ITEM 1. BUSINESS
Overview
During
February 2018, we completed the financial restructuring transactions announced in December 2017 and furthered our transformation
into a biopharmaceutical company pursuing cutting-edge science to develop our proprietary monoclonal antibodies for various oncology
indications and to enhance T-cell therapies, potentially making these treatments safer, more effective and more efficiently administered.
Our
primary focus is on preventing the serious and potentially life-threatening side-effects associated with chimeric antigen receptor
T-cell, also known as CAR-T, therapy, and in making those therapies more efficacious, efficient and cost-effective. Identifying,
treating and managing severe side-effects consumes significant hospital resources and creates additional costs that we believe
have impeded the pace of adoption of these promising treatments as the standard of care for certain hematologic cancers. These
side-effects may also hamper the expansion of CAR-T to earlier line use beyond the relapsed or refractory setting in hematologic
cancers and the utility of CAR-T in solid tumors, both of which represent significant growth drivers for the overall CAR-T marketplace.
In addition, not all patients receive clinical benefit from CAR-T therapy and the efficacy profile has room for potential improvement.
Lenzilumab,
our lead product candidate, is a novel Humaneered
®
monoclonal
antibody (mAb) that has the potential to both improve the efficacy and safety associated with CAR-T therapy. There are currently
no Food and Drug Administration (FDA) approved therapies available for the prevention of the serious side-effects associated with
CAR-T cell therapies. Preclinical data generated by the Mayo Clinic in partnership with us indicates that the use of lenzilumab
may prevent onset of both CAR-T induced neurologic toxicities and cytokine release syndrome while also enhancing the proliferation
and effector functions of the CAR-T therapy itself, thus simultaneously improving the side-effect profile, relapse rates, duration
of response and overall efficacy.
We are working to advance the development of lenzilumab through pivotal registration clinical trials in
close collaboration with some of the leading and most experienced centers in the CAR-T field. We are also exploring partnerships
with established and emerging CAR-T companies. We aim to position lenzilumab as a “must have” companion product to
any CAR-T therapy and an essential part of the standard pre-conditioning that all patients administered CAR-T must receive. We
believe that lenzilumab’s success in preventing serious, potentially life-threatening side-effects will lead to substantial
reductions in intensive care unit (ICU) admissions and duration of ICU stays. Use of lenzilumab alongside CAR-T therapy could result
in potential efficacy improvements which could offer significant economic benefits to the healthcare system as a whole, including
for hospitals, providers, patients and payers in the United States and abroad. These benefits, coupled with the potential to make
CAR-T therapy capable of being administered on an out-patient basis, with follow-up care also monitored and managed in an out-patient
setting, may improve access to and reimbursement of CAR-T therapy, which in turn may substantially expand CAR-T uptake and utilization.
We also believe we have the opportunity to benefit from various regulatory incentives, such as orphan drug exclusivity, breakthrough
therapy designation, fast track designation, priority review and accelerated approval.
CAR-T Overview and Market Opportunity
Development
and implementation of individualized treatments based on T-cell therapies has the potential to revolutionize the fight against
cancer. The two CD19 targeted CAR-T therapies that have been approved by the United States Food and Drug Administration, or FDA,
Gilead/Kite’s Yescarta
®
and Novartis’s Kymriah
®
,
are indicated for the treatment of B-cell cancers such as various types of non-Hodgkin’s lymphoma (NHL), including diffuse
large B-cell lymphoma (DLBCL), and acute lymphoblastic leukemia (ALL), that are refractory or in second or later stage relapse
(r/r). Although patients suffering from these aggressive cancers frequently undergo multiple treatments, including chemotherapy,
radiation and targeted therapy of stem cell transplants, the five-year survival rate has been severely limited and patients who
do not respond to, or have relapsed following at least two courses of standard treatment, have no other treatment options and a
very poor outcome.
The
approved CAR-T therapies have demonstrated effectiveness of using targeted immuno-cellular engineering to cause a patient’s
own T-cells to fight certain cancers that have not responded to standard therapies. T-cells are often called the “workhorses”
of the immune system because of their role in coordinating the immune response and killing cells infected by pathogens and cancer
cells. As depicted below, each of the FDA-approved CAR-T-cell therapies is currently a one-time treatment for most patients that
involves
multiple steps:
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harvesting white blood cells from the patient’s blood;
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engineering T cells within this population to express cancer-specific receptors;
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increasing and purifying the number of genetically re-engineered T cells; and
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infusing the functional cancer-specific T cells back into the patient to allow for expansion and targeting the cancer cells.
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Both Kymriah and Yescarta
received FDA approval for adults with r/r DLBCL on the basis of one single-arm Phase II study which served as the pivotal registration
trial for each product in this indication, a markedly accelerated process that indicates FDA’s view of the strong potential
of these novel CAR-T treatments to address an unmet need and improve patient outcomes. Moreover, Kymriah also received FDA approval
for the treatment of pediatrics and adolescents with r/r ALL based on a single phase II study. The Novartis-sponsored Kymriah
study in ALL showed that 83% of pediatric and adolescent patients with r/r ALL achieved complete remission or complete remission
with incomplete blood count recovery. The Novartis-sponsored Kymriah study in adults with r/r DLBCL showed that 32% of adults
achieved a complete response (CR) within three months of infusion.
The
single Phase II study that led to the FDA approval of Yescarta in r/r DLBCL showed similarly positive results. The study enrolled
101 patients with large B-cell lymphoma at advanced stages despite having undergone at least two previous treatments, with approximately
20% of patients already having undergone a stem cell transplant. Just over half of the patients in the study achieved a CR with
Yescarta.
Since
the initial FDA approval was granted to Novartis for Kymriah in r/r ALL, the CAR-T market has seen rapid expansion, with Gilead/Kite
launching Yescarta in r/r DLBCL, Novartis expanding its label for Kymriah to include r/r DLBCL and dozens of other biotechnology
companies actively working to progress CAR-T therapies as potential treatments for numerous hematologic and solid cancers.
Both Kymriah and Yescarta are autologous
individualized CD19 targeted CAR-T cell therapies. Development is also ongoing for both Kymriah and Yescarta for earlier lines
of therapy for DLBCL, in other types of NHL and for the treatment of chronic lymphocytic leukemia (CLL). According to the National
Cancer Institute Surveillance, Epidemiology, and End Results Program (SEERS) as well as the American Cancer Society's Cancer Statistics
Center and World Health Organization Union for International Cancer Control, it is estimated that up to 10,000 patients with r/r
B-cell hematologic malignancies (including DLBCL, ALL, CLL) per year may potentially benefit from CD19 targeted CAR-T cell therapies.
Should CD19 targeted CAR-T therapies gain approval for earlier second line usage versus stem cell transplantation in DLBCL, an
additional 5,000 to 10,000 patients per year may be eligible for treatment. Moreover, there are two BCMA targeted CAR-T cell therapies
in phase II development for r/r multiple myeloma and several other novel CAR-T cell therapies targeting various antigens and neo-antigens
in development for a number of hematologic and solid cancers. While there may be individual differences between CAR-T products,
the overall safety profile is, for the most part, expected to be consistent with that reported with Yescarta and Kymriah.
FDA
Commissioner Scott Gottlieb and Center for Biologics Evaluation and Research (CBER) Director Peter Marks detailed plans for the
agency to keep pace with an expected influx of applications for cell and gene therapies over the coming years. By 2020, Gottlieb
and Marks say they expect to be receiving upwards of 200 INDs for cell and gene therapies each year, adding to the 800 active Investigational
New Drug Applications (INDs) for such products already filed with the agency. By 2025, they predict the agency will be approving
between 10 and 20 cell and gene therapy products annually. The FDA has also issued final guidance to gene therapy and cell therapy
developers, whereby under the Regenerative Medicine Advanced Therapy (RMAT) designation, qualified applications will be eligible
for priority review and accelerated approval.
The global CAR-T market is projected to
grow from approximately $300 million in 2018 to greater than $2 billion in 2021, with continued growth to approximately $8.5 billion
in 2028. These market projections do not account for additional growth opportunities including the expansion of CD19 CAR-T therapies
for use in various solid tumors, which is currently in early to mid-stage clinical development.
Lenzilumab Overview and Market Opportunity
The
two currently approved CAR-T therapies are not without significant limitations. Both Kymriah and Yescarta have black box warnings
for cytokine release syndrome (CRS) and neurologic toxicities (NT) and were approved with a risk evaluation and mitigation strategy
(REMS) to assist and train certified centers on the management of these serious side effects. This has adversely impacted both
market uptake and usage to date. Both CRS and NT are caused by a large-scale release of pro-inflammatory cytokines and chemokines
induced by the CAR-T therapy, sometimes referred to as a “cytokine storm”. Up to 94% of patients treated with Yescarta
or Kymriah in the clinical trial setting experienced CRS (with up to 49% of cases being severe or grade
>
3 in nature)
and up to 87% experienced NT (with up to 31% of cases being severe or grade
>
3 in nature). Moreover, approximately 30-60%
of patients treated required admission to the intensive care unit (ICU), where ventilator support, vasopressors and other supportive
care was provided to attempt to manage these side-effects.
Some patients can suffer seizures, coma, brain swelling, heart
arrhythmias, organ failure and serious and life-threatening clotting disorders. These can be particularly challenging and concerning
issues, especially in younger and pediatric patients.
We expect that the CAR-T therapies
under development may be hampered by the same significant side effects. If such side-effects can be ameliorated or eradicated,
and adequate data is submitted to FDA, the Black Box warning and REMS program could potentially be scaled back or removed.
There
are currently no FDA-approved products for the prevention or treatment of NT nor for the prevention of CRS associated with CAR-T
therapy. Medicines used to manage severe cases of CRS
do not universally treat nor necessarily control these side
effects and their early prophylactic use is not recommended as it may either interfere with the effectiveness of the CAR-T therapy
itself or increase the risk of CAR-T induced NT.
Improvements in the ability to prevent or
mitigate NT and CRS are needed to remove these major impediments to uptake and utility of CAR-T therapies, reduce healthcare utilization
and improve overall patient outcomes. There have been several deaths reported as a result of these side-effects and managing patients
with these side-effects can consume a significant amount of in-hospital resources, including extended stays in the ICU. The primary
driver of non-drug related costs associated with CAR-T therapy is the length of stay in the hospital, particularly if this includes
ICU admission. Non-drug related costs for patients who develop CRS and/or NT are approximately double that of patients who do not
develop these serious toxicities. Further, as the potential benefit of CAR-T cell therapies are explored in earlier lines of hematologic
cancers (rather than as salvage therapy for patients who have exhausted other options) and in solid tumors, the need to address
these serious side-effects, as well as the incremental costs related to serious side-effects, becomes paramount.
In
addition to improving patient outcomes, the ability to prevent or treat NT or prevent CRS associated with CAR-T therapy may offer
significant benefits in making these treatments more cost-effective to administer in the United States and abroad. Reimbursement
for patients who are treated only as out-patients is profoundly different from, and more favorable than that for patients who
require inpatient treatment in a hospital. Unfortunately, at present, the need to identify, treat and manage NT and CRS generally
has prevented CAR-T therapies from being administered, monitored and managed, on a routine out-patient basis. As a result, having
an ICU bed available prior to initiating CAR-T therapy may be required due to the risks associated with CRS and NT, placing pressure
on valuable and costly hospital in-patient resources. In certain institutions, the patient is admitted as an in-patient and is
required to remain in the hospital for at least a week, with discharge being subject to satisfactory short-term outcomes and no
emergence of serious complications. Even in select institutions where the CAR-T infusion is initially administered in an out-patient
setting, the patient is closely monitored daily for several weeks and is required to stay within a short distance from the hospital,
often requiring additional lodging, food and other costs to be incurred. In some situations these patients are re-admitted to
the hospital on an emergency basis as an in-patient if complications ensue.
If a patient is admitted or re-admitted to
the hospital as an in-patient, the hospital reimbursement dynamics may change in a manner which is negative for the hospital,
the payer and the patient.
This dynamic also changes typical hospital reimbursement, depending
on when in the treatment cycle the patient is admitted or re-admitted.
The
reimbursement challenges associated with CAR-T therapies are proving to be an impediment to greater utilization of Kymriah and
Yescarta in the United Kingdom (UK), where the National Institute of Clinical Excellence (NICE) initially recommended that the
UK National Health Service not reimburse Yescarta based on their assessment of the cost per Quality-Adjusted Life Year (QALY).
A key driver of the cost per QALY is in-patient and potential ICU related costs.
A positive recommendation for use of Yescarta
within the Cancer Drugs Fund (CDF) and in the context of a managed access agreement has subsequently been made by the NICE appraisal
committee. When the data collection period finishes (anticipated by February 2022), the process for exiting the CDF will
begin and the review of NICE’s guidance for Yescarta will start.
While both Kymriah
and Yescarta have been approved by the European Medicines Agency (EMA), commercial use has been largely limited to patients in
France, Germany and Austria as the companies establish reimbursement arrangements intended to facilitate access to the treatments
on a discounted basis consistent with the governmental mandates to curb healthcare spending. These dynamics, and the additional
complexity of treating patients with serious and potentially life-threatening side-effects in the hospital and/or ICU, mean that
enabling true out-patient administration and follow-up would confer significant benefits to patients, hospitals, payers and the
healthcare system.
Our Solution
In
our review of results of CAR-T clinical trials, as well as pre-clinical studies that seek to understand the causation of side-effects,
we noted that CAR-T infusion leads to an early rise in levels of granulocyte-macrophage colony-stimulating factor
(
GM-CSF),
a cytokine that is well documented to be of critical importance and essential to the initiation of the inflammatory cascade associated
with CAR-T-related side- effects. GM-CSF is one of only two cytokines that have been clearly demonstrated to be associated
with severe NT, with peak levels of GM-CSF being strongly associated with NT. Moreover, there is an abundance of data demonstrating
that GM-CSF is upstream in the cytokine cascade and that the neutralization of GM-CSF is known to inhibit the release of key downstream
cytokines known to be associated with CRS.
Lenzilumab,
our proprietary Humaneered
®
monoclonal antibody, targets and
neutralizes GM-CSF, and has been shown to be generally safe and well tolerated in more than 110 patients in two Phase I and two
Phase II clinical studies, including in chronic myelomonocytic leukemia.
We
believe lenzilumab has the potential to improve the efficacy and safety of CAR-T therapy and that the use of lenzilumab may minimize
or eradicate the incidence, frequency, duration and/or severity of NT and/or CRS associated with CAR-T therapy while enhancing
CAR-T proliferation and effector functions and potentially confer additional benefits in terms of healthcare resource utilization.
We also believe lenzilumab may further improve the value proposition of CAR-T therapies and facilitate their use and acceptance
throughout the healthcare systems in the United States and abroad.
A strong scientific rationale exists for
GM-CSF neutralization with lenzilumab to improve the safety, efficacy and cost-effectiveness of CAR-T therapy.
Lenzilumab
is in development to significantly reduce the incidence and severity of CAR-T induced NT and CRS, and to improve the overall efficacy
and duration of response of CAR-T therapy. Robust scientific rationale and independent scientific research from leading institutions
support GM-CSF neutralization as a validated target in this setting.
In December 2017, we held a scientific advisory
board at the 2018 annual meeting of the American Society of Hematology (ASH) with leading key opinion leaders in the CAR-T field
to validate the scientific rationale of lenzilumab prophylactic therapy in combination with CAR-T. Based on feedback received from
the advisory board, we created the development plan for lenzilumab. To that end, we initiated preclinical studies using proprietary
xenograft models in collaboration with the Mayo Clinic, with final results presented at the oral plenary session of the 2018 ASH
annual meeting and a manuscript published and featured on the front cover of Blood, the official journal of ASH. In addition, and
following subsequent scientific advisory boards convened at the 2018 American Society of Clinical Oncology and ASH annual meetings,
we continued to work with leading key opinion leaders and CAR-T centers to advance lenzilumab into phase Ib/II pivotal trials in
combination with the approved, CD19 targeted CAR-T therapies.
Following
our outreach to key opinion leaders and innovators in the CAR-T field, we tested the hypothesis of using lenzilumab as a prophylactic
approach against these side-effects. The preclinical study conducted in 2018 in collaboration with the Mayo Clinic validated
our hypothesis that the use of lenzilumab along with CD19 targeted CAR-T effectively neutralized GM-CSF, significantly reduced
NT and prevented CRS. In addition, the Mayo Clinic study showed that the use of lenzilumab enhanced CAR-T proliferation and effector
functions,
enhanced anti-tumor response and
improved the efficacy, duration of response
and relapse rates of CAR-T therapy. This was the first time it has been demonstrated that the toxicities associated with CAR-T
therapy can be effectively abrogated
in-vivo
.
Our
current clinical and regulatory development plan for lenzilumab contemplates company-sponsored or collaborative phase Ib/II clinical
trials in combination with approved CD19 targeted CAR-T therapies. Depending upon FDA feedback, we believe these trials may serve
as the basis for registration for lenzilumab.
Our Pipeline
We
are pursuing several other initiatives with lenzilumab and our two additional novel monoclonal antibodies, ifabotuzumab and HGEN005,
in the immune-oncology field.
Our monoclonal antibody portfolio was developed using our proprietary, patent-protected Humaneered
technology, which consists of methods for converting antibodies (typically murine) into engineered, high-affinity antibodies designed
and optimized for human therapeutic use.
These product candidates are in the early
stage of development and will require substantial time, resources, research and development, and regulatory approval prior to commercialization.
Furthermore, none of these product candidates has advanced into a pivotal registration study and it may be years before such a
study is initiated, if at all.
Our current pipeline is depicted below:
Pre-clinical research has shown that ifabotuzumab,
our first in class anti-EphA3 monoclonal antibody, is an attractive tumor-specific therapy for glioblastoma multiforme (GBM) and
other solid tumors, as a naked antibody, as part of an antibody-drug conjugate as well as a backbone for a novel CAR-T construct
and a bispecific antibody platform. There has not been a meaningful improvement in overall survival in brain cancer sufferers
in decades. Ifabotuzumab crosses the blood-brain barrier (BBB) and accumulates specifically at the tumor site with no observed
normal brain tissue uptake. EphA3 is expressed most highly on glioma stem cells (GSCs), where EphA3 has a functional role in survival
and self-renewal. In GBM, EphA3 expression has been shown to be significantly elevated in recurrent versus treatment-naïve
disease. EphA3 has also been shown to be over-expressed in a number of other solid tumors in humans. EphA3 antibody targeting
has been shown to inhibit tumor growth by disrupting newly formed tumor microvasculature (neovasculature). A phase I clinical
trial is currently underway using ifabotuzumab in patients with recurrent GBM. This study is in part motivated by reports of the
positive results of other ADC therapies in the treatment of GBM. An antibody-drug conjugate (ADC) being developed by Abbvie is
in a Phase III clinical study for GBM and utilizes the cytotoxic agent monomethyl auristatin F (MMAF) combined with depatuxizumab.
Efficacy has been demonstrated as both a single agent and in combination with temozolomide (TMZ). Ifabotuzumab is being developed
by the leading experts in the space, who played a critical role in the discovery and development of the depatuxizumab-based ADC.
HGEN005 is our proprietary Humaneered anti-EMR1
monoclonal antibody in development for various eosinophilic diseases and as a backbone for a novel CAR-T construct for eosinophilic
leukemia.
Lenzilumab
Overview and Mechanism of Action
Lenzilumab, previously referred to as KB003,
is a novel monoclonal antibody designed to target and neutralize human GM-CSF, which is also known as ‘myeloid inflammation
factor’. We used our proprietary and patented-protected Humaneered antibody development platform to develop lenzilumab. There
is extensive evidence linking GM-CSF expression to serious and potentially life-threatening side-effects in CAR-T therapy. Our
focus for lenzilumab development is investigating its potential to improve efficacy of CAR-T and to prevent or ameliorate CAR-T-related
NT and CRS. Following CAR-T administration GM-CSF initiates a signaling cascade of inflammation that results in the trafficking
and recruitment of myeloid cells to the tumor site. These myeloid cells then produce key downstream cytokines known to be associated
with development of NT and CRS, perpetuating the inflammatory cascade. Peer-reviewed publications in leading journals by well-recognized
experts have shown that GM-CSF is a biomarker present in patients who suffer serious NT as a side-effect of CAR-T therapy.
GM-CSF is critical for the initiation of
CRS and the inflammatory cascade following CAR-T cell therapy. It is upstream and the precursor to other cytokines involved in
the cascade. GM-CSF knock-out (k/o) animals or animals that lack a functional myeloid compartment do not develop CRS and have normal
levels of downstream cytokines, including IL-6, IL-1 and MCP-1/CCL2. Animals that are k/o for IL-1, INF-
g
and IL-6 still develop CRS in models which recapitulate this syndrome. The lack of GM-CSF did not affect T-cell cytotoxicity as
GM-CSF k/o animals had equivalent effector to target cell (E:T) ratios and cytotoxic activity against tumour cells. GM-CSF is required
for CCR2
+
monocytes to initiate and sustain neuro-inflammation. It is postulated that GM-CSF induces CCR2+ inflammatory
myeloid derived cells to infiltrate into CNS, activating the microglial cells; the activated microglial cells then increase their
expression of CCL2/MCP-1 to further recruit inflammatory myeloid cells in a self-perpetuating manner, forming a positive feedback
loop. Research from CAR-T clinical trials demonstrated that fever and elevated MCP-1 levels 36 hours post CAR-T treatment were
most predictive of severe CRS and NT across patients with NHL, ALL and CLL.
There are multiple other publications and
data that point to the pivotal role of GM-CSF in CRS and NT which have been extensively discussed with leading KOLs. We believe
that lenzilumab, used as a companion therapy with CAR-T offers a number of potential benefits, including
:
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Lower rates of severe/grades
>
3 CRS and all grades of CRS;
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Lower rates of severe/grades
>
3 NT and all grades of NT;
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Lower rates of ICU admissions and duration of hospitalization;
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Improved anti-tumor response (e.g. ORR, CR) and overall patient outcomes;
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Improved duration of response and reduced relapse rates;
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Improved cost effectiveness and reduced direct/indirect costs;
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Improved reimbursement, and preferential formulary placement for CAR-T;
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Expansion of CAR-T beyond the relapse/refractory setting to second-line and potential first-line use due to improved benefit-risk
profile, increasing utilization to a significantly larger pool of patients;
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Expansion of CAR-T into solid tumor treatments; and
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Scaling back or removal of current CAR-T required REMS programs due to improved benefit-risk profile of CAR-T.
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Preclinical studies conducted at the Mayo
Clinic using human ALL blasts, human CD19 CAR-T, and human PBMCs, demonstrate that blockade of GM-CSF with lenzilumab prevents
the onset of CRS, reduces neuro-inflammation by 75% (as assessed by quantitative MRI) and maintains the integrity of the BBB compared
to CAR-T plus control antibody, where CRS, neuro-inflammation and BBB disruption can be profoundly affected. The administration
of lenzilumab in combination with CAR-T therapy led to a significant (5-fold) increase in proliferation of CAR-T cells and improved
CAR-T effector function, presumably due to a decrease in MDSC expansion and trafficking which is known to be promulgated by GM-CSF.
GM-CSF neutralization in combination with CAR-T therapy reduces relapse, enhances anti-tumor response and improves overall survival
compared to CAR-T therapy alone. Moreover, the combination of lenzilumab and CAR-T reduces myeloid cell infiltration into the
CNS and results in significantly better leukemic control as quantified by flow cytometry compared to CAR-T and control antibody.
Data from CAR-T clinical trials suggests that the only cytokines associated with grade
>
3 NT are GM-CSF and IL-2. Moreover,
in patients who developed severe NT, there was a 17-fold increase in myeloid cell trafficking into the CNS further establishing
the role of GM-CSF in expansion and trafficking of myeloid cells in the toxicities associated with CAR-T therapy.
We are also developing lenzilumab for use
in patients with CMML and have completed enrollment of a Phase I study. We are assessing plans to investigate use of lenzilumab
in patients with juvenile myelomonocytic leukemia (JMML) where it has been clearly demonstrated that in these pediatric/adolescent
patients, there is hypersensitivity to levels of GM-CSF. This could be ameliorated by lenzilumab. Clinical data also shows the
potential for lenzilumab as a treatment for certain other conditions, including eosinophilic asthma and rheumatoid arthritis (RA).
There is potential for a range of other oncology, immunology and autoimmune conditions and we are actively investigating lifecycle
management opportunities for lenzilumab in high value markets with strong unmet medical needs.
Development Program
In Combination with CD19 Targeted CAR-T Therapies
We
are working to initiate pivotal studies of lenzilumab prophylaxis in combination with CAR-T therapies with a primary objective
of reducing the incidence of grade
>
3 NT and grade
>
3 CRS. Secondary endpoints of our planned trials include:
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the reduction in incidence of all grades NT and all grades CRS;
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reduction in rates and duration of ICU stay; and
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the impact of lenzilumab on the efficacy of CAR-T, including improvement in the objective
response rate (ORR), rate of complete response (CR), duration of response (DOR), progression free survival (PFS) and overall survival
(OS).
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Currently, we plan to study lenzilumab with
both of the FDA-approved CAR-T therapies (Yescarta and Kymriah) utilizing a Phase Ib run-in section, followed by a Phase II section
which will enroll a larger number of patients.
The trials are expected to begin enrollment
in the second half of 2019 and, if outcomes are positive, study completion in 2020 and a biologics license application, or BLA
submission in 2021. A pre-IND meeting with the FDA is planned to align on the study design and overall development objectives,
including timing and criteria for achieving breakthrough and orphan designation.
We have benchmarked the studies undertaken
in the CAR-T space and the regulatory strategies employed to secure FDA approval and intend to leverage this knowledge in our clinical
development and regulatory plans.
We expect this to be a fast-to-recruit and fast to report
study with a high probability of technical and regulatory success given the comprehensive body of evidence supporting this approach.
The initial phase Ib component of the trial is designed to confirm the dose and dosing frequency of lenzilumab in combination with
CAR-T to take forward into the larger phase II portion of the study.
CMML
We believe lenzilumab has potential as a
therapy for CMML, a rare form of hematologic cancer with no FDA-approved treatment options and a three-year overall survival rate
of 20% and median overall survival of 20 months. We also believe lenzilumab has potential as a therapy for JMML, a rare pediatric
form of leukemia with no FDA-approved treatment options. CMML is a clonal stem cell disorder of which monocytosis is a key feature.
CMML has features of myelodysplastic syndrome (MDS) including abnormal, dysplastic bone marrow cells, cytopenia, transfusion dependence,
and myeloproliferative neoplasms, including overproduction of white blood cells, organomegaly such as splenomegaly and hepatomegaly
and extramedullary disease. Approximately 15% to 20% of CMML cases progress to acute myeloid leukemia, or AML. According to the
American Cancer Society, approximately 1,100 individuals in the US are newly diagnosed annually with CMML, with the majority of
these new patients being age 60 or older. These patients are typically unsuitable for stem cell transplants. Preclinical studies
have shown lenzilumab can cause apoptosis in CMML cells by depriving them of GM-CSF.
An IND for a Phase I/II CMML monotherapy
study of lenzilumab is in effect. In July 2016, we initiated dosing in a Phase I multicenter, open label, repeat-dose, clinical
trial in patients with previously-treated CMML who are no longer responsive to previous treatment, to identify the recommended
Phase II dose of lenzilumab and to assess lenzilumab’s safety, pharmacokinetics, and other measures. The study is fully
enrolled. The primary endpoint of this study is the safety of lenzilumab, as measured by the number of participants with adverse
events, at various doses in order to determine a recommended Phase II dose. Secondary endpoints include changes in spleen size,
blood and bone marrow measurements of disease, clinical symptoms and other measures.
We may investigate lenzilumab as a potential
treatment for JMML, either alone or with a partner. There are approximately 420 new cases of JMML annually in the US and the disease
mostly affects children aged four and younger. We believe that lenzilumab may be eligible for a rare pediatric disease priority
review voucher if approved for JMML. We also believe lenzilumab in CMML or JMML could qualify for orphan drug designation and potentially
other FDA incentives.
Previous clinical studies of lenzilumab
include a repeat-dose, Phase II clinical trial of lenzilumab in RA with the inclusion of a safety run-in portion. On
completing the safety run-in portion of this trial, which showed lenzilumab to be well tolerated with no clinically significant
adverse events, we reassessed the increasingly competitive RA market and chose to redirect our study of lenzilumab to other areas
given the competitive intensity and diminishing levels of unmet need in RA relative to some other medical areas. Results from
a subsequent randomized, double-blinded, placebo-controlled, repeat dose, Phase II clinical trial in severe asthma, showed
a statistically significant benefit on patients with eosinophilic asthma. As a result of a strategic shift and other corporate
activities, we terminated development of lenzilumab in severe asthma. We have generated safety and tolerability data in more
than 110 patients in various clinical studies and have demonstrated lenzilumab to be safe and well tolerated in these settings.
Ifabotuzumab
Ifabotuzumab is a Humaneered monoclonal
antibody, formerly referred to as KB004, which targets the EphA3 receptor and in which the antibody carbohydrate chains lack fucose,
thereby enhancing the targeted cell-killing activity of the antibody. In 2006, we entered into a license agreement with Ludwig
Institute for Cancer Research (LICR) pursuant to which LICR granted certain exclusive rights to the ifabotuzumab prototype (referred
to as IIIA4) as well as EphA3 intellectual property.
Ifabotuzumab binds to the EphA3 receptor,
which plays an important role in cell positioning and tissue organization during fetal development, but is not thought to play
a significant role in healthy adults. EphA3 is a receptor tyrosine kinase aberrantly expressed on the tumor cell surface in a number
of hematologic malignancies and solid tumors. It is also expressed on the stem cell compartment, which includes malignant stem
cells, the vasculature that feeds them, and the stromal cells that protect them. EphA3 expression has been documented in a number
of hematologic and solid tumor types, including AML, chronic myelogenous leukemia, chronic lymphocytic leukemia, MDS, myelofibrosis,
multiple myeloma, melanoma, breast cancer, non-small cell lung cancer, colorectal cancer, gastric cancer, renal cancer, glioblastoma
multiforme (GBM), and prostate cancer, making it an attractive target. Publications related to certain cancers have indicated that
EphA3 tumor cell expression correlates with cancer growth and a poor prognosis. EphA3 is overexpressed in GBM and, in particular,
in the most aggressive mesenchymal subtype. Importantly, EphA3 is highly expressed on the tumor-initiating cell population in glioma
and appears critically involved in maintaining tumor cells in a less differentiated state by modulating mitogen-activated protein
kinase signaling. EphA3 knockdown or depletion of EphA3-positive tumor cells may reduce tumorigenic potential to a degree comparable
to treatment with a therapeutic radiolabeled EphA3-specific monoclonal antibody. We believe EphA3 is a functional, targetable receptor
in GBM as well as certain lymphomas and leukemias. A study published in December 2018 showed that an antibody drug conjugate (ADC)
comprising IIIA4 (a predecessor monoclonal antibody and prototype for ifabotuzumab) showed significant survival benefit in mice
with GBM.
Anti-EphA3 treatment has shown encouraging
preclinical results in multiple experiment types, including patient primary tumor cell assays, colony forming assays, and xenograft
mouse models. Upon binding to EphA3, ifabotuzumab causes cell killing to occur either through antibody-dependent, cell-mediated
cytotoxicity (ADCC) or through direct apoptosis, and in the case of tumor neovasculature, through cell rounding and blood vessel
disruption. Given the expression pattern of EphA3 in multiple tumor types, ifabotuzumab may have the potential to kill cancer cells
and the tumor stem cell microenvironment, providing for long-term responses while sparing normal cells.
Further, by developing ifabotuzumab as
the backbone for a next generation CAR construct, we may have the ability to target both the tumor and tumor vasculature in a
novel manner and build on the experience with current second generation CD19 CAR-T cell therapies. An investigator-sponsored Phase
I radiolabeled imaging trial of ifabotuzumab in GBM, a particularly aggressive and deadly form of brain cancer, has begun at the
Olivia-Newton John Cancer Institute in Melbourne, Australia and has now expanded to include a site in Brisbane, Australia. On
December 5, 2017, the first patient received ifabotuzumab in a trial that will seek to confirm the safety of ifabotuzumab and
potentially determine the best dose to effectively penetrate brain tumors. Currently, five patients with recurrent GBM have received
ifabotuzumab in this study and the investigators expect approximately 12-18 patients to participate in the trial. Given the interest
in EphA3 as a target, the broad range of potential tumors that express EphA3 and our own CAR development, we are now evaluating
wider opportunities to partner ifabotuzumab.
We are in discussions with separate
and various parties and may initiate partnerships to pursue some of the following activities:
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Initiate and complete pre-clinical studies with a CAR product;
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Complete the on-going clinical study and pre-clinical studies with various ADCs that are based on ifabotuzumab (in partnership
with leading centers in Australia);
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Develop bi-specific antibodies based on ifabotuzumab; and
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Develop a radiopharmaceutical therapeutic.
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We have conducted a Phase I/II trial for
ifabotuzumab in multiple hematologic malignancies. The most common adverse event attributed to ifabotuzumab in this trial was
infusion reactions (chills, fever, nausea, hypertension, and rapid heart rate) which is an expected safety finding based on the
mechanism of action. The majority of infusion reactions were mild-to-moderate in severity and resolved with temporary stoppage
of infusion and/or use of medications to treat symptoms. In 2014, we completed the Phase I dose escalation portion of our study,
primarily treating patients with AML as well as patients with MDS and myelofibrosis. We suspended enrollment in that study due
to the bankruptcy filing in December 2015.
Centers in Australia continued to work independently
on IIIA4, the murine antibody parent of ifabotuzumab, as an ADC in mice and a December 2018 publication in the journal ‘Cancers’
showed that in mice engrafted with GBM, treatment with an ADC based on IIIA4 showed significantly improved survival. The authors
pointed out the similarities between this approach and that taken by AbbVie with their ADC (depatuxizumab mafodotin) currently
in Phase III for GBM. We have developed, with a collaborator in a leading center, ifabotuzumab mafodotin and initiated pre-clinical
animal testing. The aim is to develop this ADC for the treatment of GBM, similar to what AbbVie have done, and explore use in other
solid tumors that express EphA3.
HGEN005
HGEN005 is a pre-clinical stage Humaneered
monoclonal antibody that is being evaluated as a novel treatment for disorders caused by eosinophils. Eosinophils are multi-functional
white blood cells implicated in the pathogenesis of a wide variety of disorders including: eosinophilic leukemia, eosinophilic
esophagitis, eosinophilic/allergic asthma, helminth (intestinal worm) infections, hematologic malignancies and hypereosinophilic
syndromes (HES). The target for HGEN005 is EMR1 (human epidermal growth factor-like module containing mucin-like hormone receptor)
a G-protein coupled receptor of unknown function. An analysis of human blood and bone marrow confirmed that EMR1 expression is
high and restricted to eosinophils.
In vivo
studies have demonstrated that blood eosinophils are efficiently and selectively
depleted by targeting EMR1 with a chimeric antibody precursor to HGEN005 and this work was published in J. Allergy Clin. Immunol.
Importantly, HGEN005 does not to appear to impact mast cells, while selectively and effectively depleting eosinophils.
HGEN005 may offer utility as part of a
CAR-T approach in serious eosinophilic disorders. We are collaborating with a top US center to develop an HGEN005-based CAR, potentially
as a treatment for eosinophilic leukemia, an orphan disease with high unmet medical need and also exploring partnering opportunities.
Our Humaneered Technology
Our proprietary and patented Humaneered technology
platform is a method for converting existing antibodies (typically murine) into engineered, high-affinity human antibodies designed
for therapeutic use, particularly for chronic conditions. We have developed or in-licensed targets or research (mouse) antibodies,
typically from academic institutions, and then applied our Humaneered technology to them. Lenzilumab, ifabotuzumab and HGEN005
are Humaneered antibodies. In aggregate, our Humaneered antibodies have been tested clinically in more than 200 patients
with no evidence of serious immunogenicity. We believe our Humaneered antibodies are closer to human antibodies than chimeric or
conventionally humanized antibodies, that they are prone to being rejected less and may bind better to their target. Specifically,
our Humaneered technology generates an antibody from an existing antibody with the required specificity as a starting point
and, we believe, provides the following advantages:
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retention of identical target epitope specificity of the starting antibody and frequent generation of higher affinity antibodies;
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very-near-to-human germ line sequence, which we believe means our Humaneered antibodies are less likely to induce an inappropriate
immune response in broad patient populations when used chronically than chimeric or conventionally humanized antibodies, which
has proven to be the case in clinical studies;
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antibodies with physiochemical properties that facilitate process development and formulation (lack of aggregation at high
concentration);
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high antibody expression yields;
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an optimized antibody processing time of three to six months; and
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potential cost-of-goods benefits.
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As we are focused on progressing our current
portfolio of antibodies through clinical development and out-licensing, we are not currently dedicating additional resources to
the research or development of additional Humaneered antibodies other than our existing portfolio of lenzilumab, ifabotuzumab and
HGEN005.
Intellectual Property
Licensing and Collaborations
The Ludwig Institute for Cancer Research
In May 2004, we entered into a license agreement
with the Ludwig Institute for Cancer Research (LICR) pursuant to which LICR granted to us an exclusive license for intellectual
property rights and materials related to chimeric anti-GM-CSF antibodies that formed the basis for lenzilumab. Under the agreement,
we were granted an exclusive license to develop antibodies related to LICR’s antibodies against GM-CSF. We are responsible
for using commercially reasonable efforts to research, develop, and sell lenzilumab. We pay LICR a quarterly license fee and are
obligated to pay to LICR a royalty from 1.5% to 3% of net sales of licensed products, subject to certain potential offsets and
deductions. Our royalty obligation applies on a country-by-country and licensed product-by-licensed product basis, and will begin
on the first commercial sale of a licensed product in a given country and end on the later of the expiration of the last to expire
patent covering a licensed product in a given country (which in the United States, is currently expected in 2029 for the composition
of matter and 2038 for methods of use in CAR-T) or 10 years from first commercial sale of such licensed product in the country.
We must also pay to LICR a certain percentage of sublicensing revenue received by us. Payments made to LICR under this license
for the twelve months ended December 31, 2018 and 2017 were $0.1 million and $0.1 million, respectively.
Other Material License Agreements
LICR and ifabotuzumab
In 2006, we entered into a license agreement
with LICR pursuant to which LICR granted to us certain exclusive rights to the ifabotuzumab prototype (IIIA4) which targets the
EphA3 receptor and EphA3-related intellectual property. Under the agreement, we obtained rights to develop and commercialize products
made through use of licensed patents and any improvements thereto, including human or Humaneered antibodies that bind to or
modulate EphA3. We paid LICR an upfront option fee of $0.05 million and a further $0.05 million upon our exercise of the option
for the exclusive license outlined above. We are responsible for contingent milestone payments of less than $2.5 million and
royalties of 3% of net sales subject to certain potential offsets and deductions. In addition, we are obligated to pay to LICR
a percentage of certain payments we receive from any sublicensee in consideration for a sublicense. Our royalty obligation exists
on a country-by-country and licensed product-by-licensed product basis, which will begin on the first commercial sale and end on
the later of the expiration of the last to expire patent covering such licensed product in such country, which in the United States
is currently expected in 2031, or 10 years from first commercial sale of such licensed product in such country.
BioWa and Lonza
In October 2010, we entered into a license
agreement with BioWa, Inc. (BioWa) and Lonza Sales AG (Lonza) pursuant to which BioWa and Lonza granted us a non-exclusive,
royalty-bearing, sub-licensable license under certain know-how and patents related to antibody expression and antibody-dependent
cellular cytotoxicity enhancing technology using BioWa and Lonza’s Potelligent
®
CHOK1SV technology. This
technology is used to enhance the cell killing capabilities of antibodies and is currently used by us in connection with our development
of ifabotuzumab. Under this agreement, we owe annual license fees, milestone payments in connection with certain regulatory and
sales milestones and royalties in the low single digits on net sales of products developed under the agreement. The agreement expires
upon the expiration of royalty payment obligations under the agreement, is terminable at will by us upon written notice, is terminable
by BioWa and Lonza if we challenge or otherwise oppose any licensed patents under the agreement, and is terminable by either party
upon the occurrence of an uncured material breach or insolvency. Payments made to BioWa under this license for the twelve months
ended December 31, 2018 and 2017 were $0.1 million and $0.1 million, respectively.
Patents and Trade Secrets
We use a combination of patent, trade secret
and other intellectual property protections to protect our product candidates. We will be able to protect our product candidates
from unauthorized use by third parties only to the extent they are covered by valid and enforceable patents or to the extent our
technology is effectively maintained as trade secrets. Patent and trade secrets are an important element of our business. Our
success will depend in part on our ability to obtain, maintain, defend and enforce patent rights for and to extend the life of
patents covering lenzilumab, ifabotuzumab, HGEN005 and our Humaneered technology, to preserve trade secrets and proprietary know
how, and to operate without infringing the patents and proprietary rights of third parties. We actively seek patent protection,
if available, in the United States and select foreign countries for the technology we develop. We have 74 registered patents,
including 17 registered in the U.S. and 57 registered in foreign countries. Of the 74 registered patents, 50 are owned by us,
nine are owned jointly with a third party, and 15 are exclusively licensed from a third party. We also have 15 patent applications
pending globally.
Using our Humaneered technology, we developed
and own a composition of matter patent covering lenzilumab and related anti-GM-CSF antibodies that provide patent protection through
April 2029 and have additional pending patents in the United States and a number of foreign countries covering various methods
of treatment, including in the CAR-T space covering a broad and comprehensive range of approaches to neutralizing GM-CSF, which,
if granted, is expected to confer protection to at least October 2038. We also have current and pending patent applications in
the United States and selected foreign countries for anti-EphA3 antibodies and their use, and we developed and own an issued U.S.
composition of matter patent covering ifabotuzumab and related anti-EphA3 antibodies, which is currently expected to expire in
2031. The patents to our Humaneered technology cover methods of producing human antibodies that are very specific for target antigens
using only a small region from mouse antibodies.
We cannot be certain that any of our pending
patent applications, or those of our licensors, will result in issued patents. In addition, because the patent positions of biopharmaceutical
companies are highly uncertain and involve complex legal and factual questions, the patents we own and license, or any further
patents we may own or license, may not prevent other companies from developing similar or therapeutically equivalent products,
even though we may be able to prevent their commercial use without our permission if our intellectual property allows for such
limitations. Patents also will not protect our products if competitors devise ways of making or using these products without legally
infringing our patents. We cannot be assured that our patents will not be challenged by third parties or that we will be successful
in any defense we undertake.
In addition, changes in patent laws, rules
or regulations or in their interpretations by the courts may materially diminish the value of our intellectual property or narrow
the scope of our patent protection, which could have a material adverse effect on our business and financial condition. However,
prospective partners may have to license or otherwise come to an agreement with us if they wish to use our products and those products
and methods of use of such products have issued patents in those territories.
We also rely on trade secrets, technical
know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information
by requiring our employees, consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure
and confidentiality agreements and our employees to execute assignment of invention agreements to us on commencement of their employment.
Agreements with our employees also prevent them from bringing any proprietary rights of third parties to us. We also require confidentiality
or material transfer agreements from third parties that receive our confidential data or materials.
Manufacturing
We outsource basic development activities,
including the development of formulation prototypes, and have adopted a manufacturing strategy of contracting with third parties
for the manufacture of drug substance and product. Additional contract manufacturers are used to fill, label, package, and distribute
investigational drug products. This allows us to maintain a more flexible infrastructure while focusing our expertise on developing
our products. It does however mean that we have to carefully plan the availability of manufacturing ‘slots’ and the
availability of drug for investigation in preclinical and clinical trials.
The use of contract
manufacturers can be expensive, complicated and time consuming and could delay clinical trials, drug approval and potential product
launch.
Sales and Marketing
We
do not currently have the sales and marketing infrastructure in place that would be necessary to market and sell our products,
if approved. The establishment of a sales and marketing operation can be expensive, complicated and time consuming and could delay
any potential product launch. As our drug candidates progress, while we may build or contract with expert commercial vendors the
type of infrastructure that would be needed to successfully market and sell any successful drug candidate on our own, we may also
seek strategic alliances and partnerships with third parties including those with existing infrastructure.
Competition
We compete in an industry characterized
by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on
the benefits of intellectual property protection and regulatory exclusivities. Our competitors include pharmaceutical companies,
other biotechnology companies, academic institutions, government agencies and other private and public research organizations.
We compete with these parties for therapies for neglected and rare diseases and in recruiting highly qualified personnel. Our product
candidates, if successfully developed and approved, may compete with established therapies, with new treatments that may be introduced
by our competitors, including competitors relying to a large extent on our drug approvals or on our biologics approvals, or with
generic copies of our product approved by FDA, as bio-similars, referencing our drug products. Many of our potential competitors
have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing,
sales and human resources capabilities than we do.
In addition, many specialized biotechnology
firms have formed collaborations with large, established companies to support the research, development and commercialization of
products that may be competitive with ours. Accordingly, our competitors may be more successful with respect to their products
than we may be in developing, commercializing, and achieving widespread market acceptance for our products. In addition, our competitors’
products may be more effective or more effectively marketed and sold than any treatment we or our development partners may commercialize
and may render our product candidates obsolete or non-competitive before we can recover the expenses related to developing and
supporting the commercialization of any of our product candidates. Developments by competitors may render our product candidates
obsolete or noncompetitive. After one of our product candidates is approved, FDA may also approve a generic version with the same
or similar dosage form, safety, strength, route of administration, quality, performance characteristics and intended use as our
product. These bio-similar equivalents would be less costly to bring to market and could generally be offered at lower prices,
thereby limiting our ability to gain or retain market share. However, our product candidates are all biologics and, as such, would
benefit from 12 years market exclusivity from launch in the United States.
The acquisition or licensing of pharmaceutical
products is also very competitive, and a number of more established companies, which have acknowledged strategies to in-license
or acquire products, may have competitive advantages as may other emerging companies taking similar or different approaches to
product acquisitions. The more established companies may have a competitive advantage over us due to their size, cash flows, institutional
experience and historical corporate reputation.
Lenzilumab and CAR-T-related toxicities competition
Significant
ongoing concerns for clinicians, care-givers, patients and FDA regarding CAR-T therapy are current levels of efficacy, duration
of response, relapse, long-term outcomes and serious and potentially life-threatening side-effects, namely NT and CRS. Both Kymriah
and Yescarta carry black box warnings in their labels for NT and CRS and are subject to a REMS program, such that on-going data
has to be provide to FDA and the CAR-T products can only be administered in strictly controlled situations at trained centers.
There
are no FDA-approved therapies for the prevention of CAR-T-induced NT and CRS or for the treatment of CAR-T induced NT. The CAR-T-cell-therapy-associated
TOXicity (CARTOX) Working Group currently recommends intensive monitoring, accurate grading and aggressive supportive care with
the anti-IL-6 receptor blocker tocilizumab (Genentech’s Actemra
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)
and/or high-dose corticosteroids. These treatments are reserved only for the treatment of severe cases of CRS and are not approved
for prevention. Since corticosteroids suppress T-cell function and/or induce T-cell apoptosis, they may limit the effectiveness
of CAR-T cell therapy; thus use of corticosteroids is generally limited to moderate-to-severe cases of CRS refractory to tocilizumab
and severe cases of NT. Sometimes high-dose corticosteroids are used alongside tocilizumab, although there is no evidence for either
intervention impacting morbidity or mortality. Tocilizumab has not been found to be effective in the prevention or management of
CAR-T-induced NT. In fact its early use has been shown to increase rates of NT in a cohort of patients evaluated in clinical trial
setting. Serum IL-6 levels have been shown to increase shortly after administration of tocilizumab which may increase passive diffusion
of IL-6 into the CNS and increase the risk of NT. A similar concern may apply in terms of increasing the levels of GM-CSF if a
GM-CSF receptor blocker is utilized. Lenzilumab neutralizes GM-CSF without interfering with the GM-CSF receptor.
There
are no prospective, randomized clinical trials evaluating the safety and efficacy of tocilizumab for the treatment of CAR-T induced
CRS. FDA approval of tocilizumab with or without high-dose corticosteroids, for the management of severe cases of CRS was announced
in conjunction with approval of Kymriah solely as part of its REMS program based on a retrospective analysis of 45 patients across
CAR-T clinical trials despite the lack of an IND, NDA or conduct of a prospective trial of tocilizumab in this setting.
Tocilizumab
is not approved for the prevention of CRS nor for the prevention or treatment of NT. Tocilizumab is also not approved for the
treatment of mild or moderate cases of CRS.
There
are s
everal experimental approaches in early stage development in an effort to bring forward next-generation, CAR-T constructs,
including introducing suicide genes into CAR-T cells using herpes simplex virus thymidine kinase (HSV-TK) or inducible caspase-9
(iCasp9) genes with “on / off” switches, RNA-guided DNA targeting technology such as CRISPR/Cas9 system or other epitope-based
/ gene-editing technology. It is possible that these approaches could prevent CAR-T induced NT and/or CRS. However, these are
all in early stages of development and may never progress into the clinic or to approval. Even if they do enter development, they
would likely take many years to progress through to approval, if at all. There are several other anti-GM-CSF compounds that are
in various stages of development, however the focus of all of these compounds appears to be in chronic autoimmune disorders such
as rheumatoid arthritis, axial spondyloarthritis, giant cell arteritis and related disorders.
Government Regulation
Drug Development and Approval in the U.S.
As a biopharmaceutical company operating
in the United States, we are subject to extensive regulation by FDA and by other federal, state, and local regulatory agencies.
FDA regulates biological products such as our product candidates under the United States Federal Food and Cosmetic Act (FDCA) the
Public Health Service Act (PHSA) and their implementing regulations. Under the PHSA, an FDA-approved biologics license application
(BLA) is required to market a biological product, or biologic, in the United States. These laws and regulations set forth, among
other things, requirements for preclinical and clinical testing, development, approval, labeling, manufacture, storage, record
keeping, reporting, distribution, import, export, advertising, and promotion of our products and product candidates. Biologics
receive 12 years market exclusivity from approval and launch.
Applications Relying on the Applicant’s Clinical Data
The approval process for a BLA under the
PHSA requires the conduct of extensive studies and the submission of large amounts of data by the applicant. The biologic development
process for these applications will generally include the following phases:
Preclinical Testing
. Before testing
any new biologic in human subjects in the United States, a company must generate extensive preclinical data. Preclinical testing
generally includes laboratory evaluation of product chemistry and formulation, as well as toxicological and pharmacological studies
in several animal species to assess the quality and safety of the product. Animal studies must be performed in compliance with
FDA’s Good Laboratory Practice (GLP) regulations and the United States Department of Agriculture’s Animal Welfare Act.
IND Application
. Human clinical trials
in the United States cannot commence until an Investigational New Drug (IND) application is submitted and becomes effective. A
company must submit preclinical testing results to FDA as part of the IND, and FDA must evaluate whether there is an adequate basis
for testing the product in initial clinical studies in human volunteers. Unless FDA raises concerns, the IND becomes effective
30 days following its receipt by FDA. Once human clinical trials have commenced, FDA may stop the clinical trials by placing them
on “clinical hold” because of concerns about the safety of the product being tested, or for other reasons.
Clinical Trials
. Clinical trials
involve the administration of the product to healthy human volunteers or to patients, under the supervision of a qualified investigator.
The conduct of clinical trials is subject to extensive regulation, including compliance with FDA’s bioresearch monitoring
regulations and Good Clinical Practice (GCP) requirements, which establish standards for conducting, recording data from, and reporting
the results of clinical trials. GCP requirements are intended to assure that the data and reported results are credible and accurate,
and that the rights, safety, and well-being of study participants are protected.
Clinical trials must be conducted under
protocols that detail the study objectives, parameters for monitoring safety, and the efficacy criteria, if any, to be evaluated.
Each protocol is submitted to FDA as part of the IND. In addition, each clinical trial must be reviewed, approved, and conducted
under the auspices of an Institutional Review Board (IRB), at the institution conducting the clinical trial. Companies sponsoring
the clinical trials, investigators, and IRBs also must comply with regulations and guidelines for obtaining informed consent from
the study subjects, complying with the protocol and investigational plan, adequately monitoring the clinical trial, and timely
reporting of adverse events. Foreign studies conducted under an IND must meet the same requirements that apply to studies being
conducted in the United States. Data from a foreign study not conducted under an IND may be submitted in support of a BLA if the
study was conducted in accordance with GCP and FDA is able to validate the data. A study sponsor is required to publicly post certain
details about active clinical trials and clinical trial results on the government website clinicaltrials.gov.
Human clinical trials are typically conducted
in three sequential phases, although the phases may overlap with one another and, notably, in the CAR-T setting, FDA has granted
approval to both currently marketed CAR-Ts based on Phase II data and to tocilizumab without any prospective data in the CAR-T
setting:
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Phase I clinical trials include the initial administration of the investigational product to humans, typically to a small group
of healthy human subjects, but occasionally to a group of patients with the targeted disease or disorder. Phase I clinical trials
generally are intended to determine the metabolism and pharmacologic actions of the product, the side effects associated with increasing
doses, and, if possible, to gain early evidence of effectiveness.
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Phase II clinical trials generally are controlled studies that involve a relatively small sample of the intended patient population,
and are designed to develop data regarding the product’s effectiveness, to determine dose response and the optimal dose range,
and to gather additional information relating to safety and potential adverse effects.
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Phase III clinical trials are conducted after preliminary evidence of effectiveness has been obtained and are intended to gather
additional information about safety and effectiveness necessary to evaluate the product’s overall risk-benefit profile, and
to provide a basis for physician labeling. Generally, Phase III clinical development programs consist of expanded, large-scale
studies of patients with the target disease or disorder to obtain statistical evidence of the efficacy and safety of the drug at
the proposed dosing regimen, or with the safety, purity, and potency of a biological product.
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The FDA does not always require every approved therapy to complete Phase I through III studies to secure approval. Approval
through expedited routes is at the discretion of FDA.
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The sponsoring company, FDA, or the IRB
may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed
to an unacceptable health risk. Further, success in early-stage clinical trials does not assure success in later-stage clinical
trials. Data obtained from clinical activities are not always conclusive and may be subject to alternative interpretations that
could delay, limit, or prevent regulatory approval.
BLA Submission and Review
After completing clinical testing of an
investigational biologic product, a sponsor must prepare and submit a BLA for review and approval by FDA. A BLA is a comprehensive,
multi-volume application that must include, among other things, sufficient data establishing the safety, purity and potency of
the proposed biological product for its intended indication. The application includes all relevant data available from pertinent
preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information
relating to the product’s chemistry, manufacturing, controls and proposed labeling. When a BLA is submitted, FDA conducts
a preliminary review to determine whether the application is sufficiently complete to be accepted for filing. If it is not, FDA
may refuse to file the application and may request additional information, in which case the application must be resubmitted with
the supplemental information and review of the application is delayed.
FDA performance goals, which are target
dates and other aspirational measures of agency performance to which the agency, Congressional representatives, and industry agree
through negotiations that occur every five years, generally provide for action BLA applications within 10 months of submission
or 10 months from acceptance for filing for an original BLA. FDA is not expected to meet those target dates for all applications,
however, and the deadline may be extended in certain circumstances, such as when the applicant submits new data late in the review
period. In practice, the review process is often significantly extended by FDA requests for additional information or clarification.
In some circumstances, FDA can expedite the review of new biologics deemed to qualify for priority review, such as those intended
to treat serious or life-threatening conditions that demonstrate the potential to address unmet medical needs. In those cases,
the targeted action date is six months from submission, or for biologics constituting original biological products, six months
from the date that FDA accepts the application for filing.
As part of its review, FDA may refer a BLA
to an advisory committee for evaluation and a recommendation as to whether the application should be approved. Although FDA is
not bound by the recommendation of an advisory committee, the agency usually has followed such recommendations. FDA may also determine
that a REMS is necessary to ensure that the benefits of a new product outweigh its risks, and that the product can therefore be
approved. A REMS may include various elements, ranging from a medication guide or patient package insert to limitations on who
may prescribe or dispense the product, depending on what FDA considers necessary for the safe use of the product. Under the Pediatric
Research Equity Act, a BLA must include an assessment, generally based on clinical study data, of the safety and effectiveness
of the subject drug or biological product in relevant pediatric populations, unless the requirement is waived or deferred. Receiving
orphan drug designation from FDA is one situation where such a requirement may be waived.
After review of a BLA, FDA may
determine that the product cannot be approved, or may determine that it can only be approved if the applicant cures
deficiencies in the application, in which case the agency endeavors to provide the applicant with a complete list of the
deficiencies in correspondence known as a Complete Response Letter (CRL). A CRL may request additional information, including
additional preclinical or clinical data. Even if such additional information and data are submitted, FDA may decide that the
BLA still does not meet the standards for approval. Data from clinical trials are not always conclusive and FDA may
interpret data differently than the sponsor interprets them. Additionally, as a condition of approval, FDA may impose
restrictions that could affect the commercial success of a drug or require post-approval commitments, including the
completion within a specified time period of additional clinical studies, which often are referred to as
“Phase IV” studies or “post-marketing requirements.” Obtaining regulatory approval often takes a
number of years, involves the expenditure of substantial resources, and depends on a number of factors, including the
severity of the disease in question, the availability of alternative treatments, and the risks and benefits demonstrated in
clinical trials.
Post-approval modifications to the drug
or biologic product, such as changes in indications, labeling, or manufacturing processes or facilities, may require a sponsor
to develop additional data or conduct additional preclinical or clinical trials. The proposed changes would need to be submitted
in a new or supplemental BLA, which would then require FDA approval.
Regulatory Exclusivities
Biologics Price Competition and Innovation Act
In 2010, the
Biologics Price Competition
and Innovation Act
(BPCIA) was enacted, creating an abbreviated approval pathway for biologic products that are biosimilar
to, and possibly interchangeable with, reference biological products licensed under a BLA. The BPCIA also provides innovator manufacturers
of original reference biological products 12 years of exclusive use before biosimilar versions can be licensed in the United States.
This means that FDA may not approve an application for a biosimilar version of a reference biological product until 12 years after
the date of approval of the reference biological product (with a potential six-month extension of exclusivity if certain pediatric
studies are conducted and the results reported to FDA), although a biosimilar application may be submitted four years after the
date of licensure of the reference biological product. Additionally, the BPCIA establishes procedures by which the biosimilar applicant
must provide information about its application and product to the reference product sponsor, and by which information about potentially
relevant patents is shared and litigation over patents may proceed in advance of approval, although the interpretation of those
procedures has been subject to litigation and appears to continue to evolve. The BPCIA also provides a period of exclusivity for
the first biosimilar to be determined by FDA to be interchangeable with the reference product.
FDA approved the first biosimilar product
under the BPCIA in 2015, and the agency continues to refine the procedures and standards it will apply in implementing this approval
pathway. FDA has released guidance documents interpreting specific aspects of the BPCIA in each of the last four years. We would
expect lenzilumab, ifabotuzumab and HGEN005, as biologics, to each receive at least 12 years exclusivity from approval, if they
are approved.
Pediatric Studies and Exclusivity
Under the
Pediatric Research Equity Act
,
a BLA must contain data adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant
pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe
and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline
of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral
or waiver requests and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee
must then review the information submitted, consult with each other and agree upon a final plan. The FDA or the applicant may request
an amendment to the plan at any time.
For products intended to treat a serious
or life-threatening disease or condition, the FDA must, upon the request of an applicant, meet to discuss preparation of the initial
pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, FDA will meet early in the development
process to discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-Phase I meeting
for serious or life-threatening diseases and by no later than ninety (90) days after FDA’s receipt of the study plan.
The FDA may, on its own initiative or at
the request of the applicant, grant deferrals for submission of some or all pediatric data until after licensing of the product
for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating
to deferral requests and requests for extension of deferrals are contained in
Food and Drug Administration Safety and Innovation
Act
(FDASIA). Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan
designation.
The FDA Reauthorization Act of 2017 established
new requirements to govern certain molecularly targeted cancer indications. Any company that submits a BLA three years after the
date of enactment of that statute must submit pediatric assessments with the BLA if the biologic is intended for the treatment
of an adult cancer and is directed at a molecular target that FDA determines to be substantially relevant to the growth or progression
of a pediatric cancer. The investigation must be designed to yield clinically meaningful pediatric study data regarding the dosing,
safety and preliminary potency to inform pediatric labeling for the product. Deferrals and waivers as described above are also
available.
Pediatric exclusivity is another type of
exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection
to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity
may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The
data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed
to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are
submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity
or patent protection cover the product are extended by a further six-months. This is not a patent term extension, but it effectively
extends the regulatory period during which the FDA cannot license another application.
Orphan Drug Designation
The Orphan Drug Act provides incentives
for the development of therapeutic products intended to treat rare diseases or conditions. Rare diseases and conditions generally
are those affecting less than 200,000 individuals in the United States, but also include diseases or conditions affecting more
than 200,000 individuals in the United States if there is no reasonable expectation that the cost of developing and making available
in the United States a drug for such disease or condition will be recovered from sales in the United States of such product.
If a sponsor demonstrates that a therapeutic
product, including a biological product, is intended to treat a rare disease or condition, and meets certain other criteria, FDA
grants orphan drug designation to the product for that use. FDA may grant multiple orphan designations to different companies developing
the same product for the same indication, until the one company is the first to be able to secure successful approval for that
product. The first product approved with an orphan drug designated indication is granted seven years of orphan drug exclusivity
from the date of approval for that indication. During that period, FDA generally may not approve any other application for the
same product for the same indication, although there are exceptions, most notably when the later product is shown to be clinically
superior to the product with exclusivity. FDA can also revoke a product’s orphan drug exclusivity under certain circumstances,
including when the holder of the approved orphan drug application is unable to assure the availability of sufficient quantities
of the product to meet patient needs.
A sponsor of a product application that
has received an orphan drug designation is also granted tax incentives for clinical research undertaken to support the application.
In addition, FDA will typically coordinate with the sponsor on research study design for an orphan drug and may exercise its discretion
to grant marketing approval on the basis of more limited product safety and efficacy data than would ordinarily be required, based
on the limited size of the applicable patient population.
Humanigen anticipates submitting applications
for orphan drug designation for all of its current pipeline candidates and the targeted therapeutic indications.
Expedited Programs for Serious Conditions
FDA has implemented a number of expedited
programs to help ensure that therapies for serious or life-threatening conditions, and for which there is unmet medical need,
are approved and available to patients as soon as it can be concluded that the therapies’ benefits justify their risks.
Among these programs are the following:
Fast Track Designation
FDA may designate a product for fast track
review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening
disease or condition and where non-clinical or clinical data demonstrates the potential to address unmet medical need for such
a disease or condition. A product can also receive fast track review if it receives breakthrough therapy designation.
For fast track products, sponsors may have
greater interactions with FDA and FDA may initiate review of sections of a fast track product’s application before the application
is complete, also referred to as a ‘rolling review’. This rolling review may be available if FDA determines, after
preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must
also provide, and FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable
user fees. Furthermore, FDA’s time period goal for reviewing a fast track application does not begin until the last section
of the complete application is submitted. Finally, the fast track designation may be withdrawn by FDA if FDA believes that the
designation is no longer supported by data emerging in the clinical trial process.
Breakthrough Therapy Designation
A product may be designated as a breakthrough
therapy if it is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening
disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over
existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical
development. The designation includes all of the features of fast track designation, as well as more intensive FDA interaction
and guidance. FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor
throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving
more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps
to design efficient clinical trials.
Accelerated Approval
Under the accelerated approval pathway,
FDA may approve a drug or biologic based on a surrogate endpoint that is reasonably likely to predict clinical benefit; qualifying
products must target a serious or life-threatening illness and provide meaningful therapeutic benefit to patients over existing
treatments. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition
that substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured
more easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing
compliance requirements, including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical
endpoint. Failure to conduct required post-approval studies, or to confirm a clinical benefit during post-marketing studies, would
allow FDA to withdraw the product from the market on an expedited basis. All promotional materials for product candidates approved
under accelerated regulations are subject to prior review by FDA.
Priority Review
FDA may designate a product for priority
review if it is a product that treats a serious condition and, if approved, would provide a significant improvement in safety or
effectiveness. FDA generally determines, on a case-by-case basis, whether the proposed product represents a significant improvement
in safety and effectiveness when compared with other available therapies. Significant improvement may be illustrated by evidence
of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product
reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety
and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation
of such applications, and will shorten FDA’s goal for taking action on a marketing application from the standard targeted
ten months to a target of six months review.
Created in 2012 under the FDASIA and extended
with the
21
st
Century Cures Act
in 2016, FDA is authorized under section 529 of the FDCA to grant a Priority
Review Voucher (PRV) to BLA sponsors receiving FDA approval for a product to treat a rare pediatric disease, defined as a disease
that affects fewer than 200,000 individuals in the U.S., and where more than 50% of the patients affected are aged from birth to
18 years. We believe that our product candidates may qualify for a PRV under this program, depending on the indication.
The PRV program allows the voucher holder
to obtain priority review for a product application that would otherwise not receive priority review, shortening FDA’s target
review period to a targeted six months following acceptance of filing of an NDA or BLA, or four months shorter than the standard
review period. The voucher may be used by the sponsor who receives it, or it may be sold to another sponsor for use in that sponsor’s
own marketing application. The sponsor who uses the voucher is required to pay additional user fees on top of the standard user
fee for reviewing an NDA or BLA.
Humanigen anticipates submitting applications
for one or more of these expedited programs for all of its current pipeline candidates and the targeted therapeutic indications.
Regenerative Medicine Advanced Therapy Designation
Recently, through the
21st Century Cures
Act
, or Cures Act, Congress also established another expedited program, called a Regenerative Medicine Advanced Therapy (RMAT)
designation. The Cures Act directs the FDA to facilitate an efficient development program for and expedite review of RMATs. To
qualify for this program, the product must be a cell therapy, therapeutic tissue engineering product, human cell and tissue product,
or a combination of such products, and not a product solely regulated as a human cell and tissue product. The product must be intended
to treat, modify, reverse, or cure a serious or life-threatening disease or condition, and preliminary clinical evidence must indicate
that the product has the potential to address an unmet need for such disease or condition. Advantages of the RMAT designation include
all the benefits of the Fast Track and breakthrough therapy designation programs, including early interactions with the FDA. These
early interactions may be used to discuss potential surrogate or intermediate endpoints to support accelerated approval.
Post-Licensing Regulation
Once a BLA is approved and a product marketed,
a sponsor will be required to comply with all regular post-licensing regulatory requirements as well as any post-licensing requirements
that the FDA may have imposed as part of the licensing process. The sponsor will be required to report, among other things, certain
adverse reactions and manufacturing problems to the FDA, provide updated safety and potency or efficacy information and comply
with requirements concerning advertising and promotional labeling requirements. Manufacturers and certain of their subcontractors
are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations,
which impose certain procedural and documentation requirements upon manufacturers. Changes to the manufacturing processes are strictly
regulated and often require prior FDA approval before being implemented. Accordingly, the sponsor and its third-party manufacturers
must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with cGMP
regulations and other regulatory requirements.
In addition, the distribution of prescription
pharmaceutical products is subject to the
Prescription Drug Marketing Act
(PDMA) and its implementing regulations, as well
as the
Drug Supply Chain Security Act
(DSCA), which regulate the distribution and tracing of prescription drug samples at
the federal level, and set minimum standards for the regulation of distributors by the states. The PDMA, its implementing regulations
and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure
accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.
Employees
As of December 31, 2018, we had three full
time employees. We also employ a number of part-time employees and have contracted with several part-time independent consultants
performing mainly manufacturing, regulatory and clinical development and intellectual property functions. None of our employees
are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our
employees and our consultants to be good.
Bankruptcy
As previously reported, on December 29,
2015, we filed a voluntary petition for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The filing was made
in the United States Bankruptcy Court for the District of Delaware, or the Bankruptcy Court (Case No. 15-12628 (LSS)).
On May 9, 2016, we filed with the Bankruptcy
Court a Second Amended Plan of Reorganization, or the Plan, and related amended disclosure statement pursuant to Chapter 11 of
the Bankruptcy Code. On June 16, 2016, the Bankruptcy Court entered an order confirming the Plan. On June 30, 2016 (the “Effective
Date”), the Plan became effective and we emerged from our Chapter 11 bankruptcy proceedings.
On September 17, 2018 the Bankruptcy Court
issued a Final Decree and Order to close the Bankruptcy Case and terminate the remaining claims and noticing services.
Restructuring Transactions
On December 1, 2017, our obligations matured
under the Credit and Security Agreement dated December 21, 2016, as amended on March 21, 2017 and on July 8, 2017 (the Term Loan
Credit Agreement) with Black Horse Capital Master Fund Ltd., as administrative agent and lender (BHCMF), Black Horse Capital LP,
as a lender (BHC), Cheval Holdings, Ltd., as a lender (Cheval and collectively with BHCMF and BHC, the Black Horse Entities) and
Nomis Bay LTD, as a lender (Nomis and, together with the Black Horse Entities, the Term Loan Lenders).
On December 21, 2017, we entered into a
Securities Purchase and Loan Satisfaction Agreement (the Purchase Agreement) and a Forbearance and Loan Modification Agreement
(the Forbearance Agreement and, together with the Purchase Agreement, the Restructuring Agreements), each with the Term Loan Lenders,
in connection with a series of transactions providing for, among other things, the satisfaction and extinguishment of our outstanding
obligations under the Term Loan Credit Agreement and the infusion of $3.0 million of new capital. As of February 27, 2018, the
date the Restructuring Transactions were completed, the aggregate amount of our obligations under the Term Loan Credit Agreement,
including the Bridge Loan, the Claims Advances extended by Nomis Bay (each as discussed below) and all accrued interest and fees,
approximated $18.4 million (the Term Loans).
On February 27, 2018 (the Restructuring
Effective Date), the Restructuring Transactions were completed in accordance with the Restructuring Agreements. As a result, on
the Restructuring Effective Date, we: (i) in exchange for the satisfaction and extinguishment of the entire $18.4 million balance
of the Term Loans, including the Bridge Loan, the Claims Advances extended by Nomis Bay (each as discussed below) and all accrued
interest and fees, (a) issued to the Term Loan Lenders an aggregate of 59,786,848 shares of our common stock (the New Lender Shares),
and (b) transferred and assigned to Madison Joint Venture LLC owned 70% by Nomis Bay and 30% by us (Madison), all of our assets
related to benznidazole (the Benz Assets), our former drug candidate, capable of being so assigned; and (ii) issued to Cheval an
aggregate of 32,028,669 shares of our common stock (the “New Black Horse Shares” and, collectively with the New Lender
Shares, the “New Common Shares”) for total consideration of $3.0 million (collectively, the Restructuring Transactions),
$1.5 million of which we received on December 22, 2017 in the form of a bridge loan (the Bridge Loan).
On the Restructuring Effective Date, the
aggregate amount of the Term Loans that were deemed to be satisfied and extinguished (i) previously owed to the Black Horse Entities,
including the Bridge Loan and all accrued interest and fees, approximated $9.9 million, and (ii) previously owed to Nomis Bay,
including certain advances previously extended to us by Nomis Bay totaling $0.1 million (the Claims Advances) and all accrued interest
and fees, approximated $8.5 million. In addition, on the Restructuring Effective Date, (i) each of the Term Loan Credit Agreement,
all promissory notes issued thereunder and the Intellectual Property Security Agreement, dated as of December 21, 2016, by and
between us and the Term Loan Lenders, were terminated and are of no further force or effect, and (ii) all security interests of
the Black Horse Entities and Nomis Bay in our assets were released. Although the Term Loans were satisfied and extinguished, if
Madison elected to keep the Benz Assets after the Restructuring Effective Date, Nomis Bay would be obligated to pay or cause Madison
to pay $0.3 million in legal fees and expenses owed by us to our litigation counsel, which remain unpaid in our Accounts payable
at December 31, 2017. On August 23, 2018 Madison elected to keep the Benz Assets and these amount were paid by Madison to our litigation
counsel.
Upon completion of the Restructuring Transactions,
Nomis Bay held 33,573,530 of our common stock, or approximately 31.4% of our outstanding common stock, and the Black Horse Entities
collectively held 66,870,851 shares of our common stock, or approximately 62.6% of our outstanding common stock. Accordingly, the
completion of the Restructuring Transactions on the Restructuring Effective Date resulted in a change in control of our company,
as the Black Horse Entities and their affiliates owning more than a majority of our outstanding common stock. Dr. Dale Chappell,
a member of our board of directors from June 30, 2016 until November 10, 2017, controls the Black Horse Entities and accordingly,
will be able to exert control over matters of our company and will be able to determine all matters of our company requiring stockholder
approval.
Available Information
We were incorporated on March 15, 2000 in
California and reincorporated as a Delaware corporation in September 2001. Effective August 7, 2017, we changed our legal name
to Humanigen, Inc. Our principal offices are located at 533 Airport Boulevard, Suite 400, Burlingame, CA 94005, and our telephone
number is (650) 243-3100. Our website address is www.humanigen.com. Our common stock is currently traded on the OTCQB Venture Market.
We operate in a single segment.
Our website and the information contained
on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered
part of, this Annual Report on Form 10-K. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended, are available free of charge on the Investor Relations portion of our website as soon as reasonably practicable after
we electronically file such material with, or furnish it to, the SEC. In addition, the SEC maintains an internet site that contains
the reports, proxy and information statements, and other information we electronically file with or furnish to the SEC, located
at
http://www.sec.gov
.
ITEM 1A. RISK FACTORS
Risks Related to Our Business and Industry
We have a history of operating losses,
we expect to continue to incur losses, and we may never become profitable.
We have incurred net losses in nearly every
year since our inception. For the fiscal year ended December 31, 2018 we incurred a net loss of $12.0 million, and we have an accumulated
deficit of $274.6 million as of December 31, 2018.
Since inception, we have only recognized
a nominal amount of revenue from payments for funded research and development and for license or collaboration fees, none of which
was recognized in either of the last two years. We expect to make substantial expenditures and incur additional operating losses
in the future to further develop and commercialize our product candidates. Our accumulated deficit is expected to increase significantly
as we continue our development and clinical trial efforts. Our ability to achieve and sustain profitability depends on obtaining
regulatory approvals for and successfully commercializing our product candidates, either alone or with third parties. We do not
currently have the required approvals to market any of our product candidates and we may never receive them. We may not be profitable
even if we or any future development partners succeed in commercializing any of our product candidates. Because of the numerous
risks and uncertainties associated with developing and commercializing our product candidates, we are unable to predict the extent
of any future losses or when we will become profitable, if at all.
Our auditor has
expressed substantial doubt about our ability to continue as a going concern and absent additional financing we may be unable to
remain a going concern.
If we are unsuccessful in our efforts to
raise additional capital, including in the immediate future, based on our current levels of operating expenses, our current capital
is not expected to be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about
our ability to continue as a going concern. The Report of Independent Registered Public Accounting Firm at the beginning of the
Consolidated Financial Statements
included in Part II, Item
8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K includes an explanatory
paragraph about our ability to continue as a going concern.
The
Consolidated
Financial Statements
for the year ended December 31, 2018 were prepared on the basis of a going concern, which contemplates
that we will be able to realize our assets and discharge liabilities in the normal course of business. Our ability to meet our
liabilities and to continue as a going concern is dependent upon the availability of future funding. The financial statements do
not include any adjustments that might be necessary if we are unable to continue as a going concern.
In addition, our current financial situation,
and the presence of the explanatory paragraph about our ability to continue as a going concern, could also make it more difficult
to raise the capital necessary to address our current needs.
We review and explore strategic alternatives
on an on-going basis, but there can be no assurance that we will be successful in identifying or completing any strategic alternative
or that any such strategic alternative will yield additional value for our stockholders.
We regularly review strategic alternatives
to ensure our current structure optimizes our ability to execute our strategic plan and to maximize stockholder value. The review
of strategic alternatives could result in, among other things, a sale, merger, consolidation or business combination, asset divestiture,
partnering, licensing or other collaboration agreements, or potential acquisitions or recapitalizations, in one or more transactions,
or continuing to operate with our current business plan and strategy. There can be no assurance that the exploration of strategic
alternatives will result in the identification or consummation of any transaction.
In addition, we may incur substantial expenses
associated with identifying and evaluating potential strategic alternatives. The process of exploring strategic alternatives may
be time consuming and disruptive to our business operations and if we are unable to effectively manage the process, our business,
financial condition and results of operations could be adversely affected. We also cannot assure that any potential transaction
or other strategic alternative, if identified, evaluated and consummated, will provide greater value to our stockholders than that
reflected in our current stock price. Any potential transaction would be dependent upon a number of factors that may be beyond
our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business
or product candidates and the availability of financing to potential buyers on reasonable terms.
We will need substantial additional
capital to develop and commercialize our product candidates, and our access to capital funding is uncertain.
We will require substantial additional capital
to support our business efforts, including obtaining regulatory approvals for lenzilumab or other product candidates, clinical
trials and other studies, and, if approved, the commercialization of our product candidates. The amount of capital we will require
and the timing of our need for additional capital will depend on many factors, including:
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the type, number, design, complexity, timing, progress, costs, and results of product candidate development programs that we
are pursuing or may choose to pursue in the future;
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the scope, progress, expansion, costs, and results of our pre-clinical and clinical trials;
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the timing of and costs involved in obtaining regulatory approvals;
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our costs in connection with the manufacturing of drugs, whether alone or with a manufacturing partner;
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our ability to establish and maintain development partnering arrangements and any associated funding;
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the emergence of competing products or technologies and other adverse market developments;
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the costs of maintaining, expanding, and protecting our intellectual property portfolio, including potential litigation costs
and liabilities;
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the resources we devote to marketing, and, if approved, commercializing our product candidates;
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the scope, progress, expansion and costs of manufacturing our product candidates; and
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the costs associated with being a public company.
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We are seeking and will need to seek financing
from a number of sources, including, but not limited to, the sale of equity or debt securities, strategic collaborations, and licensing
of our product candidates. Additional funding may not be available to us on a timely basis or at acceptable terms, if at all. Our
ability to access capital when needed is not assured and, if not achieved on a timely basis, would materially harm our business,
financial condition and results of operations. If adequate funds are not available, we may be required to delay, reduce the scope
of, or eliminate one or more of our development programs. We may also be required to sell or license to others our technologies,
product candidates, or development programs that we would have preferred to develop and commercialize ourselves and on less than
favorable terms, if at all. If in the best interests of our stockholders, we may also find it appropriate to enter into a strategic
transaction that could result in, among other things, a sale, merger, consolidation or business combination.
Our business depends on the success
of our current product candidates. We cannot be certain that we will be able to obtain regulatory approval for, or successfully
commercialize, any of our product candidates.
We have a limited pipeline of product candidates
and do not plan to conduct active research for discovery of new molecules or antibodies. We are currently dependent on the successful
continued development and regulatory approval of our current product candidates for our future business success. During 2018, our
primary focus has been the development of lenzilumab for use with approved CAR-T products, and ifabotuzumab and related ADC and
CAR-T products. We will need to successfully enroll and complete clinical trials of lenzilumab and ifabotuzumab, and potentially
obtain regulatory approval to market these products. The future clinical, regulatory and commercial success of our product candidates
is subject to a number of risks, including the following:
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we may not be able to enroll adequate numbers of eligible patients in the clinical trials we propose to conduct, whether alone
or through collaborations;
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we may not have sufficient financial and other resources to fund our clinical trials or collaborations;
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we may not be able to provide acceptable evidence of safety and efficacy for our product candidates;
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the results of our clinical trials or collaborations may not meet the level of statistical or clinical significance, or product
safety, required to move to the next stage of development or ultimately by FDA for marketing approval;
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we may not be able to obtain, maintain and enforce our patents and other intellectual property rights; and
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we may not be able to obtain and maintain commercial manufacturing arrangements with third-party manufacturers or establish
commercial-scale manufacturing capabilities.
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Furthermore, even if we do receive regulatory
approval to market any of our product candidates, any such approval may be subject to limitations on the indicated uses for which
we may market the product. If any of our product candidates are unsuccessful, that could have a substantial negative impact on
our business.
Accordingly, even if we are able to obtain
the requisite financing to continue to fund our development programs, we cannot assure you that our product candidates will be
successfully developed or commercialized. If we or any future development partners are unable to develop, or obtain regulatory
approval for or, if approved, successfully commercialize, one or more of our product candidates, we may not be able to generate
sufficient revenue to continue our business.
Our product candidates are at an early
stage of development and may not be successfully developed or commercialized.
Our product candidates are in the early
stages of development and will require substantial clinical development and regulatory approval prior to commercialization. None
of our product candidates have advanced into a pivotal study and it may be years before such a study is initiated, if at all. Of
the large number of drugs in development, only a small percentage successfully complete the FDA regulatory approval process and
are commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs,
we cannot assure you that our product candidates will be successfully developed or commercialized. If we or any future development
partners are unable to develop, or obtain regulatory approval for or, if approved, successfully commercialize, one or more of our
product candidates, we may not be able to generate sufficient revenue to continue our business.
The adoption of CAR-T therapies as
the potential standard of care for treatment of certain cancers is uncertain, and dependent on the efforts of a limited number
of market entrants, and if not adopted as anticipated, the market for lenzilumab may be limited or not develop.
We
are seeking to advance the development of lenzilumab to improve efficacy and address the serious side effects associated with CAR-T
therapies. Although two CAR-T therapies have been approved by the FDA to date, the use of engineered T cells as a potential cancer
treatment is a recent development and may not be broadly accepted by physicians, patients, hospitals, cancer treatment centers,
payers and others in the medical community.
The degree of market acceptance of any approved product candidates will depend
on a number of factors, including:
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the efficacy and safety as demonstrated in clinical trials;
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the clinical indications for which the product candidate is approved;
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acceptance by physicians, major operators of hospitals and clinics, and patients of the product candidate as a safe and effective
treatment;
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the potential and perceived advantages of product candidates over alternative treatments;
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the safety of product candidates seen in a broader patient group, including its use outside the approved indications;
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competitive approaches to tackle similar issues;
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the cost of treatment in relation to alternative treatments;
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the availability of adequate reimbursement and pricing by payers;
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relative convenience and ease of administration;
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the prevalence and severity of adverse events;
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the effectiveness of sales and marketing efforts; and
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the ability to manage any unfavorable publicity relating to the product candidate.
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If the medical and payer community is not
sufficiently persuaded of the safety, efficacy and cost-effectiveness of CAR-T therapy and the potential advantages of using lenzilumab
as a companion to CAR-Ts compared to existing and future therapeutics, and there is not significant market acceptance of CAR-T
therapy as the standard of care for treatment of certain cancers, the market for lenzilumab may be limited or not develop, and
our stock price could be adversely affected.
CAR-T therapies currently in early
development purport to incorporate technology that may minimize or eliminate the adverse side-effects that we believe have impaired
the uptake of the approved CAR-T therapies. If these developing therapies are proven equally efficacious in their proposed indications
and approved for use by FDA and other regulatory agencies, the market growth for the currently-approved CAR-T therapies may be
limited, impairing demand for lenzilumab.
In
recent months, several biotechnology companies describing business plans focusing on development of CAR-T therapies have filed
registration statements with the SEC for initial public offerings (IPO). Several of these IPO registrants describe their belief
that their therapies will not result in the same level of CRS or NT as has been experienced in use of Kymriah and Yescarta. While
these products are in early stage development, the data are limited and actual levels of CRS and/or NT are not substantially different
from existing marketed CAR-Ts and these products have not yet been approved for use by FDA, if any such product
were also
proven equally efficacious and subsequently approved,
the market for lenzilumab
may not develop or grow as a companion to CAR-T therapy as anticipated. Any such failure of a market for lenzilumab to develop
could adversely affect our stock price.
Our business could target benefits
from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation,
and priority review, but we may not ultimately qualify for or benefit from these arrangements.
We may seek various regulatory incentives,
such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, accelerated approval, priority review
and PRVs, where available, that provide for certain periods of exclusivity, expedited review and/or other benefits, and we may
also seek similar designations elsewhere in the world. Often, regulatory agencies have broad discretion in determining whether
or not products qualify for such regulatory incentives and benefits. We cannot guarantee that we will be able to receive orphan
drug status from FDA or equivalent regulatory designations elsewhere. We also cannot guarantee that we will obtain breakthrough
therapy or fast track designation, which may provide certain potential benefits such as more frequent meetings with FDA to discuss
the development plan, intensive guidance on an efficient drug development program, and potential eligibility for rolling review
or priority review. Legislative developments in the U.S., including recent proposed legislation that would restrict eligibility
for PRVs, may affect our ability to qualify for these programs in the future.
Even if we are successful in obtaining beneficial
regulatory designations by FDA or other regulatory agency for our product candidates, such designations may not lead to faster
development or regulatory review or approval, and it does not increase the likelihood that our product candidates will receive
marketing approval. We may not be able to obtain or maintain such designations for our product candidates, and our competitors
may obtain these designations for their product candidates, which could impact our ability to develop and commercialize our product
candidates or compete with such competitors, which would adversely impact our business, financial condition or results of operations.
There is a limited amount of information
about us upon which investors can evaluate our product candidates and business prospects, including because we have a limited operating
history developing product candidates, have not yet successfully commercialized any products, have changed our strategy and our
management team, and emerged from bankruptcy.
On August 29, 2017, we shifted our primary
focus toward developing our proprietary monoclonal antibody portfolio, which comprises lenzilumab, ifabotuzumab and HGEN005, for
use in addressing significant unmet needs in oncology and CAR-T therapy. Our relatively new team, new strategic business focus
and limited operating history developing clinical-stage product candidates may make it more difficult for us to succeed or for
investors to be able to evaluate our business and prospects. In addition, as an early-stage clinical development company, we have
limited experience in development activities, including conducting clinical trials, or seeking and obtaining regulatory approvals,
even though our executives have had significant such experience at other companies. We are also heavily dependent at this time
on external consultants for scientific, clinical manufacturing and regulatory expertise. We have not yet demonstrated an ability
to successfully overcome many of the risks and uncertainties frequently encountered by companies in the biopharmaceutical area.
For example, to execute our business plan we will need to successfully:
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execute our product candidate development activities, including successfully completing our clinical trial programs;
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obtain required regulatory approvals for the development and commercialization of our product candidates;
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manage our spending as costs and expenses increase due to clinical trials, regulatory approvals, manufacturing and commercialization;
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secure substantial additional funding;
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develop and maintain successful strategic relationships;
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build and maintain a strong intellectual property portfolio;
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build and maintain appropriate clinical, sales, manufacturing, distribution, and marketing capabilities on our own or through
third parties; and
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gain market acceptance and favorable reimbursement status for our product candidates.
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If we are unsuccessful in accomplishing
these objectives, we may not be able to develop product candidates, raise capital, expand our business, or continue our operations.
We have relied and may continue to
rely on third parties to conduct investigator-sponsored trials (ISTs) of our products, which is cost-effective for us but affords
the investigators the ability to retain significant control over the design and conduct of the trials, as well as the use of the
data generated from their efforts.
We
have relied and may continue to rely on third parties to conduct and sponsor clinical trials relating to lenzilumab and ifabotuzumab.
While we are not currently planning these clinical trials as ISTs, such ISTs may provide us with valuable clinical data that
can inform our future development strategy in a cost-efficient manner, we do not control the design or conduct of the ISTs,
and it is possible that the FDA or non-U.S. regulatory authorities will not view these ISTs as providing adequate support for future
clinical trials, whether controlled by us or third parties, for any one or more reasons, including elements of the design or execution
of the trials or safety concerns or other trial results.
These
arrangements provide us limited information rights with respect to the ISTs, including access to and the ability to use and
reference the data, including for our own regulatory filings, resulting from the ISTs. However, we would not have control over
the timing and reporting of the data from ISTs, nor would we own the data from the ISTs. If we are unable to confirm
or replicate the results from the ISTs or if negative results are obtained, we would likely be further delayed or prevented from
advancing further clinical development. Further, if investigators or institutions breach their obligations with respect to the
clinical development of our product candidates, or if the data proves to be inadequate compared to the first-hand knowledge we
might have gained had the ISTs been sponsored and conducted by us, then our ability to design and conduct any future clinical trials
ourselves may be adversely affected.
If the third parties conducting our
clinical trials do not conduct the trials in accordance with our agreements with them, our ability to pursue our clinical development
programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product
candidates when expected or at all.
We do not have the ability to conduct all
aspects of our preclinical testing or clinical trials ourselves. Therefore, the timing of the initiation and completion of these
trials is uncertain and may occur on substantially different timing from our estimates. We also use contract research organizations
(CROs) to conduct our clinical trials and rely on medical institutions, clinical investigators, CROs, and consultants to conduct
our trials in accordance with our clinical protocols and regulatory requirements. Our CROs, investigators, and other third parties
play a significant role in the conduct of these trials and subsequent collection and analysis of data.
There is no guarantee that any CROs, investigators,
or other third parties on which we rely for administration and conduct of our clinical trials will devote adequate time and resources
to such trials or perform as contractually required. If any of these third parties fails to meet expected deadlines, fails to adhere
to our clinical protocols, or otherwise performs in a substandard manner, our clinical trials may be extended, delayed, or terminated.
If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled
in our ongoing clinical trials unless we are able to transfer those subjects to another qualified clinical trial site. In addition,
principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may
receive cash or equity compensation in connection with such services. If these relationships and any related compensation result
in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be
jeopardized.
We may experience delays in commencing
or conducting our clinical trials, in receiving data from third parties or in the continuation or completion of clinical testing,
which could result in increased costs to us and delay our ability to generate product candidate revenue.
Before we can initiate clinical trials in
the United States for any new product candidates, we are required to submit the results of preclinical testing to FDA as part of
an IND, along with other information including information about product candidate chemistry, manufacturing, and controls and our
proposed clinical trial protocol. For our programs already underway, we are required to report or provide information to appropriate
regulatory authorities in order to continue with our testing programs. If we are unable to make timely regulatory submissions for
any of our programs, it will delay our plans for our clinical trials. If those third parties do not make the required data available
to us, we will likely have to identify and contract with another third party, and/or develop all necessary preclinical and clinical
data on our own, which will lead to significant delays and increase development costs of the product candidate. In addition, FDA
may require us to conduct additional preclinical testing for any product candidate before it allows us to initiate clinical testing
under any IND, which may lead to additional delays and increase the costs of our preclinical development. Moreover, despite the
presence of an active IND for a product candidate, clinical trials can be delayed for a variety of reasons, including delays in:
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identifying, recruiting, and enrolling qualified subjects to participate in a clinical trial;
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identifying, recruiting, and training suitable clinical investigators;
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reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms
of which can be subject to extensive negotiation, may be subject to modification from time to time, and may vary significantly
among different CROs and trial sites;
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obtaining and maintaining sufficient quantities of a product candidate for use in clinical trials, either as a result of transferring
the manufacturing of a product candidate to another site, manufacturer or collaborator, deferring ordering or production of product
in order to conserve resources or mitigate risk, having product in inventory become no longer suitable for use in humans, or other
reasons that reduce or delay availability of drug supply;
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obtaining and maintaining IRB, or ethics committee approval to conduct a clinical trial at an existing or prospective site;
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retaining or replacing participants who have initiated a clinical trial but may withdraw due to adverse events from the therapy,
insufficient efficacy, fatigue with the clinical trial process, or personal issues;
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developing any companion diagnostic necessary to ensure the study enrolls the target population;
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being required by FDA to add more patients or sites or to conduct additional trials; or
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FDA placing a clinical trial on hold.
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Once a clinical trial has begun, recruitment
and enrollment of subjects may be slower than we anticipate. Numerous companies and institutions are conducting clinical studies
in similar patient populations which can result in competition for qualified patients. In addition, clinical trials will take longer
than we anticipate if we are required, or believe it is necessary, to enroll additional subjects than originally planned. Clinical
trials may also be delayed as a result of ambiguous or negative interim results. Further, a clinical trial may be suspended or
terminated by us, an IRB, an ethics committee, or a data safety monitoring committee overseeing the clinical trial, any of our
clinical trial sites with respect to that site, or FDA or other regulatory authorities, due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
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inspection of the clinical trial operations or clinical trial site by FDA or other regulatory authorities;
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inability to provide timely supply of drug product;
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unforeseen safety issues, known safety issues that occur at a greater frequency or severity than we anticipate, or any determination
that the clinical trial presents unacceptable health risks; or
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lack of adequate funding to continue the clinical trial or unforeseen significant incremental costs related to the trial.
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Additionally, if any future development
partners do not develop the licensed product candidates in the time and manner that we expect, or at all, the clinical development
efforts related to these licensed product candidates could be delayed or terminated. In addition, our ability to enforce our partners’
obligations under any future collaboration efforts may be limited due to time and resource constraints, competing corporate priorities
of our future partners, and other factors.
Any delays in the commencement of our clinical
trials may delay or preclude our ability to further develop or pursue regulatory approval for our product candidates. Changes in
U.S. and foreign regulatory requirements and guidance also may occur and we may need to amend clinical trial protocols to reflect
these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may affect
the costs, timing, and likelihood of a successful completion of a clinical trial. If we or any future development partners experience
delays in the completion of, or if we or any future development partners must terminate, any clinical trial of any product candidate
our ability to obtain regulatory approval for that product candidate will be delayed and the commercial prospects, if any, for
the product candidate may suffer as a result. In addition, many of these factors may also ultimately lead to the denial of regulatory
approval of a product candidate.
Our product candidates are subject
to extensive regulation, compliance with which is costly and time consuming, may cause unanticipated delays, or may prevent the
receipt of the required approvals to commercialize our product candidates.
The clinical development, approval, manufacturing,
labeling, storage, record-keeping, advertising, promotion, import, export, marketing, and distribution of our product candidates
are subject to extensive regulation by FDA in the United States and by comparable authorities in foreign markets. In the United
States, we are not permitted to market our product candidates until we receive regulatory approval from FDA. The process of obtaining
regulatory approval is expensive, often takes many years, and can vary substantially based upon the type, complexity, and novelty
of the products involved, as well as the target indications. Approval policies or regulations may change and FDA has substantial
discretion in the drug approval process, including the ability to delay, limit, or deny approval of a product candidate for many
reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed.
FDA or other comparable foreign regulatory authorities can delay, limit, or deny approval of a product candidate for many reasons,
including:
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such authorities may disagree with the design or implementation of our or any future development partners’ clinical trials;
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such authorities may not accept clinical data from trials that are conducted at clinical facilities or in countries where the
standard of care is different from the United States;
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the results of clinical trials may not demonstrate the safety or efficacy required by such authorities for approval;
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we or any future development partners may be unable to demonstrate that a product candidate’s clinical and other benefits
outweigh its safety risks;
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such authorities may disagree with our interpretation of data from preclinical studies or clinical;
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such authorities may find deficiencies in the manufacturing processes or facilities of third-party manufacturers with which
we or any future development partners contract for clinical and commercial supplies; or
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the approval policies or regulations of such authorities may significantly change in a manner rendering our or any future development
partners’ clinical data insufficient for approval.
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With respect to foreign markets, approval
procedures vary widely among countries and, in addition to the aforementioned risks, can involve additional product testing, administrative
review periods, and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed
pharmaceuticals may result in increased caution by FDA and comparable foreign regulatory authorities in reviewing new drugs based
on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals.
Any delay in obtaining, or inability to obtain, applicable regulatory approvals may delay or prevent us, or any future development
partners from commercializing our product candidates.
The results of preclinical studies
and early clinical trials are not always predictive of future results. Any product candidate we or any future development partners
advance into clinical trials may not have favorable results in later clinical trials, if any, or receive regulatory approval.
Drug development has substantial inherent
risk. We or any future development partners will be required to demonstrate through adequate and well-controlled clinical trials
that our product candidates are effective, with a favorable benefit-risk profile, for use in their target populations for their
intended indications before we can seek regulatory approvals for their commercial sale. Drug development is a long, expensive
and uncertain process, and delay or failure can occur at any stage of development, including after commencement of any of our
clinical trials. Success in early clinical trials does not mean that later clinical trials will be successful because product
candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed through
initial clinical testing. In addition, serious adverse or undesirable side effects may emerge or be identified during later stages
of development that were not observed in earlier stages. Furthermore, our future trials will need to demonstrate sufficient safety
and efficacy for approval by regulatory authorities in larger patient populations. Companies frequently suffer significant setbacks
in advanced clinical trials, even after earlier clinical trials have shown promising results. In addition, only a small percentage
of drugs under development result in the submission of a New Drug Application, or NDA, or BLA, to FDA and even fewer are approved
for commercialization.
If we fail to attract and retain key
management and clinical development personnel, or if the attention of such personnel is diverted, we may be unable to successfully
manage our business and develop or commercialize our product candidates.
We will need to effectively manage our managerial,
operational, financial, and other resources in order to successfully pursue our clinical development and commercialization efforts.
As a company with a limited number of personnel, we are heavily affected by turnover and highly dependent on the expertise of the
members of our senior management, in particular our Chief Executive Officer, Dr. Cameron Durrant. Furthermore, we rely on third
party consultants for a variety of services. We cannot predict the impact of the loss of such individuals or the loss of services
of any of our other senior management, should they occur, or the difficulty in replacing such individuals. Such losses could delay
or prevent the further development and potential commercialization of our product candidates and, if we are not successful in finding
suitable replacements, could harm our business.
Any product candidate we or any future
development partner may advance into clinical trials may cause unacceptable adverse events or have other properties that may delay
or prevent its regulatory approval or commercialization or limit its commercial potential.
Unacceptable adverse events caused by any
of our product candidates that we advance into clinical trials could cause us or regulatory authorities to interrupt, delay, or
halt clinical trials and could result in the denial of regulatory approval by FDA or other regulatory authorities for any or all
targeted indications and markets. This in turn could prevent us from completing development or commercializing the affected product
candidate and generating revenue from its sale.
We have not yet successfully completed testing
of any of our product candidates for the treatment of the indications for which we intend to seek approval in humans, and we currently
do not know the extent of adverse events, if any, that will be observed in individuals who receive any of our product candidates.
If any of our product candidates cause unacceptable adverse events in clinical trials, we may not be able to obtain regulatory
approval or commercialize such product candidates.
If our competitors develop treatments
for the target indications of our product candidates that are approved more quickly, marketed more successfully or are demonstrated
to be safer or more effective than our product candidates, or if FDA approves generic or biosimilar competitors to our products
post-approval, our commercial opportunity will be reduced or eliminated.
We compete in an industry characterized
by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on
the benefits of intellectual property protection and regulatory exclusivities. Our competitors include pharmaceutical companies,
other biotechnology companies, academic institutions, government agencies and other private and public research organizations.
We compete with these parties in immunotherapy and oncology treatments and in recruiting highly qualified personnel. Our product
candidates, if successfully developed and approved, may compete with established therapies, with new treatments that may be introduced
by our competitors, including competitors relying on our biologics approvals under section 351(k) of the Public Health Service
Act, or with generic copies of our products approved by FDA under an abbreviated new drug application, or ANDA, referencing our
drug products. We believe that competitors are actively developing competing products to our product candidates. See “Competition”
in the “Business” section of this Registration Statement for a discussion of competition with respect to our current
product candidates.
Many of our competitors and potential competitors
have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing,
sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have formed collaborations
with large, established companies to support the research, development and commercialization of products that may be competitive
with ours. Accordingly, our competitors may be more successful with respect to their products than we may be in developing, commercializing,
and achieving widespread market acceptance for our products. If a competitor obtains approval for an orphan drug that is the same
drug or the same biologic as one of our candidates before we do, we will be blocked from obtaining FDA approval for seven years
from the date of the competitor’s product, unless we can establish that our product is clinically superior to the previously-approved
competitor’s product or we can meet another exception, such as by showing that the competitor has failed to provide an adequate
supply of its product to patients after approval. In addition, our competitors’ products may be more effective or more effectively
marketed and sold than any treatment we or our development partners may commercialize and may render our product candidates obsolete
or non-competitive before we can recover the expenses related to developing and supporting the commercialization of any of our
product candidates. Developments by competitors may render our product candidates obsolete or noncompetitive. After one of our
product candidates is approved, FDA may also approve a generic version with the same dosage form, safety, strength, route of administration,
quality, performance characteristics and intended use as our product. These generic equivalents would be less costly to bring to
market and could generally be offered at lower prices, thereby limiting our ability to gain or retain market share.
The acquisition or licensing of pharmaceutical
products is also very competitive, and a number of more established companies, which have acknowledged strategies to in-license
or acquire products, may have competitive advantages as may other emerging companies taking similar or different approaches to
product acquisitions. The more established companies may have a competitive advantage over us due to their size, cash flows, institutional
experience and historical corporate reputation.
We are subject to a multitude of manufacturing
risks, any of which could substantially increase our costs and limit supply of our products.
We are, and will for the foreseeable future
continue to be, wholly dependent on third party contract manufacturers for the timely supply of adequate quantities of our products
which meet or exceed requisite quality and production standards for use in clinical and nonclinical studies. Given the extensive
risks, scope, complexity, cost, regulatory requirements and commitment of resources associated with developing the capabilities
to manufacture one or more of our products, we have no present plan or intention of developing in-house manufacturing capabilities
for nonclinical, clinical or commercial scale production, beyond our current supervision and management of our third-party contract
manufacturers. In addition, in order to balance risk and conserve financial and human resources, we have and may continue from
time to time to defer commitment to production of product, which could result in delays to the continued progress of our clinical
and nonclinical testing.
In addition to the foregoing, the process
of manufacturing our products is complex, highly regulated and subject to several risks, including but not limited to the following:
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We, and our contract manufacturers, must comply with FDA’s current Good Manufacturing Practice, or cGMP, regulations
and guidance. We, and our contract manufacturers, may encounter difficulties in achieving quality control and quality assurance
and may experience shortages in qualified personnel. We, and our contract manufacturers, are subject to inspections by FDA and
comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. Any failure to follow
cGMP or other regulatory requirements or any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging,
or storage of our products as a result of a failure of our facilities or the facilities or operations of third parties to comply
with regulatory requirements, or a failure to pass any regulatory authority inspection, could significantly impair our ability
to develop and commercialize our products, including leading to significant delays in the availability of products for our clinical
studies or the termination or hold on a clinical study, or the delay or prevention of a filing or approval of marketing applications
for our product candidates. Significant noncompliance could also result in the imposition of sanctions, including injunctions,
civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates, delays, suspension
or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions, adverse publicity, and
criminal prosecutions, any of which could damage our reputation. If we are not able to maintain regulatory compliance, we may not
be permitted to market our products and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution. Any
adverse developments affecting manufacturing operations for our products may result in shipment delays, inventory shortages, lot
failures, product withdrawals or recalls, or other interruptions in the supply of our products. Once our product candidates are
approved, we may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications,
undertake costly remediation efforts or seek more costly manufacturing alternatives.
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The manufacturing facilities in which our products are made could be adversely affected by equipment failures, plant closures,
capacity constraints, competing customer priorities or changes in corporate strategy or priorities, process changes or failures,
changes in business models or operations, materials or labor shortages, natural disasters, power failures and numerous other factors.
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We are wholly dependent upon third party CMOs for the timely supply of adequate quantities of requisite quality product for
our nonclinical, clinical and, if approved by regulatory authorities, commercial scale production.
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The process of manufacturing biologics is extremely susceptible to product loss due to contamination, equipment failure or
improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes
could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations
are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities
may need to be closed for an extended period of time to investigate and remedy the contamination.
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If any product candidate that we successfully
develop does not achieve broad market acceptance among physicians, patients, healthcare payers and the medical community, the revenue
that it generates may be limited.
Even if our product candidates receive regulatory
approval, they may not gain market acceptance among physicians, patients, healthcare payers, and the medical community. Coverage
and reimbursement of our product candidates by third-party payers, including government payers, generally is also necessary for
commercial success. The degree of market acceptance of any approved product candidates will depend on a number of factors, including:
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the efficacy and safety as demonstrated in clinical trials;
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the clinical indications for which the product candidate is approved;
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acceptance by physicians, major operators of hospitals and clinics, and patients of the product candidate as a safe and effective
treatment;
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the potential and perceived advantages of product candidates over alternative treatments;
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the safety of product candidates seen in a broader patient group, including its use outside the approved indications;
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the cost of treatment in relation to alternative treatments;
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the availability of adequate reimbursement and pricing by payers;
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relative convenience and ease of administration;
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the prevalence and severity of adverse events;
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the effectiveness of our sales and marketing efforts; and
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the ability to manage any unfavorable publicity relating to the product candidate.
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If any product candidate is approved but
does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payers, and patients, we may not generate
sufficient revenue from that product candidate and may not become or remain commercially attractive as a standalone indication
for that product.
Reimbursement may be limited or unavailable
in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.
Market acceptance and sales of our product
candidates will depend significantly on the availability of adequate insurance coverage and reimbursement from third-party payers
for any of our product candidates and may be affected by existing and future health care reform measures. Government authorities
and third-party payers, such as private health insurers and health maintenance organizations, decide which drugs they will pay
for and establish reimbursement levels. Reimbursement by a third-party payer may depend upon a number of factors including the
third-party payer’s determination that use of a product candidate 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
for a product candidate from a government or other third-party payer is a time-consuming and costly process that could require
us to provide supporting scientific, clinical, and cost effectiveness data for the use of our product candidates to the payer.
We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. We cannot be sure
that coverage or adequate reimbursement will be available for any of our product candidates. Also, we cannot be sure that reimbursement
amounts will not reduce the demand for, or the price of, our product candidates. If reimbursement is not available or is available
only to limited levels or with restrictions, we may not be able to commercialize certain of our product candidates profitably,
or at all, even if approved.
In the United States and in certain foreign
jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could affect our ability
to sell our product candidates profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methods for
many product candidates under Medicare. This has resulted in lower rates of reimbursement. There have been numerous other federal
and state initiatives designed to reduce payment for pharmaceuticals.
As a result of legislative proposals and
the trend toward managed health care in the United States, third-party payers are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement of new drugs. They may also refuse to provide coverage of approved
product candidates for medical indications other than those for which FDA has granted market approvals. As a result, significant
uncertainty exists as to whether and how much third-party payers will reimburse patients for their use of newly approved drugs,
which in turn will put pressure on the pricing of drugs. We could be subject to pricing pressures in connection with the sale of
our product candidates due to the trend toward managed health care, the increasing influence of health maintenance organizations,
and additional legislative proposals as well as country, regional, or local healthcare budget limitations.
Similar concerns about the costs of treatment
have been raised in Europe and the United Kingdom, where the cost effectiveness of
CAR-T
therapies have been an impediment to utilization of Kymriah and Yescarta in Europe and the United Kingdom (UK). If CAR-T companies
are not able to convince regulators and payers in national healthcare systems that the benefits of a CAR-T therapy outweigh its
costs, the market for lenzilumab as a companion therapy to CAR-T might not develop.
If we are unable to establish sales
and marketing capabilities or fail to enter into agreements with third parties to market and sell any product candidates we may
successfully develop, we may not be able to effectively market and sell any such product candidates.
We do not currently have the sales and marketing
infrastructure in place that would be necessary to sell and market products. As our drug candidates progress, while we may build
or contract with expert organizations to utilize the infrastructure that would be needed to successfully market and sell any successful
drug candidate, we currently anticipate seeking strategic alliances and partnerships with third parties, particularly for any drug
candidates that we determine would require larger sales efforts. The establishment of a sales and marketing operation can be expensive
and time consuming and could delay any product candidate launch.
Governments may impose price controls,
which may adversely affect our future profitability.
We intend to seek approval to market our
future product candidates in the United States and potentially in foreign jurisdictions. If we obtain approval in one or more foreign
jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product candidates. In some foreign
countries, particularly in the European Union, the pricing of prescription pharmaceuticals and biologics is subject to governmental
control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of
marketing approval for a product candidate. If reimbursement of our future products is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
We face potential product liability
exposure and, if successful claims are brought against us, we may incur substantial liability for a product candidate and may have
to limit its commercialization.
The use of our product candidates in clinical
trials and the sale of any product candidates for which we may obtain marketing approval expose us to the risk of product liability
claims. Product liability claims may be brought against us or any future development partners by participants enrolled in our clinical
trials, patients, health care providers, or others using, administering, or selling our product candidates. If we cannot successfully
defend ourselves against any such claims, or have insufficient insurance protection, we would incur substantial liabilities. Regardless
of merit or eventual outcome, product liability claims may result in:
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withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
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costs of related litigation;
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substantial monetary awards to trial participants or other claimants;
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decreased demand for our product candidates and loss of revenue;
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impairment of our business reputation;
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diversion of management and scientific resources from our business operations; and
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the inability to commercialize our product candidates.
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We have obtained limited product liability
insurance coverage for our clinical trials domestically and in selected foreign countries where we are conducting clinical trials.
As such, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may
suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance
coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. We intend to expand
our insurance coverage for product candidates to include the sale of commercial products if we obtain marketing approval for our
product candidates in development; however, we may be unable to obtain commercially reasonable product liability insurance for
any product candidates approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had
unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments
exceed our insurance coverage, could decrease our working capital and adversely affect our business.
Our insurance policies are expensive
and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.
We do not carry insurance for all categories
of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices
liability, property, auto, workers’ compensation, products liability, and directors’ and officers’ insurance.
We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant,
uninsured liability may require us to pay substantial amounts, which would adversely affect our working capital and results of
operations.
Our employees and consultants may
engage in misconduct or other improper activities, including noncompliance with regulatory standards, which could have a material
adverse effect on our business.
We are exposed to the risk of employee fraud
or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations or similar
regulations of comparable foreign regulatory authorities, failure to provide accurate information to FDA or comparable foreign
regulatory authorities, failure to comply with manufacturing standards, failure to comply with federal and state healthcare fraud
and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities,
failure to report financial information or data accurately, violations of anti-bribery laws, or failure to disclose unauthorized
activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to
extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use
of confidential information obtained in the course of our business, which could result in civil or criminal legal actions, regulatory
sanctions, or serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics and other corporate
policies, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent
this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations
or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such
actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could
have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
We may encounter difficulties in managing
our growth and expanding our operations successfully
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As we seek to advance our product candidates
through clinical trials we will need to expand our development, regulatory, manufacturing, marketing, and sales capabilities, and
contract with third parties to provide these capabilities for us. As our operations expand we expect that we will need to manage
additional relationships with various development partners, suppliers, and other third parties. Future growth will impose significant
added responsibilities on members of management. Our future financial performance and our ability to commercialize our product
candidates and to compete effectively will depend in part on our ability to manage any future growth effectively. To that end,
we must be able to manage our development efforts and clinical trials effectively. We may not be able to accomplish these tasks
and our failure to accomplish any of them could prevent us from successfully growing our company.
We and any future development partners,
third-party manufacturers and suppliers use hazardous materials, and any claims relating to improper handling, storage, or disposal
of these materials could be time consuming or costly.
We and any future development partners,
third-party manufacturers and suppliers may use hazardous materials, including chemicals and biological agents and compounds that
could be dangerous to human health and safety or the environment. Our operations and the operations of our development partner,
third-party manufacturers and suppliers also produce hazardous waste products. Federal, state, and local laws and regulations govern
the use, generation, manufacture, storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental
laws and regulations may be expensive and current or future environmental laws and regulations may impair our product development
efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes.
We do not carry specific biological or hazardous waste insurance coverage and our property, casualty, and general liability insurance
policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination.
Accordingly, in the event of contamination or injury we could be held liable for damages or be penalized with fines in an amount
exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
Our internal computer systems, or
those of our future development partners, third-party clinical research organizations or other contractors or consultants, may
fail or suffer security breaches, which could result in a material disruption of our product development programs.
Despite the implementation of security measures,
our internal computer systems and those of our development partners, third-party clinical research organizations and other contractors
and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication
and electrical failures. While we have not experienced any such system failure, accident, 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 programs. For example,
the loss of clinical trial data for any of our product candidates could result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results
in a loss of or damage to our data or applications or other data or applications relating to our technology or product candidates,
or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development
of our product candidates could be delayed.
Healthcare reform measures, when implemented,
could hinder or prevent our commercial success.
There have been, and likely will continue
to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of health care
and containing or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future. The continuing
efforts of the government, insurance companies, managed care organizations, and other payers of healthcare services to contain
or reduce costs of health care may adversely affect:
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the demand for any drug products for which we may obtain regulatory approval;
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our ability to set a price that we believe is fair for our product candidates;
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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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We and any of our future development
partners will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical
events, and any failure to do so would result in sanctions that would materially harm our business.
If we and any future development partners
are successful in commercializing our products, FDA and foreign regulatory authorities would require that we and any future development
partners report certain information about adverse medical events if those products may have caused or contributed to those adverse
events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the
nature of the event. We and any future development partners may fail to report adverse events we become aware of within the prescribed
timeframe. We and any future development partners may also fail to appreciate that we have become aware of a reportable adverse
event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in
time from the use of our products. If we and any future development partners fail to comply with our reporting obligations, FDA
or a foreign regulatory authority could take action including criminal prosecution, the imposition of civil monetary penalties,
seizure of our products, or delay in approval or clearance of future products.
Our product candidates for which we
intend to seek approval as biologic products may face competition sooner than anticipated.
With the enactment of the Biologics Price
Competition and Innovation Act of 2009, or the BPCIA, as part of the Affordable Care Act, an abbreviated pathway for the approval
of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority
for FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as ‘‘interchangeable’’
based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved
by FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted
and implemented by FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain
when such processes intended to implement BPCIA may be fully adopted by FDA, any such processes could have a material adverse effect
on the future commercial prospects for our biological products.
We believe that any of our product candidates
approved as biological products under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that
FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity
for biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted
for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products
is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. Finally, there is
a risk that the 12-year exclusivity period could be reduced which could negatively affect our products.
In addition, foreign regulatory authorities
may also provide for exclusivity periods for approved biological products. For example, biological products in Europe may be eligible
for a 10-year period of exclusivity. However, biosimilar products have been approved under a sub-pathway of the centralized procedure
since 2006. The pathway allows sponsors of a biosimilar product to seek and obtain regulatory approval based in part on the clinical
trial data of an originator product to which the biosimilar product has been demonstrated to be ‘‘similar.’’
In many cases, this allows biosimilar products to be brought to market without conducting the full suite of clinical trials typically
required of originators. It is unclear whether we and our development partner would face competition to our products in European
markets sooner than anticipated.
We may in the future be subject to
various U.S. federal and state laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims
and fraud laws, and any violations by us of such laws could result in fines or other penalties
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If one or more of our product candidates
is approved, we will likely be subject to the various U.S. federal and state laws intended to prevent health care fraud and abuse.
The federal anti-kickback statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the referral
of patients or the use of products or services that would be paid for in whole or part by Medicare, Medicaid or other federal health
care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free
or reduced price items and services. Many states have similar laws that apply to their state health care programs as well as private
payers. Violations of the anti-kickback laws can result in exclusion from federal health care programs and substantial civil and
criminal penalties.
The False Claims Act imposes liability on
persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care
program. The False Claims Act has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent,
that are for services not provided as claimed, or for services that are not medically necessary. The False Claims includes a whistleblower
provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful
claims. If our marketing or other arrangements were determined to violate the False Claims Act or anti-kickback or related laws,
then our revenue could be adversely affected, which would likely harm our business, financial condition, and results of operations.
State and federal authorities have aggressively
targeted medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting
contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other
improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions
of dollars or more, have been forced to implement extensive corrective action plans or Corporate Integrity Agreements, and have
often become subject to consent decrees severely restricting the manner in which they conduct their business. If we become the
target of such an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing
and promotional practices, we could face similar sanctions, which would materially harm our business.
Also, the Foreign Corrupt Practices Act
and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to
non-U.S. officials for the purpose of obtaining or retaining business. We cannot assure you that our internal control policies
and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators
or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties, or prosecution and have
a negative impact on our business, results of operations and reputation.
Legislative or regulatory healthcare
reforms in the United States may make it more difficult and costly for us to obtain regulatory approval of our product candidates
and to produce, market, and distribute our products after approval is obtained.
From time to time, legislation is drafted
and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture,
and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or
reinterpreted by FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations
of existing regulations may impose additional costs or lengthen review times of our current product candidates or any future product
candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated,
enacted or adopted may have on our business in the future. Such changes could, among other things, require:
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changes to manufacturing methods;
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additional studies, including clinical studies;
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recall, replacement, or discontinuance of one or more of our products; and
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additional record-keeping.
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Each of these would likely entail substantial
time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to
receive regulatory approvals for any future products would harm our business, financial condition, and results of operations.
Even if we are able to obtain regulatory
approval for our product candidates, we will continue to be subject to ongoing and extensive regulatory requirements, and our failure
to comply with these requirements could substantially harm our business.
If we receive regulatory approval for our
product candidates, we will be subject to ongoing FDA obligations and continued regulatory oversight and review, such as continued
safety reporting requirements, and we may also be subject to additional FDA post-marketing obligations. If we are not able to maintain
regulatory compliance, we may not be permitted to market our product candidates and/or may be subject to product recalls or seizures.
If FDA approves any of our product candidates,
the labeling, manufacturing, packaging, storage, distribution, export, adverse event reporting, advertising, promotion and record-keeping
for our products will be subject to extensive regulatory requirements. Violations of these regulatory requirements or the subsequent
discovery of previously unknown problems with the products, including adverse events of unanticipated severity or frequency, may
result in:
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the issuance of warning or untitled letters;
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requirements to conduct post-marking clinical trials;
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restrictions on the marketing and distribution of the product, including potential withdrawal of the product from the market;
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suspension of ongoing clinical trials;
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the issuance of product recalls, import and export restrictions, seizures, and detentions; and
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the issuance of injunctions, or imposition of other civil and/or criminal penalties.
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Our ability to utilize our net operating
loss carryforwards and certain other tax attributes may be limited.
We have incurred substantial losses during
our history and do not expect to become profitable in the foreseeable future and may never achieve profitability. To the extent
that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such
unused losses expire. We may be unable to use these losses to offset income before such unused losses expire. Under Section 382
of the Internal Revenue Code, 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 corporation’s ability to use
its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited.
We have recently and in the past experienced ownership changes that have resulted in limitations on the use of a portion of our
net operating loss carryforwards. On February 27, 2018, upon the closing of the Restructuring Transactions, we experienced an ownership
change that may result in limitations on the use of a portion of our net operating losses. If we experience further ownership changes
our ability to utilize our net operating loss carryforwards could be further limited.
We rely completely on third parties,
most of which are sole source suppliers, to supply drug substance and manufacture drug product for our clinical trials and preclinical
studies and intend to rely on other third parties to produce commercial supplies of product candidates, and our dependence on third
parties could adversely impact our business.
We are completely dependent on third-party
suppliers, most of which are sole source suppliers of the drug substance and drug product for our product candidates. We regularly
evaluate potential alternate sources of supply but there can be no assurance that any such suppliers would be available, acceptable
or successful. The costs of manufacturing our drug candidates are high, and we will require additional capital to ensure that we
can maintain an adequate supply to conduct our contemplated development programs.
If our third-party suppliers do not supply
sufficient quantities for product candidates to us on a timely basis and in accordance with applicable specifications and other
regulatory requirements, there could be a significant interruption of our supplies, which would adversely affect clinical development
of the product candidate, including affecting our ability to enroll in and timely progress clinical trials. Furthermore, if any
of our contract manufacturers cannot successfully manufacture material that conforms to our specifications and with regulatory
requirements, we will not be able to secure and/or maintain regulatory approval, if any, for our product candidates.
We will also rely on our contract manufacturers
to purchase from third-party suppliers the materials necessary to produce our product candidates for our anticipated clinical trials.
There are a small number of suppliers for certain capital equipment and raw materials used to manufacture our product candidates.
We do not have any control over the process or timing of the acquisition of these raw materials by our contract manufacturers.
Moreover, we currently do not have agreements in place for the commercial production of these raw materials. Any significant delay
in the supply of a product candidate or the raw material components thereof for an ongoing clinical trial could considerably delay
completion of that clinical trial, product candidate testing, and potential regulatory approval of that product candidate.
We do not expect to have the resources or
capacity to commercially manufacture any of our proposed product candidates if approved, and will likely continue to be dependent
on third-party manufacturers. Our dependence on third parties to manufacture and supply us with clinical trial materials and any
approved product candidates may adversely affect our ability to develop and commercialize our product candidates on a timely basis.
We may not be successful in establishing
and maintaining development partnerships and licensing agreements, which could adversely affect our ability to develop and commercialize
product candidates.
Part of our strategy is to enter into development
partnerships and licensing agreements. We face significant competition in seeking appropriate partners and the negotiation process
is time consuming and complex. Even if we are successful in securing a development partnership, we may not be able to continue
it. Moreover, we may not be successful in our efforts to establish a development partnership or other alternative arrangements
for any of our other existing or future product candidates and programs because, among other reasons, our research and development
pipeline may be insufficient, our product candidates and programs may be deemed to be at too early a stage of development for collaborative
effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety
and efficacy. Even if we are successful in our efforts to establish new development partnerships, the terms that we agree upon
may not be favorable to us and we may not be able to maintain such development partnerships if, for example, development or approval
of a product candidate is delayed or sales of an approved product candidate are disappointing. Any delay in entering into new development
partnership agreements related to our product candidates could delay the development and commercialization of our product candidates
and reduce their competitiveness if they reach the market.
Moreover, if we fail to establish and maintain
additional development partnerships related to our product candidates:
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the development of our current or future product candidates may be terminated or delayed;
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our cash expenditures related to development of certain of our current or future product candidates would increase significantly
and we may need to seek additional financing;
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we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for
which we have not budgeted; and
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we will bear all of the risk related to the development of any such product candidates.
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Our or any new partner’s failure to
develop, manufacture or effectively commercialize our product would result in a material adverse effect on our business and results
of operations and would likely cause our stock price to decline.
Risks Related to Intellectual Property
If we fail to adequately protect or
enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would
diminish, and our business and competitive position would suffer.
Our success, competitive position and future
revenues will depend in part on our ability and the abilities of our licensors and licensees to obtain and maintain patent protection
for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing
on our proprietary rights and to operate without infringing the proprietary rights of third parties. We have an active patent protection
program that includes filing patent applications on new compounds, formulations, delivery systems and methods of making and using
products and prosecuting these patent applications in the United States and abroad. As patents issue, we also file continuation
applications as appropriate. Although we have taken steps to build a strong patent portfolio, we cannot predict:
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the degree and range of protection any patents will afford us against competitors, including whether third parties find ways
to invalidate or otherwise circumvent our licensed patents;
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if and when patents will issue in the United States or any other country;
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whether or not others will obtain patents claiming aspects similar to those covered by our licensed patents and patent applications;
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whether we will need to initiate litigation or administrative proceedings to protect our intellectual property rights, which
may be costly whether we win or lose;
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whether any of our patents will be challenged by our competitors alleging invalidity or unenforceability and, if opposed or
litigated, the outcome of any administrative or court action as to patent validity, enforceability or scope;
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whether a competitor will develop a similar compound that is outside the scope of protection afforded by a patent or whether
the patent scope is inherent in the claims modified due to interpretation of claim scope by a court;
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whether there were activities previously undertaken by a licensor that could limit the scope, validity or enforceability of
licensed patents and intellectual property; or
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whether a competitor will assert infringement of its patents or intellectual property, whether or not meritorious, and what
the outcome of any related litigation or challenge may be.
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Our success also depends upon the skills,
knowledge and experience of our scientific and technical personnel, our consultants and advisors as well as our licensors, sublicensees
and contractors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult
to obtain, we rely on trade secret protection and confidentiality agreements. To this end, we require all employees, consultants
and board members to enter into agreements that prohibit the disclosure of confidential information and, where applicable, require
disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business. These agreements
may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized
use or disclosure or the lawful development by others of such information. If any of our trade secrets, know-how or other proprietary
information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired,
and our business and competitive position would suffer.
Due to legal and factual uncertainties
regarding the scope and protection afforded by patents and other proprietary rights, we may not have meaningful protection from
competition.
Our long-term success will substantially
depend upon our ability to protect our proprietary technologies from infringement, misappropriation, discovery and duplication
and avoid infringing the proprietary rights of others. Our patent rights, and the patent rights of biopharmaceutical companies
in general, are highly uncertain and include complex legal and factual issues. These uncertainties also mean that any patents that
we own or may obtain in the future could be subject to challenge, and even if not challenged, may not provide us with meaningful
protection from competition. Patents already issued to us or our pending applications may become subject to dispute, and any dispute
could be resolved against us.
If some or all of our or any licensor’s
patents expire or are invalidated or are found to be unenforceable, or if some or all of our patent applications do not result
in issued patents or result in patents with narrow, overbroad, or unenforceable claims, or claims that are not supported in regard
to written description or enablement by the specification, or if we are prevented from asserting that the claims of an issued patent
cover a product of a third party, we may be subject to competition from third parties with products in the same class of products
as our product candidates or products with the same active pharmaceutical ingredients as our product candidates, including in those
jurisdictions in which we have no patent protection.
Our commercial success will depend in part
on obtaining and maintaining patent and trade secret protection for our product candidates, as well as the methods for treating
patients in the product indications using these product candidates. We will be able to protect our product candidates and the methods
for treating patients in the applicable product indications using these product candidates from unauthorized use by third parties
only to the extent that we or our exclusive licensor owns or controls such valid and enforceable patents or trade secrets.
Even if our product candidates and the methods
for treating patients for prescribed indications using these product candidates are covered by valid and enforceable patents and
have claims with sufficient scope, disclosure and support in the specification, the patents will provide protection only for a
limited amount of time. Our and any licensor’s ability to obtain patents can be highly uncertain and involve complex and
in some cases unsettled legal issues and factual questions. Furthermore, different countries have different procedures for obtaining
patents, and patents issued in different countries provide different degrees of protection against the use of a patented invention
by others. Therefore, if the issuance to us or any licensor, in a given country, of a patent covering an invention is not followed
by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity,
enforceability, or scope of the claims in, or the utility, written description or enablement in, a patent issued in one country
is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual
property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States
and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection.
We may be subject to competition from third
parties with products in the same class of products as our product candidates, or products with the same active pharmaceutical
ingredients as our product candidates in those jurisdictions in which we have no patent protection. Even if patents are issued
to us or any licensor regarding our product or methods of using them, those patents can be challenged by our competitors who can
argue such patents are invalid or unenforceable on a variety of grounds, including lack of utility, lack sufficient written description
or enablement, utility, or that the claims of the issued patents should be limited or narrowly construed. Patents also will not
protect our product candidates if competitors devise ways of making or using these products without legally infringing our patents.
The current U.S. regulatory environment may have the effect of encouraging companies to challenge branded drug patents or to create
non-infringing versions of a patented product in order to facilitate the approval of abbreviated new drug applications for generic
substitutes. These same types of incentives encourage competitors to submit new drug applications that rely on literature and clinical
data not prepared for or by the drug sponsor, providing another less burdensome pathway to approval.
If we infringe the rights of third
parties, we could be prevented from selling products and be forced to defend against litigation and pay damages.
There is a risk that we are infringing the
proprietary rights of third parties because numerous United States and foreign issued patents and pending patent applications,
which are owned by third parties, exist in the fields that are the focus of our development and manufacturing efforts. Others might
have been the first to make the inventions covered by each of our or any licensor’s pending patent applications and issued
patents and/or might have been the first to file patent applications for these inventions. In addition, because patent applications
take many months to publish and patent applications can take many years to issue, there may be currently pending applications,
unknown to us or any licensor, which may later result in issued patents that cover the production, manufacture, synthesis, commercialization,
formulation or use of our product candidates. In addition, the production, manufacture, synthesis, commercialization, formulation
or use of our product candidates may infringe existing patents of which we are not aware. Defending ourselves against third-party
claims, including litigation in particular, would be costly and time consuming and would divert management’s attention from
our business, which could lead to delays in our development or commercialization efforts. If third parties are successful in their
claims, we might have to pay substantial damages or take other actions that are adverse to our business.
If our products, methods, processes and
other technologies infringe the proprietary rights of other parties, we could incur substantial costs and may have to:
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obtain licenses, which may not be available on commercially reasonable terms, if at all;
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redesign our products or processes to avoid infringement, which may not be possible or could require substantial funds and
time;
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stop using the subject matter claimed in patents held by others, which could cause us to lose the use of one or more of our
drug candidates;
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pay damages royalties, or other amounts; or
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grant a cross license to our patents to another patent holder.
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We expect that, as our drug candidates move
further into clinical trials and commercialization and our public profile is raised, we will be more likely to be subject to such
claims.
We may fail to comply with any of
our obligations under existing agreements pursuant to which we license or have otherwise acquired rights or technology, which could
result in the loss of rights or technology that are material to our business.
We are a party to technology licenses and
have acquired certain assets and rights that are important to our business and we may enter into additional licenses or acquire
additional assets and rights in the future. We currently hold licenses from LICR, BioWa, and Lonza. These licenses impose various
commercial, contingent payments, royalty, insurance, indemnification, and other obligations on us. If we fail to comply with these
obligations, the licensor may have the right to terminate the license or take back rights or assets, in which event we would lose
valuable rights under our collaboration agreements, potential claims and our ability to develop product candidates.
We may be subject to claims that
our consultants or independent contractors have wrongfully used or disclosed alleged trade secrets of their other clients or former
employers to us.
As is common in the biotechnology and pharmaceutical
industry, we engage the services of consultants to assist us in the development of our product candidates. Many of these consultants
were previously employed at or may have previously or may be currently providing consulting services to, other biotechnology or
pharmaceutical companies including our competitors or potential competitors. We may become subject to claims that our company or
a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers
or their former or current clients. Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial costs and be a distraction to our management team.
We may not be able to protect our
intellectual property rights throughout the world.
Filing, prosecuting and defending patents
on product candidates in all countries throughout the world would be prohibitively expensive, and we intend to seek patent protection
only in selected countries. 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 product candidates
and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection,
particularly those relating to biopharmaceuticals, 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.
Risks Related to Our Common Stock
The Black Horse Entities currently
own more than a majority of our outstanding common stock and will control the outcome of all matters subject to stockholder approval.
As of the filing date of this Form 10-K,
the Black Horse Entities collectively hold approximately 60.7% of our outstanding common stock. Dr. Chappell, a member of our board
of directors from June 30, 2016 until November 10, 2017, controls the Black Horse Entities. Until his ownership position changes,
Dr. Chappell will be able to exert control over the election of the members of our board of directors and the outcome of all matters
requiring stockholder approval, including the ability to cause or prevent a change of control of our company. The control possessed
by Dr. Chappell could prevent or discourage unsolicited acquisition proposals or offers for our common stock that may be in the
best interest of our other stockholders.
The interests of the Black Horse Entities
may not in all cases be aligned with the interests of our other stockholders. For example, a sale of a substantial number of shares
of our common stock in the future by the Black Horse Entities could cause our stock price to decline. Additionally, the Black Horse
Entities are in the business of making investments in companies and may from time to time acquire and hold interests in businesses
that compete directly or indirectly with us. Accordingly, the Black Horse Entities may also pursue acquisition opportunities that
may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In addition,
Black Horse Entities may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment,
could enhance their equity investment, even though such transactions might involve risks to holders of our common stock.
The concentration of our common stock
owned by insiders may limit the ability of our other stockholders to influence corporate matters and may contribute to volatility
in our stock price.
We have a relatively small public float
due to the ownership percentage of our executive officers and directors, and greater than 5% stockholders. Our directors, executive
officers, and the Black Horse Entities and the other holders of more than 5% of our common stock together with their affiliates
beneficially own approximately 92% of our common stock as of the filing date of this Form 10-K. Some of these persons or entities
may have interests that are different from our other stockholders. This significant concentration of ownership may adversely affect
the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling
stockholders.
As a result of our small public float, our
common stock may be less liquid and have greater stock price volatility than the common stock of companies with broader public
ownership. In addition, the trading of a relatively small volume of shares of our common stock may result in significant volatility
in our stock price. If and to the extent ownership of our common stock becomes more concentrated, whether due to increased ownership
by our directors and executive officers or other principal stockholders, or other factors, our public float would further decrease,
which in turn would likely result in increased stock price volatility.
Additionally, because a large amount of
our stock is closely held, we may experience low trading volume or large fluctuations in share price and volume due to large sales
by our principal stockholders. If our existing stockholders, particularly our directors, executive officers and the holders of
more than 5% of our common stock, or their affiliates or associates, sell substantial amounts of our common stock in the public
market, or are perceived by the public market as intending to sell substantial amounts of our common stock, the trading price of
our common stock could decline significantly.
There is a limited trading market
for our securities and we do not currently have an active public market for our securities. An active trading market for our common
stock may not develop or be sustained and the market price of our securities is subject to volatility.
While our common stock is currently quoted
on the OTCQB Venture Market, there is currently no active public market for our common stock and trading in our common stock is
limited. We cannot predict whether an active market for our common stock will ever develop in the future. In the absence of an
active trading market:
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investors may have difficulty buying and selling shares of our common stock;
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market visibility for shares of our common stock may be limited;
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a lack of visibility for shares of our common stock may have a depressive effect on the market price for shares of our common
stock; and
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significant sales of our common stock, or the expectation of these sales, could materially and adversely affect the market
price of our common stock.
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An inactive market may also impair our ability
to raise capital to continue as a going concern and to fund operations by selling shares and may impair our ability to acquire
additional intellectual property assets by using our shares as consideration.
No assurance can be given that an active
market will develop for the common stock or as to the liquidity of the trading market for the common stock. The common stock may
be traded only infrequently in transactions arranged through brokers or otherwise, and reliable market quotations may not be available.
Raising additional funds by issuing
securities or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations
or require us to relinquish proprietary rights.
To the extent that we raise additional capital
by issuing equity securities, the share ownership of existing stockholders will be diluted. To the extent that additional capital
is raised through the sale of equity or convertible debt securities, the issuance could result in further dilution to our stockholders
by causing a reduction in their proportionate ownership and voting power.
Any future debt financing may involve covenants
that restrict our operations, including, among other restrictions, limitations on our ability to incur liens or additional debt,
pay dividends, redeem our stock, make certain investments, and engage in certain merger, consolidation, or asset sale transactions.
In addition, if we raise additional funds through licensing arrangements, it may be necessary to grant potentially valuable rights
to our product candidates or grant licenses on terms that are not favorable to us.
We have identified material weaknesses
in our internal control over financial reporting and may be unable to maintain effective control over financial reporting.
In the course of the preparation and external
audit of our consolidated financial statements for the fiscal year ended December 31, 2018, we and our independent registered public
accounting firm identified a “material weakness” in our internal control over financial reporting related to our limited
number of accounting and financial reporting personnel. A material weakness in internal control over financial reporting is a deficiency,
or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility
that a material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely
basis. We identified an insufficient degree of segregation of duties amongst our accounting and financial reporting personnel.
We intend to work to remediate the material
weaknesses identified above, which could include the addition of accounting and financial reporting personnel and/or the engagement
of accounting and personnel consultants on a limited-time basis until we add a sufficient number of personnel. However, our current
financial position could make it difficult for us to add the necessary resources.
Any material weaknesses in our internal
control over financing reporting in the future could adversely affect investor confidence, impair the value of our common stock
and increase our cost of raising capital.
If we are unable to remediate our material
weakness over financial controls or we identify other material weaknesses or significant deficiencies in the future, our operating
results might be harmed, we may fail to meet our reporting obligations or fail to prevent or detect material misstatements in our
financial statements. Any such failure could, in turn, affect the future ability of our management to certify that internal control
over our financial reporting is effective. Inferior internal control over financial reporting could also subject us to the scrutiny
of the SEC and other regulatory bodies which could cause investors to lose confidence in our reported financial information and
could subject us to civil or criminal penalties or stockholder litigation, which could have an adverse effect on our results of
operations and the market price of our common stock.
In addition, if we or our independent registered
public accounting firm identify deficiencies in our internal control over financial reporting, the disclosure of that fact, even
if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore,
deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Such non-compliance could
subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.
Our common stock may be considered
to be a “penny stock” and, as such, any market for our common stock may be further limited by certain SEC rules applicable
to penny stocks. Therefore, some brokers may be unwilling to trade our securities, and you may have difficulty reselling your shares,
which may cause the value of your investment to decline.
To the extent the price of our common stock
remains below $5.00 per share, our common stock may be subject to certain “penny stock” rules promulgated by the SEC.
Those rules impose certain sales practice requirements on brokers who sell penny stock to persons other than established customers
and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000). For transactions covered by the penny stock rules, the broker must make a special suitability determination for the
purchaser and receive the purchaser’s written consent to the transaction prior to the sale. Furthermore, the penny stock
rules generally require, among other things, that brokers engaged in secondary trading of penny stocks provide customers with written
disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices and disclosure
of the compensation to the brokerage firm and disclosure of the sales person working for the brokerage firm. These rules and regulations
adversely affect the ability of brokers to sell our common stock and limit the liquidity of our common stock, and because of the
imposition of these additional sales practices, it is possible that brokers will not want to make a market in our shares. This
could prevent a holder of our shares from reselling those shares and may cause the value of such investment to decline.
In addition, under applicable SEC rules
and interpretations, issuers of penny stocks are subject to disclosure requirements that can increase the cost and complexity of
registering shares for sale in a public offering, including a public offering proposed to be made to facilitate sales by existing
stockholders. These penny stock disclosure requirements may pose challenges or impediments to achieving our goals of increasing
our public float and the liquidity of the trading market for our shares.
If securities analysts do not publish
research or publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for a company’s
common stocks often is based in part on the research and reports that securities and industry analysts publish about the company.
We are not currently aware of any well-known analysts that are covering our common stock, and without analyst coverage it could
be hard to generate interest in investments in our common stock. Furthermore, if analyst coverage does develop, and an analyst
downgrades our stock or publishes unfavorable research about our business, or if our clinical trials or operating results fail
to meet the analysts’ expectations, our stock price would likely decline.
We have never paid and do not intend
to pay cash dividends and, consequently, the ability to achieve a return on any investment in our common stock will depend on appreciation
in the price of our common stock.
We have never paid cash dividends on any
of our capital stock, and we currently intend to retain future earnings, if any, to fund the development and growth of our business.
Therefore, a holder of our stock is not likely to receive any dividends on our common stock for the foreseeable future. Since we
do not intend to pay dividends, the ability to receive a return on an investment in our common stock will depend on any future
appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain
the price at which it was purchased.
Anti-takeover provisions in our charter
documents and Delaware law, could discourage, delay, or prevent a change in control of our company and may affect the trading price
of our common stock.
We are a Delaware corporation and the anti-takeover
provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from
engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested
stockholder, even if a change in control would be beneficial to our existing stockholders.
Our amended and restated certificate of
incorporation, as amended (the “Charter”), and our second amended and restated bylaws (the “Bylaws”) may
discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. Our Charter
and Bylaws:
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provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote
of directors then in office;
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do not provide stockholders with the ability to cumulate their votes; and
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require advance notification of stockholder nominations and proposals.
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In addition, our Charter permits the Board
to issue up to 25,000,000 shares of Preferred Stock, with such powers, rights, terms and conditions as may be designated by the
Board upon the issuance of shares of Preferred Stock at one or more times in the future. Specifically, the Charter permits the
Board to approve the future issuance of all or any shares of the Preferred Stock in one or more series, to determine the number
of shares constituting any series and to determine any voting powers, conversion rights, dividend rights, and other designations,
preferences, limitations, restrictions and rights relating to such shares without any further authorization by our stockholders.
The Board’s power to issue Preferred Stock could have the effect of delaying, deterring or preventing a transaction or a
change in control of our company that might otherwise be in the best interest of our stockholders.