The risks described
below may not be the only ones relating to our company. Additional risks that we currently believe are immaterial may also impair
our business operations. Our business, financial conditions and future prospects and the trading price of our common stock could
be harmed as a result of any of these risks. Investors should also refer to the other information contained or incorporated by
reference in our Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 28, 2019, including our financial
statements and related notes, and our other filings from time to time with the Securities and Exchange Commission or SEC.
We have marked
with an asterisk (*) those risk factors below that reflect a substantive change from the risk factors included in our Annual Report
on Form 10-K filed with the SEC on February 28, 2019.
Risks Related to Our Business
We have a history of operating losses;
we expect to continue to incur losses and we may never be profitable.
*
We are a clinical-stage biotechnology company
focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient's
own immune system to eradicate cancer cells. We do not have products approved for commercial sale and have not generated revenue
from operations. As of March 31, 2019, we had an accumulated deficit of $410.0 million. In addition, during the three months ended
March 31, 2019, we incurred a net loss of $37.0 million. Since our inception we have not generated any revenues from operations.
We do not expect to generate any meaningful product sales or royalty revenues for the foreseeable future. We expect to incur significant
additional operating losses in the future as we expand our development and clinical trial activities in support of demonstrating
the effectiveness of our products.
Our ability to achieve long-term profitability
is dependent upon obtaining regulatory approvals for our products and successfully commercializing our products alone or with
third parties. However, our operations may not be profitable even if any of our products under development are successfully developed
and produced and thereafter commercialized.
We have limited experience in operating
our current business, which makes it difficult to evaluate our business plan and our prospects.
We have only a limited operating history
in our current line of business on which a decision to invest in our company can be based. The future of our company currently
is dependent upon our ability to implement our business plan, as that business plan may be modified from time to time by our management
and Board of Directors. While we believe that we have a reasonable business plan and research and development strategy, we have
only a limited operating history against which we can test our plans and assumptions, and investors therefore cannot evaluate
the likelihood of our success.
We face the problems, expenses, difficulties,
complications and delays normally associated with a pre-commercial biotechnology company, many of which are beyond our control.
Accordingly, our prospects should be considered in light of the risks, expenses and difficulties frequently encountered in the
establishment of a new business developing technologies in an industry that is characterized by a number of market entrants and
intense competition. Because of our size and limited resources, we may not possess the ability to successfully overcome many of
the risks and uncertainties frequently encountered by pre-commercial companies involved in the rapidly evolving field of immunotherapy.
If our research and development efforts are successful, we may also face the risks associated with the shift from development
to commercialization of new products based on innovative technologies. There can be no assurance that we will be successful in
developing our business.
We are substantially dependent on
the success of our product candidates and cannot guarantee that these product candidates will successfully complete development,
receive regulatory approval, or be successfully commercialized.
*
We currently have no products approved for
commercial sale. We have invested a significant portion of our efforts and financial resources in the development of our current
product candidates, lifileucel and LN-145 and expect that we will continue to invest heavily in our current product candidates,
as well as in any future product candidates we may develop. Our business depends entirely on the successful development and commercialization
of our product candidates, which may never occur. Our ability to generate revenues in the future is substantially dependent on
our ability to develop, obtain regulatory approval for, and then successfully commercialize our product candidates. We currently
generate no revenue from the sale of any products, and we may never be able to develop or commercialize a marketable product.
Our product candidates will require additional
clinical and non-clinical development, regulatory approval, commercial manufacturing arrangements, establishment of a commercial
organization, significant marketing efforts, and further investment before we generate any revenue from product sales. We cannot
assure you that we will meet our timelines for our current or future clinical trials, which may be delayed or not completed for
a number of reasons.
We are not permitted to market or promote
any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities,
and we may never receive such regulatory approval for any of our product candidates or regulatory approval that will allow us
to successfully commercialize our product candidates. If we do not receive FDA approval with the necessary conditions to allow
successful commercialization, and then successfully commercialize our product candidates, we will not be able to generate revenue
from those product candidates in the United States in the foreseeable future, or at all. Any significant delays in obtaining approval
for and commercializing our product candidates will have a material adverse impact on our business and financial condition.
We have not previously submitted a BLA to
the FDA, or similar marketing application to comparable foreign authorities, for any product candidate, and we cannot be certain
that our current or any future product candidates will be successful in clinical trials or receive regulatory approval.
Our product candidates are susceptible to
the risks of failure inherent at any stage of product development, including the appearance of unexpected adverse events or failure
to achieve primary endpoints in clinical trials. Further, our product candidates may not receive regulatory approval even if they
are successful in clinical trials.
If approved for marketing by applicable
regulatory authorities, our ability to generate revenues from our product candidates will depend on our ability to:
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price
our product candidates competitively such that third-party and government reimbursement
leads to broad product adoption;
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prepare
a broad network of clinical sites for administration of our product;
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create
market demand for our product candidates through our own marketing and sales activities,
and any other arrangements to promote these product candidates that we may otherwise
establish;
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receive
regulatory approval for claims that are necessary or desirable for successful marketing;
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hire,
train, and deploy a commercial team including a sales force or contract with a third
party for a sales force to commercialize product candidates in the United States;
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manufacture
product candidates through CMOs or in our own manufacturing facility in sufficient quantities
and at acceptable quality and manufacturing cost to meet commercial demand at launch
and thereafter;
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establish
and maintain agreements with wholesalers, distributors, pharmacies, and group purchasing
organizations on commercially reasonable terms;
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create
partnerships with, or offer licenses to, third parties to promote and sell product candidates
in foreign markets where we receive marketing approval;
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maintain
patent and trade secret protection and regulatory exclusivity for our product candidates;
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launch
commercial sales of our product candidates, whether alone or in collaboration with others;
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achieve
market acceptance of our product candidates by patients, the medical community, and third-party
payors;
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achieve
appropriate reimbursement for our product candidates;
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maintain
a distribution and logistics network capable of product storage within our specifications
and regulatory guidelines, and further capable of timely product delivery to clinical
sites;
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effectively
compete with other therapies or competitors; and
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maintain
a continued acceptable safety profile of our product candidates following launch.
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We have limited experience as a company
conducting clinical trials and face risks due to the need to rely on third parties.
*
We have limited experience conducting pre-clinical
and clinical trials and have no experience as a company in filing and supporting the applications necessary to gain marketing
approvals. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information
to regulatory authorities for each therapeutic indication to establish the product candidate’s safety, purity, and potency
for that indication. Securing marketing approval also requires the submission of information about the product manufacturing process
to, and inspection of manufacturing facilities and clinical trial sites by, applicable regulatory authorities. Clinical testing
is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during
the clinical trial process. We have limited experience in designing clinical trials and may be unable to design and execute a
clinical trial to support marketing approval.
Prior to 2015, all the preclinical and clinical
trials relating to TIL had been conducted by the NCI. We have recruited a team that has experience with clinical trials; however,
we as a company have limited experience in conducting clinical trials. In part because of this lack of experience, we cannot be
certain that our ongoing clinical trials will be completed on time, if at all, will progress according to our plans or expectations,
or that our planned clinical trials will be initiated, progress according to our plans or expectations, or be completed on time,
if they are completed at all.
Large-scale trials
require significant financial and management resources, and reliance on third-party clinical investigators, contract research
organizations or CROs, contract manufacturing organizations or CMOs, or consultants. Relying on third-party clinical investigators,
CROs or CMOs may force us to encounter delays and challenges that are outside of our control. We rely on CMOs in the United States
and Europe to manufacture TIL for use in our trials. We may not be able to demonstrate sufficient comparability between products
manufactured at different facilities to allow for inclusion of the clinical results from patients treated with products from these
different facilities, in our product registrations. Further, our CMOs may not be able to manufacture TIL or otherwise fulfill
their obligations to us because of interruptions to their business, including the loss of their key staff or interruptions to
their raw material supply.
We rely on third party CROs and clinical
trial sites to conduct, supervise, and monitor our clinical trials for our product candidates. We expect to continue to rely on
third parties, such as CROs, clinical data management organizations, medical institutions, independent review organizations and
clinical investigators, to conduct our clinical trials. While we have agreements governing their activities, we have limited influence
over their actual performance and control only certain aspects of their activities. The failure of these third parties to successfully
carry out their contractual duties or meet expected deadlines could substantially harm our business because we may be delayed
in completing or unable to complete the clinical trials required to support future approval of our product candidates, or we may
not obtain marketing approval for or commercialize our product candidates in a timely manner or at all. Moreover, these agreements
might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative
arrangements, that could delay our product development activities and adversely affect our business.
Our reliance on these third parties for
development activities will reduce our control over these activities. Nevertheless, we are responsible for ensuring that each
of our studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance
on the CROs, clinical trial sites, and other third parties does not relieve us of our regulatory responsibilities. For example,
we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational
plan and protocols for the trial and for ensuring that our preclinical trials are conducted in accordance with Good Laboratory
Practices, or GLPs, as appropriate. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with
GCPs for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible
and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce
these requirements through periodic inspections of trial sponsors, clinical investigators, and trial sites. If we, our CROs, clinical
trial sites, or other third parties fail to comply with applicable GCPs or other regulatory requirements, we or they may be subject
to enforcement or other legal actions, the clinical data generated in our clinical trials may be deemed unreliable and the FDA
or comparable foreign regulatory authorities may require us to perform additional clinical trials. We cannot assure you that upon
inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials complies
with GCP regulations.
In addition, we will be required to report
certain financial interests of our third-party investigators if these relationships exceed certain financial thresholds or meet
other criteria. The FDA or comparable foreign regulatory authorities may question the integrity of the data from those clinical
trials conducted by investigators that are determined to have conflicts of interest.
In addition, our clinical trials must be
conducted with product candidates that were produced under cGMP regulations. Our failure to comply or our CMOs’ failure
to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
We also are required to register certain clinical trials and post the results of certain completed clinical trials on a government
sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in enforcement actions and adverse
publicity.
Our CROs, clinical trial sites, and other
third parties may also have relationships with other entities, some of which may be our competitors, for whom they may also be
conducting clinical trials or other therapeutic development activities that could harm our competitive position. In addition,
these third parties are not our employees, and except for remedies available to us under our agreements with them, we cannot control
whether or not they devote sufficient time and resources to our ongoing clinical, non-clinical, and preclinical programs. If these
third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in
accordance with regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracy of
the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons,
our trials may be repeated, extended, delayed, or terminated and we may not be able to obtain, or may be delayed in obtaining,
marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize
our product candidates, or we or they may be subject to regulatory enforcement actions. As a result, our results of operations
and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate
revenues could be delayed. To the extent we are unable to successfully identify and manage the performance of third party service
providers in the future, our business may be materially and adversely affected.
If any of our relationships with these third
parties terminate, we may not be able to enter into arrangements or do so on commercially reasonable terms. Switching or adding
additional contractors involves additional cost and requires management time and focus. In addition, there is a natural transition
period when a new third party commences work. As a result, delays could occur, which could compromise our ability to meet our
desired development timelines. Though we carefully manage our relationships with our third-party service providers, there can
be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will
not have a material adverse impact on our business, financial condition and prospects or results of operations.
We also rely on other third parties to manufacture
and ship our products for the clinical trials that we conduct. Any performance failure on the part of these third parties could
delay clinical development or marketing approval of our product candidates or any additional product candidates or commercialization
of our product candidates, if approved, producing additional losses and depriving us of potential product revenue.
We may encounter substantial delays
in our clinical trials or may not be able to conduct our trials on the timelines we expect and we may be required to conduct additional
clinical trials or modify current or future clinical trials based on feedback we receive from the FDA.
*
Clinical testing is expensive, time consuming,
and subject to uncertainty. We cannot guarantee that any current or future clinical studies will be conducted as planned or completed
on schedule, if at all, or that any of our product candidates will receive regulatory approval. We initiated clinical trials in
patients with metastatic melanoma, cervical, head and neck and non-small cell lung cancers, and in other indications in collaboration
with third parties. We plan to initiate trials in new indications, and new cohorts in existing trials. Even as these trials progress,
issues may arise that could require us to suspend or terminate such clinical trials or could cause the results of one cohort to
differ from a prior cohort. A failure of one or more clinical studies can occur at any stage of testing, and our future clinical
studies may not be successful. Events that may prevent successful or timely initiation or completion of clinical development,
or product approval include:
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inability
to generate sufficient preclinical data to support the initiation of clinical studies;
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regulators
or Institutional Review Boards, or IRBs may not authorize us or our investigators to
commence a clinical trial, conduct a clinical trial at a prospective trial site, or amend
trial protocols, or regulators or IRBs may require that we modify or amend our clinical
trial protocols;
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delays
in reaching a consensus or inability to obtain agreement with regulatory agencies on
study design;
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the
FDA or comparable foreign regulatory authorities may disagree with our intended indications,
study design or our interpretation of data from preclinical studies and clinical trials
or find that a product candidate’s benefits do not outweigh its safety risks;
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the
FDA or comparable foreign regulatory authorities may not accept data from studies with
clinical trial sites in foreign countries;
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the
FDA may not allow us to use the clinical trial data from a research institution to support
an IND if we cannot demonstrate the comparability of our product candidates with the
product candidate used by the relevant research institution in its clinical studies;
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delays
in or failure to reach an agreement on acceptable terms with prospective CROs and clinical
study sites, the terms of which can be subject to extensive negotiation and may vary
significantly among different CROs and clinical study sites;
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delays
in obtaining required IRB approval at each clinical study site;
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imposition
of a temporary or permanent clinical hold, suspensions or terminations by regulatory
agencies, IRBs, or us for various reasons, including noncompliance with regulatory requirements
or a finding that the participants are being exposed to unacceptable health risks, undesirable
side effects, or other unexpected characteristics of the product candidate, or due to
findings of undesirable effects caused by a biologically or mechanistically similar therapeutic
or therapeutic candidate;
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delays
in recruiting suitable patients to participate in our clinical studies;
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delay
in adding new investigators or clinical trial sites, or withdrawal of clinical trial
sites from a study;
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delay
or change in strategic direction for an indication resulting from differences in results
between cohorts in a clinical trial, such as Cohort 2 and Cohort 4 of the innovaTIL-01
clinical trial, including differences in patient population, or from different interpretations
of the results using a BIRC;
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failure
by our CROs, clinical trial sites, patients, or other third parties, or us to adhere
to clinical study requirements, including regulatory, contractual or protocol requirements;
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failure
to perform in accordance with the FDA’s cGCP requirements, or applicable regulatory
guidelines in other countries;
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the
number of patients required for clinical trials of our product candidates may be larger
than we anticipate or enrollment in these clinical trials may be slower than we anticipate;
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patients
that enroll in our studies may misrepresent their eligibility or may otherwise not comply
with the clinical trial protocol, resulting in the need to drop such patients from the
study or clinical trial, increase the needed enrollment size for the study or clinical
trial or extend the study’s or clinical trial’s duration;
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patients
dropping out of a study;
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occurrence
of adverse events associated with the product candidate that are viewed to outweigh its
potential benefits;
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changes
in regulatory requirements and guidance that require amending or submitting new clinical
protocols to regulatory authorities and IRBs, and which may cause delays in our development
programs, or changes to regulatory review times;
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there
may be regulatory questions or disagreements regarding interpretations of data and results,
or new information may emerge regarding our product candidates;
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changes
in the standard of care on which a clinical development plan was based, which may require
new or additional trials;
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the
cost of clinical studies of our product candidates being greater than we anticipate,
or we may have insufficient funds for a clinical trial or to pay the substantial user
fees required by the FDA upon the filing of a BLA;
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clinical
studies of our product candidates producing negative or inconclusive results may fail
to provide sufficient data and information to support product approval, or our studies
may fail to reach the necessary level of statistical or clinical significance, which
may result in our deciding, or regulators requiring us, to conduct additional clinical
studies, or preclinical studies, or abandon product development programs;
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early
results from our clinical studies of our product candidates may be negatively affected
by changes in efficacy measures such as overall response rate and duration of response
as more patients are enrolled in our clinical trials or as new cohorts of our clinical
trials are tested, and overall response rate and duration of response may be negatively
affected by the inclusion of unconfirmed responses in preliminary results that we report
if such responses are not later confirmed;
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we
may not be able to demonstrate that a product candidate provides an advantage over current
standards of care or current or future competitive therapies in development;
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there
may be changes to the therapeutics or their regulatory status which we are administering
in combination with our product candidates;
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the
FDA or comparable foreign regulatory authorities may fail to approve or subsequently
find fault with the manufacturing processes or our manufacturing facilities for clinical
and future commercial supplies;
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the
FDA or comparable regulatory authorities may take longer than we anticipate making a
decision on our product candidates;
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transfer
of our manufacturing processes to our contract manufacturers or other larger-scale facilities
operated by a CMO and delays or failure by our CMOs or us to make any necessary changes
to such manufacturing process;
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our
use of different manufacturing processes within our clinical trials, including our Gen
1 and Gen 2 manufacturing processes, and any effects that may result from the use of
different processes on the clinical data that we have reported and will report in the
future; and
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delays
in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable
quantities of our product candidates for use in clinical studies or the inability to
do any of the foregoing, including as a result of any quality issues associated with
the contract manufacturer.
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We also may conduct clinical and preclinical
research in collaboration with other academic, pharmaceutical, biotechnology and biologics entities in which we combine our technologies
with those of our collaborators. Such collaborations may be subject to additional delays because of the management of the trials,
contract negotiations, the need to obtain agreement from multiple parties, and the necessity of obtaining additional approvals
for therapeutics used in the combination trials. These combination therapies will require additional testing and clinical trials
will require additional FDA regulatory approval and will increase our future cost of expenses.
Any inability to successfully complete preclinical
and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we
make manufacturing changes to our product candidates, we may be required to, or we may elect to, conduct additional studies to
bridge our modified product candidates to earlier versions. These changes may require the FDA approval or notification, may not
have their desired effect and the FDA may not accept data from prior versions of the product to support an application, delaying
our clinical trials or programs or necessitating additional clinical or preclinical studies. By example, we changed our manufacturing
process from our first generation, or Gen 1 to our second generation, or Gen 2 to decrease the production time and allow for the
cryopreservation of the product. We may find that this update has unintended consequences that necessitates additional development
and manufacturing work, additional clinical and preclinical studies, or that results in refusal to file or non-approval of a BLA.
Clinical study delays could shorten any
periods during which our products have patent protection and may allow our competitors to bring products to market before we do,
which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Regulatory authorities have substantial
discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval
and require additional preclinical, clinical or other studies. The number and types of preclinical studies and clinical trials
that will be required for regulatory approval also varies depending on the product candidate, the disease or condition that the
product candidate is designed to address, and the regulations applicable to any particular product candidate. Approval policies,
regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s
clinical development and may vary among jurisdictions. It is possible that any product candidates we may seek to develop in the
future will ever obtain the appropriate regulatory approvals necessary for us or any future collaborators to commence product
sales. Any delay in completing development, obtaining or failure to obtain required approvals could also materially adversely
affect our ability or that of any of our collaborators to generate revenue from any such product candidate, which likely would
result in significant harm to our financial position and adversely impact our stock price.
It may take longer and cost more to
complete our clinical trials than we project, or we may not be able to complete them at all.
*
For budgeting and planning purposes, we
have projected the date for the commencement of future trials, and continuation and completion of our ongoing clinical trials.
However, a number of factors, including scheduling conflicts with participating clinicians and clinical institutions, and difficulties
in identifying and enrolling patients who meet trial eligibility criteria, may cause significant delays. We may not commence or
complete clinical trials involving any of our products as projected or may not conduct them successfully.
We have opened enrollment of our company-sponsored,
Phase 2 clinical trials to establish the feasibility of our product, and to assess its overall safety in patients with metastatic
melanoma, cervical, head and neck and lung cancers. However, we may experience difficulties in patient enrollment in our clinical
trials for a variety of reasons. Our ability to enroll or treat patients in our other studies, or the duration or costs of those
studies, could be affected by multiple factors. Furthermore, the timely completion of clinical trials in accordance with their
protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until
its conclusion. In addition, our clinical trials will compete with other clinical trials for product candidates that are in the
same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available
to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted
by one of our competitors. Accordingly, we cannot guarantee that the trial will progress as planned or as scheduled. Delays in
patient enrollment may result in increased costs or may affect the timing or outcome of our ongoing clinical trial and planned
clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of
our product candidates.
We expect to rely on medical institutions,
academic institutions or CROs to conduct, supervise or monitor some or all aspects of clinical trials involving our products.
We will have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our
own. If we fail to commence or complete, or experience delays in, any of our planned clinical trials, our stock price and our
ability to conduct our business as currently planned could be harmed.
We currently anticipate that we will have
to rely on our CMOs to manufacture our adoptive cell therapy products for clinical trials. If they fail to commence or complete,
or experiences delays in, manufacturing our adoptive cell therapy products, our planned clinical trials will be delayed, which
will adversely affect our stock price and our ability to conduct our business as currently planned.
Clinical
trials are expensive, time-consuming and difficult to design and implement, and our clinical trial costs may be higher than for
more conventional therapeutic technologies or drug products.
Clinical trials
are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because
our product candidates are based on new cell therapy technologies and manufactured on a patient-by-patient basis, we expect that
they will require extensive research and development and have substantial manufacturing costs. In addition, costs to treat patients
with relapsed/refractory cancer and to treat potential side effects that may result from our product candidates can be significant.
Some clinical trial sites may not bill, or obtain coverage from, Medicare, Medicaid, or other third-party payors for some or all
of these costs for patients enrolled in our clinical trials, and we may be required by those trial sites to pay such costs. Accordingly,
our clinical trial costs are likely to be significantly higher per patient than those of more conventional therapeutic technologies
or drug products. In addition, our proposed personalized product candidates involve several complex and costly manufacturing and
processing steps, the costs of which will be borne by us. We are also responsible for the manufacturing costs of products for
patients that may have a tumor resection but ultimately do not receive an infusion. Depending on the number of patients that we
ultimately screen and enroll in our trials, and the number of trials that we may need to conduct, our overall clinical trial costs
may be higher than for more conventional treatments.
Our clinical
trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay regulatory
approval and commercialization.
The clinical trials
of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive and rigorous
review and regulation by numerous government authorities in the United States and in other countries where we intend to test and
market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates,
we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates
are both safe and effective for use in each target indication. Because our product candidates are subject to regulation as biological
drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target indications. Each product
candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use.
The risk/benefit profile required for product licensure will vary depending on these factors and may include not only the ability
to show tumor shrinkage, but also adequate duration of response, a delay in the progression of the disease, and/or an improvement
in survival. For example, response rates from the use of our product candidates may not be sufficient to obtain regulatory approval
unless we can also show an adequate duration of response. Regulatory authorities may ultimately disagree with our chosen endpoints
or may find that our studies or study results do not support product approval. Clinical testing is expensive and can take many
years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The
results of preclinical studies and early clinical trials of our product candidates with small patient populations may not be predictive
of the results of later-stage clinical trials or the results once the applicable clinical trials are completed. Preliminary, single
cohort, or top-line results from clinical studies may not be representative of the final study results. The results of studies
in one set of patients or line of treatment may not be predictive of those obtained in another and the results in various human
clinical trials reported in scientific and medical literature may not be indicative of results we obtain in our clinical trials.
Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed
through preclinical studies and initial clinical trials. Preclinical studies may also reveal unfavorable product candidate characteristics,
including safety concerns.
We expect there
may be greater variability in results for products processed and administered on a patient-by-patient basis, as anticipated for
our product candidates, than for “off-the-shelf” products, like many other drugs. There is typically an extremely
high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later
stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical
studies and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced
clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most
product candidates that begin clinical trials are never approved by regulatory authorities for commercialization.
In some instances,
there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate
due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the
patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants.
Our current and future clinical trial results may not be successful. Moreover, should there be a flaw in a clinical trial, it
may not become apparent until the clinical trial is well advanced. Further, because we currently plan to develop our product candidates
for use with other oncology products, the design, implementation, and interpretation of the clinical trials necessary for marketing
approval may be more complex than if we were developing our product candidates alone.
In addition, even
if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the
results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the
results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application,
we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support
of potential approval of our product candidates.
We have reported
preliminary results for clinical trials of our product candidates, including TIL for the treatment of metastatic melanoma, cervical
cancer, and head and neck cancers. These preliminary results, which include assessments of efficacy such as ORR, are subject to
substantial risk of change due to small sample sizes, and may change as patients are evaluated or as additional patients are enrolled
in these clinical trials. These outcomes may be unfavorable, deviate from our earlier reports, and/or delay or prevent regulatory
approval or commercialization of our product candidates, including candidates for which we have reported preliminary efficacy
results. In clinical studies where a staged expansion is expected, such as studies using a Simon’s two stage design, these
outcomes may result in the failure to meet an initial efficacy threshold for the first stage. Furthermore, other measures of efficacy
for these clinical trials and product candidates may not be as favorable.
If we encounter
difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely
affected.
The timely completion
of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number
of patients who remain in the trial until its conclusion. We may experience difficulties or delays in patient enrollment in our
clinical trials for a variety of reasons, including:
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the
size and nature of the patient population;
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the
severity of the disease under investigation;
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the
patient eligibility criteria defined in the protocol;
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the
size of the study population required for analysis of the trial’s primary endpoints;
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the
proximity of patients to trial sites;
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the
design of the trial;
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our
ability to recruit clinical trial investigators with the appropriate competencies and
experience;
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the
efforts to facilitate timely enrollment in clinical trials and the effectiveness of recruiting
publicity;
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the
patient referral practices of physicians;
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competing
clinical trials for similar therapies or other new therapeutics not involving cell-based
immunotherapy;
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clinicians’
and patients’ perceptions as to the potential advantages and side effects of the
product candidate being studied in relation to other available therapies, including any
new drugs or treatments that may be approved for the indications we are investigating;
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clinical
investigators enrolling patients who do not meet the enrollment criteria, requiring the
inclusion of additional patients in the clinical trial;
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approval
of new indications for existing therapies or approval of new therapies in general;
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our
ability to obtain and maintain patient consents; and
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the
risk that patients enrolled in clinical trials will not complete a clinical trial, return
for post-treatment follow-up, or follow the required study procedures. For instance,
patients, including patients in any control groups, may withdraw from the clinical trial
if they are not experiencing improvement in their underlying disease or condition. Withdrawal
of patients from our clinical trials may compromise the quality of our data.
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In addition, our
clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product
candidates, and this competition will reduce the number and types of patients available to us, because some patients who might
have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the
number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial
sites that some of our competitor’s use, which will reduce the number of patients who are available for our clinical trials
at such clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for
cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and
approved immunotherapies, rather than enroll patients in any future clinical trial. In addition, potential enrollees may opt to
participate in other clinical trials because of the length of time between the time that their tumor is excised and the TIL is
infused back into the patient. Amendments to our clinical protocols may affect enrollment in, or results of, our trials, including
recent amendments we have made to limit the number and type of prior therapies.
Even if we are
able to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment or small population size may
result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of
these trials and adversely affect our ability to advance the development of our product candidates.
Our product candidates may cause undesirable
side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their
commercial potential or result in significant negative consequences.
*
Results of our trials could reveal a high
and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by our
product candidates could cause us, IRBs, Drug Safety Monitoring Boards or DSMBs, or regulatory authorities to interrupt, delay
or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA
or other comparable foreign regulatory authorities. Even if we were to receive product approval, such approval could be contingent
on inclusion of unfavorable information in our product labeling, such as limitations on the indicated uses for which the products
may be marketed or distributed, a label with significant safety warnings, including boxed warnings, contraindications, and precautions,
a label without statements necessary or desirable for successful commercialization, or requirements for costly post marketing
testing and surveillance, or other requirements, including REMS, to monitor the safety or efficacy of the products, and in turn
prevent us from commercializing and generating revenues from the sale of our current or future product candidates.
If unacceptable toxicities or side effects
arise in the development of our product candidates, we, an IRB, DSMB or the FDA or comparable foreign regulatory authorities could
order us to cease clinical trials, order our clinical trials to be placed on clinical hold, or deny approval of our product candidates
for any or all targeted indications. The FDA or comparable foreign regulatory authorities may also require additional data, clinical,
or pre-clinical studies should unacceptable toxicities arise. We may need to abandon development or limit development of that
product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent,
less severe or more acceptable from a risk/benefit perspective. Toxicities associated with our trials and products may also negatively
impact our ability to conduct clinical trials using TIL therapy in larger patient populations, such as in patients that have not
yet been treated with other therapies or have not yet progressed on other therapies.
Treatment-related side effects could also
affect patient recruitment or the ability of enrolled subjects to complete our trials or result in potential product liability
claims. Such toxicities, which may arise from TIL therapy in general, including co-therapies, may include, for example, pyrexia,
anemia, neutrophil and platelet count decrease, febrile neutropenia, fatigue, chills, hyponatremia, and hypotension. For example,
the update in October 2018 from the innovaTIL-01 trial included two grade 5 treatment emergent adverse events. In addition, these
side effects and deaths may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting
from personalized cell therapy are not normally encountered in the general patient population and by medical personnel. Any of
these occurrences may harm our business, financial condition and prospects significantly.
The manufacture
of our product candidates is complex, and we may encounter difficulties in production, particularly with respect to process development
or scaling-out of our manufacturing capabilities. If we, or any of our third-party manufacturers encounter such difficulties,
our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be
delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
*
Our product candidates
are biologics and the process of manufacturing our products is complex, highly-regulated and subject to multiple risks. The manufacture
of our product candidates involves complex processes, including harvesting tumor fragments from patients, multiplying the T cells
to obtain the desired dose, and ultimately infusing the T cells back into a patient. As a result of the complexities, the cost
to manufacture biologics is generally higher than traditional small molecule chemical compounds, and the manufacturing process
is less reliable and is more difficult to reproduce. Our manufacturing process will be susceptible to product loss or failure
due to logistical issues associated with the collection of tumor fragments, or starting material, from the patient, shipping such
material to the manufacturing site, shipping the final product back to the patient, and infusing the patient with the product,
manufacturing issues associated with the differences in patient starting material, interruptions in the manufacturing process,
contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in
cell growth, and variability in product characteristics. Even minor deviations from normal manufacturing processes could result
in reduced production yields, product defects, and other supply disruptions. If for any reason we lose a patient’s starting
material, or later-developed product at any point in the process, or if any product does not meet the applicable specifications,
the manufacturing process for that patient will need to be restarted, including resection of the proper amount of tumor fragment
and the resulting delay may adversely affect that patient’s outcome. If microbial, viral, environmental or other contaminations
are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing
facilities may need to be closed for an extended period of time to investigate and remedy the contamination.
Because our product
candidates are manufactured specifically for each individual patient, we will be required to maintain a chain of identity with
respect to the patient’s tumor as it moves from the patient to the manufacturing facility, through the manufacturing process,
and back to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse
patient outcomes, loss of product, or regulatory action including withdrawal of our products from the market. Further, as product
candidates are developed through preclinical to late stage clinical trials towards approval and commercialization, it is common
that various aspects of the development program, such as manufacturing methods, are altered along the way to optimize processes
and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could
cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical
trials or otherwise necessitate the conduct of additional studies.
Currently, our
product candidates are manufactured using processes developed or modified by us or by our third-party research institution collaborators
that we may not intend to use for more advanced clinical trials or commercialization. We have selected Gen 2 as the manufacturing
process for product registration, and all ongoing and future company-sponsored clinical trials. Although we believe Gen 2 is a
commercially viable process, there are risks associated with scaling to the level required for advanced clinical trials or commercialization,
including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues,
lot consistency, and timely availability of raw materials. This includes potential risks associated with FDA not agreeing with
all of the details of our validation data or our potency assay for Cohort 4 of our innovaTIL-01 clinical trial. Furthermore, some
of our CMOs may not be able to establish comparability of their products with TIL product used in Cohort 2 or may not be fully
validated prior to starting Cohort 4. As a result of these challenges, we may experience delays in our clinical development and/or
commercialization plans. We may ultimately be unable to reduce the cost of goods for our product candidates to levels that will
allow for an attractive return on investment if and when those product candidates are commercialized.
Our current manufacturing
strategy involves the use of CMOs. Currently our product candidates are manufactured by WuXi, Lonza Netherlands (formerly PharmaCell),
and Moffitt. In 2019 we anticipate that MasTHerCell will manufacture product candidates for use in our European clinical sites.
Should we continue to use CMOs, we may not succeed in maintaining our relationships with our current CMOs or establishing relationships
with additional or alternative CMOs. Our product candidates may compete with other products and product candidates for access
to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that are both
capable of manufacturing for us and willing to do so. If our CMOs should cease manufacturing for us, we would experience delays
in obtaining sufficient quantities of our product candidates for clinical trials and, if approved, commercial supply. Further,
our CMOs may breach, terminate, or not renew these agreements. If we were to need to find alternative manufacturing facilities
it would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
The commercial terms of any new arrangement could be less favorable than our existing arrangements and the expenses relating to
the transfer of necessary technology and processes could be significant.
Reliance on third-party
manufacturers entails exposure to risks to which we would not be subject if we manufactured the product candidate ourselves, including:
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inability
to negotiate manufacturing agreements with third parties under commercially reasonable
terms;
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reduced
day-to-day control over the manufacturing process for our product candidates as a result
of using third-party manufacturers for all aspects of manufacturing activities;
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reduced
control over the protection of our trade secrets and know-how from misappropriation or
inadvertent disclosure;
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termination
or nonrenewal of manufacturing agreements with third parties in a manner or at a time
that may be costly or damaging to us or result in delays in the development or commercialization
of our product candidates; and
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disruptions
to the operations of our third-party manufacturers or suppliers caused by conditions
unrelated to our business or operations, including the bankruptcy of the manufacturer
or supplier.
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In the future,
we plan to establish our own manufacturing capabilities and infrastructure, including a manufacturing facility. We would expect
that development of our own manufacturing facility would provide us with enhanced control of material supply for both clinical
trials and the commercial market, enable the more rapid implementation of process changes, and allow for better long-term margins.
However, we have no experience as a company in developing a manufacturing facility and may never be successful in developing our
own manufacturing facility or capability. We may establish multiple manufacturing facilities as we expand our commercial footprint
to multiple geographies, which may lead to regulatory delays or prove costly. Even if we are successful, our manufacturing capabilities
could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, natural disasters, power failures,
and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a
material adverse effect on our business.
The manufacture
of biopharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing
techniques and process controls. Manufacturers of therapeutics often encounter difficulties in production, particularly in scaling
up initial production. These problems include difficulties with production costs and yields, quality control, including stability
of the product candidate and quality assurance testing, shortages of qualified personnel, and compliance with strictly enforced
federal, state, local and foreign regulations.
Moreover, any problems
or delays we or our CMOs experience in preparing for commercial scale manufacturing of a product candidate or component may result
in a delay in the FDA approval of the product candidate or may impair our ability to manufacture commercial quantities or such
quantities at an acceptable cost, which could result in the delay, prevention, or impairment of clinical development and commercialization
of our product candidates and could adversely affect our business. Furthermore, if we or our commercial manufacturers fail to
deliver the required commercial quantities of our product candidates on a timely basis and at reasonable costs, we would likely
be unable to meet demand for our products and we would lose potential revenues.
In addition, the
manufacturing process and facilities for any products that we may develop is subject to FDA and foreign regulatory authority approval
processes, and we or our CMOs will need to meet all applicable FDA and foreign regulatory authority requirements, including cGMPs,
on an ongoing basis. The cGMP requirements include quality control, quality assurance, and the maintenance of records and documentation.
The FDA and other regulatory authorities enforce these requirements through facility inspections. Manufacturing facilities must
be approved by the FDA pursuant to inspections that will be conducted after we submit our marketing applications to the agency.
Manufacturers are also subject to continuing FDA and other regulatory authority inspections following marketing approval. Further,
we, in cooperation with our CMOs, must supply all necessary chemistry, manufacturing, and control documentation in support of
a BLA on a timely basis.
Our, or our CMOs’,
manufacturing facilities may be unable to comply with our specifications, cGMPs, and with other FDA, state, and foreign regulatory
requirements. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants,
or to inadvertent changes in the properties or stability of product candidate that may not be detectable in final product testing.
If we or our CMOs are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities,
or in accordance with the strict regulatory requirements, we may not obtain or maintain the approvals we need to commercialize
such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or
our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities,
to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential
future demand. Deviations from manufacturing requirements may further require remedial measures that may be costly and/or time-consuming
for us or a third party to implement and may include the temporary or permanent suspension of a clinical trial or commercial sales
or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we
contract could materially harm our business.
Even to the extent
we use and continue to use CMOs, we are ultimately responsible for the manufacture of our products and product candidates. A failure
to comply with these requirements may result in regulatory enforcement actions against our manufacturers or us, including fines
and civil and criminal penalties, which could result in imprisonment, suspension or restrictions of production, suspension, injunctions,
delay or denial of product approval or supplements to approved products, clinical holds or termination of clinical studies, warning
or untitled letters, regulatory authority communications warning the public about safety issues with the biologic, refusal to
permit the import or export of the products, product seizure, detention, or recall, operating restrictions, suits under the civil
False Claims Act, corporate integrity agreements, consent decrees, or withdrawal of product approval.
Any of these challenges
could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials,
increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of
goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects.
Cell-based
therapies rely on the availability of reagents, specialized equipment, and other specialty materials, which may not be available
to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source
vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.
Manufacturing our
product candidates requires 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 clinical trials and commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise
be ill-equipped to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to
obtain supply contracts with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials
and equipment to support clinical or commercial manufacturing.
For some of these
reagents, equipment, and materials, we rely and may in the future rely on sole source vendors or a limited number of vendors.
An inability to continue to source product from any of these suppliers, which could be due to a number of issues, including regulatory
actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor
disputes or shortages, unexpected demands, or quality issues, could adversely affect our ability to satisfy demand for our product
candidates, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical
trials, either of which could significantly harm our business.
As we continue
to develop and scale our manufacturing process, we expect that we will need to obtain rights to and supplies of certain materials
and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable
terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials
or find a suitable substitute, it would have a material adverse effect on our business. Even if we are able to alter our process
so as to use other materials or equipment, such a change may lead to a delay in our clinical development and/or commercialization
plans. If such a change occurs for product candidate that is already in clinical testing, the change may require us to perform
both
ex vivo
comparability studies and to collect additional data from patients prior to undertaking more advanced
clinical trials.
The deviations in our proposed new
products from existing products may require us to perform additional testing, which will increase the cost, and extend the time
for obtaining approval.
Our TIL based therapy is based on the adoptive
cell therapy technology that we licensed from the NIH and that is presently in use as a physician-sponsored investigational therapy
for the treatment of Stage IV metastatic melanoma in the United States at the NCI, MDACC Cancer Center, and Moffit. These current
methods of treatment are very labor intensive and expensive, which has limited its widespread application. We have developed new
processes that we anticipate will enable more efficient manufacturing of TIL. We may have difficulty demonstrating that the products
produced from our new processes are comparable to the existing products. The FDA may require additional clinical testing before
permitting a larger clinical trial with the new processes, and the product may not be as efficacious in the new clinical trials.
Cellular products are not considered as well characterized products because there are hundreds of markers present on these cells,
and even small changes in manufacturing processes could alter the cell types. It is unclear at this time which of those markers
are critical for success of these cells to combat cancer, so our ability to predict the outcomes with newer manufacturing processes
is limited. The changes that we have made to the historical manufacturing process may require additional testing, which may increase
costs and timelines associated with these developments.
In addition to developing a TIL based therapy
on existing ACT technology, we are currently conducting clinical trials of our products in combination with other existing drugs.
These combination therapies will require additional testing and clinical trials will require additional FDA regulatory approval
and will increase our future cost of development.
We will be unable to commercialize
our products if our trials are not successful.
Our research and development programs are
at an early stage. We must demonstrate our products’ safety and efficacy in humans through extensive clinical testing. We
may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization
of our products, including but not limited to the following:
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safety and efficacy results in various human
clinical trials reported in scientific and medical literature may not be indicative of results we obtain in our clinical trials;
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after reviewing test results, we or our collaborators
may abandon projects that we might previously have believed to be promising;
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we, our collaborators or regulators, may suspend
or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks;
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the effects our potential products have may
not be the desired effects or may include undesirable side effects or other characteristics that preclude regulatory approval
or limit their commercial use if approved;
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manufacturers may not meet the necessary standards
for the production of the product candidates or may not be able to supply the product candidates in a sufficient quantity;
and
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regulatory authorities may find that our clinical
trial design or conduct does not meet the applicable approval requirements.
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Clinical testing is very expensive, can
take many years, and the outcome is uncertain. It can take as much as 12 months or more before we learn the results from any clinical
trial using our adoptive cell therapy with TIL. The data collected from our clinical trials may not be sufficient to support approval
by the FDA of our TIL-based product candidates for the treatment of solid tumors. The clinical trials for our products under development
may not be completed on schedule and the FDA may not ultimately approve any of our product candidates for commercial sale. If
we fail to adequately demonstrate the safety and efficacy of any product candidate under development, we may not receive regulatory
approval for those products, which would prevent us from generating revenues or achieving profitability.
Even if our lead product, lifileucel,
is approved and commercialized, we may not become profitable.
Our lead product, lifileucel, is initially
targeting a small population of refractory patients that suffer from metastatic melanoma. Even if the FDA approves this new therapy,
and even if we obtain significant market share for this initial product candidate, because the potential target population for
lifileucel in refractory patients may be small, we may never achieve profitability without obtaining regulatory approval for additional
indications. The FDA often approves new therapies initially only for use in patients with relapsed or refractory metastatic disease.
We expect to initially seek approval of our product candidates in this setting and are currently studying these patient populations.
We collaborate with governmental,
academic and corporate partners to improve and develop TIL therapies for new indications for use in combination with other therapies
and to evaluate new TIL manufacturing methods, the results of which, because the manufacturing processes are not within our control,
may be incorrect or unreliable.
In addition to our own research and process
development efforts, we seek to collaborate with government, academic research institutions and corporate partners to improve
TIL manufacturing and to develop TIL therapies for new indications. In 2017, we announced collaborations with Moffitt, MDACC and
Ohio State University to evaluate several new solid tumor and hematologic indications for TIL therapy in clinical and preclinical
studies as well as, in some cases, new TIL manufacturing approaches. The results of these collaborations may be used to support
our filing with the FDA of INDs to conduct more advanced clinical trials of our product candidates, or to otherwise analyze or
make predictions or decisions with respect to our current or future product candidates. However, because the majority of our collaborations
are conducted at outside laboratories and we do not have complete control over how the studies are conducted or reported or over
the manufacturing methods used to manufacture TIL product, the results of such studies, which we may use as the basis for our
conclusions, projections or decisions with respect to our current or future product candidates, may be incorrect or unreliable,
or may have a negative impact on us if the results of such studies are imputed to our products or proposed indications, even if
such imputation is improper. For example, we have entered into collaborations with Moffitt and MDACC to perform clinical trials
using TIL products that differ from our products, but the results of these clinical trials, if negative, may adversely impact
our stock price and our development plans for our products. Additionally, we may use third party data to analyze, reach conclusions
or make predictions or decisions with respect to our product candidates that may be incomplete, inaccurate or otherwise unreliable.
We will need additional financing
to fund our operations and complete the development and commercialization of our various product candidates, and if we are unable
to obtain such financing, we may be unable to complete the development and commercialization of our product candidates. Raising
additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights
to our technologies or product candidates.
*
Our operations have consumed substantial
amounts of cash since inception. From our inception to March 31, 2019, we have an accumulated deficit of $410.0 million. In addition,
our research and development and our operating costs have also been substantial and are expected to increase. In January 2018,
we closed an underwritten public offering of our common stock. The net proceeds from the offering, after deducting the underwriting
discounts and commissions and other offering expenses payable by us, were $162.0 million. In October 2018, we closed an underwritten
public offering of our common stock. The net proceeds from the offering, after deducting the underwriting discounts and commissions
and other estimated offering expenses payable by the Company, were of $236.7 million. We expect to continue to spend substantial
amounts to continue the clinical development of our product candidates. As of March 31, 2019, we had $440.0 million in cash, cash
equivalents and short-term investments.
Accordingly, we believe that our existing
cash, cash equivalents and short-term investments will be sufficient to fund our operations for at least the next twelve months
from the date this Quarterly Report on Form 10-Q is issued. However, in order to complete the development of our current product
candidates, and in order to affect our business plan,including establishing our own manufacturing facility, we anticipate that
we will have to spend more than the funds currently available to us. Furthermore, changing circumstances may cause us to increase
our spending significantly faster than we currently anticipate, and we may require additional capital for the further development
and commercialization of our product candidates and may need to raise additional funds sooner if we choose to expand more rapidly
than we presently anticipate. Moreover, our fixed expenses such as rent, minimum payments to our contract manufacturers, and other
contractual commitments, including those for our research collaborations, are substantial and are expected to increase in the
future.
We will need to obtain additional financing
to fund our future operations, including completing the development and commercialization of our product candidates. Our future
funding requirements will depend on many factors, including, but not limited to:
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Progress,
timing, scope and costs of our clinical trials, including the ability to timely initiate
clinical sites, enroll subjects and manufacture TIL for treatment for patients in our
ongoing, planned and potential future clinical trials;
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Time
and cost necessary to obtain regulatory approvals that may be required by regulatory
authorities to execute clinical trials or commercialize our product;
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Our
ability to successfully commercialize our product candidates, if approved;
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Our
ability to have clinical and commercial product successfully manufactured consistent
with FDA and European Medicines Agency, or EMA, regulations;
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Amount
of sales and other revenues from product candidates that we may commercialize, if any,
including the selling prices for such potential products and the availability of adequate
third-party coverage and reimbursement for patients;
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Sales
and marketing costs associated with commercializing our products, if approved, including
the cost and timing of building our marketing and sales capabilities;
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Cost
of building, staffing and validating our own manufacturing facility in the United States;
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Terms
and timing of our current and any potential future collaborations, licensing or other
arrangements that we have established or may establish;
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Cash
requirements of any future acquisitions or the development of other product candidates;
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Costs
of operating as a public company;
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Time
and cost necessary to respond to technological, regulatory, political and market developments;
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Costs
of filing, prosecuting, defending and enforcing any patent claims and other intellectual
property rights; and
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Costs
associated with any potential business or product acquisitions, strategic collaborations,
licensing agreements or other arrangements that we may establish.
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Unless and until we can generate a sufficient
amount of revenue, we may finance future cash needs through public or private equity offerings, license agreements, debt financings,
collaborations, strategic alliances and marketing or distribution arrangements. Additional funds may not be available when we
need them on terms that are acceptable to us, or at all. We have no committed source of additional capital and if we are unable
to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay or reduce the scope
of or eliminate one or more of our research or development programs or our commercialization efforts. Our current license and
collaboration agreements may also be terminated if we are unable to meet the payment obligations under those agreements. As a
result, we may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have
an immediate need for additional capital at that time.
To the extent that we raise additional capital
through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include
liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result
in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to
incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions
that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and
alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product
candidates, or grant licenses on terms unfavorable to us.
Subject to various spending levels
approved by our Board of Directors, our management will have broad discretion in the use of the net proceeds from our capital
raises, including our October 2018, January 2018, and September 2017 public offerings, and may not use them effectively.
Our management will have discretion in the
application of the net proceeds from our capital raises, including our October 2018, January 2018 and September 2017 public offerings,
and our stockholders will not have the opportunity as part of their investment decision to assess whether the net proceeds from
those capital raises are being used appropriately. You may not agree with our decisions, and our use of the proceeds from our
capital raises may not yield any return to stockholders. Because of the number and variability of factors that will determine
our use of the net proceeds from our capital raises, including our October 2018, January 2018 and September 2017 public offerings,
their ultimate use may vary substantially from their currently intended use. Our failure to apply the net proceeds of our capital
raises, including our October 2018, January 2018 and September 2017 public offerings, effectively could compromise our ability
to pursue our growth strategy and we might not be able to yield a significant return, if any, on our investment of those net proceeds.
Stockholders will not have the opportunity to influence our decisions on how to use our net proceeds from capital raises, including
our October 2018, January 2018 and September 2017 public offerings. Pending their use, we may invest the net proceeds from our
capital raises, including our October 2018, January 2018 and September 2017 public offerings, in interest and non-interest bearing
cash accounts, short-term, investment-grade, interest-bearing instruments and U.S. government securities. These temporary investments
are not likely to yield a significant return.
The use of our net operating loss
carryforwards and research tax credits may be limited.
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Our net operating loss carryforwards and
any future research and development tax credits may expire and not be used. As of March 31, 2019, we had U.S. federal net operating
loss carryforwards of approximately $251.5 million. Our net operating loss carryforwards arising in taxable years ending on or
prior to December 31, 2018 will begin expiring in 2027 if we have not used them prior to that time. Net operating loss carryforwards
arising in taxable years ending after December 31, 2018 are no longer subject to expiration under the Internal Revenue Code of
1986, as amended, or the Code. Additionally, our ability to use any net operating loss and credit carryforwards to offset taxable
income or tax, respectively, in the future will be limited under Sections 382 and 383 of the Code, respectively, if we have a
cumulative change in ownership of more than 50% within a three-year period.
We have performed an IRC Section 382 analysis
as of December 31, 2017. Per the analysis, the May 2013 recapitalization, private placements in 2014 and 2016 may have already
triggered such an ownership change. As a result, the federal and state carryforwards associated with the net operating loss and
credit deferred tax assets were reduced by the amount of tax attributes estimated to expire during their respective carryforward
periods. In addition, since we will need to raise substantial additional funding to finance our operations, we may undergo further
ownership changes in the future. Any such annual limitation may significantly reduce the utilization of the net operating loss
carryforwards and research tax credits before they expire. Depending on our future tax position, limitation of our ability to
use net operating loss carryforwards in states in which we are subject to income tax could have an adverse impact on our results
of operations and financial condition.
Recently enacted tax reform legislation
in the U.S. could adversely affect our business and financial condition.
On December 22, 2017, the Tax Cuts and Jobs
Act of 2017, or the Tax Act, was signed into law, making significant changes to the Internal Revenue Code. Changes under the Tax
Act include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December
31, 2017, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, limitation of the tax
deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction
for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation
of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings
(subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation
expense over time, and modifying or repealing many business deductions and credits (including reducing the business tax credit
for certain clinical testing expenses incurred in the testing of orphan drugs). The overall impact of the new federal tax law
is uncertain, and our business and financial condition could be adversely affected. For example, because of the tax rate decrease,
our deferred tax assets and our corresponding valuation allowance against these deferred tax assets have been reduced and may
continue to be adversely impacted. In addition, it is uncertain if and to what extent various states will conform to Tax Act and
what effect that legal challenges will have on the Tax Act, including litigation in the U.S. and international challenges brought
at organizations such as the World Trade Organization. The impact of the Tax Act on holders of our common stock is also uncertain
and could be adverse. Investors should consult with their legal and tax advisors with respect to this legislation and the potential
tax consequences of investing in or holding our common stock.
We are subject to extensive regulation,
which can be costly, time consuming and can subject us to unanticipated delays; even if we obtain regulatory approval for some
of our products, those products may still face regulatory difficulties.
Our potential products, cell processing
and manufacturing activities, are subject to comprehensive regulation by the FDA in the United States and by comparable authorities
in other countries. The process of obtaining FDA and other required regulatory approvals, including foreign approvals, is expensive
and often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. In
addition, regulatory agencies may lack experience with our technologies and products, which may lengthen the regulatory review
process, increase our development costs and delay or prevent their commercialization.
No adoptive cell therapy using TIL has been
approved for marketing in the FDA. Consequently, there is no precedent for the successful commercialization of products based
on our technologies. In addition, we have had only limited experience in filing and pursuing applications necessary to gain regulatory
approvals, which may impede our ability to obtain timely FDA approvals, if at all. We have not yet sought FDA approval for any
adoptive cell therapy product. We will not be able to commercialize any of our potential products until we obtain FDA approval,
and so any delay in obtaining, or inability to obtain, FDA approval would harm our business.
If we violate regulatory requirements at
any stage, whether before or after marketing approval is obtained, we may face a number of regulatory consequences, including
refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, imposition of a clinical
hold or termination of clinical trials, warning letters, untitled letters, cyber letters, modification of promotional materials
or labeling, provision of corrective information, imposition of post-market requirements including the need for additional testing,
imposition of distribution or other restrictions under a REMS, product recalls, product seizures or detentions, refusal to allow
imports or exports, total or partial suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees,
corporate integrity agreements, debarment from receiving government contracts, and new orders under existing contracts, exclusion
from participation in federal and state healthcare programs, restitution, disgorgement, or civil or criminal penalties, including
fines and imprisonment, and adverse publicity, among other adverse consequences. Additionally, we may not be able to obtain the
labeling claims necessary or desirable for the promotion of our products. We may also be required to undertake post-marketing
trials. In addition, if we or others identify side effects after any of our adoptive cell therapies are on the market, or if manufacturing
problems occur, regulatory approval may be withdrawn, and reformulation of our products may be required.
We may not be able to license new
TIL technology from the NIH and others.
An element of our intellectual property
portfolio is to license additional rights and technologies from the NIH. Our inability to license the rights and technologies
that we have identified, or that we may in the future identify, could have a material adverse impact on our ability to complete
the development of our products or to develop additional products. No assurance can be given that we will be successful in licensing
any additional rights or technologies from the NIH and others. Failure to obtain additional rights and licenses may detrimentally
affect our planned development of additional product candidates and could increase the cost, and extend the timelines associated
with our development of such other products.
Our projections regarding the market
opportunities for our product candidates may not be accurate, and the actual market for our products may be smaller than we estimate
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 who are in a position to receive second
or third line therapy, and who have the potential to benefit from treatment with our product candidates, are based on our beliefs
and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics,
patient foundations, or market research by third parties, and may prove to be incorrect. Further, new studies or approvals of
new therapeutics may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be
lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or
may not be amenable to treatment with our product candidates and may also be limited by the cost of our treatments and the reimbursement
of those treatment costs by third-party payors. For instance, we expect lifileucel to initially target a small patient population
that suffers from metastatic melanoma. Even if we obtain significant market share for our product candidates, because the potential
target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications.
We are required to pay substantial
royalties and lump sum benchmark payments under our license agreements with the NIH, Moffitt, and PolyBioCept, and we must meet
certain milestones to maintain our license rights.
Under our license agreements with the NIH
for our adoptive cell therapy technologies, we are currently required to pay both substantial benchmark payments and royalties
to that institution based on our revenues from sales of our products utilizing the licensed technologies. Likewise, under our
license agreement with PolyBioCept, we are required to make lump sum payments if, and when certain product sales targets are achieved.
These payments could adversely affect the overall profitability for us of any products that we may seek to commercialize under
the NIH or PolyBioCept licenses. In order to maintain our license rights under the NIH, Moffitt, and PolyBioCept license agreements,
we will need to meet certain specified milestones, subject to certain cure provisions, in the development of our product candidates.
There is no assurance that we will be successful in meeting these milestones on a timely basis, or at all.
Because our current products represent,
and our other potential product candidates will represent novel approaches to the treatment of disease, there are many uncertainties
regarding the development, the market acceptance, third-party reimbursement coverage and the commercial potential of our product
candidates.
Human immunotherapy products are a new category
of therapeutics. Because this is a relatively new and expanding area of novel therapeutic interventions, there are many uncertainties
related to development, marketing, reimbursement, and the commercial potential for our product candidates. There can be no assurance
as to the length of the trial period, the number of patients the FDA will require to be enrolled in the trials in order to establish
the safety, efficacy, purity and potency of immunotherapy products, or that the data generated in these trials will be acceptable
to the FDA to support marketing approval. The FDA may take longer than usual to come to a decision on any BLA that we submit and
may ultimately determine that there is not enough data, information, or experience with our product candidates to support an approval
decision. The FDA may also require that we conduct additional post-marketing studies or implement risk management programs, such
as REMS until more experience with our product candidates is obtained. Finally, after increased usage, we may find that our product
candidates do not have the intended effect or have unanticipated side effects, potentially jeopardizing initial or continuing
regulatory approval and commercial prospects.
We may also find that the manufacture of
our product candidates is more difficult than anticipated, resulting in an inability to produce a sufficient amount of our product
candidates for our clinical trials or, if approved, commercial supply. Moreover, because of the complexity and novelty of our
manufacturing process, there are only a limited number of manufacturers who have the capability of producing our product candidates.
Should any of our contract manufacturers no longer produce our product candidates, it may take us significant time to find a replacement,
if we are able to find a replacement at all.
There is no assurance that the approaches
offered by our products will gain broad acceptance among doctors or patients or that governmental agencies or third-party medical
insurers will be willing to provide reimbursement coverage for proposed product candidates. Moreover, we do not have verifiable
internal marketing data regarding the potential size of the commercial market for our product candidates, nor have we obtained
current independent marketing surveys to verify the potential size of the commercial markets for our current product candidates
or any future product candidates. Since our current product candidates and any future product candidates will represent novel
approaches to treating various conditions, it may be difficult, in any event, to accurately estimate the potential revenues from
these product candidates. Accordingly, we may spend significant capital trying to obtain approval for product candidates that
have an uncertain commercial market. The market for any products that we successfully develop will also depend on the cost of
the product. We do not yet have sufficient information to reliably estimate what it will cost to commercially manufacture our
current product candidates, and the actual cost to manufacture these products could materially and adversely affect the commercial
viability of these products. Our goal is to reduce the cost of manufacturing and providing our therapies. However, unless we can
reduce those costs to an acceptable amount, we may never be able to develop a commercially viable product. If we do not successfully
develop and commercialize products based upon our approach or find suitable and economical sources for materials used in the production
of our products, we will not become profitable, which would materially and adversely affect the value of our common stock.
Our TIL therapy may be provided to patients
in combination with other agents provided by third parties. The cost of such combination therapy may increase the overall cost
of TIL therapy and may result in issues regarding the allocation of reimbursements between our therapy and the other agents, all
of which may affect our ability to obtain reimbursement coverage for the combination therapy from third party medical insurers.
No assurance can be given that the
Gen 2 manufacturing process we have selected will be FDA-compliant, more efficient and lower the cost to manufacture TIL products.
Pursuant to the CRADA, and in cooperation
with our contract manufacturers and potentially other manufacturers, we have developed and are developing improved methods for
the generating and selecting autologous TILs, and methods for large-scale production of autologous TILs that are in accord with
current cGMP procedures. We have developed a new and more efficient TIL manufacturing process that we believe can be more efficient
and cost effective, and in a more automated manner than previous processes. The production and control of the physical and/or
chemical attributes of our products in a cGMP facility is subject to many uncertainties and difficulties. We have never manufactured
our adoptive cell therapy product candidate on a commercial scale, nor have our partners. As a result, we cannot give any assurance
that the Gen 2 process or any future process that we select will be a manufacturing process that can produce our products in compliance
with the applicable regulatory requirements, at a cost or in quantities necessary to make them commercially viable. Moreover,
our third-party manufacturers will have to continually adhere to current cGMP regulations enforced by the FDA through its facilities
inspection program. If the facilities of these manufacturers cannot pass a pre-approval plant inspection, the FDA pre-market approval
of our products will not be granted. In complying with cGMP and foreign regulatory requirements, we and any of our third-party
manufacturers will be obligated to expend time, money and effort in production, record-keeping and quality control to assure that
our products meet applicable specifications and other requirements. If we or any of our third-party manufacturers fail to comply
with these requirements, we may be subject to regulatory action. No assurance can be given that we will be able to develop such
a manufacturing process, or that our partners will thereafter be able to establish and operate such a production facility.
If product liability lawsuits are
brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability
as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products.
For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable
during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects
in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach
of warranties. Claims could also be asserted under state consumer protection acts. Large judgements have also been awarded in
class action lawsuits based on therapeutics that had unanticipated side effects. If we cannot successfully defend ourselves against
product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates.
Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
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decreased demand for our product candidates;
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injury to our reputation;
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withdrawal of clinical trial participants or
sites and potential termination of clinical trial sites or entire clinical programs;
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initiation of investigations by regulators,
refusal to approve marketing applications or supplements, and withdrawal or limitation of product approvals;
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costs to defend the related litigation;
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a diversion of management’s time and our
resources;
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substantial monetary awards to trial participants
or patients;
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product recalls, withdrawals or labeling, marketing
or promotional restrictions;
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loss of revenue;
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significant negative media attention;
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decrease in the price of our stock and overall
value of our company;
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exhaustion of our available insurance coverage
and our capital resources; or
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the inability to commercialize our product candidates.
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Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization
of products we develop, alone or with corporate collaborators. Our insurance policies may also have various exclusions, and we
may be subject to a product liability claim for which we have no coverage. While we have obtained clinical trial insurance for
our Phase 2 clinical trials, we may have to pay amounts awarded by a court or negotiated in a settlement that exceed our coverage
limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such
amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification
may not be available or adequate should any claim arise.
We face significant competition from
other biotechnology and pharmaceutical companies and from non-profit institutions.
Competition in the field of cancer therapy
is intense and is accentuated by the rapid pace of technological development. Research and discoveries by others may result in
breakthroughs which may render our products obsolete even before they generate any revenue. There are products that are approved
and currently under development by others that could compete with the products that we are developing. Many of our potential competitors
have substantially greater research and development capabilities and approval, manufacturing, marketing, financial and managerial
resources and experience than we do. Our competitors may:
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develop safer, more convenient or more effective
immunotherapies and other therapeutic products;
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develop therapies that are less expensive or
have better reimbursement from private or public payors;
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reach the market more rapidly, reducing the
potential sales of our products; or
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establish superior proprietary positions.
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Due to the promising clinical therapeutic
effect of competitor therapies in clinical exploratory trials, we anticipate substantial direct competition from other organizations
developing advanced T cell therapies targeting patients who have received prior anti-PD-1/PD-L1 therapies. In particular, we expect
to compete with other new therapies for our lead indications developed by companies such as Bristol-Myers Squibb, Merck, Nektar
Therapeutics, Idera Pharmaceuticals, Dynavax Technologies, Oncosec Medical, Immetacyte, WindMIL Therapeutics, and others. We also
may compete with therapies based on genetically engineered T cells rendered reactive against tumor-associated antigens prior to
their administration to patients. Genetically engineered T cells are being pursued by several companies, including Adaptimmune,
Celgene (in collaboration with bluebird bio as well as through Celgene’s subsidiary Juno Therapeutics), Gilead Sciences,
Novartis and others. To date, these technologies have been primarily applicable to hematologic malignancies, but their application
in solid tumor indications may create competition with us. Many of these companies and our other current and potential competitors
have substantially greater research and development capabilities and financial, scientific, regulatory, manufacturing, marketing,
sales, human resources, and experience than we do. Many of our competitors have several therapeutic products that have already
been developed, approved and successfully commercialized, or are in the process of obtaining regulatory approval for their therapeutic
products in the United States and internationally. Our competitors may obtain regulatory approval for their products more rapidly
than we may obtain approval for ours, which could result in competitors establishing a strong market position before we are able
to enter the market.
Universities and public and private research
institutions in the U.S. and Europe are also potential competitors. For example, a Phase 3 trial comparing TIL to standard ipilimumab
in patients with metastatic melanoma is currently being conducted in Europe by the Netherlands Cancer Institute, the Copenhagen
County Herlev University Hospital, and the University of Manchester. While these universities and public and private research
institutions primarily have educational objectives, they may develop proprietary technologies that lead to other FDA approved
therapies or that secure patent protection that we may need for the development of our technologies and products.
Our lead product candidate, lifileucel,
is a therapy for the treatment of metastatic melanoma. Currently, there are numerous companies that are developing various alternate
treatments for melanoma, including patients that have progressed after prior treatment with checkpoint inhibitors. Accordingly,
lifileucel faces significant competition in the melanoma treatment space from multiple companies. Even if we obtain regulatory
approval for lifileucel, the availability and price of our competitors’ products could limit the demand and the price we
are able to charge for our melanoma therapy. We may not be able to implement our business plan if the acceptance of our products
is inhibited by price competition or the reluctance of physicians to switch from other methods of treatment to our product, or
if physicians switch to other new therapies, drugs or biologic products or choose to reserve our product for use in limited circumstances.
Mergers and acquisitions in the pharmaceutical
and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Early
stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and establishing
clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary
for, our programs.
We are dependent on third parties
to support our research, development and manufacturing activities and, therefore, are subject to the efforts of these parties
and our ability to successfully collaborate with these third parties.
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As a result of our current strategy to outsource
most of our manufacturing, we rely very heavily on third parties to perform for us the manufacturing of our products for our clinical
trials. We also license a portion of our technology from others. We intend to rely upon our contract manufacturers to produce
large quantities of materials needed for clinical trials and potentially product commercialization. Third party manufacturers
may not be able to meet our needs with respect to timing, quantity or quality. If we are unable to contract for a sufficient supply
of needed materials on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers,
our clinical testing may be delayed, thereby delaying the submission of products for regulatory approval or the market introduction
and subsequent sales of our products. Any such delay may lower our revenues and potential profitability.
In addition, in order to supplement our
own efforts to improve TIL manufacturing and develop TIL therapies in new indications in clinical trials, we currently work and
collaborate with government and academic research institutions, medical institutions and corporate partners such as the NCI, Moffitt,
Ohio State University, Roswell Park Cancer Institute, Phio Pharmaceuticals, and Cellectis. We also intend to continue to enter
into additional third-party collaborative agreements in the future. However, we may not be able to successfully negotiate any
additional collaborative arrangements. If established, these relationships may not be scientifically or commercially successful.
The success of these and future collaborations and joint development arrangements may be subject to numerous risks and uncertainties,
including the inability or unwillingness of our partners to perform in the manner, or to the extent anticipated, and may also
be subject to disagreements regarding the rights, interests, and performance of the counterparties under our licenses and development
agreements. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization
matters can lead to delays in the development process or commercialization of the applicable product candidate and, in some cases,
termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final
decision-making authority under the collaboration agreement.
With regard to future collaboration efforts,
we face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for collaboration
will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions
of the proposed collaboration and, an evaluation by the proposed collaborator of a number of similar or unique factors.
Collaborations with biopharmaceutical companies
and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would
adversely affect us financially and could harm our business reputation. Any collaboration may pose a number of risks, including
the following:
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collaborators
may not perform their obligations as expected;
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collaborators
may not pursue development and commercialization of any product candidates that achieve
regulatory approval or may elect not to continue or renew development or commercialization
programs based on clinical trial results, changes in the collaborators’ strategic
focus or available funding, or external factors, such as an acquisition, that divert
resources or create competing priorities;
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collaborators
may delay clinical trials, provide insufficient funding for a clinical trial program,
stop a clinical trial or abandon a product candidate, repeat or conduct new clinical
trials or require a new formulation of a product candidate for clinical testing;
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collaborators
could fail to make timely regulatory submissions for a product candidate;
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collaborators
may not comply with all applicable regulatory requirements or may fail to report safety
data in accordance with all applicable regulatory requirements;
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collaborators
could independently develop, or develop with third parties, products that compete directly
or indirectly with our products or product candidates if the collaborators believe that
competitive products are more likely to be successfully developed or can be commercialized
under terms that are more economically attractive than ours;
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product
candidates discovered in collaboration with us may be viewed by our collaborators as
competitive with their own product candidates or products, which may cause collaborators
to cease to devote resources to the commercialization of our product candidates;
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a
collaborator with marketing and distribution rights to one or more of our product candidates
that achieve regulatory approval may not commit sufficient resources to the marketing
and distribution of such product candidate or product;
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disagreements
with collaborators, including disagreements over proprietary rights, contract interpretation
or the preferred course of development, might cause delays or termination of the research,
development or commercialization of product candidates, might lead to additional responsibilities
for us with respect to product candidates, or might result in litigation or arbitration,
any of which would be time consuming and expensive;
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collaborators
may not properly maintain or defend our intellectual property rights or may use our proprietary
information in such a way as to invite litigation that could jeopardize or invalidate
our intellectual property or proprietary information or expose us to potential litigation;
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collaborators
may infringe the intellectual property rights of third parties, which may expose us to
litigation and potential liability;
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collaborators
may be involved in a business combination, resulting in the decreased emphasis or termination
of development or commercialization of any product candidate subject to the collaboration
agreement; and
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termination
of a collaboration agreement may make it more difficult to attract new collaborators
and our and our products’ or product candidates’ reputation in the medical,
business, and financial communities could be adversely affected.
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If any third-party collaborator breaches
or terminates its agreement with us or fails to conduct its activities in a timely manner, the commercialization of our products
under development could be slowed down or blocked completely. It is possible that our collaborators will change their strategic
focus, pursue alternative technologies or develop alternative products, either on their own or in collaboration with others, as
a means for developing treatments for the diseases targeted by our collaborative programs. The effectiveness of our collaborators
in marketing our products will also affect our revenues and earnings.
Our collaborators will also be required
to comply with the applicable regulatory requirements, and, as such, are subject to the same risks as we are. If they do not or
are not able to comply with these requirements, we may not be able to use the data generated through their studies to support
our future investigational or marketing applications. Collaborator noncompliance may also expose them and us to regulatory enforcement
actions.
No assurance can be given that we will be
able to successfully collaborate with our partners as anticipated and that our current or future collaborations and clinical trials
will be completed as contemplated, support the regulatory approval of our current product candidates, or result in any viable
additional product candidates. For instance, to the extent that these collaborators conduct their studies with manufacturing processes
that are different than ours or product that is different than ours, the results generated from their studies may not be seen
in our current or future studies that employ our manufacturing processes and the results generated from their studies may not
support approval of our product candidates.
If we are unable to obtain or maintain suitable
collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate,
reduce or delay its development program or one or more of our other development programs, delay its potential commercialization
or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization
activities at our own expense.
Development of a product candidate
intended for use in combination with an already approved product may present more or different challenges than development of
a product candidate for use as a single agent.
We are currently developing lifileucel and
LN-145 for use along with IL-2. We and our collaborators are also studying TIL therapy along with other products, such as pembrolizumab,
ipilimumab and nivolumab. The development of product candidates for use in combination with another product may present challenges.
For example, the FDA may require us to use more complex clinical trial designs, in order to evaluate the contribution of each
product and product candidate to any observed effects. It is possible that the results of these trials could show that any positive
results are attributable to the already approved product. Moreover, following product approval, the FDA may require that products
used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to already approved
products, this may require us to work with another company to satisfy such a requirement. Moreover, developments related to the
already approved products may impact our clinical trials for the combination as well as our commercial prospects should we receive
marketing approval. Such developments may include changes to the approved product’s safety or efficacy profile, changes
to the availability of the approved product, and changes to the standard of care.
A Fast Track product designation or
other designation to facilitate product candidate development may not lead to faster development or a faster regulatory review
or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.
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We were granted Fast Track designation by
the FDA for lifileucel in advanced melanoma and LN-145 for cervical cancer. We may seek Fast Track designation for other of our
current or future product candidates. Receipt of a designation to facilitate product candidate development is within the discretion
of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for a designation, the FDA may disagree.
In any event, the receipt of such a designation for a product candidate may not result in a faster development process, review,
or approval compared to product candidates considered for approval under conventional the FDA procedures and does not assure ultimate
marketing approval by the FDA. In addition, the FDA may later decide that the products no longer meet the designation conditions.
While lifileucel has received orphan
drug designation for melanoma stages IIB-IV and LN-145 has received orphan drug designation for cervical cancer patients with
tumors greater than 2 cm, there is no guarantee that we will be able to maintain this designation, receive these designations
for any of our other product candidates, or receive or maintain any corresponding benefits, including periods of exclusivity.
We received orphan drug designation in the
United States for lifileucel to treat malignant melanoma stages IIB-IV and LN-145 for cervical cancer patients with tumors greater
than 2 cm. We may also seek orphan drug designation for our other product candidates, as appropriate. Orphan designation, however,
may be lost if the indication for which we develop our designated product candidates do not meet the orphan criteria. Moreover,
following product approval, orphan exclusivity may be lost if the FDA determines, among other reasons, that the request for designation
was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients
with the rare disease or condition. Even if we obtain orphan exclusivity, that exclusivity may not effectively protect the product
from competition because different products can be approved for the same condition and the same product can be approved for different
conditions. Even after an orphan product is approved, the FDA can subsequently approve a product containing the same principal
molecular features for the same condition if the FDA concludes that the later product is clinically superior in that it is shown
to be safer or more effective or makes a major contribution to patient care.
Moreover, the FDA may grant orphan drug
designations to multiple of the same products for the same indication. If another sponsor receives FDA approval for an orphan
drug designated product that is the same as our product candidates and intended for the same indication before we do, we would
be prevented from launching our product in the United States for this indication for a period of at least 7 years.
In response to a court decision regarding
the plain meaning of the exclusivity provision of the Orphan Drug Act, the FDA may undertake a reevaluation of aspects of its
orphan drug regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies,
and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations
and policies, our business, financial condition, results of operations, and prospects could be harmed.
As a condition of approval, the FDA
may require that we implement various post-marketing requirements and conduct post-marketing studies, any of which would require
a substantial investment of time, effort, and money, and which may limit our commercial prospects.
As a condition of biologic licensing, the
FDA is authorized to require that sponsors of approved BLAs implement various post-market requirements, including REMS and Phase
4 studies. By example, when the FDA approved Novartis’ Kymriah in August 2017, a CAR-T cell therapy for the treatment of
patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia (ALL) that is refractory or in second or later
relapse, the FDA required significant post-marketing commitments, including a Phase 4 trial, revalidation of a test method, and
a substantial REMS program that included, among other requirements, the certification of hospitals and their associated clinics
that dispense Kymriah, which certification includes a number of requirements, the implementation of a Kymriah training program,
and limited distribution only to certified hospitals and their associated clinics. If we receive approval of our product candidates,
the FDA may determine that similar or additional post-approval requirements are necessary to ensure that our product candidates
are safe, pure, and potent. To the extent that we are required to establish and implement any post-approval requirements, we will
likely need to invest a significant amount of time, effort, and money. Such post-approval requirements may also limit the commercial
prospects of our product candidates.
We may be unable to establish effective
marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if they
are approved, and as a result, we may be unable to generate product revenues.
*
We currently have a small commercial team
focused on our commercial strategy, but we do not have commercial infrastructure for the marketing, sale, and distribution of
biopharmaceutical products. If approved, in order to commercialize our products, we must build our marketing, sales, and distribution
capabilities or make arrangements with third parties to perform these services, which will take time and require significant financial
expenditures and we may not be successful in doing so. Even if we are able to effectively establish a sales force and develop
a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing our current
or future product candidates. To the extent we rely on third parties to commercialize any products for which we obtain regulatory
approval, we would have less control over their sales efforts, and could be held liable if they failed to comply with applicable
legal or regulatory requirements.
We have no prior experience in the marketing,
sale, and distribution of biopharmaceutical products, and there are significant risks involved in the building and managing of
a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market
any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to
successfully develop this capability. We, or our collaborators, will have to compete with other pharmaceutical and biotechnology
companies to recruit, hire, train, manage, and retain marketing and sales personnel. In the event we are unable to develop a marketing
and sales infrastructure, we may not be able to commercialize our current or future product candidates, which would limit our
ability to generate product revenues. Factors that may inhibit our efforts to commercialize our current or future product candidates
and generate product revenues include:
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the
inability to recruit, train, manage, and retain adequate numbers of effective sales and
marketing personnel;
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the
inability of sales personnel to obtain access to physicians or persuade adequate numbers
of physicians to prescribe our current or future product candidates;
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our
inability to effectively oversee a geographically dispersed sales and marketing team;
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the
costs associated with training sales and marketing personnel on legal and regulatory
compliance matters and monitoring their actions;
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an
inability to secure adequate coverage and reimbursement by government and private health
plans;
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the
clinical indications for which the products are approved and the claims that we may make
for the products;
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limitations
or warnings, including distribution or use restrictions, contained in the products’
approved labeling;
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any
distribution and use restrictions imposed by the FDA or to which we agree as part of
a mandatory REMS or voluntary risk management plan;
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liability
for sales or marketing personnel who fail to comply with the applicable legal and regulatory
requirements;
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the
lack of complementary products to be offered by sales personnel, which may put us at
a competitive disadvantage relative to companies with more extensive product lines; and
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unforeseen
costs and expenses associated with creating an independent sales and marketing organization
or engaging a contract sales organization.
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If our product candidates do not achieve
broad market acceptance, the revenues that we generate from their sales will be limited.
We have never commercialized a product candidate
for any indication. Even if our product candidates are approved by the appropriate regulatory authorities for marketing and sale,
they may not gain acceptance among physicians, patients, third-party payors, and others in the medical community. If any product
candidate for which we obtain regulatory approval does not gain an adequate level of market acceptance, we may not generate significant
product revenues or become profitable. Market acceptance of our product candidates by the medical community, patients, and third-party
payors will depend on a number of factors, some of which are beyond our control. For example, physicians are often reluctant to
switch their patients and patients may be reluctant to switch from existing therapies even when new and potentially more effective
or safer treatments enter the market.
Efforts to educate the medical community
and third-party payors on the benefits of our product candidates may require significant resources and may not be successful.
If any of our product candidates is approved but does not achieve an adequate level of market acceptance, we may not generate
significant revenues and we may not become profitable. The degree of market acceptance of any of our product candidates will depend
on a number of factors, including:
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the
efficacy of our product candidates;
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the
prevalence and severity of adverse events associated with such product candidates;
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the
clinical indications for which the products are approved and the approved claims that
we may make for the products;
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limitations
or warnings contained in the Product’s FDA-approved labeling, including potential
limitations or warnings for such products that may be more restrictive than other competitive
products;
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changes
in the standard of care for the targeted indications for such product candidates;
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the
relative difficulty of administration of such product candidates;
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cost
of treatment versus economic and clinical benefit in relation to alternative treatments
or therapies;
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the
availability of adequate coverage or reimbursement by third parties, such as insurance
companies and other healthcare payors, and by government healthcare programs, including
Medicare and Medicaid;
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the
extent and strength of our marketing and distribution of such product candidates;
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the
safety, efficacy, and other potential advantages over, and availability of, alternative
treatments already used or that may later be approved for any of our intended indications;
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distribution
and use restrictions imposed by the FDA with respect to such product candidates or to
which we agree as part of a mandatory risk evaluation and mitigation strategy or voluntary
risk management plan;
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the
timing of market introduction of such product candidates, as well as competitive products;
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our
ability to offer such product candidates for sale at competitive prices;
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the
willingness of the target patient population to try new therapies and of physicians to
prescribe these therapies;
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the
extent and strength of our third-party manufacturer and supplier support;
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the
approval of other new products for the same indications;
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adverse
publicity about the product or favorable publicity about competitive products; and
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potential
product liability claims.
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Our efforts to educate the medical community
and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
Even if the medical community accepts that our product candidates are safe and effective for their approved indications, physicians
and patients may not immediately be receptive to such product candidates and may be slow to adopt them as an accepted treatment
of the approved indications. If our current or future product candidates are approved but do not achieve an adequate level of
acceptance among physicians, patients, and third-party payors, we may not generate meaningful revenues from our product candidates,
and we may not become profitable.
Our product candidates may face competition
sooner than anticipated.
The enactment of the Biologics Price Competition
and Innovation Act of 2009, or BPCIA, created an abbreviated pathway for the approval of biosimilar and interchangeable biological
products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics,
including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand
product. Under the BPCIA, the FDA cannot make an approval of an application for a biosimilar product effective until 12 years
after the original branded product was approved under a BLA. Certain changes, however, and supplements to an approved BLA, and
subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do
not qualify for the 12-year exclusivity period.
Our product candidates may qualify for the
BPCIA’s 12-year period of exclusivity. However, there is a risk that the FDA will not consider our product candidates to
be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated.
Additionally, this period of regulatory exclusivity does not block companies pursuing regulatory approval via their own traditional
BLA, rather than via the abbreviated pathway. Changes may also be made to this exclusivity period as a result of future legislation
as there has been ongoing efforts to reduce the period of exclusivity. Even if we receive a period of BPCIA exclusivity for our
first licensed product, if subsequent products do not include a modification to the structure of the product that impacts safety,
purity, or potency, we may not receive additional periods of exclusivity for those products. Moreover, the extent to which a biosimilar,
once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution
for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still
developing. Medicare Part B encourages use of biosimilars by paying the provider the same percentage of the reference product,
average sale price, or ASP as a mark-up, regardless of which product is reimbursed. It is also possible that payors will give
reimbursement preference to biosimilars even over reference biologics absent a determination of interchangeability.
We will need to obtain FDA approval
of any proposed branded product names, and any failure or delay associated with such approval may adversely affect our business.
Any name we intend to use for our product
candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S.
Patent and Trademark Office, or USPTO. The FDA typically conducts a review of proposed product names, including an evaluation
of the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately
implies medical claims or contributes to an overstatement of efficacy. If the FDA objects to any of our proposed product names,
we may be required to adopt alternative names for our product candidates. If we adopt alternative names, we would lose the benefit
of any existing trademark applications for such product candidate and may be required to expend significant additional resources
in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing
rights of third parties, and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark
in a timely manner or at all, which would limit our ability to commercialize our product candidates.
Our internal
computer systems, or those used by our contract research organizations or other contractors or consultants, may fail or suffer
security breaches.
Despite the implementation
of security measures, our internal computer systems and those of our contract research organizations and other contractors and
consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication
and electrical failures. If such an event was to occur and cause interruptions in our operations, it could result in a disruption
of our drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials for a
product candidate could result in delays in our regulatory approval efforts and significantly increase our costs to recover or
reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or
applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further
development of any product candidates could be delayed.
We are dependent
on information technology, systems, infrastructure and data.
We are dependent
upon information technology systems, infrastructure and data. The multitude and complexity of our computer systems make them inherently
vulnerable to service interruption or destruction, malicious intrusion and random attack. Likewise, data privacy or security breaches
by third parties, employees, contractors or others may pose a risk that sensitive data, including our intellectual property, trade
secrets or personal information of our employees, patients, or other business partners may be exposed to unauthorized persons
or to the public. Cyberattacks are increasing in their frequency, sophistication and intensity. Cyberattacks could include the
deployment of harmful malware, denial-of-service, social engineering and other means to affect service reliability and threaten
data confidentiality, integrity and availability. Our business and technology partners face similar risks and any security breach
of their systems could adversely affect our security posture. While we have invested, and continue to invest, in the protection
of our data and information technology infrastructure, there can be no assurance that our efforts, or the efforts of our partners
and vendors, will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business
and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business
or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims
related to security breaches, cyberattacks and other related breaches.
Our
failure to comply with international data protection laws and regulations could lead to government enforcement actions and
significant penalties against us, and adversely impact our operating results.
European Union, or EU, member states and
other foreign jurisdictions, including Switzerland, have adopted data protection laws and regulations which impose significant
compliance obligations on us. Moreover, the collection and use of personal health data in the EU, which was formerly governed
by the provisions of the EU Data Protection Directive, was replaced with the EU General Data Protection Regulation, or the GDPR,
in May 2018. The GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals
to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal
data, data breach notification and the use of third party processors in connection with the processing of personal data. The GDPR
also imposes strict rules on the transfer of personal data out of the EU to the U.S., provides an enforcement authority and imposes
large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues
of the noncompliant company, whichever is greater. The GDPR requirements apply not only to third-party transactions, but also
to transfers of information between us and our subsidiaries, including employee information. The recent implementation of the
GDPR has increased our responsibility and liability in relation to personal data that we process, including in clinical trials,
and we may in the future be required to put in place additional mechanisms to ensure compliance with the GDPR, which could divert
management’s attention and increase our cost of doing business. In addition, new regulation or legislative actions regarding
data privacy and security (together with applicable industry standards) may increase our costs of doing business. In this regard,
we expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy and data protection
in the United States, the EU and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards
may have on our business.
Our failure to
comply with state and/or national data protection laws and regulations could lead to government enforcement actions and significant
penalties against us, and adversely impact our operating results.
*
There are numerous other laws and legislative
and regulatory initiatives at the federal and state levels addressing privacy and security concerns, and some state privacy laws
apply more broadly than the Health Insurance Portability and Accountability Act (HIPAA) and associated regulations. For example,
California recently enacted legislation – the California Consumer Privacy Act, or CCPA – which goes into effect January
1, 2020. The CCPA, among other things, creates new data privacy obligations for covered companies and provides new privacy rights
to California residents, including the right to opt out of certain disclosures of their information. The CCPA also creates a private
right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data
breach. Legislators have stated that they intend to propose amendments to the CCPA before it goes into effect, and the California
Attorney General will issue clarifying regulations. Although the law includes limited exceptions, including for certain information
collected as part of clinical trials as specified in the law, it may regulate or impact our processing of personal information
depending on the context. It remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted.
We will need
to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
Our operations
are dependent upon the services of our executives and our employees who are engaged in research and development. The loss of the
services of our executive officers or senior research personnel could delay our product development programs and our research
and development efforts. In order to develop our business in accordance with our business plan, we will have to hire additional
qualified personnel, including in the areas of research, manufacturing, clinical trials management, regulatory affairs, and sales
and marketing. We are continuing our efforts to recruit and hire the necessary employees to support our planned operations in
the near term. However, competition for qualified employees among companies in the biotechnology and biopharmaceutical industry
is intense, and no assurance can be given that we will be able attract, hire, retain and motivate the highly skilled employees
that we need. Future growth will impose significant added responsibilities on members of management, including:
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identifying,
recruiting, integrating, maintaining, and motivating additional employees;
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managing
our internal development efforts effectively, including the clinical and FDA review process
for our product candidates, while complying with our contractual obligations to contractors
and other third parties; and
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improving
our operational, financial and management controls, reporting systems, and procedures.
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Our future financial
performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage
any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day
activities in order to devote a substantial amount of time to managing these growth activities. Our efforts to manage our growth
are complicated by the fact that nearly all of our executive officers have joined us since June 2016. This lack of long-term experience
working together may adversely impact our senior management team’s ability to effectively manage our business and growth.
We currently rely,
and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants
to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants
will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if
we are unable to effectively manage our outsourced activities or if the quality, compliance or accuracy of the services provided
by consultants is compromised for any reason, our clinical trials may be extended, delayed, or terminated, and we may not be able
to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will
be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable
terms, if at all.
If we are not able
to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may
not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly,
may not achieve our research, development, and commercialization goals on a timely basis, or at all.
If we engage
in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us
to incur debt or assume contingent liabilities, and subject us to other risks.
We may evaluate
various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property
rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:
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increased
operating expenses and cash requirements;
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the
assumption of additional indebtedness or contingent liabilities;
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the
issuance of our equity securities;
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assimilation
of operations, intellectual property and products of an acquired company or product,
including difficulties associated with integrating new personnel;
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the
diversion of our management’s attention from our existing product programs and
initiatives in pursuing such a strategic merger or acquisition;
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retention
of key employees, the loss of key personnel, and uncertainties in our ability to maintain
key business relationships;
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risks
and uncertainties associated with the other party to such a transaction, including the
prospects of that party and their existing products or product candidates and regulatory
approvals; and
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our
inability to generate revenue from acquired technology and/or products sufficient to
meet our objectives in undertaking the acquisition or even to offset the associated acquisition
and maintenance costs.
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Depending on the
size and nature of future strategic acquisitions, we may acquire assets or businesses that require us to raise additional capital
or to operate or manage businesses in which we have limited experience. Making larger acquisitions that require us to raise additional
capital to fund the acquisition will expose us to the risks associated with capital raising activities. Acquiring and thereafter
operating larger new businesses will also increase our management, operating and reporting costs and burdens. In addition, if
we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and
acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate
suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products
that may be important to the development of our business.
We may rely on third parties to perform
many essential services for any products that we commercialize, including services related to distribution, government price reporting,
customer service, accounts receivable management, cash collection, and adverse event reporting. If these third parties fail to
perform as expected or to comply with legal and regulatory requirements, our ability to commercialize our current or future product
candidates will be significantly impacted and we may be subject to regulatory sanctions.
We may retain third-party service providers
to perform a variety of functions related to the sale and distribution of our current or future product candidates, key aspects
of which will be out of our direct control. These service providers may provide key services related to distribution, customer
service, accounts receivable management, and cash collection. If we retain a service provider, we would substantially rely on
it as well as other third-party providers that perform services for us, including entrusting our inventories of products to their
care and handling. If these third-party service providers fail to comply with applicable laws and regulations, fail to meet expected
deadlines, or otherwise do not carry out their contractual duties to us, or encounter physical or natural damage at their facilities,
our ability to deliver product to meet commercial demand would be significantly impaired and we may be subject to regulatory enforcement
action.
In addition, we may engage third parties
to perform various other services for us relating to adverse event reporting, safety database management, fulfillment of requests
for medical information regarding our product candidates and related services. If the quality or accuracy of the data maintained
by these service providers is insufficient, or these third parties otherwise fail to comply with regulatory requirements related
to adverse event reporting, we could be subject to regulatory sanctions.
Additionally, we may contract with a third-party
to calculate and report pricing information mandated by various government programs. If a third party fails to timely report or
adjust prices as required or errs in calculating government pricing information from transactional data in our financial records,
it could impact our discount and rebate liability, and potentially subject us to regulatory sanctions or False Claims Act lawsuits.
The SEC has issued
an administrative order against us that may make it more difficult for us to raise capital in the future.
*
On April 10, 2017, the SEC issued an administrative
order that requires us to cease and desist from committing or causing any violations and any future violations of Sections 5(b),
17(a), and 17(b) of the Securities Act of 1933, as amended, or the Securities Act, and of Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 thereunder. The order was entered into as part of our settlement with the SEC in the investigation
titled
In the Matter of Certain Stock Promotions
. The SEC’s investigation, in part, involved the conduct of our former
Chief Executive Officer and director, Manish Singh, during the period between September 2013 and April 2014, and the failure by
authors of certain articles about our company to disclose that they were compensated by one of our former investor relations firms.
The foregoing order may negatively impact our reputation with current and future investors, will disqualify us from effecting
private placement transactions in reliance upon any of the exemptions from Securities Act registration afforded by Regulation
D, and will limit our ability to make certain communications in future public offerings. As a result, the SEC's order will make
it more difficult for us to raise capital in future private and public offerings. We currently anticipate that we will have to
raise additional capital in the future to fund our future research, development and commercialization efforts. Some of the limitations
placed on us as a result of the SEC administrative order relating to ineligibility for statutory safe harbors, including
under the Private Securities Litigation Reform Act, and limitations on our communications and status as an ineligible issuer under
Rule 405 of the Securities Act, are expected to end in 2020.
We are, and in
the future may be, subject to Federal or state securities or related legal actions that could adversely affect our results of
operations and our business.
*
Shortly after the SEC announced settlements
with us, with other public companies, and with unrelated parties in the
In the Matter of Certain Stock Promotions
investigation,
two securities class action complaints were filed in the U.S. District Court for the Northern District of California against our
company, Manish Singh, and two of our other former officers. On July 20, 2017, the plaintiff in one of the cases filed a notice
to voluntarily dismiss that case, and the court entered an order dismissing the complaint on July 21, 2017. On July 26, 2017,
the court appointed a movant as lead plaintiff. On September 8, 2017, the lead plaintiff, individually and on behalf of all others
similarly situated, filed an amended complaint seeking class action status in the United States District Court for the Northern
District of California (
Jay Rabkin v. Lion Biotechnologies, Inc., et al.,
case no. 3:17-cv-0286) against us, two of our
former officers, and the managing member of our former investor relations firm. The amended complaint alleges, among other things,
that the defendants violated various provisions of the Securities Exchange Act of 1934 by making materially false and misleading
statements, or by failing to make certain disclosures, regarding the actions taken by Manish Singh, our former Chief Executive
Officer and a former director, and our former investor relations firm that were the subject of the
In the Matter of Certain
Stock Promotions
SEC investigation. On February 5, 2018, the court entered an order dismissing two of plaintiff’s six
claims. As the result of mediation, on September 28, 2018, lead plaintiff filed an unopposed motion for settlement, the cost of
which, was expected to be borne by our insurance carrier and would result in no loss to us. The court gave preliminary approval
to the proposed settlement on November 30, 2018. A hearing was held on April 12, 2019 to determine whether the proposed settlement
was fair, reasonable, and adequate, and whether the claims should be dismissed. On April 17, 2019, the court approved the final
settlement, involving a payment of $3,250,000 by our insurance carrier to a settlement fund, awarded attorney’s fees and
costs to be paid to plaintiff’s counsel from the settlement fund, approved the plan of allocation for settlement class members,
and ordered that the claims against us should be dismissed with prejudice. The court retains jurisdiction over the parties and
class members in the case for the purposes of administration, interpretation, implementation, and enforcement of the settlement,
and related matters.
On December 15, 2017, a purported stockholder
derivative complaint was filed by plaintiff Kevin Fong was filed against us, as nominal defendant, and certain of our current
and former officers and directors, and others, as defendants, in the U.S. District Court for the District of Delaware (case no.
1:17-cv-1806). The complaint alleges breaches of fiduciary duties, unjust enrichment, and violations of Section 14(a) of the Securities
Exchange Act of 1934 and Rule 14a-9 promulgated thereunder arising from the SEC’s investigation in the
In the Matter
of Certain Stock Promotions
matter and our April 10, 2017 settlement thereof, and seeks unspecified damages on behalf of our
company and injunctive relief. On March 28, 2018, a purported stockholder derivative complaint was filed by plaintiff Nazeer Khaleeluddin
on behalf of the Company, against the Company, as nominal defendant, and certain of our current and former officers and directors,
and others, as defendants, in the U.S. District Court for the District of Delaware (case no. 1:18-cv-00469). The complaint alleges,
among other things, violations of securities law, breach of fiduciary duty, aiding and abetting, waste of corporate assets, and
unjust enrichment. The complaint is based on claims arising from the SEC’s investigation in the
In the Matter of Certain
Stock Promotions
investigation and our April 10, 2017 settlement thereof, and seeks unspecified damages on behalf of our company
and injunctive relief. We intend to vigorously defend against these complaints. However, based on the very early stage of the
litigation matters, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment
or a settlement of these matters. Furthermore, litigation is inherently uncertain, and there is no assurance as to the outcome
of these, or other future cases. We could incur substantial unreimbursed legal fees, settlements, judgments and other expenses
in connection with these, or other legal and regulatory proceedings that may not qualify for coverage under, or may exceed the
limits of, our applicable directors’ and officers’ liability insurance policies and could have a material adverse
effect on our financial condition, liquidity and results of operations. The currently pending cases also may distract the time
and attention of our officers and directors or divert our other resources away from our ongoing commercial and development programs.
An unfavorable outcome in these matters could damage our business and reputation or result in additional claims or proceedings
against us.
Risks Related to Government Regulation
The FDA regulatory approval process
is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of
our product candidates.
We have not previously submitted a BLA to
the FDA, or similar approval filings to comparable foreign authorities. A BLA must include extensive preclinical and clinical
data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication.
The BLA must also include significant information regarding the chemistry, manufacturing and controls for the product. We expect
the novel nature of our product candidates to create further challenges in obtaining regulatory approval. For example, the FDA
has limited experience with commercial development of cell therapies for cancer. We may also not be able to successfully utilize
the RMAT designation we have received for advanced melanoma to successfully complete the development and commercialization of
lifileucel. We may not be able to reach agreement with FDA on an interpretation of outcomes from our meetings, including meetings
we have held with FDA in relation to our C-144-01 clinical trial and future meetings. Accordingly, the regulatory approval pathway
for our product candidates may be uncertain, complex, expensive and lengthy, and approval may not be obtained.
We may also experience delays in completing
planned clinical trials for a variety of reasons, including delays related to:
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the availability of financial resources to commence
and complete the planned trials;
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reaching agreement on acceptable terms with
prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly
among different CROs and trial sites;
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obtaining approval at each clinical trial site
by an independent institutional review board, or IRB, or central IRB;
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recruiting suitable patients to participate
in a trial;
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having patients complete a trial or return for
post-treatment follow-up;
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clinical trial sites deviating from trial protocol
or dropping out of a trial;
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adding new clinical trial sites; or
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manufacturing sufficient quantities of qualified
materials under cGMPs and applying them on a subject by subject basis for use in clinical trials.
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We could also encounter delays if physicians
encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of
prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended
or terminated by us, the IRBs for the institutions in which such trials are being conducted by the FDA or other regulatory authorities,
or recommended for suspension or termination by DSMBs due to a number of factors, including failure to conduct the clinical trial
in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site
by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse
side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative
actions or lack of adequate funding to continue the clinical trial. If we experience termination of, or delays in the completion
of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our
ability to generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our
costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate
revenue.
Obtaining and maintaining regulatory
approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval
of our product candidates in other jurisdictions.
In order to market and sell our products
outside the United States, we or our third-party collaborators may be required to obtain separate marketing approvals and comply
with numerous and varying regulatory requirements. Obtaining and maintaining regulatory approval of our product candidates in
one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction,
while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval
process in others. Approval policies and requirements may vary among jurisdictions. For example, even if the FDA grants marketing
approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing,
marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve
requirements and administrative review periods different from, and greater than, those in the United States, including additional
preclinical studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities
in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement
before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is
also subject to approval. We or our collaborators may not be able to file for regulatory approval of our product candidates in
international jurisdictions or obtain approvals from regulatory authorities outside the United States on a timely basis, if at
all.
We may also submit marketing applications
in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product
candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance
with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent
the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international
markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market
potential of our product candidates will be harmed.
We are, and if we receive regulatory
approval of our product candidates, will continue to be subject to ongoing regulatory obligations and continued regulatory review,
which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements
or experience unanticipated problems with our product candidates.
Any regulatory approvals that we receive
for our product candidates will require surveillance to monitor the safety and efficacy of the product candidate. The FDA may
also require a REMS to approve our product candidates, which could entail requirements for a medication guide, physician communication
plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization
tools. The FDA may also require post-approval Phase 4 studies. Moreover, the FDA and comparable foreign regulatory authorities
will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory
authorities become aware of new safety information after approval of any of our product candidates, they may withdraw approval,
require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s
indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.
Any such restrictions could limit sales of the product.
In addition, we, our contractors, and our
collaborators are and will remain responsible for FDA compliance, including requirements related to product design, testing, clinical
and pre-clinical trials approval, manufacturing processes and quality, labeling, packaging, distribution, adverse event and deviation
reporting, storage, advertising, marketing, promotion, sale, import, export, submissions of safety and other post-marketing information
and reports such as deviation reports, registration, product listing, annual user fees, and recordkeeping for our product candidates.
We and any of our collaborators, including our contract manufacturers, could be subject to periodic unannounced inspections by
the FDA to monitor and ensure compliance with regulatory requirements. Application holders must further notify the FDA, and depending
on the nature of the change, obtain FDA pre-approval for product and manufacturing changes. The cost of compliance with post-approval
regulations may have a negative effect on our operating results and financial condition.
Later discovery of previously unknown problems
with our product candidates, including adverse events of unanticipated severity or frequency, that the product is less effective
than previously thought, problems with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory
requirements, may result in, among other things:
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restrictions on the marketing, distribution,
or manufacturing of our product candidates, withdrawal of the product from the market, or voluntary or mandatory product recalls;
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restrictions on the labeling of our product
candidates, including required additional warnings, such as black box warnings, contraindications, precautions, and restrictions
on the approved indication or use;
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modifications to promotional pieces;
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changes to product labeling or the way the product
is administered;
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liability for harm caused to patients or subjects;
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fines, restitution, disgorgement, warning letters,
untitled letters, cyber letters, or holds on or termination of clinical trials;
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refusal by the FDA to approve pending applications
or supplements to approved applications filed by us or suspension or revocation of license approvals;
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product seizure or detention, or refusal to
permit the import or export of our product candidates;
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injunctions or the imposition of civil or criminal
penalties, including imprisonment;
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FDA debarment, debarment from government contracts,
and refusal of future orders under existing contracts, exclusion from federal healthcare programs, consent decrees, or corporate
integrity agreements;
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regulatory authority issuance of safety alerts,
Dear Healthcare Provider letters, press releases, or other communications containing warnings or other safety information
about the biologic;
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reputational harm; or
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the product becoming less competitive.
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Any of these events could further have other
material and adverse effects on our operations and business and could adversely impact our stock price and could significantly
harm our business, financial condition, results of operations, and prospects.
The FDA’s and other regulatory authorities’
policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval
of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing
requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may
lose any marketing approval that we may have obtained, be subject to other regulatory enforcement action, and we may not achieve
or sustain profitability.
If we fail to comply with federal
and state healthcare and promotional laws, including fraud and abuse and information privacy and security laws, we could face
substantial penalties and our business, financial condition, results of operations, and prospects could be adversely affected.
As a biopharmaceutical company, we are subject
to many federal and state healthcare laws, including the federal AKS, the federal civil and criminal FCA, the civil monetary penalties
statute, the Medicaid Drug Rebate statute and other price reporting requirements, the Veterans Health Care Act of 1992, the federal
Health Insurance Portability and Accountability Act of 1996 (as amended by the Health Information Technology for Economics and
Clinical Health Act), the Foreign Corrupt Practices Act of 1977, the Patient Protection and Affordable Care Act of 2010, and similar
state laws. 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. If we do not comply with all applicable fraud and abuse laws, we may be subject
to healthcare fraud and abuse enforcement by both the federal government and the states in which we conduct our business.
Laws and regulations require calculation
and reporting of complex pricing information for prescription drugs, and compliance will require us to invest in significant resources
and develop a price reporting infrastructure, or depend on third parties to compute and report our drug pricing. Pricing reported
to CMS must be certified. Non-compliant activities expose us to FCA risk if they result in overcharging agencies, underpaying
rebates to agencies, or causing agencies to overpay providers.
If we or our operations are found to be
in violation of any federal or state healthcare law, or any other governmental regulations that apply to us, we may be subject
to penalties, including civil, criminal, and administrative penalties, damages, fines, disgorgement, debarment from government
contracts, refusal of orders under existing contracts, exclusion from participation in U.S. federal or state health care programs,
corporate integrity agreements, 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. If any of the physicians or other healthcare providers or
entities with whom we expect to do business, including our collaborators, is found not to be in compliance with applicable laws,
they may be subject to criminal, civil, or administrative sanctions, including but not limited to, exclusions from participation
in government healthcare programs, which could also materially affect our business.
In particular, if we are found to have impermissibly
promoted any of our product candidates, we may become subject to significant liability and government fines. We, and any of our
collaborators, must comply with requirements concerning advertising and promotion for any of our product candidates for which
we or they obtain marketing approval. Promotional communications with respect to therapeutics are subject to a variety of legal
and regulatory restrictions and continuing review by the FDA, Department of Justice, Department of Health and Human Services’
Office of Inspector General, state attorneys general, members of Congress, and the public. When the FDA or comparable foreign
regulatory authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific
uses and indications for which a product is approved. If we are not able to obtain FDA approval for desired uses or indications
for our products and product candidates, we may not market or promote our products for those indications and uses, referred to
as off-label uses, and our business may be adversely affected. We further must be able to sufficiently substantiate any claims
that we make for our products including claims comparing our products to other companies’ products and must abide by the
FDA's strict requirements regarding the content of promotion and advertising.
While physicians may choose to prescribe
products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical
studies and approved by the regulatory authorities, we are prohibited from marketing and promoting the products for indications
and uses that are not specifically approved by the FDA. These off-label uses are common across medical specialties and may constitute
an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the United States generally do not
restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine. Regulatory authorities
do, however, restrict communications by biopharmaceutical companies concerning off-label use.
The FDA and other agencies actively enforce
the laws and regulations regarding product promotion, particularly those prohibiting the promotion of off-label uses, and a company
that is found to have improperly promoted a product may be subject to significant sanctions. The federal government has levied
large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging
in off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which
specified promotional conduct is changed or curtailed. Thus, we and any of our collaborators will not be able to promote any products
we develop for indications or uses for which they are not approved.
In the United States, engaging in the impermissible
promotion of our products, following approval, for off-label uses can also subject us to false claims and other litigation under
federal and state statutes, including fraud and abuse and consumer protection laws, which can lead to civil and criminal penalties
and fines, agreements with governmental authorities that materially restrict the manner in which we promote or distribute therapeutic
products and do business through, for example, corporate integrity agreements, suspension or exclusion from participation in federal
and state healthcare programs, and debarment from government contracts and refusal of future orders under existing contracts.
These false claims statutes include the federal civil False Claims Act, which allows any individual to bring a lawsuit against
a biopharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims or causing others
to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government decides
to intervene and prevails in the lawsuit, the individual will share in the proceeds from any fines or settlement funds. If the
government declines to intervene, the individual may pursue the case alone. These False Claims Act lawsuits against manufacturers
of drugs and biologics have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements,
up to $3.0 billion, pertaining to certain sales practices and promoting off-label uses. In addition, False Claims Act lawsuits
may expose manufacturers to follow-on claims by private payors based on fraudulent marketing practices. This growth in litigation
has increased the risk that a biopharmaceutical company will have to defend a false claim action, pay settlement fines or restitution,
as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded
from Medicare, Medicaid, or other federal and state healthcare programs. If we or our future collaborators do not lawfully promote
our approved products, if any, we may become subject to such litigation and, if we do not successfully defend against such actions,
those actions may have a material adverse effect on our business, financial condition, results of operations and prospects.
Although an effective compliance program
can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated.
Moreover, achieving and sustaining compliance with applicable federal and state fraud laws may prove costly. 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 management’s attention from the operation of our business.
Coverage and reimbursement may be
limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our
product candidates profitably.
In both domestic and foreign markets, sales
of our product candidates, if approved, depend on the availability of coverage and adequate reimbursement from third-party payors.
Such third-party payors include government health programs such as Medicare and Medicaid, managed care providers, private health
insurers, and other organizations. In addition, because our product candidates represent new approaches to the treatment of cancer,
we cannot accurately estimate the potential revenue from our product candidates.
Patients who are provided medical treatment
for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment.
Obtaining coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial
payors is critical to new product acceptance.
Government authorities and third-party payors
decide which drugs and treatments they will cover and the amount of reimbursement. 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. If reimbursement is not available, or is available only to limited levels, our product
candidates may be competitively disadvantaged, and we, or our collaborators, may not be able to successfully commercialize our
product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or our
collaborators, to establish or maintain a market share sufficient to realize a sufficient return on our or their investments.
Alternatively, securing favorable reimbursement terms may require us to compromise pricing and prevent us from realizing an adequate
margin over cost. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the
third-party payor’s determination that use of a product is:
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a covered benefit under its health plan;
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safe, effective and medically necessary;
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appropriate for the specific patient;
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cost-effective; and
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neither experimental nor investigational.
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Obtaining coverage and reimbursement approval
of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide
to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. Even if we obtain coverage
for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability
or may require co-payments that patients find unacceptably high. Moreover, the factors noted above have continued to be the focus
of policy and regulatory debate that has, thus far, shown the potential for movement towards permanent policy changes; this trend
is apt to continue, and may result in more or less favorable impacts on pricing. Patients are unlikely to use our product candidates
unless coverage is provided, and reimbursement is adequate to cover a significant portion of the cost of our product candidates.
In the United States, no uniform policy
of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products
can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly
process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately,
with no assurance that coverage and adequate reimbursement will be obtained.
Prices paid for a drug also vary depending
on the class of trade. Prices charged to government customers are subject to price controls, including ceilings, and private institutions
obtain discounts through group purchasing organizations. Net prices for drugs may be further reduced by mandatory discounts or
rebates required by government healthcare programs and demanded by private payors. It is also not uncommon for market conditions
to warrant multiple discounts to different customers on the same unit, such as purchase discounts to institutional care providers
and rebates to the health plans that pay them, which reduces the net realization on the original sale. On January 31, 2019, the
U.S. Department of Health and Human Services issued a proposed rule aimed at eliminating certain AKS safe harbor protections for
drug rebates.
In addition, federal programs impose penalties
on manufacturers of drugs marketed under an NDA or BLA, in the form of mandatory additional rebates and/or discounts if commercial
prices increase at a rate greater than the Consumer Price Index-Urban, and these rebates and/or discounts, which can be substantial,
may impact our ability to raise commercial prices. Regulatory authorities and third-party payors have attempted to control costs
by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability or that of our
collaborators to sell our product candidates profitably. These payors may not view our products, if any, as cost-effective, and
coverage and reimbursement may not be available to our customers, or those of our collaborators, or may not be sufficient to allow
our products, if any, to be marketed on a competitive basis. Cost control initiatives could cause us, or our collaborators, to
decrease, discount, or rebate a portion of the price we, or they, might establish for products, which could result in lower than
anticipated product revenues. If the realized prices for our products, if any, decrease or if governmental and other third-party
payors do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer. Moreover, the
recent and ongoing series of congressional hearings relating to drug pricing has presented heightened attention to the biopharmaceutical
industry, creating the potential for political and public pressure, while the potential for resulting legislative or policy changes
presents uncertainty.
Assuming coverage is approved, the resulting
reimbursement payment rates might not be adequate. If payors subject our product candidates to maximum payment amounts or impose
limitations that make it difficult to obtain reimbursement, providers may choose to use therapies which are less expensive when
compared to our product candidates. Additionally, if payors require high copayments, beneficiaries may decline prescriptions and
seek alternative therapies. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any
future products to the satisfaction of hospitals and other target customers and their third-party payors. Such studies might require
us to commit a significant amount of management time and financial and other resources. Our future products might not ultimately
be considered cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain
price levels sufficient to realize an appropriate return on investment in product development.
Third-party payors, whether domestic or
foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In
addition, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies
and are challenging the prices charged. We, and our collaborators, cannot be sure that coverage will be available for any product
candidate that we, or they, commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement
for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs
from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and
adequate payment rates from both government-funded and private payors for any our product candidates for which we obtain marketing
approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products,
and our overall financial condition.
There have been, and likely will continue
to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare
and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing
efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain
or reduce costs of healthcare and/or impose price controls may adversely affect:
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the demand for our product candidates, if we
obtain regulatory approval;
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our ability to set a price that we believe is
fair for our products;
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our ability to generate revenue and achieve
or maintain profitability;
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the level of taxes that we are required to pay;
and
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the availability of capital.
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Any reduction in reimbursement from Medicare
or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our
future profitability. A particular challenge for our product candidates arises from the fact that they will primarily be used
in an inpatient setting. Inpatient reimbursement generally relies on stringent packaging rules that may mean that there is no
separate payment for our product candidates. Additionally, data used to set the payment rates for inpatient admissions is usually
several years old and would not take into account all of the additional therapy costs associated with the administration of our
product candidates. If special rules are not created for reimbursement for immunotherapy treatments such as our product candidates,
hospitals might not receive enough reimbursement to cover their costs of treatment, which will have a negative effect on their
adoption of our product candidates.
We are subject to new legislation,
regulatory proposals, and healthcare payor initiatives that may increase our costs of compliance, and adversely affect our ability
to market our products, obtain collaborators, and raise capital.
In the United States and some foreign jurisdictions,
there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could
prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities, and affect our ability,
or the ability of our collaborators, to profitably sell any products for which we obtain marketing approval. We expect that current
laws, 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, or our collaborators, may receive for any approved products.
Since enactment of the ACA in 2010, in both
the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health
care system that could impact our ability to sell our products profitably. In August 2011, the Budget Control Act of 2011, among
other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with
recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required
goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate
reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013 and were
to remain in effect until 2024. The Bipartisan Budget Act of 2015 extended the 2% sequestration to 2025. In January 2013, the
American Taxpayer Relief Act of 2012, or ATRA, was approved which, among other things, reduced Medicare payments to several providers,
with primary focus on the hospital outpatient setting and ancillary services, including hospitals, imaging centers and cancer
treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from
three to five years. On January 20, 2017, the new administration signed an Executive Order directing federal agencies with authorities
and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the
ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers
of pharmaceuticals or medical devices, and, for that reason, some final regulations have yet to take effect. In December 2017,
Congress repealed the individual mandate for health insurance required by the ACA and could consider further legislation to repeal
other elements of the ACA. At the end of 2017, CMS promulgated regulations that reduce the amount paid to hospitals for outpatient
drugs purchased under the 340B program, and some states have enacted transparency laws requiring manufacturers to report information
on drug prices and price increases. More recently, the United States District Court for the Northern District of Texas struck
down the ACA, deeming it unconstitutional given that Congress repealed the individual mandate in 2017. Although there is no immediate
impact on the ACA, we will continue to evaluate the effect that the ACA and its possible repeal and replacement, or potential
total revocation by the Supreme Court of the United States, has on our business.
Additional federal and state healthcare
reform measures may be adopted in the future that may result in more rigorous coverage criteria, increased regulatory burdens
and operating costs, decreased net revenue from our pharmaceutical products, decreased potential returns from our development
efforts, and additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from
Medicare or other government healthcare 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.
Legislative and regulatory proposals may
also be made to expand post-approval requirements and restrict sales and promotional activities for drugs. We cannot be sure whether
additional legislative changes will be enacted, or whether the FDA regulations, guidance, or interpretations will be changed,
or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased
scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject
us to more stringent product labeling and post-marketing testing and other requirements.
In addition, there have been a number of
other legislative and regulatory proposals aimed at changing the pharmaceutical industry. For instance, Congress recently introduced
a number of bipartisan bills, including the CREATES Act that is intended to reduce price and increase competitiveness in the pharmaceutical
industry, and the FLAT Prices Act that would introduce a prohibition on “large scale drug price increases.” As a result
of these and other new proposals, we may determine to change our current manner of operation, provide additional benefits, or
change our contract arrangements, any of which could have a material adverse effect on our business, financial condition, and
results of operations.
Governments outside the United States
tend to impose strict price controls, which may adversely affect our revenues, if any.
In international markets, reimbursement
and health care payment systems vary significantly by country, and many countries have instituted price ceilings on specific products
and therapies. In some countries, particularly the countries of the EU, the pricing of prescription pharmaceuticals is subject
to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after
the receipt of marketing approval for a product. To obtain coverage and reimbursement or pricing approval in some countries, we
may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.
There can be no assurance that our products will be considered cost-effective by third-party payors, that an adequate level of
reimbursement will be available, or that the third-party payors’ reimbursement policies will not adversely affect our ability
to sell our products profitably. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing
is set at unsatisfactory levels, our business could be harmed, possibly materially.
Our employees, independent contractors,
consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with
regulatory standards and requirements.
We are exposed to the risk of employee fraud
or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct
by these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the laws of the FDA and
other similar foreign regulatory bodies, provide true, complete and accurate information to the FDA and other similar foreign
regulatory bodies, comply with manufacturing standards we have established, comply with healthcare fraud and abuse laws in the
United States and similar foreign fraudulent misconduct laws, or report financial information or data accurately or to disclose
unauthorized activities to us. If we obtain FDA approval of any of our product candidates and begin commercializing those products
in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance
with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators
and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales
and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject
to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may
restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer
incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of
information obtained in the course of patient recruitment for clinical trials.
We have adopted a Code of Conduct and Ethics,
but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate
conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations
or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Efforts to ensure that our business
arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement
authorities will conclude that our, or our employees’, consultants’, collaborators’, contractors’, or
vendors’ business practices may not comply with current or future statutes, regulations or case law interpreting applicable
fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful
in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition
of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation
in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future
earnings, compliance agreements, withdrawal of product approvals, and curtailment of our operations, among other things, any of
which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and
commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents
of the healthcare laws mentioned above, among other foreign laws.
Risks Related to Our Intellectual Property
We may be involved in lawsuits to
protect or enforce our patents or the patents of our licensors, or lawsuits accusing our products of patent infringement, which
could be expensive, time-consuming and unsuccessful.
Competitors may infringe the patents of
our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive
and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more of our patents is not valid
or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do
not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our
patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk
of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be
a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us,
we may be enjoined from manufacturing, use, and marketing our products, or may have to pay substantial damages, including treble
damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign
our infringing products, which may be impossible or require substantial time and monetary expenditure.
Periodic maintenance fees on any issued
patent are due to be paid to the United States Patent and Trademark Office, or USPTO, and foreign patent agencies in several stages
over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with several procedural,
documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in
many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in
which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss
of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent
application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment
of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter
the market, which would have a material adverse effect on our business.
We may incur substantial costs as
a result of litigation or other proceedings relating to patent and other intellectual property rights.
The cost to us of any litigation or other
proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial. Some of our competitors
may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. If there
is litigation against us, we may not be able to continue our operations.
Should third parties file patent applications
or be issued patents claiming technology also used or claimed by us, we may be required to participate in interference proceedings
in the USPTO to determine priority of invention. We may be required to participate in interference proceedings involving our issued
patents and pending applications. We may be required to cease using the technology or to license rights from prevailing third
parties as a result of an unfavorable outcome in an interference proceeding. A prevailing party in that case may not offer us
a license on commercially acceptable terms.
Issued patents covering our product
candidates could be found invalid or unenforceable if challenged in court or the USPTO.
If we or one of our licensing partners initiate
legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim
that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United
States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon
which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before
administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination,
post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could
result in revocation or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following
legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot
be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during
prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least
part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material
adverse impact on our business.
If we are unable to protect our proprietary
rights, we may not be able to compete effectively or operate profitably.
Our success is dependent in part on maintaining
and enforcing the patents and other proprietary rights that we have licensed and may develop, and on our ability to avoid infringing
the proprietary rights of others. Certain of our intellectual property rights are licensed from another entity, and as such the
preparation and prosecution of these patents and patent applications was not performed by us or under our control. Furthermore,
patent law relating to the scope of claims in the biotechnology field in which we operate is still evolving and, consequently,
patent positions in our industry may not be as strong as in other more well-established fields. The patent positions of biotechnology
companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain
unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date.
The issuance of a patent is not conclusive
as to its validity or enforceability and it is uncertain how much protection, if any, will be given to the patents we have licensed
from the NIH, Moffitt, PolyBioCept, or MDACC if any of these parties, or we, attempt to enforce the patents and/or if they are
challenged in court or in other proceedings, such as oppositions, which may be brought in foreign jurisdictions to challenge the
validity of a patent. A third party may challenge the validity or enforceability of a patent after its issuance by the Patent
Office. It is possible that a competitor may successfully challenge our patents or that a challenge will result in limiting their
coverage. Moreover, the cost of litigation to uphold the validity of patents and to prevent infringement can be substantial. If
the outcome of litigation is adverse to us, third parties may be able to use our patented invention without payment to us. Moreover,
it is possible that competitors may infringe our patents or successfully avoid the patented technology through design innovation.
To stop these activities, we may need to file a lawsuit. These lawsuits are expensive and would consume time and other resources,
even if we were successful in stopping the violation of our patent rights. In addition, there is a risk that a court would decide
that our patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also
the risk that, even if the validity of our patents were upheld, a court would refuse to stop the other party on the grounds that
its activities are not covered by, that is, do not infringe, our patents.
Should third parties file patent applications,
or be issued patents claiming technology also used or claimed by our licensor(s) or by us in any future patent application, we
may be required to participate in interference proceedings in the USPTO to determine priority of invention for those patents or
patent applications that are subject to the first-to-invent law in the United States, or may be required to participate in derivation
proceedings in the USPTO for those patents or patent applications that are subject to the first-inventor-to-file law in the United
States. We may be required to participate in such interference or derivation proceedings involving our issued patents and pending
applications. We may be required to cease using the technology or to license rights from prevailing third parties as a result
of an unfavorable outcome in an interference proceeding or derivation proceeding. A prevailing party in that case may not offer
us a license on commercially acceptable terms.
We cannot prevent other companies
from licensing most of the same intellectual properties that we have licensed or from otherwise duplicating our business model
and operations.
Certain intellectual properties that we
are using to develop TIL-based cancer therapy products were licensed to us by the NIH. The issued or pending patents that the
NIH licensed to us are exclusive, and specific with respect to melanoma, breast, HPV-associated, bladder and lung cancers. No
assurance can be given that the NIH has not previously licensed, or that the NIH hereafter will not license to other biotechnology
companies some or all of the non-exclusive technologies available to us under the NIH License Agreement. In addition, one pending
U.S. patent application in the NIH License Agreement is not owned solely by the NIH. No assurance can be given that NIH’s
co-owner of the certain pending U.S. patent application in the NIH License Agreement has not previously licensed, or that the
co-owner thereafter will not license, to other biotechnology companies some or all of the technologies available to us. Co-ownership
of these intellectual properties will create issues with respect to our ability to enforce the intellectual property rights in
courts, and will create issues with respect to the accountability of one entity with respect to the other.
Since the NCI, Moffitt, MDACC, and others
already use TIL therapy for the treatment of metastatic melanoma and other indications, their methods and data are also available
to third parties, who may want to enter into our line of business and compete against us. Other than the Gen 2 manufacturing process,
we currently do not own any exclusive rights on our entire product portfolio that could be used to prevent third parties from
duplicating our business plan or from otherwise directly competing against us. While additional technologies that may be developed
under our CRADA may be licensed to us on an exclusive basis, no assurance can be given that our existing exclusive rights and
will be sufficient to prevent others from competing with us and developing substantially similar products.
The use of our technologies could
potentially conflict with the rights of others.
Our potential competitors or others may
have or acquire patent rights that they could enforce against us. If they do so, then we may be required to alter our products,
pay licensing fees or cease activities. If our products conflict with patent rights of others, third parties could bring legal
actions against us or our collaborators, licensees, suppliers or customers, claiming damages and seeking to enjoin manufacturing,
use and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for
damages (including treble damages and attorneys’ fees for willful infringement), we could be required to obtain a license
to continue manufacturing, promoting the use or marketing the affected products. We may not prevail in any legal action and a
required license under the patent may not be available on acceptable terms or at all.
We have conducted an extensive freedom-to-operate,
or FTO, analyses of the patent landscape with respect to our lead product candidates. Although we continue to undertake FTO analyses
of our manufacturing processes, our lead TIL products, and contemplated future processes and products, because patent applications
do not publish for 18 months, and because the claims of patent applications can change over time, no FTO analysis can be considered
exhaustive. Furthermore, patent and other intellectual property rights in biotechnology remains an evolving area with many risks
and uncertainties. As such, we may not be able to ensure that we can market our product candidates without conflict with the rights
of others.
Changes in U.S. patent law could diminish
the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical
companies, our success is dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical
industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In
addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent
U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights
of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in
the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending
on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change
in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that
we might obtain in the future. While we do not believe that any of the patents owned or licensed by us will be found invalid based
on this decision, we cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of
our patents.
We have limited foreign intellectual
property rights and may not be able to protect our intellectual property rights throughout the world.
We have limited intellectual property rights
outside the United States. Filing, prosecuting and defending patents on product candidates in all countries throughout the world
would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less
extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property
rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties
from practicing our inventions in all countries outside the United States, or from selling or importing products made using our
inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we
have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories
where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with
our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property
protection, particularly those relating to biopharmaceutical products, which could make it difficult for us to stop the infringement
of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects
of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk
of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate,
and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our
intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
We may be subject to claims that our
employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have received confidential and proprietary
information from third parties and our employees and contractors. In addition, we employ individuals who were previously employed
at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent
contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’
former employers. Litigation may be necessary to defend against or pursue these claims. For example, we are currently engaged
in litigation involving counterclaims that we have brought relating to theft of certain of our trade secrets, breach of confidentiality,
and related counterclaims. Even if we are successful in resolving these claims, litigation could result in substantial cost and
be a distraction to our management and employees.
Risks Related to Our Securities
Our existing directors and executive
officers hold a substantial amount of our common stock and may be able to influence significant corporate decisions.
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As of March 31, 2019, our officers and
directors beneficially owned approximately 7.7% of our outstanding common stock. These stockholders, if they act together, may
be able to materially affect the outcome of matters presented to our stockholders, including the election of our directors and
other corporate actions such as:
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a merger with or into
another company;
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a sale of substantially all of our assets; and
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amendments to our certificate of incorporation.
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Additionally, the decisions of these stockholders
may conflict with our interests or those of our other stockholders and the market price of our stock may be adversely affected
by market volatility.
Our stock price may be volatile, and our
stockholders' investment in our stock could decline in value.
The market price of our common stock is
likely to be volatile and could fluctuate widely in response to many factors, including but not limited to:
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announcements of
the results of clinical trials by us, our collaborators, or our competitors, or negative developments with respect to similar
products, including those being developed by our collaborators;
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developments with
respect to patents or proprietary rights;
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announcements of
technological innovations by us or our competitors;
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announcements of
new products or new contracts by us or our competitors;
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actual or anticipated
variations in our operating results due to the level of development expenses and other factors;
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changes in financial
estimates by securities analysts and whether our earnings meet or exceed such estimates;
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conditions and trends
in the pharmaceutical, biotechnology and other industries;
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receipt, or lack
of receipt, of funding in support of conducing our business;
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regulatory developments
within, and outside of, the United States;
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litigation or arbitration;
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general volatility
in the financial markets;
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general economic,
political and market conditions and other factors; and
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the occurrence of
any of the risks described in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K filed with the SEC on February
28, 2019.
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You may experience future dilution
as a result of future equity offerings or other equity issuances.
We will have to raise additional capital
in the future. To raise additional capital, we may in the future offer additional shares of our common stock or other securities
convertible into or exchangeable for our common stock at prices that may be lower than the current price per share of our common
stock. In addition, investors purchasing shares or other securities in the future could have rights superior to existing stockholders.
The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common
stock, in future transactions may be higher or lower than the price per share paid by investors in prior offerings. Any such issuance
could result in substantial dilution to our existing stockholders.
Future sales of our common stock
in the public market could cause our stock price to fall.
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Our stock price could decline as a result
of sales of a large number of shares of our common stock or the perception that these sales could occur. These sales, or the possibility
that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at
a price that we deem appropriate.
As of March 31, 2019, we had 123,395,113
shares of common stock outstanding. In addition, we had 15,284,103 shares of common stock equivalents that would increase the
number of common stock outstanding if these instruments were exercised or converted, including stock options and restricted stock
units to purchase common stock based on vesting requirements, warrants to purchase common stock and common stock issuable upon
the conversion of preferred stock. The issuance and subsequent sale of the shares underlying these common stock equivalents could
depress the trading price of our common stock.
In addition, in the future, we may issue
additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing,
acquisition, litigation settlement, employee arrangements or otherwise. For example, in January 2018 and October 2018, we issued
15,000,000 shares and 25,300,000 shares of common stock, respectively, in connection with underwritten public offerings. Such
issuances could result in substantial dilution to our existing stockholders and could cause our stock price to decline.
If securities or industry analysts
do not publish research or reports about our company, or if they issue adverse or misleading opinions regarding us or our stock,
our stock price and trading volume could decline.
Although we have research coverage by securities
and industry analysts, if coverage is not maintained, the market price for our stock may be adversely affected. Our stock price
also may decline if any analyst who covers us issues an adverse or erroneous opinion regarding us, our business model, our intellectual
property or our stock performance, or if our clinical trials and operating results fail to meet analysts’ expectations.
If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which could cause our stock price or trading volume to decline and possibly adversely affect our ability to engage in
future financings
If we fail to maintain an effective
system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result,
we could become subject to sanctions or investigations by regulatory authorities and/or stockholder litigation, which could harm
our business and have an adverse effect on our stock price.
As a public reporting company, we are subject
to various regulatory requirements, including the Sarbanes-Oxley Act of 2002, which requires our management to assess and report
on our internal controls over financial reporting. Nevertheless, in future years, our testing, or the subsequent testing by our
independent registered public accounting firm, may reveal deficiencies in our internal controls that we would be required to remediate
in a timely manner to be able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we are not
able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year, we could be subject to sanctions or investigations
by the SEC, Nasdaq or other regulatory authorities which would require additional financial and management resources and could
adversely affect the market price of our common stock. In addition, material weaknesses in our internal controls could result
in a loss of investor confidence in our financial reports.
Our Board of Directors could issue
one or more additional series of preferred stock without stockholder approval with the effect of diluting existing stockholders
and impairing their voting and other rights.
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Our certificate of incorporation, as amended,
authorizes the issuance of up to 50,000,000 shares of “blank check” preferred stock (of which only 17,000 shares were
issued as Series A Convertible Preferred Stock and 11,500,000 shares were issued as Series B Convertible Preferred Stock) with
designations, rights and preferences as may be determined from time to time by our Board of Directors. Our Board of Directors
is empowered, without stockholder approval, to issue one or more series of preferred stock with dividend, liquidation, conversion,
voting or other rights which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance
of a series of preferred stock could be used as a method of discouraging, delaying or preventing a change in control. For example,
it would be possible for our Board of Directors to issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to effect a change in control of our company.
We do not anticipate paying cash
dividends for the foreseeable future, and therefore investors should not buy our stock if they wish to receive cash dividends.
We have never declared or paid any cash
dividends or distributions on our common stock. We currently intend to retain our future earnings to support operations and to
finance expansion and, therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Provisions in our corporate charter
documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts
to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.
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There are provisions in our certificate
of incorporation, as amended, and amended and restated bylaws that may make it difficult for a third party to acquire, or attempt
to acquire, control of our company, even if a change in control was considered favorable by you and other stockholders. For example,
our Board of Directors will have the authority to issue up to 50,000,000 shares of preferred stock and to fix the price, rights,
preferences, privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance
of shares of preferred stock may delay or prevent a change in control transaction. As a result, the market price of our common
stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock
may result in the loss of voting control to other stockholders.
In addition, we are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions by prohibiting
Delaware corporations from engaging in specified business combinations with particular stockholders of those companies. These
provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could
also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be
in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing
to pay for our stock.
Our certificate of incorporation
designates the state or federal courts located in the State of Delaware as the sole and exclusive forum for certain types of actions
and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers or employees.
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Our certificate of incorporation, as amended,
provides that, subject to limited exceptions, the state and federal courts located in the State of Delaware will be the sole and
exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach
of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting
a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation
or our amended bylaws, or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice
of and to have consented to the provisions of our certificate of incorporation described above. This choice of forum provision
may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our
directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and employees.
Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable
in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving
such matters in other jurisdictions, which could adversely affect our business and financial condition.
We may be subject to claims for rescission
or damages in connection with certain sales of shares of our common stock in the open market.
In January 2014, the SEC declared effective
a registration statement that we filed to cover the resale of shares issued and sold (or to be issued and sold) by certain selling
stockholders. On March 11, 2016, that registration statement (and the prospectus contained therein) became ineligible for future
use, and selling stockholders could no longer sell any shares of our common stock in open market transactions by means of that
prospectus. We believe that certain stockholders did sell up to 128,500 shares of our common stock in open market transactions
in May 2016 by means of the ineffective registration statement. Accordingly, those sales were not made in accordance with Sections
5 and 10(a)(3) of the Securities Act, and the purchasers of those shares may have rescission rights (if they still own the shares)
or claims for damages (if they no longer own the shares). In addition, we also may have indemnification obligations to the selling
stockholders. The amount of any such liability is uncertain.
In connection with our reincorporation
from Nevada to Delaware in 2017, we (as a Delaware corporation) untimely filed a post-effective amendment to adopt a Form S-8
registration statement that we filed (as a Nevada corporation) to register the shares underlying our2011 Equity Incentive Plan.
Before we filed the required post-effective amendment, options to purchase 200,000 shares were exercised under the 2011 Equity
Incentive Plan. The effect of the delayed post-effective amendment filing on the 200,000 option shares is uncertain, but the issuance
and sale of the shares may not have been in compliance with the Form S-8 registration statement. The existence of any liability
to us, and the amount of any such liability to us, as a result of the issuance of the 200,000 shares is uncertain. Accordingly,
no accrual for a potential claim has been made in our financial statements.