Item 1A. Risk Factors
The following information sets forth
risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we have
made in this report and those we may make from time to time. You should carefully consider the risks described below. Our business,
financial condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below
are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant
risks to our business at this time also may impair our business operations.
Risks Related to Our Business and Industry
We currently have no products for
sale. We are heavily dependent on the success of our product candidates, and we cannot give any assurances that any of our product
candidates will receive regulatory approval or be successfully commercialized.
To date, we have invested a significant
portion of our efforts and financial resources in the acquisition and development of our product candidates. We have not demonstrated
our ability to perform the functions necessary for the successful acquisition, development or commercialization of the technologies
we are seeking to develop. As an early stage company, we have limited experience and have not yet demonstrated an ability to successfully
overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly
in the biopharmaceutical area. Our future success is substantially dependent on our ability to successfully develop, obtain regulatory
approval for, and then successfully commercialize such product candidates. Our product candidates are currently in preclinical
development or in early stage clinical trials. Our business depends entirely on the successful development and commercialization
of our product candidates, which may never occur. We currently generate no revenues from sales of any products, and we may never
be able to develop or commercialize a marketable product.
The successful development, and any commercialization,
of our technologies and any product candidates would require us to successfully perform a variety of functions, including:
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developing
our technology platform;
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identifying,
developing, manufacturing and commercializing product candidates;
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entering
into successful licensing and other arrangements with product development partners;
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participating
in regulatory approval processes;
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formulating
and manufacturing products;
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obtaining
sufficient quantities of our product candidates from our third-party manufacturers as
required to meet clinical trial needs and commercial demand at launch and thereafter;
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establishing
and maintaining agreements with wholesalers, distributors and group purchasing organizations
on commercially reasonable terms;
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conducting
sales and marketing activities including hiring, training, deploying and supporting our
sales force and creating market demand for our product candidates through our own marketing
and sales activities, and any other arrangements to promote our product candidates that
we may later establish; and
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maintaining
patent protection and regulatory exclusivity for our product candidates.
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Our operations have been limited to organizing
our company, acquiring, developing and securing our proprietary technology and identifying and obtaining preclinical data or clinical
data for various product candidates. These operations provide a limited basis for you to assess our ability to continue to develop
our technology, identify product candidates, develop and commercialize any product candidates we are able to identify and enter
into successful collaborative arrangements with other companies, as well as for you to assess the advisability of investing in
our securities. Each of these requirements will require substantial time, effort and financial resources.
Each of our product candidates will require
additional preclinical and clinical development, management of preclinical, clinical and manufacturing activities, regulatory
approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, and significant marketing
efforts before we generate any revenues from product sales. 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.
Delays in clinical testing could
result in increased costs to us and delay our ability to generate revenue.
Although we are planning for certain clinical
trials relating to our product candidates, there can be no assurance that the FDA will accept our proposed trial designs. We may
experience delays in our clinical trials and we do not know whether planned clinical trials will begin on time, need to be redesigned,
enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including
delays related to:
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obtaining
regulatory approval to commence a trial;
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reaching
agreement on acceptable terms with prospective contract research organizations, or 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
institutional review board, or IRB, approval at each site;
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recruiting
suitable patients to participate in a trial;
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clinical
sites deviating from trial protocol or dropping out of a trial;
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having
patients complete a trial or return for post-treatment follow-up;
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developing
and validating companion diagnostics on a timely basis, if required;
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adding
new clinical trial sites; or
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manufacturing
sufficient quantities of product candidate for use in clinical trials.
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Patient enrollment, a significant factor
in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity
of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials
and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to
other available therapies, including any new drugs that may be approved for the indications we are investigating. Furthermore,
we intend to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and we intend
to have agreements governing their committed activities; however, we will have limited influence over their actual performance.
We could encounter delays if a clinical
trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data
Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may impose such
a suspension or termination 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 drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue
the clinical trial.
If we experience delays in the completion
of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be
harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays
in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and
jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial
condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or
completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
We may not receive regulatory approval for our product
candidates, or their approval may be further delayed, which would have a material adverse effect on our business and financial
condition.
Our product candidates and the activities
associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping,
labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA
and other regulatory agencies in the US and by the European Medicines Agency and similar regulatory authorities outside the US.
Failure to obtain marketing approval for one or more of our product candidates or any future product candidate will prevent us
from commercializing the product candidate. We have not received approval to market any of our product candidates from regulatory
authorities in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing
approvals and expect to rely on third-party contract research organizations to assist us in this process. 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 and efficacy. Securing marketing approval also requires
the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory
authorities. One or more of our product candidates or any future product candidate may not be effective, may be only moderately
effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our
obtaining marketing approval or prevent or limit commercial use. If any of our product candidates or any future product candidate
receives marketing approval, the accompanying label may limit the approved use of our drug in this way, which could limit sales
of the product.
The process of obtaining marketing approvals,
both in the United States and abroad, is expensive, may take many years if approval is obtained at all, and can vary substantially
based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing
approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes
in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. Regulatory
authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our
data is insufficient for approval and require additional preclinical studies or clinical trials. In addition, varying interpretations
of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate.
Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render
the approved product not commercially viable.
If we experience delays in obtaining approval
or if we fail to obtain approval of one or more of our product candidates or any future product candidate, the commercial prospects
for our product candidates may be harmed and our ability to generate revenue will be materially impaired.
In addition, even if we were to obtain
approval, regulatory authorities may approve any of our product candidates or any future product candidate for fewer or more limited
indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on
the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include
the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of these scenarios
could compromise the commercial prospects for one or more of our product candidates or any future product candidate.
Moreover, in all interactions with regulatory
authorities, we are exposed to liability risks under the Foreign Corrupt Practices Act or similar anti-bribery laws.
If any of our product candidates
is approved and we or our contract manufacturer(s) fail to produce the product in the volumes that we require on a timely basis,
or fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the commercialization
of our product candidates or be unable to meet market demand, and may lose potential revenues.
The manufacture of pharmaceutical products
requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process
controls, and the use of specialized processing equipment. We may enter into development and supply agreements with contract manufacturers
for the completion of pre-commercialization manufacturing development activities and the manufacture of commercial supplies for
one or more of our product candidates. Any termination or disruption of our relationships with our contract manufacturers may
materially harm our business and financial condition and frustrate any commercialization efforts for each respective product candidate.
All of our contract manufacturers must
comply with strictly enforced federal, state and foreign regulations, including cGMP requirements enforced by the FDA through
its facilities inspection program, and we have little control over their compliance with these regulations. Any failure to comply
with applicable regulations may result in fines and civil penalties, suspension of production, suspension or delay in product
approval, product seizure or recall, or withdrawal of product approval, and would limit the availability of our product and customer
confidence in our product. Any manufacturing defect or error discovered after products have been produced and distributed could
result in even more significant consequences, including costly recall procedures, re-stocking costs, damage to our reputation
and potential for product liability claims.
If the commercial manufacturers upon whom we may rely
to manufacture one or more of our product candidates, and any future product candidate we may in-license, fail to deliver the
required commercial quantities on a timely basis at commercially reasonable prices, we would likely be unable to meet demand for
our products and we would lose potential revenues.
Our approach to the discovery and
development of our product candidates is unproven, and we do not know whether we will be able to develop any products of commercial
value.
Our products candidates are emerging technologies
and, consequently, it is conceivable that such technologies may ultimately fail to identify commercially viable drugs to treat
human patients with cancer or other diseases.
If serious adverse or unacceptable
side effects are identified during the development of one or more of our product candidates or any future product candidate, we
may need to abandon or limit our development of some of our product candidates.
If one or more of our product candidates
or any future product candidate are associated with undesirable side effects in clinical trials or have characteristics that are
unexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the undesirable
side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In our
industry, many compounds that initially showed promise in early stage testing have later been found to cause serious side effects
that prevented further development of the compound. In the event that our clinical trials reveal a high or unacceptable severity
and prevalence of side effects, our trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities
could order us to cease further development or deny approval of one or more of our product candidates or any future product candidate
for any or all targeted indications. The FDA could also issue a letter requesting additional data or information prior to making
a final decision regarding whether or not to approve a product candidate. The number of requests for additional data or information
issued by the FDA in recent years has increased and has resulted in substantial delays in the approval of several new drugs. Undesirable
side effects caused by one or more of our product candidates or any future product candidate could also result in the inclusion
of unfavorable information in our product labeling, denial of regulatory approval by the FDA or other regulatory authorities for
any or all targeted indications, and in turn prevent us from commercializing and generating market acceptance and revenues from
the sale of that product candidate. Drug-related side effects could affect patient recruitment or the ability of enrolled patients
to complete the trial and could result in potential product liability claims.
Additionally, if one or more of our product
candidates or any future product candidate receives marketing approval and we or others later identify undesirable side effects
caused by this product, a number of potentially significant negative consequences could result, including:
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regulatory
authorities may require the addition of unfavorable labeling statements, specific warnings
or a contraindication;
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regulatory
authorities may suspend or withdraw their approval of the product, or require it to be
removed from the market;
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we
may be required to change the way the product is administered, conduct additional clinical
trials or change the labeling of the product; or
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our
reputation may suffer.
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Any of these events could prevent us from
achieving or maintaining market acceptance of any of our product candidates or any future product candidate or could substantially
increase our commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues
from its sale.
Even if one or more of our product
candidates receives regulatory approval, it and any other products we may market will remain subject to substantial regulatory
scrutiny.
One or more of our product candidates
that we may license or acquire will also be subject to ongoing requirements and review of the FDA and other regulatory authorities.
These requirements include labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other
post-market information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality
control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of
samples to physicians and recordkeeping of the drug, and requirements regarding our presentations to and interactions with health
care professionals.
The FDA may also impose requirements for
costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. The FDA closely
regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and
in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications
regarding off-label use and if we do not market our products for only their approved indications, we may be subject to enforcement
action for off-label marketing. Violations of the FDCA relating to the promotion of prescription drugs may lead to investigations
alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, later
discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes,
or failure to comply with regulatory requirements, may yield various results, including:
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restrictions
on such products, operations, manufacturers or manufacturing processes;
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restrictions
on the labeling or marketing of a product;
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restrictions
on product distribution or use;
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requirements
to conduct post-marketing studies or clinical trials;
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withdrawal
of the products from the market;
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refusal
to approve pending applications or supplements to approved applications that we submit;
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fines,
restitution or disgorgement of profits;
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suspension
or withdrawal of marketing or regulatory approvals;
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suspension
of any ongoing clinical trials;
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refusal
to permit the import or export of our products;
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injunctions
or the imposition of civil or criminal penalties.
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The FDA’s policies may change, and
additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates.
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.
We will need to obtain FDA approval
of any proposed product brand names, and any failure or delay associated with such approval may adversely impact our business.
A pharmaceutical product cannot be marketed
in the US or other countries until we have completed a rigorous and extensive regulatory review processes, including approval
of a brand name. Any brand names 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 US Patent and Trademark Office (PTO). The FDA typically conducts
a review of proposed product brand names, including an evaluation of potential for confusion with other product names. The FDA
may also object to a product brand name if it believes the name inappropriately implies medical claims. If the FDA objects to
any of our proposed product brand names, we may be required to adopt an alternative brand name for our product candidates. If
we adopt an alternative brand name, we would lose the benefit of our existing trademark applications for such product candidate
and may be required to expend significant additional resources in an effort to identify a suitable product brand 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 current and future relationships
with customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable
anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws
and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative
burdens and diminished profits and future earnings.
Healthcare providers, physicians and third-party
payors in the US and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which
we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable
fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and
the federal False Claims Act, which may constrain the business or financial arrangements and relationships through which we sell,
market and distribute any product candidates for which we obtain marketing approval. In addition, we may be subject to transparency
laws and patient privacy regulation by the federal and state governments and by governments in foreign jurisdictions in which
we conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability
to operate include, but are not necessarily limited to:
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the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly
and willfully soliciting, offering, receiving or providing remuneration, directly or
indirectly, in cash or in kind, to induce or reward, or in return for, either the referral
of an individual for, or the purchase, order or recommendation of, any good or service,
for which payment may be made under federal and state healthcare programs, such as Medicare
and Medicaid;
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federal
civil and criminal false claims laws and civil monetary penalty laws, including the federal
False Claims Act, which impose criminal and civil penalties, including civil whistleblower
or
qui tam
actions, against individuals or entities for knowingly presenting,
or causing to be presented, to the federal government, including the Medicare and Medicaid
programs, claims for payment that are false or fraudulent or making a false statement
to avoid, decrease or conceal an obligation to pay money to the federal government; the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which
imposes criminal and civil liability for executing a scheme to defraud any healthcare
benefit program or making false statements relating to healthcare matters;
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HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act
of 2009, or HITECH, and their respective implementing regulations, which impose obligations
on covered healthcare providers, health plans, and healthcare clearinghouses, as well
as their business associates that create, receive, maintain or transmit individually
identifiable health information for or on behalf of a covered entity, with respect to
safeguarding the privacy, security and transmission of individually identifiable health
information;
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the
federal Open Payments program, which requires manufacturers of certain approved drugs,
devices, biologics and medical supplies for which payment is available under Medicare,
Medicaid or the Children’s Health Insurance Program, with specific exceptions,
to report annually to the Centers for Medicare & Medicaid Services, or CMS,
information related to “payments or other transfers of value” made to physicians,
which is defined to include doctors, dentists, optometrists, podiatrists and chiropractors,
and teaching hospitals and applicable manufacturers and applicable group purchasing organizations
to report annually to CMS ownership and investment interests held by the physicians and
their immediate family members. Data collection began on August 1, 2013 with requirements
for manufacturers to submit reports to CMS by March 31, 2014 and 90 days after
the end each subsequent calendar year. Disclosure of such information was made by CMS
on a publicly available website beginning in September 2014 and is annually updated;
and
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analogous
state and foreign laws and regulations, such as state anti-kickback and false claims
laws, which may apply to sales or marketing arrangements and claims involving healthcare
items or services reimbursed by non-governmental third-party payors, including private
insurers; state and foreign laws that require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government or otherwise restrict payments
that may be made to healthcare providers; state and foreign laws that require drug manufacturers
to report information related to payments and other transfers of value to physicians
and other healthcare providers or marketing expenditures; and state and foreign laws
governing the privacy and security of health information in certain circumstances, many
of which differ from each other in significant ways and often are not preempted by HIPAA,
thus complicating compliance efforts.
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Efforts to ensure that our business arrangements
with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that
governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations
or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation
in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which
could have a material adverse effect on our business. 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, it may be subject
to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which
could also materially affect our business.
Regulatory approval for any approved
product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated.
Any regulatory approval is limited to
those specific diseases and indications for which a product is deemed to be safe and effective by the FDA. In addition to the
FDA approval required for new formulations, any new indication for an approved product also requires FDA approval. If we are not
able to obtain FDA approval for any desired future indications for our products, our ability to effectively market and sell our
products may be reduced and our business may be adversely affected.
While physicians may choose to prescribe
drugs 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, our ability to promote the products is limited to those indications that are 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 US generally do not regulate the
behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications by pharmaceutical
companies on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines,
we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules
and guidelines relating to promotion and advertising may cause the FDA to suspend or withdraw an approved product from
the market, require a recall or institute fines, or could result in disgorgement of money, operating restrictions, corrective
advertising, injunctions or criminal prosecution, any of which could harm our business.
We are subject to new legislation,
regulatory proposals and managed care initiatives that may increase our costs of compliance and adversely affect our ability to
market our products, obtain collaborators and raise capital.
In the US and some foreign jurisdictions,
there have been a number of proposed and enacted legislative and regulatory changes regarding the healthcare system that could
prevent or delay marketing approval of one or more of our product candidates, restrict or regulate post-approval activities and
affect our ability to profitably sell any of our product candidates for which we obtain marketing approval.
Among policy makers and payors in the
US and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing
healthcare costs, improving quality and expanding access. In the US, the pharmaceutical industry has been a particular focus of
these efforts and has been significantly affected by major legislative initiatives.
In March 2010, President Obama signed
into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act, or collectively the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of
healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health
insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.
Among the provisions of the ACA of importance
to our potential product candidates are:
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an
annual, nondeductible fee on any entity that manufactures, or imports specified branded
prescription drugs and biologic agents, apportioned among these entities according to
their market share in certain government healthcare programs;
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an
increase in the statutory minimum rebates a manufacturer must pay under the Medicaid
Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded
and generic drugs, respectively;
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expansion
of healthcare fraud and abuse laws, including the federal False Claims Act and the federal
Anti-Kickback Statute, new government investigative powers and enhanced penalties for
non-compliance;
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a
new Medicare Part D coverage gap discount program, in which manufacturers must agree
to offer point-of-sale discounts off negotiated prices of applicable brand drugs to eligible
beneficiaries during their coverage gap period, as a condition for a manufacturer’s
outpatient drugs to be covered under Medicare Part D;
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extension
of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals
who are enrolled in Medicaid managed care organizations;
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expansion
of eligibility criteria for Medicaid programs by, among other things, allowing states
to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility
categories for certain individuals with income at or below 138% of the federal poverty
level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
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expansion
of the entities eligible for discounts under the 340B Drug Pricing Program;
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the
new requirements under the federal Open Payments program and its implementing regulations;
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a
new requirement to annually report drug samples that manufacturers and distributors provide
to physicians;
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a
new regulatory pathway for the approval of biosimilar biological products, all of which
will impact existing government healthcare programs and will result in the development
of new programs; and
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a
new Patient-Centered Outcomes Research Institute to oversee, identify priorities in,
and conduct comparative clinical effectiveness research, along with funding for such
research.
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The Supreme Court upheld the ACA in the
main challenge to the constitutionality of the law in 2012. Specifically, the Supreme Court held that the individual mandate and
corresponding penalty was constitutional because it would be considered a tax by the federal government. The Supreme Court also
upheld federal subsidies for purchasers of insurance through federally facilitated exchanges in a decision released in June 2015.
President Trump ran for office on a platform
that supported the repeal of the ACA, and one of his first actions after his inauguration was to sign an Executive Order instructing
federal agencies to waive or delay requirements of the ACA that impose economic or regulatory burdens on states, families, the
health-care industry and others. Modifications to or repeal of all or certain provisions of the ACA have been attempted in Congress
as a result of the outcome of the recent presidential and congressional elections, consistent with statements made by the incoming
administration and members of Congress during the presidential and congressional campaigns and following the election.
In January 2017, Congress voted to
adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that
would repeal portions of the ACA. The Budget Resolution is not a law. However, it is widely viewed as the first step toward the
passage of legislation that would repeal certain aspects of the ACA. In March 2017, following the passage of the budget resolution
for fiscal year 2017, the U.S. House of Representatives passed legislation known as the American Health Care Act of 2017, which,
if enacted, would amend or repeal significant portions of the ACA. Attempts in the Senate to pass ACA repeal legislation, including
the Better Care Reconciliation Act of 2017, so far have been unsuccessful. At the end of 2017, Congress passed the Tax Cuts and
Jobs Act, which repealed the penalty for individuals who fail to maintain minimum essential health coverage as required by the
ACA. Following this legislation, Texas and 19 other states filed a lawsuit alleging that the ACA is unconstitutional as the individual
mandate was repealed, undermining the legal basis for the Supreme Court’s prior decision. On December 14, 2018, Texas federal
district court judge Reed O’Connor issued a ruling declaring that the ACA in it is entirety is unconstitutional. While this
decision has no immediate legal effect on the ACA and its provisions, this lawsuit is ongoing and the outcome through the appeals
process may have a significant impact on our business.
The Bipartisan Budget Act of 2018, the
“BBA,” which set government spending levels for Fiscal Years 2018 and 2019, revised certain provisions of the ACA.
Specifically, beginning in 2019, the BBA increased manufacturer point-of-sale discounts off negotiated prices of applicable brand
drugs in the Medicare Part D coverage gap from 50% to 70%, ultimately increasing the liability for brand drug manufacturers. Further,
this mandatory manufacturer discount applied to biosimilars beginning in 2019.
The 116th Congress has explored legislation
intended to address the cost of prescription drugs. Notably, the major committees of jurisdiction in the Senate (Finance Committee,
Health, Education, Labor and Pensions Committee, and Judiciary Committee), have marked up legislation intended to address various
elements of the prescription drug supply chain. Proposals include a significant overhaul of the Medicare Part D benefit design,
addressing patent “loopholes”, and efforts to cap the increase in drug prices. The House Energy and Commerce Committee
approved drug-related legislation intended to increase transparency of drug prices and also curb anti-competitive behavior in the
pharmaceutical supply chain. In addition, the House Ways & Means Committee approved legislation intended to improve drug price
transparency, including for drug manufacturers to justify certain price increases. While we cannot predict what proposals may ultimately
become law, the elements under consideration could significantly change the landscape in which the pharmaceutical market operates.
The Trump Administration has also taken several regulatory steps to redirect
ACA implementation. The Department of Health and Human Services (“HHS”) finalized Medicare fee-for-service hospital
payment reductions for Part B drugs acquired through the 340B Drug Pricing Program, which has been overturned by the courts. HHS
also has signaled its intent to pursue reimbursement policy changes for Medicare Part B drugs as a whole that likely would reduce
hospital and physician reimbursement for these drugs.
HHS has made numerous other proposals
aimed at lowering drug prices for Medicare beneficiaries and increasing price transparency. These proposals include giving Medicare
Advantage and Part D plans flexibility in the availability of drugs in “protected classes,” more transparency in the
cost of drugs, including the beneficiary’s financial liability, and less costly alternatives and permitting the use of step
therapy as a means of prior authorization. HHS has also proposed requiring pharmaceutical manufacturers disclose the prices of
certain drugs in direct-to-consumer television advertisements. The proposal related to protected classes has been withdrawn and
the disclosure requirements have been rejected by the courts. In addition, a proposed rule that would have passed drug rebates
to consumers at the point of sale also has been withdrawn. However, it appears the Trump Administration will continue to explore
its authority to make regulatory changes to the pharmaceutical industry. For example, the Trump Administration released an Advance
Notice of Proposed Rulemaking related to an international price index model. It is unclear what eventually will be proposed, but
the President has alluded to the concept of “most favored nation” pricing with regards to U.S. drug purchasing. In
addition, HHS, in conjunction with the FDA, announced that it will be exploring a reimportation pathway in certain instances and
for certain drugs.
HHS also has taken steps to increase the
availability of cheaper health insurance options, typically with fewer benefits and less generous coverage. The Administration
has also signaled its intention to address drug prices and to increase competition, including by increasing the availability of
biosimilars and generic drugs. As these are regulatory actions, a new administration could undo or modify these efforts.
We expect that the ACA, as well as other
healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional
downward pressure on the price that we receive for any approved 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 drugs.
Legislative proposals such as expanding
the Medicaid drug rebate program to the Medicare Part D program, providing authority for the government to negotiate drug
prices under the Medicare Part D program and lowering reimbursement for drugs covered under the Medicare Part B program
have been raised in Congress, but have been met with opposition and have not been enacted so far.
The administration can rely on its
existing statutory authority to make policy changes that could have an impact on the drug industry. For example, the Medicare
program has in the past proposed to test alternative payment methodologies for drugs covered under the Part B program and
currently is proposing to pay hospitals less for Part B-covered drugs purchased through the 340B Drug Pricing Program.
Legislative and regulatory proposals have
been 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 the US 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.
Public concern regarding the safety
of drug products could delay or limit our ability to obtain regulatory approval, result in the inclusion of unfavorable information
in our labeling, or require us to undertake other activities that may entail additional costs.
In light of widely publicized events concerning
the safety risk of certain drug products, the FDA, members of the US Congress, the Government Accountability Office, medical
professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the
withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and the establishment of risk
management programs. The Food and Drug Administration Amendments Act of 2007, or FDAAA, grants significant expanded authority
to the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, the new
law authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling
to reflect new safety information and require risk evaluation and mitigation strategies for certain drugs, including certain currently
approved drugs. It also significantly expands the federal government’s clinical trial registry and results databank, which
we expect will result in significantly increased government oversight of clinical trials. Under the FDAAA, companies that violate
these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and
criminal penalties. The increased attention to drug safety issues may result in a more cautious approach by the FDA in its review
of data from our clinical trials. Data from clinical trials may receive greater scrutiny, particularly with respect to safety,
which may make the FDA or other regulatory authorities more likely to require additional preclinical studies or clinical trials.
If the FDA requires us to conduct additional preclinical studies or clinical trials prior to approving any of our product candidates,
our ability to obtain approval of this product candidate will be delayed. If the FDA requires us to provide additional clinical
or preclinical data following the approval of any of our product candidates, the indications for which this product candidate
is approved may be limited or there may be specific warnings or limitations on dosing, and our efforts to commercialize our product
candidates may be otherwise adversely impacted.
If we experience delays or difficulties
in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue
clinical trials for one or more of our product candidates if we are unable to locate and enroll a sufficient number of eligible
patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Some
of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates,
and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’
product candidates. Available therapies for the indications we are pursuing can also affect enrollment in our clinical trials.
Patient enrollment is affected by other factors including, but not necessarily limited to:
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the
severity of the disease under investigation;
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the
eligibility criteria for the study in question;
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the
perceived risks and benefits of the product candidate under study;
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the
efforts to facilitate timely enrollment in clinical trials;
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the
patient referral practices of physicians;
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the
number of clinical trials sponsored by other companies for the same patient population;
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the
ability to monitor patients adequately during and after treatment; and
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the
proximity and availability of clinical trial sites for prospective patients.
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Our inability to enroll a sufficient number
of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials
altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidate or future
product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.
Our product candidates are in scientific
areas of intense competition from many large pharmaceutical and biotechnology companies, many of which are significantly further
along in development or are already on the market with competing products. We expect competition for our product candidates will
intensify, and new products may emerge that provide different or better therapeutic alternatives for our targeted indications.
The biotechnology and pharmaceutical industries
are subject to rapid and intense technological change. We face, and will continue to face, competition in the development and
marketing of our product candidates from academic institutions, government agencies, research institutions and biotechnology and
pharmaceutical companies. There can be no assurance that developments by others will not render one or more of our product candidates
obsolete or noncompetitive. Furthermore, new developments, including the development of other drug technologies and methods of
preventing the incidence of disease, occur in the pharmaceutical industry at a rapid pace. These developments may render one or
more of our product candidates obsolete or noncompetitive.
Competitors may seek to develop alternative
formulations that do not directly infringe on our in-licensed patent rights. The commercial opportunity for one or more of our
product candidates could be significantly harmed if competitors are able to develop alternative formulations outside the scope
of our in-licensed patents. Compared to us, many of our potential competitors have substantially greater:
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development
resources, including personnel and technology;
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clinical
trial experience;
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expertise
in prosecution of intellectual property rights; and
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manufacturing,
distribution and sales and marketing experience.
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As a result of these factors, our competitors
may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual
property rights that limit our ability to develop or commercialize one or more of our product candidates. Our competitors may
also develop drugs that are more effective, safe, useful and less costly than ours and may be more successful than us in manufacturing
and marketing their products.
Our commercial success depends upon
us attaining significant market acceptance of our product candidates, if approved for sale, among physicians, patients, healthcare
payors and major operators of cancer and other clinics.
Even if we obtain regulatory approval
for one or more of our product candidates, the product may not gain market acceptance among physicians, health care payors, patients
and the medical community, which are critical to commercial success. Market acceptance of any product candidate for which we receive
approval depends on a number of factors, including, but not necessarily limited to:
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the
efficacy and safety as demonstrated in clinical trials;
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the
timing of market introduction of such product candidate as well as competitive products;
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the
clinical indications for which the drug is approved;
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acceptance
by physicians, major operators of cancer clinics and patients of the drug as a safe and
effective treatment;
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the
safety of such product candidate seen in a broader patient group, including its use outside
the approved indications;
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the
availability, cost and potential advantages of alternative treatments, including less
expensive generic drugs;
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the
availability of adequate reimbursement and pricing by third-party payors and government
authorities;
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changes
in regulatory requirements by government authorities for our product candidates;
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the
relative convenience and ease of administration of the product candidate for clinical
practices;
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the
product labeling or product insert required by the FDA or regulatory authority in other
countries;
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the
approval, availability, market acceptance and reimbursement for a companion diagnostic,
if any;
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the
prevalence and severity of adverse side effects; and
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the
effectiveness of our sales and marketing efforts.
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If any product candidate that we develop
does not provide a treatment regimen that is as beneficial as, or is not perceived as being as beneficial as, the current standard
of care or otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA or other
regulatory authorities, likely will not achieve market acceptance. Our ability to effectively promote and sell any approved products
will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive price and our
ability to obtain sufficient third-party coverage or reimbursement. If any product candidate is approved but does not achieve
an adequate level of acceptance by physicians, patients and third-party payors, our ability to generate revenues from that product
would be substantially reduced. In addition, our efforts to educate the medical community and third-party payors on the benefits
of our product candidates may require significant resources, may be constrained by FDA rules and policies on product promotion,
and may never be successful.
If approved, our product candidates
will face competition from less expensive generic products of competitors, and, if we are unable to differentiate the benefits
of our product candidates over these less expensive alternatives, we may never generate meaningful product revenues.
Generic therapies are typically sold at
lower prices than branded therapies and are generally preferred by hospital formularies and managed care providers of health services.
We anticipate that, if approved, our product candidates will face increasing competition in the form of generic versions of branded
products of competitors that have lost or will lose their patent exclusivity. In the future, we may face additional competition
from a generic form when the patents covering it begin to expire, or earlier if the patents are successfully challenged. If we
are unable to demonstrate to physicians and payers that the key differentiating features of our product candidates translate to
overall clinical benefit or lower cost of care, we may not be able to compete with generic alternatives.
Reimbursement may be limited or
unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably.
There is significant uncertainty related
to the third-party coverage and reimbursement of newly approved drugs. Such third-party payors include government health programs
such as Medicare, managed care providers, private health insurers and other organizations. We intend to seek approval to market
our product candidates in the US, the EU and other selected foreign jurisdictions. Market acceptance and sales of our product
candidates in both domestic and international markets will depend significantly on the availability of adequate coverage and reimbursement
from third-party payors for any of our product candidates and may be affected by existing and future health care reform measures.
Government and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and
the level of reimbursement for new drugs and, as a result, they may not cover or provide adequate payment for our product candidates.
These payors may conclude that our product candidates are less safe, less effective or less cost-effective than existing or future
introduced products, and third-party payors may not approve our product candidates for coverage and reimbursement or may cease
providing coverage and reimbursement for these product candidates.
Obtaining coverage and reimbursement approval
for 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. We may not be able to provide
data sufficient to gain acceptance with respect to coverage and reimbursement. If reimbursement of our future products is unavailable
or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
In some foreign countries, particularly
in 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 candidate. To obtain
reimbursement or pricing approval in some countries, we may be required to conduct additional clinical trials that compare the
cost-effectiveness of our product candidates to other available therapies. If reimbursement of our product candidates is unavailable
or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve
or sustain profitability of our products in such country.
If we are unable to establish sales,
marketing and distribution capabilities or to enter into agreements with third parties to market and sell our product candidates,
we may not be successful in commercializing our product candidates if and when they are approved.
We currently do not have a marketing or
sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any product
candidate that receives marketing approval, we would need to build marketing, sales, distribution, managerial and other non-technical
capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. In the
event of successful development and regulatory approval of one or more of our product candidates or any future product candidate,
we expect to build a targeted specialist sales force to market or co-promote the product. There are risks involved with establishing
our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time
consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force
and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred
these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales
and marketing personnel.
Factors that may inhibit our efforts to
commercialize our products on our own include, but are not necessarily limited to:
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our
inability to recruit, train 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 any future products;
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the
lack of complementary or other products to be offered by sales personnel, which may put
us at a competitive disadvantage from the perspective of sales efficiency 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.
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As an alternative to establishing our
own sales force, we may choose to partner with third parties that have well-established direct sales forces to sell, market and
distribute our products.
We rely, and expect to continue
to rely, on third parties to conduct our preclinical studies and clinical trials, and those third parties may not perform satisfactorily,
including failing to meet deadlines for the completion of such trials or complying with applicable regulatory requirements.
We rely on third-party contract research
organizations and site management organizations to conduct some of our preclinical studies and all of our clinical trials for
our product candidates and for any future product candidate. We expect to continue to rely on third parties, such as contract
research organizations, site management organizations, clinical data management organizations, medical institutions and clinical
investigators, to conduct some of our preclinical studies and all of our clinical trials. The agreements with these third parties
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.
Our reliance on these third parties for
research and development activities will reduce our control over these activities but will not relieve us of our responsibilities.
For example, we will remain responsible for ensuring that each of our preclinical studies and clinical trials are conducted in
accordance with the general investigational plan and protocols for the trial and for ensuring that our preclinical studies are
conducted in accordance with good laboratory practice (GLP) as appropriate. Moreover, the FDA requires us to comply with standards,
commonly referred to as good clinical practices (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 or any of our clinical research organizations fail to comply with applicable GCPs,
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 before approving our marketing applications. 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, our clinical trials must be conducted with product produced under cGMP regulations. Our 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 ongoing clinical trials and post the results of completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and
criminal sanctions.
The third parties with whom we have contracted
to help perform our preclinical studies or clinical trials may also have relationships with other entities, some of which may
be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or
conduct our preclinical studies or clinical trials in accordance with regulatory requirements or our stated protocols, we will
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.
If any of our relationships with these
third-party contract research organizations or site management organizations terminates, we may not be able to enter into arrangements
with alternative contract research organizations or site management organizations or to do so on commercially reasonable terms.
Switching or adding additional contract research organizations or site management organizations involves additional cost and requires
management time and focus. In addition, there is a natural transition period when a new contract research organization or site
management organization 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 contract research organizations or site management
organizations, there can be no assurance that we will not encounter similar challenges or delays in the future.
We contract with third parties
for the manufacture of our product candidates for preclinical and clinical testing and may also do so for commercialization. This
reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or any future
product candidate or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization
efforts.
While we have opened our own cell processing
facility in Worcester, Massachusetts in order to supply product candidates for all clinical trials that will be conducted under
IND applications to be filed by us, currently we rely on third parties for the manufacture of our product candidates for preclinical
and clinical testing. This reliance on third parties increases the risk that we will not have sufficient quantities of our product
candidates or any future product candidate or such quantities at an acceptable cost or quality, which could delay, prevent or
impair our development or commercialization efforts.
We may also rely on third-party manufacturers
or third-party collaborators for the manufacture of commercial supply of one or more product candidates for which our collaborators
or we obtain marketing approval. We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable
terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails
additional risks, including, but not necessarily limited to:
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reliance
on the third party for regulatory compliance and quality assurance;
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the
possible breach of the manufacturing agreement by the third party;
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manufacturing
delays if our third-party manufacturers give greater priority to the supply of other
products over our product candidates or otherwise do not satisfactorily perform according
to the terms of the agreement between us;
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the
possible misappropriation of our proprietary information, including our trade secrets
and know-how; and
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the
possible termination or nonrenewal of the agreement by the third party at a time that
is costly or inconvenient for us.
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We rely on our third-party manufacturers
to produce or purchase from third-party suppliers the materials and equipment necessary to produce our product candidates for
our preclinical and clinical trials, in particular the lentiviral vectors used to transduce patients’ cells for our XSCID program (MB-107)
and for all six of our CAR T programs. There are a limited number of suppliers for raw materials and equipment that we use (or that
are used on our behalf) to manufacture our drugs, and there may be a need to assess alternate suppliers to prevent a possible
disruption of the manufacture of the materials and equipment necessary to produce our product candidates for our preclinical and
clinical trials, and if approved, ultimately for commercial sale. We do not have any control over the process or timing of the
acquisition of these raw materials or equipment by our third-party manufacturers. Any significant delay in the supply of a product
candidate, or the raw material components thereof, for an ongoing preclinical or clinical trial due to the need to replace a third-party
manufacturer could considerably delay completion of our preclinical or clinical trials, product testing and potential regulatory
approval of our product candidates. If our manufacturers or we are unable to purchase these raw materials or equipment after regulatory
approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there
would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.
The facilities used by our contract manufacturers
to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit
an NDA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers
for compliance with cGMP regulations for manufacture of our product candidates. Third-party manufacturers may not be able to comply
with the cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party
manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds,
fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of
product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely
affect supplies of our products.
One or more of the product candidates
that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a
limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performance
failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not
currently have arrangements in place for redundant supply. If our current contract manufacturers cannot perform as agreed, we
may be required to replace such manufacturers. We may incur added costs and delays in identifying and qualifying any replacement
manufacturers. The DEA restricts the importation of a controlled substance finished drug product when the same substance is commercially
available in the United States, which could reduce the number of potential alternative manufacturers for one or more of our product
candidates.
Our current and anticipated future dependence upon others
for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize
any products that receive marketing approval on a timely and competitive basis.
We also expect to rely on other third
parties to distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay
clinical development or marketing approval of our product candidates or commercialization of our products, producing additional
losses and depriving us of potential product revenue.
We rely on clinical data and results
obtained by third parties that could ultimately prove to be inaccurate or unreliable.
As part of our strategy to mitigate development
risk, we seek to develop product candidates with validated mechanisms of action and we utilize biomarkers to assess potential
clinical efficacy early in the development process. This strategy necessarily relies upon clinical data and other results obtained
by third parties that may ultimately prove to be inaccurate or unreliable. Further, such clinical data and results may be based
on products or product candidates that are significantly different from our product candidates or any future product candidate.
If the third-party data and results we rely upon prove to be inaccurate, unreliable or not applicable to our product candidates
or future product candidate, we could make inaccurate assumptions and conclusions about our product candidates and our research
and development efforts could be compromised.
If we breach any of the agreements
under which we license rights to one or more of product candidates from others, we could lose the ability to continue to develop
and commercialize such product candidate.
Because we have in-licensed the rights
to all of our product candidates from COH, Fred Hutch, St. Jude and Nationwide, and in the future will continue to in-license
from additional third parties, if there is any dispute between us and our licensor regarding our rights under our license agreement,
our ability to develop and commercialize these product candidates may be adversely affected. Any uncured, material breach under
our license agreement could result in our loss of exclusive rights to our product candidate and may lead to a complete termination
of our related product development efforts.
We may not be able to manage our
business effectively if we are unable to attract and retain key personnel.
We may not be able to attract or retain
qualified management and commercial, scientific and clinical personnel in the future due to the intense competition for qualified
personnel among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel
to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development
objectives, our ability to raise additional capital and our ability to implement our business strategy.
Our employees may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material
adverse effect on our business.
We are exposed to the risk of employee
fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide
accurate information to the FDA, comply with manufacturing standards we have established, comply with federal and state health-care
fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us.
In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit
a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials,
which could result in regulatory sanctions and serious harm to our reputation. The precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations
or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are
instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant
impact on our business and results of operations, including the imposition of significant fines or other sanctions.
We face potential product liability
exposure, and if successful claims are brought against us, we may incur substantial liability for one or more of our product candidates
or a future product candidate we may license or acquire and may have to limit their commercialization.
The use of one or more of our product
candidates and any future product candidate we may license or acquire in clinical trials and the sale of any products for which
we obtain marketing approval expose us to the risk of product liability claims. For example, we may be sued if any product we
develop allegedly causes injury or is 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. Product liability claims might be brought
against us by consumers, health care providers or others using, administering or selling our products. If we cannot successfully
defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability
claims may result in:
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withdrawal
of clinical trial participants;
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suspension
or termination of clinical trial sites or entire trial programs;
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decreased
demand for any product candidates or products that we may develop;
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initiation
of investigations by regulators;
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impairment
of our business reputation;
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costs
of related litigation;
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substantial
monetary awards to patients or other claimants;
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reduced
resources of our management to pursue our business strategy; and
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the
inability to commercialize our product candidate or future product candidates.
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We will obtain limited product liability
insurance coverage for any and all of our upcoming clinical trials. However, our insurance coverage may not reimburse us or may
not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly
expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts
to protect us against losses due to liability. When needed we intend to expand our insurance coverage to include the sale of commercial
products if we obtain marketing approval for one or more of our product candidates in development, but we may be unable to obtain
commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have
been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim
or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could
decrease our cash and adversely affect our business.
Our future growth depends on our
ability to identify and acquire or in-license products and if we do not successfully identify and acquire or in-license related
product candidates or integrate them into our operations, we may have limited growth opportunities.
An important part of our business strategy
is to continue to develop a pipeline of product candidates by acquiring or in-licensing products, businesses or technologies that
we believe are a strategic fit with our focus on
ex vivo
lentiviral gene therapy for rare genetic diseases and on novel
combinations of CAR T cells with immuno-oncology antibodies, other biologics, and small molecule kinase inhibitors. Future in-licenses
or acquisitions, however, may entail numerous operational and financial risks, including, but not necessarily limited to:
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exposure
to unknown liabilities;
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disruption
of our business and diversion of our management’s time and attention to develop
acquired products or technologies;
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difficulty
or inability to secure financing to fund development activities for such acquired or
in-licensed technologies in the current economic environment;
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incurrence
of substantial debt or dilutive issuances of securities to pay for acquisitions;
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higher
than expected acquisition and integration costs;
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increased
amortization expenses;
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difficulty
and cost in combining the operations and personnel of any acquired businesses with our
operations and personnel;
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impairment
of relationships with key suppliers or customers of any acquired businesses due to changes
in management and ownership; and
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inability
to retain key employees of any acquired businesses.
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We have limited resources to identify
and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current
infrastructure. In particular, we may compete with larger pharmaceutical companies and other competitors in our efforts to establish
new collaborations and in-licensing opportunities. These competitors likely will have access to greater financial resources than
us and may have greater expertise in identifying and evaluating new opportunities. Moreover, we may devote resources to potential
acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such
efforts.
We may expend our limited resources
to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be
more profitable or for which there is a greater likelihood of success.
Because we have limited financial and
managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result,
we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have
greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products
or profitable market opportunities. Our spending on current and future research and development programs and product candidates
for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential
or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration,
licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development
and commercialization rights to such product candidate.
If we fail to comply with environmental,
health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental,
health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment
and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including
chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties
for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials.
Although we believe that the safety procedures for handling and disposing of these materials comply with the standards prescribed
by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the
event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages,
and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and
penalties for failure to comply with such laws and regulations.
Although we maintain workers’ compensation
insurance to cover us for costs and expenses, we may incur due to injuries to our employees resulting from the use of hazardous
materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous
or radioactive materials.
In addition, we may incur substantial
costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future
laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations
also may result in substantial fines, penalties or other sanctions.
Our
business and operations would suffer in the event of system failures.
Despite the implementation of security
measures, our internal computer systems are vulnerable to damage from computer viruses, unauthorized access, natural disasters,
terrorism, war and telecommunication and electrical failures. Any system failure, accident or security breach that causes interruptions
in our operations could result in a material disruption of our drug development programs. For example, the loss of clinical trial
data from completed clinical trials for one or more of our product conducts 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
results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information,
we may incur liability and the further development of one or more of our product candidates may be delayed.
We are currently reliant on the
City of Hope National Medical Center, the Fred Hutchinson Cancer Research Center, St. Jude Children’s Research Hospital,
and the University of Alabama at Birmingham (“UAB”) for a substantial portion of our research and development efforts
and the early clinical testing of our product candidates.
A substantial portion of our research
and development has been and will continue to be conducted by COH, Fred Hutch, St. Jude, and UAB pursuant to a sponsored research
agreement and/or clinical trial agreements with each of those parties. As a result, our future success is heavily dependent on
the results of research and development efforts of Dr. Stephen Forman and his laboratory team at COH, of Dr. Brian Till and his
laboratory team at Fred Hutch, of Drs. Stephen Gottschalk and Ewelina Mamcarz at St. Jude, and of Dr. James M. Markert at UAB.
We have limited control over the nature or timing of their research and limited visibility into their day-to-day activities, and
as a result can provide little assurance that their efforts will be successful.
CAR T is a new approach to
cancer treatment that presents significant challenges.
We have concentrated our research and
development efforts on CAR T technology, and our future success is highly dependent on the successful development of T cell immunotherapies
in general and our CAR T technology and product candidates in particular. Because CAR T is a new approach to cancer immunotherapy
and cancer treatment generally, developing and commercializing our product candidates subjects us to a number of challenges, including,
but not necessarily limited to:
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obtaining
regulatory approval from the FDA and other regulatory authorities that may have very
limited experience with the commercial development of genetically modified T cell therapies
for cancer;
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developing
and deploying consistent and reliable processes for engineering a patient’s T cells
ex vivo
and infusing the engineered T cells back into the patient;
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conditioning
patients with chemotherapy in conjunction with delivering each of our products, which
may increase the risk of adverse side effects of our products;
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educating
medical personnel regarding the potential side effect profile of each of our products;
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developing
processes for the safe administration of these products, including long-term follow-up
for all patients who receive our product candidates;
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sourcing
clinical and, if approved, commercial supplies for the materials used to manufacture
and process our product candidates;
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developing
a manufacturing process and distribution network with a cost of goods that allows for
an attractive return on investment;
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establishing
sales and marketing capabilities after obtaining any regulatory approval to gain market
acceptance, and obtaining adequate coverage, reimbursement and pricing by third-party
payors and government authorities; and
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developing
therapies for types of cancers beyond those addressed by our current product candidates.
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Product candidates, even if successfully
developed and commercialized, may be effective only in combating certain specific types of cancer, and the market for drugs designed
to combat such cancer type(s) may be small and unprofitable.
There are many different types of cancer,
and a treatment that is effective against one type of cancer may not be effective against another. CAR T or other technologies
we pursue may only be effective in combating specific types of cancer but not others. Even if one or more of our products proves
to be an effective treatment against a given type of cancer, the number of patients suffering from such cancer may be small, in
which case potential sales from a drug designed to combat such cancer would be limited.
Our gene therapy product candidates
are based on a novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently
obtaining regulatory approval.
We have concentrated a portion of our
therapeutic product research and development efforts on our gene therapy platform, and our future success depends, in part, on
the successful development of this therapeutic approach. There can be no assurance that any development problems we experience
in the future related to our gene therapy platform will not cause significant delays or unanticipated costs, or that such development
problems can be solved. We may also experience delays in developing a sustainable, reproducible and commercial-scale manufacturing
process or transferring that process to commercial partners, which may prevent us from completing our clinical studies or commercializing
our products on a timely or profitable basis, if at all.
In addition, the clinical study requirements
of the FDA, the European Medicines Agency, or EMA, and other regulatory agencies and the criteria these regulators use to determine
the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use
and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive
and take longer than for other, better known or more extensively studied pharmaceutical or other product candidates. Currently,
a limited number of gene therapy products, including CAR T therapies, have been approved by the FDA, the EMA and the European
Commission. Given the few precedents of approved gene therapy products, it is difficult to determine how long it will take or
how much it will cost to obtain regulatory approvals for our product candidates in the United States, the EU or other jurisdictions.
Approvals by the EMA and the European Commission may not be indicative of what the FDA may require for approval.
Regulatory requirements governing the
development of gene therapy products have changed frequently and may continue to change in the future. The FDA has established
the Office of Tissues and Advanced Therapies within the Center for Biologics Evaluation and Research, or CBER, to consolidate
the review of gene therapy and related products, and to advise the CBER on its review. The FDA can put an investigational new
drug application, or IND, on clinical hold if the information in an IND is not sufficient to assess the risks in pediatric patients.
Before a clinical study can begin at any institution, that institution’s IRB and its Institutional Biosafety Committee will
have to review the proposed clinical study to assess the safety of the study. Moreover, serious adverse events or developments
in clinical trials of gene therapy product candidates conducted by others may cause the FDA or other regulatory bodies to initiate
a clinical hold on our clinical trials or otherwise change the requirements for approval of any of our product candidates.
These regulatory review agencies, committees
and advisory groups and the new requirements and guidelines they promulgate may lengthen the regulatory review process, require
us to perform additional or larger studies, increase our development costs, lead to changes in regulatory positions and interpretations,
delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval studies, limitations
or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups
and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development
of our product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to
bring a potential product to market could decrease our ability to generate sufficient product revenue to maintain our business.
Negative public opinion and increased
regulatory scrutiny of gene therapy and genetic research may damage public perception of our product candidates or adversely affect
our ability to conduct our business or obtain regulatory approvals for our product candidates.
Public perception may be influenced by
claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In particular,
the success of our gene therapy platform will depend upon physicians specializing in the treatment of those diseases that our
product candidates target prescribing treatments that involve the use of our product candidates in lieu of, or in addition to,
existing treatments with which they are already familiar with and for which greater clinical data may be available. More restrictive
government regulations or negative public opinion would have a negative effect on our business or financial condition and may
delay or impair the development and commercialization of our product candidates or demand for any products we may develop. Adverse
events in our clinical trials, even if not ultimately attributable to our product candidates, and the resulting publicity could
lead to increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval
of our potential product candidates, stricter labeling requirements for those product candidates that are approved and a decrease
in demand for any such product candidates. Concern about environmental spread of our product, whether real or anticipated, may
hinder the commercialization of our products.
Collaborative relationships with
third parties could cause us to expend significant resources and incur substantial business risk with no assurance of financial
return.
Establishing strategic collaborations
is difficult and time-consuming. Our discussions with potential collaborators may not lead to the establishment of collaborations
on favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial,
regulatory or intellectual property position. In addition, there has been a significant number of recent business combinations
among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Even if we successfully
establish new collaborations, these relationships may never result in the successful development or commercialization of product
candidates or the generation of sales revenue. To the extent that we enter into collaborative arrangements, the related product
revenues are likely to be lower than if we directly marketed and sold products. Such collaborators may also consider alternative
product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration
could be more attractive than the one with us for any future product candidate.
Risks Related to Intellectual Property
If we are unable to obtain and maintain
patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad,
our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully
commercialize our technology and products may be impaired.
Our commercial success will depend in
part on obtaining and maintaining patent protection and trade secret protection in the US and other countries with respect to our
product candidates or any future product candidate that we may license or acquire and the methods we use to manufacture them,
as well as successfully defending these patents and trade secrets against third-party challenges. We seek to protect our proprietary
position by filing patent applications in the United States and abroad related to our novel technologies and product candidates,
and by maintenance of our trade secrets through proper procedures. We will only be able to protect our technologies from unauthorized
use by third parties to the extent that valid and enforceable patents or trade secrets cover them in the market they are being
used or developed.
The patent prosecution process is expensive
and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable
cost or in a timely manner. It is also possible that we will fail to identify any patentable aspects of our research and development
output and methodology, and, even if we do, an opportunity to obtain patent protection may have passed. Given the uncertain and
time-consuming process of filing patent applications and prosecuting them, it is possible that our product(s) or process(es) originally
covered by the scope of the patent application may have changed or been modified, leaving our product(s) or process(es) without
patent protection. If our licensors or we fail to obtain or maintain patent protection or trade secret protection for one
or more product candidates or any future product candidate we may license or acquire, third parties may be able to leverage our
proprietary information and products without risk of infringement, which could impair our ability to compete in the market and
adversely affect our ability to generate revenues and achieve profitability. Moreover, should we enter into other collaborations
we may be required to consult with or cede control to collaborators regarding the prosecution, maintenance and enforcement of
licensed patents. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the
best interests of our business.
The patent position of biotechnology and
pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been
the subject of much litigation. In addition, no consistent policy regarding the breadth of claims allowed in pharmaceutical or
biotechnology patents has emerged to date in the US. The patent situation outside the US is even more uncertain. The laws of foreign
countries may not protect our rights to the same extent as the laws of the US, and we may fail to seek or obtain patent protection
in all major markets. For example, European patent law restricts the patentability of methods of treatment of the human body more
than US law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent
applications in the US and other jurisdictions are typically not published until 18 months after a first filing, or in some
cases not at all. Therefore, we cannot know with certainty whether we or our licensors were the first to make the inventions claimed
in patents or pending patent applications that we own or licensed, or that we or our licensors were the first to file for patent
protection of such inventions. In the event that a third party has also filed a US patent application relating to our product
candidates or a similar invention, depending upon the priority dates claimed by the competing parties, we may have to participate
in interference proceedings declared by the PTO to determine priority of invention in the US. We might also become involved in
derivation proceedings in an event that a third party misappropriates one or more of our inventions and files their own patent
application directed to such one or more inventions. The costs of these proceedings could be substantial and it is possible that
our efforts to establish priority of invention (or that a third party derived an invention from us) would be unsuccessful, resulting
in a material adverse effect on our US patent position. As a result, the issuance, scope, validity, enforceability and commercial
value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued
which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive
technologies and products. Changes in either the patent laws or interpretation of the patent laws in the US and other countries
may diminish the value of our patents or narrow the scope of our patent protection. For example, the federal courts of the US
have taken an increasingly dim view of the patent eligibility of certain subject matter, such as naturally occurring nucleic acid
sequences, amino acid sequences and certain methods of utilizing same, which include their detection in a biological sample and
diagnostic conclusions arising from their detection. Such subject matter, which had long been a staple of the biotechnology and
biopharmaceutical industry to protect their discoveries, is now considered, with few exceptions, ineligible in the first instance
for protection under the patent laws of the US. Accordingly, we cannot predict the breadth of claims that may be allowed and remain
enforceable in our patents or in those licensed from a third party.
Recent patent reform legislation could
increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of
our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law.
The Leahy-Smith Act includes a number of significant changes to United States patent law. These include changes to transition
from a “first-to-invent” system to a “first inventor-to-file” system and to the way issued patents are
challenged. The formation of the Patent Trial and Appeal Board now provides a less burdensome, quicker and less expensive process
for challenging issued patents. The PTO recently developed new regulations and procedures to govern administration of the Leahy-Smith
Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first inventor-to-file
provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act
will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties
and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of
which could have a material adverse effect on our business and financial condition.
Moreover, we may be subject to a third-party
preissuance submission of prior art to the PTO, or become involved in opposition, derivation, reexamination,
inter partes
review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. The costs
of these proceedings could be substantial, and it is possible that our efforts to establish priority of invention (or that another
derived an invention from us or one of our licensors) would be unsuccessful, resulting in a material adverse effect on our US patent
position. An adverse determination in any such submission, patent office trial, proceeding or litigation could reduce the scope
of, render unenforceable, or invalidate, our patent rights, allow third parties to commercialize our technology or products and
compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing
third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications
is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product
candidates.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful
protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors
may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing
manner.
The issuance of a patent does not foreclose
challenges to its inventorship, scope, validity or enforceability. Therefore, our owned and licensed patents may be challenged
in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent
claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from
using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology
and products. Given the amount of time required for the development, testing and regulatory review of new product candidates,
patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As
a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing
products similar or identical to ours.
We depend on our licensors for the
maintenance and enforcement of intellectual property covering certain of our product candidates and have limited control, if any,
over the amount or timing of resources that our licensors devote on our behalf, or whether any financial difficulties experienced
by our licensors could result in their unwillingness or inability to secure, maintain and enforce patents protecting certain of
our product candidates.
We depend on our licensors to protect
the proprietary rights covering our product candidates and we have limited, if any, control over the amount or timing of
resources that they devote on our behalf, or the priority they place on, maintaining patent rights and prosecuting patent applications
to our advantage. Moreover, we have limited, if any, control over the strategies and arguments employed in the maintenance of
patent rights and the prosecution of patent applications to our advantage. Our licensors might become involved in disputes with
one of their other licensees, and we or a portion of our licensed patent rights might become embroiled in such disputes.
Our licensors, depending on the patent
or application, are responsible for maintaining issued patents and prosecuting patent applications. We cannot be sure that they
will perform as required. Should they decide they no longer want to maintain any of the patents licensed to us, they are required
to afford us the opportunity to do so at our expense. If our licensors do not perform, and if we do not assume the maintenance
of the licensed patents in sufficient time to make required payments or filings with the appropriate governmental agencies, we
risk losing the benefit of all or some of those patent rights. Moreover, and possibly unbeknownst to us, our licensors may experience
serious difficulties related to their overall business or financial stability, and they may be unwilling or unable to continue
to expend the financial resources required to maintain and prosecute these patents and patent applications. While we intend to
take actions reasonably necessary to enforce our patent rights, we depend, in part, on our licensors to protect a substantial
portion of our proprietary rights and to inform us of the status of those protections and efforts thereto.
Our licensors may also be notified of
alleged infringement and be sued for infringement of third-party patents or other proprietary rights. We may have limited, if
any, control or involvement over the defense of these claims, and our licensors could be subject to injunctions and temporary
or permanent exclusionary orders in the US or other countries. Our licensors are not obligated to defend or assist in our defense
against third-party claims of infringement. We have limited, if any, control over the amount or timing of resources, if any, that
our licensors devote on our behalf or the priority they place on defense of such third-party claims of infringement.
Because of the uncertainty inherent in
any patent or other litigation involving proprietary rights, we or our licensors may not be successful in defending claims of
intellectual property infringement alleged by third parties, which could have a material adverse effect on our results of operations.
Regardless of the outcome of any litigation, defending the litigation may be expensive, time-consuming and distracting to management.
Because it is difficult and costly
to protect our proprietary rights, we may not be able to ensure their protection.
The degree of future protection for our
proprietary rights is uncertain, because legal means afford only limited protection and may not adequately protect our rights
or permit us to gain or keep our competitive advantage, in addition to being costly and time consuming to undertake. For example:
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our
licensors might not have been the first to make the inventions covered by each of our
pending patent applications and issued patents;
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our
licensors might not have been the first to file patent applications for these inventions;
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others
may independently develop similar or alternative technologies or duplicate our product
candidates or any future product candidate technologies;
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it
is possible that none of the pending patent applications licensed to us will result in
issued patents;
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the
scope of our issued patents may not extend to competitive products developed or produced
by others;
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the
issued patents covering our product candidates or any future product candidate may not
provide a basis for market exclusivity for active products, may not provide us with any
competitive advantages, or may be challenged by third parties;
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we
may not develop additional proprietary technologies that are patentable; or
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intellectual
property rights of others may have an adverse effect on our business.
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We may become involved in lawsuits
to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our issued patents
or other intellectual property. To counter infringement or unauthorized use, we may be required to file one or more actions for
patent infringement, which can be expensive and time consuming. Any claims we assert against accused infringers could provoke
these parties to assert counterclaims against us alleging that we infringe their patents; or provoke those parties to petition
the PTO to institute
inter partes
review against the asserted patents, which may lead to a finding that all or some of
the claims of the patent are invalid. In addition, in a patent infringement proceeding, a court may decide that a patent of ours
is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or 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 or as a matter of public
policy. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, rendered
unenforceable, or interpreted narrowly. Furthermore, adverse results on US patents may affect related patents in our global portfolio.
If we are sued for infringing intellectual property rights
of third parties, it will be costly and time consuming, and an unfavorable outcome in any litigation would harm our business.
Our ability to develop, manufacture, market
and sell one or more of our product candidates or any future product candidate that we may license or acquire depends upon our
ability to avoid infringing the proprietary rights of third parties. Numerous US and foreign issued patents and pending patent
applications, which are owned by third parties, exist in the general fields of fully human immuno-oncology targeted antibodies
and cover the use of numerous compounds and formulations in our targeted markets. Because of the uncertainty inherent in any patent
or other litigation involving proprietary rights, we and our licensors may not be successful in defending intellectual property
claims asserted by third parties, which could have a material adverse effect on our results or operations. Regardless of the outcome
of any litigation, defending the litigation may be expensive, time-consuming and distracting to management. In addition, because
patent applications can take many years to issue, there may be currently pending applications that are unknown to us, which may
later result in issued patents that one or more of our product candidates may infringe. There could also be existing patents of
which we are not aware that one or more of our product candidates may infringe, even if only inadvertently.
There is a substantial amount of litigation
involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a
third-party claims that we infringe their patents or misappropriated their technology, we could face a number of issues, including:
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infringement
and other intellectual property claims which, with or without merit, can be expensive
and time consuming to litigate and can divert management’s attention from our core
business;
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substantial
damages for past infringement which we may have to pay if a court decides that our product
infringes a competitor’s patent;
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a
court prohibiting us from selling or licensing our product unless the patent holder licenses
the patent to us, which it would not be required to do;
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if
a license is available from a patent holder, we may have to pay substantial royalties
or grant cross licenses to our patents; and
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redesigning
our processes so they do not infringe, which may not be possible or could require substantial
funds, time, and may result in an inferior or less-desirable process or product.
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Intellectual property litigation
could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation
or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract
our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of
the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive
these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or
proceedings could substantially increase our operating losses and reduce the resources available for development activities or
any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such
litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
We may need to license
certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially
reasonable terms.
A third party may hold intellectual property,
including patent rights that are important or necessary to the development and commercialization of our products. It may be necessary
for us to use the patented or proprietary technology of third parties, who may or may not be interested in granting such a license,
to commercialize our products, in which case we would be required to obtain a license from these third parties on commercially
reasonable terms, or our business could be harmed, possibly materially.
If we fail to comply with our obligations
in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to
our business.
We are currently a party to license agreements
with St. Jude, the City of Hope, the Fred Hutchinson Cancer Research Center, the Regents of the University of California, Nationwide
and other institutions. In the future, we may become party to licenses that are important for product development and commercialization.
If we fail to comply with our obligations under current or future license and funding agreements, our counterparties may have
the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product or
utilize any technology that is covered by these agreements or may face other penalties under the agreements. Such an occurrence
could materially and adversely affect the value of a product candidate being developed under any such agreement or could restrict
our drug discovery activities. Termination of these agreements or reduction or elimination of our rights under these agreements
may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under
these agreements, including our rights to important intellectual property or technology.
We may be subject to claims that
our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the biotechnology and
pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to
claims that we or these employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information
of their former employers. Even if frivolous or unsubstantiated in nature, litigation may be necessary to defend against these
claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction
to management and the implicated employee(s).
If we are unable to protect the
confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patent protection
for our product candidates or any future product candidate, we also rely on trade secrets, including unpatented know-how, technology
and other proprietary information, to maintain our competitive position, particularly where we do not believe patent protection
is appropriate or obtainable. However, trade secrets are difficult to protect. We limit disclosure of such trade secrets where
possible but we also seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements
with parties who do have access to them, such as our employees, our licensors, corporate collaborators, outside scientific collaborators,
contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent
assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements
and may unintentionally or willfully disclose our proprietary information, including our trade secrets, and we may not be able
to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret
is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the
United States are less willing or unwilling to protect trade secrets. Moreover, if any of our trade secrets were to be lawfully
obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate
it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently
developed by a competitor, our competitive position would be harmed.
Because we in-license intellectual
property pertaining to certain product candidates from third parties, any dispute with the licensors or the non-performance of
such license agreements may adversely affect our ability to develop and commercialize the applicable product candidates.
The types of disputes which may arise
between us and the third parties from whom we license intellectual property include, but are not limited to:
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the
scope of rights granted under such license agreements and other interpretation-related
issues;
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the
extent to which our technology and processes infringe on intellectual property of the
licensor that is not subject to such license agreements;
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the
sublicensing of patent and other rights under our license agreements and/or collaborative
development relationships, and the rights and obligations associated with such sublicensing;
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the
diligence and development obligations under license agreements (which may include specific
diligence milestones) and what activities or achievements satisfy those diligence obligations;
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whether
or not the milestones associated with certain milestone payment obligations have been
achieved or satisfied;
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the
applicability or scope of indemnification claims or obligations under such license agreements;
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the
permissibility and advisability of, and strategy regarding, the pursuit of potential
third-party infringers of the intellectual property that is the subject of such license
agreements;
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the
calculation of royalty, sublicense revenue and other payment obligations under such license
agreements;
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the
extent to which license rights, if any, are retained by licensors under such license
agreements;
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whether
or not a material breach has occurred under such license agreements and the extent to
which such breach, if deemed to have occurred, is or can be cured within applicable cure
periods, if any;
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disputes
regarding patent filing and prosecution decisions, as well as payment obligations regarding
past and ongoing patent expenses;
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the
inventorship and ownership of inventions and know-how resulting from the joint creation
or use of intellectual property by our licensors and us and our partners; and
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the
priority of invention of patented technology.
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In addition, the agreements under which
we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements
may be susceptible to multiple interpretations or may conflict in such a way that puts us in breach of one or more agreements,
which would make us susceptible to lengthy and expensive disputes with one or more of such third-party licensing partners. The
resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights
to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under
the relevant agreements, either of which could have a material adverse effect on our business, financial condition, results of
operations and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability
to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and
commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions,
results of operations and prospects.
Risks Related to Our Finances and Capital
Requirements
We have incurred significant losses
since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
We are an emerging growth company with
a limited operating history. We have focused primarily on in-licensing and developing our product candidates, with the goal of
supporting regulatory approval for these product candidates. We have incurred losses since our inception in March 2015 and have
an accumulated deficit of $99.1 million as of June 30, 2019. We expect to continue to incur significant operating losses for the
foreseeable future. We also do not anticipate that we will achieve profitability for a period of time after generating material
revenues, if ever. If we are unable to generate revenues, we will not become profitable and may be unable to continue operations
without continued funding.
Because of the numerous risks and uncertainties
associated with developing pharmaceutical products, we are unable to predict the timing or amount of increased expenses or when
or if, we will be able to achieve profitability. Our net losses may fluctuate significantly from quarter to quarter and year to
year. We anticipate that our expenses will increase substantially if:
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one
or more of our product candidates are approved for commercial sale, due to our ability
to establish the necessary commercial infrastructure to launch this product candidate
without substantial delays, including hiring sales and marketing personnel and contracting
with third parties for warehousing, distribution, cash collection and related commercial
activities;
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we
are required by the FDA or foreign regulatory authorities, to perform studies in addition
to those currently expected;
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there
are any delays in completing our clinical trials or the development of any of our product
candidates;
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we
execute other collaborative, licensing or similar arrangements and the timing of payments
we may make or receive under these arrangements;
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there
are variations in the level of expenses related to our future development programs;
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there
are any product liability or intellectual property infringement lawsuits in which we
may become involved;
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there
are any regulatory developments affecting product candidates of our competitors; and
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one
or more of our product candidates receives regulatory approval.
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Our ability to become profitable depends
upon our ability to generate revenue. To date, we have not generated any revenue from our development stage products, and we do
not know when, or if, we will generate any revenue. Our ability to generate revenue depends on a number of factors, including,
but not limited to, our ability to:
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obtain
regulatory approval for one or more of our product candidates, or any future product
candidate that we may license or acquire;
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manufacture
commercial quantities of one or more of our product candidates or any future product
candidate, if approved, at acceptable cost levels; and
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develop
a commercial organization and the supporting infrastructure required to successfully
market and sell one or more of our product candidates or any future product candidate,
if approved.
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Even if we do achieve profitability, we
may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable
would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research
and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company
could also cause you to lose all or part of your investment.
Our
short operating history makes it difficult to evaluate our business and prospects.
We have only been conducting operations
since our incorporation in March 2015. Our operations to date have been limited to preclinical operations and the in-licensing
of our product candidates. We have not yet demonstrated an ability to successfully complete clinical trials, obtain regulatory
approvals, manufacture a clinical scale or commercial scale product, or arrange for a third party to do so on our behalf, or conduct
sales and marketing activities necessary for successful product commercialization. Consequently, any predictions about our future
performance may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical
products.
In addition, as a young business, we may
encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to expand
our capabilities to support commercial activities. We may not be successful in adding such capabilities.
We expect our financial condition and
operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors,
many of which are beyond our control. Accordingly, you should not rely upon the results of any past quarterly period as an indication
of future operating performance.
We do not have any products that
are approved for commercial sale and therefore do not expect to generate any revenues from product sales in the foreseeable future,
if ever.
We have not generated any product related
revenues to date, and do not expect to generate any such revenues for at least the next several years, if at all. To obtain revenues
from sales of our product candidates, we must succeed, either alone or with third parties, in developing, obtaining regulatory
approval for, manufacturing and marketing products with commercial potential. We may never succeed in these activities, and we
may not generate sufficient revenues to continue our business operations or achieve profitability.
We will require substantial additional
funding which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additional capital,
we may be unable to complete the development and commercialization of our product candidates, or continue our development programs.
Our operations have consumed substantial
amounts of cash since inception. We expect to significantly increase our spending to advance the preclinical and clinical development
of our product candidates and launch and commercialize any product candidates for which we receive regulatory approval, including
building our own commercial organizations to address certain markets. We will require additional capital for the further development
and commercialization of our product candidates, as well as to fund our other operating expenses and capital expenditures. As
of June 30, 2019, we had $83.1 million in cash and restricted cash. We cannot provide any assurance that we will be able to raise
funds to complete the development of our product candidates. Additionally, we may have to delay or terminate the development of
certain product candidates if we are unable to secure additional funding; any such delay or termination, or the announcement of
any such delay or termination, may impact our potential growth and have a material adverse effect on the value of our debt and
equity securities.
We cannot be certain that additional funding
will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms
acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or
more of our product candidates. We may also seek collaborators for one or more of our current or future product candidates at
an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any
of these events could significantly harm our business, financial condition and prospects.
Our future funding requirements will depend
on many factors, including, but not limited to:
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the
timing, design and conduct of, and results from, preclinical and clinical trials for
our product candidates;
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the
potential for delays in our efforts to seek regulatory approval for our product candidates,
and any costs associated with such delays;
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the
costs of establishing a commercial organization to sell, market and distribute our product
candidates;
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the
rate of progress and costs of our efforts to prepare for the submission of an NDA for
any product candidates that we may in-license or acquire in the future, and the potential
that we may need to conduct additional clinical trials to support applications for regulatory
approval;
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the
costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual
property rights associated with our product candidates, including any such costs we may
be required to expend if our licensors are unwilling or unable to do so;
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the
cost and timing of securing sufficient supplies of our product candidates from our contract
manufacturers for clinical trials and in preparation for commercialization;
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the
effect of competing technological and market developments;
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the
terms and timing of any collaborative, licensing, co-promotion or other arrangements
that we may establish;
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if
one or more of our product candidates are approved, the potential that we may be required
to file a lawsuit to defend our patent rights or regulatory exclusivities from challenges
by companies seeking to market generic versions of one or more of our product candidates;
and
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the
success of the commercialization of one or more of our product candidates.
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Future capital requirements will also
depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies, but we currently
have no commitments or agreements relating to any of these types of transactions.
In order to carry out our business plan
and implement our strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to
raise additional funds through strategic collaborations, licensing arrangements, public or private equity or debt financing, bank
lines of credit, asset sales, government grants, or other arrangements. We cannot be sure that any additional funding, if needed,
will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive
to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest
costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights
to certain of our product candidates or marketing territories.
Our inability to raise capital when needed
would harm our business, financial condition and results of operations, and could cause our stock value to decline or require
that we wind down our operations altogether.
Raising additional capital may cause
dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.
Until such time, if ever, as we can generate
substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, grants
and license and development agreements in connection with any collaborations. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities
may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing and preferred
equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations,
strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may
not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required
to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market ourselves.
We will continue to incur significant
increased costs as a result of operating as a public company, and our management will be required to devote substantial time to
new compliance initiatives.
On August 22, 2017, we became a listed
and traded public company. As a public company, we incur significant legal, accounting and other expenses under the Sarbanes-Oxley
Act of 2002, or the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC, and the rules of the Nasdaq Stock
Exchange. These rules impose various requirements on public companies, including requiring establishment and maintenance of effective
disclosure and financial controls and appropriate corporate governance practices. Our management and other personnel have devoted
and will continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations
increase our legal and financial compliance costs and make some activities more time-consuming and costly. For example, these
rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and
we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors,
our board committees or as executive officers.
The Sarbanes-Oxley Act requires, among
other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. As
a result, we are required to periodically perform an evaluation of our internal controls over financial reporting to allow management
to report on the effectiveness of those controls, as required by Section 404 of the Sarbanes-Oxley Act. Additionally, our
independent auditors are required to perform a similar evaluation and report on the effectiveness of our internal controls over
financial reporting. These efforts to comply with Section 404 and related regulations have required, and continue to require,
the commitment of significant financial and managerial resources. While we anticipate maintaining the integrity of our internal
controls over financial reporting and all other aspects of Section 404, we cannot be certain that a material weakness will
not be identified when we test the effectiveness of our control systems in the future. If a material weakness is identified, we
could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial
and management resources, costly litigation or a loss of public confidence in our internal controls, which could have an adverse
effect on the market price of our stock.
Compliance with the Sarbanes-Oxley
Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.
A business that we identify as a potential
acquisition target may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls.
The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the
time and costs necessary to complete any such acquisition. Furthermore, any failure to implement required new or improved controls,
or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future,
could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also
cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price
of our securities.
We are an “emerging growth
company” and a "smaller reporting company," and the reduced disclosure requirements applicable to emerging growth
companies and smaller reporting companies may make our common stock less attractive to investors.
We are an “emerging growth company”
as that term is used in the JOBS Act, and may remain an emerging growth company until the earlier of (1) the last day of the fiscal
year (a) following the fifth anniversary of the completion of the initial public offering of our common stock, (b) in which we
have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which
means the market value of our outstanding common stock that are held by non-affiliates exceeds $700 million as of the prior June
30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three year period.
For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure
requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
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being
permitted to provide only two years of audited financial statements, in addition to any
required unaudited interim financial statements, with correspondingly reduced “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” disclosure
in our Annual Report on Form 10-K;
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not
being required to comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to
the auditor’s report providing additional information about the audit and the financial
statements;
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disclosure
obligations regarding executive compensation; and
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exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved.
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Further, Section 102(b)(1) of the JOBS
Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.
The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that
apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected to opt out of such
extended transition period which means that when a standard is issued or revised, and it has different application dates for public
or private companies, we, as an emerging growth company, will adopt the new or revised standard. This may make comparison of our
financial statements with another public company which has opted into using the extended transition period difficult or impossible
because of the potential differences in accountant standards used.
We are also a smaller reporting company,
and we will remain a smaller reporting company until the fiscal year following the determination that our voting and non-voting
common shares held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter,
or our annual revenues are more than $100 million during the most recently completed fiscal year and our voting and non-voting
common shares held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.
Similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosure,
are exempt from the auditor attestation requirements of Section 404, and have certain other reduced disclosure obligations, including,
among other things, being required to provide only two years of audited financial statements and not being required to provide
selected financial data, supplemental financial information or risk factors.
We have elected to take advantage of certain
of the reduced reporting obligations available to us. We cannot predict whether investors will find our common stock less attractive
if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active
trading market for our common stock and our stock price may be reduced or more volatile.
Our ability to use our pre-change
NOLs and other pre-change tax attributes to offset post-change taxable income or taxes may be subject to limitation.
We may, from time to time, carry net operating
loss carryforwards (“NOLs”) as deferred tax assets on our balance sheet. Under Sections 382 and 383 of the Internal
Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater
than 50-percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year
period), the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its post-change
taxable income or taxes may be limited. We may experience ownership changes in the future as a result of shifts in our stock ownership,
some of which changes are outside our control. As a result, our ability to use our pre-change NOLs and other pre-change tax attributes
to offset post-change taxable income or taxes may be subject to limitation.
Raising funds through lending arrangements
may restrict our operations or produce other adverse results.
Our current Loan Agreement with Horizon,
which we entered into in March 2019, contains a variety of affirmative and negative covenants, including required financial reporting,
limitations on certain dispositions of assets, limitations on the incurrence of additional debt and other requirements. To secure
our performance of our obligations under this Loan Agreement, we granted a security interest in substantially all of our assets,
other than certain intellectual property assets, to Horizon. Our failure to comply with the covenants in the Loan Agreement, the
occurrence of a material impairment in our prospect of repayment or in the perfection or priority of Horizon’s lien on our
assets, as determined by Horizon, or the occurrence of certain other specified events could result in an event of default that,
if not cured or waived, could result in the acceleration of all or a substantial portion of our debt, potential foreclosure on
our assets and other adverse results. Additionally, we are bound by certain negative covenants setting forth actions that are
not permitted to be taken during the term of the Loan Agreement without consent of Horizon, including, without limitation, incurring
certain additional indebtedness, making certain asset dispositions, entering into certain mergers, acquisitions or other business
combination transactions or incurring any non-permitted lien or other encumbrance on our assets. The foregoing prohibitions and
constraints on our operations could result in our inability to: (i) acquire promising intellectual property or other assets on
desired timelines or terms; (ii) reduce costs by disposing of assets or business segments no longer deemed advantageous to retain;
(iii) stimulate further corporate growth or development through the assumption of additional debt; or (iv) enter into other arrangements
that necessitate the imposition of a lien on corporate assets.
Risks Relating to Securities Markets
and Investment in Our Stock
Our stock may be subject to substantial
price and volume fluctuations due to a number of factors, many of which are beyond our control and may prevent our stockholders
from reselling our common stock at a profit.
The market prices for securities of biotechnology
and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of particular companies.
The market price of our common stock is
likely to be highly volatile and may fluctuate substantially due to many factors, including:
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announcements
concerning the progress of our efforts to obtain regulatory approval for and commercialize
our product candidates or any future product candidate, including any requests we receive
from the FDA for additional studies or data that result in delays in obtaining regulatory
approval or launching these product candidates, if approved;
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market
conditions in the pharmaceutical and biotechnology sectors or the economy as a whole;
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price
and volume fluctuations in the overall stock market;
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the
failure of one or more of our product candidates or any future product candidate, if
approved, to achieve commercial success;
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announcements
of the introduction of new products by us or our competitors;
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developments
concerning product development results or intellectual property rights of others;
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litigation
or public concern about the safety of our potential products;
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actual
fluctuations in our quarterly operating results, and concerns by investors that such
fluctuations may occur in the future;
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deviations
in our operating results from the estimates of securities analysts or other analyst comments;
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additions
or departures of key personnel;
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health
care reform legislation, including measures directed at controlling the pricing of pharmaceutical
products, and third-party coverage and reimbursement policies;
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developments
concerning current or future strategic collaborations; and
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discussion
of us or our stock price by the financial and scientific press and in online investor
communities.
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Fortress controls a voting majority
of our common stock.
Pursuant to the terms of the Class A Preferred
Stock held by Fortress, Fortress is entitled to cast, for each share of Class A Preferred held by Fortress, the number of votes
that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the shares of outstanding
common stock and (B) the whole shares of common stock into which the shares of outstanding Class A common shares and the Class
A Preferred Stock are convertible and the denominator of which is the number of shares of outstanding Class A Preferred Stock.
Accordingly, Fortress is able to control or significantly influence all matters requiring approval by our stockholders, including
the election of directors and the approval of mergers or other business combination transactions. The interests of Fortress may
not always coincide with the interests of other stockholders, and Fortress may take actions that advance its own interests and
are contrary to the desires of our other stockholders. Moreover, this concentration of voting power may delay, prevent or deter
a change in control of us even when such a change may be in the best interests of all stockholders, could deprive our stockholders
of an opportunity to receive a premium for their common stock as part of a sale of Mustang or our assets, and might affect the
prevailing market price of our common stock.
Fortress has the right to receive
a significant grant of shares of our common stock annually which will result in the dilution of your holdings of common stock
upon each grant, which could reduce their value.
Under the terms of the Second Amended
and Restated Founders Agreement, which became effective July 22, 2016, Fortress will receive a grant of shares of our common stock
equal to two and one-half percent (2.5%) of the gross amount of any equity or debt financing. Additionally, the Class A Preferred
Stock, as a class, will receive an annual dividend on January 1st, payable in shares of common stock in an amount equal to two
and one-half percent (2.5%) of our fully-diluted outstanding capital stock as of the business day immediately prior to January
1st of such year. Fortress currently owns all outstanding shares of Class A Preferred Stock. These share issuances to Fortress
and any other holder of Class A Preferred Stock will dilute your holdings in our common stock and, if the value of Mustang has
not grown proportionately over the prior year, would result in a reduction in the value of your shares. The Second Amended and
Restated Founders Agreement has a term of 15 years and renews automatically for subsequent one-year periods unless terminated
by Fortress or upon a Change in Control (as defined in the Second Amended and Restated Founders Agreement).
We might have received better terms
from unaffiliated third parties than the terms we receive in our agreements with Fortress.
The agreements we have entered into with
Fortress include a Management Services Agreement and the Founders Agreement. While we believe the terms of these agreements are
reasonable, they might not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third
parties. The terms of the agreements relate to, among other things, payment of a royalty on product sales and the provision of
employment and transition services. We might have received better terms from third parties because, among other things, third
parties might have competed with each other to win our business.
The dual roles of our directors who also serve in similar roles with Fortress could create a conflict of interest and will require careful monitoring
by our independent directors.
We share some directors with Fortress. This could create
conflicts of interest between the two companies in the future. While we believe that the Founders Agreement and the Management
Services Agreement were negotiated by independent parties on both sides on arm’s length terms, and the fiduciary duties
of both parties were thereby satisfied, in the future situations may arise under the operation of both agreements that may create
a conflict of interest. We will have to be diligent to ensure that any such situation is resolved by independent parties.
In particular, under the Management Services Agreement, Fortress and its affiliates are free to pursue opportunities which could
potentially be of interest to Mustang, and they are not required to notify Mustang prior to pursuing such opportunities. Any such
conflict of interest or pursuit by Fortress of a corporate opportunity independent of Mustang could expose us to claims by our
investors and creditors and could harm our results of operations.
We may become involved in securities
class action litigation that could divert management’s attention and harm our business.
The stock markets have from time to time
experienced significant price and volume fluctuations that have affected the market prices for the common stock of biotechnology
and pharmaceutical companies. These broad market fluctuations may cause the market price of our stock to decline. In the past,
securities class action litigation has often been brought against a company following a decline in the market price of its securities.
This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant stock
price volatility in recent years. We may become involved in this type of litigation in the future. Litigation often is expensive
and diverts management’s attention and resources, which could adversely affect our business.