderson will have the right to terminate the MD Anderson License with respect to specific technology(ies) funded by the government or subject to a third party contract if we and Intrexon are
not meeting the diligence requirements in such funding agreement or contract, as applicable. Subject to a
30-day
cure period, MD Anderson has the right to terminate the MD Anderson License if we and Intrexon
fail to timely deliver the shares due in consideration for the MD Anderson License. MD Anderson may also terminate the agreement with written notice upon material breach by us or Intrexon, if such breach has not been cured within 60 days of
receiving such notice. In addition, the MD Anderson License will terminate upon the occurrence of certain insolvency events for both us or Intrexon and may be terminated by the mutual written agreement of us, Intrexon and MD Anderson.
There can be no assurance that we will be able to successfully perform under the MD Anderson License and if the MD Anderson License is terminated it may
prevent us from achieving our business objectives.
We have a limited operating history upon which to base an investment decision.
We have not demonstrated an ability to perform the functions necessary for the successful commercialization of any product candidates. The successful
commercialization of any product candidates will require us to perform a variety of functions, including:
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Continuing to undertake preclinical development and clinical trials;
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Participating in regulatory approval processes;
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Formulating and manufacturing products; and
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Conducting sales and marketing activities.
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Our operations have been limited to organizing and staffing our
company, acquiring, developing and securing our proprietary product candidates, and undertaking preclinical and clinical trials of our product candidates. These operations provide a limited basis for you to assess our ability to commercialize our
product candidates and the advisability of investing in our securities.
61
Because we currently neither have nor intend to establish internal research capabilities, we are dependent
upon pharmaceutical and biotechnology companies and academic and other researchers to sell or license us their product candidates and technology.
Proposing, negotiating, and implementing an economically viable product acquisition or license is a lengthy and complex process. We compete for partnering
arrangements and license agreements with pharmaceutical, biopharmaceutical, and biotechnology companies, many of which have significantly more experience than we do, and have significantly more financial resources. Our competitors may have stronger
relationships with certain third parties including academic research institutions, with whom we are interested in collaborating and may have, therefore, a competitive advantage in entering into partnering arrangements with those third parties. We
may not be able to acquire rights to additional product candidates on terms that we find acceptable, or at all.
We expect that any product candidate to
which we acquire rights will require significant additional development and other efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All drug product
candidates are subject to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe or effective for approval by regulatory authorities. Even
if our product candidates are approved, they may not be economically manufactured or produced, or be successfully commercialized.
We actively evaluate
additional product candidates to acquire for development. Such additional product candidates, if any, could significantly increase our capital requirements and place further strain on the time of our existing personnel, which may delay or otherwise
adversely affect the development of our existing product candidates. We must manage our development efforts and clinical trials effectively, and hire, train and integrate additional management, administrative, and sales and marketing personnel. We
may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing.
We may not be able
to successfully manage our growth.
In the future, if we are able to advance our product candidates to the point of, and thereafter through,
clinical trials, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide for these capabilities. Any future growth will place a significant strain on our
management and on our administrative, operational, and financial resources. Therefore, our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage
any future growth effectively. To manage this growth, we must expand our facilities, augment our operational, financial and management systems, and hire and train additional qualified personnel. If we are unable to manage our growth effectively, our
business may be harmed.
Our business will subject us to the risk of liability claims associated with the use of hazardous materials and chemicals.
Our contract research and development activities may involve the controlled use of hazardous materials and chemicals. Although we believe that
our safety procedures for using, storing, handling and disposing of these materials comply with federal, state and local laws and regulations, we cannot completely eliminate the risk of accidental injury or contamination from these materials. In the
event of such an accident, we could be held liable for any resulting damages and any liability could have a materially adverse effect on our business, financial condition, and results of operations. In addition, the federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and waste products may require our contractors to incur substantial compliance costs that could materially adversely affect our
business, financial condition, and results of operations.
We rely on key executive officers and scientific and medical advisors, and their
knowledge of our business and technical expertise would be difficult to replace.
We are highly dependent on Dr. Laurence J.N. Cooper,
our Chief Executive Officer, Caesar J. Belbel, our Chief Operating Officer, Executive Vice President and Chief Legal Officer, Dr. Francois Lebel, our Chief Medical Officer, and Executive Vice President of Research and Development and our
principal scientific, regulatory, and medical advisors. Dr. Coopers, Mr. Belbels, and Dr. Lebels employment are governed by written employment agreements. Dr. Cooper, Mr. Belbel, and Dr. Lebel may
terminate their employment with us at any time, subject, however, to certain
non-compete
and
non-solicitation
covenants. The loss of the technical knowledge and
management and industry expertise of Dr. Cooper, Mr. Belbel, Dr. Lebel, or any of our other key personnel, could result in delays in product development, loss of customers and sales, and diversion of management resources, which could
adversely affect our operating results. We do not carry key person life insurance policies on any of our officers or key employees.
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If we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.
We will need to hire additional qualified personnel with expertise in preclinical and clinical research and testing, government regulation,
formulation and manufacturing, and eventually, sales and marketing. We compete for qualified individuals with numerous biopharmaceutical companies, universities, and other research institutions. Competition for such individuals is intense and we
cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to our success. If we are unable to hire additional qualified personnel, our ability to grow our business may be
harmed.
We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability
lawsuits.
The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves
against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products, if approved. Even a successful defense would require significant financial and management resources. Regardless of the
merit or eventual outcome, liability claims may result in:
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Decreased demand for our product candidates;
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Injury to our reputation;
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Withdrawal of clinical trial participants;
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Withdrawal of prior governmental approvals;
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Costs of related litigation;
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Substantial monetary awards to patients;
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The inability to commercialize our product candidates.
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We currently carry clinical trial insurance and
product liability insurance. However, an inability to renew our policies or to obtain sufficient insurance at an acceptable cost could prevent or inhibit the commercialization of pharmaceutical products that we develop, alone or with collaborators.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our current and future contractors and consultants are vulnerable
to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we are not aware of any such material system failure, accident or security breach to date, if such an event
were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could
result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events
relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of
confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed.
63
RISKS RELATED TO THE CLINICAL TESTING, REGULATORY APPROVAL AND MANUFACTURING OF OUR PRODUCT CANDIDATES
If we are unable to obtain the necessary U.S. or worldwide regulatory approvals to commercialize any product candidate, our business will
suffer.
We may not be able to obtain the approvals necessary to commercialize our product candidates, or any product candidate that we may
acquire or develop in the future for commercial sale. We will need FDA approval to commercialize our product candidates in the United States and approvals from regulatory authorities in foreign jurisdictions equivalent to the FDA to commercialize
our product candidates in those jurisdictions. In order to obtain FDA approval of any product candidate, we must submit to the FDA a Biologics License Application, or BLA, demonstrating that the product candidate is safe for humans and effective for
its intended use. This demonstration requires significant research and animal tests, which are referred to as preclinical studies, as well as human tests, which are referred to as clinical trials. Satisfaction of the FDAs regulatory
requirements typically takes many years, depending upon the type, complexity, and novelty of the product candidate, and will require substantial resources for research, development, and testing. We cannot predict whether our research, development,
and clinical approaches will result in drugs that the FDA will consider safe for humans and effective for their intended uses. The FDA has substantial discretion in the drug approval process and may require us to conduct additional preclinical and
clinical testing or to perform post-marketing studies. The approval process may also be delayed by changes in government regulation, future legislation, or administrative action or changes in FDA policy that occur prior to or during our regulatory
review. Delays in obtaining regulatory approvals may:
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Delay commercialization of, and our ability to derive product revenues from, our product candidates;
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Impose costly procedures on us; and
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Diminish any competitive advantages that we may otherwise enjoy.
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Even if we comply with all FDA requests, the
FDA may ultimately reject one or more of our NDAs or BLAs. We cannot be sure that we will ever obtain regulatory approval for any of our product candidates. Failure to obtain FDA approval for our product candidates will severely undermine our
business by leaving us without a saleable product, and therefore without any potential revenue source, until another product candidate can be developed. There is no guarantee that we will ever be able to develop or acquire another product candidate
or that we will obtain FDA approval if we are able to do so.
In foreign jurisdictions, we similarly must receive approval from applicable regulatory
authorities before we can commercialize any drugs. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval procedures described above.
Our product candidates are in various stages of clinical trials, which are very expensive and time-consuming. We cannot be certain when we will be able
to submit a BLA to the FDA and any failure or delay in completing clinical trials for our product candidates could harm our business.
Our product
candidates are in various stages of development and require extensive clinical testing. Notwithstanding our current clinical trial plans for each of our existing product candidates, we may not be able to commence additional trials or see results
from these trials within our anticipated timelines. As such, we cannot predict with any certainty if or when we might submit a BLA for regulatory approval of our product candidates or whether such a BLA will be accepted. Because we do not anticipate
generating revenues unless and until we submit one or more BLAs and thereafter obtain requisite FDA approvals, the timing of our BLA submissions and FDA determinations regarding approval thereof, will directly affect if and when we are able to
generate revenues.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory
approval, limit the commercial profile of an approved label, or result in significant negative consequences following any potential marketing approval.
As with many pharmaceutical and biological products, treatment with our product candidates may produce undesirable side effects or adverse reactions or
events, including potential adverse side effects related to cytokine release. If our product candidates or similar products or product candidates under development by third parties demonstrate unacceptable adverse events, we may be required to halt
or delay further clinical development of our product candidates. The FDA, the EMA or other foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications.
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The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete
the trial or result in potential product liability claims. In addition, these side effects may not be appropriately or timely recognized or managed by the treating medical staff, particularly outside of the institutions that collaborate with us, as
toxicities resulting from our novel technologies may not be normally encountered in the general patient population and by medical personnel. We expect to have to train medical personnel using our product candidates to understand their side effect
profiles, both for our planned clinical trials and upon any commercialization of any product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in adverse effects to patients,
including death.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side
effects caused by such products, including during any long-term
follow-up
observation period recommended or required for patients who receive treatment using our products, a number of potentially significant
negative consequences could result, including:
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regulatory authorities may withdraw approvals of such product;
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regulatory authorities may require additional warnings on the label;
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we may be required to create a risk evaluation and mitigation strategy plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for
healthcare providers, and/or other elements to assure safe use;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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Any of the foregoing could prevent us from achieving or maintaining market
acceptance of the particular product candidate, if approved. Furthermore, any of these occurrences may harm our business, financial condition and prospects significantly.
Our cell-based and gene therapy immuno-oncology products rely on the availability of reagents, specialized equipment, and other specialty materials and
infrastructure, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to
manufacture and supply our products.
Manufacturing our product candidates will require many reagents, which are substances used in our
manufacturing processes to bring about chemical or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies with limited resources and experience to support commercial biologics
production. We currently depend on a limited number of vendors for certain materials and equipment used in the manufacture of our product candidates. Some of these suppliers may not have the capacity to support commercial products manufactured under
current good manufacturing practices by biopharmaceutical firms or may otherwise be
ill-equipped
to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to
obtain supply contracts with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials and equipment to support clinical or commercial manufacturing.
For some of these reagents, equipment, infrastructure, and materials, we rely and may in the future rely on sole source vendors or a limited number of
vendors. An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor
disputes or shortages, unexpected demands, or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which could adversely and materially affect our product sales and operating results or our ability to
conduct clinical trials, either of which could significantly harm our business.
As we continue to develop and scale our manufacturing process, we expect
that we will need to obtain rights to and supplies of certain materials and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable terms, or at all, and if we are unable to
alter our process in a commercially viable manner to avoid the use of such materials or find a suitable substitute, it would have a material adverse effect on our business. Even if we are able to alter our process so as to use other materials or
equipment, such a change may lead to a delay in our clinical development and/or commercialization plans. If such a change occurs for product candidate that is already in clinical testing, the change may require us to perform both ex vivo
comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials.
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The results of our clinical trials may not support our product candidate claims.
Even if our clinical trials are completed as planned, we cannot be certain that their results will support approval of our product candidates. The FDA
normally expects two randomized, well-controlled Phase 3 pivotal studies in support of approval of an NDA or BLA. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and we cannot
be certain that the results of later clinical trials will replicate the results of prior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate that our product candidates are safe for humans and effective for
the indicated uses. This failure would cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination of, our clinical trials will delay the submission of our BLAs with the FDA and,
ultimately, our ability to commercialize our product candidates and generate product revenues. In addition, our clinical trials involve small patient populations. Because of the small sample size, the results of these clinical trials may not be
indicative of future results.
*Our synthetic immuno-oncology product candidates are based on a novel technology, which makes it difficult to
predict the time and cost of product candidate development and subsequently obtaining regulatory approval. Currently, no gene therapy products have been approved in the United States and only two products have been approved in Europe.
We are currently focused on developing products in immuno-oncology that employ novel gene expression, control and cell technologies to deliver safe, effective
and scalable cell- and viral-based therapies for the treatment of cancer and GvHD. Due to the novelty of this medical technology, there can be no assurance that any development problems we experience in the future related to our immuno-oncology
platform will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience unanticipated problems or delays in expanding our manufacturing capacity or transferring our manufacturing
process to commercial partners, which may prevent us from completing our clinical studies or commercializing our immuno-oncology product candidates on a timely or profitable basis, if at all.
In addition, the clinical study requirements of the FDA, the EMA and other regulatory agencies and the criteria these regulators use to determine the safety
and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive
and take longer than for other, better known or extensively studied pharmaceutical or other product candidates. Currently, two gene therapy products, Glybera and Strimvelis, have received approval from the EMA. UniQures Glybera, received
marketing authorization from the EMA in 2012 but has struggled commercially as a result of high cost and limited demand. GlaxoSmithKlines Strimvelis was approved by the EMA in May 2016 and in March 2017 dosed its first patient. According to
GlaxoSmithKline, delays in Strimveliss commercialization were due to cross-border European reimbursement. These factors make it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our
product candidates in either the United States or Europe. Approvals by the EMA may not be indicative of what the FDA may require for approval.
Regulatory
requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. For example, the FDA has established the Office of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation
and Research, or CBER, to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Gene therapy clinical studies conducted at institutions that receive
funding for recombinant DNA research from the U.S. National Institutes of Health, or the NIH, are also subject to review by the NIH Office of Biotechnology Activities Recombinant DNA Advisory Committee, or the RAC. Although the FDA decides
whether individual gene therapy protocols may proceed, the RAC review process can impede the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation. Conversely, the FDA can put an IND on clinical hold even
if the RAC has provided a favorable review. Also, before a clinical trial can begin at an
NIH-funded
institution, that institutions institutional review board, or IRB, and its Institutional Biosafety
Committee will have to review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other regulatory bodies to change the
requirements for approval of any of our product candidates.
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These regulatory review committees and advisory groups and the new guidelines they promulgate may lengthen the
regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead
to significant post-approval limitations or restrictions. As we advance our immuno-oncology product candidates, we will be required to consult with these regulatory and advisory groups, and comply with applicable guidelines. If we fail to do so, we
may be required to delay or discontinue development of our product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected for oncology product candidates. Delay or
failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue to maintain our business.
Because we are dependent upon clinical research institutions and other contractors for clinical testing and for research and development activities, the
results of our clinical trials and such research activities are, to a certain extent, beyond our control.
We materially rely upon independent
investigators and collaborators, such as universities and medical institutions, to conduct our preclinical and clinical trials under agreements with us. These collaborators are not our employees and we cannot control the amount or timing of
resources that they devote to our programs. These investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If outside collaborators fail to devote
sufficient time and resources to our drug development programs, or if their performance is substandard, the approval of our FDA applications, if any, and our introduction of new products, if any, will be delayed. These collaborators may also have
relationships with other commercial entities, some of whom may compete with us. If our collaborators assist our competitors to our detriment, our competitive position would be harmed.
Our reliance on third parties to formulate and manufacture our product candidates exposes us to a number of risks that may delay the development,
regulatory approval and commercialization of our products or result in higher product costs.
We do not have experience in drug formulation or
manufacturing of drugs or biologics and do not intend to establish our own manufacturing facilities. Although we will work closely with and rely upon Intrexon on the manufacturing and
scale-up
of Intrexon
product candidates, we lack the resources and expertise to formulate or manufacture our own product candidates. We currently are contracting for the manufacture of our product candidates. We intend to contract with one or more manufacturers to
manufacture, supply, store, and distribute drug supplies for our clinical trials. If a product candidate we develop or acquire in the future receives FDA approval, we will rely on one or more third-party contractors or Intrexon to manufacture our
products. Our anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:
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We may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA must approve any replacement contractor. This approval would require new
testing and compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA approval, if any.
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Our third-party manufacturers might be unable to formulate and manufacture our products in the volume and of the quality required to meet our clinical needs and commercial needs, if any.
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Our future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store, and distribute
our products.
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Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the Drug Enforcement Administration and corresponding state and foreign agencies to ensure strict compliance with current good
manufacturing practices, or cGMP, and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers compliance with these regulations and standards.
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If any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share, the intellectual property rights to the innovation.
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Our third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with
applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of drug candidates or
products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products.
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Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA or the commercialization of our product
candidates or result in higher costs or deprive us of potential product revenues
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Any product candidate for which we obtain marketing approval could be subject to post-marketing
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, among other things, submissions of safety and other post-marketing information
and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to
physicians and recordkeeping. Even if marketing 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, including the
requirement to implement a risk evaluation and mitigation strategy, or REMS, which could include requirements for a restricted distribution system. If any of our product candidates receives marketing approval, the accompanying label may limit the
approved uses, which could limit sales of the product.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and
surveillance to monitor the safety or efficacy of our approved products. The FDA closely regulates the post-approval marketing and promotion of products to ensure that they are marketed only for the approved indications and in accordance with the
provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers communications regarding
off-label
use and if we market our products outside of their approved indications, we
may be subject to enforcement action for
off-label
marketing. Violations of the FDCA relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state health
care fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems
with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
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Litigation involving patients taking our product;
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Restrictions on such products, manufacturers or manufacturing processes;
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Restrictions on the labeling or marketing of a product;
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Restrictions on product distribution or use;
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Requirements to conduct post-marketing studies or clinical trials;
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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 revenues;
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Suspension or withdrawal of marketing approvals;
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Damage to relationships with existing and potential collaborators;
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Unfavorable press coverage and damage to our reputation;
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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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Noncompliance with similar European Union
requirements regarding safety monitoring or pharmacovigilance can also result in significant financial penalties. Similarly, failure to comply with U.S. and foreign regulatory requirements regarding the development of products for pediatric
populations and the protection of personal health information can also lead to significant penalties and sanctions.
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RISKS RELATED TO OUR ABILITY TO COMMERCIALIZE OUR PRODUCT CANDIDATES
If we are unable either to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions,
we will be unable to commercialize our product candidates successfully.
We currently have no marketing, sales, or distribution capabilities. If
and when we become reasonably certain that we will be able to commercialize our current or future product candidates, we anticipate allocating resources to the marketing, sales and distribution of our proposed products in North America and in
certain other countries; however, we cannot assure that we will be able to market, sell, and distribute our products successfully. Our future success also may depend, in part, on our ability to enter into and maintain collaborative relationships for
such capabilities and to encourage the collaborators strategic interest in the products under development, and such collaborators ability to successfully market and sell any such products. Although we intend to pursue certain
collaborative arrangements regarding the sale and marketing of certain of our product candidates, there are no assurances that we will be able to establish or maintain collaborative arrangements or, if we are able to do so, whether we would be able
to conduct our own sales efforts. There can also be no assurance that we will be able to establish or maintain relationships with third-party collaborators or develop
in-house
sales and distribution
capabilities. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, and there can be no assurance that such efforts will be successful. In addition,
there can also be no assurance that we will be able to market and sell our product candidates in the United States or overseas.
If we are not able to
partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty commercializing our product candidates, which would harm our business. If we
rely on pharmaceutical or biotechnology companies with established distribution systems to market our products, we will need to establish and maintain partnership arrangements, and we may not be able to enter into these arrangements on acceptable
terms or at all. To the extent that we enter into
co-promotion
or other arrangements, any revenues we receive will depend upon the efforts of third parties that may not be successful and that will be only
partially in our control.
If we cannot compete successfully for market share against other biopharmaceutical companies, we may not achieve
sufficient product revenues and our business will suffer.
The market for our product candidates is characterized by intense competition and rapid
technological advances. If a product candidate receives FDA approval, it will compete with a number of existing and future products and therapies developed, manufactured and marketed by others. Existing or future competing products may provide
greater therapeutic convenience or clinical or other benefits for a specific indication than our products, or may offer comparable performance at a lower cost. If our products fail to capture and maintain market share, we may not achieve sufficient
product revenues and our business will suffer.
We will compete against fully integrated pharmaceutical companies and smaller companies that are
collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Many of these competitors have products already approved or in development. In addition, many of
these competitors, either alone or together with their collaborative partners, operate larger research and development programs or have substantially greater financial resources than we do, as well as significantly greater experience in:
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Developing drugs and biopharmaceuticals;
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Undertaking preclinical testing and human clinical trials;
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Obtaining FDA and other regulatory approvals of drugs and biopharmaceuticals;
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Formulating and manufacturing drugs and biopharmaceuticals; and
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Launching, marketing, and selling drugs and biopharmaceuticals.
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Our commercial opportunity could be reduced
or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to
compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products.
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If physicians and patients do not accept and use our product candidates, our ability to generate revenue
from sales of our products will be materially impaired.
Even if the FDA and/or foreign equivalents thereof approve our product candidates,
physicians and patients may not accept and use them. Acceptance and use of our products will depend upon a number of factors including:
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Perceptions by members of the healthcare community, including physicians, about the safety and effectiveness of our drugs;
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Pharmacological benefit and cost-effectiveness of our products relative to competing products;
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Availability of coverage and adequate reimbursement for our products from government or other healthcare payors;
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Effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any; and
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The price at which we sell our products.
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Because we expect sales of our current product candidates, if
approved, to generate substantially all of our product revenues for the foreseeable future, the failure of a drug to find market acceptance would harm our business and could require us to seek additional financing in order to fund the development of
future product candidates.
Our ability to generate product revenues will be diminished if our products do not obtain coverage or adequate
reimbursement from payors.
Our ability to commercialize our product candidates, if approved, alone or with collaborators, will depend in part on
the extent to which coverage and reimbursement will be available from government and health administration authorities, private health maintenance organizations and health insurers and other third-party payors.
Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs
associated with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Coverage decisions may depend upon
clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Even if we obtain coverage for our product candidates, the resulting
reimbursement payment rates might not be adequate or may require
co-payments
that patients find unacceptably high. Patients are unlikely to use our product candidates unless coverage is provided and
reimbursement is adequate to cover a significant portion of the cost of our product candidates.
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In addition, the market for our product candidates for which we may receive regulatory approval will depend
significantly on access to third-party payors drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement, which might not include all of the
FDA-approved
drugs for a particular indication. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their
formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.
Third-party
payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug
products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that
requires us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that approval will be obtained. If we are unable to obtain coverage of and adequate payment levels for our product
candidates from third-party payors, physicians may limit how much or under what circumstances they will prescribe or administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize our
products and impact our profitability, results of operations, financial condition, and future success.
In addition, in many foreign countries,
particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. In some
non-U.S.
jurisdictions, the proposed pricing for a drug must be approved before it
may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the EU provides options for its member states to restrict the range of medicinal products for which their national health insurance
systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability
of the company placing the medicinal product on the market. We may face competition for our product candidates from lower-priced products in foreign countries that have placed price controls on pharmaceutical products. In addition, there may be
importation of foreign products that compete with our own products, which could negatively impact our profitability.
The market opportunities for
our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
Cancer therapies
are sometimes characterized as first line, second line, or third line, and the FDA often approves new therapies initially only for third line use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or
prolong life without a cure. Whenever first line therapy, usually chemotherapy, hormone therapy, surgery, or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more
chemotherapy, radiation, antibody drugs, tumor targeted small molecules, or a combination of these. Third line therapies can include bone marrow transplantation, antibody and small molecule targeted therapies, more invasive forms of surgery, and new
technologies. We expect to initially seek approval of our product candidates as a third line therapy for patients who have failed other approved treatments.
Subsequently, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval as a second line therapy and potentially
as a first line therapy, but there is no guarantee that our product candidates, even if approved, would be approved for second line or first line therapy. In addition, we may have to conduct additional clinical trials prior to gaining approval for
second line or first line therapy.
Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people
with these cancers in a position to receive third line therapy and who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources,
including scientific literature, surveys of clinics, patient foundations, or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these cancers. The number of patients may turn out
to be lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates. Even if we obtain significant market share for our
product candidates, because the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications, including use as a first or second line therapy.
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Our market opportunities may also be limited by competitor treatments that may enter the market. See also
Risks Related to Our Ability to Commercialize Our Product Candidates
If we cannot compete successfully for market share against other biopharmaceutical companies, we may not achieve sufficient product revenues and our business will
suffer
.
*Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory enactments in recent years
that change the healthcare system in ways that could impact our future ability to sell our product candidates profitably.
Furthermore, there have been
and continue to be a number of initiatives at the federal and state level that seek to reduce healthcare costs. Most significantly, in March 2010, President Obama signed into law the Patient Protection and Affordable Health Care Act, as amended by
the Health Care and Education Reconciliation Act, or collectively the ACA, which includes measures that significantly change the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA of importance to
the pharmaceutical industry are the following:
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An annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government
healthcare programs;
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An increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively;
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A new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale
discounts off negotiated
prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D;
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An extension of manufacturers Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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New methodologies by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and for drugs that are line
extensions;
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Expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals with income at or below 133% of the Federal Poverty Level, thereby
potentially increasing both the volume of sales and manufacturers Medicaid rebate liability;
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Expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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A new requirement to annually report drug samples that certain manufacturers and authorized distributors provide to physicians;
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Expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;
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A licensure framework for
follow-on
biologic products;
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A new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and
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Establishment of a Center for Medicare & Medicaid Innovation at the Centers for Medicare & Medicaid Services, or CMS to test innovative payment and service delivery models to lower Medicare and
Medicaid spending, potentially including prescription drug spending.
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We cannot predict the full impact of the ACA, as many of the reforms require the promulgation of detailed
regulations implementing the statutory provisions, some of which have not yet fully occurred. Further, since its enactment there have been judicial and Congressional challenges to certain aspects of the ACA As a result, there have been delays in the
implementation of, and action taken to repeal or replace, certain aspects of the ACA. More recently, the U.S. House of Representatives passed legislation known as the American Health Care Act of 2017, and Senate Republicans have released a draft
bill known as the Better Care Reconciliation Act of 2017, each of which would repeal certain aspects of the ACA if ultimately enacted. The prospects for enactment of these legislative initiatives remain uncertain. Further, Congress also could
consider other legislation to replace elements of the ACA. We cannot know how efforts to repeal and replace the ACA or any future healthcare reform legislation will impact our business.
We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in
additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of
cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, in August 2011, President Obama signed into law
the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee on Deficit Reduction did not achieve its
targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislations automatic reductions to several government programs. These reductions include aggregate reductions to Medicare payments to
providers of 2% per fiscal year, which went into effect on April 1, 2013, and, due to subsequent legislative amendments, will stay in effect through 2025 unless additional Congressional action is taken. In January 2013, President Obama signed
into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three
to five years. Further, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drugs. The full impact of these new laws, as well as laws and other reform and cost containment measures that may be proposed and adopted in the future, remains uncertain, but
may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our future customers and accordingly, our ability to generate revenue, attain profitability, or commercialize our products.
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If we fail to comply with federal and state healthcare laws, including fraud and abuse and health
information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.
As a pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other
third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients rights are and will be applicable to our business. For example, we could be subject to healthcare fraud and abuse and
patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include, among others:
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The federal Anti-Kickback Statute, which regulates our business activities, including our marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, by
prohibiting, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an individual or the purchase or recommendation of an item or service reimbursable
under a federal healthcare program, such as the Medicare and Medicaid programs;
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Federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from
Medicare, Medicaid, or other third-party payors that are false or fraudulent;
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The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit
program or making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which imposes certain requirements relating to the privacy, security and
transmission of individually identifiable health information;
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Requirements to report annually to CMS certain financial arrangements with physicians and teaching hospitals, as defined in the ACA and its implementing regulations, including reporting any transfer of value
made or distributed to teaching hospitals, prescribers, and other healthcare providers and reporting any ownership and investment interests held by physicians and their immediate family members and applicable group purchasing organizations during
the preceding calendar year; and
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State and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers;
state laws that require pharmaceutical companies to comply with the industrys voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government that otherwise restricts certain payments that may be
made to healthcare providers and entities; state laws that require drug manufacturers to report information related to payments and other transfer of value to physicians and other healthcare providers and entities; and state and foreign laws
governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts
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Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business
activities, including our consulting agreements with physicians, some of whom receive stock or stock options as compensation for their services, could be subject to challenge under one or more of such laws. In addition, recent health care reform
legislation has further strengthened these laws. For example, the ACA, among other things, amends the intent requirement of the federal anti-kickback statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have
actual knowledge of this statute or specific intent to violate it. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false
or fraudulent claim for purposes of the False Claims Act.
To the extent that any of our product candidates is ultimately sold in a foreign country, we
may be subject to similar foreign laws and regulations.
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If we or our operations are found to be in violation of any of the laws described above or any other governmental
regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, exclusion from participation in United States federal or state health care programs, such as Medicare and Medicaid,
disgorgement, individual imprisonment and the curtailment or restructuring of our operations any of which could materially adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the
risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal
expenses and divert our managements attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
Our ability to use net operating loss carryforwards and research tax credits to reduce future tax payments may be limited or restricted.
We have generated significant net operating loss carryforwards, or NOLs, and research and development tax credits, or R&D credits, as a result of our
incurrence of losses and our conduct of research activities since inception. We generally are able to carry NOLs and R&D credits forward to reduce our tax liability in future years. However, our ability to utilize the NOLs and R&D credits is
subject to the rules of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, respectively. Those sections generally restrict the use of NOLs and R&D credits after an ownership change. An ownership
change occurs if, among other things, the stockholders (or specified groups of stockholders) who own or have owned, directly or indirectly, 5% or more of a corporations common stock or are otherwise treated as 5% stockholders under
Section 382 of the code and the United States Treasury Department regulations promulgated thereunder increase their aggregate percentage ownership of that corporations stock by more than 50 percentage points over the lowest percentage of
the stock owned by these stockholders over the applicable testing period. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carry forwards and
Section 383 imposes an annual limitation on the amount of tax a corporation may offset with business credit (including the R&D credit) carry forwards. Any unused annual limitation may be carried over to later years until the applicable
expiration date for the respective NOL or R&D credit carry forwards. We may have experienced an ownership change within the meaning of Section 382 in the past and there can be no assurance that we will not experience additional
ownership changes in the future. As a result, our NOLs and business credits (including the R&D credit) may be subject to limitations and we may be required to pay taxes earlier and in larger amounts than would be the case if our NOLs or R&D
credits were freely usable.
*Our synthetic immuno-oncology product candidates may face competition in the future from biosimilars.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the Patient Protection and ACA, an abbreviated pathway
for the approval of
follow-on
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 with an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a
BLA. However, there is a risk that the U.S. Congress could amend the BPCIA to significantly shorten this exclusivity period as previously proposed by President Obama, potentially creating the opportunity for generic competition sooner than
anticipated. Further, this data exclusivity does not prevent another company from developing a product that is highly similar to the original branded product, generating its own data and seeking approval. Data exclusivity only assures that another
company cannot rely upon the data within the innovators application to support the biosimilar products approval.
Although final
implementation of the BPCIA is not yet complete, such FDA implementation could have a material adverse effect on the future commercial prospects for our product candidates.
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RISKS RELATED TO OUR INTELLECTUAL PROPERTY
If we or our licensors fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our
intellectual property rights would diminish and our ability to successfully commercialize our products may be impaired.
Our success, competitive
position, and future revenues will depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third
parties from infringing on our proprietary rights, and to operate without infringing the proprietary rights of third parties.
To date, we have exclusive
rights to certain U.S. and foreign intellectual property with respect to the Intrexon technology, including the existing Intrexon product candidates, such as
Ad-RTS-IL-12
+ veledimex, and the GvHD program, and with respect to CAR
+
T, NK and TCR cell therapies arising from the laboratory of Laurence
Cooper, M.D., Ph.D., who was then at MD Anderson. Under our Channel Agreement with Intrexon, Intrexon has the sole right to conduct and control the filings, prosecution and maintenance of the patents and patent applications licensed to us. Although
under the agreement Intrexon has agreed to consider in good faith and consult with us regarding any comments we may have regarding these patents and patent applications, we cannot guarantee that our comments will be solicited or followed. Under the
MD Anderson License, future filings and applications require the agreement of each of MD Anderson, Intrexon and us, and MD Anderson has the right to control the preparation and filing of additional patent applications unless the parties agree that
we or Intrexon may prosecute the application directly. Although under the agreement MD Anderson has agreed to review and incorporate any reasonable comments that we or Intrexon may have regarding these patents and patent applications, we cannot
guarantee that our comments will be solicited or followed. Without direct control of the channel program patents and patent applications, we are dependent on Intrexon or MD Anderson, as applicable, to keep us advised of prosecution, particularly in
foreign jurisdictions where prosecution information may not be publicly available. We anticipate that we, Intrexon and MD Anderson will file additional patent applications both in the United States and in other countries. However, we cannot predict
or guarantee:
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The degree and range of protection any patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents;
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If and when patents will be issued;
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Whether or not others will obtain patents claiming subject matter related to or relevant to our product candidates; or
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Whether we will need to initiate litigation or administrative proceedings that may be costly whether we win or lose.
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The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at
a reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. 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 that we license from third parties. We may also require the cooperation of our
licensors in order to enforce the licensed patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in
recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States and we may fail to seek or obtain patent protection in all major markets. For
example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. 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.
Changes
in patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. In September 2011, the Leahy-Smith America Invents Act, or
the Leahy-Smith Act, was signed into law, resulting in a number of significant changes to United States patent law. These changes include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In
addition, the United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. This
combination of events has created uncertainty with respect to the value of patents, once obtained, and with regard to our ability to obtain patents in the future. As the U.S. PTO continues to implement the Leahy-Smith Act, and as the federal courts
have the opportunity to interpret the Leahy-Smith Act, the laws and regulations governing patents, and the rules regarding patent procurement could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our
existing patents and patents that we might obtain in the future.
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Certain technologies utilized in our research and development programs are already in the public domain.
Moreover, a number of our competitors have developed technologies, filed patent applications or obtained patents on technologies, compositions and methods of use that are related to our business and may cover or conflict with our owned or licensed
patent applications, technologies or product candidates. Such conflicts could limit the scope of the patents that we may be able to obtain or may result in the rejection of claims in our patent applications. Because patent applications in the United
States and many foreign jurisdictions are typically not published until eighteen months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we
nor our licensors can be certain that others have not filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications. Therefore, we cannot know with
certainty whether we were the first to make the inventions claimed in our owned patents or pending patent applications, or that we were the first to file for patent protection of such inventions, nor can we know whether those from whom we license
patents were the first to make the inventions claimed or were the first to file. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications
may not result in patents being issued which protect our technology or products, in whole or in part, 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. In addition, our own earlier filed patents and applications or those of Intrexon may limit the scope of
later patents we obtain or may result in the rejection of claims in our later filed patent applications. If third parties filed patent applications or obtained patents on technologies, compositions and methods of use that are related to our business
and that cover or conflict with our owned or licensed patent applications, technologies or product candidates, we may be required to challenge such protection, terminate or modify our programs impacted by such protection or obtain licenses from such
third parties, which might not be available on acceptable terms, or at all.
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 inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or
freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and 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. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
Our success also depends upon the skills, knowledge, and experience of our scientific and technical personnel, our consultants and advisors, as well as our
licensors and contractors. To help protect our proprietary
know-how
and our inventions for which patents may be unobtainable or difficult to obtain, and to maintain our competitive position, we rely on trade
secret protection and confidentiality agreements. To this end, it is our general policy to require our employees, consultants, advisors, and contractors to enter into agreements that prohibit the disclosure of confidential information and, where
applicable, require disclosure and assignment to us of the ideas, developments, discoveries, and inventions important to our business. These agreements may not provide adequate protection for our trade secrets,
know-how
or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of such information. Moreover, we may not be able to obtain adequate remedies
for any breaches of these agreements. Our trade secrets may also be obtained by third parties by other means, such as breaches of our physical or computer security systems. 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, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets,
know-how
or other proprietary information is disclosed, the value of our trade secrets,
know-how
and other proprietary rights would be significantly impaired and our business
and competitive position would suffer.
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Third-party claims of intellectual property infringement would require us to spend significant time and
money and could prevent us from developing or commercializing our products.
In order to protect or enforce patent rights, we, or Intrexon, may
initiate patent infringement litigation against third parties. Similarly, we may be sued by others for patent infringement. We also may become subject to proceedings conducted in the United States Patent and Trademark Office, including interference
proceedings to determine the priority or derivation of inventions, or post-grant review, inter partes review, or reexamination proceedings reviewing the patentability of our patented claims. In addition, any foreign patents that are granted may
become subject to opposition, nullity, or revocation proceedings in foreign jurisdictions having such proceedings. The defense and prosecution, if necessary, of intellectual property actions are costly and divert technical and management personnel
away from their normal responsibilities.
Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture,
market and sell our product candidates without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. While no such litigation has been brought
against us and we have not been held by any court to have infringed a third partys intellectual property rights, we cannot guarantee that our products or use of our products do not infringe third-party patents. It is also possible that we have
failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until
patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing, which is referred to as the priority date. Therefore, patent applications covering our products or technology
could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our products or the use of our products.
Our research, development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe
or be claimed to infringe patents or patent applications under which we do not hold licenses or other rights. Patents do not protect its owner from a claim of infringement of another owners patent. Therefore, our patent position cannot and
does not provide any assurance that we are not infringing the patent rights of another.
The patent landscape in the field of synthetic immuno-oncology,
which we are pursuing under our Channel Agreement and GvHD Agreement with Intrexon, is particularly complex. We are aware of numerous United States and foreign patents and pending patent applications of third parties that cover compositions, methods
of use and methods of manufacture of synthetic immuno-oncology, including biotherapeutics involving the in vivo expression of human
IL-12.
In addition, there may be patents and patent applications in the field
of which we are not aware. The technology we license from Intrexon is early-stage technology and we are in the process of designing and developing products using this technology. Although we will seek to avoid pursuing the development of products
that may infringe any patent claims that we believe to be valid and enforceable, we may fail to do so. Moreover, given the breadth and number of claims in patents and pending patent applications in the field of synthetic immuno-oncology and the
complexities and uncertainties associated with them, third parties may allege that we are infringing upon patent claims even if we do not believe such claims to be valid and enforceable.
If a claim for patent infringement is asserted, there can be no assurance that the resolution of the claim would permit us to continue marketing the relevant
product on commercially reasonable terms, if at all. We may not have sufficient resources to bring these actions to a successful conclusion. If we do not successfully defend any infringement actions to which we become a party or are unable to have
infringed patents declared invalid or unenforceable, we may have to pay substantial monetary damages, which can be tripled if the infringement is deemed willful, or be required to discontinue or significantly delay commercialization and development
of the affected products.
Any legal action against us or our collaborators claiming damages and seeking to enjoin developmental or marketing activities
relating to affected products could, in addition to subjecting us to potential liability for damages, require us or our collaborators to obtain licenses to continue to develop, manufacture, or market the affected products. Such a license may not be
available to us on commercially reasonable terms, if at all.
An adverse determination in a proceeding involving our owned or licensed intellectual
property may allow entry of generic substitutes for our products.
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Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of the
patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many
cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete
loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time
limits,
non-payment
of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our
business.
If we breach any of the agreements under which we license rights to products or technology from others, we could lose license rights that
are material to our business or be subject to claims by our licensors.
We license rights to products and technology that are important to our
business, and we expect to enter into additional licenses in the future. For instance, we have exclusively licensed patents and patent applications under our Channel Agreement, the ECP Agreement and the GvHD Agreement with Intrexon as well as under
the MD Anderson License. Under these agreements, we are subject to a range of commercialization and development, sublicensing, royalty, patent prosecution and maintenance, insurance and other obligations.
Any failure by us to comply with any of these obligations or any other breach by us of our license agreements could give the licensor the right to terminate
the license in whole, terminate the exclusive nature of the license or bring a claim against us for damages. Any such termination or claim could have a material adverse effect on our financial condition, results of operations, liquidity or business.
Even if we contest any such termination or claim and are ultimately successful, such dispute could lead to delays in the development or commercialization of potential products and result in time-consuming and expensive litigation or arbitration. On
termination we may be required to license to the licensor any related intellectual property that we developed.
In addition, in certain cases, the rights
licensed to us are rights of a third party licensed to our licensor. In such instances, if our licensors do not comply with their obligations under such licenses, our rights under our license agreements with our licensor may be adversely affected.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming
ownership of what we regard as our own intellectual property.
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 these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employees former employer. Litigation may be necessary to
defend against these claims.
In addition, while it is our policy to require our employees and contractors who may be involved in the development of
intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their
assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting or 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 prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.
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OTHER RISKS RELATED TO OUR COMPANY
Our stock price has been, and may continue to be, volatile.
The market price for our common stock is volatile and may fluctuate significantly in response to a number of factors, most of which we cannot control,
including:
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Price and volume fluctuations in the overall stock market;
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Market conditions or trends in our industry or the economy as a whole;
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Laboratory or clinical trial results;
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Public concern as to the safety of drugs developed by us or others;
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Changes in operating results and performance and stock market valuations of other biopharmaceutical companies generally, or those that develop and commercialize cancer drugs in particular;
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The financial or operational projections we may provide to the public, any changes in these projections or our failure to meet these projections;
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Comments by securities analysts or changes in financial estimates or ratings by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or
maintain coverage of our common stock;
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The publics response to press releases or other public announcements by us or third parties, including our filings with the Securities Exchange Commission, or the SEC, and announcements of the timing and amount of
product sales, announcements of the status of development of our products, announcements of technological innovations or new therapeutic products by us or our competitors, announcements regarding collaborative agreements and other announcements
relating to product development, litigation and intellectual property impacting us or our business;
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FDA determinations on the approval of a product candidate NDA submission;
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The sustainability of an active trading market for our common stock;
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Future sales of our common stock by our executive officers, directors and significant stockholders;
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Announcements of mergers or acquisition transactions;
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Our inclusion or deletion from certain stock indices;
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Developments in patent or other proprietary rights;
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Changes in reimbursement policies;
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Announcements of medical innovations or new products by our competitors;
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Announcements of changes in our senior management;
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Other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events; and
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Changes in accounting principles.
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In addition, the stock market from time to time experiences significant
price and volume fluctuations unrelated to the operating performance of particular companies. The stock markets, and in particular the NASDAQ Capital Market, have experienced extreme price and volume fluctuations that have affected and continue to
affect the market prices of equity securities of many biopharmaceutical companies. Stock prices of many biopharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the
past, stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be
diverted from our business.
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Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us,
which may be beneficial to our stockholders, more difficult.
Provisions of our amended and restated certificate of incorporation and bylaws, as
well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions authorize the issuance of blank check preferred stock that could be
issued by our board of directors to increase the number of outstanding shares and hinder a takeover attempt, and limit who may call a special meeting of stockholders. In addition, Section 203 of the Delaware General Corporation Law generally
prohibits a publicly-held Delaware corporation from engaging in a business combination with a party that owns at least 15% of its common stock unless the business combination is approved by the companys board of directors before the person
acquires the 15% ownership stake or later by its board of directors and
two-thirds
of its stockholders. Section 203 could have the effect of delaying, deferring or preventing a change in control that our
stockholders might consider to be in their best interests.
In connection with our January 2011 issuance of shares of common stock to Intrexon in a
private placement transaction, our board of directors waived the Section 203 prohibition with respect to a future business combination with Intrexon.
Because we do not expect to pay dividends, you will not realize any income from an investment in our common stock unless and until you sell your shares
at profit.
We have never paid dividends on our common stock and we do not anticipate that we will pay any dividends for the foreseeable future.
Accordingly, any return on an investment in us will be realized, if at all, only when you sell shares of our common stock.
If securities and/or
industry analysts fail to continue publishing research about our business, if they change their recommendations adversely or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. In addition, it is
likely that in some future period our operating results will be below the expectations of securities analysts or investors. If one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their
expectations, our stock price could decline.
*Our principal stockholders, executive officers and directors have substantial control over the
company, which may prevent you and other stockholders from influencing significant corporate decisions and may harm the market price of our common stock.
As of June 30, 2017, our executive officers, directors and holders of five percent or more of our outstanding common stock, beneficially owned, in the
aggregate, 21.1% of our outstanding common stock. These stockholders may have interests that conflict with our other stockholders and, if acting together, have the ability to influence the outcome of matters submitted to our stockholders for
approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. Accordingly, this concentration of ownership may harm the market price of our common stock by:
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Delaying, deferring or preventing a change in control;
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Impeding a merger, consolidation, takeover or other business combination involving us; or
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Discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us
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