Overview
We are a clinical-stage biopharmaceutical
company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of
a patient’s own immune system to eradicate cancer cells. Tumor infiltrating lymphocyte, or TIL, therapy is a platform technology
that has already been studied for the treatment of metastatic melanoma and metastatic cervical cancer and other solid tumors by
the National Cancer Institute, or NCI. Our lead product candidate, lifileucel for metastatic melanoma, previously known as LN-144,
is an autologous adoptive cell therapy utilizing TIL, which are T cells derived from patients’ tumors. We are also developing
a second product candidate, an autologous adoptive cell therapy utilizing TIL for the treatment of cancers other than metastatic
melanoma, which is known as LN-145. We are investigating the effectiveness and safety of TIL therapy for the treatment of metastatic
melanoma, squamous cell carcinoma of the head and neck, cervical cancer and metastatic non-small cell lung cancer through company
sponsored trials, as well as for other oncology indications in investigator-sponsored trials. Our sponsored clinical trials and
our investigator-sponsor clinical trials are described in more detail below.
We have an on-going Phase 2 clinical trial,
C-144-01, of our lead product candidate, lifileucel, for the treatment of metastatic melanoma. This multicenter trial is enrolling
patients with melanoma whose disease has progressed following treatment with at least one systemic therapy, including a PD-1 inhibitor
and if BRAF mutated, a BRAF, or BRAF/MEK inhibitor (National Clinical Trial identification number NCT02360579). The purpose of
the trial is to evaluate the efficacy and safety of lifileucel. The C-144-01 trial uses our proprietary Generation 2, or Gen 2,
manufacturing process. We completed and closed Cohort 2 in this trial in 2018, and a new single-arm registrational cohort, Cohort
4, of this trial began enrollment in early 2019.
In addition to our ongoing trial in metastatic
melanoma, we have initiated clinical trials of LN-145, TIL therapy in cervical, head and neck, and other cancers. C-145-04 is an
ongoing Phase 2, multicenter trial that will assess the safety and efficacy of LN-145 for the treatment of patients with recurrent,
metastatic or persistent cervical cancer (NCT03108495). C-145-03 is an ongoing Phase 2, multicenter trial that will enroll up to
47 patients and will assess the safety and efficacy of LN-145 for the treatment of patients with recurrent metastatic squamous
cell carcinoma of the head and neck (NCT03083873).
We are investigating the potential of
our TIL therapies in earlier lines of treatment. IOV-COM-202 is a Phase 2, multicenter trial that is composed of three cohorts
to enroll up to a total of 36 patients. In Cohort 1, we intend to enroll advanced unresectable or metastatic melanoma patients
who have not received prior immunotherapy including checkpoint inhibitors such as anti-PD-1/anti-PD-L1 therapy. The patients will
receive lifileucel in combination with pembrolizumab. In Cohort 2, we intend to enroll advanced head and neck squamous cell carcinoma
patients who are also naïve to prior immunotherapy including anti-PD-1/anti-PD-L1 therapy. The patients will receive LN-145
in combination with pembrolizumab. In Cohort 3, we intend to enroll non-small cell lung cancer patients who have previously received
systemic therapy which could include checkpoint inhibitors. This trial is open for patient enrollment (NCT03645928).
We are also investigating TIL therapy in
non-small cell lung cancer, or NSCLC, in combination with anti-PD-L1 therapy. We have initiated a trial, IOV-LUN-201, in anti-PD-1/
PD-L1 naïve patients for the treatment of patients with a combination of LN-145 and durvalumab (NCT03419559). This trial was
initiated in the first half of 2018 and is a collaboration with MedImmune, the global biologics research and development arm of
AstraZeneca. In addition to this trial, we have financially sponsored an investigator-sponsored trial in NSCLC in collaboration
with the H. Lee Moffitt Cancer Center and Research Institute, or Moffitt, Stand Up To Cancer, and others evaluating the combination
of TIL therapy and nivolumab (NCT03215810). Patients who are treatment naïve to prior anti-PD-1/ PD-L1 therapy with stage
IV or recurrent NSCLC are being enrolled in this trial. Patients receive the TIL product if they do not respond to treatment with
nivolumab. The TIL product is manufactured by Moffitt for this trial. Patient dosing began in the fourth quarter of 2017, and preliminary
results from the Moffitt trial were presented at the World Conference on Lung Cancer in September 2018.
As part of our collaboration program with
the MD Anderson Cancer Center, or MDACC, two new Phase 2 trials were initiated in 2018. The first trial, 2017-0672 (NCT03449108),
is intended to allow for investigation of LN-145 manufactured by us using our Gen 2 manufacturing process to treat patients with
soft tissue sarcoma, osteosarcoma and platinum resistant ovarian cancer. A second trial under the collaboration with MDACC is now
active as well (NCT03610490). This trial will use TIL manufactured by MDACC using urelumab as part of the manufacturing process.
Both trials are sponsored by MDACC.
Our current product candidate pipeline
and selected investigator-sponsored proof-of-concept studies are summarized in the graph below:
For the two investigator-sponsored trials
listed in our pipeline graph above, MDACC is the sponsor. For one of the studies, NCT03610490, MDACC uses its own manufacturing
process, referred to here as MDACC TIL. The data obtained using this manufacturing process may not be representative of our data.
2018 Developments
In 2018, we reported several significant
events, including the following:
Clinical
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Enrollment in Cohort 2 of our global Phase 2 lifileucel metastatic
melanoma clinical trial, C-144-01, reached full enrollment in late 2018 and was therefore closed for further enrollment.
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We presented new data from Cohort 2 of the C-144-01 clinical trial
in a poster and as an oral presentation at the Society for Immunotherapy of Cancer, or SITC, 33rd Annual Meeting in Washington,
D.C. on November 7-11, 2018. The presentation included interim analysis of 47 consecutively dosed patients with an objective response
rate, or ORR, of 38%, with a median duration of response, or DOR, as of the date of the data extract, of 6.4 months and range of
1.3+ to 14+ months. The ORR includes one complete response and 17 partial responses. Patients in Cohort 2 had a mean of 3.3 prior
systemic therapies and all the patients had received anti-PD-1 immunotherapy. The most common treatment emergent adverse events
observed in Cohort 2 to date include chills, febrile neutropenia, anemia, decreased platelet count, pyrexia, and hypophosphataemia.
Two grade 5 events were reported, one not related to TIL therapy and one possibly related to TIL therapy.
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We continued patient dosing in our C-145-04 clinical trial for cervical
cancer. We dosed our first patient in Europe in this trial. This design is based on a Simon’s two-stage design. The first
stage has been completed and enrollment in the trial continues with target enrollment of 47. The preliminary data from the trial
for 15 patients was an ORR of 27% with a DOR ranging from 2.4 to 2.5+ months. Patients in the trial had a median of five prior
therapies. The safety findings from this trial remain consistent with previous reports. The most common treatment emergent adverse
events observed to date include chills, pyrexia, anemia, hypotension, platelet count decrease, and vomiting. The protocol for this
trial has been amended to limit the number of prior therapies to no more than three and to exclude patients who have been treated
with prior immunotherapy, and to use Gen 2 TIL manufacturing. We anticipate providing an update on this trial in 2019.
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In our C-145-03 clinical trial for head and neck cancer, to date,
preliminary data for 13 patients was an ORR of 31%, with 4 partial responses, with the DOR ranging from 2.8 to 7.6 months. Patients
in the trial had a median of three prior therapies. The safety findings from this trial are also consistent with previous reports.
The protocol for this trial has been amended to use Gen 2 TIL manufacturing. The most common treatment emergent adverse events
observed to date include chills, hypotension, pyrexia, hyponatremia, and anemia.
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We amended the protocol for our clinical trial in NSCLC in collaboration
with MedImmune, IOV-LUN-201, to eliminate the TIL monotherapy cohort. Patients will now be enrolled for treatment with LN-145 and
durvalumab. There are currently nine sites active for this trial.
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Our clinical trial in PD-1 naïve melanoma and head and neck patients
with TIL therapy in combination with pembrolizumab, and LN-145 as monotherapy in NSCLC patients, IOV-COM-202, was opened to enrollment
with two sites active.
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As of the end of 2018, we have expanded to over 90 clinical sites
for our five company-sponsored studies.
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Regulatory
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We received Regenerative Medicine Advanced Therapy, or RMAT, designation
for lifileucel for the treatment of patients with metastatic melanoma from the U.S. Food and Drug Administration, or FDA.
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We held an end of Phase 2 meeting with the FDA during which the FDA
acknowledged that a single-arm cohort as part of the C-144-01 clinical trial could be supportive of initial registration of lifileucel
and that conduct of a randomized Phase 3 trial in the patient population being enrolled may not be feasible. We began
patient enrollment in a new cohort, Cohort 4, of our C-144-01 clinical trial in early 2019. This will be a single-arm cohort for
registration in metastatic melanoma in a patient population that is post PD-1 blocking antibody and, if BRAF mutation positive,
a BRAF inhibitor or BRAF inhibitor with MEK inhibitor. We expect to fully enroll the necessary patients into this cohort by late
2019 or early 2020. Cohort 4 is expected to enroll 75 patients. The primary endpoint is ORR as determined by Blinded Independent
Review Committee, or BIRC. This protocol was submitted and approved by the FDA.
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Research
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Under a collaboration with the Ohio State University, we have developed
a product candidate called peripheral blood lymphocytes, or PBLs. A clinical program to administer PBLs in chronic lymphocytic
leukemia patients is expected to begin in 2019.
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We presented preclinical data from our PD-1 selected TIL therapy,
one of our next-generation TIL products, at SITC in November 2018.
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Under a research collaboration with Roswell Park Cancer Institute,
or RPCI, we performed preclinical studies of TIL therapy in bladder cancer. An investigator-sponsored clinical trial of TIL in
bladder cancer patients at RPCI is expected to begin in 2019.
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We announced a preclinical research collaboration with Cellectis S.A.,
or Cellectis, to investigate transcription activator-like effector nucleases, or TALEN, for genetic editing in conjunction with
TIL therapy.
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We announced a preclinical research collaboration with Phio Pharmaceuticals,
Inc., or Phio, to investigate self-delivering ribonucleic acid interference methods for altering genetic expression in conjunction
with TIL therapy.
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Manufacturing
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We announced a new three-year manufacturing services agreement, or
MSA, with MaSTherCell S.A, or MaSTherCell. MaSTherCell will manufacture TIL therapies for our European late-stage clinical trials
in its commercial-ready current Good Manufacturing Practices, or cGMP, manufacturing suites. The MSA increases our capacity for
manufacturing TIL therapies in Europe.
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We announced that we intend to begin building our own commercial manufacturing
facility in the U.S. in 2019.
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Corporate
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In January 2018 we closed an underwritten public offering of 15,000,000
shares of our common stock at a public offering price of $11.50 per share, before underwriting discounts. The shares sold included
1,956,521 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public
offering price, less the underwriting discount. The net proceeds from the offering, after deducting the underwriting discounts,
commissions and other offering expenses payable by us, were $162.0 million.
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In October 2018, we closed an underwritten public offering of 25,300,000
shares of our common stock at a public offering price of $9.97 per share, before underwriting discounts. The shares sold included
3,300,000 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public
offering price, less the underwriting discount. The net proceeds from the offering, after deducting the underwriting discounts,
commissions and other offering expenses payable by us, were $236.7 million.
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We obtained two U.S. patents, U.S Patent Nos. 10,130,659 and 10,166,257,
covering therapeutic methods based upon our proprietary Gen 2 TIL manufacturing process.
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Corporate Strategy
Our goal is to be a leader in the development
and commercialization of TIL-based immunotherapies to treat solid tumors. We are developing a portfolio of TIL-based product candidates
with the potential to meaningfully improve survival and quality of life for cancer patients. Key elements of our strategy include:
Expedite clinical development, regulatory
approval, and commercialization of our lead product candidate lifileucel for the treatment of metastatic melanoma.
Based on results of TIL therapy from trials
sponsored by the NCI and our own clinical trials in metastatic melanoma, we are focused on expediting the development, regulatory
approval and commercialization of our lead product candidate, lifileucel, for the treatment of patients with metastatic melanoma.
We filed an investigational new drug application, or IND, with the FDA in December 2014 to initiate a company-sponsored Phase 2
single-arm, multicenter clinical trial of lifileucel in patients with metastatic melanoma. We began enrollment of this trial in
the second half of 2015 and expanded it into three cohorts in 2017. In 2019 we will expand into an additional cohort, Cohort 4,
which will serve as the basis for registration. Cohort 1 evaluated our first-generation TIL manufacturing process, Cohort 2 evaluated
our second-generation, Gen 2, TIL manufacturing process and Cohort 3 evaluated retreatment of certain patients with a second dose
of TIL. We announced initial data from the first two arms of this trial at the ASCO and SITC Annual Meetings in 2017 and presented
updated data from Cohort 2 in November 2018 at SITC. Patient enrollment in Cohort 4 began in early 2019.
We held an end of Phase 2 meeting with
the FDA in September 2018. In addition we received an RMAT designation for lifileucel. Based on the meeting and subsequent dialog
with the FDA we submitted and the FDA has approved the protocol for Cohort 4 of the C-144-01 trial. We began patient
enrollment in Cohort 4 in early 2019. We expect to fully enroll the expected 75 patients into this cohort by late
2019 or early 2020. The primary endpoint is ORR as determined by BIRC.
Continue to improve our TIL manufacturing
process and develop new TIL manufacturing technology to become the preferred provider of TIL therapy in the U.S. and the rest of
the world.
We believe that we are the only company
in the United States to have a centralized TIL manufacturing process and location. In 2018, we utilized our second generation TIL
manufacturing process, known as Gen 2, which reduced TIL manufacturing time from 5-6 weeks to 22 days, allowing for a more commercially-viable
product candidate. Gen 2 also produces a cryopreserved product for ease of administration and handling. The Gen 2 manufacturing
process was utilized in completed Cohort 2 of our ongoing C-144-01 trial and will be used for Cohort 4 of this trial and has also
been selected for use in most of our other ongoing TIL clinical development. We have included Gen 2 as the manufacturing process
for registration for our discussions with the FDA and eventually the anticipated Biologics License Application, or BLA, filing
for lifileucel. Our strategy is to establish our Gen 2 process as a commercial manufacturing process for TIL therapies, including
lifileucel.
Collaborate with governmental, academic
and corporate partners to improve and develop TIL and PBL therapies for new indications or for use in combination with other therapies,
and to evaluate new manufacturing methods.
In addition to our own research and process
development efforts, we seek to collaborate with government, academic research institutions, and corporate partners to improve
TIL manufacturing and to develop TIL therapies for new indications. For example, in 2018, we announced new collaborations with
RPCI, Cellectis, and Phio, as described in the following sections, and continued our collaborations with Moffitt, MDACC, and the
Ohio State University, to evaluate several new solid tumor and hematologic indications for TIL and PBL therapy in clinical and
preclinical studies as well as, in some cases, new TIL manufacturing approaches. In August 2016, we expanded our Cooperative Research
and Development Agreement, or CRADA, with the NCI for another 5-year term. This collaboration with the NCI is directed at research
on unmodified TIL therapy and also addresses human papilloma virus, or HPV-associated cancers (cervical and head and neck), lung,
bladder, and breast cancer. A description of these collaborations and related agreements is provided in the following sections
of this Annual Report on Form 10-K.
Continue to establish manufacturing capacity
for TIL products.
We continue to invest in improving the process
and efficiency of manufacturing our product candidates in the United States and Europe for TIL manufacturing. Currently we use
several contract manufacturing organizations, or CMOs, to supply our TIL-based products for our clinical trials under various MSAs.
CMOs limit the amount of upfront capital investment.
We intend to begin construction of our own
manufacturing facility in 2019, in order to provide for better margins and rapid implementation of innovative changes for TIL therapies
that we may develop or commercialize. We intend to carefully manage our cost structure, and reduce the long-term cost of manufacturing
our products, although there can be no assurance that we will be able to reduce our manufacturing costs to commercially attractive
levels.
In October 2018, we entered into a three-year
MSA and related statement of work with MaSTherCell S.A., a subsidiary of Orgenesis Inc., a cell therapy-dedicated Contract Development
and Manufacturing Organization. Pursuant to the MSA, MaSTherCell agreed to provide manufacturing and other services for use in
our European clinical trials.
In 2017, we entered into a three-year MSA
and related statements of work with PharmaCell B.V., or PharmaCell, a contract manufacturing services company based in the Netherlands,
to manufacture our autologous cell therapy products for use in our European clinical trials. PharmaCell was subsequently acquired
by Lonza Group Ltd., or Lonza. Lonza manufactures TIL products for our European clinical trials in its clinical and commercial
facility in Geleen, the Netherlands.
Also in 2017, we entered into a two-year
MSA and related statements of work with Moffitt, to manufacture our autologous cell therapy products for use in clinical trials.
In 2016, we entered into a three-year MSA
and related statements of work with WuXi AppTec, Inc., or WuXi, in order to increase our TIL manufacturing capacity in facilities
with both clinical and commercial capability. We have extended the term of the MSA and related statements of work until May 2020.
We intend to use WuXi as the initial manufacturer for commercial production of lifileucel.
Iovance-Sponsored Clinical Trials
We currently have five ongoing Phase 2
clinical studies. The ongoing studies include C-144-01, of our lead product candidate, lifileucel, for the treatment of metastatic
melanoma; C-145-04, of our product candidate LN-145 for
recurrent, metastatic or persistent
cervical cancer; and
C-145-03, of our product candidate LN-145,
for recurrent and/or
metastatic squamous cell carcinoma of the head and neck. During 2018, we initiated a Phase 2 clinical trial,
IOV-COM-202,
a basket trial that will treat checkpoint naïve patients with TIL in combination with pembro for metastatic melanoma and head
and neck cancer. The trial also includes a cohort that will treat relapsed and refractory NSCLC patients with TIL alone.
Additional
information about our clinical trials is presented as follows:
Lifileucel for Metastatic Melanoma
We are developing lifileucel to treat
metastatic melanoma. Melanoma is a common type of skin cancer, accounting for approximately 91,000 patients diagnosed and 9,320
deaths each year in the United States according to the NCI’s Surveillance, Epidemiology and End Results program, or SEER
program, as of 2018. Our ongoing Phase 2 trial, C-144-01, is a prospective, registrational, four-cohort interventional study evaluating
lifileucel in metastatic melanoma patients who have progressed after prior anti-PD-1 therapy and if BRAF mutant, after BRAF or
BRAF/MEK inhibitor therapy. Patients enrolled in this trial to date have failed several prior treatment regimens.
Patients with metastatic melanoma who
have failed at least one treatment under the current standards of care have an unfavorable prognosis with very few curative treatment
options. The National Comprehensive Cancer Network, or NCCN, has updated its recommendations for the treatment of patients with
unresectable or metastatic melanoma. Initial therapy can include checkpoint inhibitors either alone or in combination (ipilimumab,
nivolumab, pembrolizumab), targeted therapies for patients with BRAF mutations (dabrafenib/trametinib, vemurafenib/cobimetinib
combinations or single agents) or participating in a clinical trial. For patients not responding or progressing and who have an
adequate clinical status, agents selected from the previous list or of a different therapeutic class can be used as well as high
dose IL-2. NCCN experts also recommend participating in a clinical trial at any stage of disease. Patients who do not respond to
the current second-line therapies have very few treatment options and typically have a very poor prognosis, with limited median
survival measured in months. According to estimates from Decision Resource Group’s
Disease Landscape and Forecast for
Malignant Melanoma
report, in the United States in 2018, approximately 4,950 melanoma patients are on their 3rd or 4th line
of therapy and approximately 6,282 melanoma patients are on their 2nd line of therapy.
We are using our Gen 2 manufacturing process
for all ongoing Phase 2 trials, and as a result, Cohort 1 of C-144-01, using our first generation or Gen 1 manufacturing process,
was closed to enrollment in 2017 and subsequent patients were enrolled in Cohort 2. The planned enrollment in C-144-01 was reached
in late 2018 and Cohort 2 is closed to enrollment. Cohort 3 is a retreatment cohort. In November 2018, we reported preliminary
data from Cohort 2 of C-144-01 for 47 patients, who demonstrated an ORR of 38% with an initial DOR of 6.4 months and a range of
1.3+ to 14+ months. ORR was determined by response evaluation criteria in solid tumors version 1.1, or RECIST 1.1, as reported
by each investigator. The ORR includes one complete response and 17 partial responses, one of which is unconfirmed because of the
patient not having reached the follow-on assessment as of the end of 2018. Patients in the study had a mean of 3.3 prior systemic
therapies and all the patients had received anti-PD-1 immunotherapy. The safety findings for C-144-01 remain consistent with previous
reports. The most common treatment emergent adverse events observed in this cohort to date include chills, febrile neutropenia,
anemia, decreased platelet count, pyrexia, and hypophosphataemia. Two grade 5 treatment emergent adverse events have been observed
to date. As additional patients are enrolled in the C-144-01 study, the safety profile of lifileucel may change.
We held an End of Phase 2 meeting
with the FDA, in September 2018 to discuss the C-144-01 study. In its written minutes to the meeting, the FDA acknowledged
that conduct of a randomized Phase 3 study may not be feasible in its intended population of advanced melanoma patients, who
have been treated with at least one systemic therapy including an anti-PD-1 antibody and if BRAF mutation positive, a BRAF
inhibitor or BRAF inhibitor with MEK inhibitor, and that a randomized study is not required for the registration of
lifileucel. The FDA further acknowledged that a single-arm cohort of the C-144-01 trial may be acceptable for registration in
this indication. A new cohort, Cohort 4, of 75 patients will be enrolled in C-144-01 with a prospective definition of the
primary endpoint of ORR to be read out by a BIRC, to support registration of lifileucel. The FDA recommended that we validate
a potency assay prior to starting Cohort 4, which we have done. We began enrolling patients in Cohort 4 in early 2019 in the
United States and in Europe and expect it to be fully enrolled by late 2019 or early 2020. A BLA submission to the FDA
including Cohort 4 results is expected in the second half of 2020.
LN-145 for Cervical Cancer
We are developing LN-145 to treat cervical
cancer. According to estimates from the SEER program, approximately 13,000 women were diagnosed with cervical cancer, and approximately
4,000 cervical cancer-related deaths occurred in the United States in 2018.
In August 2017, we enrolled our first patient
in our ongoing
Phase 2 trial, C-145-04, for the treatment of patients with recurrent, metastatic
or persistent cervical cancer who have failed one prior therapy. The trial met the initial efficacy threshold for the first stage
of the Simon’s two stage design and continued to enroll patients to reach the full target sample size of 47 patients. The
study is enrolling patients in the United States and Europe.
Preliminary data for 15 patients yielded an ORR of 27%. While
the median DOR was not reached at the time of that data report, the range of available data was from 2.4 to 2.5+ months. Patients
in the study had a median of five prior therapies. The safety findings from this study remained consistent with previous reports.
The most common treatment emergent adverse events observed to date included chills, pyrexia, anemia, hypotension, platelet count
decrease, and vomiting. The protocol for this study has been amended to limit the number of prior therapies to 1-3 and to exclude
patients who have been treated with prior immunotherapy, and to exclusively use Gen 2 TIL manufacturing process. We anticipate
providing an update on this study at a medical conference in 2019. As additional patients are enrolled in the C-145-04 study, the
safety profile of LN-145 may change.
LN-145 for Head and Neck Cancer
According to estimates from the SEER program,
approximately 65,000 people were diagnosed with head- and neck-related cancers, and approximately 14,000 head- and neck- related
cancer deaths occurred in the United States in 2018.
We are developing LN-145 to treat head
and neck cancers. In June 2017, we enrolled our first patient in our ongoing Phase 2 trial, C-145-03,
for
the treatment of patients with recurrent and/or metastatic squamous cell carcinoma of the head and neck, who have failed one prior
therapy. The trial has met the initial efficacy threshold for the first stage of the Simon’s two stage design and will continue
to enroll patients to the full target sample size of 47 patients. The trial is enrolling patients in the United States. We have
amended the protocol so that newly enrolled patients will be treated using LN-145 produced from the Gen 2 manufacturing process.
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o date, preliminary data for 13 patients has yielded an ORR of 31%, with 4 partial responses, with the DOR ranging from
2.8 to 7.6 months. Patients in the study had a median of three prior therapies. The safety findings from this study are also consistent
with previous reports. The protocol for this study has been amended to use Gen 2 TIL manufacturing. The most common treatment emergent
adverse events observed to date include chills, hypotension, pyrexia, hyponatremia, and anemia. As additional patients are enrolled
in the C-145-03 study, the safety profile of LN-145 may change.
LN-145 for Non-Small Cell Lung Cancer
We are developing LN-145 to treat NSCLC.
According to estimates from the SEER program, approximately 234,000 people were diagnosed with lung and bronchus cancers, and approximately
154,000 deaths occurred related to these cancers in the United States in 2018.
Under our collaboration with MedImmune,
we have initiated a two-cohort
Phase 2 trial, IOV-LUN-201, in combination with durvalumab
for the treatment of patients with locally advanced metastatic NSCLC. Patients in this study will be naïve to PD-1 or PD-L1
therapy. The study is expected to begin enrollment in 2019. The study will use Gen 2 TIL manufacturing process.
Investigator-Sponsored Clinical Trials
TIL in Other Solid Tumor Indications
We are collaborating with MDACC on clinical
trials to evaluate TIL therapy in sarcomas, ovarian cancer and pancreatic cancer. These trials, NCT03610490 and NCT03449108, began
enrolling patients in 2018. Patients in these trials will be treated with LN-145 or TIL manufactured by MDACC.
We are collaborating with RPCI on a clinical
trial to evaluate TIL therapy in bladder cancer. This trial is expected to begin enrolling patients in 2019. Patients in this trial
will be treated with LN-145.
TIL in Combination with Other Immunotherapy
Drugs
Checkpoint inhibitors are a class of immunotherapy
drugs that seek to overcome one of cancer’s main defenses against an immune system attack. PD-1 is a checkpoint protein found
on immune cells called T cells. It normally acts as a type of “off switch” that helps prevent T cells from attacking
other cells in the body. It does this by attaching to PD-L1, a protein found on both normal and cancerous cells, which may then
shut down an attack by a T cell. Some cancer cells have large amounts of PD-L1 expressed on their surfaces, which helps them evade
T cell attack.
We are collaborating with Moffitt in study
NCT03215810, which
is currently enrolling patients to evaluate TIL therapy in combination
with the checkpoint inhibitor nivolumab in NSCLC. An additional clinical trial,
NCT03374839,
is being conducted by Moffitt to evaluate TIL therapy in combination with nivolumab in metastatic melanoma. We have also
previously collaborated with Moffitt on a clinical trial,
NCT01701674,
to evaluate
TIL therapy in combination with the CTLA-4 checkpoint inhibitor ipilimumab.
Under our CRADA, we are collaborating
with the NCI in study
NCT02621021
to evaluate TIL therapy in combination with the
checkpoint inhibitor pembrolizumab in a 170-patient clinical trial in patients with advanced melanoma. This study is currently
enrolling.
TIL Therapy Background
Immune system
The immune system recognizes danger signals
and responds to threats at a cellular level. The most significant components of the cellular aspect of the adaptive immune response
are T cells, or T lymphocytes, so called because they mature in the thymus and are distinguished from B cells which mature in the
bone marrow. T cells can be distinguished from other white blood cells by T cell receptors present on their cell surface. These
receptors contribute to tumor surveillance by helping T cells recognize infected cells as well as cancerous cells. T cells are
involved in both sensing and killing infected or cancerous cells, as well as coordinating the activation of other cells in an immune
response.
Cancer immunotherapy
Despite the progress that has been made
over the past several decades, effective treatment of cancer, especially solid tumors, continues to be challenging. Some reasons
solid tumors are so difficult to treat are: (i) in many solid tumors, multiple genes (as many as hundreds or thousands of genes)
are mutated, and solid tumors are heterogeneous, (ii) it is not always clear which particular mutations are critical, and (iii)
tumors can adapt and find a way to evade treatments that target a single mutation. In addition, the tumor can suppress the patient’s
natural immune response. When T cells with cancer-specific receptors are absent, present in low numbers, of poor quality, or rendered
inactive by suppressive mechanisms employed by tumor tissue, the cancer can grow and spread to various organs. In addition, standard
of care treatments for cancer can be deleterious to T cells' ability to kill cancer.
We believe that adoptive cell therapy,
with the use of human cells as therapeutic entities to reengage the immune system, may be a significant advancement in the treatment
of cancer. These one-time cellular therapies may avoid the long-term side effects associated with current treatments and have the
potential to be effective. We believe TIL therapy, in particular, has the potential to treat solid tumors by increasing the effectiveness
and number of a patient's cancer-specific T cells. TIL therapy is polyclonal, and we believe that it is capable of targeting multiple
tumor antigens on cancer cells. Furthermore, the non-myeloablative lymphodepleting chemotherapy administered prior to TIL infusion
is capable of suppressing the hostile tumor microenvironment, which we believe will enhance the efficacy of TIL therapy.
Tumor-infiltrating lymphocytes
Adoptive cell therapy with TIL involves
the following steps:
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Excision: After a surgical resection of a lesion, a patient’s TIL are removed from the tumor
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2.
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Extraction: Tumor is fragmented and placed in media for TIL to leave the tumor
|
|
3.
|
Expansion: TIL expanded exponentially
ex vivo
to yield 10
9
– 10
11
TIL
|
|
4.
|
Preparation and Infusion: Patient receives non-myeloablative lymphodepletion to eliminate potentially suppressive tumor microenvironment
and maximize engraftment and potential potency of TIL therapy; patient is infused with their expanded TIL and up to 6 doses of
IL-2 to promote activation, proliferation and anti-tumor cytolytic activity of TIL
|
Currently, our Gen 2 manufacturing process
takes 22 days from receipt of the patient’s tumor at the manufacturing facility until shipping of the final TIL product to
the institution for infusion of the TIL back into the patient. We currently treat patients with a single infusion of TIL, although
our protocols allow for evaluation of more than one administration of TIL. After infusion, TIL can potentially infiltrate the tumor
microenvironment to eliminate large numbers of cancer cells. TIL can also further proliferate in the body. TIL therapy can potentially
overcome several mechanisms of tumor escape to which endogenous T cells may be susceptible due to the hostile tumor microenvironment.
Historical clinical results with
TIL in metastatic melanoma
To date, hundreds of metastatic melanoma
patients have already been treated with TIL therapy produced locally using different manufacturing methods at different academic
institutions and hospitals in the United States, Europe, Canada, and Israel. At NCI, clinical responses have been relatively consistent
in several trials: over 50% of the melanoma patients treated with TIL have an objective response (i.e. tumor regression of 30%
or more, as defined by RECIST criteria) and approximately 22-24% of patients have a complete response (tumor regression of 100%)
with no evidence of disease remaining after only one administration. Most patients who have had a complete response remained in
response in 3-7 years of follow up. Furthermore, patients can respond to TIL therapy regardless of their prior therapies.
In September 2015, Dr. Rosenberg, a recognized
pioneer in immuno-oncology and adoptive cell therapy using TIL, presented updated findings from a Phase 2 clinical trial of TIL
therapy in metastatic melanoma at the American Association for Cancer Research Inaugural International Cancer Immunotherapy Conference.
Data was presented from a 101 patient, Phase 2 clinical trial conducted at the NCI. In the trial, patients with advanced metastatic
melanoma were equally divided in two groups. Both groups were treated according to a standard TIL protocol using nonmyeloablative,
or NMA, chemotherapy, with the second group also receiving total body irradiation. 54% of the patients treated with TIL therapy
achieved an objective response. An objective response occurs when there is a complete remission or a partial remission of the tumor.
Out of the 101 patients, 24, or 24%, had experienced a complete remission and 23 of the 24, or 96%, showed ongoing durability of
this response at 30 to 47 months following treatment, at the time of publication. Median follow-up time was approximately
40.9 months. Overall survival, or OS, was approximately 80% at 12 months, and median OS had not yet been achieved. Median
progression-free survival was approximately 8-10 months. This observation was also presented by Dr. Stephanie Goff at the 2016
ASCO meeting and published in the Journal of Clinical Oncology in June 2016. At the ASCO 2018 meeting, Dr. Goff presented
updated findings from the study. Patients that had prior anti PD-1 treatment had an ORR of 20-25%.
Overall Survival
of patients in TIL ± TBI study
Source: Goff, S.L. et al. Randomized,
Prospective Evaluation Comparing Intensity of Lymphodepletion Before Adoptive Transfer of Tumor-Infiltrating Lymphocytes for Patients
With Metastatic Melanoma. Journal of Clinical Oncology, 34(20), 2389-2397.
Clinical results with TIL in other
solid tumor indications
Under our CRADA with the NCI, we are providing
research, development and clinical funding for the development of unmodified TIL therapy for a variety of solid tumor indications,
including HPV-associated cancers (cervical, head and neck), bladder, breast, and lung cancers. The NCI has an ongoing clinical
trial involving TIL therapy to treat advanced HPV-positive cervical cancer. Data from this trial was published in the
Journal
of Clinical Oncology
in April 2015 and in
Science
in April 2017 and was updated at the ASCO meeting in 2018. Out of
18 cervical cancer patients treated with HPV-TIL, two experienced complete remissions reported as ongoing at 53 and 67 months.
Another three patients experienced a three-month partial response. Additionally, the NCI has ongoing trials to treat patients using
TIL with colorectal cancer, gastric cancer, pancreatic cancer, hepatocellular carcinoma and cholangiocarcinoma and lung cancer.
Depending on results from the research and development and clinical trials conducted at the NCI under our CRADA, we may pursue
the development and regulatory approval of TIL therapy for additional indications.
Safety
We continue to enroll patients in our ongoing
TIL programs and we closely monitor our studies to learn about all safety events occurring, as described elsewhere in this Annual
Report on Form 10-K. Some of these events may be associated with TIL therapy. To date, however, the largest set of data for TIL
therapy was generated by the NCI as part of their multiple clinical studies. Per publications from the NCI, toxicities or adverse
events during TIL therapy have been mostly associated with either the lymphodepletion regimen or the high-dose IL-2 therapy given
after TIL infusion as described by Goff et al. in the
Journal of Clinical Oncology
in June 2016. The standard approach to
the administration of high-dose IL-2 is to continue dosing until patients can no longer tolerate treatment. Our trials, however,
have limited administration of IL-2 to up to 6 doses.
Next Generation TIL Product Strategies
We are developing next generation TIL products
using owned and licensed intellectual property rights, in some cases in combination with collaborators such as Phio Pharmaceuticals
and Cellectis, as described elsewhere in this Annual Report on Form 10-K. These products include both genetically-modified TIL
and PD-1 selected TIL therapies. We are also developing PBL therapy for chronic lymphocytic leukemia.
Process Development, Manufacturing, and Manufacturing Agreements
Our first generation TIL manufacturing
process was based on the NCI’s original manufacturing and processing of TIL, which we modified so that it could be reproduced
in a cGMP environment. This first-generation process expanded the number of TIL over a 5 to 6 week period and produced a non-cryopreserved
product for administration to the patient. Our Gen 2 TIL manufacturing process, which was developed by our internal research and
process development team, shortens the manufacturing process while allowing for a cryopreserved product. The Gen 2 process is currently
in use in all of our trials in which we manufacture TIL products, including lifileucel and LN-145. We have selected Gen 2 for product
registration and ongoing and future TIL clinical development, although we continue to develop new TIL manufacturing processes.
The Gen 2 manufacturing process begins
with the collection of the patient’s tumor, which is then sent to a central manufacturing facility, where the T cells are
isolated. These cells are stimulated to proliferate, then propagated in cell culture flasks until sufficient cells are available
for infusion back into the patient. The TIL is then washed and put in media suitable for cryopreservation and infusion. The final
product is shipped back to the clinical center where it can be administered to the patient. The following diagram illustrates our
Gen 2 TIL manufacturing process.
We have entered into MSAs with WuXi, Moffitt,
MaSTherCell, and PharmaCell, which was acquired by Lonza, pursuant to which they have agreed to manufacture, package, ship and
handle quality assurance and quality control of certain clinical trials for our TIL products working closely with our employees.
We have two suites for clinical manufacturing at WuXi, and one of those suites is also available to manufacture TIL for commercial
use. Cell processing activities will be conducted at all companies under cGMP, using qualified equipment and materials. We believe
that all materials and components utilized in the production of the final TIL product are readily available from qualified suppliers.
We expect to rely on these CMOs, to meet anticipated clinical trial and if approved, commercial demands. In the future, we may
rely on them or other third parties, or our own manufacturing capabilities for the manufacturing and processing of TIL-based product
candidates for our clinical trials.
To meet projected needs for commercial
sale quantities, we intend to build our own commercial manufacturing facility to supply and process products. Developing our own
manufacturing capabilities may be costlier than we anticipate or result in significant delays. If we are unable to develop our
own manufacturing capabilities, we may need to rely on CMOs, including both current and alternate suppliers, to ensure sufficient
capacity is available for commercial purposes.
WuXi AppTec
In November 2016, the Company entered
into a three-year manufacturing and services agreement, or MSA, with WuXi pursuant to which WuXi agreed to provide manufacturing
and other services. Under the agreement, the Company entered into two statements of work for two cGMP manufacturing suites to be
established and operated by WuXi for the Company, one of the suites is expected to be capable of being used for the commercial
manufacture of our products. The statements of work for each facility include a fixed component to reserve a dedicated suite and
a variable component, mainly labor and materials used during the manufacturing process. The Company and WuXi have extended the
terms of the related statements of work until May 2020.
Personalized Patient Product Management
In September 2017, we entered into a partnership
with TrakCel Ltd. to build a scheduling and logistics software tool that automates the supply chain for our TIL therapy products.
The TrakCel software will electronically link us with our clinical sites, CMOs and couriers to schedule and track TIL therapies
for each patient. The TrakCel software is also intended to help manage capacity utilization and throughput and will provide efficiencies
in the delivery of TIL treatment.
The TrakCel software is also designed to
ensure chain of identity for each patient’s product. Because our product candidates are specifically manufactured for each
individual patient, we will be required to maintain a chain of identity with respect to the patient’s tumor as it moves from
the patient to the manufacturing facility, through the manufacturing process, and back to the patient.
Orphan Drug Designation
During 2015, we received an orphan-drug
designation for lifileucel in the United States to treat malignant melanoma stages IIB-IV. If approved, this designation provides
seven years of market exclusivity in the United States, subject to certain limited exceptions. However, the orphan drug designation
does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.
During 2018, we received an orphan drug
designation from the FDA for L-145 for the treatment of cervical cancer with a tumor size of greater than 2 cm in diameter.
Fast Track Designation
In August 2017, we announced that the FDA
had granted Fast Track designation for lifileucel for the treatment of advanced melanoma. The FDA’s Fast Track process is
designed to facilitate the development and expedite the review of drugs that treat serious conditions and fill an unmet medical
need. Fast Track designation allows more frequent meetings and communications with the FDA to discuss the drug’s development
plans and review process. The Fast Track designation also allows for the possibility a rolling review of a BLA by FDA.
Regenerative Medicine Advanced Therapy Designation
In October 2018, we announced that the FDA
had granted RMAT designation for lifileucel for the treatment of patients with metastatic melanoma. The RMAT designation is based
on data provided to the FDA from our C-144-01 study. RMAT designation is granted for regenerative medicine drugs and allows for
increased access to FDA during development. Under this designation, surrogate endpoints can be used to receive approval for a product,
accelerated approval may be granted, and a rolling review of a BLA may be permitted by FDA.
Commercialization Plan
We currently have no sales, marketing or
commercial product distribution capabilities. We have limited personnel dedicated to commercialization. As we make progress towards
registration of lifileucel, we plan to build sales and commercialization capabilities in support of commercialization of our products.
We have not yet decided on a commercial
strategy for our TIL products. Our commercial strategy for markets outside the U.S. may include the use of strategic partners,
distributors, a contract sales force or the establishment of our own commercial infrastructure. We plan to further evaluate these
alternatives as we approach approval for one of our product candidates.
As additional product candidates advance
through our pipeline, our commercial plans may change. Clinical data, size of the development programs, size of the target market,
size of a commercial infrastructure, intellectual property protection and manufacturing needs may all influence our U.S., Europe
and rest-of-world strategies.
Intellectual Property
Intellectual property is of importance
in our field and in biotechnology generally. We seek to protect and enhance proprietary technology, inventions, and improvements
that are commercially important to the development of our business by seeking, maintaining, and defending patent rights, whether
developed internally or licensed from third parties. We also plan to rely on regulatory protection afforded through orphan drug
designations, available regulatory exclusivities and patent term extensions where available. To achieve this objective, a strategic
focus for us has been to develop our own intellectual property, while also identifying and licensing patents that provide protection
and serve as an optimal platform to enhance our intellectual property and technology base.
We have engaged in the development of our
own patent portfolio based on internal research and development activities in 2018. As a result, we now own a number of pending
patent applications and granted patents in the fields of TIL therapy, marrow infiltrating lymphocyte or MIL therapy, PBL therapy,
TIL, MIL, and PBL manufacturing processes, and TIL, MIL, and PBL expansion methods. Our patent portfolio includes two recently-granted
U.S. patents related to our Gen 2 TIL manufacturing process. We expect to further develop our own patent portfolio as a strategic
focus in 2019.
Research, Development and License Agreements
Currently, preclinical research and development
is conducted primarily at our own internal research and development laboratory in Tampa, Florida, and additionally with the NCI,
Moffitt, and MDACC, as described below. We also have preclinical collaborations with MDACC, RPCI, and Ohio State University. We
sponsor our own clinical trials and also collaborate on investigator-sponsored clinical trials with the NCI, Moffitt, MDACC, and
RPCI.
In addition, we hold exclusive, co-exclusive,
and non-exclusive licenses to certain patent and other intellectual property rights with the National Institutes of Health, or
NIH, an agency of the United States Public Health Service within the Department of Health and Human Services, Moffitt, MDACC, and
PolyBioCept as described below in this Annual Report on Form 10-K.
National Institutes of Health and
the National Cancer Institute
Cooperative Research and Development
Agreement
In August 2011, we signed a five-year CRADA
with the NCI to work with Dr. Steven Rosenberg on developing adoptive cell immunotherapies that are designed to destroy metastatic
melanoma cells using a patient’s tumor infiltrating lymphocytes.
In January 2015, we executed an amendment
to the CRADA to include four new indications. As amended, in addition to metastatic melanoma, the CRADA included the development
of TIL therapy for the treatment of patients with bladder, lung, triple-negative breast, and HPV-associated cancers.
In August 2016, the NCI and we entered into
a second amendment to the CRADA. The principal changes effected by the second amendment included (i) extending the term of the
CRADA by another five years to August 2021, and (ii) modifying the focus on the development of unmodified TIL as a stand-alone
therapy or in combination with FDA-licensed products and commercially available reagents routinely used for adoptive cell therapy.
The parties will continue the development of improved methods for the generation and selection of unmodified TIL with anti-tumor
reactivity in metastatic melanoma, bladder, lung, breast, and HPV-associated cancers.
Pursuant to the terms of the CRADA, as amended,
we are required to make quarterly payments of $0.5 million to the NCI for support of research activities. To the extent we license
patent rights relating to TIL-based product candidates under this agreement, we will be responsible for all patent-related expenses
and fees, past and future, relating to the TIL-based product candidate. In addition, we may be required to supply certain test
articles, including TIL, grown and processed under cGMP conditions, suitable for use in clinical trials, where we hold the investigational
new drug application for such clinical trial. The extended CRADA has a five-year term expiring in August 2021. Either party may
unilaterally terminate the CRADA for any reason or for no reason at any time by providing written notice at least 60 days before
the desired termination date.
Patent License Agreement Related to
the Development and Manufacture of TIL
Effective October 5, 2011, we entered
into a Patent License Agreement (“the Patent License Agreement”) with the NIH, which Patent License Agreement was subsequently
amended on February 9, 2015 and October 2, 2015. Pursuant to the Patent License Agreement as amended, the NIH granted us licenses,
including exclusive, co-exclusive, and non-exclusive licenses, to certain technologies relating to unmodified autologous tumor
infiltrating lymphocyte adoptive cell therapy products for the treatment of metastatic melanoma, lung, breast, bladder and HPV-positive
cancers. Unless terminated sooner, the license shall remain in effect until the last licensed patent right expires. The Patent
License Agreement requires the Company to pay royalties based on a percentage of net sales (which percentage is in the mid-single
digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark royalty payments on the achievement of
certain clinical and regulatory milestones for each of the various indications and other direct costs incurred by the NIH pursuant
to the agreement.
Exclusive Patent License Agreement
Related to TIL Selection
On February 10, 2015, we entered into
an Exclusive Patent License Agreement (the “Exclusive Patent License Agreement”) with the NIH under which we received
an exclusive license to the NIH’s rights to patent-pending technologies related to methods for improving adoptive cell therapy
through potentially more potent and efficient production of TIL from melanoma tumors by selecting for T-cell populations that express
various inhibitory receptors. Unless terminated sooner, the license shall remain in effect until the last licensed patent right
expires. Under the Exclusive Patent License Agreement, the Company agreed to pay customary royalties based on a percentage of net
sales of a licensed product (which percentage is in the mid-single digits), a percentage of revenues from sublicensing arrangements,
and lump sum benchmark payments upon the successful completion of clinical studies involving licensed technologies, the receipt
of the first FDA approval or foreign equivalent for a licensed product or process resulting from the licensed technologies, the
first commercial sale of a licensed product or process in the United States, and the first commercial sale of a licensed product
or process in any foreign country.
H. Lee Moffitt
Cancer Center
Research Collaboration
and Clinical Grant Agreements with Moffitt
In December 2016, we entered into a new three-year
sponsored research agreement, or SRA, with Moffitt. The SRA covers research aimed at better understanding TIL products and enhancing
the therapeutic efficacy of TIL.
We have entered into three clinical grant
agreements with Moffitt involving investigator-sponsored trials. In June 2017, we entered into a clinical grant agreement with
Moffitt to evaluate TIL therapy in a clinical trial that combines TIL with nivolumab in NSCLC. Dosing in this clinical trial began
in late 2017. This Phase 1 study (NCT03215810) is designed to enroll up to 18 patients with advanced NSCLC. Initial results were
reported at the 19
th
World Conference on Lung Cancer in September 2018. Under this clinical grant agreement, we obtained
a non-exclusive, royalty-free license to any new Moffitt inventions made in the performance of the agreement. In December 2016,
we entered into a clinical grant agreement with Moffitt under which we provide support for an ongoing clinical trial at Moffitt
that combines TIL therapy with nivolumab for the treatment of patients with metastatic melanoma. In July 2014, we entered into
a clinical grant agreement with Moffitt under which we provided support for a clinical trial at Moffitt that combines TIL therapy
with ipilimumab for the treatment of patients with metastatic melanoma. Under all three clinical grant agreements with Moffit,
we have non-exclusive rights to clinical data arising from the respective clinical trials.
Exclusive License
Agreement with Moffitt
We entered into a license agreement with
Moffitt, or the “First Moffitt License”, effective as of June 28, 2014, under which we received a world-wide license
to Moffitt’s rights to patent-pending technologies related to methods for improving TIL for adoptive cell therapy using toll-like
receptor agonists. Unless earlier terminated, the term of the license extends until the earlier of the expiration of the last issued
patent related to the licensed technology or 20 years after the effective date of the license agreement.
Pursuant to the First Moffitt License, we
paid an upfront licensing fee in the amount of $0.1 million. A patent issuance fee will also be payable under the First Moffitt
License, upon the issuance of the first U.S. patent covering the subject technology. In addition, we agreed to pay milestone license
fees upon completion of specified milestones, customary royalties based on a specified percentage of net sales (which percentage
is in the low single digits) and sublicensing payments, as applicable, and annual minimum royalties beginning with the first sale
of products based on the licensed technologies, which minimum royalties will be credited against the percentage royalty payments
otherwise payable in that year. We will also be responsible for all costs associated with the preparation, filing, maintenance
and prosecution of the patent applications and patents covered by the First Moffitt License related to the treatment of any cancers
in the United States, Europe and Japan and in other countries designated by us in agreement with Moffitt.
PolyBioCept and Karolinska University
Hospital
PolyBioCept Exclusive and Co-Exclusive
License Agreement
On September 14, 2016, we entered into an
exclusive and co-exclusive license Agreement, or the PolyBioCept Agreement, with PolyBioCept. PolyBioCept has filed two patent
applications with claims related to a cytokine cocktail for use in expansion of lymphocytes, one of which has been abandoned. Under
the PolyBioCept Agreement, we received the exclusive right and license to PolyBioCept’s intellectual property to develop,
manufacture, market and genetically engineer TIL produced by expansion, selection and enrichment using a proprietary cytokine cocktail.
We also received a co-exclusive license (with PolyBioCept) to develop, manufacture and market genetically engineered TIL under
the same intellectual property. The licenses are for the use in all cancers and are worldwide in scope, with the exception that
the uses in melanoma are not included for certain countries of the former Soviet Union.
We paid PolyBioCept a total of $2.5 million
as an upfront exclusive license payment. We will also have to make additional milestone payments to PolyBioCept under the PolyBioCept
Agreement if, and when, (i) certain product development milestones are achieved, (ii) certain regulatory approvals have been obtained
from the FDA and/or the European Medicines Agency, and (iii) certain product sales targets are achieved. The milestone payments
will be payable both in cash (U.S. dollars) and in shares of our common stock. If all the foregoing product development, regulatory
approval and sales milestone payments are met, we will have to pay PolyBioCept an additional $8.7 million and will have to issue
to PolyBioCept a total 2,219,376 shares of unregistered common stock. In addition to these potential payments, we reimbursed PolyBioCept
$0.2 million in expenses related to the transfer of know-how and paid PolyBioCept $0.1 million as a clinical trials management
fee. The PolyBioCept Agreement has an initial term of 30 years and may be extended for additional five-year periods.
Karolinska University Hospital and
Karolinska Institute Agreements
In connection with the execution of the PolyBioCept
Agreement, we also (i) entered into a clinical trials agreement with the Karolinska University Hospital to conduct clinical trials
in glioblastoma and pancreatic cancer at the Karolinska University Hospital, and (ii) agreed to enter into a sponsored research
agreement with the Karolinska Institute for the research of the cytokine cocktail in additional indications. In the year ended
December 31, 2016, we paid Karolinska University Hospital $1.6 million to conduct these clinical trials. As of April 9, 2018, we
terminated the clinical trials agreement with the Karolinska University Hospital. In June 2018, we received a refund of $1.6 million
from Karolinska University Hospital, which resulted in a reversal of prior period expenses and a credit of $0.4 million in our
consolidated statement of operations for the year ended December 31, 2018.
M.D. Anderson Cancer Center
In April 2017, we entered into a Strategic
Alliance Agreement, or SAA, with MDACC under which we and MDACC agreed to conduct clinical and preclinical research studies. We
agreed in the SAA to provide total funding not to exceed approximately $14.2 million for the performance of the multi-year studies
under the SAA. In return, we will acquire all rights to inventions resulting from the studies and have been granted a non-exclusive,
sub-licensable, royalty-free, and perpetual license to specified background intellectual property of MDACC reasonably necessary
to exploit, including the commercialization thereof. We have also been granted certain rights in clinical data generated by MDACC
outside of the clinical trials to be performed under the SAA. The SAA’s term shall continue in effect until the later of
the fourth anniversary of the SAA or the completion or termination of the research and receipt of all deliverables due to us from
M.D. Anderson thereunder. In May 2017, the Company made a prepayment of $1.4 million under this agreement.
Roswell Park Cancer Institute
In November 2018, we entered into an SAA
with RPCI to conduct a clinical research study of TIL therapy in bladder cancer. The trial is being conducted and sponsored by
RPCI and will use LN-145 manufactured by us. We plan to initiate dosing in this study in 2019. Previously, in July 2018, we entered
into a Research Collaboration Agreement with Roswell Park Cancer Institute for a pre-clinical collaboration to explore the potential
for TIL therapy in bladder and other cancers.
MedImmune
In December 2015, we entered into a collaboration
agreement, which we refer to as the MedImmune Agreement, with MedImmune, the global biologics research and development arm of AstraZeneca,
to conduct clinical and preclinical research in immuno-oncology. Under the terms of the MedImmune Agreement, we will fund and conduct
at least one clinical trial combining MedImmune's PD-L1 inhibitor, durvalumab, which will be supplied by MedImmune, with TIL
product manufactured by us. In December 2017, under the MedImmune Agreement, we announced a Phase 2 multicenter clinical trial
in NSCLC, IOV-LUN-201, to be sponsored by us. The protocol for this trial was amended in 2018 to enroll 12 anti-PD-1/ PD-L1 naïve
NSCLC patients for treatment with durvalumab first, and if they fail to respond, for treatment with LN-145. This clinical trial
is expected to begin enrolling patients in 2019.
Ohio State University
In September 2017, we entered into a preclinical
research collaboration with the Ohio State University focused on TIL, MIL and PBL technologies. The collaboration focuses on hematologic
malignancies in areas of poor prognostic cancer with high unmet need, which include AML and CLL.
Cellectis and Phio
In June 2018, we entered into a preclinical
research collaboration with Cellectis S.A., or Cellectis, to investigate transcription activator-like effector nucleases, or TALEN,
for genetic editing in conjunction with TIL therapy. In May 2018, we entered into a preclinical research collaboration with Phio
Pharmaceuticals, Inc., or Phio, to investigate self-delivering ribonucleic acid interference methods for altering genetic expression
in conjunction with TIL therapy.
Competition
The biotechnology and pharmaceutical industries
put significant resources in developing novel and proprietary therapies for the treatment of cancer. We compete with multiple entities
who have developed and are developing immuno-oncology therapies, including large and specialty pharmaceutical and biotechnology
companies, academic research institutions and governmental agencies and public and private research institutions, as well as companies
developing novel targeted therapies for cancer. Universities and public and private research institutions in the U.S. and Europe
are also potential competitors. For example, a Phase 3 study comparing TIL to standard ipilimumab in patients with metastatic melanoma
is currently being conducted in Europe by the Netherlands Cancer Institute, the Copenhagen University Hospital at Herlev, and the
University of Manchester. While these universities and public and private research institutions primarily have educational objectives,
they may develop proprietary technologies that lead to other FDA-approved therapies or that secure patent protection. We anticipate
that we will face possibly increasing competition as new drugs and therapies enter the market and advanced technologies become
available.
Due to the promising clinical therapeutic
effect of their therapies in clinical exploratory trials, we anticipate substantial direct competition from other organizations
developing advanced T-cell therapies targeting patients who have received prior anti-PD-1/PD-L1 therapies. In particular, we expect
to compete with other new therapies for our lead indications developed by companies such as Bristol-Myers Squibb, Merck, Nektar
Therapeutics, Idera Pharmaceuticals, Syndax Pharmaceuticals, Dynavax Technologies, Oncosec Medical, Immetacyte, WindMIL Therapeutics,
and others. We also may compete with therapies based on genetically engineered T cells rendered reactive against tumor-associated
antigens prior to their administration to patients. Genetically engineered T cells are being pursued by several companies, including
Adaptimmune, Celgene (in collaboration with bluebird bio as well as through Celgene’s subsidiary Juno Therapeutics), Gilead
Sciences, Novartis and others. To date, these technologies have been primarily applicable to hematologic malignancies, but their
application in solid tumor indications may create competition with us.
Competition for late stage melanoma patients
may come, if approved, from several compounds currently under development. NKTR-214, a pegylated version of IL-2, a CD122 agonist,
under development by Nektar, in combination with nivolumab has reported 20 out of 38 stage 4 treatment naïve melanoma patients
reported a partial or complete response. NKTR-214 activates cancer-fighting T cells and natural killer cells directly in the tumor,
and it boosts PD-1 expression. At least two companies are combining novel agents, such as TLR9 agonists, with checkpoint inhibitors
in melanoma indications. Idera Pharmaceuticals reported preliminary results from an ongoing Phase 3 clinical trial of the TLR9
agonist IMO-2125 in combination with ipilimumab indicating an ORR of 29% in 34 melanoma patients who had previously received anti-PD-1
therapy. Dynavax reported preliminary results from an ongoing Phase 1b clinical trial of the TLR9 agonist SD-101 in combination
with pembrolizumab indicating an ORR of 21% in 29 patients who had received prior anti-PD-1 therapy.
While other types of cancer immunotherapies
may potentially be used in combination with TIL, such as checkpoint inhibitors, to enhance efficacy, we also expect substantial
direct competition from other types of immunotherapies. We face competition from immunotherapy treatments offered by companies
such as Amgen, AstraZeneca, Bristol-Myers Squibb, Merck, and Roche. Immunotherapy is also being pursued by several biotechnology
companies as well as by large-cap pharmaceutical companies. We cannot predict whether other types of immunotherapies may be enhanced
and show greater efficacy. As a result, we may have direct and substantial competition from such immunotherapies in the future.
Many potential competitors, either alone
or with their strategic partners, have substantially greater financial, technical and human resources than we do. Accordingly,
our competitors may be more successful than us in obtaining approval for treatments and achieving widespread market acceptance
and may render our treatments obsolete or non-competitive. Mergers and acquisitions in the biotechnology and pharmaceutical industries
may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete
with us in recruiting and retaining qualified scientific and management personnel and establishing clinical study sites and patient
registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller
or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large
and established companies.
Our commercial success may depend in part
on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions
and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operate
without infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from
making, using, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid
and enforceable patents or trade secrets that cover these activities. With respect to both licensed and company-owned intellectual
property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect
to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may
be granted to us in the future will be commercially useful in protecting our commercial products and methods of manufacturing the
same. We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to
protect.
We seek to protect our proprietary technology
and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors.
We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our
premises and physical and electronic security of our information technology systems. While we have confidence in these individuals,
organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach.
In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our
consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as
to the rights in related or resulting know-how and inventions.
Government Regulations
The FDA and other regulatory authorities
at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development,
testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record
keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biologics such as
those we are developing. We, along with our third-party contractors, will be required to navigate the various preclinical, clinical
and commercial approval and post-approval requirements of the governing regulatory agencies of the countries in which we wish to
conduct studies or seek approval or licensure of our product candidates. The process of obtaining regulatory approvals and the
subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial
time and financial resources.
Biologic products are regulated by the
FDA under a combination of the Federal Food, Drug, and Cosmetic Act, or FFDCA, and Public Health Services Act, or PHSA, and the
FDA’s implementing regulations. Failure to comply with regulatory requirements may result in significant regulatory
actions. Such actions may include refusal to approve pending applications, license suspension or revocation, withdrawal of an approval,
imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, cyber letters, modification
of promotional materials or labeling, provision of corrective information, imposition of post-market requirements including the
need for additional testing, imposition of distribution or other restrictions under a Risk Evaluation and Mitigation Strategy,
or REMS, product recalls, product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production
or distribution, FDA debarment, injunctions, fines, consent decrees, corporate integrity agreements, debarment from receiving government
contracts and new orders under existing contracts, exclusion from participation in federal and state healthcare programs, restitution,
disgorgement, or civil or criminal penalties, including fines and imprisonment, and adverse publicity, among other adverse consequences.
The process required by the FDA before biologic
product candidates may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s current Good Laboratory Practices, or GLP, regulation, as well as manufacturing development and formulation studies;
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submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical trials may begin and must be updated annually or when significant changes are made;
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approval by an independent Institutional Review Board, or IRB, or ethics committee at each clinical site or centrally, before the trial is begun;
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performance of adequate and well-controlled human clinical trials to establish the safety, and efficacy of the proposed biologic product candidate for its intended purpose;
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preparation of and submission to the FDA of a BLA, after completion of pivotal clinical trial(s);
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satisfactory completion of an FDA Advisory Committee review, if applicable;
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a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;
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satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with cGMP, and to assure that the facilities, methods and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected clinical sites to assess compliance with current Good Clinical Practices, or cGCPs; and
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FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United States, which must be updated periodically when changes are made.
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The testing and approval process requires
substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be
granted on a timely basis, if at all. Prior to beginning the first clinical trial with a new product candidate, we must submit
an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans.
The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND
also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic
characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature
to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND
automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns
or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and
the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Clinical holds also may be imposed
by the FDA at any time before or during trials due to safety concerns or non-compliance. Submission of an IND therefore may or
may not result in FDA authorization to begin a clinical trial.
Human immunotherapy products are a new
category of therapeutics. Because this is a relatively new and expanding area of novel therapeutic interventions, there can be
no assurance as to the length of the trial period, the number of patients the FDA will require to be enrolled in the trials in
order to establish the safety, efficacy, purity and potency of immunotherapy products, or that the data generated in these trials
will be acceptable to the FDA to support marketing approval.
Clinical trials involve the administration
of the investigational product to human subjects under the supervision of qualified investigators in accordance with cGCPs, which
include the requirement that all research subjects provide their informed consent for their participation in any clinical study.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be
used in monitoring safety and the effectiveness criteria to be evaluated, and a statistical analysis plan. A separate submission
to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent
protocol amendments. Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors to
make certain financial disclosures to the FDA.
Furthermore, an independent IRB for each
site proposing to conduct the clinical trial or centrally must review and approve the plan for any clinical trial, its informed
consent form and any subject communications, before the clinical trial begins at that site, and upon amendment of the trial, and
must monitor the study until completed. An IRB considers, among other things, whether the risks to individuals participating in
the trials are minimized and are reasonable in relation to anticipated benefits and whether the planned human subject protections
are adequate. Informed consent must be received from each study subject prior to participation in a clinical study. Progress reports
detailing the results of the clinical trials must also be submitted at least annually to the FDA and the IRB and more frequently
if serious adverse events or other significant safety information is found.
Regulatory authorities, the IRB, or the
sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to
an unacceptable health risk, that the trial is not being conducted in accordance with regulatory or IRB requirements, or that the
trial is unlikely to meet its stated objectives. Sponsors may also discontinue studies or development programs for many reasons,
including changing business objectives. Some studies also include oversight by an independent group of qualified experts organized
by the clinical study sponsor, known as a data safety monitoring board, or DSMB, which provides recommendations and assessments
for whether or not a study should move forward at designated check points based on access to certain data from the study. Following
a review by a DSMB, the study may be halted if there is an unacceptable safety risk for subjects or on other grounds, such as failure
to demonstrate efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical study results
to public registries. For instance, we are required to register certain clinical trials and post the results of certain completed
clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result
in enforcement actions and adverse publicity.
For purposes of BLA approval, human clinical
trials are typically conducted in three sequential phases that may overlap. Although these are the typical phases for progression,
and characteristics of the phases of a clinical development program, certain expedited programs allow for variations that could
support a marketing application based on surrogate endpoints, intermediate clinical endpoints, or single-arm as opposed to comparative
or placebo-controlled studies.
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Phase 1 - The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.
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Phase 2 - The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.
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Phase 3 - The investigational product is administered to an expanded patient population in adequate and well-controlled studies to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit relationship of the investigational product and to provide an adequate basis for product approval. Typically, two Phase 3 studies are required by the FDA for product approval.
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Phase 4 - In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies may be made a condition to approval of the BLA.
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Additional types of data may also help
to support a BLA, such as real-world evidence and patient experience data. Phase 1, Phase 2 and Phase 3, and Phase 4 testing, if
applicable, may not be completed successfully within a specified period, if at all, and there can be no assurance that the data
collected will support FDA approval or licensure of the product. Concurrent with clinical trials, companies may complete additional
animal studies and develop additional information about the biological characteristics of the product candidate and must finalize
a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process
must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods
for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency.
Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the
product candidate does not undergo unacceptable deterioration over its shelf life and manufacturing processes must be validated.
The manufacture of investigational biologics
for the conduct of human clinical trials is subject to cGMP requirements. Investigational biologics and active ingredients imported
into the United States are also subject to regulation by the FDA relating to their labeling and distribution. Further, the export
of investigational products outside of the United States is subject to regulatory requirements of the importing country as well
as U.S. export requirements under the FFDCA. Additional United States and foreign laws and regulations may also be applicable to
the handling, import, export, and transportation of biological materials, including tissue samples.
During the development of a new therapeutic,
a sponsor may be able to request a Special Protocol Assessment, or SPA, the purpose of which is to reach an agreement with the
FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of product approval and an
efficacy claim, as well as preclinical carcinogenicity trials and stability studies. An SPA may only be modified with the agreement
of the FDA and the trial sponsor, or if the director of the FDA reviewing division determines that a substantial scientific issue
essential to determining the safety or efficacy of the product was identified after the testing began. An SPA is intended to provide
assurance that, in the case of clinical trials, if the agreed upon clinical trial protocol is followed, the clinical trial endpoints
are achieved, and there is a favorable risk-benefit profile, the data may serve as the primary basis for an efficacy claim in support
of a BLA. However, SPA agreements are not a guarantee of approval of a product candidate or any permissible claims about the product
candidate. In particular, SPAs are not binding on the FDA if, among other reasons, previously unrecognized public health concerns
arise during the performance of the clinical trial, other new scientific concerns regarding the product candidate’s safety
or efficacy arise, or if the sponsoring company fails to comply with the agreed upon clinical trial protocol.
In addition, under the Pediatric Research
Equity Act, or PREA, a BLA or supplement to a BLA for a new active ingredient, indication, dosage form, dosage regimen, or route
of administration, must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications
in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the
product is safe and effective. Also, under the FDA Reauthorization Act of 2017, beginning in 2020, sponsors submitting applications
for product candidates intended for the treatment of adult cancer which are directed at molecular targets that the FDA determines
to be substantially relevant to the growth or progression of pediatric cancer must submit, with the application, reports from molecularly
targeted pediatric cancer investigations designed to yield clinically meaningful pediatric study data, using appropriate formulations,
to inform potential pediatric labeling. The FDA may, on its own initiative or at the request of the applicant, grant deferrals
for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers
from the pediatric data requirements. Orphan products are also exempt from PREA requirements.
The FDA also may require submission of
REMS, to ensure that the benefits of the biologic outweigh the risks. The REMS plan could include medication guides, physician
communication plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk
minimization tools. An assessment of the REMS must also be conducted at set intervals. Following product approval, a REMS may also
be required by the FDA if new safety information is discovered and the FDA determines that a REMS is necessary to ensure that the
benefits of the biologic outweigh the risks.
BLA Submission and Review by the
FDA
Assuming successful completion of all
required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies
and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications.
The BLA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous
results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing,
controls, and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the
safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by investigators.
The submission of a BLA requires payment of a substantial user fee to the FDA, under the Prescription Drug User Fee Act, and the
sponsor of an approved BLA is also subject to annual program fees. These fees are typically increased annually. A waiver of user
fees may be obtained under certain limited circumstances.
Once a BLA has been submitted, the FDA
has sixty days to determine whether it will accept the application for filing. The FDA accepts applications for filing if it determines
that the application is substantially complete to permit a substantive review. The FDA may request additional information rather
than accept a BLA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted
application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA
begins an in-depth substantive review.
The FDA’s goal is to review the application
within ten months after it accepts the application for filing, or, if the application relates to a serious or life-threatening
indication and, if approved, the product would provide a significant improvement in safety and efficacy, six months after the FDA
accepts the application for filing, which is referred to as Priority Review. The review process is often significantly extended
if the FDA requests additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a
product is safe, pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed
to assure the product’s continued safety, purity and potency. There are numerous FDA personnel assigned to review different
aspects of a BLA, and uncertainties can be presented by their ability to exercise judgment and discretion during the review process.
The development and provision of additional data and information requested by FDA during review of a BLA may be time consuming
and expensive.
The FDA may convene an advisory committee
to provide clinical insight on application review questions. Before approving a novel biologic, the FDA must either refer that
biologic to an external advisory committee or provide in an action letter, a summary of the reasons why the FDA did not refer the
product candidate to an advisory committee. An advisory committee is typically a panel that includes clinicians and other experts,
which review, evaluate, and make a recommendation as to whether the application should be approved and under what conditions. The
FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving a BLA, the FDA will typically
inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines
that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production
of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more
clinical sites to assure compliance with cGCP.
If the FDA determines that the application,
manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often
will request additional testing, clinical studies, application modifications, or information in a complete response letter, or
CRL. A CRL indicates that the review cycle for the application is complete and that the application is not ready for approval.
If a CRL is issued, the applicant may either: resubmit the BLA, addressing all the deficiencies identified in the letter; withdraw
the application; or request an opportunity for a hearing. Notwithstanding the submission of any requested additional information,
the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. Data obtained from clinical
trials are not always conclusive and the FDA may interpret data differently than an applicant interprets the same data.
If the FDA finds that a BLA is approvable,
the FDA may issue an approval letter. An approval letter authorizes commercial marketing of the product with specific prescribing
information for specific indications. However, even if the FDA approves a product, it may limit the approved indications for use
of the product, require that contraindications, warnings, or precautions be included in the product labeling, including a boxed
warning, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a product’s
safety and efficacy after approval, require testing and surveillance programs to monitor the product after commercialization, or
impose other conditions, including distribution restrictions or other risk management mechanisms under a REMS which can materially
affect the potential market and profitability of the product. The FDA may also not approve label statements that are necessary
for successful commercialization and marketing.
If compliance with the pre- and post-marketing
regulatory standards are not maintained or if problems occur after the product reaches the marketplace, the FDA may also withdraw
the product approval. Further, should new safety information arise, additional testing, product labeling, or FDA notification may
be required.
A sponsor may seek approval of its product
candidate under programs designed to accelerate the FDA’s review and approval of new drugs and biological products that meet
certain criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are intended
to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition.
For a Fast Track designation, the FDA may consider sections of the BLA for review on a rolling basis before the complete application
is submitted if relevant criteria are met. Fast Track-designated products are also eligible for more frequent FDA interactions.
A Fast Track-designated product candidate may also qualify for Rriority Review, under which the FDA sets the target date for FDA
action on the BLA at six months after the FDA accepts the application for filing. Priority Review is granted when there is evidence
that the proposed product would be a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention
of a serious condition. If criteria are not met for Priority Review, the application is subject to the standard FDA review period
of 10 months after the FDA accepts the application for filing. Priority Review designation does not change the scientific/medical
standard for approval or the quality of evidence necessary to support approval.
Under the Accelerated Approval Program,
the FDA may approve a BLA on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or
on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict
an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence
of the condition and the availability or lack of alternative treatments. To qualify for Accelerated Approval, the product must
be intended to treat a serious condition and must generally provide a meaningful advantage over available therapies. Post-marketing
studies or completion of ongoing studies after marketing approval are required to verify the biologic’s clinical benefit
in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical benefit. If this trial is not conducted,
if it fails to verify the benefit, if other evidence demonstrates that the product is not safe, pure or potent, or if the applicant
disseminates false or misleading promotional material, the FDA may withdraw approval of the application on an expedited basis.
Sponsors of products under the Accelerated Approval Pathway must further submit promotional materials to the FDA before dissemination.
In addition, the Food and Drug Administration
Safety and Innovation Act, or FDASIA, which was enacted and signed into law in 2012, established the new Breakthrough Therapy Designation.
A sponsor may seek FDA designation of its product candidate as a Breakthrough Therapy if the product candidate is intended, alone
or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary
clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects observed early in clinical development. Sponsors may request the FDA
to designate a Breakthrough Therapy at the time of or any time after the submission of an IND, but ideally before an end-of-Phase
2 meeting with the FDA. If the FDA designates a Breakthrough Therapy, it may take actions appropriate to expedite the development
and review of the application, which may include holding meetings with the sponsor and the review team throughout the development
of the therapy; providing timely advice to, and interactive communication with, the sponsor regarding the development of the drug
to ensure that the development program to gather the nonclinical and clinical data necessary for approval is as efficient as practicable;
involving senior managers and experienced review staff, as appropriate, in a collaborative, cross-disciplinary review; assigning
a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development program and to serve
as a scientific liaison between the review team and the sponsor; and considering alternative clinical trial designs when scientifically
appropriate, which may result in smaller trials or more efficient trials that require less time to complete and may minimize the
number of patients exposed to a potentially less efficacious treatment. Breakthrough Therapy designation also allows the sponsor
to file sections of the BLA for review on a rolling basis.
Recently, through the 21st Century Cures
Act, or Cures Act, Congress also established another expedited program, called a Regenerative Medicine Advanced Therapy, or RMAT,
designation. The Cures Act directs the FDA to facilitate an efficient development program for and expedite review of RMATs. To
qualify for this program, the product must be a cell therapy, therapeutic tissue engineering product, human cell and tissue product,
or a combination of such products, and not a product solely regulated as a human cell and tissue product. The product must be intended
to treat, modify, reverse, or cure a serious or life-threatening disease or condition, and preliminary clinical evidence must indicate
that the product has the potential to address an unmet need for such disease or condition. Advantages of the RMAT designation include
all the benefits of the Fast Track and breakthrough therapy designation programs, including early interactions with the FDA. These
early interactions may be used to discuss potential surrogate or intermediate endpoints to support accelerated approval.
In August 2017, we announced that the FDA
had granted Fast Track designation for lifileucel, for advanced metastatic melanoma. The Fast Track designation does not change
the standards for approval but may expedite the development or approval process. In October 2018, we announced that lifileucel
had received the RMAT designation for metastatic melanoma.
Orphan Drugs
During 2015, we received an orphan drug
designation for lifileucel in the United States to treat malignant melanoma stages IIB-IV. We plan to seek orphan drug designation
for some or all our other product candidates in specific orphan indications in which there is a medically plausible basis for the
use of such products.
During 2018, we received an orphan-drug
designation from the FDA for LN-145 for the treatment of cervical cancer with a tumor size of great than 2cm in diameter.
Under the Orphan Drug Act, the FDA may
grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition
with a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000
individuals in the United States and when there is no reasonable expectation that the cost of developing and making available the
drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. Additionally,
sponsors must present a plausible hypothesis for clinical superiority to obtain orphan drug designation if there is a product already
approved by the FDA that is intended for the same indication and that is considered by the FDA to be the same product as the already
approved product. This hypothesis for clinical superiority must be demonstrated to obtain orphan exclusivity. Orphan drug designation
must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic
agent and its potential orphan use are disclosed publicly by the FDA.
If a product that has orphan drug designation
subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation,
the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including
a full BLA, to market the same biologic, as sameness is defined in FDA’s regulations, for the same indication for seven years,
except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the
FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities
of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity
does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic
for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research,
opportunities for certain research grant funding, and a waiver of the BLA application fees. The tax credit, however, was recently
limited through Congress’s tax reform efforts. Despite these benefits, the orphan drug designation does not convey any advantage
in, or shorten the duration of, the regulatory review or approval process.
A designated orphan drug may not receive
orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.
In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request
for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet
the needs of patients with the rare disease or condition. The FDA may also approve a product deemed to be the same as an approved
orphan product for the same orphan indication, despite periods of exclusivity, if the new product is demonstrated to be clinically
superior to the former product.
Market and Data Exclusivity and Biosimilars
While the FDA may eventually license products,
as further described below, that are biosimilar to any of our product candidates that are approved, our products may receive periods
of regulatory exclusivity, in addition to orphan drug exclusivity for those products with orphan drug designations, providing additional
protection from certain forms of competition. For instance, our products may receive 12 years of reference product exclusivity
that begins running at the time of first licensure. During this time, the FDA may not make an approval of a biosimilar product
effective and may not accept a biosimilar application for four years from the date of licensure. However, certain changes
and supplements to an approved BLA, and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor
in interest, or other related entity do not qualify for the exclusivity period. The PHSA also includes provisions to protect reference
products that have patent protection. The biosimilar product sponsor and reference product sponsor may, but are not required to,
exchange certain patent and product information for the purpose of determining whether there should be a legal patent challenge.
Based on the outcome of negotiations surrounding the exchanged information, the reference product sponsor may bring a patent infringement
suit and injunction proceedings against the biosimilar product sponsor. The biosimilar applicant may also be able to bring an action
for declaratory judgment concerning the patent.
The Biologics Price Competition and Innovation
Act, or BPCIA, created an abbreviated approval pathway for biological products shown to be highly similar to or interchangeable
with an FDA-licensed reference biological product. Accordingly, if we receive FDA licensure, we may face competition from biosimilar
products. Biosimilarity sufficient to reference a prior FDA-approved product requires a high similarity to the reference product
notwithstanding minor differences in clinically inactive components, and no clinically meaningful differences between the biological
product and the reference product in terms of safety, purity, and potency. Biosimilarity must be shown through analytical studies,
animal studies, and at least one clinical trial, absent a waiver by the FDA. There must be no difference between the reference
product and a biosimilar in conditions of use, route of administration, dosage form, and strength. A biosimilar product may
be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can be expected
to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the
reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished
efficacy relative to exclusive use of the reference biologic.
Pediatric Exclusivity and Patent Term
Extension
Pediatric exclusivity is another type of
non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months
of marketing protection to the term of any existing regulatory exclusivity. This six-month exclusivity may be granted if a sponsor
submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product
to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s
request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA,
whatever regulatory periods of exclusivity that already cover the product are extended by six months.
If approved, biologics may also be eligible
for periods of U.S. patent term restoration. If granted, patent term restoration extends the patent life of a single unexpired
patent that has not previously been extended, for a maximum of five years. The total patent life of the product with the extension
also cannot exceed fourteen years from the product’s approval date. Subject to the prior limitations, the period of the extension
is calculated by adding half of the time from the effective date of an IND to the initial submission of a marketing application,
and all the time between the submission of the marketing application and its approval. This period may also be reduced by any time
that the applicant did not act with due diligence. Whether any of our product candidates will be eligible for patent term restoration
is currently unknown. Even if any of our product candidates are found to be eligible for patent term protection, the applicable
authorities may subsequently determine that we are not eligible for such restoration periods.
Post-Approval Requirements
Any products for which we receive FDA approvals
are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse
experiences with the product and deviations, annual reporting and monitoring and providing the FDA with updated safety and efficacy
information, product sampling and distribution requirements, certain electronic records and signatures, fulfilling post-marketing
study and REMS commitments, and complying with FDA promotion and advertising requirements, which include, among other things, standards
for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that are not described
in the product’s approved uses (known as “off-label use”), limitations on industry-sponsored scientific and educational
activities, and requirements for promotional activities involving the internet. Although physicians may prescribe legally available
products for off-label use, if they deem such use to be appropriate in their professional medical judgment, manufacturers may not
market or promote such off-label uses. Recent court decisions have impacted FDA’s enforcement activity regarding off-label
promotion in light of First Amendment considerations; however, there are still significant risks in this area, in part due to the
potential for False Claims Act exposure.
In addition, quality control and manufacturing
procedures must continue to conform to applicable manufacturing requirements after approval to ensure the long-term stability of
the product. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance
of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities
involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and
certain state agencies that list their products, and are subject to periodic unannounced inspections by the FDA and certain state
agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort
in the areas of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval
may result in restrictions on a product, manufacturer, or holder of an approved BLA, including, among other things, withdrawal
of approval, recall or withdrawal of the product from the market. In addition, changes to the manufacturing process are strictly
regulated, and depending on the significance of the change, may require prior FDA approval or notification before being implemented.
Other types of changes to the approved product, such as adding new indications and claims, are also subject to further FDA review
and approval.
The Drug Supply Chain Security Act, or
DSCSA, imposes obligations on manufacturers of prescription biopharmaceutical products for commercial distribution, regulating
the distribution of the products at the federal level, and sets certain standards for federal or state registration and compliance
of entities in the supply chain, including manufacturers and repackagers, wholesale distributors, third-party logistics providers,
and dispensers. The DSCSA preempts previously enacted state laws and the pedigree requirements of the Prescription Drug Marketing
Act, or PDMA. Trading partners within the drug supply chain must now ensure certain product tracing requirements are met that they
are doing business with other authorized trading partners; and they are required to exchange transaction information, transaction
history, and transaction statements. Further, the DSCSA limits the distribution of prescription pharmaceutical products and imposes
requirements to ensure overall accountability and security in the drug supply chain. As of November 27, 2018, product identifier
information, an aspect of the product tracing scheme, is required.
As previously mentioned, the FDA may also
require Phase 4 testing and surveillance to monitor the effects of an approved product. Discovery of previously unknown problems
with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity,
judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors,
and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to
a product’s approved labeling, including the addition of new warnings and contraindications, and may require the implementation
of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established,
or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.
Additional Biologic Requirements
To help reduce the increased risk of the
introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products whose attributes
cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there
exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs, and
to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases in the
United States and between states.
After a BLA is approved, the product may
also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required
to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official
release by the FDA, the manufacturer submits samples of each lot of product to the FDA, together with a release protocol showing
the results of all the manufacturer's tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of
some products before releasing the lots for distribution by the manufacturer.
In addition, the FDA conducts laboratory
research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological products. After approval
of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are
subject to periodic inspection after approval.
Other Healthcare Laws and Compliance
Requirements
Our sales, promotion, medical education
and other activities following product approval will be subject to regulation by numerous regulatory and law enforcement authorities
in the United States, and in addition to the FDA, these entities may include the Federal Trade Commission, the Department of Justice,
the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services and state and
local governments. Our promotional and scientific/educational programs must comply with the federal Anti-Kickback Statute, or AKS,
the Foreign Corrupt Practices Act, or FCPA, the False Claims Act, or FCA, the Veterans Health Care Act, physician payment transparency
laws, privacy laws, security laws, and additional state laws similar to the foregoing.
The federal AKS prohibits, among other
things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly
or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for
the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs,
in whole or in part. The term remuneration has been interpreted broadly to include anything of value. The federal AKS has been
interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary
managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities
from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged
to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception
or safe harbor. Failure to meet all the requirements of a particular applicable statutory exception or regulatory safe harbor
does not make the conduct per se illegal under the AKS. Instead, the legality of the arrangement will be evaluated on a case-by-case
basis based on a cumulative review of all its facts and circumstances. Our practices may not in all cases meet all the criteria
for protection under a statutory exception or regulatory safe harbor.
Additionally, the intent standard under
the federal AKS was amended by the Patient Protection Affordable Care Act of 2010, as amended by the Health Care and Education
Reconciliation Act of 2010, which is collectively referred to as the Affordable Care Act, or ACA, to a stricter standard such that
a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed
a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the
federal AKS constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. On January 31, 2019, the
U.S. Department of Health and Human Services issued a proposed rule aimed at eliminating certain AKS safe harbor protections for
drug rebates.
The civil monetary penalties statute imposes
penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim
to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed
or is false or fraudulent.
The FCA imposes liability on persons who,
among other things, knowingly present or cause to be presented false or fraudulent claims for payment to, or approval by the federal
government knowingly making or using, or causing to be made or used a false statement or record material to a claim to the federal
government, or avoiding, decreasing or concealing an obligation to pay money to the federal government. The civil FCA has been
or can be used to assert liability on the basis of kickbacks and other improper referrals, improperly reported government pricing
metrics such as Best Price and Average Manufacturer Price, improper promotion of uses not expressly approved by the FDA in a drug’s
label, false statements associated with government grants, and allegations of misrepresentations with respect to services rendered,
as well as claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services
that are not medically necessary. FCA claims may be based on noncompliance with regulatory requirements under an implied certification
theory if material to the government’s decision to buy or pay for a drug. Intent to deceive is not required to establish
liability under the civil FCA. Civil FCA liability may also be imposed for Medicare or Medicaid overpayments caused by understated
rebate amounts that are not refunded within 60 days of discovering the overpayment, even if the overpayment was not caused by a
false or fraudulent act. Actions under the FCA may be brought by the government or as a qui tam action by a private individual
in the name of the government. If the government intervenes in a qui tam action, and prevails, the qui tam plaintiff will share
in the proceeds from damages and fines or settlement funds. If the government declines to intervene, the qui tam plaintiff may
pursue the case alone. Violations of the FCA can result in significant monetary penalties and treble damages. The government may
further prosecute conduct under the criminal FCA, which prohibits the making or presenting of a claim to the government knowing
the claim to be false, fictitious or fraudulent. Unlike the civil FCA, conviction requires proof of intent to submit a false claim.
Additionally, the FCPA, and similar worldwide
anti-bribery laws, generally prohibit companies and their intermediaries from making, offering or authorizing improper payments
or other items of value, directly or indirectly, to foreign officials, political parties, or candidates for the purpose of obtaining
or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting
provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation,
including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international
operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil
fines, imprisonment, disgorgement, oversight, and debarment from government contracts. We cannot assure you that our internal control
policies and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners,
collaborators or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution
and have a negative impact on our business, results of operations and reputation.
Payment or reimbursement of prescription
drugs by Medicaid or Medicare requires manufacturers of the drugs to submit pricing information to the Centers for Medicare &
Medicaid Services, or CMS. The Medicaid Drug Rebate statute requires manufacturers to calculate and report price points, which
are used to determine Medicaid rebate payments shared between the states and the federal government and Medicaid payment rates
for the drug. For drugs paid under Medicare Part B, manufacturers must also calculate and report their Average Sales Price or ASP,
which is used to determine the Medicare Part B payment rate for the drug. Drugs that are approved under a Biologic License Application,
or BLA, or an NDA, including 505(b)(2) drugs, are subject to an additional inflation penalty which can substantially increase rebate
payments. In addition, for BLA and NDA drugs, the Veterans Health Care Act, or VHCA, requires manufacturers to calculate and report
to the Veterans Administration, or VA, a different price called the Non-Federal Average Manufacturing Price, which is used to determine
the maximum price that can be charged to certain federal agencies, referred to as the Federal Ceiling Price, or FCP. Like the Medicaid
rebate amount, the FCP includes an inflation penalty. A Department of Defense regulation requires manufacturers to provide this
discount on drugs dispensed by retail pharmacies when paid by the TRICARE Program. All these price reporting requirements create
risk of submitting false information to the government, and potential FCA liability.
The VHCA also requires manufacturers of
covered drugs participating in the Medicaid program to enter into Federal Supply Schedule contracts with the VA through which their
covered drugs must be sold to certain federal agencies at FCP and to report pricing information. This necessitates compliance with
applicable federal procurement laws and regulations and subjects us to contractual remedies as well as administrative, civil, and
criminal sanctions. In addition, the VHCA requires manufacturers participating in Medicaid to agree to provide different mandatory
discounts to certain Public Health Service grantees and other safety net hospitals and clinics.
The federal Health Insurance Portability
and Accountability Act of 1996, or HIPAA, also created federal criminal statutes that prohibit, among other actions, knowingly
and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property owned by, or under the custody or control of, a healthcare benefit program,
regardless of whether the payor is public or private, knowingly and willfully embezzling or stealing from a health care benefit
program, willfully obstructing a criminal investigation of a health care offense, and knowingly and willfully falsifying, concealing,
or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery
of, or payment for, healthcare benefits, items, or services relating to healthcare matters. The ACA amended the intent requirement
of certain of these criminal statutes under HIPAA so that a person or entity no longer needs to have actual knowledge of the statute,
or the specific intent to violate it, to have committed a violation.
We may also be subject to data privacy
and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the
Health Information Technology and Clinical Health Act, or HITECH, and their respective implementing regulations, including the
final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission
of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards
directly applicable to “business associates,” defined as a person or entity that performs certain functions or activities
that involve the use or disclosure of protected health information in connection with providing a service for or on behalf of,
or provide services to, a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered
entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions
for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated
with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances,
many of which differ from each other in significant ways and may not have the same effect.
Even for entities that are not deemed “covered
entities” or “business associates” under HIPAA, according to the United States Federal Trade Commission, or the
FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices
in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, or the FTCA, 15 USC § 45(a). The
FTC expects a company's data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer
information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
Medical data is considered sensitive data that merits stronger safeguards. The FTC's guidance for appropriately securing consumers'
personal information is similar to what is required by the HIPAA Security Rule.
Payments made to physicians and other healthcare
providers, and other financial interests, have been the subject of a range of federal and state laws. The federal physician payment
transparency requirements, sometimes referred to as the Physician Payments Sunshine Act, or the Sunshine Act, was created under
the ACA. The Sunshine Act, among other things, imposes reporting requirements on drug manufacturers for payments or other transfers
of value made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians, other
healthcare providers, and their immediate family members. Failure to submit required information may result in civil monetary penalties
of up to an aggregate of $150,000 per year and up to an additional aggregate of $1 million per year for “knowing failures,”
for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported
in an annual submission. Beginning in 2021, the reporting and transparency requirements for physicians will extend to physician
assistants, nurse practitioners, and other mid-level healthcare professionals, requiring the reporting of payments and transfers
made in that same calendar year. Additionally, certain states also mandate implementation of commercial compliance programs, impose
restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other
remuneration to physicians and other healthcare professionals.
Analogous state laws and regulations, such
as state anti-kickback and false claims laws, may apply to items or services reimbursed by any third-party payor, including commercial
insurers, and in some cases may apply regardless of payor. Some state laws require pharmaceutical companies to comply with the
pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government
in addition to requiring drug manufacturers to report pricing and marketing information, including, among other things, information
related to payments to physicians and other healthcare providers or marketing expenditures, state and local laws that require the
registration of pharmaceutical sales representatives, and state laws governing the privacy and security of health information and
the use of prescriber-identifiable data in certain circumstances, many of which differ from each other in significant ways and
may not have the same effect, thus complicating compliance efforts.
To the extent that any of our products
are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable
post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance
programs and reporting of payments or transfers of value to healthcare professionals.
If our operations are found to be in violation
of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without
limitation, civil, administrative, and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of our
operations, exclusion from participation in federal and state healthcare programs and individual imprisonment, injunctions, private
qui tam actions brought by individual whistleblowers in the name of the government, as well as additional reporting obligations
and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance
with these laws, any of which could adversely affect our ability to operate our business and our financial results.
Coverage and Reimbursement
Sales of pharmaceutical products depend
significantly on the availability of third-party coverage and reimbursement. Third-party payors include Medicare, Medicaid, and
other government programs at the federal and state level, managed care providers, private health insurers and other organizations.
Third party payors decide which drugs they will pay for on behalf of their beneficiaries and establish reimbursement levels for
health care. Although we currently believe that third-party payors will provide coverage and reimbursement for our product candidates,
if approved, these third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products
and services, with a recent focus on prioritization of “equivalent,” less expensive alternatives when available. In
addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. We may need to conduct
expensive clinical studies to demonstrate the comparative cost-effectiveness of our products. The product candidates that we develop
may not be considered cost-effective. It is time consuming and expensive for us to seek coverage and reimbursement from third-party
payors. Moreover, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement
rate will be approved, especially for product candidates such as ours, which are used in the inpatient setting, usually resulting
in no separate reimbursement for pharmaceuticals. There are additional pressures on pricing as a result of other, peripheral policies
impacting reimbursement across both government and private payors. Non-health specific policies may impart downstream impacts on
private insurance reimbursement decision-making. In consideration of these numerous factors, reimbursement may not be available
or sufficient to allow us to sell our products on a competitive and profitable basis.
Medicare is a federally-funded program
managed by CMS through local contractors that administer coverage and reimbursement for certain healthcare items and services furnished
to the elderly and disabled. Medicare Part A covers inpatient hospitalization and Medicare Part B covers outpatient medical services.
Medicare coverage of drugs and biological products and payment rates to providers are established by federal law and regulations.
Medicaid is an insurance program for certain categories of low income patients who are otherwise uninsured and is both federally
and state funded and managed by each state. The federal government sets general guidelines for Medicaid and requires rebates on
outpatient drugs and biological products, including those administered by physicians if the cost is billed separately. Each state
creates specific regulations that govern its individual program, including supplemental rebate programs that prioritize coverage
for drugs on the state Preferred Drug List. Government laws and regulations also establish price controls on prescription drugs
purchased by government agencies that provide health care and certain federally funded hospital outpatient departments and clinics.
In the United States, private health insurers and other third-party payors often provide reimbursement for products and services
based on the level at which the government provides reimbursement through the Medicare or Medicaid programs for such products and
services. These restrictions and limitations influence the purchase of healthcare services and products. In addition, government
programs like Medicaid include substantial penalties for increasing commercial prices over the rate of inflation which can affect
realization and return on investment. Further, some stakeholders have recently questioned whether the market price of prescription
drugs may be inflated by virtue of the built-in cost imparted by the government rebate model, often negotiated indirectly in exchange
for a coverage determination or formulary placement where relevant.
In the United States, the European Union,
and other potentially significant markets for our product candidates, government authorities and private third-party payors are
increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products
and therapies, which often has resulted in average selling prices lower than they would otherwise be. Manufacturers frequently
must rebate a portion of the prescription price to the third-party payors as a condition of coverage, which can greatly reduce
realization on the sale. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness
of medical products and services, in addition to their safety and efficacy, and are developing increasingly sophisticated methods
of controlling healthcare costs. They may limit coverage to specific drug products on an approved list, or formulary, which might
not include all the FDA-approved drug products for a particular indication, or they may control costs, particularly for new expensive
therapies, by requiring prior authorization or imposing other restrictions before covering certain products, or they may condition
payment based on achieving performance metrics. Legislative proposals to reform healthcare or reduce costs under government programs
may result in lower reimbursement for our product candidates or exclusion of our product candidates from coverage.
Achieving favorable CMS coverage and reimbursement
is usually a significant gating issue for successful introduction of a new product, because Medicare and Medicaid can represent
a sizeable share of the market and because private payors often rely on the lead of the governmental payors in rendering coverage
and reimbursement determinations. Further, the increased emphasis on managed healthcare in the United States and on country and
regional pricing and reimbursement controls in the European Union will likely put additional pressure on product pricing, reimbursement,
and utilization, which may adversely affect our future product sales and results of operations. These pressures can arise from
rules and practices of managed care groups, competition within therapeutic classes, availability of generic equivalents, judicial
decisions and governmental laws and regulations related to Medicare, Medicaid, and healthcare reform, pharmaceutical coverage and
reimbursement policies, and pricing in general. Patients who are prescribed treatments for their conditions and providers performing
the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Sales
of our product candidates will therefore depend substantially, both domestically and abroad, on the extent to which the costs of
our products will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations,
or reimbursed by government health administration authorities, such as Medicare and Medicaid, private health insurers, and other
third-party payors.
As a result of the above, we may need
to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products,
in addition to the costs required to obtain FDA approvals. Our product candidates may not be considered medically necessary or
cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate
will be approved. Adequate third-party reimbursement may not be available to ensure acceptance and use of our products and product
candidates or enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development.
Legislative and regulatory proposals to reform healthcare or reduce costs under government insurance programs may result in lower
reimbursement for our products and product candidates or exclusion of our products and product candidates from coverage. The cost
containment measures that healthcare payors and providers are instituting and any healthcare reform could significantly reduce
our revenues from the sale of any approved product candidates. We cannot provide any assurances that we will be able to obtain
and maintain third-party coverage or adequate reimbursement for our product candidates in whole or in part.
Healthcare Reform
The United States and some foreign jurisdictions
are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could
affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is
significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving
quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts
and has been significantly affected by major federal and state legislative initiatives.
In addition, other legislative and regulatory
changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments
to providers of up to 2% per fiscal year, starting in 2013, which will remain in effect through 2025 unless additional Congressional
action is taken. In January 2013, the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare
payments to several providers, including hospitals and cancer treatment centers, increased the statute of limitations period for
the government to recover overpayments to providers from three to five years. In 2017, CMS promulgated a rule reducing Medicare
Part B reimbursement to hospitals for drugs purchased under the 340B program by 30%. Although hospital trade associations filed
a lawsuit challenging the regulation, the final rule is now in effect. These new laws may result in additional reductions in Medicare
and other healthcare funding, which could have a material adverse effect on customers for our product candidates, if approved,
and, accordingly, our financial operations.
Any reduction in reimbursement from Medicare
or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost
containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize
our drugs.
The cost of pharmaceuticals continues to
generate substantial governmental and third-party payor interest and states have begun to take action to increase transparency
in drug pricing through mandatory reporting requirements. We expect that the pharmaceutical industry will experience pricing pressures
due to the trend toward managed healthcare, the increasing influence of managed care organizations, and additional legislative
proposals. Our results of operations could be adversely affected by current and future healthcare reforms. While we cannot predict
whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, the announcement or adoption
of these proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and
operate profitably.
Foreign Regulation
In addition to regulations in the United
States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution
of our products to the extent we choose to develop or sell any products outside of the United States. The approval process varies
from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing
the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
In the EU, member states require both regulatory
clearances by the national competent authority and a favorable ethics committee opinion prior to the commencement of a clinical
trial. Under the EU regulatory systems, marketing authorization applications may be submitted under either a centralized or decentralized
procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all EU member
states. It is compulsory for medicines produced by certain biotechnological processes. Because our products are produced in that
way, we would be subject to the centralized process. Under the centralized procedure, pharmaceutical companies submit a single
marketing authorization application to the European Medicines Agency. Once granted by the European Commission, a centralized marketing
authorization is valid in all EU member states, as well as the European Economic Area countries. By law, a company can only start
to market a medicine once it has received a marketing authorization.
Employees
As of December 31, 2018, we had 88 employees,
67 of whom were engaged in research and development activities and 21 of whom were engaged in general and administrative support
activities. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees
to be good. Our future performance depends significantly upon the continued service of our key scientific, technical and senior
management personnel.
Available Information
We maintain a website at www.iovance.com
and make available there, free of charge, our periodic reports filed with the Securities and Exchange Commission (SEC), as soon
as is reasonably practicable after filing. The SEC maintains a website at http:/www.sec.gov that contains reports, proxy and information
statements, and other information regarding issuers such as us that file electronically with the SEC.
The risks described below may not be
the only ones relating to our company. Additional risks that we currently believe are immaterial may also impair our business operations.
Our business, financial conditions and future prospects and the trading price of our common stock could be harmed as a result of
any of these risks. Investors should also refer to the other information contained or incorporated by reference in this Annual
Report on Form 10-K, including our financial statements and related notes, and our other filings from time to time with the Securities
and Exchange Commission.
Risks Related to Our Business
We have a history of operating losses;
we expect to continue to incur losses and we may never be profitable.
We are a clinical-stage biotechnology company
focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient's
own immune system to eradicate cancer cells. We do not have products approved for commercial sale and have not generated revenue
from operations. As of December 31, 2018, we had an accumulated deficit of $372.8 million. In addition, during the fiscal year
ended December 31, 2018, we incurred a net loss of $123.6 million. Since our inception we have not generated any revenues from
operations. We do not expect to generate any meaningful product sales or royalty revenues for the foreseeable future. We expect
to incur significant additional operating losses in the future as we expand our development and clinical trial activities in support
of demonstrating the effectiveness of our products.
Our ability to achieve long-term profitability
is dependent upon obtaining regulatory approvals for our products and successfully commercializing our products alone or with third
parties. However, our operations may not be profitable even if any of our products under development are successfully developed
and produced and thereafter commercialized.
We have limited experience in operating
our current business, which makes it difficult to evaluate our business plan and our prospects.
We have only a limited operating history
in our current line of business on which a decision to invest in our company can be based. The future of our company currently
is dependent upon our ability to implement our business plan, as that business plan may be modified from time to time by our management
and Board of Directors. While we believe that we have a sound business plan and research and development strategy, we have only
a limited operating history against which we can test our plans and assumptions, and investors therefore cannot evaluate the likelihood
of our success.
We face the problems, expenses, difficulties,
complications and delays normally associated with a small, biotechnology company, many of which are beyond our control. Accordingly,
our prospects should be considered in light of the risks, expenses and difficulties frequently encountered in the establishment
of a new business developing technologies in an industry that is characterized by a number of market entrants and intense competition.
Because of our size and limited resources, we may not possess the ability to successfully overcome many of the risks and uncertainties
frequently encountered by early stage companies involved in the rapidly evolving field of immunotherapy. If our research and development
efforts are successful, we may also face the risks associated with the shift from development to commercialization of new products
based on innovative technologies. There can be no assurance that we will be successful in developing our new business.
We are substantially dependent on
the success of our product candidates and cannot guarantee that these product candidates will successfully complete development,
receive regulatory approval, or be successfully commercialized.
We currently have no products approved for
commercial distribution. We have invested a significant portion of our efforts and financial resources in the development of our
current product candidates, lifileucel and LN-145 and expect that we will continue to invest heavily in our current product candidates,
as well as in any future product candidates we may develop. Our business depends entirely on the successful development and commercialization
of our product candidates, which may never occur. Our ability to generate revenues in the future is substantially dependent on
our ability to develop, obtain regulatory approval for, and then successfully commercialize our product candidates. We currently
generate no revenue from the sale of any products, and we may never be able to develop or commercialize a marketable product.
Our product candidates will require additional
clinical and non-clinical development, regulatory approval, commercial manufacturing arrangements, establishment of a commercial
organization, significant marketing efforts, and further investment before we generate any revenue from product sales. We cannot
assure you that we will meet our timelines for our current or future clinical trials, which may be delayed or not completed for
a number of reasons.
We are not permitted to market or promote
any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities,
and we may never receive such regulatory approval for any of our product candidates or regulatory approval that will allow us to
successfully commercialize our product candidates. If we do not receive FDA approval with the necessary conditions to allow successful
commercialization, and then successfully commercialize our product candidates, we will not be able to generate revenue from those
product candidates in the United States in the foreseeable future, or at all. Any significant delays in obtaining approval for
and commercializing our product candidates will have a material adverse impact on our business and financial condition.
We have not previously submitted a BLA to
the FDA, or similar marketing application to comparable foreign authorities, for any product candidate, and we cannot be certain
that our current or any future product candidates will be successful in clinical trials or receive regulatory approval.
Our product candidates are susceptible to
the risks of failure inherent at any stage of product development, including the appearance of unexpected adverse events or failure
to achieve primary endpoints in clinical trials. Further, our product candidates may not receive regulatory approval even if they
are successful in clinical trials.
If approved for marketing by applicable regulatory
authorities, our ability to generate revenues from our product candidates will depend on our ability to:
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create market demand for our product candidates through our own marketing
and sales activities, and any other arrangements to promote these product candidates that we may otherwise establish;
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receive regulatory approval for claims that are necessary or desirable
for successful marketing;
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hire, train, and deploy a sales force or contract with a third party
for a sales force to commercialize product candidates in the United States;
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manufacture product candidates in sufficient quantities and at acceptable
quality and manufacturing cost to meet commercial demand at launch and thereafter;
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establish and maintain agreements with wholesalers, distributors,
and group purchasing organizations on commercially reasonable terms;
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create partnerships with, or offer licenses to, third parties to promote
and sell product candidates in foreign markets where we receive marketing approval;
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maintain patent and trade secret protection and regulatory exclusivity
for our product candidates;
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launch commercial sales of our product candidates, whether alone or
in collaboration with others;
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achieve market acceptance of our product candidates by patients, the
medical community, and third-party payors;
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achieve appropriate reimbursement for our product candidates;
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effectively compete with other therapies or competitors; and
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maintain a continued acceptable safety profile of our product candidates
following launch.
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We have limited experience as a company
conducting clinical trials and face risks due to the need to rely on third parties.
We have limited experience conducting pre-clinical
and clinical trials and have no experience as a company in filing and supporting the applications necessary to gain marketing approvals.
Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory
authorities for each therapeutic indication to establish the product candidate’s safety, purity, and potency for that indication.
Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection
of manufacturing facilities and clinical trial sites by, applicable regulatory authorities. Clinical testing is expensive and can
take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process.
We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing
approval.
Prior to 2015, all the preclinical and
clinical trials relating to our product candidates manufactured using the Gen 1 process had been conducted by the NCI. We have
recruited a team that has experience with clinical trials; however, we as a company have limited experience in conducting clinical
trials. In part because of this lack of experience, we cannot be certain that our ongoing clinical trials will be completed on
time, if at all, will progress according to our plans or expectations, or that our planned clinical trials will be initiated, progress
according to our plans or expectations, or be completed on time, if they are completed at all.
Large-scale trials
require significant financial and management resources, and reliance on third-party clinical investigators, contract research organizations
or CROs, contract manufacturing organizations or CMOs, or consultants. Relying on third-party clinical investigators, CROs or CMOs
may force us to encounter delays and challenges that are outside of our control. We rely on CMOs in the United States and Europe
to manufacture TIL for use in our trials. We may not be able to demonstrate sufficient comparability between products manufactured
at different facilities to allow for inclusion of the clinical results from patients treated with products from these different
facilities, in our product registrations. Further, our CMOs may not be able to manufacture TIL or otherwise fulfill their obligations
to us because of interruptions to their business, including the loss of their key staff or interruptions to their raw material
supply.
We rely on third party CROs and clinical
trial sites to conduct, supervise, and monitor our clinical trials for our product candidates. We expect to continue to rely on
third parties, such as CROs, clinical data management organizations, medical institutions, independent review organizations and
clinical investigators, to conduct our clinical trials. While we have agreements governing their activities, we have limited influence
over their actual performance and control only certain aspects of their activities. The failure of these third parties to successfully
carry out their contractual duties or meet expected deadlines could substantially harm our business because we may be delayed in
completing or unable to complete the clinical trials required to support future approval of our product candidates, or we may not
obtain marketing approval for or commercialize our product candidates in a timely manner or at all. Moreover, these agreements
might terminate for a variety of reasons, including a failure to perform by the third parties. For example, as of April 9, 2018,
we terminated our clinical trials agreement with the Karolinska University Hospital. If we need to enter into alternative arrangements,
that could delay our product development activities and adversely affect our business.
Our reliance on these third parties for
development activities will reduce our control over these activities. Nevertheless, we are responsible for ensuring that each of
our studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance
on the CROs, clinical trial sites, and other third parties does not relieve us of our regulatory responsibilities. For example,
we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational
plan and protocols for the trial and for ensuring that our preclinical trials are conducted in accordance with Good Laboratory
Practices, or GLPs, as appropriate. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with GCPs
for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and
accurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce
these requirements through periodic inspections of trial sponsors, clinical investigators, and trial sites. If we, our CROs, clinical
trial sites, or other third parties fail to comply with applicable GCPs or other regulatory requirements, we or they may be subject
to enforcement or other legal actions, the clinical data generated in our clinical trials may be deemed unreliable and the FDA
or comparable foreign regulatory authorities may require us to perform additional clinical trials. We cannot assure you that upon
inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials complies with
GCP regulations.
In addition, we will be required to report
certain financial interests of our third-party investigators if these relationships exceed certain financial thresholds or meet
other criteria. The FDA or comparable foreign regulatory authorities may question the integrity of the data from those clinical
trials conducted by investigators that are determined to have conflicts of interest.
In addition, our clinical trials must be
conducted with product candidates that were produced under cGMP regulations. Our failure to comply or our CMOs’ failure to
comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. We also
are required to register certain clinical trials and post the results of certain completed clinical trials on a government sponsored
database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in enforcement actions and adverse publicity.
Our CROs, clinical trial sites, and other
third parties may also have relationships with other entities, some of which may be our competitors, for whom they may also be
conducting clinical trials or other therapeutic development activities that could harm our competitive position. In addition, these
third parties are not our employees, and except for remedies available to us under our agreements with them, we cannot control
whether or not they devote sufficient time and resources to our ongoing clinical, non-clinical, and preclinical programs. If these
third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in
accordance with regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracy of the
data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our
trials may be repeated, extended, delayed, or terminated and we may not be able to obtain, or may be delayed in obtaining, marketing
approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our
product candidates, or we or they may be subject to regulatory enforcement actions. As a result, our results of operations and
the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues
could be delayed. To the extent we are unable to successfully identify and manage the performance of third party service providers
in the future, our business may be materially and adversely affected.
If any of our relationships with these
third parties terminate, we may not be able to enter into arrangements or do so on commercially reasonable terms. Switching or
adding additional contractors involves additional cost and requires management time and focus. In addition, there is a natural
transition period when a new third party commences work. As a result, delays could occur, which could compromise our ability to
meet our desired development timelines. Though we carefully manage our relationships with our third-party service providers, there
can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will
not have a material adverse impact on our business, financial condition and prospects or results of operations.
We also rely on other third parties to
distribute our products for the clinical trials that we conduct. Any performance failure on the part of our distributors could
delay clinical development or marketing approval of our product candidates or any additional product candidates or commercialization
of our product candidates, if approved, producing additional losses and depriving us of potential product revenue.
We may encounter substantial delays
in our clinical trials or may not be able to conduct our trials on the timelines we expect and we may be required to conduct additional
clinical trials or modify current or future clinical trials based on feedback we receive from the FDA.
Clinical testing is expensive, time consuming,
and subject to uncertainty. We cannot guarantee that any current or future clinical studies will be conducted as planned or completed
on schedule, if at all, or that any of our product candidates will receive regulatory approval. We initiated clinical trials in
patients with metastatic melanoma, cervical, head and neck and non-small cell lung cancers, and in other indications in collaboration
with third parties. We plan to initiate trials in new indications, and new cohorts in existing trials. Even as these trials progress,
issues may arise that could require us to suspend or terminate such clinical trials or could cause the results of one cohort to
differ from a prior cohort. A failure of one or more clinical studies can occur at any stage of testing, and our future clinical
studies may not be successful. Events that may prevent successful or timely initiation or completion of clinical development, or
product approval include:
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inability to generate sufficient preclinical data to support the initiation
of clinical studies;
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regulators or Institutional Review Boards, or IRBs may not authorize
us or our investigators to commence a clinical trial, conduct a clinical trial at a prospective trial site, or amend trial protocols,
or regulators or IRBs may require that we modify or amend our clinical trial protocols;
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delays in reaching a consensus or inability to obtain agreement with
regulatory agencies on study design;
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the FDA or comparable foreign regulatory authorities may disagree
with our intended indications, study design or our interpretation of data from preclinical studies and clinical trials or find
that a product candidate’s benefits do not outweigh its safety risks;
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the FDA or comparable foreign regulatory authorities may not accept
data from studies with clinical trial sites in foreign countries;
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the FDA may not allow us to use the clinical trial data from a research
institution to support an IND if we cannot demonstrate the comparability of our product candidates with the product candidate used
by the relevant research institution in its clinical studies;
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delays in or failure to reach an agreement on acceptable terms with
prospective CROs and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly
among different CROs and clinical study sites;
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delays in obtaining required IRB approval at each clinical study site;
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imposition of a temporary or permanent clinical hold, suspensions
or terminations by regulatory agencies, IRBs, or us for various reasons, including noncompliance with regulatory requirements or
a finding that the participants are being exposed to unacceptable health risks, undesirable side effects, or other unexpected characteristics
of the product candidate, or due to findings of undesirable effects caused by a chemically or mechanistically similar therapeutic
or therapeutic candidate;
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delays in recruiting suitable patients to participate in our clinical
studies;
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delay in adding new investigators or clinical trial sites, or withdrawal
of clinical trial sites from a study;
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delay or change in strategic direction for an indication resulting
from differences in results between cohorts in a clinical trial, such as Cohort 2 and Cohort 4 of the C-144-01 clinical trial,
including differences in patient population, or from different interpretations of the results using a BIRC;
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failure by our CROs, clinical trial sites, patients, or other third
parties, or us to adhere to clinical study requirements, including regulatory, contractual or protocol requirements;
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failure to perform in accordance with the FDA’s cGCP requirements,
or applicable regulatory guidelines in other countries;
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the number of patients required for clinical trials of our product
candidates may be larger than we anticipate or enrollment in these clinical trials may be slower than we anticipate;
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patients that enroll in our studies may misrepresent their eligibility
or may otherwise not comply with the clinical trial protocol, resulting in the need to drop such patients from the study or clinical
trial, increase the needed enrollment size for the study or clinical trial or extend the study’s or clinical trial’s
duration;
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patients dropping out of a study;
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occurrence of adverse events associated with the product candidate
that are viewed to outweigh its potential benefits;
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changes in regulatory requirements and guidance that require amending
or submitting new clinical protocols to regulatory authorities and IRBs, and which may cause delays in our development programs,
or changes to regulatory review times;
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there may be regulatory questions or disagreements regarding interpretations
of data and results, or new information may emerge regarding our product candidates;
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changes in the standard of care on which a clinical development plan
was based, which may require new or additional trials;
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the cost of clinical studies of our product candidates being greater
than we anticipate, or we may have insufficient funds for a clinical trial or to pay the substantial user fees required by the
FDA upon the filing of a BLA;
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clinical studies of our product candidates producing negative or inconclusive
results may fail to provide sufficient data and information to support product approval, or our studies may fail to reach the necessary
level of statistical or clinical significance, which may result in our deciding, or regulators requiring us, to conduct additional
clinical studies, or preclinical studies, or abandon product development programs;
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early results from our clinical studies of our product candidates
may be negatively affected by changes in efficacy measures such as overall response rate and duration of response as more patients
are enrolled in our clinical trials or as new cohorts of our clinical trials are tested, and overall response rate and duration
of response may be negatively affected by the inclusion of unconfirmed responses in preliminary results that we report if such
responses are not later confirmed;
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we may not be able to demonstrate that a product candidate provides
an advantage over current standards of care or current or future competitive therapies in development;
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there may be changes to the therapeutics or their regulatory status
which we are administering in combination with our product candidates;
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the FDA or comparable foreign regulatory authorities may fail to approve
or subsequently find fault with the manufacturing processes or our manufacturing facilities for clinical and future commercial
supplies;
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the FDA or comparable regulatory authorities may take longer than
we anticipate making a decision on our product candidates;
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transfer of our manufacturing processes to our contract manufacturers
or other larger-scale facilities operated by a CMO and delays or failure by our CMOs or us to make any necessary changes to such
manufacturing process;
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our use of different manufacturing processes within our clinical trials,
including our Gen 1 and Gen 2 manufacturing processes, and any effects that may result from the use of different processes on the
clinical data that we have reported and will report in the future; and
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delays in manufacturing, testing, releasing, validating, or importing/exporting
sufficient stable quantities of our product candidates for use in clinical studies or the inability to do any of the foregoing,
including as a result of any quality issues associated with the contract manufacturer.
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We also may conduct clinical and preclinical
research in collaboration with other biotechnology and biologics entities in which we combine our technologies with those of our
collaborators. Such collaborations may be subject to additional delays because of the management of the trials, contract negotiations,
the need to obtain agreement from multiple parties, and the necessity of obtaining additional approvals for therapeutics used in
the combination trials. These combination therapies will require additional testing and clinical trials will require additional
FDA regulatory approval and will increase our future cost of expenses.
Any inability to successfully complete
preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition,
if we make manufacturing or formulation changes to our product candidates, we may be required to, or we may elect to, conduct additional
studies to bridge our modified product candidates to earlier versions. These changes may require the FDA approval or notification,
may not have their desired effect and the FDA may not accept data from prior versions of the product to support an application,
delaying our clinical trials or programs or necessitating additional clinical or preclinical studies. By example, we changed our
manufacturing process from our first generation, or Gen 1 to our second generation, or Gen 2 to decrease the production time and
allow for the cryopreservation of the product. We may find that this update has unintended consequences that necessitates additional
development and manufacturing work, additional clinical and preclinical studies, or that results in non-approval of a BLA.
Clinical study delays could shorten any
periods during which our products have patent protection and may allow our competitors to bring products to market before we do,
which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Regulatory authorities have substantial
discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval
and require additional preclinical, clinical or other studies. The number and types of preclinical studies and clinical trials
that will be required for regulatory approval also varies depending on the product candidate, the disease or condition that the
product candidate is designed to address, and the regulations applicable to any particular product candidate. Approval policies,
regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s
clinical development and may vary among jurisdictions. It is possible that neither of our product candidates nor any product candidates
we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or any future collaborators
to commence product sales. Any delay in completing development, obtaining or failure to obtain required approvals could also materially
adversely affect our ability or that of any of our collaborators to generate revenue from any such product candidate, which likely
would result in significant harm to our financial position and adversely impact our stock price.
It may take longer and cost more
to complete our clinical trials than we project, or we may not be able to complete them at all.
For budgeting and planning purposes,
we have projected the date for the commencement of future trials, and continuation and completion of our ongoing clinical trials.
However, a number of factors, including scheduling conflicts with participating clinicians and clinical institutions, and difficulties
in identifying and enrolling patients who meet trial eligibility criteria, may cause significant delays. We may not commence or
complete clinical trials involving any of our products as projected or may not conduct them successfully.
We have opened enrollment of our company-sponsored,
Phase 2 clinical trials to establish the feasibility of our product, and to assess its overall safety in patients with metastatic
melanoma, cervical, head and neck and lung cancers. However, we may experience difficulties in patient enrollment in our clinical
trials for a variety of reasons. For example, we have nine active clinical sites for the company-sponsored NSCLC study, yet we
have not yet been able to infuse any patients. As a further example, KEYTRUDA has recently been approved in cervical cancer patients
that expressed PD-L1≥ 1. We have recently amended the protocol for our cervical cancer study to exclude patients with prior
immunotherapy treatment and to limit the number of prior treatments to no more than three. It is difficult to assess the impact,
if any, on the recent approval of KEYTRUDA and the amendment of the protocol on the potential enrollment in the cervical cancer
study. Our ability to enroll or treat patients in our other studies, or the duration or costs of those studies, could be affected
by similar factors. Furthermore, the timely completion of clinical trials in accordance with their protocols depends, among other
things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. In addition, our
clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product
candidates, and this competition will reduce the number and types of patients available to us, because some patients who might
have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Accordingly,
we cannot guarantee that the trial will progress as planned or as scheduled. Delays in patient enrollment may result in increased
costs or may affect the timing or outcome of our ongoing clinical trial and planned clinical trials, which could prevent completion
of these trials and adversely affect our ability to advance the development of our product candidates.
We expect to rely on medical institutions,
academic institutions or CROs to conduct, supervise or monitor some or all aspects of clinical trials involving our products. We
will have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our own.
If we fail to commence or complete, or experience delays in, any of our planned clinical trials, our stock price and our ability
to conduct our business as currently planned could be harmed.
We currently anticipate that we will have
to rely on our CMOs to manufacture our adoptive cell therapy products for clinical trials. If they fail to commence or complete,
or experiences delays in, manufacturing our adoptive cell therapy products, our planned clinical trials will be delayed, which
will adversely affect our stock price and our ability to conduct our business as currently planned.
Clinical
trials are expensive, time-consuming and difficult to design and implement, and our clinical trial costs may be higher than for
more conventional therapeutic technologies or drug products.
Clinical trials
are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because
our product candidates are based on new cell therapy technologies and manufactured on a patient-by-patient basis, we expect that
they will require extensive research and development and have substantial manufacturing costs. In addition, costs to treat patients
with relapsed/refractory cancer and to treat potential side effects that may result from our product candidates can be significant.
Some clinical trial sites may not bill, or obtain coverage from, Medicare, Medicaid, or other third-party payors for some or all
of these costs for patients enrolled in our clinical trials, and we may be required by those trial sites to pay such costs. Accordingly,
our clinical trial costs are likely to be significantly higher per patient than those of more conventional therapeutic technologies
or drug products. In addition, our proposed personalized product candidates involve several complex and costly manufacturing and
processing steps, the costs of which will be borne by us. We are also responsible for the manufacturing costs of products for patients
that may have a tumor resection but ultimately do not receive an infusion. Depending on the number of patients that we ultimately
screen and enroll in our trials, and the number of trials that we may need to conduct, our overall clinical trial costs may be
higher than for more conventional treatments.
Our clinical
trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay regulatory
approval and commercialization.
The clinical
trials of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive and rigorous
review and regulation by numerous government authorities in the United States and in other countries where we intend to test and
market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates,
we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates
are both safe and effective for use in each target indication. Because our product candidates are subject to regulation as biological
drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target indications. Each product
candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use.
The risk/benefit profile required for product licensure will vary depending on these factors and may include not only the ability
to show tumor shrinkage, but also adequate duration of response, a delay in the progression of the disease, and/or an improvement
in survival. For example, response rates from the use of our product candidates may not be sufficient to obtain regulatory approval
unless we can also show an adequate duration of response. Regulatory authorities may ultimately disagree with our chosen endpoints
or may find that our studies or study results do not support product approval. Clinical testing is expensive and can take many
years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The
results of preclinical studies and early clinical trials of our product candidates with small patient populations may not be predictive
of the results of later-stage clinical trials or the results once the applicable clinical trials are completed. Preliminary, single
cohort, or top-line results from clinical studies may not be representative of the final study results. The results of studies
in one set of patients or line of treatment may not be predictive of those obtained in another and the results in various human
clinical trials reported in scientific and medical literature may not be indicative of results we obtain in our clinical trials.
Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed
through preclinical studies and initial clinical trials. Preclinical studies may also reveal unfavorable product candidate characteristics,
including safety concerns.
We expect there
may be greater variability in results for products processed and administered on a patient-by-patient basis, as anticipated for
our product candidates, than for “off-the-shelf” products, like many other drugs. There is typically an extremely high
rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages
of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies
and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical
trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product
candidates that begin clinical trials are never approved by regulatory authorities for commercialization.
In some instances,
there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate
due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the
patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants.
Our current and future clinical trial results may not be successful. Moreover, should there be a flaw in a clinical trial, it may
not become apparent until the clinical trial is well advanced. Further, because we currently plan to develop our product candidates
for use with other oncology products, the design, implementation, and interpretation of the clinical trials necessary for marketing
approval may be more complex than if we were developing our product candidates alone.
In addition, even
if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the
results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the
results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application,
we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of
potential approval of our product candidates.
We have reported
preliminary results for clinical trials of our product candidates, including TIL for the treatment of metastatic melanoma, cervical
cancer, and head and neck cancers. These preliminary results, which include assessments of efficacy such as ORR, are subject to
substantial risk of change due to small sample sizes, and may change as patients are evaluated or as additional patients are enrolled
in these clinical trials. These outcomes may be unfavorable, deviate from our earlier reports, and/or delay or prevent regulatory
approval or commercialization of our product candidates, including candidates for which we have reported preliminary efficacy results.
In clinical studies where a staged expansion is expected, such as studies using a Simon’s two stage design, these outcomes
may result in the failure to meet an
initial efficacy threshold for the first stage. Furthermore,
o
ther measures of efficacy for these clinical trials and product candidates may not be as favorable.
If we encounter
difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely
affected.
The timely completion
of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number
of patients who remain in the trial until its conclusion. We may experience difficulties or delays in patient enrollment in our
clinical trials for a variety of reasons, including:
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the size and nature of the patient population;
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the severity of the disease under investigation;
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the patient eligibility criteria defined in the protocol;
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the size of the study population required for analysis of the trial’s
primary endpoints;
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the proximity of patients to trial sites;
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the design of the trial;
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our ability to recruit clinical trial investigators with the appropriate
competencies and experience;
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the efforts to facilitate timely enrollment in clinical trials and
the effectiveness of recruiting publicity;
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the patient referral practices of physicians;
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competing clinical trials for similar therapies or other new therapeutics
not involving cell-based immunotherapy;
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clinicians’ and patients’ perceptions as to the potential
advantages and side effects of the product candidate being studied in relation to other available therapies, including any new
drugs or treatments that may be approved for the indications we are investigating;
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clinical investigators enrolling patients who do not meet the enrollment
criteria, requiring the inclusion of additional patients in the clinical trial;
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approval of new indications for existing therapies or approval of
new therapies in general;
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our ability to obtain and maintain patient consents; and
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the risk that patients enrolled in clinical trials will not complete
a clinical trial, return for post-treatment follow-up, or follow the required study procedures. For instance, patients, including
patients in any control groups, may withdraw from the clinical trial if they are not experiencing improvement in their underlying
disease or condition. Withdrawal of patients from our clinical trials may compromise the quality of our data.
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In addition, our
clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product
candidates, and this competition will reduce the number and types of patients available to us, because some patients who might
have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the
number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial
sites that some of our competitor’s use, which will reduce the number of patients who are available for our clinical trials
at such clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for
cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and
approved immunotherapies, rather than enroll patients in any future clinical trial. In addition, potential enrollees may opt to
participate in other clinical trials because of the length of time between the time that their tumor is excised and the TIL is
infused back into the patient. Amendments to our clinical protocols may affect enrollment in, or results of, our trials, including
recent amendments we have made to limit the number and type of prior therapies.
Even if we are
able to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment or small population size may
result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of
these trials and adversely affect our ability to advance the development of our product candidates.
Our product candidates may cause
undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval,
limit their commercial potential or result in significant negative consequences.
Results of our trials could reveal a high
and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by our
product candidates could cause us, IRBs, Drug Safety Monitoring Boards or DSMBs, or regulatory authorities to interrupt, delay
or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or
other comparable foreign regulatory authorities. Even if we were to receive product approval, such approval could be contingent
on inclusion of unfavorable information in our product labeling, such as limitations on the indicated uses for which the products
may be marketed or distributed, a label with significant safety warnings, including boxed warnings, contraindications, and precautions,
a label without statements necessary or desirable for successful commercialization, or requirements for costly post marketing testing
and surveillance, or other requirements, including REMS, to monitor the safety or efficacy of the products, and in turn prevent
us from commercializing and generating revenues from the sale of our current or future product candidates.
If unacceptable toxicities or side effects
arise in the development of our product candidates, we, an IRB, DSMB or the FDA or comparable foreign regulatory authorities could
order us to cease clinical trials, order our clinical trials to be placed on clinical hold, or deny approval of our product candidates
for any or all targeted indications. The FDA or comparable foreign regulatory authorities may also require additional data, clinical,
or pre-clinical studies should unacceptable toxicities arise. We may need to abandon development or limit development of that product
candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent,
less severe or more acceptable from a risk/benefit perspective. Toxicities associated with our trials and products may also negatively
impact our ability to conduct clinical trials using TIL therapy in larger patient populations, such as in patients that have not
yet been treated with other therapies or have not yet progressed on other therapies.
Treatment-related side effects could also
affect patient recruitment or the ability of enrolled subjects to complete our trials or result in potential product liability
claims. Such toxicities, which may arise from TIL therapy in general, including co-therapies, may include, for example, pyrexia,
anemia, neutrophil and platelet count decrease, febrile neutropenia, fatigue, chills, hyponatremia, and hypotension. For example,
the recent update from the C-144-01 trials included two grade 5 treatment emergent adverse events. In addition, these side effects
and deaths may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting from personalized
cell therapy are not normally encountered in the general patient population and by medical personnel. Any of these occurrences
may harm our business, financial condition and prospects significantly.
The manufacture
of our product candidates is complex, and we may encounter difficulties in production, particularly with respect to process development
or scaling-out of our manufacturing capabilities. If we, or any of our third-party manufacturers encounter such difficulties, our
ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed
or stopped, or we may be unable to maintain a commercially viable cost structure.
Our product candidates
are biologics and the process of manufacturing our products is complex, highly-regulated and subject to multiple risks. The manufacture
of our product candidates involves complex processes, including harvesting tumor fragments from patients, multiplying the T cells
to obtain the desired dose, and ultimately infusing the T cells back into a patient. As a result of the complexities, the cost
to manufacture biologics is generally higher than traditional small molecule chemical compounds, and the manufacturing process
is less reliable and is more difficult to reproduce. Our manufacturing process will be susceptible to product loss or failure due
to logistical issues associated with the collection of tumor fragments, or starting material, from the patient, shipping such material
to the manufacturing site, shipping the final product back to the patient, and infusing the patient with the product, manufacturing
issues associated with the differences in patient starting material, interruptions in the manufacturing process, contamination,
equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in cell growth, and
variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production
yields, product defects, and other supply disruptions. If for any reason we lose a patient’s starting material, or later-developed
product at any point in the process, or if any product does not meet the applicable specifications, the manufacturing process for
that patient will need to be restarted, including resection of the proper amount of tumor fragment and the resulting delay may
adversely affect that patient’s outcome. If microbial, viral, environmental or other contaminations are discovered in our
product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may
need to be closed for an extended period of time to investigate and remedy the contamination.
Because our product
candidates are manufactured specifically for each individual patient, we will be required to maintain a chain of identity with
respect to the patient’s tumor as it moves from the patient to the manufacturing facility, through the manufacturing process,
and back to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse
patient outcomes, loss of product, or regulatory action including withdrawal of our products from the market. Further, as product
candidates are developed through preclinical to late stage clinical trials towards approval and commercialization, it is common
that various aspects of the development program, such as manufacturing methods, are altered along the way to optimize processes
and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause
our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials
or otherwise necessitate the conduct of additional studies.
Currently,
our product candidates are manufactured using processes developed or modified by us or by our third-party research
institution collaborators that we may not intend to use for more advanced clinical trials or commercialization. We have
selected Gen 2 as the manufacturing process for product registration, and all ongoing and future company-sponsored clinical
trials. Although we believe Gen 2 is a commercially viable process, there are risks associated with scaling to the level
required for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with
process scale-out, process reproducibility, stability issues, lot consistency, and timely availability of raw materials. This
includes potential risks associated with FDA not agreeing with all of the details of our validation data or our potency assay
prior to starting Cohort 4 of our C-144-01 clinical trial. Furthermore, some of our CMOs may not be able to establish
comparability of their products with TIL product used in Cohort 2 or may not be fully validated prior to starting Cohort 4.
As a result of these challenges, we may experience delays in our clinical development and/or commercialization plans. We may
ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an attractive
return on investment if and when those product candidates are commercialized.
Our current manufacturing
strategy involves the use of CMOs. Currently our product candidates are manufactured by WuXi, Lonza Netherlands (formerly PharmaCell),
and Moffitt. In 2019 we anticipate that MasTHerCell will manufacture product candidates for use in our European clinical sites.
Should we continue to use CMOs, we may not succeed in maintaining our relationships with our current CMOs or establishing relationships
with additional or alternative CMOs. Our product candidates may compete with other products and product candidates for access to
manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that are both capable
of manufacturing for us and willing to do so. If our CMOs should cease manufacturing for us, we would experience delays in obtaining
sufficient quantities of our product candidates for clinical trials and, if approved, commercial supply. Further, our CMOs may
breach, terminate, or not renew these agreements. If we were to need to find alternative manufacturing facilities it would significantly
impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. The commercial terms
of any new arrangement could be less favorable than our existing arrangements and the expenses relating to the transfer of necessary
technology and processes could be significant.
Reliance on third-party
manufacturers entails exposure to risks to which we would not be subject if we manufactured the product candidate ourselves, including:
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inability to negotiate manufacturing agreements with third parties
under commercially reasonable terms;
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reduced day-to-day control over the manufacturing process for our
product candidates as a result of using third-party manufacturers for all aspects of manufacturing activities;
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reduced control over the protection of our trade secrets and know-how
from misappropriation or inadvertent disclosure;
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termination or nonrenewal of manufacturing agreements with third parties
in a manner or at a time that may be costly or damaging to us or result in delays in the development or commercialization of our
product candidates; and
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disruptions to the operations of our third-party manufacturers or
suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier.
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In the future,
we plan to establish our own manufacturing capabilities and infrastructure, including a manufacturing facility. We would expect
that development of our own manufacturing facility would provide us with enhanced control of material supply for both clinical
trials and the commercial market, enable the more rapid implementation of process changes, and allow for better long-term margins.
However, we have no experience as a company in developing a manufacturing facility and may never be successful in developing our
own manufacturing facility or capability. We may establish multiple manufacturing facilities as we expand our commercial footprint
to multiple geographies, which may lead to regulatory delays or prove costly. Even if we are successful, our manufacturing capabilities
could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, natural disasters, power failures,
and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a
material adverse effect on our business.
The manufacture
of biopharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing
techniques and process controls. Manufacturers of therapeutics often encounter difficulties in production, particularly in scaling
up initial production. These problems include difficulties with production costs and yields, quality control, including stability
of the product candidate and quality assurance testing, shortages of qualified personnel, and compliance with strictly enforced
federal, state, local and foreign regulations.
Moreover, any
problems or delays we or our CMOs experience in preparing for commercial scale manufacturing of a product candidate or component
may result in a delay in the FDA approval of the product candidate or may impair our ability to manufacture commercial quantities
or such quantities at an acceptable cost, which could result in the delay, prevention, or impairment of clinical development and
commercialization of our product candidates and could adversely affect our business. Furthermore, if we or our commercial manufacturers
fail to deliver the required commercial quantities of our product candidates on a timely basis and at reasonable costs, we would
likely be unable to meet demand for our products and we would lose potential revenues.
In addition, the
manufacturing process and facilities for any products that we may develop is subject to FDA and foreign regulatory authority approval
processes, and we or our CMOs will need to meet all applicable FDA and foreign regulatory authority requirements, including cGMPs,
on an ongoing basis. The cGMP requirements include quality control, quality assurance, and the maintenance of records and documentation.
The FDA and other regulatory authorities enforce these requirements through facility inspections. Manufacturing facilities must
be approved by the FDA pursuant to inspections that will be conducted after we submit our marketing applications to the agency.
Manufacturers are also subject to continuing FDA and other regulatory authority inspections following marketing approval. Further,
we, in cooperation with our CMOs, must supply all necessary chemistry, manufacturing, and control documentation in support of a
BLA on a timely basis.
Our, or our CMOs’,
manufacturing facilities may be unable to comply with our specifications, cGMPs, and with other FDA, state, and foreign regulatory
requirements. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or
to inadvertent changes in the properties or stability of product candidate that may not be detectable in final product testing.
If we or our CMOs are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities,
or in accordance with the strict regulatory requirements, we may not obtain or maintain the approvals we need to commercialize
such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or
our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities,
to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future
demand. Deviations from manufacturing requirements may further require remedial measures that may be costly and/or time-consuming
for us or a third party to implement and may include the temporary or permanent suspension of a clinical trial or commercial sales
or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract
could materially harm our business.
Even to the extent
we use and continue to use CMOs, we are ultimately responsible for the manufacture of our products and product candidates. A failure
to comply with these requirements may result in regulatory enforcement actions against our manufacturers or us, including fines
and civil and criminal penalties, which could result in imprisonment, suspension or restrictions of production, suspension, injunctions,
delay or denial of product approval or supplements to approved products, clinical holds or termination of clinical studies, warning
or untitled letters, regulatory authority communications warning the public about safety issues with the biologic, refusal to permit
the import or export of the products, product seizure, detention, or recall, operating restrictions, suits under the civil False
Claims Act, corporate integrity agreements, consent decrees, or withdrawal of product approval.
Any of these challenges
could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase
clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods, and
have an adverse effect on our business, financial condition, results of operations and growth prospects.
Cell-based
therapies rely on the availability of reagents, specialized equipment, and other specialty materials, which may not be available
to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source vendors
or a limited number of vendors, which could impair our ability to manufacture and supply our products.
Manufacturing
our product candidates requires many reagents, which are substances used in our manufacturing processes to bring about chemical
or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies
with limited resources and experience to support commercial biologics production. We currently depend on a limited number of vendors
for certain materials and equipment used in the manufacture of our product candidates. Some of these suppliers may not have the
capacity to support clinical trials and commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise
be ill-equipped to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to
obtain supply contracts with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials
and equipment to support clinical or commercial manufacturing.
For some of these
reagents, equipment, and materials, we rely and may in the future rely on sole source vendors or a limited number of vendors. An
inability to continue to source product from any of these suppliers, which could be due to a number of issues, including regulatory
actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor
disputes or shortages, unexpected demands, or quality issues, could adversely affect our ability to satisfy demand for our product
candidates, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical
trials, either of which could significantly harm our business.
As we continue
to develop and scale our manufacturing process, we expect that we will need to obtain rights to and supplies of certain materials
and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable
terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials
or find a suitable substitute, it would have a material adverse effect on our business. Even if we are able to alter our process
so as to use other materials or equipment, such a change may lead to a delay in our clinical development and/or commercialization
plans. If such a change occurs for product candidate that is already in clinical testing, the change may require us to perform
both
ex vivo
comparability studies and to collect additional data from patients prior to undertaking more advanced
clinical trials.
The deviations in our proposed new
products from existing products may require us to perform additional testing, which will increase the cost, and extend the time
for obtaining approval.
Our TIL based therapy is based on the adoptive
cell therapy technology that we licensed from the NIH and that is presently in use as a physician-sponsored investigational therapy
for the treatment of Stage IV metastatic melanoma in the United States at the NCI, MDACC Cancer Center, and Moffit. These current
methods of treatment are very labor intensive and expensive, which has limited its widespread application. We have developed new
processes that we anticipate will enable more efficient manufacturing of TIL. We may have difficulty demonstrating that the products
produced from our new processes are comparable to the existing products. The FDA may require additional clinical testing before
permitting a larger clinical trial with the new processes, and the product may not be as efficacious in the new clinical trials.
Cellular products are not considered as well characterized products because there are hundreds of markers present on these cells,
and even small changes in manufacturing processes could alter the cell types. It is unclear at this time which of those markers
are critical for success of these cells to combat cancer, so our ability to predict the outcomes with newer manufacturing processes
is limited. The changes that we have made to the historical manufacturing process may require additional testing, which may increase
costs and timelines associated with these developments.
In addition to developing a TIL based therapy
on existing ACT technology, we are currently conducting clinical trials of our products in combination with other existing drugs.
These combination therapies will require additional testing and clinical trials will require additional FDA regulatory approval
and will increase our future cost of development.
We will be unable to commercialize
our products if our trials are not successful.
Our research and development programs are
at an early stage. We must demonstrate our products’ safety and efficacy in humans through extensive clinical testing. We
may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization
of our products, including but not limited to the following:
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safety and efficacy results in various human clinical trials reported in scientific and medical literature may not be indicative of results we obtain in our clinical trials;
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after reviewing test results, we or our collaborators may abandon projects that we might previously have believed to be promising;
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we, our collaborators or regulators, may suspend or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks;
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the effects our potential products have may not be the desired effects or may include undesirable side effects or other characteristics that preclude regulatory approval or limit their commercial use if approved;
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manufacturers may not meet the necessary standards for the production of the product candidates or may not be able to supply the product candidates in a sufficient quantity; and
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regulatory authorities may find that our clinical trial design or conduct does not meet the applicable approval requirements.
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Clinical testing is very expensive, can
take many years, and the outcome is uncertain. It can take as much as 12 months or more before we learn the results from any clinical
trial using our adoptive cell therapy with TIL. The data collected from our clinical trials may not be sufficient to support approval
by the FDA of our TIL-based product candidates for the treatment of solid tumors. The clinical trials for our products under development
may not be completed on schedule and the FDA may not ultimately approve any of our product candidates for commercial sale. If we
fail to adequately demonstrate the safety and efficacy of any product candidate under development, we may not receive regulatory
approval for those products, which would prevent us from generating revenues or achieving profitability.
Even if our lead product, lifileucel,
is approved and commercialized, we may not become profitable.
Our lead product, lifileucel, is initially
targeting a small population of refractory patients that suffer from metastatic melanoma. Even if the FDA approves this new therapy,
and even if we obtain significant market share for this initial product candidate, because the potential target population for
lifileucel in refractory patients may be small, we may never achieve profitability without obtaining regulatory approval for additional
indications. The FDA often approves new therapies initially only for use in patients with relapsed or refractory metastatic disease.
We expect to initially seek approval of our product candidates in this setting and are currently studying these patient populations.
We collaborate with governmental, academic
and corporate partners to improve and develop TIL therapies for new indications for use in combination with other therapies and
to evaluate new TIL manufacturing methods, the results of which, because the manufacturing processes are not within our control,
may be incorrect or unreliable.
In addition to our own research and process
development efforts, we seek to collaborate with government, academic research institutions and corporate partners to improve TIL
manufacturing and to develop TIL therapies for new indications. In 2017, we announced collaborations with Moffitt, MDACC and Ohio
State University to evaluate several new solid tumor and hematologic indications for TIL therapy in clinical and preclinical studies
as well as, in some cases, new TIL manufacturing approaches. The results of these collaborations may be used to support our filing
with the FDA of INDs to conduct more advanced clinical trials of our product candidates, or to otherwise analyze or make predictions
or decisions with respect to our current or future product candidates. However, because the majority of our collaborations are
conducted at outside laboratories and we do not have complete control over how the studies are conducted or reported or over the
manufacturing methods used to manufacture TIL product, the results of such studies, which we may use as the basis for our conclusions,
projections or decisions with respect to our current or future product candidates, may be incorrect or unreliable, or may have
a negative impact on us if the results of such studies are imputed to our products or proposed indications, even if such imputation
is improper. For example, we have entered into collaborations with Moffitt and MDACC to perform clinical trials using TIL products
that differ from our products, but the results of these clinical trials, if negative, may adversely impact our stock price and
our development plans for our products. Additionally, we may use third party data to analyze, reach conclusions or make predictions
or decisions with respect to our product candidates that may be incomplete, inaccurate or otherwise unreliable.
We will need additional financing
to fund our operations and complete the development and commercialization of our various product candidates, and if we are unable
to obtain such financing, we may be unable to complete the development and commercialization of our product candidates. Raising
additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights
to our technologies or product candidates.
Our operations have consumed substantial
amounts of cash since inception. From our inception to December 31, 2018, we have an accumulated deficit of $372.8 million. In
addition, our research and development and our operating costs have also been substantial and are expected to increase. In January
2018, we closed an underwritten public offering of our common stock. The net proceeds from the offering, after deducting the underwriting
discounts and commissions and other offering expenses payable by us, were $162.0 million. In October 2018, we closed an underwritten
public offering of our common stock. The net proceeds from the offering, after deducting the underwriting discounts and commissions
and other estimated offering expenses payable by the Company, were of $236.7 million. We expect to continue to spend substantial
amounts to continue the clinical development of our product candidates. As of December 31, 2018, we had $468.5 million in cash,
cash equivalents and short-term investments.
Accordingly, we believe that our existing
cash, cash equivalents and short-term investments will be sufficient to fund our operations for at least the next twelve months
from the date this Annual Report on Form 10-K is issued. However, in order to complete the development of our current product candidates,
and in order to affect our business plan (including establishing our own manufacturing facility), we anticipate that we will have
to spend more than the funds currently available to us. Furthermore, changing circumstances may cause us to increase our spending
significantly faster than we currently anticipate, and we may require additional capital for the further development and commercialization
of our product candidates and may need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate.
Moreover, our fixed expenses such as rent, minimum payments to our contract manufacturers, and other contractual commitments, including
those for our research collaborations, are substantial and are expected to increase in the future.
We will need to obtain additional financing
to fund our future operations, including completing the development and commercialization of our product candidates. Our future
funding requirements will depend on many factors, including, but not limited to:
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Progress, timing, scope and costs of our clinical trials, including
the ability to timely initiate clinical sites, enroll subjects and manufacture TIL for treatment for patients in our ongoing, planned
and potential future clinical trials;
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Time and cost necessary to obtain regulatory approvals that may be
required by regulatory authorities to execute clinical trials or commercialize our product;
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Our ability to successfully commercialize our product candidates,
if approved;
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Our ability to have clinical and commercial product successfully manufactured
consistent with FDA and European Medicines Agency, or EMA, regulations;
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Amount of sales and other revenues from product candidates that we
may commercialize, if any, including the selling prices for such potential products and the availability of adequate third-party
coverage and reimbursement for patients;
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Sales and marketing costs associated with commercializing our products,
if approved, including the cost and timing of building our marketing and sales capabilities;
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Cost of building, staffing and validating our own manufacturing facility
in the United States;
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Terms and timing of our current and any potential future collaborations,
licensing or other arrangements that we have established or may establish;
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Cash requirements of any future acquisitions or the development of
other product candidates;
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Costs of operating as a public company;
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Time and cost necessary to respond to technological, regulatory, political
and market developments;
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Costs of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights; and
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Costs associated with any potential business or product acquisitions,
strategic collaborations, licensing agreements or other arrangements that we may establish.
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Unless and until we can generate a sufficient
amount of revenue, we may finance future cash needs through public or private equity offerings, license agreements, debt financings,
collaborations, strategic alliances and marketing or distribution arrangements. Additional funds may not be available when we need
them on terms that are acceptable to us, or at all. We have no committed source of additional capital and if we are unable to raise
additional capital in sufficient amounts or on terms acceptable to us, we may be required to delay or reduce the scope of or eliminate
one or more of our research or development programs or our commercialization efforts. Our current license and collaboration agreements
may also be terminated if we are unable to meet the payment obligations under those agreements. As a result, we may seek to access
the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional
capital at that time.
To the extent that we raise additional capital
through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation
or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased
fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional
debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could
adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances
and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates,
or grant licenses on terms unfavorable to us.
Subject to various spending levels
approved by the Board of Directors, our management will have broad discretion in the use of the net proceeds from our capital raises,
including our October 2018 January 2018, and September 2017 public offerings, and may not use them effectively.
Our management will have discretion in the
application of the net proceeds from our capital raises, including our October 2018, January 2018 and September 2017 public offerings,
and our stockholders will not have the opportunity as part of their investment decision to assess whether the net proceeds from
those capital raises are being used appropriately. You may not agree with our decisions, and our use of the proceeds from our capital
raises may not yield any return to stockholders. Because of the number and variability of factors that will determine our use of
the net proceeds from our capital raises, including our October 2018, January 2018 and September 2017 public offerings, their ultimate
use may vary substantially from their currently intended use. Our failure to apply the net proceeds of our capital raises, including
our October 2018, January 2018 and September 2017 public offerings, effectively could compromise our ability to pursue our growth
strategy and we might not be able to yield a significant return, if any, on our investment of those net proceeds. Stockholders
will not have the opportunity to influence our decisions on how to use our net proceeds from capital raises, including our October
2018, January 2018 and September 2017 public offerings. Pending their use, we may invest the net proceeds from our capital raises,
including our October 2018, January 2018 and September 2017 public offerings, in interest and non-interest bearing cash accounts,
short-term, investment-grade, interest-bearing instruments and U.S. government securities. These temporary investments are not
likely to yield a significant return.
The use of our net operating loss carryforwards
and research tax credits may be limited.
Our net operating loss carryforwards and
any future research and development tax credits may expire and not be used. As of December 31, 2018, we had U.S. federal net operating
loss carryforwards of approximately $251.5 million. Our net operating loss carryforwards arising in taxable years ending on or
prior to December 31, 2018 will begin expiring in 2027 if we have not used them prior to that time. Net operating loss carryforwards
arising in taxable years ending after December 31, 2018 are no longer subject to expiration under the Internal Revenue Code of
1986, as amended, or the Code. Additionally, our ability to use any net operating loss and credit carryforwards to offset taxable
income or tax, respectively, in the future will be limited under Sections 382 and 383 of the Code, respectively, if we have a cumulative
change in ownership of more than 50% within a three-year period.
We have performed an IRC Section 382 analysis
as of December 31, 2017. Per the analysis, the May 2013 recapitalization, private placements in 2014 and 2016 may have already
triggered such an ownership change. As a result, the federal and state carryforwards associated with the net operating loss and
credit deferred tax assets were reduced by the amount of tax attributes estimated to expire during their respective carryforward
periods. In addition, since we will need to raise substantial additional funding to finance our operations, we may undergo further
ownership changes in the future. Any such annual limitation may significantly reduce the utilization of the net operating loss
carryforwards and research tax credits before they expire. Depending on our future tax position, limitation of our ability to use
net operating loss carryforwards in states in which we are subject to income tax could have an adverse impact on our results of
operations and financial condition.
Recently enacted tax reform legislation
in the U.S. could adversely affect our business and financial condition.
On December 22, 2017, the Tax Cuts and
Jobs Act of 2017, or the Tax Act, was signed into law, making significant changes to the Internal Revenue Code. Changes under the
Tax Act include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after
December 31, 2017, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, limitation of
the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction
for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation
of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject
to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense
over time, and modifying or repealing many business deductions and credits (including reducing the business tax credit for certain
clinical testing expenses incurred in the testing of orphan drugs). The overall impact of the new federal tax law is uncertain,
and our business and financial condition could be adversely affected. For example, because of the tax rate decrease, our deferred
tax assets and our corresponding valuation allowance against these deferred tax assets have been reduced and may continue to be
adversely impacted. In addition, it is uncertain if and to what extent various states will conform to Tax Act and what effect that
legal challenges will have on the Tax Act, including litigation in the U.S. and international challenges brought at organizations
such as the World Trade Organization. The impact of the Tax Act on holders of our common stock is also uncertain and could be adverse.
Investors should consult with their legal and tax advisors with respect to this legislation and the potential tax consequences
of investing in or holding our common stock.
We are subject to extensive regulation,
which can be costly, time consuming and can subject us to unanticipated delays; even if we obtain regulatory approval for some
of our products, those products may still face regulatory difficulties.
Our potential products, cell processing
and manufacturing activities, are subject to comprehensive regulation by the FDA in the United States and by comparable authorities
in other countries. The process of obtaining FDA and other required regulatory approvals, including foreign approvals, is expensive
and often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. In
addition, regulatory agencies may lack experience with our technologies and products, which may lengthen the regulatory review
process, increase our development costs and delay or prevent their commercialization.
No adoptive cell therapy using TIL has
been approved for marketing in the FDA. Consequently, there is no precedent for the successful commercialization of products based
on our technologies. In addition, we have had only limited experience in filing and pursuing applications necessary to gain regulatory
approvals, which may impede our ability to obtain timely FDA approvals, if at all. We have not yet sought FDA approval for any
adoptive cell therapy product. We will not be able to commercialize any of our potential products until we obtain FDA approval,
and so any delay in obtaining, or inability to obtain, FDA approval would harm our business.
If we violate regulatory requirements at
any stage, whether before or after marketing approval is obtained, we may face a number of regulatory consequences, including refusal
to approve pending applications, license suspension or revocation, withdrawal of an approval, imposition of a clinical hold or
termination of clinical trials, warning letters, untitled letters, cyber letters, modification of promotional materials or labeling,
provision of corrective information, imposition of post-market requirements including the need for additional testing, imposition
of distribution or other restrictions under a REMS, product recalls, product seizures or detentions, refusal to allow imports or
exports, total or partial suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees, corporate
integrity agreements, debarment from receiving government contracts, and new orders under existing contracts, exclusion from participation
in federal and state healthcare programs, restitution, disgorgement, or civil or criminal penalties, including fines and imprisonment,
and adverse publicity, among other adverse consequences. Additionally, we may not be able to obtain the labeling claims necessary
or desirable for the promotion of our products. We may also be required to undertake post-marketing trials. In addition, if we
or others identify side effects after any of our adoptive cell therapies are on the market, or if manufacturing problems occur,
regulatory approval may be withdrawn, and reformulation of our products may be required.
We may not be able to license new
TIL technology from the NIH and others.
An element of our intellectual property
portfolio is to license additional rights and technologies from the NIH. Our inability to license the rights and technologies that
we have identified, or that we may in the future identify, could have a material adverse impact on our ability to complete the
development of our products or to develop additional products. No assurance can be given that we will be successful in licensing
any additional rights or technologies from the NIH and others. Failure to obtain additional rights and licenses may detrimentally
affect our planned development of additional product candidates and could increase the cost, and extend the timelines associated
with our development of such other products.
Our projections regarding the market
opportunities for our product candidates may not be accurate, and the actual market for our products may be smaller than we estimate
Our projections of both the number of people
who have the cancers we are targeting, as well as the subset of people with these cancers who are in a position to receive second
or third line therapy, and who have the potential to benefit from treatment with our product candidates, are based on our beliefs
and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics,
patient foundations, or market research by third parties, and may prove to be incorrect. Further, new studies or approvals of new
therapeutics may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be lower
than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not
be amenable to treatment with our product candidates and may also be limited by the cost of our treatments and the reimbursement
of those treatment costs by third-party payors. For instance, we expect lifileucel to initially target a small patient population
that suffers from metastatic melanoma. Even if we obtain significant market share for our product candidates, because the potential
target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications.
We are required to pay substantial
royalties and lump sum benchmark payments under our license agreements with the NIH, Moffitt, and PolyBioCept, and we must meet
certain milestones to maintain our license rights.
Under our license agreements with the NIH
for our adoptive cell therapy technologies, we are currently required to pay both substantial benchmark payments and royalties
to that institution based on our revenues from sales of our products utilizing the licensed technologies. Likewise, under our license
agreement with PolyBioCept, we are required to make lump sum payments if, and when certain product sales targets are achieved.
These payments could adversely affect the overall profitability for us of any products that we may seek to commercialize under
the NIH or PolyBioCept licenses. In order to maintain our license rights under the NIH, Moffitt, and PolyBioCept license agreements,
we will need to meet certain specified milestones, subject to certain cure provisions, in the development of our product candidates.
There is no assurance that we will be successful in meeting these milestones on a timely basis, or at all.
Because our current products represent,
and our other potential product candidates will represent novel approaches to the treatment of disease, there are many uncertainties
regarding the development, the market acceptance, third-party reimbursement coverage and the commercial potential of our product
candidates.
Human immunotherapy products are a new
category of therapeutics. Because this is a relatively new and expanding area of novel therapeutic interventions, there are many
uncertainties related to development, marketing, reimbursement, and the commercial potential for our product candidates. There
can be no assurance as to the length of the trial period, the number of patients the FDA will require to be enrolled in the trials
in order to establish the safety, efficacy, purity and potency of immunotherapy products, or that the data generated in these trials
will be acceptable to the FDA to support marketing approval. The FDA may take longer than usual to come to a decision on any BLA
that we submit and may ultimately determine that there is not enough data, information, or experience with our product candidates
to support an approval decision. The FDA may also require that we conduct additional post-marketing studies or implement risk management
programs, such as REMS until more experience with our product candidates is obtained. Finally, after increased usage, we may find
that our product candidates do not have the intended effect or have unanticipated side effects, potentially jeopardizing initial
or continuing regulatory approval and commercial prospects.
We may also find that the manufacture of
our product candidates is more difficult than anticipated, resulting in an inability to produce a sufficient amount of our product
candidates for our clinical trials or, if approved, commercial supply. Moreover, because of the complexity and novelty of our manufacturing
process, there are only a limited number of manufacturers who have the capability of producing our product candidates. Should any
of our contract manufacturers no longer produce our product candidates, it may take us significant time to find a replacement,
if we are able to find a replacement at all.
There is no assurance that the approaches
offered by our products will gain broad acceptance among doctors or patients or that governmental agencies or third-party medical
insurers will be willing to provide reimbursement coverage for proposed product candidates. Moreover, we do not have verifiable
internal marketing data regarding the potential size of the commercial market for our product candidates, nor have we obtained
current independent marketing surveys to verify the potential size of the commercial markets for our current product candidates
or any future product candidates. Since our current product candidates and any future product candidates will represent novel approaches
to treating various conditions, it may be difficult, in any event, to accurately estimate the potential revenues from these product
candidates. Accordingly, we may spend significant capital trying to obtain approval for product candidates that have an uncertain
commercial market. The market for any products that we successfully develop will also depend on the cost of the product. We do
not yet have sufficient information to reliably estimate what it will cost to commercially manufacture our current product candidates,
and the actual cost to manufacture these products could materially and adversely affect the commercial viability of these products.
Our goal is to reduce the cost of manufacturing and providing our therapies. However, unless we can reduce those costs to an acceptable
amount, we may never be able to develop a commercially viable product. If we do not successfully develop and commercialize products
based upon our approach or find suitable and economical sources for materials used in the production of our products, we will not
become profitable, which would materially and adversely affect the value of our common stock.
Our TIL therapy may be provided to patients
in combination with other agents provided by third parties. The cost of such combination therapy may increase the overall cost
of TIL therapy and may result in issues regarding the allocation of reimbursements between our therapy and the other agents, all
of which may affect our ability to obtain reimbursement coverage for the combination therapy from third party medical insurers.
No assurance can be given that the
Gen 2 manufacturing process we have selected will be FDA-compliant, more efficient and lower the cost to manufacture TIL products.
Pursuant to the CRADA, and in cooperation
with our contract manufacturers and potentially other manufacturers, we have developed and are developing improved methods for
the generating and selecting autologous TILs, and methods for large-scale production of autologous TILs that are in accord with
current cGMP procedures. We have developed a new and more efficient TIL manufacturing process that we believe can be more efficient
and cost effective, and in a more automated manner than previous processes. The production and control of the physical and/or chemical
attributes of our products in a cGMP facility is subject to many uncertainties and difficulties. We have never manufactured our
adoptive cell therapy product candidate on a commercial scale, nor have our partners. As a result, we cannot give any assurance
that the Gen 2 process or any future process that we select will be a manufacturing process that can produce our products in compliance
with the applicable regulatory requirements, at a cost or in quantities necessary to make them commercially viable. Moreover, our
third-party manufacturers will have to continually adhere to current cGMP regulations enforced by the FDA through its facilities
inspection program. If the facilities of these manufacturers cannot pass a pre-approval plant inspection, the FDA pre-market approval
of our products will not be granted. In complying with cGMP and foreign regulatory requirements, we and any of our third-party
manufacturers will be obligated to expend time, money and effort in production, record-keeping and quality control to assure that
our products meet applicable specifications and other requirements. If we or any of our third-party manufacturers fail to comply
with these requirements, we may be subject to regulatory action. No assurance can be given that we will be able to develop such
a manufacturing process, or that our partners will thereafter be able to establish and operate such a production facility.
If product liability lawsuits are brought
against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability
as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products.
For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable
during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects
in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach
of warranties. Claims could also be asserted under state consumer protection acts. Large judgements have also been awarded in class
action lawsuits based on therapeutics that had unanticipated side effects. If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even
successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
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decreased demand for our product candidates;
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injury to our reputation;
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withdrawal of clinical trial participants or sites and potential termination of clinical trial sites or entire clinical programs;
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initiation of investigations by regulators, refusal to approve marketing applications or supplements, and withdrawal or limitation of product approvals;
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costs to defend the related litigation;
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a diversion of management’s time and our resources;
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substantial monetary awards to trial participants or patients;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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loss of revenue;
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significant negative media attention;
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decrease in the price of our stock and overall value of our company;
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exhaustion of our available insurance coverage and our capital resources; or
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the inability to commercialize our product candidates.
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Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization
of products we develop, alone or with corporate collaborators. Our insurance policies may also have various exclusions, and we
may be subject to a product liability claim for which we have no coverage. While we have obtained clinical trial insurance for
our Phase 2 clinical trials, we may have to pay amounts awarded by a court or negotiated in a settlement that exceed our coverage
limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such
amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification
may not be available or adequate should any claim arise.
We face significant competition from
other biotechnology and pharmaceutical companies and from non-profit institutions.
Competition in the field of cancer therapy
is intense and is accentuated by the rapid pace of technological development. Research and discoveries by others may result in
breakthroughs which may render our products obsolete even before they generate any revenue. There are products that are approved
and currently under development by others that could compete with the products that we are developing. Many of our potential competitors
have substantially greater research and development capabilities and approval, manufacturing, marketing, financial and managerial
resources and experience than we do. Our competitors may:
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develop safer, more convenient or more effective immunotherapies and other therapeutic products;
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develop therapies that are less expensive or have better reimbursement from private or public payors;
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reach the market more rapidly, reducing the potential sales of our products; or
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establish superior proprietary positions.
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Due to the promising clinical therapeutic
effect of competitor therapies in clinical exploratory trials, we anticipate substantial direct competition from other organizations
developing advanced T-cell therapies targeting patients who have received prior anti-PD-1/PD-L1 therapies. In particular, we expect
to compete with other new therapies for our lead indications developed by companies such as Bristol-Myers Squibb, Merck, Nektar
Therapeutics, Idera Pharmaceuticals, Dynavax Technologies, Oncosec Medical, Immetacyte, WindMIL Therapeutics, and others. We also
may compete with therapies based on genetically engineered T cells rendered reactive against tumor-associated antigens prior to
their administration to patients. Genetically engineered T cells are being pursued by several companies, including Adaptimmune,
Celgene (in collaboration with bluebird bio as well as through Celgene’s subsidiary Juno Therapeutics), Gilead Sciences,
Novartis and others. To date, these technologies have been primarily applicable to hematologic malignancies, but their application
in solid tumor indications may create competition with us. Many of these companies and our other current and potential competitors
have substantially greater research and development capabilities and financial, scientific, regulatory, manufacturing, marketing,
sales, human resources, and experience than we do. Many of our competitors have several therapeutic products that have already
been developed, approved and successfully commercialized, or are in the process of obtaining regulatory approval for their therapeutic
products in the United States and internationally. Our competitors may obtain regulatory approval for their products more rapidly
than we may obtain approval for ours, which could result in competitors establishing a strong market position before we are able
to enter the market.
Universities and public and private research
institutions in the U.S. and Europe are also potential competitors. For example, a Phase 3 trial comparing TIL to standard ipilimumab
in patients with metastatic melanoma is currently being conducted in Europe by the Netherlands Cancer Institute, the Copenhagen
County Herlev University Hospital, and the University of Manchester. While these universities and public and private research institutions
primarily have educational objectives, they may develop proprietary technologies that lead to other FDA approved therapies or that
secure patent protection that we may need for the development of our technologies and products.
Our lead product candidate, lifileucel,
is a therapy for the treatment of metastatic melanoma. Currently, there are numerous companies that are developing various alternate
treatments for melanoma, including patients that have progressed after prior treatment with checkpoint inhibitors. Accordingly,
lifileucel faces significant competition in the melanoma treatment space from multiple companies. Even if we obtain regulatory
approval for lifileucel, the availability and price of our competitors’ products could limit the demand and the price we
are able to charge for our melanoma therapy. We may not be able to implement our business plan if the acceptance of our products
is inhibited by price competition or the reluctance of physicians to switch from other methods of treatment to our product, or
if physicians switch to other new therapies, drugs or biologic products or choose to reserve our product for use in limited circumstances.
Mergers and acquisitions in the pharmaceutical
and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Early
stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established
companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and establishing
clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary
for, our programs.
We are dependent on third parties
to support our research, development and manufacturing activities and, therefore, are subject to the efforts of these parties and
our ability to successfully collaborate with these third parties.
As a result of our current strategy to
outsource most of our manufacturing, we rely very heavily on third parties to perform for us the manufacturing of our products
for our clinical trials. We also license a portion of our technology from others. We intend to rely upon our contract manufacturers
to produce large quantities of materials needed for clinical trials and potentially product commercialization. Third party manufacturers
may not be able to meet our needs with respect to timing, quantity or quality. If we are unable to contract for a sufficient supply
of needed materials on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers,
our clinical testing may be delayed, thereby delaying the submission of products for regulatory approval or the market introduction
and subsequent sales of our products. Any such delay may lower our revenues and potential profitability.
In addition, in order to supplement our
own efforts to improve TIL manufacturing and develop TIL therapies in new indications in clinical trials, we currently work and
collaborate with government and academic research institutions, medical institutions and corporate partners such as the NCI, Moffitt,
MedImmune, Roswell Park Cancer Institute, Phio Pharmaceuticals, and Cellectis. We also intend to continue to enter into additional
third-party collaborative agreements in the future. However, we may not be able to successfully negotiate any additional collaborative
arrangements. If established, these relationships may not be scientifically or commercially successful. The success of these and
future collaborations and joint development arrangements may be subject to numerous risks and uncertainties, including the inability
or unwillingness of our partners to perform in the manner, or to the extent anticipated, and may also be subject to disagreements
regarding the rights, interests, and performance of the counterparties under our licenses and development agreements. Disagreements
between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays
in the development process or commercialization of the applicable product candidate and, in some cases, termination of the collaboration
arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority under
the collaboration agreement.
With regard to future collaboration efforts,
we face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for collaboration
will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions
of the proposed collaboration and, an evaluation by the proposed collaborator of a number of similar or unique factors.
Collaborations with biopharmaceutical companies
and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would
adversely affect us financially and could harm our business reputation. Any collaboration may pose a number of risks, including
the following:
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collaborators may not perform their obligations as expected;
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collaborators may not pursue development and commercialization of
any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization
programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external
factors, such as an acquisition, that divert resources or create competing priorities;
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collaborators may delay clinical trials, provide insufficient funding
for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require
a new formulation of a product candidate for clinical testing;
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collaborators could fail to make timely regulatory submissions for
a product candidate;
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collaborators may not comply with all applicable regulatory requirements
or may fail to report safety data in accordance with all applicable regulatory requirements;
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collaborators could independently develop, or develop with third parties,
products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive
products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive
than ours;
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product candidates discovered in collaboration with us may be viewed
by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote
resources to the commercialization of our product candidates;
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a collaborator with marketing and distribution rights to one or more
of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution
of such product candidate or product;
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disagreements with collaborators, including disagreements over proprietary
rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development
or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates,
or might result in litigation or arbitration, any of which would be time consuming and expensive;
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collaborators may not properly maintain or defend our intellectual
property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate
our intellectual property or proprietary information or expose us to potential litigation;
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collaborators may infringe the intellectual property rights of third
parties, which may expose us to litigation and potential liability;
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collaborators may be involved in a business combination, resulting
in the decreased emphasis or termination of development or commercialization of any product candidate subject to the collaboration
agreement; and
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termination of a collaboration agreement may make it more difficult
to attract new collaborators and our and our products’ or product candidates’ reputation in the medical, business,
and financial communities could be adversely affected.
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If any third-party collaborator breaches
or terminates its agreement with us or fails to conduct its activities in a timely manner, the commercialization of our products
under development could be slowed down or blocked completely. It is possible that our collaborators will change their strategic
focus, pursue alternative technologies or develop alternative products, either on their own or in collaboration with others, as
a means for developing treatments for the diseases targeted by our collaborative programs. The effectiveness of our collaborators
in marketing our products will also affect our revenues and earnings.
Our collaborators will also be required
to comply with the applicable regulatory requirements, and, as such, are subject to the same risks as we are. If they do not or
are not able to comply with these requirements, we may not be able to use the data generated through their studies to support our
future investigational or marketing applications. Collaborator noncompliance may also expose them and us to regulatory enforcement
actions.
No assurance can be given that we will
be able to successfully collaborate with our partners as anticipated and that our current or future collaborations and clinical
trials will be completed as contemplated, support the regulatory approval of our current product candidates, or result in any viable
additional product candidates. For instance, to the extent that these collaborators conduct their studies with manufacturing processes
that are different than ours or product that is different than ours, the results generated from their studies may not be seen in
our current or future studies that employ our manufacturing processes and the results generated from their studies may not support
approval of our product candidates.
If we are unable to obtain or maintain
suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate,
reduce or delay its development program or one or more of our other development programs, delay its potential commercialization
or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization
activities at our own expense.
Development of a product candidate
intended for use in combination with an already approved product may present more or different challenges than development of a
product candidate for use as a single agent.
We are currently developing lifileucel
and LN-145 for use along with IL-2. We and our collaborators are also studying TIL therapy along with other products, such as durvalumab,
pembrolizumab, ipilimumab and nivolumab. The development of product candidates for use in combination with another product may
present challenges. For example, the FDA may require us to use more complex clinical trial designs, in order to evaluate the contribution
of each product and product candidate to any observed effects. It is possible that the results of these trials could show that
any positive results are attributable to the already approved product. Moreover, following product approval, the FDA may require
that products used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to
already approved products, this may require us to work with another company to satisfy such a requirement. Moreover, developments
related to the already approved products may impact our clinical trials for the combination as well as our commercial prospects
should we receive marketing approval. Such developments may include changes to the approved product’s safety or efficacy
profile, changes to the availability of the approved product, and changes to the standard of care.
A Fast Track product designation
or other designation to facilitate product candidate development may not lead to faster development or a faster regulatory review
or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.
We were granted Fast Track designation
by the FDA for lifileucel in advanced melanoma. We may seek Fast Track designation for other of our current or future product candidates.
Receipt of a designation to facilitate product candidate development is within the discretion of the FDA. Accordingly, even if
we believe one of our product candidates meets the criteria for a designation, the FDA may disagree. In any event, the receipt
of such a designation for a product candidate may not result in a faster development process, review, or approval compared to product
candidates considered for approval under conventional the FDA procedures and does not assure ultimate marketing approval by the
FDA. In addition, the FDA may later decide that the products no longer meet the designation conditions.
While lifileucel has received orphan
drug designation for melanoma stages IIB-IV and LN-145 has received orphan drug designation for cervical cancer patients with tumors
greater than 2 cm, there is no guarantee that we will be able to maintain this designation, receive these designations for any
of our other product candidates, or receive or maintain any corresponding benefits, including periods of exclusivity.
We received orphan drug designation in
the United States for lifileucel to treat malignant melanoma stages IIB-IV and LN-145 for cervical cancer patients with tumors
greater than 2 cm. We may also seek orphan drug designation for our other product candidates, as appropriate. Orphan designation,
however, may be lost if the indication for which we develop our designated product candidates do not meet the orphan criteria.
Moreover, following product approval, orphan exclusivity may be lost if the FDA determines, among other reasons, that the request
for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet
the needs of patients with the rare disease or condition. Even if we obtain orphan exclusivity, that exclusivity may not effectively
protect the product from competition because different products can be approved for the same condition and the same product can
be approved for different conditions. Even after an orphan product is approved, the FDA can subsequently approve a product containing
the same principal molecular features for the same condition if the FDA concludes that the later product is clinically superior
in that it is shown to be safer or more effective or makes a major contribution to patient care.
Moreover, the FDA may grant orphan drug
designations to multiple of the same products for the same indication. If another sponsor receives FDA approval for an orphan drug
designated product that is the same as our product candidates and intended for the same indication before we do, we would be prevented
from launching our product in the United States for this indication for a period of at least 7 years.
In response to a court decision regarding
the plain meaning of the exclusivity provision of the Orphan Drug Act, the FDA may undertake a reevaluation of aspects of its orphan
drug regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies, and
it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations
and policies, our business, financial condition, results of operations, and prospects could be harmed.
As a condition of approval, the FDA
may require that we implement various post-marketing requirements and conduct post-marketing studies, any of which would require
a substantial investment of time, effort, and money, and which may limit our commercial prospects.
As a condition of biologic licensing,
the FDA is authorized to require that sponsors of approved BLAs implement various post-market requirements, including REMS and
Phase 4 studies. By example, when the FDA approved Novartis’ Kymriah in August 2017, a CAR-T cell therapy for the treatment
of patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia (ALL) that is refractory or in second or later
relapse, the FDA required significant post-marketing commitments, including a Phase 4 trial, revalidation of a test method, and
a substantial REMS program that included, among other requirements, the certification of hospitals and their associated clinics
that dispense Kymriah, which certification includes a number of requirements, the implementation of a Kymriah training program,
and limited distribution only to certified hospitals and their associated clinics. If we receive approval of our product candidates,
the FDA may determine that similar or additional post-approval requirements are necessary to ensure that our product candidates
are safe, pure, and potent. To the extent that we are required to establish and implement any post-approval requirements, we will
likely need to invest a significant amount of time, effort, and money. Such post-approval requirements may also limit the commercial
prospects of our product candidates.
We may be unable to establish effective
marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if they
are approved, and as a result, we may be unable to generate product revenues.
We currently do not have a commercial infrastructure
for the marketing, sale, and distribution of biopharmaceutical products. If approved, in order to commercialize our products, we
must build our marketing, sales, and distribution capabilities or make arrangements with third parties to perform these services,
which will take time and require significant financial expenditures and we may not be successful in doing so. Even if we are able
to effectively establish a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may
not be successful in commercializing our current or future product candidates. To the extent we rely on third parties to commercialize
any products for which we obtain regulatory approval, we would have less control over their sales efforts, and could be held liable
if they failed to comply with applicable legal or regulatory requirements.
We have no prior experience in the marketing,
sale, and distribution of biopharmaceutical products, and there are significant risks involved in the building and managing of
a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market
any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to
successfully develop this capability. We, or our collaborators, will have to compete with other pharmaceutical and biotechnology
companies to recruit, hire, train, manage, and retain marketing and sales personnel. In the event we are unable to develop a marketing
and sales infrastructure, we may not be able to commercialize our current or future product candidates, which would limit our ability
to generate product revenues. Factors that may inhibit our efforts to commercialize our current or future product candidates and
generate product revenues include:
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the inability to recruit, train, manage, and retain adequate numbers
of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to physicians or
persuade adequate numbers of physicians to prescribe our current or future product candidates;
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our inability to effectively oversee a geographically dispersed sales
and marketing team;
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the costs associated with training sales and marketing personnel on
legal and regulatory compliance matters and monitoring their actions;
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an inability to secure adequate coverage and reimbursement by government
and private health plans;
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the clinical indications for which the products are approved and the
claims that we may make for the products;
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limitations or warnings, including distribution or use restrictions,
contained in the products’ approved labeling;
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any distribution and use restrictions imposed by the FDA or to which
we agree as part of a mandatory REMS or voluntary risk management plan;
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liability for sales or marketing personnel who fail to comply with
the applicable legal and regulatory requirements;
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the lack of complementary products to be offered by sales personnel,
which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
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unforeseen costs and expenses associated with creating an independent
sales and marketing organization or engaging a contract sales organization.
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If our product candidates do not achieve
broad market acceptance, the revenues that we generate from their sales will be limited.
We have never commercialized a product candidate
for any indication. Even if our product candidates are approved by the appropriate regulatory authorities for marketing and sale,
they may not gain acceptance among physicians, patients, third-party payors, and others in the medical community. If any product
candidate for which we obtain regulatory approval does not gain an adequate level of market acceptance, we may not generate significant
product revenues or become profitable. Market acceptance of our product candidates by the medical community, patients, and third-party
payors will depend on a number of factors, some of which are beyond our control. For example, physicians are often reluctant to
switch their patients and patients may be reluctant to switch from existing therapies even when new and potentially more effective
or safer treatments enter the market.
Efforts to educate the medical community
and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. If
any of our product candidates is approved but does not achieve an adequate level of market acceptance, we may not generate significant
revenues and we may not become profitable. The degree of market acceptance of any of our product candidates will depend on a number
of factors, including:
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the efficacy of our product candidates;
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the prevalence and severity of adverse events associated with such
product candidates;
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the clinical indications for which the products are approved and the
approved claims that we may make for the products;
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limitations or warnings contained in the Product’s FDA-approved
labeling, including potential limitations or warnings for such products that may be more restrictive than other competitive products;
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changes in the standard of care for the targeted indications for such
product candidates;
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the relative difficulty of administration of such product candidates;
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cost of treatment versus economic and clinical benefit in relation
to alternative treatments or therapies;
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the availability of adequate coverage or reimbursement by third parties,
such as insurance companies and other healthcare payors, and by government healthcare programs, including Medicare and Medicaid;
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the extent and strength of our marketing and distribution of such
product candidates;
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the safety, efficacy, and other potential advantages over, and availability
of, alternative treatments already used or that may later be approved for any of our intended indications;
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distribution and use restrictions imposed by the FDA with respect
to such product candidates or to which we agree as part of a mandatory risk evaluation and mitigation strategy or voluntary risk
management plan;
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the timing of market introduction of such product candidates, as well
as competitive products;
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our ability to offer such product candidates for sale at competitive
prices;
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the willingness of the target patient population to try new therapies
and of physicians to prescribe these therapies;
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the extent and strength of our third-party manufacturer and supplier
support;
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the approval of other new products for the same indications;
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adverse publicity about the product or favorable publicity about competitive
products; and
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potential product liability claims.
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Our efforts to educate the medical community
and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
Even if the medical community accepts that our product candidates are safe and effective for their approved indications, physicians
and patients may not immediately be receptive to such product candidates and may be slow to adopt them as an accepted treatment
of the approved indications. If our current or future product candidates are approved but do not achieve an adequate level of acceptance
among physicians, patients, and third-party payors, we may not generate meaningful revenues from our product candidates, and we
may not become profitable.
Our product candidates may face competition
sooner than anticipated.
The enactment of the Biologics Price Competition
and Innovation Act of 2009, or BPCIA, created an abbreviated pathway for the approval of biosimilar and interchangeable biological
products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics,
including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand
product. Under the BPCIA, the FDA cannot make an approval of an application for a biosimilar product effective until 12 years after
the original branded product was approved under a BLA. Certain changes, however, and supplements to an approved BLA, and subsequent
applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify
for the 12-year exclusivity period.
Our product candidates may qualify for
the BPCIA’s 12-year period of exclusivity. However, there is a risk that the FDA will not consider our product candidates
to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated.
Additionally, this period of regulatory exclusivity does not block companies pursuing regulatory approval via their own traditional
BLA, rather than via the abbreviated pathway. Changes may also be made to this exclusivity period as a result of future legislation
as there has been ongoing efforts to reduce the period of exclusivity. Even if we receive a period of BPCIA exclusivity for our
first licensed product, if subsequent products do not include a modification to the structure of the product that impacts safety,
purity, or potency, we may not receive additional periods of exclusivity for those products. Moreover, the extent to which a biosimilar,
once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution
for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still
developing. Medicare Part B encourages use of biosimilars by paying the provider the same percentage of the reference product,
average sale price, or ASP as a mark-up, regardless of which product is reimbursed. It is also possible that payors will give reimbursement
preference to biosimilars even over reference biologics absent a determination of interchangeability.
We will need to obtain FDA approval
of any proposed branded product names, and any failure or delay associated with such approval may adversely affect our business.
Any name we intend to use for our product
candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S.
Patent and Trademark Office, or USPTO. The FDA typically conducts a review of proposed product names, including an evaluation of
the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately
implies medical claims or contributes to an overstatement of efficacy. If the FDA objects to any of our proposed product names,
we may be required to adopt alternative names for our product candidates. If we adopt alternative names, we would lose the benefit
of any existing trademark applications for such product candidate and may be required to expend significant additional resources
in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing
rights of third parties, and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark
in a timely manner or at all, which would limit our ability to commercialize our product candidates.
Our internal
computer systems, or those used by our contract research organizations or other contractors or consultants, may fail or suffer
security breaches.
Despite the implementation
of security measures, our internal computer systems and those of our contract research organizations and other contractors and
consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication
and electrical failures. If such an event was to occur and cause interruptions in our operations, it could result in a disruption
of our drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials for a
product candidate could result in delays in our regulatory approval efforts and significantly increase our costs to recover or
reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications,
or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of
any product candidates could be delayed.
We are dependent
on information technology, systems, infrastructure and data.
We are dependent
upon information technology systems, infrastructure and data. The multitude and complexity of our computer systems make them inherently
vulnerable to service interruption or destruction, malicious intrusion and random attack. Likewise, data privacy or security breaches
by third parties, employees, contractors or others may pose a risk that sensitive data, including our intellectual property, trade
secrets or personal information of our employees, patients, or other business partners may be exposed to unauthorized persons or
to the public. Cyberattacks are increasing in their frequency, sophistication and intensity. Cyberattacks could include the deployment
of harmful malware, denial-of-service, social engineering and other means to affect service reliability and threaten data confidentiality,
integrity and availability. Our business and technology partners face similar risks and any security breach of their systems could
adversely affect our security posture. While we have invested, and continue to invest, in the protection of our data and information
technology infrastructure, there can be no assurance that our efforts, or the efforts of our partners and vendors, will prevent
service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or result
in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us.
In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches,
cyberattacks and other related breaches.
Our failure
to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against
us, and adversely impact our operating results.
European Union, or EU, member states and
other foreign jurisdictions, including Switzerland, have adopted data protection laws and regulations which impose significant
compliance obligations on us. Moreover, the collection and use of personal health data in the EU, which was formerly governed by
the provisions of the EU Data Protection Directive, was replaced with the EU General Data Protection Regulation, or the GDPR, in
May 2018. The GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to
whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data,
data breach notification and the use of third party processors in connection with the processing of personal data. The GDPR also
imposes strict rules on the transfer of personal data out of the EU to the U.S., provides an enforcement authority and imposes
large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues
of the noncompliant company, whichever is greater. The GDPR requirements apply not only to third-party transactions, but also to
transfers of information between us and our subsidiaries, including employee information. The recent implementation of the GDPR
has increased our responsibility and liability in relation to personal data that we process, including in clinical trials, and
we may in the future be required to put in place additional mechanisms to ensure compliance with the GDPR, which could divert management’s
attention and increase our cost of doing business. In addition, new regulation or legislative actions regarding data privacy and
security (together with applicable industry standards) may increase our costs of doing business. In this regard, we expect that
there will continue to be new proposed laws, regulations and industry standards relating to privacy and data protection in the
United States, the EU and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may
have on our business.
We will
need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
Our operations
are dependent upon the services of our executives and our employees who are engaged in research and development. The loss of the
services of our executive officers or senior research personnel could delay our product development programs and our research and
development efforts. In order to develop our business in accordance with our business plan, we will have to hire additional qualified
personnel, including in the areas of research, manufacturing, clinical trials management, regulatory affairs, and sales and marketing.
We are continuing our efforts to recruit and hire the necessary employees to support our planned operations in the near term. However,
competition for qualified employees among companies in the biotechnology and biopharmaceutical industry is intense, and no assurance
can be given that we will be able attract, hire, retain and motivate the highly skilled employees that we need. Future growth will
impose significant added responsibilities on members of management, including:
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identifying, recruiting, integrating, maintaining, and motivating
additional employees;
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managing our internal development efforts effectively, including the
clinical and FDA review process for our product candidates, while complying with our contractual obligations to contractors and
other third parties; and
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improving our operational, financial and management controls, reporting
systems, and procedures.
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Our future financial
performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage
any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities
in order to devote a substantial amount of time to managing these growth activities. Our efforts to manage our growth are complicated
by the fact that nearly all of our executive officers have joined us since June 2016. This lack of long-term experience working
together may adversely impact our senior management team’s ability to effectively manage our business and growth.
We currently
rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors
and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors
and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements.
In addition, if we are unable to effectively manage our outsourced activities or if the quality, compliance or accuracy of the
services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed, or terminated, and
we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance
that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically
reasonable terms, if at all.
If we are not
able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we
may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and,
accordingly, may not achieve our research, development, and commercialization goals on a timely basis, or at all.
If we engage
in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us
to incur debt or assume contingent liabilities, and subject us to other risks.
We may evaluate
various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property
rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:
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increased operating expenses and cash requirements;
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the assumption of additional indebtedness or contingent liabilities;
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the issuance of our equity securities;
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assimilation of operations, intellectual property and products of
an acquired company or product, including difficulties associated with integrating new personnel;
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the diversion of our management’s attention from our existing
product programs and initiatives in pursuing such a strategic merger or acquisition;
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retention of key employees, the loss of key personnel, and uncertainties
in our ability to maintain key business relationships;
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risks and uncertainties associated with the other party to such a
transaction, including the prospects of that party and their existing products or product candidates and regulatory approvals;
and
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our inability to generate revenue from acquired technology and/or
products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance
costs.
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Depending
on the size and nature of future strategic acquisitions, we may acquire assets or businesses that require us to raise additional
capital or to operate or manage businesses in which we have limited experience. Making larger acquisitions that require us to raise
additional capital to fund the acquisition will expose us to the risks associated with capital raising activities. Acquiring and
thereafter operating larger new businesses will also increase our management, operating and reporting costs and burdens. In addition,
if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses
and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate
suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products
that may be important to the development of our business.
We may rely on third parties to
perform many essential services for any products that we commercialize, including services related to distribution, government
price reporting, customer service, accounts receivable management, cash collection, and adverse event reporting. If these third
parties fail to perform as expected or to comply with legal and regulatory requirements, our ability to commercialize our current
or future product candidates will be significantly impacted and we may be subject to regulatory sanctions.
We may retain third-party service providers
to perform a variety of functions related to the sale and distribution of our current or future product candidates, key aspects
of which will be out of our direct control. These service providers may provide key services related to distribution, customer
service, accounts receivable management, and cash collection. If we retain a service provider, we would substantially rely on it
as well as other third-party providers that perform services for us, including entrusting our inventories of products to their
care and handling. If these third-party service providers fail to comply with applicable laws and regulations, fail to meet expected
deadlines, or otherwise do not carry out their contractual duties to us, or encounter physical or natural damage at their facilities,
our ability to deliver product to meet commercial demand would be significantly impaired and we may be subject to regulatory enforcement
action.
In addition, we may engage third parties
to perform various other services for us relating to adverse event reporting, safety database management, fulfillment of requests
for medical information regarding our product candidates and related services. If the quality or accuracy of the data maintained
by these service providers is insufficient, or these third parties otherwise fail to comply with regulatory requirements related
to adverse event reporting, we could be subject to regulatory sanctions.
Additionally, we may contract with a third-party
to calculate and report pricing information mandated by various government programs. If a third party fails to timely report or
adjust prices as required or errs in calculating government pricing information from transactional data in our financial records,
it could impact our discount and rebate liability, and potentially subject us to regulatory sanctions or False Claims Act lawsuits.
The SEC has
issued an administrative order against us that may make it more difficult for us to raise capital in the future.
On April 10, 2017, the SEC issued an administrative
order that requires us to cease and desist from committing or causing any violations and any future violations of Sections 5(b),
17(a), and 17(b) of the Securities Act of 1933, as amended, or the Securities Act, and of Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 thereunder. The order was entered into as part of our settlement with the SEC in the investigation titled
In the Matter of Certain Stock Promotions
. The SEC’s investigation, in part, involved the conduct of our former Chief
Executive Officer and director, Manish Singh, during the period between September 2013 and April 2014, and the failure by authors
of certain articles about our company to disclose that they were compensated by one of our former investor relations firms. The
foregoing order may negatively impact our reputation with current and future investors, will disqualify us from effecting private
placement transactions in reliance upon any of the exemptions from Securities Act registration afforded by Regulation D, and will
limit our ability to make certain communications in future public offerings. As a result, the SEC's order will make it more difficult
for us to raise capital in future private and public offerings. We currently anticipate that we will have to raise additional capital
in the future to fund our future research, development and commercialization efforts.
We are, and
in the future may be, subject to Federal or state securities or related legal actions that could adversely affect our results of
operations and our business.
Shortly after the SEC announced settlements
with us, with other public companies, and with unrelated parties in the
In the Matter of Certain Stock Promotions
investigation,
two securities class action complaints were filed in the U.S. District Court for the Northern District of California against our
company, Manish Singh, and two of our other former officers. On July 20, 2017, the plaintiff in one of the cases filed a notice
to voluntarily dismiss that case, and the court entered an order dismissing the complaint on July 21, 2017. On July 26, 2017, the
court appointed a movant as lead plaintiff. On September 8, 2017, the lead plaintiff, individually and on behalf of all others
similarly situated, filed an amended complaint seeking class action status in the United States District Court for the Northern
District of California (
Jay Rabkin v. Lion Biotechnologies, Inc., et al.,
case no. 3:17-cv-0286) against us, two of our
former officers, and the managing member of our former investor relations firm. The amended complaint alleges, among other things,
that the defendants violated various provisions of the Securities Exchange Act of 1934 by making materially false and misleading
statements, or by failing to make certain disclosures, regarding the actions taken by Manish Singh, our former Chief Executive
Officer and a former director, and our former investor relations firm that were the subject of the
In the Matter of Certain
Stock Promotions
SEC investigation. On February 5, 2018, the court entered an order dismissing two of plaintiff’s six
claims. As the result of mediation, on September 28, 2018, lead plaintiff filed an unopposed motion for settlement, the cost of
which, if approved, is expected to be borne by our insurance carrier and would result in no loss to us. The court gave preliminary
approval to the proposed settlement on November 30, 2018, and the final hearing is currently scheduled for April 12, 2019.
On December 15, 2017, a purported stockholder
derivative complaint was filed by plaintiff Kevin Fong was filed against us, as nominal defendant, and certain of our current and
former officers and directors, and others, as defendants, in the U.S. District Court for the District of Delaware (case no. 1:17-cv-1806).
The complaint alleges breaches of fiduciary duties, unjust enrichment, and violations of Section 14(a) of the Securities Exchange
Act of 1934 and Rule 14a-9 promulgated thereunder arising from the SEC’s investigation in the
In the Matter of Certain
Stock Promotions
matter and our April 10, 2017 settlement thereof, and seeks unspecified damages on behalf of our company and
injunctive relief. On March 28, 2018, a purported stockholder derivative complaint was filed by plaintiff Nazeer Khaleeluddin on
behalf of the Company, against the Company, as nominal defendant, and certain of our current and former officers and directors,
and others, as defendants, in the U.S. District Court for the District of Delaware (case no. 1:18-cv-00469). The complaint alleges,
among other things, violations of securities law, breach of fiduciary duty, aiding and abetting, waste of corporate assets, and
unjust enrichment. The complaint is based on claims arising from the SEC’s investigation in the
In the Matter of Certain
Stock Promotions
investigation and our April 10, 2017 settlement thereof, and seeks unspecified damages on behalf of our company
and injunctive relief.
We intend to vigorously defend against
these complaints. However, based on the very early stage of the litigation matters, it is not possible to estimate the amount or
range of possible loss that might result from an adverse judgment or a settlement of these matters. Furthermore, litigation is
inherently uncertain, and there is no assurance as to the outcome of these, or other future cases. We could incur substantial unreimbursed
legal fees, settlements, judgments and other expenses in connection with these, or other legal and regulatory proceedings that
may not qualify for coverage under, or may exceed the limits of, our applicable directors’ and officers’ liability
insurance policies and could have a material adverse effect on our financial condition, liquidity and results of operations. The
currently pending cases also may distract the time and attention of our officers and directors or divert our other resources away
from our ongoing commercial and development programs. An unfavorable outcome in these matters could damage our business and reputation
or result in additional claims or proceedings against us.
Risks Related to Government Regulation
The FDA regulatory approval process
is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory approval of
our product candidates.
We have not previously submitted a BLA
to the FDA, or similar approval filings to comparable foreign authorities. A BLA must include extensive preclinical and clinical
data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication.
The BLA must also include significant information regarding the chemistry, manufacturing and controls for the product. We expect
the novel nature of our product candidates to create further challenges in obtaining regulatory approval. For example, the FDA
has limited experience with commercial development of cell therapies for cancer. We may also not be able to successfully utilize
the RMAT designation we have received for advanced melanoma to successfully complete the development and commercialization of lifileucel.
We may not be able to reach agreement with FDA on an interpretation of outcomes from our meetings, including meetings we have held
with FDA in relation to our C-144-01 clinical trial and future meetings. Accordingly, the regulatory approval pathway for our product
candidates may be uncertain, complex, expensive and lengthy, and approval may not be obtained.
We may also experience delays in completing
planned clinical trials for a variety of reasons, including delays related to:
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the availability of financial resources to commence and complete the planned trials;
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reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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obtaining approval at each clinical trial site by an independent institutional review board, or IRB, or central IRB;
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recruiting suitable patients to participate in a trial;
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having patients complete a trial or return for post-treatment follow-up;
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clinical trial sites deviating from trial protocol or dropping out of a trial;
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adding new clinical trial sites; or
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manufacturing sufficient quantities of qualified materials under cGMPs and applying them on a subject by subject basis for use in clinical trials.
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We could also encounter delays if physicians
encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of
prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended
or terminated by us, the IRBs for the institutions in which such trials are being conducted by the FDA or other regulatory authorities,
or recommended for suspension or termination by DSMBs due to a number of factors, including failure to conduct the clinical trial
in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site
by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse
side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative
actions or lack of adequate funding to continue the clinical trial. If we experience termination of, or delays in the completion
of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability
to generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs,
slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue.
Obtaining and maintaining regulatory
approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval
of our product candidates in other jurisdictions.
In order to market and sell our products
outside the United States, we or our third-party collaborators may be required to obtain separate marketing approvals and comply
with numerous and varying regulatory requirements. Obtaining and maintaining regulatory approval of our product candidates in one
jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while
a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process
in others. Approval policies and requirements may vary among jurisdictions. For example, even if the FDA grants marketing approval
of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing
and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements
and administrative review periods different from, and greater than, those in the United States, including additional preclinical
studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other
jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it
can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject
to approval. We or our collaborators may not be able to file for regulatory approval of our product candidates in international
jurisdictions or obtain approvals from regulatory authorities outside the United States on a timely basis, if at all.
We may also submit marketing applications
in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product
candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance
with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent
the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets
and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential
of our product candidates will be harmed.
We are, and if we receive regulatory
approval of our product candidates, will continue to be subject to ongoing regulatory obligations and continued regulatory review,
which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements
or experience unanticipated problems with our product candidates.
Any regulatory approvals that we receive
for our product candidates will require surveillance to monitor the safety and efficacy of the product candidate. The FDA may also
require a REMS to approve our product candidates, which could entail requirements for a medication guide, physician communication
plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization
tools. The FDA may also require post-approval Phase 4 studies. Moreover, the FDA and comparable foreign regulatory authorities
will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory
authorities become aware of new safety information after approval of any of our product candidates, they may withdraw approval,
require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s indicated
uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Any
such restrictions could limit sales of the product.
In addition, we, our contractors, and our
collaborators are and will remain responsible for FDA compliance, including requirements related to product design, testing, clinical
and pre-clinical trials approval, manufacturing processes and quality, labeling, packaging, distribution, adverse event and deviation
reporting, storage, advertising, marketing, promotion, sale, import, export, submissions of safety and other post-marketing information
and reports such as deviation reports, registration, product listing, annual user fees, and recordkeeping for our product candidates.
We and any of our collaborators, including our contract manufacturers, could be subject to periodic unannounced inspections by
the FDA to monitor and ensure compliance with regulatory requirements. Application holders must further notify the FDA, and depending
on the nature of the change, obtain FDA pre-approval for product and manufacturing changes. The cost of compliance with post-approval
regulations may have a negative effect on our operating results and financial condition.
Later discovery of previously unknown problems
with our product candidates, including adverse events of unanticipated severity or frequency, that the product is less effective
than previously thought, problems with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory
requirements, may result in, among other things:
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restrictions on the marketing, distribution, or manufacturing of our product candidates, withdrawal of the product from the market, or voluntary or mandatory product recalls;
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restrictions on the labeling of our product candidates, including required additional warnings, such as black box warnings, contraindications, precautions, and restrictions on the approved indication or use;
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modifications to promotional pieces;
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changes to product labeling or the way the product is administered;
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liability for harm caused to patients or subjects;
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fines, restitution, disgorgement, warning letters, untitled letters, cyber letters, or holds on or termination of clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;
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product seizure or detention, or refusal to permit the import or export of our product candidates;
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injunctions or the imposition of civil or criminal penalties, including imprisonment;
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FDA debarment, debarment from government contracts, and refusal of future orders under existing contracts, exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements;
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regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing warnings or other safety information about the biologic;
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reputational harm; or
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the product becoming less competitive.
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Any of these events could further have
other material and adverse effects on our operations and business and could adversely impact our stock price and could significantly
harm our business, financial condition, results of operations, and prospects.
The FDA’s and other regulatory authorities’
policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval
of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing
requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose
any marketing approval that we may have obtained, be subject to other regulatory enforcement action, and we may not achieve or
sustain profitability.
If we fail to comply with federal
and state healthcare and promotional laws, including fraud and abuse and information privacy and security laws, we could face substantial
penalties and our business, financial condition, results of operations, and prospects could be adversely affected.
As a biopharmaceutical company, we are
subject to many federal and state healthcare laws, including the federal AKS, the federal civil and criminal FCA, the civil monetary
penalties statute, the Medicaid Drug Rebate statute and other price reporting requirements, the Veterans Health Care Act of 1992,
the federal Health Insurance Portability and Accountability Act of 1996 (as amended by the Health Information Technology for Economics
and Clinical Health Act), the Foreign Corrupt Practices Act of 1977, the Patient Protection and Affordable Care Act of 2010, and
similar state laws. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid,
or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’
rights are and will be applicable to our business. If we do not comply with all applicable fraud and abuse laws, we may be subject
to healthcare fraud and abuse enforcement by both the federal government and the states in which we conduct our business.
Laws and regulations require calculation
and reporting of complex pricing information for prescription drugs, and compliance will require us to invest in significant resources
and develop a price reporting infrastructure, or depend on third parties to compute and report our drug pricing. Pricing reported
to CMS must be certified. Non-compliant activities expose us to FCA risk if they result in overcharging agencies, underpaying rebates
to agencies, or causing agencies to overpay providers.
If we or our operations are found to be
in violation of any federal or state healthcare law, or any other governmental regulations that apply to us, we may be subject
to penalties, including civil, criminal, and administrative penalties, damages, fines, disgorgement, debarment from government
contracts, refusal of orders under existing contracts, exclusion from participation in U.S. federal or state health care programs,
corporate integrity agreements, and the curtailment or restructuring of our operations, any of which could materially adversely
affect our ability to operate our business and our financial results. If any of the physicians or other healthcare providers or
entities with whom we expect to do business, including our collaborators, is found not to be in compliance with applicable laws,
they may be subject to criminal, civil, or administrative sanctions, including but not limited to, exclusions from participation
in government healthcare programs, which could also materially affect our business.
In particular, if we are found to have
impermissibly promoted any of our product candidates, we may become subject to significant liability and government fines. We,
and any of our collaborators, must comply with requirements concerning advertising and promotion for any of our product candidates
for which we or they obtain marketing approval. Promotional communications with respect to therapeutics are subject to a variety
of legal and regulatory restrictions and continuing review by the FDA, Department of Justice, Department of Health and Human Services’
Office of Inspector General, state attorneys general, members of Congress, and the public. When the FDA or comparable foreign regulatory
authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific uses and indications
for which a product is approved. If we are not able to obtain FDA approval for desired uses or indications for our products and
product candidates, we may not market or promote our products for those indications and uses, referred to as off-label uses, and
our business may be adversely affected. We further must be able to sufficiently substantiate any claims that we make for our products
including claims comparing our products to other companies’ products and must abide by the FDA's strict requirements regarding
the content of promotion and advertising.
While physicians may choose to prescribe
products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical
studies and approved by the regulatory authorities, we are prohibited from marketing and promoting the products for indications
and uses that are not specifically approved by the FDA. These off-label uses are common across medical specialties and may constitute
an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the United States generally do not
restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine. Regulatory authorities
do, however, restrict communications by biopharmaceutical companies concerning off-label use.
The FDA and other agencies actively enforce
the laws and regulations regarding product promotion, particularly those prohibiting the promotion of off-label uses, and a company
that is found to have improperly promoted a product may be subject to significant sanctions. The federal government has levied
large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging
in off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which
specified promotional conduct is changed or curtailed. Thus, we and any of our collaborators will not be able to promote any products
we develop for indications or uses for which they are not approved.
In the United States, engaging in the
impermissible promotion of our products, following approval, for off-label uses can also subject us to false claims and other litigation
under federal and state statutes, including fraud and abuse and consumer protection laws, which can lead to civil and criminal
penalties and fines, agreements with governmental authorities that materially restrict the manner in which we promote or distribute
therapeutic products and do business through, for example, corporate integrity agreements, suspension or exclusion from participation
in federal and state healthcare programs, and debarment from government contracts and refusal of future orders under existing contracts.
These false claims statutes include the federal civil False Claims Act, which allows any individual to bring a lawsuit against
a biopharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims or causing others
to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government decides
to intervene and prevails in the lawsuit, the individual will share in the proceeds from any fines or settlement funds. If the
government declines to intervene, the individual may pursue the case alone. These False Claims Act lawsuits against manufacturers
of drugs and biologics have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements,
up to $3.0 billion, pertaining to certain sales practices and promoting off-label uses. In addition, False Claims Act lawsuits
may expose manufacturers to follow-on claims by private payors based on fraudulent marketing practices. This growth in litigation
has increased the risk that a biopharmaceutical company will have to defend a false claim action, pay settlement fines or restitution,
as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded
from Medicare, Medicaid, or other federal and state healthcare programs. If we or our future collaborators do not lawfully promote
our approved products, if any, we may become subject to such litigation and, if we do not successfully defend against such actions,
those actions may have a material adverse effect on our business, financial condition, results of operations and prospects.
Although an effective compliance program
can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Moreover,
achieving and sustaining compliance with applicable federal and state fraud laws may prove costly. Any action against us for violation
of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s
attention from the operation of our business.
Coverage and reimbursement may be limited
or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product
candidates profitably.
In both domestic and foreign markets, sales
of our product candidates, if approved, depend on the availability of coverage and adequate reimbursement from third-party payors.
Such third-party payors include government health programs such as Medicare and Medicaid, managed care providers, private health
insurers, and other organizations. In addition, because our product candidates represent new approaches to the treatment of cancer,
we cannot accurately estimate the potential revenue from our product candidates.
Patients who are provided medical treatment
for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment.
Obtaining coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial
payors is critical to new product acceptance.
Government authorities and third-party payors
decide which drugs and treatments they will cover and the amount of reimbursement. Coverage decisions may depend upon clinical
and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already
available or subsequently become available. If reimbursement is not available, or is available only to limited levels, our product
candidates may be competitively disadvantaged, and we, or our collaborators, may not be able to successfully commercialize our
product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or our
collaborators, to establish or maintain a market share sufficient to realize a sufficient return on our or their investments. Alternatively,
securing favorable reimbursement terms may require us to compromise pricing and prevent us from realizing an adequate margin over
cost. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party
payor’s determination that use of a product is:
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a covered benefit under its health plan;
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safe, effective and medically necessary;
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appropriate for the specific patient;
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cost-effective; and
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neither experimental nor investigational.
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Obtaining coverage and reimbursement approval
of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide
to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. Even if we obtain coverage
for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability
or may require co-payments that patients find unacceptably high. Moreover, the factors noted above have continued to be the focus
of policy and regulatory debate that has, thus far, shown the potential for movement towards permanent policy changes; this trend
is apt to continue, and may result in more or less favorable impacts on pricing. Patients are unlikely to use our product candidates
unless coverage is provided, and reimbursement is adequate to cover a significant portion of the cost of our product candidates.
In the United States, no uniform policy
of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products
can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly
process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately,
with no assurance that coverage and adequate reimbursement will be obtained.
Prices paid for a drug also vary depending
on the class of trade. Prices charged to government customers are subject to price controls, including ceilings, and private institutions
obtain discounts through group purchasing organizations. Net prices for drugs may be further reduced by mandatory discounts or
rebates required by government healthcare programs and demanded by private payors. It is also not uncommon for market conditions
to warrant multiple discounts to different customers on the same unit, such as purchase discounts to institutional care providers
and rebates to the health plans that pay them, which reduces the net realization on the original sale. On January 31, 2019, the
U.S. Department of Health and Human Services issued a proposed rule aimed at eliminating certain AKS safe harbor protections for
drug rebates.
In addition, federal programs impose penalties
on manufacturers of drugs marketed under an NDA or BLA, in the form of mandatory additional rebates and/or discounts if commercial
prices increase at a rate greater than the Consumer Price Index-Urban, and these rebates and/or discounts, which can be substantial,
may impact our ability to raise commercial prices. Regulatory authorities and third-party payors have attempted to control costs
by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability or that of our
collaborators to sell our product candidates profitably. These payors may not view our products, if any, as cost-effective, and
coverage and reimbursement may not be available to our customers, or those of our collaborators, or may not be sufficient to allow
our products, if any, to be marketed on a competitive basis. Cost control initiatives could cause us, or our collaborators, to
decrease, discount, or rebate a portion of the price we, or they, might establish for products, which could result in lower than
anticipated product revenues. If the realized prices for our products, if any, decrease or if governmental and other third-party
payors do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer. Moreover, the
recent and ongoing series of congressional hearings relating to drug pricing has presented heightened attention to the biopharmaceutical
industry, creating the potential for political and public pressure, while the potential for resulting legislative or policy changes
presents uncertainty.
Assuming coverage is approved, the resulting
reimbursement payment rates might not be adequate. If payors subject our product candidates to maximum payment amounts or impose
limitations that make it difficult to obtain reimbursement, providers may choose to use therapies which are less expensive when
compared to our product candidates. Additionally, if payors require high copayments, beneficiaries may decline prescriptions and
seek alternative therapies. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any
future products to the satisfaction of hospitals and other target customers and their third-party payors. Such studies might require
us to commit a significant amount of management time and financial and other resources. Our future products might not ultimately
be considered cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain price
levels sufficient to realize an appropriate return on investment in product development.
Third-party payors, whether domestic or
foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition,
third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging
the prices charged. We, and our collaborators, cannot be sure that coverage will be available for any product candidate that we,
or they, commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug
products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries
where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment
rates from both government-funded and private payors for any our product candidates for which we obtain marketing approval could
have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products, and our
overall financial condition.
There have been, and likely will continue
to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare
and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing
efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or
reduce costs of healthcare and/or impose price controls may adversely affect:
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the demand for our product candidates, if we obtain regulatory approval;
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our ability to set a price that we believe is fair for our products;
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our ability to generate revenue and achieve or maintain profitability;
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the level of taxes that we are required to pay; and
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the availability of capital.
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Any reduction in reimbursement from Medicare
or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our
future profitability. A particular challenge for our product candidates arises from the fact that they will primarily be used in
an inpatient setting. Inpatient reimbursement generally relies on stringent packaging rules that may mean that there is no separate
payment for our product candidates. Additionally, data used to set the payment rates for inpatient admissions is usually several
years old and would not take into account all of the additional therapy costs associated with the administration of our product
candidates. If special rules are not created for reimbursement for immunotherapy treatments such as our product candidates, hospitals
might not receive enough reimbursement to cover their costs of treatment, which will have a negative effect on their adoption of
our product candidates.
We are subject to new legislation,
regulatory proposals, and healthcare payor initiatives that may increase our costs of compliance, and adversely affect our ability
to market our products, obtain collaborators, and raise capital.
In the United States and some foreign
jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system
that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities, and affect
our ability, or the ability of our collaborators, to profitably sell any products for which we obtain marketing approval. We expect
that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage
criteria and in additional downward pressure on the price that we, or our collaborators, may receive for any approved products.
Since enactment of the ACA in 2010, in
both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the
health care system that could impact our ability to sell our products profitably. In August 2011, the Budget Control Act of 2011,
among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked
with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required
goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions
of Medicare payments to providers up to 2% per fiscal year, which went into effect on April 1, 2013 and were to remain
in effect until 2024. The Bipartisan Budget Act of 2015 extended the 2% sequestration to 2025. In January 2013, the American Taxpayer
Relief Act of 2012, or ATRA, was approved which, among other things, reduced Medicare payments to several providers, with primary
focus on the hospital outpatient setting and ancillary services, including hospitals, imaging centers and cancer treatment centers,
and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
On January 20, 2017, the new administration signed an Executive Order directing federal agencies with authorities and responsibilities
under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose
a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals
or medical devices, and, for that reason, some final regulations have yet to take effect. In December 2017, Congress repealed the
individual mandate for health insurance required by the ACA and could consider further legislation to repeal other elements of
the ACA. At the end of 2017, CMS promulgated regulations that reduce the amount paid to hospitals for outpatient drugs purchased
under the 340B program, and some states have enacted transparency laws requiring manufacturers to report information on drug prices
and price increases. More recently, the United States District Court for the Northern District of Texas struck down the ACA, deeming
it unconstitutional given that Congress repealed the individual mandate in 2017. Although there is no immediate impact on the ACA,
we will continue to evaluate the effect that the ACA and its possible repeal and replacement, or potential total revocation by
the Supreme Court of the United States, has on our business.
Additional federal and state healthcare
reform measures may be adopted in the future that may result in more rigorous coverage criteria, increased regulatory burdens and
operating costs, decreased net revenue from our pharmaceutical products, decreased potential returns from our development efforts,
and additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from Medicare
or other government healthcare programs may result in a similar reduction in payments from private payors. The implementation of
cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability
or commercialize our products.
Legislative and regulatory proposals may
also be made to expand post-approval requirements and restrict sales and promotional activities for drugs. We cannot be sure whether
additional legislative changes will be enacted, or whether the FDA regulations, guidance, or interpretations will be changed, or
what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny
by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to
more stringent product labeling and post-marketing testing and other requirements.
In addition, there have been a number
of other legislative and regulatory proposals aimed at changing the pharmaceutical industry. For instance, Congress recently introduced
a number of bipartisan bills, including the CREATES Act that is intended to reduce price and increase competitiveness in the pharmaceutical
industry, and the FLAT Prices Act that would introduce a prohibition on “large scale drug price increases.” As a result
of these and other new proposals, we may determine to change our current manner of operation, provide additional benefits, or change
our contract arrangements, any of which could have a material adverse effect on our business, financial condition, and results
of operations.
Governments outside the United States
tend to impose strict price controls, which may adversely affect our revenues, if any.
In international markets, reimbursement
and health care payment systems vary significantly by country, and many countries have instituted price ceilings on specific products
and therapies. In some countries, particularly the countries of the EU, the pricing of prescription pharmaceuticals is subject
to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after
the receipt of marketing approval for a product. To obtain coverage and reimbursement or pricing approval in some countries, we
may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.
There can be no assurance that our products will be considered cost-effective by third-party payors, that an adequate level of
reimbursement will be available, or that the third-party payors’ reimbursement policies will not adversely affect our ability
to sell our products profitably. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is
set at unsatisfactory levels, our business could be harmed, possibly materially.
Our employees, independent contractors,
consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with
regulatory standards and requirements.
We are exposed to the risk of employee fraud
or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by
these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the laws of the FDA and other
similar foreign regulatory bodies, provide true, complete and accurate information to the FDA and other similar foreign regulatory
bodies, comply with manufacturing standards we have established, comply with healthcare fraud and abuse laws in the United States
and similar foreign fraudulent misconduct laws, or report financial information or data accurately or to disclose unauthorized
activities to us. If we obtain FDA approval of any of our product candidates and begin commercializing those products in the United
States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such
laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators
and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales
and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject
to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may
restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer
incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of
information obtained in the course of patient recruitment for clinical trials.
We have adopted a code of business conduct
and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and
prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from
governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Efforts
to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible
that governmental and enforcement authorities will conclude that our, or our employees’, consultants’, collaborators’,
contractors’, or vendors’ business practices may not comply with current or future statutes, regulations or case law
interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us,
and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our
business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible
exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm,
diminished profits and future earnings, compliance agreements, withdrawal of product approvals, and curtailment of our operations,
among other things, any of which could adversely affect our ability to operate our business and our results of operations. In addition,
the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign
equivalents of the healthcare laws mentioned above, among other foreign laws.
Risks Related to Our Intellectual Property
We may be involved in lawsuits to protect
or enforce our patents or the patents of our licensors, or lawsuits accusing our products of patent infringement, which could be
expensive, time-consuming and unsuccessful.
Competitors may infringe the patents of our
licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive
and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more of our patents is not valid
or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do
not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents
at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not
issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial
diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may be enjoined
from manufacturing, use, and marketing our products, or may have to pay substantial damages, including treble damages and attorneys’
fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products,
which may be impossible or require substantial time and monetary expenditure.
Periodic maintenance fees on any issued patent
are due to be paid to the United States Patent and Trademark Office, or USPTO, and foreign patent agencies in several stages over
the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with several procedural,
documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in
many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in
which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss
of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent
application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment
of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter
the market, which would have a material adverse effect on our business.
We may incur substantial costs as
a result of litigation or other proceedings relating to patent and other intellectual property rights.
The cost to us of any litigation or other
proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial. Some of our competitors
may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. If there
is litigation against us, we may not be able to continue our operations.
Should third parties file patent applications,
or be issued patents claiming technology also used or claimed by us, we may be required to participate in interference proceedings
in the USPTO to determine priority of invention. We may be required to participate in interference proceedings involving our issued
patents and pending applications. We may be required to cease using the technology or to license rights from prevailing third parties
as a result of an unfavorable outcome in an interference proceeding. A prevailing party in that case may not offer us a license
on commercially acceptable terms.
Issued patents covering our product
candidates could be found invalid or unenforceable if challenged in court or the USPTO.
If we or one of our licensing partners initiate
legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim
that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United
States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon
which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative
bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant
review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation
or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions
of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that
there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If
a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps
all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact
on our business.
If we are unable to protect our proprietary
rights, we may not be able to compete effectively or operate profitably.
Our success is dependent in part on maintaining
and enforcing the patents and other proprietary rights that we have licensed and may develop, and on our ability to avoid infringing
the proprietary rights of others. Certain of our intellectual property rights are licensed from another entity, and as such the
preparation and prosecution of these patents and patent applications was not performed by us or under our control. Furthermore,
patent law relating to the scope of claims in the biotechnology field in which we operate is still evolving and, consequently,
patent positions in our industry may not be as strong as in other more well-established fields. The patent positions of biotechnology
companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved.
No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date.
The issuance of a patent is not conclusive
as to its validity or enforceability and it is uncertain how much protection, if any, will be given to the patents we have licensed
from the NIH, Moffitt, PolyBioCept, or MDACC if any of these parties, or we, attempt to enforce the patents and/or if they are
challenged in court or in other proceedings, such as oppositions, which may be brought in foreign jurisdictions to challenge the
validity of a patent. A third party may challenge the validity or enforceability of a patent after its issuance by the Patent Office.
It is possible that a competitor may successfully challenge our patents or that a challenge will result in limiting their coverage.
Moreover, the cost of litigation to uphold the validity of patents and to prevent infringement can be substantial. If the outcome
of litigation is adverse to us, third parties may be able to use our patented invention without payment to us. Moreover, it is
possible that competitors may infringe our patents or successfully avoid the patented technology through design innovation. To
stop these activities, we may need to file a lawsuit. These lawsuits are expensive and would consume time and other resources,
even if we were successful in stopping the violation of our patent rights. In addition, there is a risk that a court would decide
that our patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also
the risk that, even if the validity of our patents were upheld, a court would refuse to stop the other party on the grounds that
its activities are not covered by, that is, do not infringe, our patents.
Should third parties file patent applications,
or be issued patents claiming technology also used or claimed by our licensor(s) or by us in any future patent application, we
may be required to participate in interference proceedings in the USPTO to determine priority of invention for those patents or
patent applications that are subject to the first-to-invent law in the United States, or may be required to participate in derivation
proceedings in the USPTO for those patents or patent applications that are subject to the first-inventor-to-file law in the United
States. We may be required to participate in such interference or derivation proceedings involving our issued patents and pending
applications. We may be required to cease using the technology or to license rights from prevailing third parties as a result of
an unfavorable outcome in an interference proceeding or derivation proceeding. A prevailing party in that case may not offer us
a license on commercially acceptable terms.
We cannot prevent other companies
from licensing most of the same intellectual properties that we have licensed or from otherwise duplicating our business model
and operations.
Certain intellectual properties that we
are using to develop TIL-based cancer therapy products were licensed to us by the NIH. The issued or pending patents that the NIH
licensed to us are exclusive, and specific with respect to melanoma, breast, HPV-associated, bladder and lung cancers. No assurance
can be given that the NIH has not previously licensed, or that the NIH hereafter will not license to other biotechnology companies
some or all of the non-exclusive technologies available to us under the NIH License Agreement. In addition, one pending U.S. patent
application in the NIH License Agreement is not owned solely by the NIH. No assurance can be given that NIH’s co-owner of
the certain pending U.S. patent application in the NIH License Agreement has not previously licensed, or that the co-owner thereafter
will not license, to other biotechnology companies some or all of the technologies available to us. Co-ownership of these intellectual
properties will create issues with respect to our ability to enforce the intellectual property rights in courts, and will create
issues with respect to the accountability of one entity with respect to the other.
Since the NCI, Moffitt, MDACC, and others
already use TIL therapy for the treatment of metastatic melanoma and other indications, their methods and data are also available
to third parties, who may want to enter into our line of business and compete against us. Other than the Gen 2 manufacturing process,
we currently do not own any exclusive rights on our entire product portfolio that could be used to prevent third parties from duplicating
our business plan or from otherwise directly competing against us. While additional technologies that may be developed under our
CRADA may be licensed to us on an exclusive basis, no assurance can be given that our existing exclusive rights and will be sufficient
to prevent others from competing with us and developing substantially similar products.
The use of our technologies could
potentially conflict with the rights of others.
Our potential competitors or others may
have or acquire patent rights that they could enforce against us. If they do so, then we may be required to alter our products,
pay licensing fees or cease activities. If our products conflict with patent rights of others, third parties could bring legal
actions against us or our collaborators, licensees, suppliers or customers, claiming damages and seeking to enjoin manufacturing,
use and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages
(including treble damages and attorneys’ fees for willful infringement), we could be required to obtain a license to continue
manufacturing, promoting the use or marketing the affected products. We may not prevail in any legal action and a required license
under the patent may not be available on acceptable terms or at all.
We have conducted an extensive freedom-to-operate,
or FTO, analyses of the patent landscape with respect to our lead product candidates. Although we continue to undertake FTO analyses
of our manufacturing processes, our lead TIL products, and contemplated future processes and products, because patent applications
do not publish for 18 months, and because the claims of patent applications can change over time, no FTO analysis can be considered
exhaustive. Furthermore, patent and other intellectual property rights in biotechnology remains an evolving area with many risks
and uncertainties. As such, we may not be able to ensure that we can market our product candidates without conflict with the rights
of others.
Changes in U.S. patent law could
diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical
companies, our success is dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical
industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In
addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S.
Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of
patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the
future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions
by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable
ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in
the future. While we do not believe that any of the patents owned or licensed by us will be found invalid based on this decision,
we cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of our patents.
We have limited foreign intellectual
property rights and may not be able to protect our intellectual property rights throughout the world.
We have limited intellectual property
rights outside the United States. Filing, prosecuting and defending patents on product candidates in all countries throughout the
world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be
less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property
rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties
from practicing our inventions in all countries outside the United States, or from selling or importing products made using our
inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we
have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories
where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with
our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property
protection, particularly those relating to biopharmaceutical products, which could make it difficult for us to stop the infringement
of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects
of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk
of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate,
and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our
intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
We may be subject to claims that
our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have received confidential and proprietary
information from third parties and our employees and contractors. In addition, we employ individuals who were previously employed
at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent
contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’
former employers. Litigation may be necessary to defend against or pursue these claims. For example, we are currently engaged in
litigation involving counterclaims that we have brought relating to theft of certain of our trade secrets, breach of confidentiality,
and related counterclaims. Even if we are successful in resolving these claims, litigation could result in substantial cost and
be a distraction to our management and employees.
Risks Related to Our Securities
Our existing directors and executive
officers hold a substantial amount of our common stock and may be able to influence significant corporate decisions.
As of December 31, 2018, our officers and
directors beneficially owned approximately 7.4 % of our outstanding common stock. These stockholders, if they act together, may
be able to materially affect the outcome of matters presented to our stockholders, including the election of our directors and
other corporate actions such as:
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a merger with or into another company;
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a sale of substantially all of our assets; and
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amendments to our certificate of incorporation.
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Additionally, the decisions of these stockholders
may conflict with our interests or those of our other stockholders and the market price of our stock may be adversely affected
by market volatility.
Our stock
price may be volatile, and our stockholders' investment in our stock could decline in value.
The market price of our common stock is likely
to be volatile and could fluctuate widely in response to many factors, including but not limited to:
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announcements of the results of clinical trials by us, our collaborators
or our competitors;
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developments with respect to patents or proprietary rights;
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announcements of technological innovations by us or our competitors;
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announcements of new products or new contracts by us or our competitors;
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actual or anticipated variations in our operating results due to the
level of development expenses and other factors;
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changes in financial estimates by securities analysts and whether
our earnings meet or exceed such estimates;
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conditions and trends in the pharmaceutical, biotechnology and other
industries;
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receipt, or lack of receipt, of funding in support of conducing our
business;
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regulatory developments within, and outside of, the United States;
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litigation or arbitration;
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general volatility in the financial markets;
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general economic, political and market conditions and other factors;
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the occurrence of any of the risks described in this Annual Report
on Form 10-K.
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You may experience future dilution
as a result of future equity offerings or other equity issuances.
We will have to raise additional capital
in the future. To raise additional capital, we may in the future offer additional shares of our common stock or other securities
convertible into or exchangeable for our common stock at prices that may be lower than the current price per share of our common
stock. In addition, investors purchasing shares or other securities in the future could have rights superior to existing stockholders.
The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common
stock, in future transactions may be higher or lower than the price per share paid by investors in prior offerings. Any such issuance
could result in substantial dilution to our existing stockholders.
Future sales
of our common stock in the public market could cause our stock price to fall.
Our stock price
could decline as a result of sales of a large number of shares of our common stock or the perception that these sales could occur.
These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities
in the future at a time and at a price that we deem appropriate.
As of February
13, 2019, we had 123,420,091 shares of common stock outstanding. In addition, we had 13,123,236 shares of common stock equivalents
that would increase the number of common stock outstanding if these instruments were exercised or converted, including stock options
and restricted stock units to purchase common stock based on vesting requirements, and common stock issuable upon the conversion
of preferred stock. The issuance and subsequent sale of the shares underlying these common stock equivalents could depress the
trading price of our common stock.
In addition, in the future, we may issue
additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing,
acquisition, litigation settlement, employee arrangements or otherwise. For example, in January 2018 and October 2018, we issued
15,000,000 and 25,300,000 shares of common stock, respectively, in connection with underwritten public offerings. Such issuances
could result in substantial dilution to our existing stockholders and could cause our stock price to decline.
If securities or industry analysts
do not publish research or reports about our company, or if they issue adverse or misleading opinions regarding us or our stock,
our stock price and trading volume could decline.
Although we have research coverage by securities
and industry analysts, if coverage is not maintained, the market price for our stock may be adversely affected. Our stock price
also may decline if any analyst who covers us issues an adverse or erroneous opinion regarding us, our business model, our intellectual
property or our stock performance, or if our clinical trials and operating results fail to meet analysts’ expectations. If
one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which could cause our stock price or trading volume to decline and possibly adversely affect our ability to engage in
future financings
If we fail to maintain an effective
system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result,
we could become subject to sanctions or investigations by regulatory authorities and/or stockholder litigation, which could harm
our business and have an adverse effect on our stock price.
As a public reporting company, we are subject
to various regulatory requirements, including the Sarbanes-Oxley Act of 2002, which requires our management to assess and report
on our internal controls over financial reporting. Nevertheless, in future years, our testing, or the subsequent testing by our
independent registered public accounting firm, may reveal deficiencies in our internal controls that we would be required to remediate
in a timely manner to be able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we are not
able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year, we could be subject to sanctions or investigations
by the SEC, Nasdaq or other regulatory authorities which would require additional financial and management resources and could
adversely affect the market price of our common stock. In addition, material weaknesses in our internal controls could result in
a loss of investor confidence in our financial reports.
Our board could issue one or more
additional series of preferred stock without stockholder approval with the effect of diluting existing stockholders and impairing
their voting and other rights.
Our certificate of incorporation authorizes
the issuance of up to 50,000,000 shares of “blank check” preferred stock (of which only 17,000 shares were issued as
Series A Convertible Preferred Stock and 11,500,000 shares were issued as Series B Convertible Preferred Stock) with designations,
rights and preferences as may be determined from time to time by our board of directors. Our board is empowered, without stockholder
approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could
dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could
be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our board
of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to
effect a change in control of our company.
We do not anticipate paying cash
dividends for the foreseeable future, and therefore investors should not buy our stock if they wish to receive cash dividends.
We have never declared or paid any cash
dividends or distributions on our common stock. We currently intend to retain our future earnings to support operations and to
finance expansion and, therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Provisions in
our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management
and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.
There are provisions in our certificate
of incorporation and amended and restated bylaws that may make it difficult for a third party to acquire, or attempt to acquire,
control of our company, even if a change in control was considered favorable by you and other stockholders. For example, our board
of directors will have the authority to issue up to 50,000,000 shares of preferred stock and to fix the price, rights, preferences,
privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares
of preferred stock may delay or prevent a change in control transaction. As a result, the market price of our common stock and
the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result
in the loss of voting control to other stockholders.
In addition, we are subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions by prohibiting Delaware
corporations from engaging in specified business combinations with particular stockholders of those companies. These provisions
could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have
the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best
interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for
our stock.
Our certificate
of incorporation designates the state or federal courts located in the State of Delaware as the sole and exclusive forum for certain
types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation provides
that, subject to limited exceptions, the state and federal courts located in the State of Delaware will be the sole and exclusive
forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary
duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against
us arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our amended bylaws,
or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing
or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the
provisions of our certificate of incorporation described above. This choice of forum provision may limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other
employees, which may discourage such lawsuits against us and our directors, officers, and employees. Alternatively, if a court
were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more
of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other
jurisdictions, which could adversely affect our business and financial condition.
We may be subject to claims for rescission
or damages in connection with certain sales of shares of our common stock in the open market.
In January 2014, the SEC declared effective
a registration statement that we filed to cover the resale of shares issued and sold (or to be issued and sold) by certain selling
stockholders. On March 11, 2016, that registration statement (and the prospectus contained therein) became ineligible for future
use, and selling stockholders could no longer sell any shares of our common stock in open market transactions by means of that
prospectus. We believe that certain stockholders did sell up to 128,500 shares of our common stock in open market transactions
in May 2016 by means of the ineffective registration statement. Accordingly, those sales were not made in accordance with Sections
5 and 10(a)(3) of the Securities Act, and the purchasers of those shares may have rescission rights (if they still own the shares)
or claims for damages (if they no longer own the shares). In addition, we also may have indemnification obligations to the selling
stockholders. The amount of any such liability is uncertain.
In connection with our reincorporation
from Nevada to Delaware in 2017, we (as a Delaware corporation) untimely filed a post-effective amendment to adopt a Form S-8 registration
statement that we filed (as a Nevada corporation) to register the shares underlying our 2011 Equity Incentive Plan. Before we filed
the required post-effective amendment, options to purchase 200,000 shares were exercised under the 2011 Equity Incentive Plan.
The effect of the delayed post-effective amendment filing on the 200,000 option shares is uncertain, but the issuance and sale
of the shares may not have been in compliance with the Form S-8 registration statement. The existence of any liability to us, and
the amount of any such liability, as a result of the issuance of the 200,000 shares is uncertain. Accordingly, we have not made
any accrual for a potential claim in our consolidated financial statements.