Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other
information in this Quarterly Report on Form
10-Q,
including our financial statements and the related notes and Managements Discussion and Analysis of Financial Condition and Results of
Operations, as well as our other filings with the Securities and Exchange Commission, before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial
condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations.
Risks Related to Our Business and Industry
We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.
We are a clinical-stage biopharmaceutical company with a limited operating history. Investment in biopharmaceutical product
development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory
approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our
ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in March 2014. Our net loss was $6.7 million for the three months ended March 31, 2018 and $25.5 million for the year
ended December 31, 2017. As of March 31, 2018, we had an accumulated deficit of $64.3 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our
research and development of, and seek regulatory approvals for, product candidates.
Even if we succeed in commercializing one or more of
our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other
unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had
and will continue to have an adverse effect on our stockholders equity and working capital.
Our ACTR T cell product
candidates represent a novel approach to cancer treatment, which creates significant challenges for us.
Our ACTR T cell product
candidates involve (1) harvesting T cells from the patients blood via leukapheresis, (2) genetically engineering the T cells to incorporate the ACTR transgene, (3) expanding the number of engineered T cells to the desired dose
level and (4) infusing the engineered ACTR T cells back into the patient with or following the administration of the antibody. Advancing this novel and personalized investigational therapy creates significant challenges for us, including:
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educating medical personnel about the administration of the ACTR-combination therapy;
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educating medical personnel regarding the potential side effect profile of our product candidates, such as the potential adverse side effects related to cytokine release syndrome, neurotoxicity or autoimmune or
rheumatologic disorders;
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administering chemotherapy to patients in advance of administering our product candidates, which may increase the risk of adverse side effects;
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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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manufacturing viral vectors to deliver ACTR to T cells;
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developing a robust and reliable ACTR T cell manufacturing process, including efficiently managing shipment of patient cells from and to clinical sites, minimizing potential contamination to the cell product and
effectively scaling manufacturing capacity to meet demand;
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managing costs of inputs and other supplies while scaling production;
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using medicines to manage adverse side effects of our product candidates, which may not adequately control the side effects and/or may have a detrimental impact on the efficacy of the treatment;
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obtaining and maintaining regulatory approval from the U.S. Food and Drug Administration (FDA); and
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establishing sales and marketing capabilities upon obtaining any regulatory approval to gain market acceptance of a novel therapy.
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In developing our product candidates we have not exhaustively explored different options in the design of the ACTR construct and in the method
for manufacturing ACTR T cells. We may find our existing ACTR T cells and manufacturing process may be substantially improved with future design or process changes, necessitating development of new backup ACTR constructs and further clinical testing
and delaying launch of our first products. For example:
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We have made a large number of ACTR constructs and used preclinical tests to select product candidates to advance into clinical testing. The preclinical tests are limited in their ability to predict behavior in
patients. As we gain clinical experience with ACTR, new learnings may prompt us to select other ACTR constructs for clinical development.
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We have used a retroviral vector to deliver ACTR to T cells. In the future, we may find that a lentiviral vector offers advantages. Switching from retroviral to lentiviral delivery would necessitate additional process
development and clinical testing and delay existing product candidates.
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The process by which patient cells are converted into an ACTR T cell has many steps that can influence quality and activity. We have explored a subset of variables and expect to continue to improve and optimize the
manufacturing process. Depending upon the nature of the process changes, we may be compelled to perform bridging studies and/or to
re-start
clinical development, causing delays in time to market and
potentially introducing a risk of failure if new processes do not perform as expected.
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Our business is highly
dependent on the success of ACTR087 used in combination with rituximab or ACTR707 used in combination with rituximab, our lead product candidates, and other ACTR-antibody combinations that we may develop.
Our business and future success depend on our ability to obtain regulatory approval of and then successfully commercialize one of our product
candidates, such as ACTR087 used in combination with rituximab and other product combinations that we develop using antibodies in combination with ACTR087 or ACTR707. All of our product candidates, including ACTR087 used in combination with
rituximab and ACTR 707 used in combination with rituximab, are in the early stages of development and will require additional clinical and
non-clinical
development, regulatory review and approval, substantial
investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. In addition, because ACTR087 used in combination with rituximab and ACTR707 used in
combination with rituximab are our two most advanced product candidates, and because all our other product candidates are based on our ACTR platform, if either of these product candidates encounters safety, efficacy, or manufacturing problems,
developmental delays, regulatory, or commercialization difficulties or other problems, our development plans and business would be significantly harmed. For example, our Phase I clinical trial for ACTR087 used in combination with rituximab was
placed on clinical hold in December 2017 pending submission of certain information relating to the trial. The clinical hold was removed in February 2018, following review of this information by the FDA.
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Our clinical trials may fail to demonstrate adequately the safety and efficacy of any of
our product candidates, which would prevent or delay regulatory approval and commercialization.
Before obtaining regulatory
approvals for the commercial sale of our product candidates, including ACTR087 used in combination with rituximab and other product candidates that we develop using antibodies in combination with ACTR087 and ACTR707, we must demonstrate through
lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is
inherently uncertain. Failure can occur at any time during the clinical trial process, and, because our product candidates are in an early stage of development, there is a high risk of failure and we may never succeed in developing marketable
products. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. There is typically an extremely high rate of attrition from the failure of product
candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number
of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy, insufficient durability of efficacy, or unacceptable safety issues, notwithstanding promising results in earlier
trials. Most product candidates that commence clinical trials are never approved as products.
Any clinical trials that we may conduct may
not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidates. If the results of our ongoing or future clinical trials are inconclusive with respect to the efficacy of our product candidates, if we
do not meet the clinical endpoints with statistical and clinically meaningful significance, or if there are safety concerns associated with our product candidates, we may be prevented or delayed in obtaining marketing approval for such product
candidates. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols,
differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants.
We designed our Phase I clinical trial of ACTR087 used in combination with rituximab, called
ATTCK-20-2,
primarily to assess safety and efficacy in adult patients with r/r NHL. The preliminary results from the Phase I clinical trial of ACTR087 used in combination with rituximab may not be indicative
of the final analysis of this Phase I clinical trial, especially given the small number of patients that we plan to dose in the trial. In addition, the Phase I results may not predict results for any further clinical testing of ACTR087 used in
combination with rituximab or other product candidates that we have developed, or may develop in the future, using antibodies in combination with ACTR087 and ACTR707 or in different indications.
Additionally, as of the most recent data cutoff date of March 7, 2018, approximately 12% (two out of 17) of ACTR087 treated patients in
ATTCK-20-2
experienced ACTR087-related severe cytokine release syndrome (CRS) and 6% (one out of 17) of patients experienced ACTR087-related neurotoxicity, which was fatal. Of
the two events of CRS, one patient subsequently experienced a fatal case of enterococcal sepsis considered related to ACTR087 and one patient subsequently experienced a fatal case of sepsis considered not related to ACTR087. These events resulted in
the FDA placing this trial on clinical hold in December 2017 pending submission of certain information relating to the
ATTCK-20-2
clinical trial. The clinical hold was
removed in February 2018, following review of this information by the FDA. Several protocol and dosing changes were made in early 2018, which we expect to reduce the incidence of severe adverse events and better manage those events that do occur. If
severe safety events are observed in patients treated in the future in spite of the modifications outlined above, the FDA may determine, at any time, that there is an unacceptable safety risk for patients and we may be required to stop the trial
prior to its completion or our ongoing clinical trials may be halted or put on further clinical holds prior to completion.
In addition,
even if the trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials
could be required before we submit our product candidates for approval. For instance, although our lead product candidates will be dosed in refractory patients with antibodies that the patients have already received, we plan to test future product
candidates in patients that have never received the
co-administered
antibody in prior treatment and with antibodies that have never been independently evaluated for safety or efficacy. As a result,
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it may be difficult to demonstrate that the ACTR construct, rather than the antibody alone, is causing an observed effect. We cannot guarantee that the FDA will view the ACTR construct as having
efficacy even if positive results are observed in these clinical trials. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product
candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.
We cannot guarantee that our product candidates will show any functionality in
the solid tumor environment.
While we plan to develop product candidates for use in solid tumor cancers, including ACTR707 used in
combination with trastuzumab for HER2+ cancers, we cannot guarantee that our product candidates will show any functionality in the solid tumor environment. The cellular environment in which solid tumor cancers exist is inimical to T cells due
to several factors including: (1) immunosuppressive cells (e.g., regulatory T cells (Tregs), myeloid derived suppressor cells (MDSCs)), (2) immunosuppressive enzymes and signaling molecules (e.g., IDO1,
TGF-beta),
(3) limited nutrients (e.g., oxygen, glucose), and (4) toxic metabolites (e.g., reactive oxygen species, lactic acid). Together, these factors can limit the ability of T cells, including ACTR T
cells, both to penetrate into the solid tumor and to function properly once there. As a result of these and other solid tumor challenges, our product candidates may not demonstrate efficacy in solid tumors. For example, our ACTR-based product
candidates may not be able to access the solid tumor, and even if they do, they may not be able to exert anti-tumor effects in an immunosuppressive tumor microenvironment. In addition, the safety profile of our product candidates may differ in a
solid tumor setting. If we are unable to make our product candidates function in solid tumor cancers, our development plans and business may be significantly harmed.
Since the number of patients that we have dosed, or plan to dose, in our ongoing or planned Phase I clinical trials is small, the
results from such clinical trials, once completed, may be less reliable than results achieved in larger clinical trials, which may hinder our efforts to obtain regulatory approval for our product candidates.
A study design that is considered appropriate for regulatory approval includes a sufficiently large sample size with appropriate statistical
power, as well as proper control of bias, to allow a meaningful interpretation of the results. In our ongoing Phase I clinical trial of ACTR087 used in combination with rituximab, for example, we have analyzed the dose-limiting toxicities of
ACTR087 used in combination with rituximab in only 17 patients with r/r NHL so far, 12 of whom were evaluable for anti-tumor effects. The preliminary results of trials with smaller sample sizes, such as our ongoing Phase I clinical trial
for ACTR087 used in combination with rituximab, can be disproportionately influenced by the impact the treatment had on a few individuals, which limits the ability to generalize the results across a broader community, thus making the study results
less reliable than studies with a larger number of patients. As a result, there may be less certainty that such product candidates would achieve a statistically significant effect in any future clinical trials. If we conduct any future clinical
trials, we may not achieve a statistically significant result or the same level of statistical significance, if any, that we may see in our Phase I clinical trial, once we complete the trial.
We may not be able to file investigational new drug applications (INDs) or IND amendments to commence additional clinical trials on the
timelines we expect, and even if we are able to, the FDA may not permit us to proceed.
We expect to submit an IND for ACTR707 used
in combination with trastuzumab in 2018. However, our timing of filing on the product candidate is dependent on further research. We cannot be sure that submission of an IND will result in the FDA allowing further clinical trials to begin, or that,
once begun, issues will not arise that suspend or terminate such clinical trials. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND or clinical trial application, we
cannot guarantee that such regulatory authorities will not change their requirements in the future. These considerations also apply to new clinical trials we may submit as amendments to existing INDs.
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We have limited experience as a company conducting clinical trials or managing a
manufacturing facility for our product candidates.
We have limited experience as a company in conducting clinical trials. In part
because of this lack of experience, we cannot be certain that our ongoing clinical trials will be completed on time or if the planned clinical trials will begin or be completed on time, if at all. Large-scale trials would require significant
additional financial and management resources and reliance on third-party clinical investigators, contract research organizations (CROs), or consultants. Relying on third-party clinical investigators or CROs may force us to encounter delays that are
outside of our control.
In the future, we also intend to operate our own manufacturing facility, which will require significant
resources, and we have limited experience as a company in expanding or managing a manufacturing facility. In part because of this lack of experience, we cannot be certain that our manufacturing facility will be completed on time, if at all, or if
the planned clinical trials will begin or be completed on time, if at all. In part because of our inexperience, we may have unacceptable or inconsistent product quality success rates and yields, and we may be unable to maintain adequate quality
control, quality assurance and qualified personnel. In addition, if we switch from one manufacturing facility to our own manufacturing facility for one or more of our product candidates in the future, we may need to conduct additional preclinical
studies to bridge our modified product candidates to earlier versions. Failure to successfully create and operate our proposed manufacturing facility could adversely affect the commercial viability of our product candidates.
Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent
their regulatory approval, require expansion of the trial size, limit their commercial potential, or result in significant negative consequences.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities, including institutional review boards
(IRBs), to interrupt, delay, or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. Further, clinical trials by their nature
utilize a sample of the potential patient population. With a limited number of subjects and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients
exposed to the drug. Because of our dose escalation design for our clinical trials, undesirable side effects could also result in an expansion in the size of our clinical trials, increasing the expected costs and timeline of our clinical trials.
Additionally, results of our trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.
In certain trials of
CAR-based
products, which also use an engineered T cell, side effects, such as
CRS and neurotoxicity, arose that resulted in risk, injury, or death to the patients. We observed some of these side effects in the second dose level of our Phase I clinical trial of ACTR087 used in combination with rituximab, called
ATTCK-20-2.
These events resulted in the FDA placing the trial on clinical hold pending submission of certain information relating to the
ATTCK-20-2
clinical trial. The clinical hold was removed in February 2018, following review of this information by the FDA. We will likely continue to observe some or all of these side effects in our clinical
trials at additional dosage levels. We have established safety management and monitoring guidelines for clinical investigators to detect and treat potential side effects. However, there is no guarantee that these medical interventions will be
effective in preventing negative effects to the patient. Additionally, if we do continue to observe severe side effects in our clinical trials, our ongoing clinical trials may be halted or put on an additional clinical hold prior to completion if
there is an unacceptable safety risk for patients.
Autoimmune reaction triggered by an interaction between a patients naturally
occurring antibodies and ACTR T cells is a theoretical safety risk unique to the ACTR approach. If a patients self-generated antibodies were directed to a target expressed on the surface of cells in normal tissue (i.e., autoantibodies), ACTR
would be directed to attack these tissues, potentially resulting in
off-tumor
effects. These autoantibodies may be present whether or not the patient has an active autoimmune disease. In our clinical testing,
we have taken steps to minimize the likelihood of this happening (e.g., excluding patients with a history of autoimmune disease from our trials and screening for the presence of certain autoantibodies). To date, we have not observed any autoimmune
adverse effects in clinical testing of ACTR. There is no guarantee, however, that we will not observe autoimmune reactions in the future and no guarantee that if we do, that we will be able to implement interventions to address the risk.
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If unacceptable toxicities arise in the development of our product candidates, we could suspend
or terminate our trials or the FDA or comparable foreign regulatory authorities, or local regulatory authorities such as IRBs, could order us to cease clinical trials. Competent national health authorities, such as the FDA, could also deny approval
of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In
addition, these side effects may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting from T cell therapy are not normally encountered in the general patient population and by medical personnel. We expect
to have to train medical personnel using ACTR to understand the side effect profile of ACTR for both our planned clinical trials and upon any commercialization of any product candidates, if approved. Inadequate training in recognizing or managing
the potential side effects of ACTR could result in patient deaths. Any of these occurrences may harm our business, financial condition and prospects significantly.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or
otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of
reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients
depends on many factors, including:
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the patient eligibility criteria defined in the protocol;
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the size of the patient population required for analysis of the trials primary endpoints;
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the proximity of patients to trial sites;
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the design of the trial;
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our ability to recruit clinical trial investigators with the appropriate competencies and experience;
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our ability to obtain and maintain patient consents;
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reporting of the preliminary results of any of our clinical trials; and
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the risk that patients enrolled in clinical trials will drop out of the trials before the manufacturing and infusion of our product candidates or trial completion.
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In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product
candidates, and this competition will reduce the number and types of patients available to us because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since
the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our
clinical trials at such clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies,
such as chemotherapy and hematopoietic stem cell transplantation, rather than enroll patients in any future clinical trial. Additionally, because some of our clinical trials are in patients with relapsed/refractory cancer, the patients are typically
in the late stages of the disease and may experience disease progression independent from our product candidates, making them unevaluable for purposes of the trial and requiring additional enrollment.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our ongoing and planned clinical trials,
which could prevent completion or commencement of these trials and adversely affect our ability to advance the development of our product candidates.
Clinical trials are expensive, time-consuming, and difficult to design and implement.
Human clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory
requirements. Because our product candidates are based on new technology and engineered on a
patient-by-patient
basis, we expect that they will require extensive
research and development and have substantial manufacturing and processing costs. In addition, costs to treat patients with relapsed or refractory cancer and to treat
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potential side effects that may result from our product candidates can be significant. Accordingly, our clinical trial costs are likely to be significantly higher than those for more conventional
therapeutic technologies or drug product candidates. In addition, our proposed personalized product candidates involve several complex and costly manufacturing and processing steps, the costs of which will be borne by us.
The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior
treatments, and may be small, and our estimates of the prevalence of our target patient populations may be inaccurate.
Cancer
therapies are sometimes characterized as first line, second line, or third line, and the FDA often approves new therapies initially only for a particular line of use. When cancer is detected early enough, first line therapy is sometimes adequate to
cure the cancer or prolong life without a cure. Whenever first line therapy, usually chemotherapy, antibody drugs, tumor-targeted small molecules, hormone therapy, radiation therapy, surgery, or a combination of these, proves unsuccessful, second
line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor-targeted small molecules, or a combination of these. Third line therapies can include hematopoietic stem cell
transplantation in certain cancers, chemotherapy, antibody drugs, and small molecule tumor-targeted therapies, more invasive forms of surgery, and new revolutionary technologies. We expect to initially seek approval of our product candidates in most
instances at least as a third line therapy, for use in patients with relapsed or refractory metastatic cancer. Subsequently, for those products that prove to be sufficiently safe and beneficial, if any, we would expect to seek approval as a second
line therapy and potentially as a first line therapy, but there is no guarantee that our product candidates, even if approved as a third or subsequent line of therapy, would be approved for an earlier line of therapy, and, prior to any such
approvals, we may have to conduct additional clinical trials.
Our projections of both the number of people who have the cancers we are
targeting, as well as the subset of people with these cancers in a position to receive a particular line of therapy and who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These
estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new therapies may change the estimated incidence or
prevalence of these cancers. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to treatment with our product
candidates. For instance, we expect ACTR087 used in combination with rituximab to initially target a small patient population that suffers from r/r NHL. Even if we obtain significant market share for our product candidates within our addressable
patient population, because the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications, including use as first or second line therapy.
If we fail to develop additional product candidates, our commercial opportunity will be limited.
We have developed a pipeline of product candidates and intend to pursue clinical development of additional product candidates that combine ACTR
T cells with different antibodies and target different tumor types. Developing, obtaining regulatory approval for and commercializing additional product candidates will require substantial additional funding beyond the net proceeds of our initial
public offering, or IPO, and concurrent private placement and is prone to the risks of failure inherent in medical product development. We cannot provide you any assurance that we will be able to successfully advance any of these additional product
candidates through the development process.
Even if we receive FDA approval to market additional product candidates for the treatment of
cancer, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. If we are unable to successfully develop and
commercialize additional product candidates, our commercial opportunity will be limited. Moreover, a failure in obtaining regulatory approval of additional product candidates may have a negative effect on the approval process of any other, or result
in losing approval of any approved product candidate.
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ACTR therapies rely on the use of antibodies to target specific cancers, which are
developed by third parties. We are limited in our ability to apply ACTR to a wider range of potential target cancers by our ability to partner for or acquire these antibodies on commercially reasonable terms.
ACTR therapies require the use of tumor-specific antibodies, which guide the ACTR and bind to the antigens on the surface of a tumor, to target
specific types of cancers. Many of our current and proposed clinical trials rely on the use of commercially available and well-understood antibodies, such as rituximab and trastuzumab. Our ability to develop and commercialize our ACTR T cells used
in combination with rituximab, trastuzumab, or any other
FDA-approved
antibody will depend on our ability to purchase such antibodies on commercially reasonable terms for the clinical trials and their
availability for the commercialized product, if approved.
We also plan to expand
the use of our ACTR platform in combination with one or more other antibodies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United States, as planned with our product candidate ACTR087 used
in combination with
SEA-BCMA
in adult patients with r/r multiple myeloma. Our ability to develop product candidates using unapproved antibodies will rely on our ability to acquire such antibodies through
partnerships or collaborations on commercially reasonable terms. However, we cannot be certain that potential future collaborations will provide us with a steady supply of antibodies that we can utilize in combination with ACTR to develop future
product candidates. If we are unable to enter into such strategic collaborations on commercially reasonable terms or fail to realize the benefits of any such collaboration, we may be limited to using approved antibodies in combination with ACTR087,
ACTR707, or any other future ACTR construct we may develop.
We have entered into a collaboration agreement with Seattle Genetics, Inc.
(Seattle Genetics), pursuant to which Seattle Genetics will generate antibodies against two target antigens to use in combination with ACTR T cells to develop future product candidates. Under the agreement, Seattle Genetics had the option to elect a
third target antigen, but its option expired unexercised in June 2017. We cannot be certain that the collaboration agreement with Seattle Genetics will provide us with antibodies that we can successfully combine with ACTR T cells.
The failure to enter into a successful collaboration or the expense of purchasing an approved antibody may delay our development timelines,
increase our costs and jeopardize our ability to develop ACTR087, ACTR707, or any other future ACTR construct we may develop as a commercially viable drug, which could result in delays in product development and harm our business.
ACTR therapies rely on the use of antibodies to target specific cancers, which the FDA may revoke approval for or may not approve,
independent of the safety or efficacy of our ACTR T cells.
We have developed, are developing, and intend to develop product
candidates using ACTR087 or ACTR707 used in combination with one or more currently approved antibodies, such as rituximab for r/r NHL and trastuzumab for HER2+ cancers. If the FDA or similar regulatory authorities outside of the United States revoke
approval of any antibodies we use in combination with ACTR087, ACTR707 or any other future cell product candidates based on our ACTR platform, we will not be able to market any products made in combination with such revoked antibodies.
If safety or efficacy issues arise with any of these antibodies, we could experience significant regulatory delays, and the FDA or similar
regulatory authorities outside of the United States may require us to redesign or terminate the applicable clinical trials. In addition, the approval of ACTR in combination with an antibody may require clinical trials to demonstrate the safety and
efficacy of the therapeutic antibody on its own. If the antibodies we use in combination with ACTR087, ACTR707, or any other future ACTR construct we may develop are replaced as the standard of care for the indications we choose to target, the FDA
or similar regulatory authorities outside of the United States may require us to conduct additional clinical trials. In addition, if manufacturing or other issues result in a shortage of supply of the antibodies with which we determine to combine
with ACTR087, ACTR707, or any other future ACTR construct we may develop, we may not be able to complete clinical development of ACTR087, ACTR707, or any other future ACTR construct we may develop on our current timeline or at all.
Even if ACTR087, ACTR707, or any other future ACTR construct we may develop were to receive marketing approval or be commercialized for use in
combination with other existing antibodies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of an antibody used in combination with ACTR087, ACTR707, or
any other future ACTR construct we may develop, or
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that safety, efficacy, manufacturing or supply issues could arise with these existing antibodies. Combination therapies are commonly used for the treatment of cancer, and we would be subject to
similar risks, such as revocation of regulatory approval for one part of the combination therapy,
if we develop any of our other product candidates for use in combination with other antibodies.
This could result in our own products being removed from the market or being less successful commercially.
We also plan to consider
ACTR087, ACTR707 or any other future product candidates based on our ACTR platform in combination with one or more other antibodies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United
States, as planned with our product candidate ACTR087 used in combination with
SEA-BCMA
in adult patients with r/r multiple myeloma. We will not be able to market and sell ACTR087, ACTR707 or any other future
product candidates based on our ACTR platform in combination with any such unapproved antibodies that do not ultimately obtain marketing approval, either as a standalone or used in combination with our ACTR T cells. If the FDA or similar regulatory
authorities outside of the United States determines that we need to demonstrate the separate safety or efficacy of the applicable antibodies, or if safety, efficacy, manufacturing, or supply issues arise with the antibodies we choose to evaluate in
combination with ACTR087, ACTR707 or any other future ACTR construct we may develop, we may be unable to obtain approval of or market ACTR087, ACTR707 or any other future ACTR construct we may develop.
If the FDA or similar regulatory authorities outside of the United States revoke their approval or do not approve these other antibodies, or
if safety, efficacy, manufacturing, or supply issues arise with the antibodies we choose to evaluate in combination with ACTR087, ACTR707 or any other future ACTR construct we may develop, we may be unable to obtain approval of or market ACTR087,
ACTR707 or any other future ACTR construct we may develop.
We currently have no marketing and sales organization and have no
experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if approved, we may not be able to generate product revenue.
We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. We intend to
develop an
in-house
marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other pharmaceutical and
biotechnology companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide not to establish
internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products, if approved. For instance, if any
co-developed
products
under our collaboration with Seattle Genetics are approved, we plan to
co-commercialize
them with Seattle Genetics in the United States, and Seattle Genetics will commercialize them outside of the United
States. However, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of
such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates
ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
There can be no assurance that we will be able to develop
in-house
sales and distribution capabilities
or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.
A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business.
We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we
will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:
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differing regulatory requirements in foreign countries;
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unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;
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economic weakness, including inflation, or political instability in particular foreign economies and markets;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign taxes, including withholding of payroll taxes;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
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difficulties staffing and managing foreign operations;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;
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challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from
geo-political
actions, including war and terrorism.
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These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain
profitable operations.
We face significant competition from other biotechnology and pharmaceutical companies, and our operating
results will suffer if we fail to compete effectively.
The biopharmaceutical industry is characterized by intense competition and
rapid innovation. Our competitors may be able to develop other products or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies,
specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing
and manufacturing organizations and well-established sales forces. In addition, many of these competitors are active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology that they have
developed. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries
may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries.
Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our
product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key competitive factors that will affect the development and commercial
success of our product candidates are efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement.
Specifically, by genetically engineering T cell products, we face significant competition in both the CAR technology and TCR space from
multiple companies, including Kite Pharma, Inc. (a Gilead Sciences, Inc. company), Juno Therapeutics, Inc. (which was recently acquired by Celgene Corporation), Novartis AG, and bluebird bio, Inc. Even if we obtain regulatory approval of our product
candidates, the availability and price of our competitors products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product
candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product
candidates for use in limited circumstances.
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We are highly dependent on our key personnel, and if we are not successful in attracting
and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to
compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and
medical personnel, including our Chief Executive Officer, our President and Chief Financial Officer, our Chief Scientific Officer, our Chief Medical Officer, and our Chief Technical Officer. The loss of the services of any of our executive officers,
other key employees and other scientific and medical advisors, and an inability to find suitable replacements could result in delays in product development and harm our business.
We conduct our operations at our facility in Cambridge, Massachusetts. This region is headquarters to many other biopharmaceutical companies
and many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.
To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vest
over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other
companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Although we have employment agreements with our key employees, these
employment agreements provide for
at-will
employment, which means that any of our employees could leave our employment at any time, with or without notice. We maintain a key man insurance policy on
the life of our Chief Executive Officer, but do not maintain key man insurance on the lives of our other management personnel or the lives of any of our other employees. Our success also depends on our ability to continue to attract,
retain and motivate highly skilled junior,
mid-level
and senior managers as well as junior,
mid-level
and senior scientific and medical personnel.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of April 30, 2018, we had 51 employees. As our development and commercialization plans and strategies develop, and as we transition
into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel, as well as additional facilities to expand our operations. Future growth would impose significant added
responsibilities on members of management, including:
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identifying, recruiting, integrating, maintaining and motivating additional employees;
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managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates, while complying with our contractual obligations to contractors and other third parties;
and
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improving our operational, financial and management controls, reporting systems and procedures.
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Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively
manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from
day-to-day
activities in order to devote a
substantial amount of time to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely,
in substantial part on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of regulatory approval, clinical trial management and manufacturing. There can be no assurance that
the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced
activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product
candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.
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If we are not able to effectively expand our organization by hiring new employees and expanding
our groups of consultants and contractors, or we are not able to effectively build out new facilities to accommodate this expansion, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product
candidates and, accordingly, may not achieve our research, development and commercialization goals.
We have entered into a
strategic collaboration with Seattle Genetics and may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing
arrangements.
We may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing
arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. In particular, we may seek to
enter into collaborations to give us access to antibodies to use in combination with our ACTR platform. Any of these relationships may require us to incur
non-recurring
and other charges, increase our near and
long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. For example, we entered into a collaboration agreement with Seattle Genetics pursuant to which Seattle Genetics has agreed to
generate antibodies against two target antigens and we are responsible for creating ACTR T cells to pair with these antibodies to create combination product candidates. However, there are ways in which Seattle Genetics may elect to
opt-out
from further development and commercialization of the resulting product candidates. If Seattle Genetics elects to exercise one of these options our timelines could be delayed and our business otherwise
adversely affected, and we cannot be certain that we will achieve the revenue or specific net income that we anticipate.
In addition, we
face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative
arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety
and efficacy and obtain marketing approval.
Further, collaborations involving our product candidates are subject to numerous risks, which
may include the following:
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collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration;
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collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization of our product candidates based on clinical trial results,
changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a
product candidate for clinical testing;
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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates;
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a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing and distribution;
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collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could
jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;
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disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our product candidates, or that result in costly litigation or arbitration that
diverts management attention and resources;
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and
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collaborators may own or
co-own
intellectual property covering our products that results from our collaborating with them, and in such cases, we would not have the exclusive right
to commercialize such intellectual property.
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As a result, if we enter into additional collaboration agreements and
strategic partnerships or license our product candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, which could delay our
timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new
collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects,
financial condition, and results of operations.
If we fail to obtain additional financing, we may be unable to complete the
development and commercialization of our product candidates.
Our operations have consumed substantial amounts of cash since
inception. As of March 31, 2018, we had working capital of $12.3 million and capital resources consisting of cash and cash equivalents of $25.7 million. We expect to continue to spend substantial amounts to continue the clinical
development of our product candidates, including our current and planned clinical trials for ACTR087 used in combination with rituximab and ACTR707 used in combination with rituximab. If approved, we will require significant additional amounts in
order to launch and commercialize our product candidates.
We believe that our existing cash, cash equivalents, and marketable securities
as of March 31, 2018, along with the net proceeds from the IPO and the concurrent private placement will enable us to fund our operating plan through December 2019, without considering available borrowings under our loan and security agreement.
Our operating plan includes our efforts to advance ACTR087 used in combination with rituximab for adult patients with r/r B cell
non-Hodgkin
lymphoma through the completion of our ongoing Phase I clinical
trial; to fund a Phase II clinical trial of ACTR087 used in combination with rituximab for adult patients with r/r
non-Hodgkin
lymphoma who received prior CD19
CAR-T
therapy; to advance ACTR707 used in combination with rituximab for adult patients with r/r B cell
non-Hodgkin
lymphoma through the completion of our Phase I
clinical trial; to advance ACTR707 used in combination with trastuzumab through submission of an IND and to fund our Phase I clinical trial for this product candidate; and to develop product candidates in earlier stages of development and any
additional product candidates that we select, to expand headcount and internal capabilities, and for working capital and other general corporate purposes. However, we know that our existing cash, cash equivalents, and marketable securities, and our
available borrowings under our loan and security agreement, even with the proceeds of our IPO and the concurrent private placement, will not be sufficient to complete our planned Phase II clinical trial of ACTR087 used in combination with
rituximab for adult patients with r/r
non-Hodgkin
lymphoma who received prior CD19
CAR-T
therapy or our planned Phase I clinical trial of ACTR707 used in combination
with trastuzumab for patients with HER2+ cancers, and we will need to raise additional funds to complete these trials. Additionally, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may
need to spend more money than currently expected because of circumstances beyond our control. We may require additional capital for the further development and commercialization of our product candidates and may need to raise additional funds sooner
if we choose to expand more rapidly than we presently anticipate.
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 our product
candidates or other research and development initiatives. Our license agreements may also be terminated if we are unable to meet the payment obligations under the agreements. We could be required to seek collaborators for our product candidates at
an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to
pursue development or commercialization ourselves.
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Any of the above events could significantly harm our business, prospects, financial condition and
results of operations and cause the price of our common stock to decline.
Raising additional capital may cause dilution to our
existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We
may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or
convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed
payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that
could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or
product candidates, or grant licenses on terms unfavorable to us.
Our internal computer systems, or those used by our third-party
CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of the development programs of our product candidates.
Despite the implementation of security measures, our internal computer systems and those of our current and future CROs and other contractors
and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, and telecommunication and electrical failures. While we have not experienced any such material system failure or security breach to date, if such
an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials
could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and
similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate
disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our CROs, commercial manufacturing organizations (CMOs), and other contractors and consultants, could be subject
to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or
man-made
disasters or
business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party
manufacturers to produce and process our product candidates on a
patient-by-patient
basis. Our ability to obtain clinical supplies of our product candidates could be
disrupted if the operations of these suppliers are affected by a
man-made
or natural disaster or other business interruption.
Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or
other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to: comply with the regulations of
the FDA and other similar foreign regulatory bodies, provide true, complete and accurate information to the FDA and other similar foreign regulatory bodies, comply with manufacturing standards we have established, comply with healthcare fraud and
abuse laws in the United States and similar foreign fraudulent misconduct laws or report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval of any of our product candidates and begin
commercializing those products in the United States, our potential exposure under such laws and regulations will increase significantly, and our costs associated with compliance with such laws and regulations are also likely to increase. These laws
may
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impact, among other things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and education programs. In particular, the
promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these
laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. The laws that may affect our ability to operate include, but are not limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or
in part, under a federal healthcare program, such as the Medicare and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or
approval from Medicare, Medicaid, or other third-party payors that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government;
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the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud
any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor
(e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits,
items or services relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), and their respective implementing regulations, which impose requirements on certain covered healthcare
providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy,
security and transmission of individually identifiable health information without appropriate authorization;
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the federal Physician Payment Sunshine Act, created under the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010, collectively, the Affordable Care Act, and
its implementing regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health Insurance Program (with certain exceptions) to report
annually to the United States Department of Health and Human Services (HHS) information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and
teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and
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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.
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Additionally, we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may
be broader in scope and may apply regardless of the payor.
Upon the closing of the IPO, we adopted a code of business conduct and ethics,
but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from
governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
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Efforts to ensure that our business arrangements will comply with applicable healthcare laws may
involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or
other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition
of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and
future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the
United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit
commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of
our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing,
manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties.
Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product
candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for our product candidates or products that we may develop;
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injury to our reputation;
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withdrawal of clinical trial participants;
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initiation of investigations by regulators;
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costs to defend the related litigation;
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a diversion of managements time and our resources;
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substantial monetary awards to trial participants or patients;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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exhaustion of any available insurance and our capital resources;
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the inability to commercialize any product candidate; and
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a decline in our share price.
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Failure to obtain or retain sufficient product liability
insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators. Although we have clinical trial insurance, our
insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations
or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such
indemnification may not be available or adequate should any claim arise.
Comprehensive tax reform legislation could adversely
affect our business and financial condition.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act
(TCJA) that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes
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to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%; limitation of the tax deduction for interest expense; limitation of the
deduction for net operating losses and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); and
modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as
orphan drugs. The tax rate change resulted in (i) a reduction in the gross amount of our deferred tax assets recorded as of December 31, 2017, without an impact on the net amount of our deferred tax assets, which are recorded
with a full valuation allowance, and (ii) no income tax expense or benefit being recognized as of the enactment date of the TCJA. We continue to examine the impact this tax reform legislation may have on our business. However, the effect of the
TCJA on us and our affiliates, whether adverse or favorable, is uncertain and may not become evident for some period of time. You are urged to consult your tax adviser regarding the implications of the TCJA on an investment in our common stock.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
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% change (by value) in its equity ownership over a three-year period), the corporations ability to use its
pre-change
net operating loss carryforwards and other
pre-change
tax attributes to offset its post-change taxable income may be limited. As a result of our most recent private placements, IPO, and other transactions that have occurred over the past three years, we may
have experienced, an ownership change. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As of December 31, 2017, we had U.S. federal net operating loss carryforwards of
$29.8 million and U.S. federal research and development tax credit carryforwards of $2.7 million, which could be limited if we experience an ownership change. The reduction of the corporate tax rate under the TCJA may cause a
reduction in the economic benefit of our net operating loss carryforwards and other deferred tax assets available to the us. Under the TCJA, net operating losses generated after December 31, 2017 will not be subject to expiration.
The terms of our loan and security agreement may restrict our ability to engage in certain transactions and subject our assets to
collateralization.
In January 2017, we entered into a loan and security agreement with Pacific Western Bank (PWB). Pursuant to the
terms of the loan and security agreement, subject to certain exceptions, we cannot engage in certain transactions without PWBs prior written consent, which shall not be unreasonably withheld. Such transactions include:
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disposing of our business or certain assets;
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changing our business, management, ownership or business locations;
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incurring additional debt or liens or making payments on other debt;
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making certain investments and declaring dividends;
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acquiring or merging with another entity;
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engaging in transactions with affiliates; or
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encumbering intellectual property.
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If PWB does not provide its consent to such actions, we
could be prohibited from engaging in transactions that could be beneficial to our business and our stockholders unless we were to repay the loans, which may not be desirable or possible. The loan and security agreement is collateralized by a pledge
of substantially all of our assets, except for our intellectual property. If we were to default under the loan and security agreement, including for an inability to repay amounts as they become due, and we were unable to obtain a waiver for such a
default, PWB would have a right to accelerate our obligation to repay the entire loan and foreclose on these assets in order to satisfy our obligations under the loan and security agreement. In addition, PWB would also have the right to place a hold
on our accounts maintained at PWB and refuse to fund any then unfunded commitments under the loan and security agreement. Any such action on the part of PWB against us could have a materially adverse impact on our business, financial condition and
results of operations.
47
Unstable market and economic conditions may have serious adverse consequences on our
business, financial condition and stock price.
As widely reported, global credit and financial markets have experienced extreme
volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic
stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile
business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more
dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical
development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals
on schedule and on budget.
As of December 31, 2017, we had cash, cash equivalents, and marketable securities of $41.0 million
and available borrowings under our loan and security agreement of $15.0 million. While we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents and marketable securities
since December 31, 2017, no assurance can be given that further deterioration of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives.
Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.
Risks Related to Our
Reliance On Third Parties
We rely and will rely on third parties to conduct our clinical trials. If these third parties do not
properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.
We depend and will depend upon independent investigators and collaborators, such as medical institutions, CROs, CMOs and strategic partners to
conduct our preclinical studies and clinical trials under agreements with us. We expect to have to negotiate budgets and contracts with CROs, trial sites and CMOs which may result in delays to our development timelines and increased costs. We will
rely heavily on these third parties over the course of our clinical trials, and we control only certain aspects of their activities. As a result, we have less direct control over the conduct, timing and completion of these clinical trials and the
management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol,
legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with good clinical practices (GCPs), which are
regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal
investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, 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, such regulatory authorities will determine that any of our clinical trials comply with the GCP regulations.
In addition, our clinical trials must be conducted with biologic product produced under current good manufacturing practices (cGMP) regulations and will require a large number of test patients. Our failure or any failure by these third parties to
comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates
federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
Any third parties
conducting our clinical trials are not and will not be our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing,
clinical and
non-clinical
product candidates. These third parties may also have
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relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could affect their
performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is
compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory
approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be
delayed.
Switching or adding third parties to conduct our clinical trials involves substantial cost and requires extensive management
time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.
We expect to rely on third parties to manufacture our clinical product supplies, and we may rely on third parties for at least a portion
of the manufacturing process of our product candidates, if approved. Our business could be harmed if those third parties fail to provide us with sufficient quantities of clinical product supplies or product candidates or fail to do so at acceptable
quality levels or prices.
We do not currently own any facility that may be used as our clinical-scale manufacturing and processing
facility and must currently rely on outside vendors to manufacture supplies and process our product candidates, which is and will need to be done on a
patient-by-patient
basis. We have not yet caused our product candidates to be manufactured or processed on a commercial scale and may not be able to do so for any of our product candidates.
Although in the future we do intend to develop our own manufacturing facility, we also intend to use third parties as part of our
manufacturing process and may, in any event, never be successful in developing our own manufacturing facility. Our anticipated reliance on a limited number of third-party manufacturers exposes us to the following risks:
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We may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA must inspect any manufacturers for current cGMP compliance as part of our
marketing application. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, the production of our product candidates.
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Our manufacturers may have little or no experience with autologous cell products, which are products made from a patients own cells, and therefore may require a significant amount of support from us in order to
implement and maintain the infrastructure and processes required to manufacture our product candidates.
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Our third-party manufacturers might be unable to timely manufacture our product candidates or produce the quantity and quality required to meet our clinical and commercial needs, if any.
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Our third-party suppliers or collaborators from whom we receive our antibodies used in combination with our ACTR T cells may be unable to timely manufacture or provide the applicable antibody or produce the quantity and
quality required to meet our clinical and commercial needs.
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Contract manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements appropriately.
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Our future contract manufacturers may not perform as agreed, may not devote sufficient resources to our product candidates or may not remain in the contract manufacturing business for the time required to supply our
clinical trials or to successfully produce, store, and distribute our products, if any.
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Manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMP and other government regulations and corresponding foreign
standards. We do not have control over third-party manufacturers compliance with these regulations and standards.
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We may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the manufacturing process for our product candidates.
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Our third-party manufacturers could breach or terminate their agreements with us.
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Raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier, may not be available or may not be suitable or acceptable for use due to material or
component defects.
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Our contract manufacturers and critical reagent suppliers may be subject to inclement weather, as well as natural or
man-made
disasters.
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Our contract manufacturers may have unacceptable or inconsistent product quality success rates and yields, and we have no direct control over our contract manufacturers ability to maintain adequate quality
control, quality assurance and qualified personnel.
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Each of these risks could delay or prevent the completion of our
clinical trials or the approval of any of our product candidates by the FDA, result in higher costs or adversely impact commercialization of our product candidates. In addition, we will rely on third parties to perform certain specification tests on
our product candidates prior to delivery to patients. If these tests are not appropriately done and test data are not reliable, patients could be put at risk of serious harm and the FDA could place significant restrictions on our company until
deficiencies are remedied.
The manufacture of biological drug products is complex and requires significant expertise and capital
investment, including the development of advanced manufacturing techniques and process controls.
Manufacturers of biologic products often
encounter difficulties in production, particularly in scaling up or out, validating the production process and assuring high reliability of the manufacturing process (including the absence of contamination). These problems include logistics and
shipping, difficulties with production costs and yields, quality control, including stability of the product, product testing, operator error and availability of qualified personnel, as well as compliance with strictly enforced federal, state and
foreign regulations. Furthermore, if contaminants are discovered in our supply of our product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy
the contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our product candidates will not occur in the future.
We may fail to manage the logistics of collecting and shipping patient material to the manufacturing site and shipping the product candidate
back to the patient. Logistical and shipment delays and problems caused by us, our vendors or other factors not in our control, such as weather, could prevent or delay the delivery of product candidates to patients. Additionally, we have to maintain
a complex chain of identity and chain of custody with respect to patient material as it moves to the manufacturing facility, through the manufacturing process and back to the patient. Failure to maintain chain of identity and chain of custody could
result in patient death, loss of product or regulatory action.
In addition, because our product candidates are all based upon the ACTR
construct, any problems we encounter with manufacturing the ACTR construct would likely affect all of our products, if approved, and product candidates, increasing the impact of any manufacturing issues we encounter and potentially adversely
affecting our ability to attain or maintain profitable operations.
ACTR therapies rely on the availability of specialty raw
materials, which may not be available to us on acceptable terms or at all.
ACTR requires many specialty raw materials, some of
which are manufactured by small companies with limited resources and experience to support a commercial product. In addition, those suppliers normally support blood-based hospital businesses and generally do not have the capacity to support
commercial products manufactured under cGMP by biopharmaceutical firms. The suppliers may be
ill-equipped
to support our needs, especially in
non-routine
circumstances
like an FDA inspection or medical crisis, such as widespread contamination. We also do not have contracts with many of these suppliers, and may not be able to contract with them on acceptable terms or at all. Accordingly, we may experience delays in
receiving key raw materials to support clinical or commercial manufacturing.
In addition, some of our raw materials are currently
available from a single supplier, or a small number of suppliers. The type of cell culture media and cryopreservation buffer that we currently use in our manufacturing
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process for ACTR087 and ACTR707 are each only available from a single supplier. In addition, the cell processing equipment and tubing that we use in our current manufacturing process is only
available from a single supplier. We also use certain biologic materials, including certain activating antibodies, that are available from multiple suppliers, but each version may perform differently, requiring us to characterize them and
potentially modify some of our protocols if we change suppliers. We cannot be sure that these suppliers will remain in business, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to
produce these materials for our intended purpose. Accordingly, if we no longer have access to these suppliers, we may experience delays in our clinical or commercial manufacturing which could harm our business or results of operations.
If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we
may be liable for damages.
Our research and development activities involve the controlled use of potentially hazardous substances,
including chemical and biological materials, by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposal of
medical and hazardous materials. Although we believe that our manufacturers procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of
contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our
business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical or hazardous materials.
Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or
results of operations.
Risks Related to Government Regulation
The FDA regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development
and regulatory approval of our product candidates.
We have not previously submitted a Biologics License Application (BLA) to the
FDA or similar approval applications to comparable foreign authorities. A BLA must include extensive preclinical and clinical data and supporting information to establish the product candidates safety, purity and potency for each desired
indication. The BLA must also include significant information regarding the manufacturing controls for the product. We expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. For example, the
FDA has no experience with commercial development of ACTR therapies for cancer. Accordingly, the regulatory approval pathway for our product candidates may be uncertain, complex, expensive and lengthy, and approval may not be obtained.
We may also experience delays in completing planned clinical trials for a variety of reasons, including delays related to:
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the availability of financial resources to commence and complete the planned trials;
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reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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obtaining approval at each clinical trial site by an IRB or ethics committee;
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recruiting suitable patients to participate in a trial;
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having patients complete a trial or return for post-treatment
follow-up;
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clinical trial sites deviating from trial protocol or dropping out of a trial;
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adding new clinical trial sites; or
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manufacturing sufficient quantities of qualified materials under cGMPs and applying them on a subject by subject basis for use in clinical trials.
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For example, we are advancing towards testing in an expanded patient cohort using an optimized
dose of ACTR087 in Phase I of our ongoing
ATTCK-20-2
trial. Patient enrollment in this expansion cohort is subject to obtaining IRB approval at each clinical trial
site, and no assurances can be made that IRB approval will be obtained.
We could also experience delays if physicians encounter
unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or
terminated by us, the IRBs for the institutions in which such trials are being conducted, the Data Monitoring Committee for such trial, or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the
clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen
safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience
termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays in
completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue.
Securing regulatory approval also requires the submission of information about the biologic manufacturing process and inspection of
manufacturing facilities by the relevant regulatory authority. FDA or comparable foreign regulatory authorities may fail to approve our manufacturing processes or facilities, whether run by us or our CMOs. In addition, if we make manufacturing
changes to our product candidates in the future, we may need to conduct additional preclinical studies to bridge our modified product candidates to earlier versions.
Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may ultimately lead to the denial of
regulatory approval of our product candidates.
The FDA may disagree with our regulatory plan and we may fail to obtain
regulatory approval of our product candidates.
We plan to continue to advance our lead product candidates, ACTR087 used in
combination with rituximab and ACTR707 used in combination with rituximab, for the treatment of adult patients with r/r NHL through Phase I clinical trials. If we believe the Phase I data from either trial is compelling, we plan to discuss with
the FDA the potential to move to a registration trial in r/r NHL upon completion of the current Phase I clinical trial. Additionally, we plan to submit regulatory filings to enable a Phase II clinical trial in 2018 to evaluate ACTR087 used
in combination with rituximab in adult patients with r/r NHL who received prior CD19
CAR-T
therapy. However, the general approach for FDA approval of a new biologic or drug is dispositive data from two
well-controlled, Phase III clinical trials of the relevant biologic or drug in the relevant patient population. Phase III clinical trials typically involve hundreds of patients, have significant costs and take years to complete. The FDA may not
believe our accelerated approval strategy to move directly to a registration trial for ACTR087 used in combination with rituximab in r/r NHL upon completion of the current Phase I clinical trial is warranted and may require a
Phase III clinical trial or trials prior to approval.
Our clinical trial results may also not support approval. In addition, our
product candidates could fail to receive regulatory approval for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the number, design, or implementation of our clinical trials;
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe, pure and potent, or effective, for any of their proposed indications;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
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we may be unable to demonstrate that our product candidates clinical and other benefits outweigh their safety risks;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of a BLA or other comparable
submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
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the FDA or comparable foreign regulatory authorities may find deficiencies with or fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and
commercial supplies; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
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Any of these factors, many of which are beyond our control, may result in our failing to obtain regulatory approval to market any of our
product candidates, which would significantly harm our business, results of operations, and prospects.
Obtaining and maintaining
regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain
or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants
marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among
jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction
may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the
price that we intend to charge for our products is also subject to approval.
We may also submit marketing applications in other
countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and
compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements
in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued
regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.
Any regulatory approvals that we receive for our product candidates will require surveillance to monitor the safety and efficacy of the product
candidate. The FDA may also require a risk evaluation and mitigation strategy in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe
use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling,
packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions
of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with our product
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candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements,
may result in, among other things:
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restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from the market or voluntary or mandatory product recalls;
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fines, warning letters or holds on clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;
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product seizure or detention, or refusal to permit the import or export of our product candidates; and
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injunctions or the imposition of civil or criminal penalties.
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The FDAs and other
regulatory authorities policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are
not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
In addition, if we were able to obtain accelerated approval of ACTR087 or ACTR707 used
in
combination with an antibody, the FDA would require us to conduct a confirmatory study to verify the predicted clinical benefit and additional safety studies. The results from the confirmatory study may not support the clinical benefit, which would
result in the approval being withdrawn.
Even if we obtain regulatory approval of our product candidates, the products may
not gain market acceptance among physicians, patients, hospitals, cancer treatment centers and others in the medical community.
The use of engineered T cells as a potential cancer treatment is a recent development and may not become broadly accepted by physicians,
patients, hospitals, cancer treatment centers and others in the medical community. Various factors will influence whether our product candidates are accepted in the market, including:
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the clinical indications for which our product candidates are approved;
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physicians, hospitals, cancer treatment centers and patients considering our product candidates as a safe and effective treatment;
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the potential and perceived advantages of our product candidates over alternative treatments;
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our ability to demonstrate the advantages of our product candidates over other
CAR-T
therapies;
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the prevalence and severity of any side effects;
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the prevalence and severity of any side effects for other adoptive cell therapy and
CAR-T
products and public perception of other adoptive cell therapy and
CAR-T
products;
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product labeling or product insert requirements of the FDA or other regulatory authorities;
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limitations or warnings contained in the labeling approved by the FDA;
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the timing of market introduction of our product candidates as well as competitive products;
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the cost of treatment in relation to alternative treatments;
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the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities;
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the willingness of patients to pay
out-of-pocket
in the absence of coverage by third-party payors and government authorities;
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relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and
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the effectiveness of our sales and marketing efforts.
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In addition, although we are not utilizing embryonic stem cells or replication competent vectors,
adverse publicity due to the ethical and social controversies surrounding the therapeutic use of such technologies, and reported side effects from any clinical trials using these technologies or the failure of such trials to demonstrate that these
therapies are safe and effective may limit market acceptance of our product candidates. If our product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals, cancer treatment centers or others in the
medical community, we will not be able to generate significant revenue.
In addition, although our ACTR platform differs in certain ways
from the
CAR-T
approach, serious adverse events or deaths in other clinical trials involving
CAR-T
or other T cell products or with use of approved
CAR-T
products, even if not ultimately attributable to the relevant product or product candidates, could result in increased government regulation, unfavorable public perception and publicity, potential regulatory
delays in the testing or approval of our product candidates, stricter labeling requirements for those product candidates that are approved, and a decrease in demand for any such product candidates.
Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or
technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make
it difficult for us to sell our product candidates, if approved, profitably.
In both domestic and foreign markets,
successful sales of our product candidates, if approved, will depend on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our product candidates represent new approaches to the treatment of cancer,
we cannot accurately estimate the potential revenue from our product candidates.
Patients who are provided medical treatment for their
conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is
critical to new product acceptance.
Government authorities and third-party payors, such as private health insurers and health maintenance
organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Reimbursement by a third-party payor may depend upon a number of factors, including, but not limited to, the third-party payors determination
that use of a product is:
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a covered benefit under its health plan;
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safe, effective and medically necessary;
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appropriate for the specific patient;
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neither experimental nor investigational.
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Obtaining coverage and reimbursement approval of a
product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. Even if we obtain
coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require
co-payments
that patients find unacceptably high.
Patients are unlikely to use our product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates.
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and
reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our
product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.
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We intend to seek approval to market our product candidates in both the United States and in
selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the European
Union, the pricing of biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market
acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our product candidates and may be affected by existing and future healthcare reform
measures.
Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated
methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could impact our ability to sell our products
profitably. In particular, in 2010, the Affordable Care Act was enacted. The Affordable Care Act and its implementing regulations, among other things, revised the methodology by which rebates owed by manufacturers to the state and federal government
for covered outpatient drugs and certain biologics, including our product candidates, under the Medicaid Drug Rebate Program are calculated, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program,
extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription drugs and provided
incentives to programs that increase the federal governments comparative effectiveness research.
Members of the United States
Congress and the Trump Administration have expressed an intent to pass legislation or adopt executive orders to fundamentally change or repeal parts of the Affordable Care Act. While Congress has not passed repeal legislation to date, the 2017 Tax
Reform Act includes a provision repealing the individual insurance coverage mandate included in the Affordable Care Act, effective January 1, 2019. Further, on January 20, 2017, President Trump signed an Executive Order directing federal
agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal burden on states or a cost, fee,
tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing
subsidies that reimburse insurers under the Affordable Care Act. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in
California on October 25, 2017. In addition, the Centers for Medicare & Medicaid Services (CMS) within the U.S. Department of Health and Human Services has recently proposed regulations that would give states greater flexibility in
setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the Affordable Care Act for plans sold through such marketplaces. There may be further
changes to the Affordable Care Act as a result of new legislation or further executive, administrative or judicial action.
Other
legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint
Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislations automatic reduction
to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the ATRA), which delayed
for another two months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. In March 2013, the President signed an executive order implementing sequestration, and in April 2013, the 2% Medicare payment
reductions went into effect. The ATRA also, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to
recover overpayments to providers from three to five years.
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The impact of recent healthcare reform legislation and other changes in the healthcare
industry and in healthcare spending on us is currently unknown, and may adversely affect our business model.
Our revenue prospects
could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or
decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at
broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future, including repeal, replacement or significant revisions to the Affordable Care Act. The
continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
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the demand for our product candidates, if we obtain regulatory approval;
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our ability to set a price that we believe is fair for our products;
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our ability to obtain coverage and reimbursement approval for a product;
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our ability to generate revenue and achieve or maintain profitability;
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the level of taxes that we are required to pay; and
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the availability of capital.
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Any reduction in reimbursement from Medicare or other government
programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.
Regulatory requirements in the United States and abroad governing gene therapy products have changed frequently and may continue to
change in the future, which could negatively impact our ability to complete clinical trials and commercialize our product candidates in a timely manner, if at all.
Regulatory requirements in the United States and abroad governing gene therapy products have changed frequently and may continue to change in
the future. FDA has established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research to consolidate the review of gene therapy and related products, and has established the Cellular, Tissue and Gene
Therapies Advisory Committee, among others, to advise this review. Prior to submitting an IND, because of our use of a viral vector for our ACTR T cells, our clinical trials are subject to review by the NIH Office of Biotechnology Activities
(OBAs) Recombinant DNA Advisory Committee (RAC). As of April 2016, the updated NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules provide the opportunity for one or more oversight bodies, including
Institutional Biosafety Committees, to request a public RAC review based on their own review of the protocol and NIH requirements. Regardless of the request for public review, the NIH makes its own assessment as to whether the protocol would
significantly benefit from a public RAC review. The RACs recommendations are shared with FDA and the oversight bodies. The RAC can delay the initiation of a clinical trial, even if FDA has reviewed the trial design and details and has not
objected to its initiation or has notified the sponsor that the study may begin. Conversely, FDA can put an IND on a clinical hold even if the RAC has provided a favorable review or has recommended against an
in-depth,
public review. Moreover, under guidelines published by the NIH, patient enrollment in our gene therapy clinical trials cannot begin until, among other things, the investigator for that clinical trial
has received a letter from the OBA indicating that the protocol registration process has been completed. Upon receipt of the letter from OBA confirming completion of protocol registration the investigator may obtain final approval from the oversight
bodies and patient enrollment may begin if all other applicable regulatory authorizations have been obtained.
If there is a public RAC
review, the receipt of the final recommendation letter concludes the protocol registration process and then oversight body, or bodies, approval can be issued. In addition, adverse developments in clinical trials of
CAR-T
products conducted by others may cause FDA or other oversight bodies to change the requirements for approval of any of our product candidates.
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These regulatory review committees and advisory groups and the new guidelines they promulgate may
lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product
candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. If we fail to do so,
we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or
lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and could negatively impact our or our collaborators ability to complete clinical trials and commercialize our current and
future product candidates in a timely manner, if at all.
Risks Related to Our Intellectual Property
We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss
of significant rights, which would harm our business.
We are dependent on patents,
know-how
and proprietary technology, both our own and licensed from others.
Under our
collaboration agreement with Seattle Genetics for the development and commercialization of novel therapies for cancer, we depend on a license from Seattle Genetics for use of their proprietary antibodies. Additionally, aspects of the ACTR technology
are subject to a license from St. Jude Childrens Research Hospital (St. Judes) and the National University of Singapore (NUS).
We are currently, and expect in the future to be, party to material license or collaboration agreements. These agreements typically impose
numerous obligations, such as diligence and payment obligations. Any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our product candidates. These licenses do and future
licenses may include provisions that impose obligations and restrictions on us. For example, our license agreement with St. Judes and NUS imposes some limitations on our ability to assign the license to a party other than an affiliate. This
could delay or otherwise negatively impact a transaction that we may wish to enter into.
Disputes may also arise between us and our
licensors regarding intellectual property subject to a license agreement, including:
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the scope of rights granted under the license agreement and other interpretation-related issues;
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whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
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our right to sublicense patent and other rights to third parties under collaborative development relationships;
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our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; and
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the ownership of inventions and
know-how
resulting from the joint creation or use of intellectual property by our licensors and us and our partners.
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If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on
acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We are generally also
subject to all of the same risks with respect to protection of intellectual property that we license, as we are for intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual
property, our ability to commercialize products could suffer.
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If our efforts to protect the proprietary nature of the intellectual property
related to our technologies are not adequate, we may not be able to compete effectively in our market.
We rely upon a
combination of patents, confidentiality agreements, trade secret protection and license agreements to protect the intellectual property related to our technologies. Any disclosure to or misappropriation by third parties of our confidential
proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.
Currently, with the exception of one European patent obtained from our
in-licensed
patent portfolio,
no other patents have issued from the patent applications that we own or
in-license.
We anticipate additional patent applications will be filed both in the United States and in other countries, as
appropriate. However, we cannot predict:
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if and when patents will issue;
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the degree and range of protection any issued patents will afford us against competitors including whether third parties will find ways to invalidate or otherwise circumvent our patents;
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whether any of our intellectual property will provide any competitive advantage;
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whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; or
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whether we will need to initiate or defend litigation or administrative proceedings which may be costly whether we win or lose.
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Composition of matter patents for biological and pharmaceutical products, such as ACTR-based product candidates, are generally considered to
be the strongest form of intellectual property protection for those types of products, as such patents provide protection without regard to any method of use. We cannot be certain that the claims in our pending patent applications covering
composition of matter of our product candidates will be considered patentable by the United States Patent and Trademark Office (USPTO), or by patent offices in foreign countries, or that the claims in any of our issued patents will be considered
patentable by courts in the United States or foreign countries. Method of use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to
our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products
off-label.
Although
off-label
prescriptions may induce or contribute to the infringement of method of use patents, the practice is common and such
infringement is difficult to prevent or prosecute.
The strength of patents in the biotechnology and pharmaceutical field involves complex
legal and scientific questions and can be uncertain. The patent applications that we own or
in-license
may fail to result in issued patents with claims that cover our product candidates or uses thereof in the
United States or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable.
Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patent
applications we hold with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. Further, if we encounter delays in our
clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after
filing, we cannot be certain that we were the first to file any patent application related to our product candidates. Furthermore, for United States applications in which all claims are entitled to a priority date before March 16, 2013, an
interference proceeding can be provoked by a third-party or instituted by the USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. Various post grant review proceedings, such as
inter partes review and post grant review, are available for any interested third party to challenge the patentability of claims issued in patents to us. While these post grant review proceedings have been used less frequently to invalidate biotech
patents, they have been successful regarding other technologies, and these relatively new procedures are still changing, and those changes might affect future results.
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In addition to the protection afforded by patents, we seek to rely on trade secret protection,
confidentiality agreements, and license agreements to protect proprietary
know-how
that is not patentable, processes for which patents are difficult to enforce and any other elements of our product discovery
and development processes that involve proprietary
know-how,
information, or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and require
all of our employees, consultants, advisors and any third parties who have access to our proprietary
know-how,
information, or technology to enter into confidentiality agreements, we cannot be certain that our
trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the
laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both
in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially
adversely affect our business, operating results and financial condition.
Third-party claims of intellectual property
infringement may prevent or delay our product discovery and development efforts.
Our commercial success depends in part on
our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as
administrative proceedings for challenging patents, including interference, reexamination, and post grant review proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Numerous U.S. and foreign issued
patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk
increases that our product candidates may give rise to claims of infringement of the patent rights of others.
Third parties may assert
that we are employing their proprietary technology without authorization. Generally, conducting clinical trials and other development activities in the United States is not considered an act of infringement. If and when ACTR087 or another product
candidate is approved by the FDA, a third party may then seek to enforce its patent by filing a patent infringement lawsuit against us. While we do not believe that any claims that could otherwise materially adversely affect commercialization of our
product candidates, if approved, are valid and enforceable, we may be incorrect in this belief, or we may not be able to prove it in a litigation. In this regard, patents issued in the U.S. by law enjoy a presumption of validity that can be rebutted
only with evidence that is clear and convincing, a heightened standard of proof. There may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment
related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may
infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Moreover, we may fail to identify relevant patents or incorrectly conclude that a patent is invalid, not
enforceable, exhausted, or not infringed by our activities. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates, constructs or molecules used in or formed during the
manufacturing process, or any final product itself, the holders of any such patents may be able to block our ability to commercialize the product candidate unless we obtained a license under the applicable patents, or until such patents expire or
they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including
combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the product candidate unless we obtained a license or until such patent expires or is finally determined
to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all,
our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.
Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to
further develop and commercialize our product candidates. Defense of these claims, regardless of their merit, could involve substantial litigation expense and would be a substantial diversion of employee resources
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from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys fees for willful
infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be
available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need or may choose to obtain licenses from third parties to advance our research or allow commercialization of
our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business
significantly.
We may not be successful in obtaining or maintaining necessary rights to product components and processes for our
development pipeline through acquisitions and
in-licenses.
Presently we have rights to
certain intellectual property, through licenses from third parties and under patent applications that we own or will own, related to ACTR087, ACTR707, and certain other product candidates. Because additional product candidates may require the use of
proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire,
in-license
or use these proprietary rights. In addition, while we have patent rights
directed to certain ACTR constructs we may not be able to obtain intellectual property to broad ACTR constructs.
Our product candidates
may also require specific formulations to work effectively and efficiently and these rights may be held by others. Similarly, efficient production or delivery of our product candidates may also require specific compositions or methods, and the
rights to these may be owned by third parties. We may be unable to acquire or
in-license
any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we
identify. Even if we are able to obtain a license, it may be
non-exclusive,
thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend
significant time and resources to develop or license replacement technology. Moreover, the specific antibodies that will be used with our product candidates may be covered by the intellectual property rights of others.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies, which may be more established,
or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates. More established
companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive,
time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or
unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more of our patents is not valid or is unenforceable, or may
refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of
being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial
diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys fees for willful infringement, obtain one or more
licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure.
Post-grant proceedings, including interference proceedings, provoked by third parties or brought by the USPTO may be necessary to determine
the validity or priority of inventions with respect to our patents or those of our licensors. An unfavorable outcome could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to
license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation or post-grant proceedings may result in a decision adverse to our interests
and, even if we are successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information,
particularly in countries where the laws may not protect those rights as fully as in the United States.
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Furthermore, because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or
other interim proceedings or developments. 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.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and
other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for
non-compliance
with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime
of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in
many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed
time limits,
non-payment
of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on
our business.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court or the
USPTO.
If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of
our product candidates, the defendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or
unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad,
even outside the context of litigation. Such mechanisms include
re-examination,
inter parties
review, post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition
proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With
respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion
of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly
patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the United States continues to adapt to
wide-ranging patent reform legislation that became effective starting in 2012. Moreover, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in
certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by
the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might
obtain in the future. Changes in the laws and regulations governing patents in other jurisdictions could similarly have an adverse effect on our ability to obtain and effectively enforce our patent rights.
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We have less robust foreign intellectual property rights and may not be able to protect our
intellectual property rights throughout the world.
Certain of our key patent families (covering the ACTR087 construct) have been
filed in the United States, as well as in numerous jurisdictions outside the United States, and we plan to similarly pursue subgeneric claims prior to expiration of applicable deadlines (including a patent family covering the ACTR707 construct).
However, we have less robust intellectual property rights outside the United States, and, in particular, we may not be able to pursue generic coverage of the ACTR platform outside of the United States. Filing, prosecuting and defending patents on
product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws
of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries
outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to
develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our
patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Most of our patent portfolio is at the very early stage. We will need to decide whether and in which jurisdictions to pursue protection
for the various inventions in our portfolio prior to applicable deadlines.
Many companies have encountered significant problems in
protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property
protection, particularly those relating to biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to
enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent
applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly,
our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We generally enter into confidentiality and intellectual property assignment agreements with our employees, consultants, and contractors. These
agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, those agreements may not be honored and may not effectively assign intellectual property rights to
us. Moreover, there may be some circumstances, where we are unable to negotiate for such ownership rights. Disputes regarding ownership or inventorship of intellectual property can also arise in other contexts, such as collaborations and sponsored
research. If we are subject to a dispute challenging our rights in or to patents or other intellectual property, such a dispute could be expensive and time consuming. If we were unsuccessful, we could lose valuable rights in intellectual property
that we regard as our own.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully
used or disclosed confidential information of third parties.
We have received confidential and proprietary information from third
parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise
used or disclosed confidential information of these third parties or our employees former employers or our consultants or contractors current or former clients or customers. Litigation may be necessary to defend against these
claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees. If we are not successful, we could lose access or exclusive access to valuable
intellectual property.
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Numerous factors may limit any potential competitive advantage provided by our intellectual
property rights.
The degree of future protection afforded by our intellectual property rights, whether owned or
in-licensed,
is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us
to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The following
examples are illustrative:
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pending patent applications that we own or license may not lead to issued patents;
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patents, should they issue, that we own or license, may not provide us with any competitive advantages, or may be challenged and held invalid or unenforceable;
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others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology but that is not covered by the claims of any of our owned or
in-licensed
patents, should any such patents issue;
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third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;
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we (or our licensors) might not have been the first to make the inventions covered by a pending patent application that we own or license;
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we (or our licensors) might not have been the first to file patent applications covering a particular invention;
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others may independently develop similar or alternative technologies without infringing our intellectual property rights;
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we may not be able to obtain and/or maintain necessary licenses on reasonable terms or at all;
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third parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from exercising exclusive rights, or any rights at all, over that intellectual property;
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we may not be able to maintain the confidentiality of our trade secrets or other proprietary information;
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we may not develop or
in-license
additional proprietary technologies that are patentable; and
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the patents of others may have an adverse effect on our business.
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Should any of these events occur, they
could significantly harm our business and results of operation.
Risks Related to Ownership of our Common Stock
We do not know whether an active, liquid, and orderly trading market will develop for our common stock or what the market price of our
common stock will be and, as a result, it may be difficult for you to sell your shares of our common stock.
Our IPO recently
closed on April 3, 2018. Although our common stock has been listed on The Nasdaq Global Select Market, an active trading market for our shares may never develop or be sustained. You may not be able to sell your shares quickly or at the market
price if trading in shares of our common stock is not active. The initial public offering price for our common stock was determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of the
common stock. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above your purchase price. Further, an inactive market may also impair our ability to raise capital by selling shares of our
common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.
The price of our stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors,
some of which are beyond our control, including limited trading volume. In addition to
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the factors discussed in this Risk Factors section and elsewhere in this Quarterly Report on Form
10-Q,
these factors include:
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the commencement, enrollment, or results of the clinical trials of our product candidates or any future clinical trials we may conduct, or changes in the development status of our product candidates;
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any delay in our regulatory filings for our product candidates and any adverse development or perceived adverse development with respect to the applicable regulatory authoritys review of such filings, including
without limitation the FDAs issuance of a refusal to file letter or a request for additional information;
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adverse results or delays in clinical trials;
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our decision to initiate a clinical trial, not to initiate a clinical trial, or to terminate an existing clinical trial;
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adverse regulatory decisions, including failure to receive regulatory approval of our product candidates;
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changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;
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adverse developments concerning our manufacturers;
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our inability to obtain adequate product supply for any approved product or inability to do so at acceptable prices;
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our inability to establish collaborations if needed;
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our failure to commercialize our product candidates;
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additions or departures of key scientific or management personnel;
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unanticipated serious safety concerns related to the use of our product candidates;
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introduction of new products or services offered by us or our competitors;
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announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors;
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our ability to effectively manage our growth;
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the size and growth of our initial cancer target markets;
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our ability to successfully treat additional types of cancers or at different stages;
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actual or anticipated variations in quarterly operating results;
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our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;
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publication of research reports about us or our industry, or immunotherapy in particular, or positive or negative recommendations or withdrawal of research coverage by securities analysts;
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changes in the market valuations of similar companies;
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overall performance of the equity markets;
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sales of our common stock by us or our stockholders in the future;
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trading volume of our common stock;
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changes in accounting practices;
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ineffectiveness of our internal controls;
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disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies;
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significant lawsuits, including patent or stockholder litigation;
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general political and economic conditions; and
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other events or factors, many of which are beyond our control.
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In addition, the stock market
in general, and The Nasdaq Global Select Market and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. If the market price of our common stock does not exceed your purchase price, you may not realize any return
on your investment in us and may lose some or all of your investment. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a companys securities.
This type of litigation, if instituted, could result in substantial costs and a diversion of managements attention and resources, which would harm our business, operating results, or financial condition.
We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our stock.
We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate
declaring or paying any cash dividends for the foreseeable future. In addition, pursuant to our loan and security agreement with PWB, we are prohibited from paying cash dividends without PWBs prior written consent, and any future debt
financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Any return to stockholders will therefore be limited to the appreciation of their stock, which may never occur.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant influence
over matters subject to stockholder approval.
Our executive officers, directors, and 5% stockholders beneficially owned
approximately 61.1% of our voting stock as of April 30, 2018. These stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For
example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited
acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
We are
an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (JOBS Act) enacted in April 2012. For as long as we
continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act), reduced disclosure obligations regarding executive compensation in this Quarterly Report on Form
10-Q
and our periodic reports and proxy statements, and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments
not previously approved. We could be an emerging growth company for up to five years following the year in which we completed our IPO, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until
the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be
a large accelerated filer, which requires the market value of our common stock that is held by
non-affiliates
to exceed $700 million as of the prior June 30th, and (2) the date on which we have
issued more than $1 billion in
non-convertible
debt during the prior three-year period.
Even
after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being
required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this Quarterly Report on Form
10-Q
and our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock
less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
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Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting
standards until such time as those standards apply to private companies. We have irrevocably elected to opt out of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised
accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance, or the application of
existing guidance to changes in our business could significantly affect our financial position and results of operations.
We will
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.
As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We will be
subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which will require, among other things, that we file with the Securities and Exchange Commission (the SEC), annual, quarterly, and current reports with respect
to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The Nasdaq Global Select Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on
public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the Dodd-Frank Act), was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas, such as say on
pay and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from our IPO. We intend to take advantage of this new legislation but cannot guarantee
that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment, and the current high level of government intervention and
regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to
make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition, and results
of operations. The increased costs will decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and
regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount
or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees,
or as executive officers.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public
market could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial
amounts of our common stock in the public market after the
lock-up
and other legal restrictions on resale entered into during our IPO lapse, the trading price of our common stock could decline. Only the shares
of common stock sold in the IPO, will be freely tradable without restriction in the public market. Morgan Stanley & Co. LLC and Cowen and Company, LLC, however, may, in their sole discretion, permit our officers, directors, and other
stockholders who are subject to these
lock-up
agreements to sell shares prior to the expiration of the
lock-up
agreements.
The
lock-up
agreements will expire 180 days from the date of our IPO. In addition, shares of common
stock that are either subject to outstanding options or reserved for future issuance under our 2018 Stock Option and Incentive Plan (2018 Plan) will become eligible for sale in the public market to the extent permitted by the provisions of various
vesting schedules, the
lock-up
agreements and Rule 144 and Rule 701 under the Securities Act of 1933, as amended (the Securities Act). If these additional shares of common stock are sold, or if it is perceived
that they will be sold, in the public market, the trading price of our common stock could decline.
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The holders of 13,646,028 shares of our common stock as of April 30, 2018, are entitled
to rights with respect to the registration of their shares under the Securities Act, subject to the
180-day
lock-up
agreements described above. Registration of these
shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these
stockholders could have a material adverse effect on the trading price of our common stock.
Future sales and issuances of our
common stock or rights to purchase common stock, including pursuant to our 2018 Plan, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical
trials, commercialization efforts, expanded research and development activities, and costs associated with operating as a public company. To raise capital, we may sell common stock, convertible securities, or other equity securities in one or more
transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities, or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material
dilution to our existing stockholders, and new investors could gain rights, preferences, and privileges senior to the holders of our common stock.
Pursuant to the 2018 Plan, our management is authorized to grant stock options to our employees, directors, and consultants.
The aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2018 Plan is 3,842,421 shares. The
number of shares of our common stock reserved for issuance under the 2018 Plan shall be cumulatively increased on January 1, 2019 and each January 1 thereafter by 4% of the total number of shares of our common stock outstanding on
December 31 of the preceding calendar year or a lesser number of shares determined by our board of directors. Unless our board of directors elects not to increase the number of shares available for future grant each year, our stockholders may
experience additional dilution, which could cause our stock price to fall.
Anti-takeover provisions under our charter documents and
Delaware law could delay or prevent a change of control, which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.
Our amended and restated certificate of incorporation and amended and restated bylaws, which became effective upon our IPO and the concurrent
private placement, contains provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:
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a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;
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a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;
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a requirement that special meetings of stockholders be called only by the chairperson of the board of directors, the chief executive officer, or by a majority of the total number of authorized directors;
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advance notice requirements for stockholder proposals and nominations for election to our board of directors;
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a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than
two-thirds
of all outstanding shares of our voting stock then entitled to vote in the election of directors;
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a requirement of approval of not less than
two-thirds
of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of
our certificate of incorporation; and
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the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the
holders of common stock.
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In addition, because we are incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and
restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of
directors and could also delay or impede a merger, tender offer, or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your
choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive
forum for substantially all disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum
for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of
incorporation or our amended and restated bylaws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or bylaws or any action asserting a claim against us that is governed by the internal affairs
doctrine. The choice of forum provision may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits
against us and our directors, officers, and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional
costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our
ability to operate our business could be harmed.
Ensuring that we have adequate internal financial and accounting controls and
procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be
re-evaluated
frequently. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. In connection with our IPO, we
began the process of documenting, reviewing, and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which will require annual management assessment of the effectiveness of our internal
control over financial reporting. We have begun recruiting additional finance and accounting personnel with certain skill sets that we will need as a public company.
Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our
existing processes, and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate
financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a
timely basis may harm our stock price and make it more difficult for us to effectively market and sell our service to new and existing customers.
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If securities or industry analysts do not publish research or publish inaccurate or
unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock
will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry
analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or
publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which
might cause our stock price and trading volume to decline.
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