The following information sets forth risk
factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made
in this report and those we may make from time to time. You should carefully consider the risks described below. Our business,
financial condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below
are not the only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant
risks to our business at this time also may impair our business operations.
Risks Related to Our Business and Industry
We currently have no drug products for
sale. We are heavily dependent on the success of our product candidates, and we cannot give any assurances that any of our product
candidates will receive regulatory approval or be successfully commercialized.
To date, we have invested a significant portion
of our efforts and financial resources in the acquisition and development of our product candidates. We have not demonstrated our
ability to perform the functions necessary for the successful acquisition, development or commercialization of the technologies
we are seeking to develop. As an early stage company, we have limited experience and have not yet demonstrated an ability to successfully
overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly
in the biopharmaceutical area. Our future success is substantially dependent on our ability to successfully develop, obtain regulatory
approval for, and then successfully commercialize such product candidates. Our product candidates are currently in preclinical
development or in early stage clinical trials. Our business depends entirely on the successful development and commercialization
of our product candidates, which may never occur. We currently generate no revenues from sales of any drugs, and we may never be
able to develop or commercialize a marketable drug.
The successful development, and any commercialization,
of our technologies and any product candidates would require us to successfully perform a variety of functions, including:
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developing our technology platform;
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identifying, developing, manufacturing and commercializing product candidates;
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entering into successful licensing and other arrangements with product development partners;
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participating in regulatory approval processes;
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formulating and manufacturing products;
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obtaining sufficient quantities of our product candidates from our third-party manufacturers as
required to meet clinical trial needs and commercial demand at launch and thereafter;
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establishing and maintaining agreements with wholesalers, distributors and group purchasing organizations
on commercially reasonable terms;
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conducting sales and marketing activities including hiring, training, deploying and supporting
our sales force and creating market demand for our product candidates through our own marketing and sales activities, and any other
arrangements to promote our product candidates that we may later establish; and
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maintaining patent protection and regulatory exclusivity for our product candidates.
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Our operations have been limited to organizing
our company, acquiring, developing and securing our proprietary technology and identifying and obtaining preclinical data or clinical
data for various product candidates. These operations provide a limited basis for you to assess our ability to continue to develop
our technology, identify product candidates, develop and commercialize any product candidates we are able to identify and enter
into successful collaborative arrangements with other companies, as well as for you to assess the advisability of investing in
our securities. Each of these requirements will require substantial time, effort and financial resources.
Each of our product candidates will require
additional preclinical or clinical development, management of preclinical, clinical and manufacturing activities, regulatory approval
in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, and significant marketing efforts
before we generate any revenues from product sales. We are not permitted to market or promote any of our product candidates before
we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory
approval for any of our product candidates.
Preclinical development is highly speculative
and has a high risk of failure.
Three of our current product candidates are in
Phase 1 clinical trials and three are preclinical. Our preclinical
product candidates have never been used in humans. Preclinical development is highly speculative and carries a high risk of failure.
We can provide no assurances that preclinical toxicology and/or preclinical activity of our product candidates will support moving
any of these product candidates into clinical development. If we are unsuccessful in our preclinical development efforts for any
of these product candidates and they fail to reach clinical development, it would have a material adverse effect on our business
and financial condition.
Delays in clinical testing could result
in increased costs to us and delay our ability to generate revenue.
Although we are planning for certain clinical
trials relating to our product candidates, there can be no assurance that the FDA will accept our proposed trial designs. We may
experience delays in our clinical trials and we do not know whether planned clinical trials will begin on time, need to be redesigned,
enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including
delays related to:
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obtaining regulatory approval to commence a trial;
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reaching agreement on acceptable terms with prospective contract research organizations, or CROs,
and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different
CROs and trial sites;
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obtaining institutional review board, or IRB, approval at each site;
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recruiting suitable patients to participate in a trial;
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clinical sites deviating from trial protocol or dropping out of a trial;
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having patients complete a trial or return for post-treatment follow-up;
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developing and validating companion diagnostics on a timely basis, if required;
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adding new clinical trial sites; or
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manufacturing sufficient quantities of product candidate for use in clinical trials.
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Patient enrollment, a significant factor in
the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity
of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials
and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other
available therapies, including any new drugs that may be approved for the indications we are investigating. Furthermore, we intend
to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and we intend to have agreements
governing their committed activities; however, we will have limited influence over their actual performance.
We could encounter delays if a clinical trial
is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety
Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension
or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements
or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities
resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit
from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical
trial.
If we experience delays in the completion of,
or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed,
and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing
our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our
ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and
prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of
clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
We may not receive regulatory approval
for our product candidates, or their approval may be further delayed, which would have a material adverse effect on our business
and financial condition.
Our product candidates and the activities associated
with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling,
storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other
regulatory agencies in the US and by the European Medicines Agency and similar regulatory authorities outside the US. Failure to
obtain marketing approval for one or more of our product candidates or any future product candidate will prevent us from commercializing
the product candidate. We have not received approval to market any of our product candidates from regulatory authorities in any
jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and
expect to rely on third-party contract research organizations to assist us in this process. Securing marketing approval requires
the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic
indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission
of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities.
One or more of our product candidates or any future product candidate may not be effective, may be only moderately effective or
may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing
approval or prevent or limit commercial use. If any of our product candidates or any future product candidate receives marketing
approval, the accompanying label may limit the approved use of our drug in this way, which could limit sales of the product.
The process of obtaining marketing approvals,
both in the United States and abroad, is expensive, may take many years if approval is obtained at all, and can vary substantially
based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing
approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes
in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. Regulatory
authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our
data is insufficient for approval and require additional preclinical studies or clinical trials. In addition, varying interpretations
of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate.
Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render
the approved product not commercially viable.
If we experience delays in obtaining approval
or if we fail to obtain approval of one or more of our product candidates or any future product candidate, the commercial prospects
for our product candidates may be harmed and our ability to generate revenue will be materially impaired.
In addition, even if we were to obtain approval,
regulatory authorities may approve any of our product candidates or any future product candidate for fewer or more limited indications
than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance
of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims
necessary or desirable for the successful commercialization of that product candidate. Any of these scenarios could compromise
the commercial prospects for one or more of our product candidates or any future product candidate.
Moreover, in all interactions with regulatory
authorities, we are exposed to liability risks under the Foreign Corrupt Practices Act or similar anti-bribery laws.
If any of our product candidates is approved
and we or our contract manufacturer(s) fail to produce the product in the volumes that we require on a timely basis, or fail to
comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the commercialization
of our product candidates or be unable to meet market demand, and may lose potential revenues.
The manufacture of pharmaceutical products
requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process
controls, and the use of specialized processing equipment. We may enter into development and supply agreements with contract manufacturers
for the completion of pre-commercialization manufacturing development activities and the manufacture of commercial supplies for
one or more of our product candidates. Any termination or disruption of our relationships with our contract manufacturers may materially
harm our business and financial condition, and frustrate any commercialization efforts for each respective product candidate.
All of our contract manufacturers must comply
with strictly enforced federal, state and foreign regulations, including cGMP requirements enforced by the FDA through its
facilities inspection program, and we have little control over their compliance with these regulations. Any failure to comply with
applicable regulations may result in fines and civil penalties, suspension of production, suspension or delay in product approval,
product seizure or recall, or withdrawal of product approval, and would limit the availability of our product and customer confidence
in our product. Any manufacturing defect or error discovered after products have been produced and distributed could result in
even more significant consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential
for product liability claims.
If the commercial manufacturers upon whom we
may rely to manufacture one or more of our product candidates, and any future product candidate we may in-license, fail to deliver
the required commercial quantities on a timely basis at commercially reasonable prices, we would likely be unable to meet demand
for our products and we would lose potential revenues.
Our approach to the discovery and development
of our product candidates is unproven, and we do not know whether we will be able to develop any products of commercial value.
Our products candidates are emerging technologies
and, consequently, it is conceivable that such technologies may ultimately fail to identify commercially viable drugs to treat
human patients with cancer or other diseases.
If serious adverse or unacceptable side
effects are identified during the development of one or more of our product candidates or any future product candidate, we may
need to abandon or limit our development of some of our product candidates.
If one or more of our product candidates or
any future product candidate are associated with undesirable side effects in clinical trials or have characteristics that are unexpected,
we may need to abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side
effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In our industry,
many compounds that initially showed promise in early stage testing have later been found to cause serious side effects that prevented
further development of the compound. In the event that our clinical trials reveal a high or unacceptable severity and prevalence
of side effects, our trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order
us to cease further development or deny approval of one or more of our product candidates or any future product candidate for any
or all targeted indications. The FDA could also issue a letter requesting additional data or information prior to making a final
decision regarding whether or not to approve a product candidate. The number of requests for additional data or information issued
by the FDA in recent years has increased and has resulted in substantial delays in the approval of several new drugs. Undesirable
side effects caused by one or more of our product candidates or any future product candidate could also result in the inclusion
of unfavorable information in our product labeling, denial of regulatory approval by the FDA or other regulatory authorities for
any or all targeted indications, and in turn prevent us from commercializing and generating market acceptance and revenues from
the sale of that product candidate. Drug-related side effects could affect patient recruitment or the ability of enrolled patients
to complete the trial and could result in potential product liability claims.
Additionally, if one or more of our product
candidates or any future product candidate receives marketing approval and we or others later identify undesirable side effects
caused by this product, a number of potentially significant negative consequences could result, including:
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regulatory authorities may require the addition of unfavorable labeling statements, specific warnings
or a contraindication;
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regulatory authorities may suspend or withdraw their approval of the product, or require it to
be removed from the market;
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we may be required to change the way the product is administered, conduct additional clinical trials
or change the labeling of the product; or
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our reputation may suffer.
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Any of these events could prevent us from achieving
or maintaining market acceptance of any of our product candidates or any future product candidate or could substantially increase
our commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from its
sale.
Even if one or more of our product candidates
receives regulatory approval, it and any other products we may market will remain subject to substantial regulatory scrutiny.
One or more of our product candidates that
we may license or acquire will also be subject to ongoing requirements and review of the FDA and other regulatory authorities.
These requirements include labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other
post-market information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality
control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples
to physicians and recordkeeping of the drug, and requirements regarding our presentations to and interactions with health care
professionals.
The FDA may also impose requirements for costly
post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates
the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance
with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding
off-label use and if we do not market our products for only their approved indications, we may be subject to enforcement action
for off-label marketing. Violations of the FDCA relating to the promotion of prescription drugs may lead to investigations alleging
violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously
unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with
regulatory requirements, may yield various results, including:
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restrictions on such products, operations, manufacturers or manufacturing
processes;
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restrictions on the labeling or marketing of a product;
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restrictions on product distribution or use;
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requirements to conduct post-marketing studies or clinical trials;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved
applications that we submit;
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fines, restitution or disgorgement of profits;
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suspension or withdrawal of marketing or regulatory approvals;
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suspension of any ongoing clinical trials;
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refusal to permit the import or export of our products;
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injunctions or the imposition of civil or criminal penalties.
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The FDA’s policies may change, and additional
government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are
slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able
to maintain regulatory compliance, we may lose any marketing approval that we may have obtained.
We will need to obtain FDA approval of
any proposed product brand names, and any failure or delay associated with such approval may adversely impact our business.
A pharmaceutical product cannot be marketed
in the US or other countries until we have completed a rigorous and extensive regulatory review processes, including approval of
a brand name. Any brand names we intend to use for our product candidates will require approval from the FDA regardless of whether
we have secured a formal trademark registration from the US Patent and Trademark Office (PTO). The FDA typically conducts a review
of proposed product brand names, including an evaluation of potential for confusion with other product names. The FDA may also
object to a product brand name if it believes the name inappropriately implies medical claims. If the FDA objects to any of our
proposed product brand names, we may be required to adopt an alternative brand name for our product candidates. If we adopt an
alternative brand name, we would lose the benefit of our existing trademark applications for such product candidate and may be
required to expend significant additional resources in an effort to identify a suitable product brand name that would qualify under
applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to
build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize
our product candidates.
Our current and future relationships
with customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable
anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and
regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative
burdens and diminished profits and future earnings.
Healthcare providers, physicians and third-party
payors in the US and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which
we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable
fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and
the federal False Claims Act, which may constrain the business or financial arrangements and relationships through which we sell,
market and distribute any product candidates for which we obtain marketing approval. In addition, we may be subject to transparency
laws and patient privacy regulation by the federal and state governments and by governments in foreign jurisdictions in which we
conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to
operate include, but are not necessarily limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly
and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce
or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or
service, for which payment may be made under federal and state healthcare programs, such as Medicare and Medicaid;
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federal civil and criminal false claims laws and civil monetary penalty laws, including the federal
False Claims Act, which impose criminal and civil penalties, including civil whistleblower or
qui tam
actions,
against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the
Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease
or conceal an obligation to pay money to the federal government; the federal Health Insurance Portability and Accountability Act
of 1996, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program
or making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of
2009, or HITECH, and their respective implementing regulations, which impose obligations on covered healthcare providers, health
plans, and healthcare clearinghouses, as well as their business associates that create, receive, maintain or transmit individually
identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission
of individually identifiable health information;
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the federal Open Payments program, which requires manufacturers of certain approved drugs, devices,
biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance
Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information
related to “payments or other transfers of value” made to physicians, which is defined to include doctors, dentists,
optometrists, podiatrists and chiropractors, and teaching hospitals and applicable manufacturers and applicable group purchasing
organizations to report annually to CMS ownership and investment interests held by the physicians and their immediate family members.
Data collection began on August 1, 2013 with requirements for manufacturers to submit reports to CMS by March 31, 2014
and 90 days after the end each subsequent calendar year. Disclosure of such information was made by CMS on a publicly available
website beginning in September 2014 and is annually updated; and
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analogous state and foreign laws and regulations, such as state anti-kickback and false claims
laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental
third-party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the
pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal
government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers
to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing
expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many
of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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Efforts to ensure that our business arrangements
with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that
governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations
or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation
in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which
could have a material adverse effect on our business. If any of the physicians or other healthcare providers or entities with whom
we expect to do business, including our collaborators, is found not to be in compliance with applicable laws, it may be subject
to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which
could also materially affect our business.
Regulatory approval for any approved
product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated.
Any regulatory approval is limited to those
specific diseases and indications for which a product is deemed to be safe and effective by the FDA. In addition to the FDA approval
required for new formulations, any new indication for an approved product also requires FDA approval. If we are not able to obtain
FDA approval for any desired future indications for our products, our ability to effectively market and sell our products may be
reduced and our business may be adversely affected.
While physicians may choose to prescribe drugs
for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies
and approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specifically
approved by the FDA. These “off-label” uses are common across medical specialties and may constitute an appropriate
treatment for some patients in varied circumstances. Regulatory authorities in the US generally do not regulate the behavior
of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications by pharmaceutical companies
on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be subject
to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating
to promotion and advertising may cause the FDA to suspend or withdraw an approved product from the market, require a
recall or institute fines, or could result in disgorgement of money, operating restrictions, corrective advertising, injunctions
or criminal prosecution, any of which could harm our business.
We are subject to new legislation, regulatory
proposals and managed care initiatives that may increase our costs of compliance and adversely affect our ability to market our
products, obtain collaborators and raise capital.
In the US and some foreign jurisdictions, there
have been a number of proposed and enacted legislative and regulatory changes regarding the healthcare system that could prevent
or delay marketing approval of one or more of our product candidates, restrict or regulate post-approval activities and affect
our ability to profitably sell any of our product candidates for which we obtain marketing approval.
Among policy makers and payors in the US and
elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare
costs, improving quality and expanding access. In the US, the pharmaceutical industry has been a particular focus of these efforts
and has been significantly affected by major legislative initiatives.
In March 2010, President Obama signed into
law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act,
or collectively the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare
spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries,
impose new taxes and fees on the health industry and impose additional health policy reforms.
Among the provisions of the ACA of importance
to our potential product candidates are:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription
drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate
Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;
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expansion of healthcare fraud and abuse laws, including the federal False Claims Act and the federal
Anti-Kickback Statute, new government investigative powers and enhanced penalties for non-compliance;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to
offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage
gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;
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extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals
who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states
to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals
with income at or below 138% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate
liability;
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expansion of the entities eligible for discounts under the 340B Drug Pricing Program;
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the new requirements under the federal Open Payments program and its implementing regulations;
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a new requirement to annually report drug samples that manufacturers and distributors provide to
physicians; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such research.
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The Supreme Court upheld the ACA in the main
challenge to the constitutionality of the law in 2012. The Supreme Court also upheld federal subsidies for purchasers of insurance
through federally facilitated exchanges in a decision released in June 2015. Any remaining legal challenges to the ACA are
viewed generally as not significantly impacting the implementation of the law if the plaintiffs prevail.
President Trump ran for office on a platform
that supported the repeal of the ACA, and one of his first actions after his inauguration was to sign an Executive Order instructing
federal agencies to waive or delay requirements of the ACA that impose economic or regulatory burdens on states, families, the
health-care industry and others. Modifications to or repeal of all or certain provisions of the ACA have been attempted in Congress
as a result of the outcome of the recent presidential and congressional elections, consistent with statements made by the incoming
administration and members of Congress during the presidential and congressional campaigns and following the election. In January 2017,
Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation
of legislation that would repeal portions of the ACA. The Budget Resolution is not a law. However, it is widely viewed as the first
step toward the passage of legislation that would repeal certain aspects of the ACA. In March 2017, following the passage of the
budget resolution for fiscal year 2017, the U.S. House of Representatives passed legislation known as the American Health Care
Act of 2017, which, if enacted, would amend or repeal significant portions of the ACA. Attempts in the Senate in 2017 to pass ACA
repeal legislation, including the Better Care Reconciliation Act of 2017, so far have been unsuccessful.
We expect that the ACA, as well as other healthcare
reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure
on the price that we receive for any approved drug. Any reduction in reimbursement from Medicare or other government healthcare
programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or
other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.
Legislative proposals such as expanding the
Medicaid drug rebate program to the Medicare Part D program, providing authority for the government to negotiate drug prices
under the Medicare Part D program and lowering reimbursement for drugs covered under the Medicare Part B program have
been raised in Congress, but have been met with opposition and have not been enacted so far.
The administration can rely on its existing
statutory authority to make policy changes that could have an impact on the drug industry. For example, the Medicare program
has in the past proposed to test alternative payment methodologies for drugs covered under the Part B program and currently
is proposing to pay hospitals less for Part B-covered drugs purchased through the 340B Drug Pricing Program.
Legislative and regulatory proposals have been
made to expand post-approval requirements and restrict sales and promotional activities for drugs. We cannot be sure whether additional
legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact
of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the US
Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more
stringent product labeling and post-marketing testing and other requirements.
Public concern regarding the safety of
drug products could delay or limit our ability to obtain regulatory approval, result in the inclusion of unfavorable information
in our labeling, or require us to undertake other activities that may entail additional costs.
In light of widely publicized events concerning
the safety risk of certain drug products, the FDA, members of the US Congress, the Government Accountability Office, medical
professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the
withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and the establishment of risk
management programs. The Food and Drug Administration Amendments Act of 2007, or FDAAA, grants significant expanded authority to
the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, the new law
authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling
to reflect new safety information and require risk evaluation and mitigation strategies for certain drugs, including certain currently
approved drugs. It also significantly expands the federal government’s clinical trial registry and results databank, which
we expect will result in significantly increased government oversight of clinical trials. Under the FDAAA, companies that violate
these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and
criminal penalties. The increased attention to drug safety issues may result in a more cautious approach by the FDA in its review
of data from our clinical trials. Data from clinical trials may receive greater scrutiny, particularly with respect to safety,
which may make the FDA or other regulatory authorities more likely to require additional preclinical studies or clinical trials.
If the FDA requires us to conduct additional preclinical studies or clinical trials prior to approving any of our product candidates,
our ability to obtain approval of this product candidate will be delayed. If the FDA requires us to provide additional clinical
or preclinical data following the approval of any of our product candidates, the indications for which this product candidate is
approved may be limited or there may be specific warnings or limitations on dosing, and our efforts to commercialize our product
candidates may be otherwise adversely impacted.
If we experience delays or difficulties
in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue
clinical trials for one or more of our product candidates if we are unable to locate and enroll a sufficient number of eligible
patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Some
of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates,
and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’
product candidates. Available therapies for the indications we are pursuing can also affect enrollment in our clinical trials.
Patient enrollment is affected by other factors including, but not necessarily limited to:
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the severity of the disease under investigation;
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the eligibility criteria for the study in question;
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the perceived risks and benefits of the product candidate under study;
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the efforts to facilitate timely enrollment in clinical trials;
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the patient referral practices of physicians;
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the number of clinical trials sponsored by other companies for the same patient population;
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the ability to monitor patients adequately during and after treatment; and
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the proximity and availability of clinical trial sites for prospective patients.
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Our inability to enroll a sufficient number
of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials
altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidate or future
product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.
Our product candidates are in scientific
areas of intense competition from many large pharmaceutical and biotechnology companies, many of which are significantly further
along in development or are already on the market with competing products. We expect competition for our product candidates will
intensify, and new products may emerge that provide different or better therapeutic alternatives for our targeted indications.
The biotechnology and pharmaceutical industries
are subject to rapid and intense technological change. We face, and will continue to face, competition in the development and marketing
of our product candidates from academic institutions, government agencies, research institutions and biotechnology and pharmaceutical
companies. There can be no assurance that developments by others will not render one or more of our product candidates obsolete
or noncompetitive. Furthermore, new developments, including the development of other drug technologies and methods of preventing
the incidence of disease, occur in the pharmaceutical industry at a rapid pace. These developments may render one or more of our
product candidates obsolete or noncompetitive.
Competitors may seek to develop alternative
formulations that do not directly infringe on our in-licensed patent rights. The commercial opportunity for one or more of our
product candidates could be significantly harmed if competitors are able to develop alternative formulations outside the scope
of our in-licensed patents. Compared to us, many of our potential competitors have substantially greater:
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development resources, including personnel and technology;
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clinical trial experience;
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expertise in prosecution of intellectual property rights; and
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manufacturing, distribution and sales and marketing experience.
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As a result of these factors, our competitors
may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual
property rights that limit our ability to develop or commercialize one or more of our product candidates. Our competitors may also
develop drugs that are more effective, safe, useful and less costly than ours and may be more successful than us in manufacturing
and marketing their products.
Our commercial success depends upon us
attaining significant market acceptance of our product candidates, if approved for sale, among physicians, patients, healthcare
payors and major operators of cancer and other clinics.
Even if we obtain regulatory approval for one
or more of our product candidates, the product may not gain market acceptance among physicians, health care payors, patients and
the medical community, which are critical to commercial success. Market acceptance of any product candidate for which we receive
approval depends on a number of factors, including, but not necessarily limited to:
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the efficacy and safety as demonstrated in clinical trials;
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the timing of market introduction of such product candidate as well as competitive products;
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the clinical indications for which the drug is approved;
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acceptance by physicians, major operators of cancer clinics and patients of the drug as a safe
and effective treatment;
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the safety of such product candidate seen in a broader patient group, including its use outside
the approved indications;
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the availability, cost and potential advantages of alternative treatments, including less expensive
generic drugs;
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the availability of adequate reimbursement and pricing by third-party payors and government authorities;
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changes in regulatory requirements by government authorities for our product candidates;
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the relative convenience and ease of administration of the product candidate for clinical practices;
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the product labeling or product insert required by the FDA or regulatory authority in other countries;
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the approval, availability, market acceptance and reimbursement for a companion diagnostic, if
any;
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the prevalence and severity of adverse side effects; and
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the effectiveness of our sales and marketing efforts.
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If any product candidate that we develop does
not provide a treatment regimen that is as beneficial as, or is not perceived as being as beneficial as, the current standard of
care or otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA or other
regulatory authorities, likely will not achieve market acceptance. Our ability to effectively promote and sell any approved products
will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive price and our ability
to obtain sufficient third-party coverage or reimbursement. If any product candidate is approved but does not achieve an adequate
level of acceptance by physicians, patients and third-party payors, our ability to generate revenues from that product would be
substantially reduced. In addition, our efforts to educate the medical community and third-party payors on the benefits of our
product candidates may require significant resources, may be constrained by FDA rules and policies on product promotion, and
may never be successful.
If approved, our product candidates will
face competition from less expensive generic products of competitors, and, if we are unable to differentiate the benefits of our
product candidates over these less expensive alternatives, we may never generate meaningful product revenues.
Generic therapies are typically sold at lower
prices than branded therapies and are generally preferred by hospital formularies and managed care providers of health services.
We anticipate that, if approved, our product candidates will face increasing competition in the form of generic versions of branded
products of competitors that have lost or will lose their patent exclusivity. In the future, we may face additional competition
from a generic form when the patents covering it begin to expire, or earlier if the patents are successfully challenged. If we
are unable to demonstrate to physicians and payers that the key differentiating features of our product candidates translate to
overall clinical benefit or lower cost of care, we may not be able to compete with generic alternatives.
Reimbursement may be limited or unavailable
in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably.
There is significant uncertainty related to
the third-party coverage and reimbursement of newly approved drugs. Such third-party payors include government health programs
such as Medicare, managed care providers, private health insurers and other organizations. We intend to seek approval to market
our product candidates in the US, the EU and other selected foreign jurisdictions. Market acceptance and sales of our product candidates
in both domestic and international markets will depend significantly on the availability of adequate coverage and reimbursement
from third-party payors for any of our product candidates and may be affected by existing and future health care reform measures.
Government and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the
level of reimbursement for new drugs and, as a result, they may not cover or provide adequate payment for our product candidates.
These payors may conclude that our product candidates are less safe, less effective or less cost-effective than existing or future
introduced products, and third-party payors may not approve our product candidates for coverage and reimbursement or may cease
providing coverage and reimbursement for these product candidates.
Obtaining coverage and reimbursement approval
for a product from a government or other third-party payor is a time consuming and costly process that could require us to provide
to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. We may not be able to provide
data sufficient to gain acceptance with respect to coverage and reimbursement. If reimbursement of our future products is unavailable
or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
In some foreign countries, particularly in
the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations
with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain
reimbursement or pricing approval in some countries, we may be required to conduct additional clinical trials that compare the
cost-effectiveness of our product candidates to other available therapies. If reimbursement of our product candidates is unavailable
or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve
or sustain profitability of our products in such country.
If we are unable to establish sales,
marketing and distribution capabilities or to enter into agreements with third parties to market and sell our product candidates,
we may not be successful in commercializing our product candidates if and when they are approved.
We currently do not have a marketing or sales
organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any product candidate
that receives marketing approval, we would need to build marketing, sales, distribution, managerial and other non-technical capabilities
or make arrangements with third parties to perform these services, and we may not be successful in doing so. In the event of successful
development and regulatory approval of one or more of our product candidates or any future product candidate, we expect to build
a targeted specialist sales force to market or co-promote the product. There are risks involved with establishing our own sales,
marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time consuming and
could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish
marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization
expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize
our products on our own include, but are not necessarily limited to:
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our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to physicians or persuade adequate numbers of
physicians to prescribe any future products;
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the lack of complementary or other products to be offered by sales personnel, which may put us
at a competitive disadvantage from the perspective of sales efficiency relative to companies with more extensive product lines;
and
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unforeseen costs and expenses associated with creating an independent sales and marketing organization.
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As an alternative to establishing our own sales
force, we may choose to partner with third parties that have well-established direct sales forces to sell, market and distribute
our products.
We rely, and expect to continue to rely,
on third parties to conduct our preclinical studies and clinical trials, and those third parties may not perform satisfactorily,
including failing to meet deadlines for the completion of such trials or complying with applicable regulatory requirements.
We rely on third-party contract research organizations
and site management organizations to conduct some of our preclinical studies and all of our clinical trials for our product candidates
and for any future product candidate. We expect to continue to rely on third parties, such as contract research organizations,
site management organizations, clinical data management organizations, medical institutions and clinical investigators, to conduct
some of our preclinical studies and all of our clinical trials. The agreements with these third parties might terminate for a variety
of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that could
delay our product development activities.
Our reliance on these third parties for research
and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example,
we will remain responsible for ensuring that each of our preclinical studies and clinical trials are conducted in accordance with
the general investigational plan and protocols for the trial and for ensuring that our preclinical studies are conducted in accordance
with good laboratory practice (GLP) as appropriate. Moreover, the FDA requires us to comply with standards, commonly referred to
as good clinical practices (GCPs) for conducting, recording and reporting the results of clinical trials to assure that data and
reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected.
Regulatory authorities enforce these requirements through periodic inspections of trial sponsors, clinical investigators and trial
sites. If we or any of our clinical research organizations fail to comply with applicable GCPs, the clinical data generated in
our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform
additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory
authority, such regulatory authority will determine that any of our clinical trials complies with GCP regulations. In addition,
our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations
may require us to repeat clinical trials, which would delay the regulatory approval process. We also are required to register ongoing
clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within
specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
The third parties with whom we have contracted
to help perform our preclinical studies or clinical trials may also have relationships with other entities, some of which may be
our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct
our preclinical studies or clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able
to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed
in our efforts to, successfully commercialize our product candidates.
If any of our relationships with these third-party
contract research organizations or site management organizations terminates, we may not be able to enter into arrangements with
alternative contract research organizations or site management organizations or to do so on commercially reasonable terms. Switching
or adding additional contract research organizations or site management organizations involves additional cost and requires management
time and focus. In addition, there is a natural transition period when a new contract research organization or site management
organization commences work. As a result, delays could occur, which could compromise our ability to meet our desired development
timelines. Though we carefully manage our relationships with our contract research organizations or site management organizations,
there can be no assurance that we will not encounter similar challenges or delays in the future.
We contract with third parties for the
manufacture of our product candidates for preclinical and clinical testing and may also do so for commercialization. This reliance
on third parties increases the risk that we will not have sufficient quantities of our product candidates or any future product
candidate or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do not have any manufacturing facilities
or manufacturing personnel. While we have signed a lease to construct our own facility (See Note 8 to Unaudited Condensed Financial
Statements), currently we rely on third parties for the manufacture of our product candidates for preclinical and clinical testing.
This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or any
future product candidate or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development
or commercialization efforts.
We may also rely on third-party manufacturers
or third-party collaborators for the manufacture of commercial supply of one or more product candidates for which our collaborators
or we obtain marketing approval. We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable
terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails
additional risks, including, but not necessarily limited to:
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reliance on the third party for regulatory compliance and quality assurance;
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the possible breach of the manufacturing agreement by the third party;
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manufacturing delays if our third-party manufacturers give greater priority to the supply of other
products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreement between
us;
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the possible misappropriation of our proprietary information, including our trade secrets and know-how;
and
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the possible termination or nonrenewal of the agreement by the third party at a time that is costly
or inconvenient for us.
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We rely on our third-party manufacturers to
produce or purchase from third-party suppliers the materials and equipment necessary to produce our product candidates for our
preclinical and clinical trials. There are a limited number of suppliers for raw materials and equipment that we use (or that are
used on our behalf) to manufacture our drugs, and there may be a need to assess alternate suppliers to prevent a possible disruption
of the manufacture of the materials and equipment necessary to produce our product candidates for our preclinical and clinical
trials, and if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition
of these raw materials or equipment by our third-party manufacturers. Any significant delay in the supply of a product candidate,
or the raw material components thereof, for an ongoing preclinical or clinical trial due to the need to replace a third-party manufacturer
could considerably delay completion of our preclinical or clinical trials, product testing and potential regulatory approval of
our product candidates. If our manufacturers or we are unable to purchase these raw materials or equipment after regulatory approval
has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be
a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.
The facilities used by our contract manufacturers
to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit
an NDA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers
for compliance with cGMP regulations for manufacture of our product candidates. Third-party manufacturers may not be able to comply
with the cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party
manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines,
injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product
candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect
supplies of our products.
One or more of the product candidates that
we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited
number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performance
failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently
have arrangements in place for redundant supply. If our current contract manufacturers cannot perform as agreed, we may be required
to replace such manufacturers. We may incur added costs and delays in identifying and qualifying any replacement manufacturers.
The DEA restricts the importation of a controlled substance finished drug product when the same substance is commercially available
in the United States, which could reduce the number of potential alternative manufacturers for one or more of our product candidates.
Our current and anticipated future dependence
upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability
to commercialize any products that receive marketing approval on a timely and competitive basis.
We also expect to rely on other third parties
to distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical
development or marketing approval of our product candidates or commercialization of our products, producing additional losses and
depriving us of potential product revenue.
We rely on clinical data and results
obtained by third parties that could ultimately prove to be inaccurate or unreliable.
As part of our strategy to mitigate development
risk, we seek to develop product candidates with validated mechanisms of action and we utilize biomarkers to assess potential clinical
efficacy early in the development process. This strategy necessarily relies upon clinical data and other results obtained by third
parties that may ultimately prove to be inaccurate or unreliable. Further, such clinical data and results may be based on products
or product candidates that are significantly different from our product candidates or any future product candidate. If the third-party
data and results we rely upon prove to be inaccurate, unreliable or not applicable to our product candidates or future product
candidate, we could make inaccurate assumptions and conclusions about our product candidates and our research and development efforts
could be compromised.
If we breach any of the agreements under
which we license rights to one or more of product candidates from others, we could lose the ability to continue to develop and
commercialize such product candidate.
Because we have in-licensed the rights to all
of our product candidates from COH and Fred Hutch, and in the future will continue to in-license from additional third parties,
if there is any dispute between us and our licensor regarding our rights under our license agreement, our ability to develop and
commercialize these product candidates may be adversely affected. Any uncured, material breach under our license agreement could
result in our loss of exclusive rights to our product candidate and may lead to a complete termination of our related product development
efforts.
We may not be able to manage our business
effectively if we are unable to attract and retain key personnel.
We may not be able to attract or retain qualified
management and commercial, scientific and clinical personnel in the future due to the intense competition for qualified personnel
among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel to accomplish
our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives,
our ability to raise additional capital and our ability to implement our business strategy.
Our employees may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse
effect on our business.
We are exposed to the risk of employee fraud
or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate
information to the FDA, comply with manufacturing standards we have established, comply with federal and state health-care fraud
and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular,
sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to
prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide
range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.
Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result
in regulatory sanctions and serious harm to our reputation. The precautions we take to detect and prevent this activity may not
be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other
actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted
against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact
on our business and results of operations, including the imposition of significant fines or other sanctions.
We face potential product liability exposure,
and if successful claims are brought against us, we may incur substantial liability for one or more of our product candidates or
a future product candidate we may license or acquire and may have to limit their commercialization.
The use of one or more of our product candidates
and any future product candidate we may license or acquire in clinical trials and the sale of any products for which we obtain
marketing approval expose us to the risk of product liability claims. For example, we may be sued if any product we develop allegedly
causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product
liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent
in the product, negligence, strict liability or a breach of warranties. Product liability claims might be brought against us by
consumers, health care providers or others using, administering or selling our products. If we cannot successfully defend ourselves
against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result
in:
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withdrawal of clinical trial participants;
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suspension or termination of clinical trial sites or entire trial programs;
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decreased demand for any product candidates or products that we may develop;
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initiation of investigations by regulators;
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impairment of our business reputation;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
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reduced resources of our management to pursue our business strategy; and
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the inability to commercialize our product candidate or future product candidates.
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We will obtain limited product liability insurance
coverage for any and all of our upcoming clinical trials. However, our insurance coverage may not reimburse us or may not be sufficient
to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and,
in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against
losses due to liability. When needed we intend to expand our insurance coverage to include the sale of commercial products if we
obtain marketing approval for one or more of our product candidates in development, but we may be unable to obtain commercially
reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded
in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of
claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our
cash and adversely affect our business.
Our future growth depends on our ability
to identify and acquire or in-license products and if we do not successfully identify and acquire or in-license related product
candidates or integrate them into our operations, we may have limited growth opportunities.
An important part of our business strategy
is to continue to develop a pipeline of product candidates by acquiring or in-licensing products, businesses or technologies that
we believe are a strategic fit with our focus on novel combinations of CAR-T cells with immuno-oncology antibodies and small molecule
kinase inhibitors. Future in-licenses or acquisitions, however, may entail numerous operational and financial risks, including,
but not necessarily limited to:
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exposure to unknown liabilities;
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disruption of our business and diversion of our management’s time and attention to develop
acquired products or technologies;
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difficulty or inability to secure financing to fund development activities for such acquired or
in-licensed technologies in the current economic environment;
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incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
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higher than expected acquisition and integration costs;
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increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses with our
operations and personnel;
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impairment of relationships with key suppliers or customers of any acquired businesses due to changes
in management and ownership; and
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inability to retain key employees of any acquired businesses.
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We have limited resources to identify and execute
the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure.
In particular, we may compete with larger pharmaceutical companies and other competitors in our efforts to establish new collaborations
and in-licensing opportunities. These competitors likely will have access to greater financial resources than us and may have greater
expertise in identifying and evaluating new opportunities. Moreover, we may devote resources to potential acquisitions or in-licensing
opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts.
We may expend our limited resources to
pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more
profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial
resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may
forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater
commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable
market opportunities. Our spending on current and future research and development programs and product candidates for specific
indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target
market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing
or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization
rights to such product candidate.
If we fail to comply with environmental,
health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health
and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and
disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals
and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the
disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. Although
we believe that the safety procedures for handling and disposing of these materials comply with the standards prescribed by these
laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of
contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any
liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties
for failure to comply with such laws and regulations.
Although we maintain workers’ compensation
insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous
materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous
or radioactive materials.
In addition, we may incur substantial costs
in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and
regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also
may result in substantial fines, penalties or other sanctions.
Our
business and operations would suffer in the event of system failures.
Despite the implementation of security measures,
our internal computer systems are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism,
war and telecommunication and electrical failures. Any system failure, accident or security breach that causes interruptions in
our operations could result in a material disruption of our drug development programs. For example, the loss of clinical trial
data from completed clinical trials for one or more of our product conducts could result in delays in our regulatory approval
efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach
results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information,
we may incur liability and the further development of one or more of our product candidates may be delayed.
We are currently reliant on the
City of Hope National Medical Center and the Fred Hutchinson Cancer Research Center for a substantial portion of our
research and development efforts and the early clinical testing of our product candidates.
A substantial portion of our research and
development has been and will continue to be conducted by COH and Fred Hutch pursuant to a sponsored research agreement and/or
clinical trial agreements with each of those parties. As a result, our future success is heavily dependent on the results of
research and development efforts of Dr. Stephen Forman and his laboratory team at COH and of Dr. Brian Till and his laboratory
team at Fred Hutch. We have limited control over the nature or timing of their research and limited visibility into their day-to-day
activities, and as a result can provide little assurance that their efforts will be successful.
CAR-T is a new approach to cancer treatment
that presents significant challenges.
We have concentrated our research and development
efforts on CAR-T technology, and our future success is highly dependent on the successful development of T cell immunotherapies
in general and our CAR-T technology and product candidates in particular. Because CAR-T is a new approach to cancer immunotherapy
and cancer treatment generally, developing and commercializing our product candidates subjects us to a number of challenges, including,
but not necessarily limited to:
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obtaining regulatory approval from the FDA and other regulatory authorities that may have very
limited experience with the commercial development of genetically modified T cell therapies for cancer;
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developing and deploying consistent and reliable processes for engineering a patient’s T
cells ex vivo and infusing the engineered T cells back into the patient;
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conditioning patients with chemotherapy in conjunction with delivering each of our products, which
may increase the risk of adverse side effects of our products;
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educating medical personnel regarding the potential side effect profile of each of our products;
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developing processes for the safe administration of these products, including long-term follow-up
for all patients who receive our product candidates;
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sourcing clinical and, if approved, commercial supplies for the materials used to manufacture and
process our product candidates;
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developing a manufacturing process and distribution network with a cost of goods that allows for
an attractive return on investment;
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establishing sales and marketing capabilities after obtaining any regulatory approval to gain market
acceptance, and obtaining adequate coverage, reimbursement and pricing by third-party payors and government authorities; and
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developing therapies for types of cancers beyond those addressed by our current product candidates.
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Product candidates, even if successfully
developed and commercialized, may be effective only in combating certain specific types of cancer, and the market for drugs designed
to combat such cancer type(s) may be small and unprofitable.
There are many different types of cancer, and
a treatment that is effective against one type of cancer may not be effective against another. CAR-T or other technologies we pursue
may only be effective in combating specific types of cancer but not others. Even if one or more of our products proves to be an
effective treatment against a given type of cancer, the number of patients suffering from such cancer may be small, in which case
potential sales from a drug designed to combat such cancer would be limited.
Risks Related to Intellectual Property
If we are unable to obtain and maintain
patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad,
our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully
commercialize our technology and products may be impaired.
Our commercial success will depend in part
on obtaining and maintaining patent protection and trade secret protection in the US and other countries with respect to our
product candidates or any future product candidate that we may license or acquire and the methods we use to manufacture them, as
well as successfully defending these patents and trade secrets against third-party challenges. We seek to protect our proprietary
position by filing patent applications in the United States and abroad related to our novel technologies and product candidates,
and by maintenance of our trade secrets through proper procedures. We will only be able to protect our technologies from unauthorized
use by third parties to the extent that valid and enforceable patents or trade secrets cover them in the market they are being
used or developed.
The patent prosecution process is expensive
and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable
cost or in a timely manner. It is also possible that we will fail to identify any patentable aspects of our research and development
output and methodology, and, even if we do, an opportunity to obtain patent protection may have passed. Given the uncertain and
time-consuming process of filing patent applications and prosecuting them, it is possible that our product(s) or process(es) originally
covered by the scope of the patent application may have changed or been modified, leaving our product(s) or process(es) without
patent protection. If our licensors or we fail to obtain or maintain patent protection or trade secret protection for one
or more product candidates or any future product candidate we may license or acquire, third parties may be able to leverage our
proprietary information and products without risk of infringement, which could impair our ability to compete in the market and
adversely affect our ability to generate revenues and achieve profitability. Moreover, should we enter into other collaborations
we may be required to consult with or cede control to collaborators regarding the prosecution, maintenance and enforcement of licensed
patents. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests
of our business.
The patent position of biotechnology and pharmaceutical
companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject
of much litigation. In addition, no consistent policy regarding the breadth of claims allowed in pharmaceutical or biotechnology
patents has emerged to date in the US. The patent situation outside the US is even more uncertain. The laws of foreign countries
may not protect our rights to the same extent as the laws of the US, and we may fail to seek or obtain patent protection in all
major markets. For example, European patent law restricts the patentability of methods of treatment of the human body more than
US law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications
in the US and other jurisdictions are typically not published until 18 months after a first filing, or in some cases not at
all. Therefore, we cannot know with certainty whether we or our licensors were the first to make the inventions claimed in patents
or pending patent applications that we own or licensed, or that we or our licensors were the first to file for patent protection
of such inventions. In the event that a third party has also filed a US patent application relating to our product candidates
or a similar invention, depending upon the priority dates claimed by the competing parties, we may have to participate in interference
proceedings declared by the PTO to determine priority of invention in the US. The costs of these proceedings could be substantial
and it is possible that our efforts to establish priority of invention would be unsuccessful, resulting in a material adverse effect
on our US patent position. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights
are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology
or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products.
Changes in either the patent laws or interpretation of the patent laws in the US and other countries may diminish the value of
our patents or narrow the scope of our patent protection. For example, the federal courts of the US have taken an increasingly
dim view of the patent eligibility of certain subject matter, such as naturally occurring nucleic acid sequences, amino acid sequences
and certain methods of utilizing same, which include their detection in a biological sample and diagnostic conclusions arising
from their detection. Such subject matter, which had long been a staple of the biotechnology and biopharmaceutical industry to
protect their discoveries, is now considered, with few exceptions, ineligible in the first instance for protection under the patent
laws of the US. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in those
licensed from a third party.
Recent patent reform legislation could increase
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued
patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith
Act includes a number of significant changes to United States patent law. These include changes to transition from a “first-to-invent”
system to a “first-to-file” system and to the way issued patents are challenged. The formation of the Patent Trial
and Appeal Board now provides a quicker and less expensive process for challenging issued patents. The PTO recently developed new
regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated
with the Leahy-Smith Act, and in particular, the first inventor-to-file provisions, only became effective on March 16, 2013.
Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the
Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications
and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial
condition.
Moreover, we may be subject to a third-party
preissuance submission of prior art to the PTO, or become involved in opposition, derivation, reexamination,
inter partes
review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. The costs of
these proceedings could be substantial and it is possible that our efforts to establish priority of invention would be unsuccessful,
resulting in a material adverse effect on our US patent position. An adverse determination in any such submission, patent
office trial, proceeding or litigation could reduce the scope of, render unenforceable, or invalidate, our patent rights, allow
third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our
inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or
strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating
with us to license, develop or commercialize current or future product candidates.
Even if our patent applications issue as patents,
they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or
otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by
developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent does not foreclose
challenges to its inventorship, scope, validity or enforceability. Therefore, our owned and licensed patents may be challenged
in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent
claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from
using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology
and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents
protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result,
our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products
similar or identical to ours.
We depend on our licensors for the maintenance
and enforcement of intellectual property covering certain of our product candidates and have limited control, if any, over the
amount or timing of resources that our licensors devote on our behalf, or whether any financial difficulties experienced by our
licensors could result in their unwillingness or inability to secure, maintain and enforce patents protecting certain of our product
candidates.
We depend on our licensors to protect the proprietary
rights covering our product candidates and we have limited, if any, control over the amount or timing of resources that they
devote on our behalf, or the priority they place on, maintaining patent rights and prosecuting patent applications to our advantage.
Moreover, we have limited, if any, control over the strategies and arguments employed in the maintenance of patent rights and the
prosecution of patent applications to our advantage.
Our licensors, depending on the patent or application,
are responsible for maintaining issued patents and prosecuting patent applications. We cannot be sure that they will perform as
required. Should they decide they no longer want to maintain any of the patents licensed to us, they are required to afford us
the opportunity to do so at our expense. If our licensors do not perform, and if we do not assume the maintenance of the licensed
patents in sufficient time to make required payments or filings with the appropriate governmental agencies, we risk losing the
benefit of all or some of those patent rights. Moreover, and possibly unbeknownst to us, our licensors may experience serious difficulties
related to their overall business or financial stability, and they may be unwilling or unable to continue to expend the financial
resources required to maintain and prosecute these patents and patent applications. While we intend to take actions reasonably
necessary to enforce our patent rights, we depend, in part, on our licensors to protect a substantial portion of our proprietary
rights and to inform us of the status of those protections and efforts thereto.
Our licensors may also be notified of alleged
infringement and be sued for infringement of third-party patents or other proprietary rights. We may have limited, if any, control
or involvement over the defense of these claims, and our licensors could be subject to injunctions and temporary or permanent exclusionary
orders in the US or other countries. Our licensors are not obligated to defend or assist in our defense against third-party claims
of infringement. We have limited, if any, control over the amount or timing of resources, if any, that our licensors devote on
our behalf or the priority they place on defense of such third-party claims of infringement.
Because of the uncertainty inherent in any
patent or other litigation involving proprietary rights, we or our licensors may not be successful in defending claims of intellectual
property infringement alleged by third parties, which could have a material adverse effect on our results of operations. Regardless
of the outcome of any litigation, defending the litigation may be expensive, time-consuming and distracting to management.
Because it is difficult and costly to
protect our proprietary rights, we may not be able to ensure their protection.
The degree of future protection for our proprietary
rights is uncertain, because legal means afford only limited protection and may not adequately protect our rights or permit us
to gain or keep our competitive advantage, in addition to being costly and time consuming to undertake. For example:
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our licensors might not have been the first to make the inventions covered by each of our pending
patent applications and issued patents;
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our licensors might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate our product candidates
or any future product candidate technologies;
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it is possible that none of the pending patent applications licensed to us will result in issued
patents;
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the scope of our issued patents may not extend to competitive products developed or produced by
others;
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the issued patents covering our product candidates or any future product candidate may not provide
a basis for market exclusivity for active products, may not provide us with any competitive advantages, or may be challenged by
third parties;
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we may not develop additional proprietary technologies that are patentable; or
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intellectual property rights of others may have an adverse effect on our business.
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We may become involved in lawsuits to
protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our issued patents
or other intellectual property. To counter infringement or unauthorized use, we may be required to file one or more actions for
patent infringement, which can be expensive and time consuming. Any claims we assert against accused infringers could provoke these
parties to assert counterclaims against us alleging that we infringe their patents; or provoke those parties to petition the PTO
to institute
inter partes
review against the asserted patents, which may lead to a finding that all or some of the claims
of the patent are invalid. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid
or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using
the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation
proceeding could put one or more of our patents at risk of being invalidated, rendered unenforceable, or interpreted narrowly.
Furthermore, adverse results on US patents may affect related patents in our global portfolio.
If we are sued for infringing intellectual
property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in any litigation would harm
our business.
Our ability to develop, manufacture, market
and sell one or more of our product candidates or any future product candidate that we may license or acquire depends upon our
ability to avoid infringing the proprietary rights of third parties. Numerous US and foreign issued patents and pending patent
applications, which are owned by third parties, exist in the general fields of fully human immuno-oncology targeted antibodies
and cover the use of numerous compounds and formulations in our targeted markets. Because of the uncertainty inherent in any patent
or other litigation involving proprietary rights, we and our licensors may not be successful in defending intellectual property
claims asserted by third parties, which could have a material adverse effect on our results or operations. Regardless of the outcome
of any litigation, defending the litigation may be expensive, time-consuming and distracting to management. In addition, because
patent applications can take many years to issue, there may be currently pending applications that are unknown to us, which may
later result in issued patents that one or more of our product candidates may infringe. There could also be existing patents of
which we are not aware that one or more of our product candidates may infringe, even if only inadvertently.
There is a substantial amount of litigation
involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third
party claims that we infringe their patents or misappropriated their technology, we could face a number of issues, including:
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infringement and other intellectual property claims which, with or without merit, can be expensive
and time consuming to litigate and can divert management’s attention from our core business;
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substantial damages for past infringement which we may have to pay if a court decides that our
product infringes a competitor’s patent;
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a court prohibiting us from selling or licensing our product unless the patent holder licenses
the patent to us, which it would not be required to do;
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if a license is available from a patent holder, we may have to pay substantial royalties or grant
cross licenses to our patents; and
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redesigning our processes so they do not infringe, which may not be possible or could require substantial
funds, time, and may result in an inferior or less-desirable process or product.
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Intellectual property litigation could
cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or
other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract
our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of
the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive
these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings
could substantially increase our operating losses and reduce the resources available for development activities or any future sales,
marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings
adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we
can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation
or other proceedings could compromise our ability to compete in the marketplace.
We may need to license certain intellectual
property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
A third party may hold intellectual property,
including patent rights that are important or necessary to the development and commercialization of our products. It may be necessary
for us to use the patented or proprietary technology of third parties, whom may or may not be interested in granting such a license,
to commercialize our products, in which case we would be required to obtain a license from these third parties on commercially
reasonable terms, or our business could be harmed, possibly materially.
If we fail to comply with our obligations
in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our
business.
We are currently a party to license agreements
with the City of Hope and the Regents of the University of California. In the future, we may become party to licenses that are
important for product development and commercialization. If we fail to comply with our obligations under current or future license
and funding agreements, our counterparties may have the right to terminate these agreements, in which event we might not be able
to develop, manufacture or market any product or utilize any technology that is covered by these agreements or may face other penalties
under the agreements. Such an occurrence could materially and adversely affect the value of a product candidate being developed
under any such agreement or could restrict our drug discovery activities. Termination of these agreements or reduction or elimination
of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms,
or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.
We may be subject to claims that our
employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical
industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our
competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that we
or these employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former
employers. Even if frivolous or unsubstantiated in nature, litigation may be necessary to defend against these claims. Even if
we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management
and the implicated employee(s).
If we are unable to protect the confidentiality
of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patent protection for
our product candidates or any future product candidate, we also rely on trade secrets, including unpatented know-how, technology
and other proprietary information, to maintain our competitive position, particularly where we do not believe patent protection
is appropriate or obtainable. However, trade secrets are difficult to protect. We limit disclosure of such trade secrets where
possible but we also seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements
with parties who do have access to them, such as our employees, our licensors, corporate collaborators, outside scientific collaborators,
contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent
assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements
and may unintentionally or willfully disclose our proprietary information, including our trade secrets, and we may not be able
to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret
is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United
States are less willing or unwilling to protect trade secrets. Moreover, if any of our trade secrets were to be lawfully obtained
or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from
using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed
by a competitor, our competitive position would be harmed.
Risks Related to Our Finances and Capital
Requirements
We have incurred significant losses since
our inception. We expect to incur losses for the foreseeable future, and may never achieve or maintain profitability.
We are an emerging growth company with a limited
operating history. We have focused primarily on in-licensing and developing our product candidates, with the goal of supporting
regulatory approval for these product candidates. We have incurred losses since our inception in March 2015, and have an accumulated
deficit of $32.8 million as of September 30, 2017. We expect to continue to incur significant operating losses for the foreseeable
future. We also do not anticipate that we will achieve profitability for a period of time after generating material revenues, if
ever. If we are unable to generate revenues, we will not become profitable and may be unable to continue operations without continued
funding.
Because of the numerous risks and uncertainties
associated with developing pharmaceutical products, we are unable to predict the timing or amount of increased expenses or when
or if, we will be able to achieve profitability. Our net losses may fluctuate significantly from quarter to quarter and year to
year. We anticipate that our expenses will increase substantially if:
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one or more of our product candidates are approved for commercial sale, due to our ability to establish
the necessary commercial infrastructure to launch this product candidate without substantial delays, including hiring sales and
marketing personnel and contracting with third parties for warehousing, distribution, cash collection and related commercial activities;
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we are required by the FDA or foreign regulatory authorities, to perform studies in addition to
those currently expected;
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there are any delays in completing our clinical trials or the development of any of our product
candidates;
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we execute other collaborative, licensing or similar arrangements and the timing of payments we
may make or receive under these arrangements;
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there are variations in the level of expenses related to our future development programs;
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there are any product liability or intellectual property infringement lawsuits in which we may
become involved;
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there are any regulatory developments affecting product candidates of our competitors; and
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one or more of our product candidates receives regulatory approval.
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Our ability to become profitable depends upon
our ability to generate revenue. To date, we have not generated any revenue from our development stage products, and we do not
know when, or if, we will generate any revenue. Our ability to generate revenue depends on a number of factors, including, but
not limited to, our ability to:
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obtain regulatory approval for one or more of our product candidates, or any future product candidate
that we may license or acquire;
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manufacture commercial quantities of one or more of our product candidates or any future product
candidate, if approved, at acceptable cost levels; and
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develop a commercial organization and the supporting infrastructure required to successfully market
and sell one or more of our product candidates or any future product candidate, if approved.
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Even if we do achieve profitability, we may
not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would
depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and
development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could
also cause you to lose all or part of your investment.
Our
short operating history makes it difficult to evaluate our business and prospects.
We were incorporated in March 2015 and
have only been conducting operations since March 2015. Our operations to date have been limited to preclinical operations and
the in-licensing of our product candidates. We have not yet demonstrated an ability to successfully complete clinical trials,
obtain regulatory approvals, manufacture a clinical scale or commercial scale product, or arrange for a third party to do so
on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently,
any predictions about our future performance may not be as accurate as they could be if we had a history of successfully
developing and commercializing pharmaceutical products.
In addition, as a young business, we may encounter
unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to expand our capabilities
to support commercial activities. We may not be successful in adding such capabilities.
We expect our financial condition and operating
results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which
are beyond our control. Accordingly, you should not rely upon the results of any past quarterly period as an indication of future
operating performance.
We do not have any products that are
approved for commercial sale and therefore do not expect to generate any revenues from product sales in the foreseeable future,
if ever.
We have not generated any product related revenues
to date, and do not expect to generate any such revenues for at least the next several years, if at all. To obtain revenues from
sales of our product candidates, we must succeed, either alone or with third parties, in developing, obtaining regulatory approval
for, manufacturing and marketing products with commercial potential. We may never succeed in these activities, and we may not generate
sufficient revenues to continue our business operations or achieve profitability.
We will require substantial additional
funding which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additional capital,
we may be unable to complete the development and commercialization of our product candidates, or continue our development programs.
Our operations have consumed substantial amounts
of cash since inception. We expect to significantly increase our spending to advance the preclinical and clinical development of
our product candidates and launch and commercialize any product candidates for which we receive regulatory approval, including
building our own commercial organizations to address certain markets. We will require additional capital for the further development
and commercialization of our product candidates, as well as to fund our other operating expenses and capital expenditures. As of
September 30, 2017, we had $67.3 million in cash and short-term investments (certificates of deposit). We cannot provide any assurance
that we will be able to raise funds to complete the development of our product.
We cannot be certain that additional funding
will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms
acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more
of our product candidates. We may also seek collaborators for one or more of our current or future product candidates at an earlier
stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any of these events
could significantly harm our business, financial condition and prospects.
Our future funding requirements will depend
on many factors, including, but not limited to:
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the timing, design and conduct of, and results from, preclinical and clinical trials for our product
candidates;
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the potential for delays in our efforts to seek regulatory approval for our product candidates,
and any costs associated with such delays;
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the costs of establishing a commercial organization to sell, market and distribute our product
candidates;
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the rate of progress and costs of our efforts to prepare for the submission of an NDA for any product
candidates that we may in-license or acquire in the future, and the potential that we may need to conduct additional clinical trials
to support applications for regulatory approval;
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the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual
property rights associated with our product candidates, including any such costs we may be required to expend if our licensors
are unwilling or unable to do so;
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the cost and timing of securing sufficient supplies of our product candidates from our contract
manufacturers for clinical trials and in preparation for commercialization;
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the effect of competing technological and market developments;
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the terms and timing of any collaborative, licensing, co-promotion or other arrangements that we
may establish;
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if one or more of our product candidates are approved, the potential that we may be required to
file a lawsuit to defend our patent rights or regulatory exclusivities from challenges by companies seeking to market generic versions
of one or more of our product candidates; and
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the success of the commercialization of one or more of our product candidates.
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Future capital requirements will also depend
on the extent to which we acquire or invest in additional complementary businesses, products and technologies, but we currently
have no commitments or agreements relating to any of these types of transactions.
In order to carry out our business plan and
implement our strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to raise
additional funds through strategic collaborations, licensing arrangements, public or private equity or debt financing, bank lines
of credit, asset sales, government grants, or other arrangements. We cannot be sure that any additional funding, if needed, will
be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive
to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest
costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights
to certain of our product candidates or marketing territories.
Our inability to raise capital when needed
would harm our business, financial condition and results of operations, and could cause our stock value to decline or require that
we wind down our operations altogether.
Raising additional capital may cause
dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.
Until such time, if ever, as we can generate
substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, grants
and license and development agreements in connection with any collaborations. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may
include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing and preferred equity
financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations,
strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may
not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required
to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market ourselves.
We will continue to incur significant
increased costs as a result of operating as a public company, and our management will be required to devote substantial time to
new compliance initiatives.
On August 22, 2017 we became a listed and traded
public company. As a public company, we incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of
2002, or the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC, and the rules of the Nasdaq Stock Exchange.
These rules impose various requirements on public companies, including requiring establishment and maintenance of effective disclosure
and financial controls and appropriate corporate governance practices. Our management and other personnel have devoted and will
continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase
our legal and financial compliance costs and make some activities more time-consuming and costly. For example, these rules and
regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be
required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors, our board
committees or as executive officers.
The Sarbanes-Oxley Act requires, among other
things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. As a result,
we are required to periodically perform an evaluation of our internal controls over financial reporting to allow management to
report on the effectiveness of those controls, as required by Section 404 of the Sarbanes-Oxley Act. Additionally, our independent
auditors are required to perform a similar evaluation and report on the effectiveness of our internal controls over financial reporting.
These efforts to comply with Section 404 and related regulations have required, and continue to require, the commitment of
significant financial and managerial resources. While we anticipate maintaining the integrity of our internal controls over financial
reporting and all other aspects of Section 404, we cannot be certain that a material weakness will not be identified when
we test the effectiveness of our control systems in the future. If a material weakness is identified, we could be subject to sanctions
or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources,
costly litigation or a loss of public confidence in our internal controls, which could have an adverse effect on the market price
of our stock.
Compliance with the Sarbanes-Oxley Act
of 2002 will require substantial financial and management resources and may increase the time and costs of completing an acquisition.
A business that we identify as a potential
acquisition target may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls.
The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the
time and costs necessary to complete any such acquisition. Furthermore, any failure to implement required new or improved controls,
or difficulties encountered in the implementation of adequate controls over our financial processes and reporting in the future,
could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause
investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of
our securities.
We are an “emerging growth company”
and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our securities
less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). We will remain an “emerging growth company”
for up to five years. However, if our non-convertible debt issued within a three-year period or revenues exceeds $1 billion, or
the market value of our equity shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal
quarter of any given fiscal year, we would cease to be an emerging growth company as of the following fiscal year. As an emerging
growth company, we are not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, we have reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and
we are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of
any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act
exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of
securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The
JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies, but any such an election to opt out is irrevocable. We have elected not to opt out of such extended
transition period which means that when a standard is issued or revised and it has different application dates for public or private
companies, we, as an emerging growth company, will not adopt the new or revised standard until the time private companies are required
to adopt the new or revised standard. This may make comparison of our financial statements with another public company, which is
neither an emerging growth company nor an emerging growth company, which has opted out of using the extended transition period,
difficult or impossible because of the potential differences in accounting standards used.
Our results of operations and liquidity
needs could be materially negatively affected by market fluctuations and economic downturn.
Our results of operations could be materially
negatively affected by economic conditions generally, both in the US and elsewhere around the world. Continuing concerns over inflation,
energy costs, geopolitical issues, the availability and cost of credit, the US mortgage market and residential real estate market
in the US have contributed to increased volatility and diminished expectations for the economy and the markets going forward. These
factors, combined with volatile oil prices, declining business and consumer confidence and increased unemployment, have precipitated
an economic recession and fears of a possible depression. Domestic and international equity markets continue to experience heightened
volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on us. In the event of a continuing
market downturn, our results of operations could be adversely affected by those factors in many ways, including making it more
difficult for us to raise funds if necessary, and our stock price may further decline.
Our ability to use our pre-change NOLs
and other pre-change tax attributes to offset post-change taxable income or taxes may be subject to limitation.
We may, from time to time, carry net operating
loss carryforwards (“NOLs”) as deferred tax assets on our balance sheet. Under Sections 382 and 383 of the Internal
Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater
than 50-percentage- point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year
period), the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its post-change
taxable income or taxes may be limited. We may experience ownership changes in the future as a result of shifts in our stock ownership,
some of which changes are outside our control. As a result, our ability to use our pre-change NOLs and other pre-change tax attributes
to offset post-change taxable income or taxes may be subject to limitation.
Risks Relating to Securities Markets and
Investment in Our Stock
Our stock may be subject to substantial
price and volume fluctuations due to a number of factors, many of which are beyond our control and may prevent our stockholders
from reselling our common stock at a profit.
The market prices for securities of biotechnology
and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of particular companies.
The market price of our common stock is likely
to be highly volatile and may fluctuate substantially due to many factors, including:
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announcements concerning the progress of our efforts to obtain regulatory approval for and commercialize our product candidates
or any future product candidate, including any requests we receive from the FDA for additional studies or data that result in delays
in obtaining regulatory approval or launching these product candidates, if approved;
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market conditions in the pharmaceutical and biotechnology sectors or the economy as a whole;
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price and volume fluctuations in the overall stock market;
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the failure of one or more of our product candidates or any future product candidate, if approved,
to achieve commercial success;
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announcements of the introduction of new products by us or our competitors;
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developments concerning product development results or intellectual property rights of others;
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litigation or public concern about the safety of our potential products;
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actual fluctuations in our quarterly operating results, and concerns by investors that such fluctuations
may occur in the future;
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deviations in our operating results from the estimates of securities analysts or other analyst
comments;
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additions or departures of key personnel;
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health care reform legislation, including measures directed at controlling the pricing of pharmaceutical
products, and third-party coverage and reimbursement policies;
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developments concerning current or future strategic collaborations; and
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discussion of us or our stock price by the financial and scientific press and in online investor
communities.
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Fortress controls a voting majority of
our common stock.
Pursuant to the terms of the Class A Preferred
Stock held by Fortress, Fortress is entitled to cast, for each share of Class A Preferred held by Fortress, the number of votes
that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the shares of outstanding common
stock and (B) the whole shares of common stock into which the shares of outstanding Class A common shares and the Class A Preferred
Stock are convertible and the denominator of which is the number of shares of outstanding Class A Preferred Stock. Accordingly,
Fortress is able to control or significantly influence all matters requiring approval by our stockholders, including the election
of directors and the approval of mergers or other business combination transactions. The interests of Fortress may not always coincide
with the interests of other stockholders, and Fortress may take actions that advance its own interests and are contrary to the
desires of our other stockholders. Moreover, this concentration of voting power may delay, prevent or deter a change in control
of us even when such a change may be in the best interests of all stockholders, could deprive our stockholders of an opportunity
to receive a premium for their common stock as part of a sale of Mustang or our assets, and might affect the prevailing market
price of our common stock.
Fortress has the right to receive a significant
grant of shares of our common stock annually which will result in the dilution of your holdings of common stock upon each grant,
which could reduce their value. City of Hope has anti-dilution protection that could result in the dilution of your holding.
Under the terms of the Second Amended and Restated
Founders Agreement, which became effective July 22, 2016, Fortress will receive a grant of shares of our common stock equal to
two and one-half percent (2.5%) of the gross amount of any equity or debt financing. Additionally, the Class A Preferred Stock,
as a class, will receive an annual dividend on March 13th, payable in shares of common stock in an amount equal to two and one-half
percent (2.5%) of our fully-diluted outstanding capital stock as of the business day immediately prior to March 13th of such year.
Fortress currently owns all outstanding shares of Class A Preferred Stock. These share issuances to Fortress and any other holder
of Class A Preferred Stock will dilute your holdings in our common stock and, if the value of Mustang has not grown proportionately
over the prior year, would result in a reduction in the value of your shares. The Second Amended and Restated Founders Agreement
has a term of 15 years and renews automatically for subsequent one-year periods unless terminated by Fortress or upon a Change
in Control (as defined in the Second Amended and Restated Founders Agreement).
The Class A common shares held by the City
of Hope has anti-dilution protection that gives them the right to additional shares of stock under certain circumstances. The number
of shares received by COH will vary depending on the triggering event. If any shares are required to be issued to COH, your holdings
in our common stock will be diluted and result in a reduction in the value of your shares.
We might have received better terms from
unaffiliated third parties than the terms we receive in our agreements with Fortress.
The agreements we have entered into with Fortress
include a Management Services Agreement and the Founders Agreement. While we believe the terms of these agreements are reasonable,
they might not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties.
The terms of the agreements relate to, among other things, payment of a royalty on product sales and the provision of employment
and transition services. We might have received better terms from third parties because, among other things, third parties might
have competed with each other to win our business.
The dual roles of our officers and directors
who also serve in similar roles with Fortress could create a conflict of interest and will require careful monitoring by our independent
directors.
We share some directors with Fortress, and
in addition, under the Management Services Agreement, we will also share some officers with Fortress. This could create conflicts
of interest between the two companies in the future. While we believe that the Founders Agreement and the Management Services
Agreement were negotiated by independent parties on both sides on arm’s length terms, and the fiduciary duties of both parties
were thereby satisfied, in the future situations may arise under the operation of both agreements that may create a conflict of
interest. We will have to be diligent to ensure that any such situation is resolved by independent parties. In particular,
under the Management Services Agreement, Fortress and its affiliates are free to pursue opportunities which could potentially be
of interest to Mustang, and they are not required to notify Mustang prior to pursuing such opportunities. Any such conflict of
interest or pursuit by Fortress of a corporate opportunity independent of Mustang could expose us to claims by our investors and
creditors and could harm our results of operations.
We may become involved in securities
class action litigation that could divert management’s attention and harm our business.
The stock markets have from time to time experienced
significant price and volume fluctuations that have affected the market prices for the common stock of biotechnology and pharmaceutical
companies. These broad market fluctuations may cause the market price of our stock to decline. In the past, securities class action
litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially
relevant for us because biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent
years. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s
attention and resources, which could adversely affect our business.