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UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 13, 2024
Immunome,
Inc.
(Exact name of registrant as specified in its
charter)
Delaware |
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001-39580 |
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77-0694340 |
(State or other jurisdiction of incorporation) |
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(Commission File Number) |
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(IRS Employer Identification
No.) |
665
Stockton Drive, Suite 300
Exton, Pennsylvania |
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19342 |
(Address of principal executive offices) |
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(Zip
Code) |
Registrant’s
telephone number, including area code: (610)
321-3700
Check the appropriate box below if the Form 8-K
filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b)
of the Act:
Title
of each class |
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Trading
Symbol(s) |
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Name
of each exchange on which registered |
Common
Stock, $0.0001 par value per share |
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IMNM |
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The Nasdaq
Capital Market |
Indicate by check mark
whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter)
or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Item 2.02 |
Results of Operations and Financial Condition. |
On February 13, 2024, Immunome, Inc.
(the “Company”) announced the commencement of an underwritten public offering of its common stock (“the Offering”).
The Company will file with the Securities and Exchange Commission (“SEC”) a preliminary prospectus supplement (the “Preliminary
Prospectus Supplement”) to its automatic shelf registration statement on Form S-3 (which was filed earlier today with the SEC)
pursuant to Rule 424(b)(5) under the Securities Act of 1933, as amended (the “Securities Act”), relating to the
Offering. The Company will include the following disclosure in the Preliminary Prospectus Supplement:
“Based upon preliminary estimates and information available to us as of the date of this prospectus supplement, we expect to report that
we had approximately $138.1 million of cash, cash equivalents and marketable securities as of December 31, 2023.”
Our actual financial statements as of and
for the year ended December 31, 2023 are not yet available. The actual amounts that we report will be subject to our financial closing
procedures and any final adjustments that may be made prior to the time our financial results for the year ended December 31, 2023
are finalized and filed with the SEC. Our independent registered public accounting firm has not audited, reviewed, compiled, or applied
agreed-upon procedures with respect to the preliminary financial data. This estimate should not be viewed as a substitute for financial
statements prepared in accordance with accounting principles generally accepted in the United States and it is not necessarily indicative
of the results to be achieved in any future period.
The information in this Item 2.02 shall not
be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing.
The Company is filing
certain information for the purpose of updating descriptions of the Company’s business and risk factors contained in the Company’s
other filings with the SEC. Copies of the additional disclosures are attached as Exhibits 99.1 and 99.2 to this report and incorporated
herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
This Current Report on
Form 8-K contains forward-looking statements about the Company and its industry that involve substantial risks and uncertainties.
All statements other than statements of historical facts contained in this report, including statements regarding the Company’s
expectation that its pending asset acquisitions will close and, if closed, will complement the Company’s development pipeline, the
expected benefits of pending asset acquisitions, the Company’s strategy, future financial condition, future operations, research
and development, planned clinical trials and preclinical studies, technology platforms, the timing and likelihood of regulatory filings
and approvals for the Company’s product candidates, its ability to commercialize its product candidates, the potential benefits
of collaborations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,”
“believe,” “contemplate,” “continue,” “could,” “design,” “due,”
“estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,”
“positioned,” “potential,” “predict,” “seek,” “should,” “target,”
“will,” “would” and other similar expressions that are predictions of or indicate future events and future trends,
or the negative of these terms or other comparable terminology.
The Company has based
these forward-looking statements largely on its current expectations and projections about future events and financial trends that the
Company believes may affect its financial condition, results of operations, business strategy and financial needs. These forward-looking
statements are subject to a number of known and unknown risks, uncertainties and assumptions described in the Company’s filings
with the SEC, including the section titled “Risk Factors” in Exhibit 99.2 attached to this report. Moreover, the Company
operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for
the Company’s management to predict all risk factors nor can the Company assess the impact of all factors on its business or the
extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied
by, any forward-looking statements.
In light of the significant
uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events.
Although the Company believes that it has a reasonable basis for each forward-looking statement contained in this report, the Company
cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking
statements will be achieved or occur at all. You should refer to the section titled “Risk Factors” in Exhibit 99.2 attached
to this report for a discussion of important factors that may cause the Company’s actual results to differ materially from those
expressed or implied by the Company’s forward-looking statements. Furthermore, if the Company’s forward-looking statements
prove to be inaccurate, the inaccuracy may be material. Except as required by law, the Company undertakes no obligation to publicly update
any forward-looking statements, whether as a result of new information, future events or otherwise.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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IMMUNOME, INC.
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Date: February 13, 2024 |
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By: |
/s/ Clay Siegall |
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Clay Siegall, Ph.D. |
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President and Chief Executive Officer |
Exhibit 99.1
IMMUNOME’S BUSINESS
Overview
We are a biopharmaceutical company focused on the development of targeted
oncology therapies. We believe that the pursuit of novel or underexplored targets will be central to the next generation of transformative
therapies. For that reason, we pursue therapeutics that we believe have best-in-class or first-in-class potential. Our goal is to establish
a broad pipeline of preclinical and clinical assets which we can efficiently develop to value inflection points. To support that goal,
we pair business development activity with significant investment in our internal discovery programs.
Our pipeline is centered on three preclinical assets: IM-1021, a ROR1
ADC; IM-4320, an anti-IL-38 immunotherapy candidate; and a currently undisclosed candidate that is a FAP radioligand therapy, or RLT,
candidate. We anticipate submitting investigational new drug applications, or INDs, for each of these programs in the first quarter of
2025. We are not aware of any active development programs targeting IL-38 and believe that IM-4320, if successfully developed and approved,
would be a first-in-class immunotherapy. We believe that each of these drugs has the potential to improve outcomes for patients across
multiple indications.
On February 5, 2024, we signed a definitive asset purchase agreement
to acquire AL102, an investigational gamma secretase inhibitor, or GSI, currently under evaluation in a Phase 3 trial for the treatment
of desmoid tumors. We expect the purchase of AL102 (which also includes AL101, a related asset) to close in late Q1 or early Q2 2024.
Following the closing of that deal, we will become a clinical stage company. Based on our evaluation of Phase 2 data, we believe that
AL102 has the potential, if approved, to establish a new standard of care for patients with desmoid tumors.
Immunome’s business model is built upon our expertise in discovering
and developing targeted therapies as well as its ability to evaluate and acquire high-potential assets. We believe that the successful
track record of the leadership team will make the Company more attractive to companies selling assets, especially early-stage biotechnology
companies that lack resources to efficiently develop their assets.
Our perspective is that the most important considerations when acquiring
an asset are the quality of its preclinical or clinical data and the economic terms it can be acquired on. Accordingly, we are willing
to consider assets across multiple modalities, including antibody drug conjugates, or ADCs, RLTs, naked antibodies, small molecules and
more. We believe that effectively pursuing a novel target requires selecting a modality that is appropriate to the target biology.
At present, our internal discovery efforts are centered on ADCs and
RLTs. We believe that a broad toolbox of linkers and payloads is necessary to design and develop a broad pipeline of ADCs, as different
targets may require different payloads to achieve optimal efficacy and therapeutic index. The novel linker-effector unit we exclusively
licensed from Zentalis is an important component of this toolbox, and we have efforts underway to develop additional linkers and payloads.
We also believe that the incorporation of albumin binders into radioligand therapies provides a differentiated approach that can increase
the dose of radiation absorbed by patient tumors.
Immunome’s Discovery Platform utilizes proprietary hybridoma
technology to immortalize memory B cells isolated from oncology patient samples. This enables the production of sufficient quantities
of antibodies to perform high-throughput functional screening, allowing for the recognition of antibodies and targets whose role in cancer
was not previously appreciated. In January 2023, we announced an agreement with AbbVie under which AbbVie paid $30 million upfront
for access to up to 10 targets identified by the Discovery Platform.
Immunome is led by Clay Siegall, PhD, President and Chief Executive
Officer. Dr. Siegall previously served as CEO of Seagen, which he co-founded in 1997 and led for nearly 25 years. During his tenure,
Seagen earned FDA approvals for four cancer therapies. Pfizer purchased Seagen in December 2023. Dr. Siegall joined Immunome
in connection with Immunome’s acquisition of Morphimmune, a preclinical biotechnology company led by Dr. Siegall, in October 2023.
In addition to Dr. Siegall, three members of our current management
team joined Immunome from Morphimmune in October 2023. Jack Higgins, PhD, Immunome’s Chief Scientific Officer, held the
same role at Morphimmune, He was previously the Chief Development Sciences Officer at Molecular Templates, where he led discovery and
development efforts for multiple clinical candidates and co-invented the company’s Engineered Toxin Body platform. Bruce Turner,
MD, PhD, Immunome’s Chief Strategy Officer, held the same role at Morphimmune and previously founded several biotechnology
companies including Xanadu Bio and Gennao Bio. Max Rosett, Executive Vice President, Operations, and Interim Chief Financial Officer at
Immunome, served as Acting Chief Operating Officer at Morphimmune. Mr. Rosett previously served as Principal at Research Bridge Partners,
where he led Research Bridge Partners’ investment in Morphimmune’s Series A financing.
Bob Lechleider, MD, serves as the Chief Medical Officer of Immunome.
Dr. Lechleider was most recently the Chief Medical Officer of OncoResponse and previously worked with Dr. Siegall at Seagen,
where he was responsible for directing the development of early and late-stage portfolios. Phil Roberts, serves as the Chief Technical
Officer of Immunome. Dr. Roberts previously served as SVP, Technical Operations at Mirati Therapeutics, where he led the CMC development
of Krazati, Mirati’s first approved product. Sandra Stoneman, JD, serves as Chief Legal Officer of Immunome. She joined Immunome
from Duane Morris LLP, where she was an equity partner. Kinney Horn serves as our Chief Business Officer. He previously served in the
same role at Olema Oncology and spent more than 15 years at Genentech.
Immunome’s Pipeline
ROR1 ADC (IM-1021)
On January 8, 2024, we announced that we had entered into an exclusive,
worldwide license agreement under which we licensed from Zentalis ZPC-21 (now IM-1021), a preclinical-stage ADC targeting the receptor
tyrosine kinase like orphan receptor 1, or ROR1. ROR1 has an oncofetal expression pattern, with little or no expression in healthy tissue,
and is expressed on solid and liquid tumors. We believe ROR1 has been clinically validated as an ADC target through clinical trials of
a competitor ADC in multiple B-cell malignancies.
The expression pattern of ROR1 suggests that it may have clinical utility
as a therapeutic target in multiple solid and liquid tumor indications, including diseases with large patient populations and high unmet
need (Figure 1). However, the moderate-to-low expression and slow internalization of ROR1 present challenges to developing a successful
ADC for the treatment of ROR1-positive solid tumors. Our approach to overcoming these challenges is focused on pursuing development of
IM-1021, which incorporates an ROR1 antibody that is designed to promote internalization; uses a linker-payload combination that we believe
provides a potentially improved therapeutic index and may allow for higher clinical dosing; and contains a payload that is designed to
maximize the potential bystander effect and supports a drug-antibody ratio, or DAR, of 8.
IM-1021 incorporates a cleavable, undisclosed linker that is used to
conjugate a camptothecin derivative (a topoisomerase I inhibitor) to the ROR1 antibody via cysteine conjugation, and provides a DAR of
8. In preclinical studies, IM-1021 showed sustained tumor regression in a mouse model triple-negative breast cancer, or TNBC. In
this model, IM-1021 dosed weekly for three weeks at 2.5 mg/kg or 5.0 mg/kg demonstrated superior reductions in tumor volume compared
with the same respective dose of a competitor, vedotin payload ROR1 ADC, with no meaningful weight loss observed (Figure 2).
Figure 2. IM-1021 showed favorable activity and safety findings
in a TNBC mouse model
We expect to submit an IND for the IM-1021 program to the FDA in the
first quarter of 2025. Subject to obtaining an IND, our IM-1201 clinical strategy is designed to efficiently evaluate dose escalation
in patients with solid tumors or lymphoma, followed by potential expansion of the solid tumor clinical program into targeted indications,
potentially including non-small cell lung cancer, breast prostate, pancreatic, and gastric cancer, and expansion of the lymphoma program
into diffuse large B-cell lymphoma and mantle cell lymphoma. Concurrent with the dose escalation and expansion studies, we plan to conduct
non-clinical studies evaluating IM-1021 in combination with other therapies, particularly in B-cell malignancies, and to evaluate and
develop potential companion diagnostics that could help identify patients most likely to respond to IM-1021. Our strategy is to pursue
pivotal clinical studies in indications that have shown compelling clinical outcomes in earlier-stage trials, present significant commercial
opportunities, have the potential for enhanced outcomes using a companion diagnostic, and offer potential for accelerated approval.
177Lu-FAP Radioligand Therapy
Through our merger with Morphimmune, we acquired a FAP-targeted Lu-177
radiotherapy development candidate for the treatment of solid tumors. FAP, or fibroblast activation protein, serves as a tumor-specific
marker due to its broad expression on cancer associated fibroblasts. Cancer-associated fibroblasts are the most common tumor stromal cell,
with expression in 75% of solid tumors. Our FAP-Lu RLT candidate is designed to deliver radioactive 177Lu directly to FAP-expressing
cells, where the “bystander” effect of the radiation may target nearby tumor cells. We believe this RLT approach could overcome
the limitations, such as poor internalization and low expression on tumor cells, that make FAP an unsuitable target for ADCs.
Our FAP-targeted radiotherapy candidate has four functional domains:
| • | A small molecule FAP-specific ligand |
| • | A linker tuned to drive tumor-specific uptake |
| • | An albumin-binding domain to improve tumor retention |
| • | A chelator to deliver the radionuclide |
We have conducted preclinical studies demonstrating that incorporating
albumin binders into RLTs improved biodistribution and in vivo pharmacokinetic profiles. Strong albumin binding resulted in higher total
absorbed doses in tumor compared with liver and kidney (Figure 4) and also led to increased and prolonged FAP-RLT levels in serum when
administered intravenously (Figure 5).
We are evaluating a series of potential drug
candidates that explore options for each of the four domains in order to select the combination that we believe may be most likely to
deliver therapeutic benefits in cancer patients. Several candidates have shown substantial tumor regression in an animal model of
glioblastoma (Figure 6A), with no weight loss observed (Figure 6B).
We believe our growing body of preclinical
data for these candidates demonstrates desirable characteristics that support the further development of a FAP RLT. These preclinical
characteristics include sub-nanomolar affinity, high specificity, radiostability, superior dose retention and tumor absorbed dose, and
preclinical activity and tolerability.
We expect to submit an IND for this program to the FDA in Q1 2025.
Anti-IL-38 Immunotherapy (IM-4320)
Our lead oncology program targets IL-38, which we believe is a novel,
negative regulator of inflammation capable of promoting tumor evasion of the immune system. IL-38 was identified as the target of an antibody
isolated from a hybridoma library generated from the memory B cells of a patient with squamous head and neck cancer.
Our query of public and proprietary databases of cancer gene expression
revealed over-expression of IL-38 in multiple solid tumors. Further, a correlation with low levels of tumor-infiltrating immune effector
cells, a hallmark of immune suppression in some of these patients’ tumors, and high IL-38 expression was also observed, suggesting
a role for IL-38 as an immune modulator.
Data obtained from preclinical testing showed that blocking IL-38 function
using inhibitory antibodies increased the immune response to the tumor and resulted in anti-tumor activity in select animal models, suggesting
that anti-IL-38 antibodies could have therapeutic utility as single agents or in combination with other therapeutic modalities. Our recent
analysis further showed IL-38 expression was frequently elevated in samples of select patient tumor subtypes, in cancers such as head
and neck, lung and gastroesophageal.
IM-4320 is our lead anti-IL-38 antibody. Our data indicates that IM-4320
bound to IL-38, inhibiting its binding ILRAPL1 and IL-36R. Furthermore, it inhibited tumor growth in an immune cold melanoma model. We
believe IM-4320 has shown preclinical activity consistent with an active immunotherapy agent.
We expect to submit an IND for this program to the FDA in Q1 2025.
AL102
On February 5, 2024, we signed
an Asset Purchase Agreement with Ayala Pharmaceuticals, Inc. or Ayala, for AL102, a gamma secretase inhibitor, or GSI, currently
under evaluation in a Phase 3 trial for the treatment of desmoid tumors. We expect the purchase of AL102 (which also include AL101, a
related asset) to close in late Q1 or early Q2 2024.
Desmoid tumors are painful, aggressive
soft-tissue tumors that can lead to significant disability if left untreated. They are most commonly diagnosed in young adults, and they
are more common in women than in men. An estimated 1,000-1,650 patients are diagnosed with desmoid tumors each year in the US, and an
estimated 5,500 to 7,000 patients have desmoid tumors that are actively managed. In November 2023, OSGIVEO (nirogacestat) became
the first FDA-approved systemic treatment for desmoid tumors. Like AL102, nirogacestat is a gamma secretase inhibitor.
Our interest in AL102 was largely
a response to Phase 2 data, as shared by Ayala at ESMO in October 2023. Ayala’s data showed an objective response rate of 64%
in the intent-to-treat population and 75% among evaluable patients. Other measures of response including tumor volume, as measured by
MRI and cellularity as estimated via T2 imaging, also showed deep responses.
We believe the data published at
that time suggests that AL102’s safety results were similar to nirogacestat.
ADC Strategy
We are pursuing a target-driven development strategy intended to establish
a broad pipeline of next-generation ADCs focused on oncology indications with high unmet need. We are working to identify novel or under-explored
targets that we believe will enable the development of first-in-class ADCs. We also are working to identify clinically validated ADC targets
for which competitor programs have shown suboptimal efficacy and/or safety, with the goal of advancing best-in-class ADCs against these
targets that overcome these limitations. Our ability to achieve these goals is predicated on our deep understanding of ADC target biology
and our ability to deploy a broad toolbox of antibodies, linkers, and payloads in combinations that best match this biology.
Our development process is intended to efficiently advance ADC pipeline
candidates through clinical proof-of-concept. We believe that key steps in this process include:
| • | Optimize the antibody portion of the ADC for binding and internalization |
| • | Incorporate proven or novel linkers |
| • | Select payloads that provide consistent cytotoxic effects |
| • | Optimize ADC pharmacology for clinical activity |
| • | Enable early go/no-go decisions via well-designed clinical trials |
We believe that identifying appropriate targets is a key challenge
of ADC development. One piece of evidence for this is the concentration of current ADC development activity, with 54% of active ADC clinical
programs focused on the same ten targets (Figure 7).
We believe there are several downsides to pursuing these targets, including:
| • | Potential difficulty in overcoming limitations of existing ADCs against these targets due to heterogeneity of target expression on
tumor cells and/or the likelihood that changes in payload and/or linker technology will yield only incremental gains in efficacy. |
| • | Challenging development and commercialization pathways |
| • | Lower unmet patient need |
Given these downsides, we are systematically evaluating novel targets
that we believe will have first-in-class potential using multiple target and antibody sources. Our Immunome Discovery Platform (described
above) has already identified more than 30 novel targets and, subject to satisfaction of the closing terms of the definitive asset purchase
agreement with Atreca, Inc. announced December 26, 2023 (discussed below) we will have access to more than 25 antibodies that
may support the development of ADCs against novel or underexplored targets. We also screen public and proprietary expression databases
to identify other potential targets for ADC development. Potential targets identified through this systematic approach are evaluated for
differential expression on tumor cells compared with normal cells and additional factors.
We believe that our proprietary camptothecin derivative/topoisomerase
I inhibitor payload provides a significant opportunity to develop ADCs. This payload, which is in the same class as another camptothecin
derivative (deruxtecan) used in an FDA-approved ADC targeting HER2, was developed by Zentalis and is exclusively licensed by us. This
proprietary payload is designed to have enhanced ADME properties, including the potential for greater in vivo potency, increased
permeability that may lead to superior bystander effects, and faster clearance that may improve tolerability after cleavage. We have conducted
studies in the JIMT-1 breast cancer model demonstrating that a HER2 ADC constructed with our proprietary payload provided improved activity
compared with a deruxtecan-containing HER2 ADC when dosed intravenously weekly for three weeks.
We believe that camptothecin derivatives are well-suited for ADCs targeting
solid tumor because they achieve a higher DAR and higher clinical doses. Additionally, a third-party comparison of two FDA-approved HER2
ADCs that contain the same antibody (trastuzumab) but different payloads showed that percentage of patients with progression-free survival
was significantly higher for the ADC containing the camptothecin derivative.
In addition to our portfolio of targets, antibodies, and payloads,
we also have access to novel linker technologies under our exclusive worldwide license agreement with Zentalis (discussed below).
Immunome Discovery Platform
Immunome’s Discovery Platform provides a proprietary approach
to identifying cancer-associated targets. Although many of these targets are known in scientific literature, many of them were not previously
known to be associated with cancer.
The workflow for our platform is as follows:
Patient
Sampling: Our discovery process begins with obtaining a patient’s lymph node, tumor or blood sample
and then purifying and expanding the memory B cell population. In oncology, patients sampled include those who are treatment naïve,
treated with standard regimens, or have been treated with immunity enhancing therapies.
Patient
Response: We fuse and immortalize thousands of these patient-derived memory B cells using proprietary methods,
capturing them as hybridomas, each of which typically express an individual antibody in quantities sufficient for extensive functional
screening.
Antibody
Screening: For oncology, we screen individual antibodies by assessing their binding to intact cancer cells
or normal cells, or by assessing their binding to a large number of different extracts of authentic tumor samples and cancer cell lines.
Using our proprietary approach, we can screen up to 18,400 antibodies on a single array. Hybridomas producing antibodies that show both
high-affinity binding, by typically binding at single digit nanomolar concentrations, and specific binding, by showing much higher binding
to a subset of tumor cells compared to normal cells, are designated as screening “hits.” Hybridomas producing those hits can
be sequenced, their immunoglobulin genes can be cloned into expression vectors, and the individual antibodies can then be produced recombinantly.
Antibody
Validation: The next step in our process is to identify the specific antigen to which the antibody appears to bind with high
affinity and specificity. We use one of two complementary approaches for this activity: the first method involves an assessment of antibody
binding to known human proteins spotted on a protein microarray with high selectivity. If the target is not represented on the array or
no specific binding is seen, we attempt to use the antibody to “pull out” the antigen from its source using immunoprecipitation,
and then identify the antigen sequence using mass spectrometry. Using these two approaches we are largely successful in identifying the
antigen to which newly identified antibodies are binding. We then conduct experiments to assess whether the binding of the antibody to
the specific antigen can produce a change in the biology of a cancer cell expressing the target, which we refer to as target validation.
Additional tests, such as measurements of changes in cell growth, cell survival, cell migration, or internalization of the antigen after
it has been bound by the antibody, are used to further assess the potential that the antibody could be of therapeutic interest.
Strategic Transactions
Transactions Subject to Completion
Acquisition of Assets from Ayala Pharmaceuticals, Inc.
On February 5, 2024, the Company and
Ayala Pharmaceuticals, Inc., or Ayala, entered into an Asset Purchase Agreement, or the Ayala Purchase Agreement, pursuant to which
the Company will acquire Ayala’s AL101 and AL102 programs and assume certain of Ayala’s liabilities associated with the acquired
assets, or the Ayala Asset Purchase. Pursuant to the Ayala Purchase Agreement, at the closing of the Ayala Asset Purchase (the Closing),
the Company will (i) pay Ayala $20,000,000, subject to certain adjustments, (ii) issue Ayala 2,175,489 shares of Company common
stock, or the Ayala Shares, and (iii) assume specified liabilities. The Company is obligated to pay Ayala up to $37,500,000 in development
and commercial milestones.
Each
party’s obligation to consummate the Ayala Asset Purchase is subject to customary closing conditions, including the accuracy of
the other party’s representations and warranties as of the Closing, subject, in certain instances, to certain materiality and other
thresholds, the performance by the other party of its obligations and covenants under the Ayala Purchase Agreement in all material respects,
the Company’s receipt of the Stockholder Consents (defined below) from the Ayala stockholders with the requisite vote to approve
a sale of substantially all of the assets of Ayala and the lapse of at least twenty (20) calendar days from the date Ayala mails a definitive
information statement to its stockholders in accordance with Rule 14c-2 promulgated under the Exchange Act of 1934, as amended, receipt
of certain third party consents, the delivery of certain related ancillary documents by the other party, and the absence of any injunction
or other legal prohibitions preventing consummation of the Ayala Asset Purchase.
The Ayala Purchase Agreement also provides
that until the six-month anniversary of the Closing, Ayala will hold and not sell 50% of the Ayala Shares, subject to certain exceptions.
Further, Ayala has agreed, subject to certain exceptions, that until the one-year anniversary of the Closing, any transfer of the Ayala
Shares by Ayala that exceed 15% of the average daily trading volume of the Company’s stock over the five-trading day period ending
on the trading day immediately prior to such trading date shall be made pursuant to a block trade or other disposition through a market
participant designated by the Company.
The Company has agreed to use its commercially
reasonable efforts to (x) file a resale registration statement with the SEC registering the Ayala Shares for resale on or before
the date seven days following the earlier of (i) April 1, 2024 and (ii) the date the Company files its annual report on
Form 10-K for the year ended December 31, 2023 and (y) cause such resale registration statement to be declared effective
as soon as practicable after the filing thereof but no later than 90 calendar days after the filing thereof or by five trading days from
when the Company is notified that the SEC will not review the resale registration statement or that it will not be subject to further
review.
Acquisition of Assets from Atreca, Inc.
On December 22, 2023, the Company entered
into an asset purchase agreement with Atreca, Inc, or Atreca, pursuant to which the Company will acquire certain antibody-related
assets and materials for an upfront payment of $5.5 million and up to $7.0 million in clinical development milestones. The closing of
the transaction is subject to customary conditions, including the approval of Atreca’s stockholders.
Completed Transactions
Merger with Morphimmune
On October 2, 2023, the
Company completed its merger with Morphimmune Inc., or Morphimmune. Under the terms of the Agreement and Plan of Merger and Reorganization
dated as of June 28, 2023, or the Merger Agreement, among the Company, Morphimmune and Ibiza Merger Sub, Inc., a wholly owned
subsidiary of the Company, or Merger Sub, Morphimmune merged with and into Merger Sub, with Morphimmune surviving as a wholly-owned subsidiary
of Immunome, or the Merger. In connection with the Merger, on October 2, 2023, the Company issued and sold 21,690,871 shares
of its common stock pursuant to the subscription agreements in a Private Investment in Public Equity, or PIPE, transaction which provided
the Company with gross proceeds of $125.0 million.
Strategic Collaborations, License Agreements and Other Material
Agreements
We believe that our technology has broad utility and could enable us
to organically expand our pipeline by internal discovery. We are also dedicated to expanding our pipeline through disciplined mergers
and acquisitions. We believe our approach provides us the flexibility needed to maintain a pipeline of potential product candidates and
to maximize their value through internal development and strategic collaborations. The material asset collaborations, licensing and other
related agreements entered into by us to date are described in greater detail below.
License Agreement with Zentalis Pharmaceuticals, Inc.
In January 2024, the Company entered
into a license agreement, or the Zentalis License Agreement, with Zentalis Pharmaceuticals, Inc., or Zentalis, pursuant to which
the Company received an exclusive, worldwide, royalty-bearing, sublicensable license under certain intellectual property relating to Zentalis’
proprietary ADC platform technology, ROR1 antibodies and ADCs targeting ROR1 to exploit products covered by or incorporating the licensed
intellectual property rights. Under the Zentalis License Agreement, the Company is required to use commercially reasonable efforts to
develop an ADC targeting ROR1, two additional ADCs, and commercialize any product that has received regulatory approval.
Under the Zentalis License Agreement, the
Company paid to Zentalis upfront consideration totaling $35 million in cash and shares of Company common stock. The Company is obligated
to pay Zentalis up to $150 million in development and regulatory milestones for the first product containing an ADC targeting ROR1 (a
ROR1 ADC Product) to achieve such milestones and commercial milestones on ROR1 ADC Products. The Company is also obligated to pay to Zentalis
mid-to-high single digit royalties on ROR1 ADC Products. In addition, the Company is obligated to pay Zentalis $25 million in development
and regulatory milestones for the first product from each of the first five additional development programs using the licensed platform
technology to generate products, and mid-single digit royalties on products from each such program. The Company’s royalty payment
obligation will commence, on a product-by-product and country-by-country basis, on the first commercial sale of such product in such country
and will expire on the latest of (a) the ten (10)-year anniversary of such first commercial sale for such product in such country,
(b) the expiration of regulatory exclusivity for such product in such country, and (c) the expiration of the last-to-expire
valid claim of a licensed patent covering such product in such country.
The Zentalis License Agreement will continue
until the expiration of all royalty payment obligations. The Zentalis License Agreement may be terminated early by (a) either party
in its entirety upon (i) the other party’s uncured material breach, subject to a notice and cure period, (ii) any insolvency
event of the other party or (iii) prolonged force majeure, (b) the Company, either in its entirety or in part, for convenience
upon a specified period prior written notice, or (c) Zentalis (i) in its entirety if the Company challenges one of the licensed
patents or (ii) fails to meet certain development activity benchmarks within specified time periods.
Collaboration with AbbVie
On January 4, 2023, the Company entered into a collaboration and
option agreement, or the Collaboration Agreement, with AbbVie Global Enterprises Ltd., or AbbVie, pursuant to which the Company will use
its proprietary discovery engine to discover and validate targets derived from patients with three specified tumor types, and antibodies
that bind to such targets, which may be the subject of further development and commercialization by AbbVie. The research term is at least
66 months, subject to extension in certain circumstances by specified extension periods. Pursuant to the terms of the Collaboration Agreement,
with respect to each novel target-antibody pair that the Company generates that meets certain mutually agreed criteria (each, a Validated
Target Pair or VTP), the Company granted to AbbVie an exclusive option (up to a maximum of 10 in total) to purchase all rights in and
to such Validated Target Pair, for all human and non-human diagnostic, prophylactic and therapeutic uses throughout the world, including
without limitation the development and commercialization of certain products derived from the assigned Validated Target Pair and directed
to the target comprising such VTP (Products). No rights are granted by the Company to AbbVie under any of Company’s platform technology
covering the Company’s discovery engine. Until the expiration of the research term, the Company is not permitted to conduct any
activities in connection with targets or antibodies derived from patients with the specified tumor types, whether independently or with
other third parties, except in limited circumstances with respect to certain target-antibody pairs that are no longer subject to the collaboration
with AbbVie. In addition, during the term of the Collaboration Agreement, the Company is not permitted to develop products directed to
targets that are included in VTPs purchased by AbbVie, or to which AbbVie still has rights under the Collaboration Agreement, whether
independently or with other third parties.
Under the Collaboration Agreement, AbbVie will pay the Company an upfront
payment of $30.0 million, plus certain additional platform access payments in the aggregate amount of up to $70.0 million based on the
Company’s use of our discovery engine in connection with activities under each stage of the research plan, and delivery of VTPs
to AbbVie. AbbVie will also pay an option exercise fee in the low single digit millions for each of the up to 10 VTPs for which it exercises
an option. If AbbVie progresses development and commercialization of a Product, AbbVie will pay the Company development and first commercial
sale milestones of up to $120.0 million per target, and sales milestones based on achievement of specified levels of net sales of Products
of up to $150.0 million in the aggregate per target, in each case, subject to specified deductions in certain circumstances. On a Product-by-Product
basis, AbbVie will pay the Company tiered royalties on net sales of Products at a percentage in the low single digits, subject to specified
reductions and offsets in certain circumstances. AbbVie’s royalty payment obligation will commence, on a Product-by-Product and
country-by-country basis, on the first commercial sale of such Product in such country and will expire on the earlier of (a) (i) the
ten (10)-year anniversary of such first commercial sale for such Product in such country, or (ii) solely with respect to a Product
that incorporates an antibody comprising a VTP (or certain other antibodies derived from such delivered antibody), the expiration of all
valid claims of patent rights covering the composition of matter of any such antibody (whichever out of (i) or (ii) is later),
and (b) the expiration of regulatory exclusivity for such Product in such country. The Company is potentially eligible to receive
up to $2.8 billion from AbbVie under the Collaboration Agreement from the sources described above.
The Collaboration Agreement will expire upon the expiration of the
last to expire royalty payment obligation with respect to all Products in all countries, subject to earlier expiration if all option exercise
periods for all Validated Target Pairs expire without AbbVie exercising any option. In addition, the research term will terminate if AbbVie
does not elect to make certain platform access payments at specified points during the research term, in order for the Company to continue
the target discovery activities under the collaboration. The Collaboration Agreement may be terminated by (a) either party upon the
other party’s uncured material breach, or upon any insolvency event of the other party, (b) AbbVie for convenience upon a specified
period prior written notice, or (c) AbbVie for the Company’s breach of representations and warranties with respect to debarment
or compliance with anti-bribery and anti-corruption laws. If AbbVie has the right to terminate the Collaboration Agreement for the Company’s
uncured material breach or a breach of representations and warranties with respect to debarment or compliance with anti-bribery and anti-corruption
laws, AbbVie may elect to continue the Collaboration Agreement, subject to certain specified reductions applicable to certain of AbbVie’s
payment obligations (with a specified floor on such reductions).
Whitehead Patent License Agreement
In June 2009, we entered into an exclusive patent license agreement,
or the Whitehead Agreement, with the Whitehead Institute for Biomedical Research, or Whitehead, and the Massachusetts Institute of Technology,
or MIT, as licensing agent for Whitehead, pursuant to which we obtained from MIT and Whitehead a royalty-bearing exclusive license under
certain patent rights of Whitehead and a royalty-bearing non-exclusive license under certain biological and chemical material of Whitehead
that relate to our antibody screening platform, in each case to develop, manufacture, use, and commercialize licensed products and to
develop and perform licensed processes and perform licensed services for all purposes in the United States. The foregoing license grant
included the right to grant sublicenses with certain restrictions. Pursuant to the Whitehead Agreement, we are obligated to pay Whitehead
up to $725,000 in the aggregate for certain development, regulatory and commercial milestones and up to $275,000 for each product or derivative
that we discover using the licensed product or processes or Discovered Products. We are also obligated to pay Whitehead a low single digit
royalty on net sales of licensed products and licensed processes when sold as a therapeutic or diagnostic product, a mid-single digit
royalty on net sales of such licensed products or processes when sold as a research reagent, and a less than one percent royalty
on net sales of Discovered Products when sold as a therapeutic or diagnostic product. Our obligation to pay royalties on net sales of
Discovered Products is limited to a period of seven years from the first commercial sale of each Discovered Product. We are obligated
to pay Whitehead a high single digit royalty on service income received in connection with the provision of licensed services the provision
of which, absent the license granted under the Whitehead Agreement, would infringe a claim of a licensed patent. We are obligated to pay
Whitehead a high first decile percentage of certain payments received from sublicensees, subject to certain reductions to single-digit percentages,
and we are obligated to pay Whitehead a mid-teen percentage royalty on certain payments received from non-sublicensee corporate partners.
On November 17, 2022, the Company entered into a Letter Agreement,
or Letter Agreement, with Whitehead, which became effective on January 4, 2023, upon the satisfaction of the conditions described
therein. The Letter Agreement supplements the Whitehead Agreement. Pursuant to the Letter Agreement, Whitehead and the Company agreed
that certain payments received by the Company from the Collaborator (as defined in the Letter Agreement) (i.e., a corporate partner, as
defined in the License Agreement) would be excluded from the Company’s payment obligations to Whitehead. The Company and Whitehead
further agreed, among other things, that the Company will make certain payments to Whitehead (i) as Net Sales (as defined in the
License Agreement) as long as the Company receives those payments from the Collaborator on a specified number of products purchased by
the Collaborator and (ii) upon the achievement of certain milestones whether by the Company or the Collaborator.
We have the right to terminate the Whitehead Agreement upon specified
prior written notice to Whitehead. Whitehead may terminate the Whitehead Agreement in the event of our uncured material breach or insolvency.
Additionally, Whitehead may terminate the Whitehead Agreement if we or any of our affiliates or sublicensees challenges the validity,
patentability, enforceability or non-infringement of the licensed patents.
License Agreement with Purdue Research Foundation
In January 2022, Morphimmune entered into a Master License Agreement
(Purdue License Agreement) with Purdue Research Foundation, or PRF. Under the Purdue License Agreement, PRF granted Morphimmune a royalty-bearing,
transferable, worldwide, exclusive license, sublicensable through multiple tiers, under certain patents and technology owned by PRF relating
to, among other subject matter, drugs to target Fibroblast Activation Protein (FAP), to research, develop, manufacture, and commercialize
products covered by the licensed patents in all fields of use with limited exceptions. The license is subject to certain rights of the
U.S. government and rights retained by PRF (i) to practice and to license any government agencies, universities or other educational
institutions to practice, make, and use the intellectual property licensed to Morphimmune on a royalty-free basis for non-commercial uses,
(ii) to conduct activities required under sponsored research agreements with Morphimmune, and (iii) to disseminate and publish
materials and scientific findings from PRF’s research related to the intellectual property licensed to Morphimmune. Morphimmune
is obligated to use commercially reasonable efforts to develop and commercialize the licensed products in accordance with a development
and commercialization plan and to achieve agreed development milestones according to a specified timeline. PRF is obligated to prosecute
and maintain the licensed patents at Morphimmune’s cost and expense.
Under the Purdue License Agreement, Morphimmune paid PRF a one-time
upfront payment of $200,000 upon execution and $100,000 on each of the first and second anniversary of the effective date of the Purdue
License Agreement. During the period commencing on the date of first commercial sale of a licensed product and ending upon the date of
expiration of the last valid claim of the licensed patents covering such licensed product in a country, referred to as the royalty term,
Morphimmune will pay PRF an earned unit royalty of a low single-digit percentage on gross receipts from sale of the licensed product,
and beginning with the first sale of a licensed product, a tiered minimum annual royalty from the low to mid six-digit figure range less
the unit royalties due for the annual period. Upon the achievement of specified development and commercialization milestones, Morphimmune
will pay PRF the milestone payments as specified in the Purdue License Agreement, which may be up to $3.75 million in the aggregate. Morphimmune
is also required to pay PRF an annual maintenance fee ranging from a low five-digit figure to a low six-digit figure prior to first sale
of a licensed product and a low double-digit percentage of sublicense income received for sublicenses of licensed intellectual property,
with such percentage depending upon the timing of execution of the sublicense.
The Purdue License Agreement expires on a licensed product-by-licensed
product and country-by-country basis, upon expiration of the royalty term for such licensed product for the applicable country. Morphimmune
may terminate the Purdue License Agreement upon at least one month’s prior written notice to PRF. PRF may terminate the Purdue License
Agreement and the licenses granted thereunder if Morphimmune fails to cure a payment default or other material breach of the Purdue License
Agreement after written notice from PRF, or if Morphimmune becomes insolvent.
Manufacturing
We produce our lead antibodies at the laboratory scale necessary for
early research and development activities and some preclinical assessments. For later stage preclinical assessment, such as IND-enabling
studies and safety assessment and early-stage clinical assessment, we use third-party manufacturers to produce our antibodies, antibody
drug conjugates and drug substance for our FAP program, and any other necessary intermediates or reagents. We do not have, and we
do not currently plan to acquire or develop the infrastructure, facilities or capabilities to conduct these manufacturing activities ourselves.
We intend to continue to utilize third-party manufacturers to produce, package, label, test and release product for clinical and non-clinical
testing and for future commercial use, as needed. We expect to continue to rely on such third parties to manufacture our products for
the foreseeable future. Our expected future contractual manufacturing organizations will each have successful track records of producing
products for other companies under applicable compliance regulations, such as cGMP compliance in case of the FDA.
Competition
The development and commercialization of new product candidates is
highly competitive. We compete in the segments of the pharmaceutical, biotechnology and other related markets that develop therapies for
the treatment of cancer, which is highly competitive with rapidly changing standards of care. As such, our commercial opportunity could
be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe
side effects, are more convenient, or are less expensive than any products that we may develop or that would render any products that
we may develop obsolete or non-competitive. Our competitors also may obtain marketing approval for their products more rapidly than we
may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter
the market.
In oncology, we expect to compete with companies advancing antibodies,
antibody drug conjugates, or ADCs, small molecules, targeted radiotherapies, and other therapeutic modalities. We are aware of competitors
who are pursuing antibody-based discovery approaches, including, but not limited to, AbCellera Biologics, Inc.; Adaptive Biotechnologies
Corporation, or Adaptive; AIMM Therapeutics B.V.; IGM Biosciences, Inc.; OncoReponse, Inc. We also expect to compete with companies
pursuing targeted radiotherapies, including, but not limited to, RayzeBio, Fusion Pharmaceuticals, POINT Biopharma, Aktis Oncology, Actinium
Pharmaceuticals, and Yantai LNC Biotechnology. In addition, we expect to compete with large, multinational pharmaceutical companies that
discover, develop and commercialize antibodies, ADCs, small molecules, targeted radiotherapies, and other therapeutics for use in treating
cancer such as Immunogen (acquired by AbbVie Inc.), AstraZeneca; Amgen; Bayer AG, Bristol-Myers Squibb Company; Eli Lilly and Company;
Genentech, Inc. (a member of Roche group); Merck & Co. Inc.; Novartis; Seagen (acquired by Pfizer) and Johnson &
Johnson. If any future product candidates identified through our current lead programs are eventually approved for sale, they will likely
compete with a range of treatments that are either in development or currently marketed for use in those same disease indications.
Subject to the closing of the Ayala Transaction and our acquisition
of AL102, we expect to compete with companies advancing treatment of desmoid tumors, including but not limited to, SpringWorks Therapeutics, Inc.
In November 2023, Springworks received FDA approval for its oral gamma secretase inhibitor, OGSIVEOTM (nirogacestat), for the treatment
of adult patients with progressing tumors who require systemic treatment. Desmoid tumors treatments also include surgery, hormonal therapy,
targeted therapy and chemotherapy.
There are several other companies developing FAP-targeted radioligand
therapies which may represent the most direct competition to our 177Lu-FAP program. Novartis is advancing a FAP-targeted radioligand therapy
(177Lu-FAP-2286) that was acquired from Clovis Oncology and is currently in Phase 1/2. Clovis previously presented Phase 1 data for FAP-2286
(June 2022.) In December 2023, Eli Lilly and Company acquired POINT Biopharma, which is developing a FAP-targeted radioligand
therapy (PNT2004) that is currently in Phase 1. POINT presented a trial-in-progress poster discussing trial design (June 2023) and
expects to release data from that trial in the first half of 2024. In addition, POINT has disclosed two preclinical radioligand programs
targeting FAP. Yantai LNC Biotechnology has also initiated a Phase 1 trial for another FAP-targeted radioligand therapy (LNC1004.) Additionally,
our 177Lu-FAP program faces competition from competitors who may have superior access to a consistent supply of radioactive isotopes.
In January 2023, we exclusively licensed a preclinical ROR1
ADC program from Zentalis with the potential to address hematologic and solid tumor indications. There are several other companies
developing antibodies, antibody-drug conjugates, and CAR-T therapies targeting ROR1, and they may represent the most direct
competition to our ROR1 ADC program. Merck has an ADC program (Zilovertamab vedotin) in a Phase 2/3 clinical trial for B-cell
lymphoma. Boehinger Ingelheim has an ADC program in a Phase 1/2 clinical trial (NBE-002) in solid tumors, and Legochem Biosciences
has an ADC program (LCB71) in a Phase 1 trial in solid tumors. Companies advancing clinical ROR1-CAR T therapy programs include
Octernal Therapeutics (ONCT-808) in a Phase 1/2 in B-cell malignancies, and Lyell Immunopharma (LYL797) in a Phase 1 trial.
Many of our competitors have significantly greater financial resources
and expertise in research and development, manufacturing, preclinical studies, conducting clinical studies, obtaining regulatory approvals
and marketing approved products than we have. These competitors also compete with us in recruiting and retaining qualified scientific
and management personnel and establishing clinical study sites and patient registration for clinical studies, as well as in acquiring
technologies complementary to, or necessary for, our programs. In addition, these larger companies may be able to use their greater market
power to obtain more favorable supply, manufacturing, distribution and sales-related agreements with third parties, which could give them
a competitive advantage over us.
Further, as more product candidates within a particular class of drugs
proceed through clinical development to regulatory review and approval, the amount and type of clinical data that may be required by regulatory
authorities may increase or change. Consequently, the results of our clinical trials for product candidates in that class will likely
need to show a risk benefit profile that is competitive with or more favorable than those products and product candidates in order to
obtain marketing approval or, if approved, a product label that is favorable for commercialization. If the risk benefit profile is not
competitive with those products or product candidates, or if the approval of other agents for an indication or patient population significantly
alters the standard of care with which we tested our product candidates, we may have developed a product that is not commercially viable,
that we are not able to sell profitably or that is unable to achieve favorable pricing or reimbursement. In such circumstances, our future
product revenue and financial condition would be materially and adversely affected.
Mergers and acquisitions in the pharmaceutical and biotechnology industries
may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These
third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical study sites
and subject enrollment for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our current or future
products or programs.
Intellectual Property
Intellectual property is of vital importance in our field and in biotechnology
generally. We seek to protect and enhance proprietary technology, inventions, and improvements that are commercially important to the
development of our business by seeking, maintaining, and defending patent rights, whether developed internally, acquired or licensed from
third parties. We will also seek to rely on regulatory protection afforded through orphan drug designations, inclusion in expedited development
and review, data exclusivity, market exclusivity and patent term extensions where available.
We utilize various types of intellectual property assets to provide
multiple layers of protection. For example, we seek a variety of patents to protect our inventions including, for example, compositions
of matter and uses in treatment and diagnostic and methods for novel antibodies, including methods of treatment for diseases expressing
novel targets. We believe our current layered patent estate, together with our efforts to develop and patent next generation technologies,
provides us with substantial intellectual property protection.
As of February 8, 2024, we own or exclusively in-license 1 issued
U.S. patent, 6 pending U.S. non-provisional patent applications, 1 pending U.S. provisional patent application, and 53 pending patent
applications in Australia (3), Brazil (3), Canada (4), China (4), Europe (5), Hong Kong (1), Israel (3), India (3), Japan (4),
Korea (3), Mexico (3), New Zealand (3), Russia (3), Singapore (3), Taiwan (3), South Africa (3), and the UAE (2) , in total 6 patent
families, covering our IM-4320 (IL-38), IM-1021 (ROR1), and IM-3050 (177Lu-FAP) products. Our portfolio includes issued
and/or pending claims directed to the composition of matter and methods of use for IM-4320, IM-1021 and IM-3050. Patent applications
covering IM-4320, if issued, are expected to expire between 2040 and 2042, absent any patent term extensions or adjustments and without
accounting for terminal disclaimers. Patent applications covering IM-1021, if issued, are expected to expire in 2042, absent any patent
term extensions or adjustments and without accounting for terminal disclaimers. Patent applications covering IM-3050, if issued, are expected
to expire in 2045, absent any patent term extensions or adjustments and without accounting for terminal disclaimers. However, we recognize
that the area of patent and other intellectual property rights in biotechnology is an evolving one with many risks and uncertainties,
which may affect those rights.
Our commercial success will depend in significant part upon obtaining
and maintaining patent protection and trade secret protection for our targeted effector-based therapeutics and the methods used to develop
and manufacture them, as well as successfully defending these patents against third-party challenges and operating without infringing
on the proprietary rights of others. Our ability to stop third parties from making, using, selling, offering to sell or importing our
products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.
We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications
filed by us in the future, nor can we be sure that any of our existing patents, or any patents granted to us in the future will be commercially
useful in protecting our targeted effector-based therapeutics, current programs and processes. For this and more comprehensive risks related
to our intellectual property, please see the section titled “Risk Factors — Risks Related to Our Intellectual
Property.”
The term of individual patents depends upon the legal term of the patents
in the countries in which they are obtained. In most countries in which we file, including the United States, the patent term is 20 years
from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may potentially be
lengthened by patent term adjustment, or PTA, which compensates a patentee for administrative delays by the USPTO in examining and granting
a patent. In the United States, the patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, or PTE,
which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman
Act permits PTE of up to five years beyond the expiration of the patent. The length of the PTE accorded a patent is related to the
length of time the drug is under regulatory review by the FDA. PTE cannot extend the remaining term of a patent beyond a total of 14 years
from the date of product approval. Further, only one patent applicable to an approved drug may be extended, and only those claims covering
the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar provisions for extending the term
of a patent that covers an approved drug are available in multiple European countries and other foreign jurisdictions. In the future,
if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We expect
to seek patent term extensions to all of our issued patents in any jurisdiction where these are available; however, there is no guarantee
that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should
be granted, and if granted, the length of such extensions. Patent term in the U.S. may be shortened if a patent is terminally disclaimed
over an earlier-filed patent.
In some instances, we file provisional patent applications directly
in the USPTO. Provisional patent applications are designed to provide a lower-cost first patent filing in the United States. Corresponding
non-provisional patent applications must be filed not later than 12 months after the provisional application filing date. The corresponding
non-provisional application benefits in that the priority date(s) of the non-provisional patent application is/are the earlier provisional
application filing date(s), and the patent term of the finally issued patent is calculated from the earliest non-provisional application
filing date. This system allows us to obtain an early priority date, obtain a later start to the patent term and to delay prosecution
costs, which may be useful in the event that we decide not to pursue examination in a subsequent non-provisional application. While we
intend, as appropriate, to timely file non-provisional patent applications relating to our provisional patent applications, we cannot
predict whether any such non-provisional patent applications will result in the issuance of patents that provide us with any competitive
advantage.
We intend to file U.S. non-provisional applications and/or international
Patent Cooperation Treaty, or PCT, applications that claim the benefit of the priority date of earlier filed provisional or non-provisional
applications, when applicable. The PCT system allows for a single PCT application to be filed within 12 months of the priority filing
date of a corresponding priority patent application, such as a U.S. provisional or non-provisional application, and to designate all of
the 157 PCT contracting states in which national phase patent applications can later be pursued based on the PCT application. The PCT
International Searching Authority performs a patentability search and issues a non-binding patentability opinion which can be used to
evaluate the chances of success for the national applications in foreign countries prior to having to incur the filing fees. Although
a PCT application does not issue as a patent, it allows the applicant to establish a patent application filing date in any of the member
states and then seek patents through later-filed national-phase applications. No later than either 30 or 31 months from the earliest
priority date of the PCT application, separate national phase patent applications can be pursued in any of the PCT member states, depending
on the deadline set by individual contracting states. National phase entry can generally be accomplished through direct national filing
or, in some cases, through a regional patent organization, such as the European Patent Organization. The PCT system delays application
filing expenses, allows a limited evaluation of the chances of success for national/regional patent applications and allows for substantial
savings in comparison to having filed individual countries rather than a PCT application in the event that no national phase applications
are filed.
For all patent applications, we determine claiming strategy on a case-by-case
basis. Advice of counsel and our business model and needs are always considered. We file patent applications containing claims for protection
of all commercially-relevant uses of our proprietary technologies and any products, as well as all new applications and/or uses we discover
for existing technologies and products, assuming these are strategically valuable. We may periodically reassess the number and type of
patent applications, as well as the pending and issued patent claims to ensure that coverage and value are obtained for our processes,
and compositions, given existing patent law and court decisions. Further, claims may be modified during patent prosecution to meet our
intellectual property and business needs.
We recognize that the ability to obtain patent protection and the degree
of such protection depends on a number of factors, including the extent of the prior art, the novelty and non-obviousness of the invention,
and the ability to satisfy subject matter, written description, and enablement requirements of the various patent jurisdictions. In addition,
the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted
or further altered even after patent issuance. Consequently, we may not obtain or maintain adequate patent protection for any of our targeted
effector-based therapeutics. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any
particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any
patents that we hold may be challenged, circumvented or invalidated by third parties.
In addition to patent protection, we also rely on trademark registration,
trade secrets, know how, other proprietary information and/or continuing technological innovation to develop and maintain our competitive
position. We seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not
amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary information
and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may
not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators,
sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships
with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known
to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances. Our agreements with employees also provide that all inventions conceived by the employee in
the course of employment with us or from the employee’s use of our confidential information are our exclusive property. However,
such confidentiality agreements and invention assignment agreements can be breached, and we may not have adequate remedies for any such
breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our
consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the
rights in related or resulting trade secrets, know-how and inventions.
The patent positions of biotechnology companies like ours are generally
uncertain and involve complex legal, scientific and factual questions. Our commercial success will also depend in part on not infringing
upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter
our development or commercial strategies, or our products or processes, obtain licenses or cease certain activities. Our breach of any
license agreements or our failure to obtain a license to proprietary rights required to develop or commercialize our future products may
have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology
to which we have rights, we may have to participate in interference or derivation proceedings in the USPTO to determine priority of invention.
When available to expand market exclusivity, our strategy is to obtain,
or license additional intellectual property related to current or contemplated development platforms, core elements of technology and/or
programs and targeted effector-based therapeutics.
For more information regarding the risks related to our intellectual
property, see the section titled “Risk Factors — Risks Related to Our Intellectual Property.”
Government Regulation
The FDA and other regulatory authorities at federal, state, and local
levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality
control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion,
marketing, post-approval monitoring, and post-approval reporting of drugs and biologics. We, along with our third-party contractors, will
be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of
the countries in which we wish to conduct studies or seek approval or licensure of our programs and development candidates.
U.S. Government Regulation of Drugs and Biologics
In the United States, the FDA regulates drugs under the Federal Food,
Drug, and Cosmetic Act, or FDCA, and its implementing regulations and biologics under the FDCA, the Public Health Service Act, or PHSA,
and their implementing regulations. Both drugs and biologics also are subject to other federal, state and local statutes and regulations.
The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state and local statutes and regulations
requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements may subject
an applicant to administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications, or NDAs, or biologics
license applications, or BLAs, or the agency's issuance of warning letters, or the imposition of fines, civil penalties, product recalls,
product seizures, total or partial suspension of production or distribution, injunctions and/or criminal prosecution brought by the FDA
and the U.S. Department of Justice or other governmental entities.
Nonclinical and Clinical Development
Nonclinical studies include laboratory evaluation of product chemistry
and formulation and may involve in vitro testing or in vivo animal studies to assess the potential for toxicity,
adverse events, and other safety characteristics of the program or development candidate, and in some cases to establish a rationale for
therapeutic use. The conduct of nonclinical studies is subject to federal regulations and requirements, including good laboratory practice regulations for
safety/toxicology studies.
The sponsor must submit the results of the preclinical studies, together
with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, as well as
other information, to the FDA as part of the Investigational New Drug application, or IND. Some long-term nonclinical testing as well
as manufacturing process development and product quality evaluation, continues after the IND is submitted.
Human clinical trials in support of an NDA or BLA
Prior to beginning the first clinical trial with a program or development
candidate, the sponsor must submit an IND to the FDA. The central focus of an IND submission is on the general investigational plan and
the protocol(s) for clinical trials. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within
the 30-day time period, raises concerns or questions related to the proposed clinical trial and places the IND on a clinical hold. In
such a case, the IND sponsor must resolve all outstanding concerns or questions posed by the FDA before the clinical trial can begin.
Submission of an IND therefore may not result in FDA authorization to begin a clinical trial.
Clinical trials involve the administration of the investigational
product to human subjects under the supervision of qualified investigators in accordance with Good Clinical Practices, or GCPs,
which include the requirement that all research subjects provide their informed consent for their participation in any clinical
study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to
be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made
for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an
independent institutional review board, or IRB, for each site proposing to conduct the clinical trial must review and approve the
plan for any clinical trial and its informed consent form before the clinical trial begins at that site and must monitor the study
until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds,
including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its
stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical trial
sponsor, known as a data safety monitoring board, or DSMB, which provides authorization for whether a study may move forward at
designated check points based on review of certain data from the study, to which only the DSMB has access, and may recommend halting
the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no
demonstration of efficacy. Progress reports detailing the results of the clinical trials, among other information, must be submitted
at least annually to the FDA, and written IND safety reports must be submitted to the FDA and the investigators for serious and
unexpected suspected adverse reactions, findings from other studies suggesting a significant risk to humans exposed to the
investigational product, findings from animal or in vitro testing that suggest a significant risk for human
subjects, and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol
or investigator brochure.
Sponsors of clinical trials of certain FDA-regulated products must
register and disclose certain clinical trial information to a public registry maintained by the National Institutes of Health, or NIH.
In particular, information related to the investigational product, patient population, phase of investigation, trial sites and investigators
and other aspects of the clinical trial is made public as part of the registration of the clinical trial. Although sponsors are also obligated
to disclose the results of their clinical trials after completion, disclosure of the results can be delayed in some cases for up to two
years after the date of completion of the trial. Failure to timely register a covered clinical study or to submit study results as provided
for in the law can give rise to civil monetary penalties and also prevent the non-compliant party from receiving future grant funds from
the federal government.
For purposes of NDA or BLA approval, human clinical trials are typically
conducted in three sequential phases that may overlap.
Phase 1 — The investigational product is initially introduced into healthy human subjects or directly into patients with the target disease or condition for certain therapies targeting severe or life-threatening diseases where the investigational product may be too inherently toxic to administer ethically to healthy volunteers. In either case, these studies are designed to test safety, dosage tolerance, absorption, metabolism, distribution and excretion of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. |
Phase 2 — The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to assess adverse events and potential side effects. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. |
Phase 3 — The investigational product
is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical
efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are
intended to establish the overall risk/benefit ratio of the investigational product and, if appropriate, to provide an adequate basis
for product approval. These trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment
is often extended to mimic the actual use of a product during marketing. |
In some cases, the FDA may require, or companies may voluntarily pursue,
additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies
may be made a condition to approval of the NDA or BLA; failure to exhibit due diligence with regard to conducting these Phase 4 clinical
trials could result in withdrawal of approval for products. Concurrent with clinical trials, companies may complete additional nonclinical
studies and develop additional information about the characteristics of the investigational product and must finalize a process for manufacturing
the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing
quality batches of the candidate and, among other things, must develop methods for testing the identity, strength, quality and purity
of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested,
and stability studies must be conducted to demonstrate that the candidate does not undergo unacceptable deterioration over its shelf life.
BLA and NDA Submission and Review
Assuming successful completion of all required testing in accordance
with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials, along with information
relating to the product’s chemistry, manufacturing, and controls and proposed labeling, are submitted to the FDA as part of an NDA
or BLA requesting approval to market the product for one or more indications. An NDA or BLA must contain sufficient evidence of the candidate’s
safety, purity, potency and efficacy for its proposed indication or indications. Data may come from company-sponsored clinical trials
or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted
must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of
the FDA. The testing and approval processes require substantial time and effort and there can be no assurance that the FDA will accept
the NDA or BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at all.
Under the Prescription Drug User Fee Act, as amended, or PDUFA, each
NDA or BLA must be accompanied by a significant user fee, and the sponsor of an approved application is also subject to an annual program
fee. The FDA adjusts the PDUFA user fees on an annual basis. Fee waivers or reductions are available in certain circumstances, including
a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed for products
designated as orphan drugs, unless the product also includes a non-orphan indication.
Within 60 days following submission of the application, the FDA reviews
it to determine if it is substantially complete before the agency accepts it for filing. The FDA may refuse to file any application that
it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the application
must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for
filing.
Once the submission is accepted for filing, the FDA begins an
in-depth substantive review. The FDA reviews BLA to determine, among other things, whether the proposed product is safe, pure, and
potent for its intended use, and whether the facility (or facilities) in which it is manufactured, processed, packed, or held meets
standards designed to assure the product’s continued safety, purity and potency. The FDA reviews an NDA to determine, among
other things, whether a product is safe and effective for its intended use and whether its manufacturing is current good
manufacturing practice, or cGMP-compliant to assure and preserve the product's identity, strength, quality and purity. Most such
applications are meant to be reviewed within ten months from the date they are accepted for filing, and most applications for
“priority review” products are meant to be reviewed within six months from the date the application is accepted for
filing. The review process may be extended by the FDA for three additional months to consider new information or in the case of a
clarification provided by the applicant deemed a major amendment to the application. The FDA likely will re-analyze the clinical
trial data, which could result in extensive discussions between the FDA and the applicant during the review process.
The FDA may refer applications for novel products or products that
present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts,
for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not
bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making final decisions on
approval.
Before approving an NDA or BLA, the FDA will typically inspect
the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the
manufacturing processes and facilities comply with cGMP requirements and are adequate to assure consistent production of the product
within required specifications. Additionally, the FDA will typically inspect one or more clinical trial sites to assure that the
clinical trials were conducted in compliance with good clinical practices, or GCP. To assure cGMP and GCP compliance, an applicant
must incur significant expenditure of time, money and effort in the areas of training, record keeping, production, and quality
control.
After the FDA evaluates an NDA or BLA and conducts inspections of manufacturing
facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete
Response Letter, or CRL. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific
indications. A CRL indicates that the review cycle of the application is complete, and the application will not be approved in its present
form. A CRL generally outlines the deficiencies that the FDA identified in the application, except that where the FDA determines that
the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections,
testing submitted product lots, and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant
might take to place the application in condition for approval, including requests for additional clinical or other data, additional clinical
trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing.
If a CRL is issued, the applicant may choose to either resubmit the NDA or BLA addressing all of the deficiencies identified in the letter
or withdraw the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the
NDA or BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in response to an issued CRL
in either two or six months depending on the type of information included. Even with the submission of this additional information, however,
the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
If the FDA grants regulatory approval of a product, such approval is
limited to the conditions of use (e.g., patient population, indication) described in the application and may entail limitations on the
indicated uses for which such product may be marketed. For example, the FDA may approve the product with a risk evaluation and mitigation
strategy, or REMS, to ensure the benefits of the product outweigh its risks and to assure the safe use of the drug or biological product.
A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued
access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to
assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA determines the
requirement for a REMS, as well as the specific REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor
of the NDA or BLA must submit a proposed REMS. The FDA will not approve the application without a REMS, if required. The FDA also may
condition approval on, among other things, changes to proposed labeling (e.g., the addition of specific contraindications, warnings or
precautions) or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance
with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may
require one or more Phase 4 post-market trials and surveillance to further assess and monitor the product’s safety and effectiveness
after commercialization and may limit further marketing of the product based on the results of these post-marketing studies. After approval,
some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are
subject to further testing requirements and FDA review and approval.
Fast Track, Breakthrough Therapy and Priority Review Designations
The FDA is authorized to designate certain products for expedited development
or review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition.
These programs include fast track designation, breakthrough therapy designation and priority review designation.
To be eligible for a fast track designation, the FDA must determine,
based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates
the potential to address an unmet medical need for such diseases or condition. Fast track designation provides opportunities for more
frequent interactions with the FDA review team to expedite development and review of the product. The FDA may also review sections of
the NDA or BLA for a fast track product on a rolling basis before the complete application is submitted, if the sponsor and the FDA agree
on a schedule for the submission of the application sections and the sponsor pays any required user fees upon submission of the first
section of the application. In addition, fast track designation may be withdrawn by the sponsor or rescinded by the FDA if the designation
is no longer supported by data emerging from the clinical trial process.
In addition, the FDA may designate a drug or biologic as a “breakthrough
therapy” upon a request made by the IND sponsor. A breakthrough therapy is a drug or biologic that is intended, alone or in combination
with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence
indicates that the drug or biologic 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 FDA must take certain actions with respect
to breakthrough therapies, such as holding timely meetings with and providing advice to the product sponsor, which are intended to expedite
the development and review of an application for approval of a breakthrough therapy.
Finally, the FDA may designate an application for priority review if
it is for a drug or biologic that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness
over existing therapy. The FDA determines at the time that the marketing application is submitted, on a case- by-case basis, whether the
proposed drug represents a significant improvement in treatment, prevention or diagnosis of disease 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 drug reaction, documented enhancement of patient compliance that may lead to improvement
in serious outcomes, or evidence of safety and effectiveness in a new subpopulation. A priority review designation is intended to direct
overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on an original
marketing application from ten months to six months from the date of filing.
Even if a product qualifies for one or more of these programs, the
FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or
approval will not be shortened. Furthermore, fast track designation, breakthrough therapy designation and priority review do not change
the standards for approval and may not ultimately expedite the development or approval process.
Accelerated Approval Pathway
In addition, products studied for their safety and effectiveness in
treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated
approval from the FDA and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product
has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval
for such a drug or biologic when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect
on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking
into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition
of approval, the FDA will require that a sponsor of a drug receiving accelerated approval perform post-marketing clinical trials to verify
and describe the predicted effect on IMM or other clinical endpoint, and the product may be subject to expedited withdrawal procedures.
Drugs and biologics granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted
traditional approval.
For the purposes of accelerated approval, a surrogate endpoint is a
marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit
but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints.
An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical
benefit of a drug or biologic, such as an effect on IMM.
The accelerated approval pathway is usually contingent on a sponsor’s
agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical
benefit. As a result, a program or development candidate approved on this basis is typically subject to rigorous post-marketing compliance
requirements, including the completion of Phase 4 or post-approval clinical trials to establish the effect on the clinical endpoint. Failure
to conduct required post-approval studies, or to confirm the predicted clinical benefit of the product during post-marketing studies,
may allow the FDA to withdraw approval of the drug. The FDA may require the sponsor of a product granted accelerated approval to have
a confirmatory trial underway prior to approval. The sponsor must also submit progress reports on a confirmatory trial every six months
until the trial is complete, and such reports are published on FDA’s website.
All promotional materials for products approved under the accelerated
approval program are subject to prior review by the FDA.
Pediatric Trials
Under the Pediatric Research Equity Act, or PREA, an NDA or BLA or
supplement thereto must contain data to assess the safety and efficacy 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.
The FDA may grant deferrals for submission of such data or full or partial waivers. The FDCA requires that a sponsor who is planning to
submit a marketing application for a drug or biologic product that includes a new active ingredient, new indication, new dosage form,
new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within sixty days of an end-of-Phase
2 meeting or as may be agreed between the sponsor and FDA, if there is no such meeting, as early as practicable before the initiation
of Phase 3 or Phase 2/3 clinical trials. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans
to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not
including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement
to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach agreement on the PSP. A sponsor
can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected
from nonclinical studies, early phase clinical trials, and/or other clinical development programs. Unless otherwise required by regulation,
the PREA does not apply to any product for an indication for which orphan designation has been granted. However, if only one indication
for a product has orphan designation, a pediatric assessment may still be required for any applications to market that same product for
the non-orphan indication(s).
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may grant orphan drug designation
to a drug or biologic product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer
than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable
expectation that the cost of developing and making available in the United States a drug or biologic for this type of disease or condition
will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting
an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use will be
disclosed publicly by the FDA; the posting will also indicate whether the drug or biologic is no longer designated as an orphan drug.
More than one program or development candidate may receive an orphan drug designation for the same indication. Orphan drug designation
does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product that has orphan drug designation subsequently receives
the first FDA approval for the disease for which it has such designation, the product is entitled to seven years of orphan product exclusivity.
During the seven-year exclusivity period, the FDA may not approve any other applications to market a product containing the same active
moiety for the same disease, except in very limited circumstances, such as a showing of clinical superiority to the product with orphan
drug exclusivity. A product is clinically superior if it is safer, more effective or makes a major contribution to patient care. Thus,
orphan drug exclusivity could block the approval of one of our potential products for seven years if a competitor obtains approval of
the same product as defined by the FDA and we are not able to show the clinical superiority of our program or development candidate or
if our program or development candidate’s indication is determined to be contained within the competitor’s product orphan
indication. In addition, the FDA will not recognize orphan drug exclusivity if a sponsor fails to demonstrate upon approval that the product
is clinically superior to a previously approved product containing the same active moiety for the same orphan condition, regardless of
whether or not the previously approved product was designated an orphan drug or had orphan drug exclusivity. A product that has received
orphan drug designation may not receive orphan exclusivity if it is approved for a use that is broader than the indication for which it
received the designation. Orphan exclusivity does not prevent the FDA from approving a different drug or biological product for the same
disease or condition, or the same product for a different disease or condition.
Post-Approval Requirements
Any products that we may manufacture or distribute pursuant to FDA
approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, monitoring and record-keeping
requirements, reporting of adverse experiences with the product, periodic reporting requirements, providing the FDA with updated safety
and efficacy information, product sampling and distribution requirements, as well as advertising and promotion requirements, which include,
among others, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that
are not described in the product’s approved uses (known as off-label use), limitations on industry-sponsored scientific and educational
activities, and requirements for promotional activities involving the Internet. After approval, most changes to the approved product,
such as adding new indications or other labeling claims, are subject to prior FDA review and approval of a new application or supplement,
which may require the applicant to develop additional data or conduct additional pre-clinical studies and clinical trials. The FDA may
also place other conditions on approvals, including the requirement for a REMS, to assure the safe use of the product. A REMS could include
medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries
and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution,
prescription or dispensing of products.
In addition, quality control and manufacturing procedures must continue
to conform to applicable manufacturing requirements after approval to ensure the quality and long-term stability of the product. The cGMP
regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and
drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory
controls, records and reports and returned or salvaged products. The manufacturing facilities for our programs and development candidates
must meet cGMP requirements and satisfy the FDA or comparable foreign regulatory authorities before any product is approved and our commercial
products can be manufactured. Third-party manufacturers must comply with cGMP regulations that require, among other things, quality control
and quality assurance, the maintenance of records and documentation and the obligation to investigate and correct any deviations from
cGMP. Manufacturers, including third-party manufacturers, and other entities involved in the manufacture and distribution of approved
biologics 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 cGMP and other laws. Accordingly, manufacturers must continue to
expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Future inspections by the FDA
and other regulatory agencies may identify compliance issues at the facilities of our contract manufacturing organizations, or CMOs, that may disrupt production or distribution
or require substantial resources to correct. In addition, the discovery of conditions that violate these rules, including failure to conform
to cGMP regulations, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions
on a product, manufacturer, or sponsor of an approved NDA or BLA, including, among other things, voluntary recall and regulatory sanctions
as described below.
The FDA may withdraw approval if compliance with regulatory requirements
and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems
with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply
with regulatory requirements, could result in adverse consequences to the Company. Examples of these consequences include, without limitation,
the following: may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical
studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program; complete withdrawal
of the product from the market or other limits on marketing or manufacture of the product; imposition of civil or criminal penalties.
The FDA closely regulates the marketing, labeling, advertising and
promotion of biopharmaceutical products. A company can make only those claims relating to safety and efficacy, purity and potency that
are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws
and regulations prohibiting the promotion of off label uses. Failure to comply with these requirements can result in, among other things,
adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally
available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved
by the FDA. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s
communications on the subject of off-label use of their products.
Pediatric exclusivity
Pediatric exclusivity is a type of non-patent marketing exclusivity
available in the United States and, if granted, it provides for the attachment of an additional six months of marketing protection to
the term of any existing regulatory exclusivity or listed patents. This six-month exclusivity may be granted if a sponsor submits pediatric
data that fairly responds 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 six months. The issuance
of a Written Request does not require the sponsor to undertake the described studies.
Biosimilars and Reference Product Exclusivity
The Biologics Price Competition and Innovation Act of 2009, or BPCIA,
created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference
biological product. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and
the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical
study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that
it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered
multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered
without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic without such alteration
or switch. Upon licensure by the FDA, an interchangeable biosimilar may be substituted for the reference product without the intervention
of the health care provider who prescribed the reference product.
The biosimilar applicant must demonstrate that the product is biosimilar
based on data from (1) analytical studies showing that the biosimilar product is highly similar to the reference product; (2) animal
studies (including toxicity); and (3) one or more clinical studies to demonstrate safety, purity and potency in one or more appropriate
conditions of use for which the reference product is approved. In addition, the applicant must show that the biosimilar and reference
products have the same mechanism of action for the conditions of use on the label, route of administration, dosage and strength, and the
production facility must meet standards designed to assure product safety, purity and potency.
A reference biological product is granted 12 years of data exclusivity
from the time of first licensure of the product, and the first approved interchangeable biologic product will be granted an exclusivity
period of up to one year after it is first commercially marketed. In addition, the FDA will not accept an application for a biosimilar
or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference
product.
Hatch-Waxman exclusivity
Market exclusivity provisions under the FDCA can delay the submission
or the approval of certain marketing applications. The FDCA provides a five-year period of non-patent data exclusivity within the United
States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not
previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the
drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or an NDA
submitted under Section 505(b)(2) (505(b)(2) NDA) submitted by another company for another drug based on the same active
moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another indication,
where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may
be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with
the FDA by the innovator NDA holder.
The FDCA alternatively provides three years of non-patent exclusivity
for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or
sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages
or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the
basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for drugs containing
the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or
approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to, all
of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
FDA Regulation of Companion Diagnostics
We believe that certain of our product candidates may require an in
vitro diagnostic to identify appropriate patient populations for investigation and/or use of our product candidates. These diagnostics,
often referred to as companion diagnostics, are regulated as medical devices. In the United States, the FDCA and its implementing regulations,
and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and
clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion,
sales and distribution, export and import, and post-market surveillance. Unless an exemption applies, diagnostic tests require marketing
clearance or approval from the FDA prior to commercial distribution. The two primary types of FDA marketing authorization applicable to
a medical device are premarket notification, also called 510(k) clearance, and premarket approval, or PMA. Most companion diagnostics
for oncology product candidates utilize the PMA pathway.
If use of companion diagnostic is deemed essential to the safe
and effective use of a drug product, then the FDA generally will require approval or clearance of the diagnostic contemporaneously
with the approval of the therapeutic product. On August 6, 2014, the FDA issued a final guidance document addressing the
development and approval process for “In Vitro Companion Diagnostic Devices.” According to the guidance, for novel
product candidates, a companion diagnostic device and its corresponding drug candidate should be approved or cleared
contemporaneously by FDA for the use indicated in the therapeutic product labeling. The guidance also explains that a companion
diagnostic device used to make treatment decisions in clinical trials of a drug generally will be considered an investigational
device, unless it is employed for an intended use for which the device is already approved or cleared. If used to make critical
treatment decisions, such as patient selection, the diagnostic device may be considered a significant risk device under the FDA's
Investigational Device Exemption, or IDE, regulations. In which case, the sponsor of the diagnostic device will be required to
submit and obtain approval of an IDE application, and subsequently comply with the IDE regulations. However, according to the
guidance, if a diagnostic device and a drug are to be studied together to support their respective approvals, both products can be
studied in the same investigational study, if the study meets both the requirements of applicable IDE regulations and the IND
regulations. The guidance provides that, depending on the details of the study plan and degree of risk posed to subjects, a sponsor
may seek to submit an IND alone, or both an IND and an IDE.
The FDA has generally required companion diagnostics intended to select
the patients who will respond to cancer treatment to obtain approval of a PMA for that diagnostic simultaneously with approval of the
therapeutic. The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, can
take several years or longer. It involves a rigorous premarket review during which the applicant must prepare and provide the FDA with
reasonable assurance of the device's safety and effectiveness and information about the device and its components regarding, among other
things, device design, manufacturing and labeling. In addition, PMAs for certain devices must generally include the results from extensive
preclinical and adequate and well-controlled clinical trials to establish the safety and effectiveness of the device for each indication
for which FDA approval is sought. In particular, for a diagnostic, the applicant must demonstrate that the diagnostic produces reproducible
results when the same sample is tested multiple times by multiple users at multiple laboratories. As part of the PMA review, the FDA will
typically inspect the manufacturer's facilities for compliance with the Quality System Regulation, or QSR, which imposes elaborate testing,
control, documentation and other quality assurance requirements.
If the FDA's evaluation of the PMA application is favorable, the FDA
may issue an approvable letter requiring the applicant's agreement to specific conditions, such as changes in labeling, or specific additional
information, such as submission of final labeling, in order to secure final approval of the PMA. If the FDA's evaluation of the PMA or
manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter
will outline the deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable. The
FDA may also determine that additional clinical trials are necessary, in which case the PMA approval may be delayed for several months
or years while the trials are conducted and then the data submitted in an amendment to the PMA. If and when the FDA concludes that the
applicable criteria have been met, the FDA will issue a PMA for the approved indications, which can be more limited than those originally
sought by the applicant. The PMA can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness
of the device, including, among other things, restrictions on labeling, promotion, sale and distribution. Once granted, PMA approval may
be withdrawn by the FDA if compliance with post approval requirements, conditions of approval or other regulatory standards are not maintained
or problems are identified following initial marketing.
After a device is commercialized, it remains subject to significant
regulatory requirements. Medical devices may be marketed only for the uses and indications for which they are cleared or approved. Device
manufacturers must also establish registration and device listings with the FDA. A medical device manufacturer's manufacturing processes
and those of its suppliers are required to comply with the applicable portions of the QSR, which cover the methods and documentation of
the design, testing, production, processes, controls, quality assurance, labeling, packaging and shipping of medical devices. Domestic
facility records and manufacturing processes are subject to periodic unscheduled inspections by the FDA. The FDA also may inspect foreign
facilities that export products to the United States.
Other U.S. Health Care Laws and Compliance Requirements
Although we currently do not have any products on the market, our business
operations and current and future arrangements with investigators, health care professionals, consultants, third-party payors and customers
may be subject to regulation and enforcement by various federal, state and local authorities in addition to the FDA, including but not
limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services,
or HHS, (such as the Office of Inspector General and the Health Resources and Service Administration), the Department of Justice, or the
DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, sales, marketing and scientific/educational
grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy
and security provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended,
as applicable.
The federal Anti-Kickback Statute prohibits, among other things, any
person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly
or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order
of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal health care programs. The term remuneration
has been interpreted broadly to include anything of value. Further, a person or entity does not need to have actual knowledge of the statute
or specific intent to violate it in order to have committed a violation. The federal Anti-Kickback Statute has been interpreted to apply
to arrangements between therapeutic product manufacturers on one hand and prescribers and purchasers on the other. There are a number
of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors
are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending
may be subject to scrutiny if they do not qualify for an exception or safe harbor. Further, courts have found that if “one purpose”
of remuneration is to induce referrals, the federal Anti-Kickback statute is violated. Failure to meet all of the requirements of a particular
applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute.
Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and
circumstances. Our practices, including our arrangements with physicians, may not in all cases meet all of the criteria for protection
under a statutory exception or regulatory safe harbor.
The federal false claims and civil monetary penalty laws, including
the False Claims Act, or FCA, which can be enforced by private citizens through civil qui tam actions, prohibit any person or entity from,
among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to, or approval by, the
federal health care programs, including Medicare and Medicaid, or knowingly making, using, or causing to be made or used a false record
or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for
money or property presented to the U.S. government. For instance, historically, pharmaceutical and other health care companies have been,
and continue to be, prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers
would bill federal programs for the product. A violation of the Anti-Kickback Statute makes any claim submitted as a result of the violation
of the Anti-Kickback Statute a false claim under the FCA. Other companies have been prosecuted for causing false claims to be submitted
because of the companies’ marketing of the product for unapproved, off-label, and thus generally non-reimbursable, uses.
HIPAA created additional federal criminal statutes that prohibit, among
other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent
pretenses, representations or promises, any money or property owned by, or under the control or custody of, any health care benefit program,
including private third-party payors, willfully obstructing a criminal investigation of a health care offense, and knowingly and willfully
falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for health care benefits, items or services. Like the federal Anti-Kickback Statute,
under HIPAA, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have
committed a violation.
Also, many states have similar, and typically more prohibitive, fraud
and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several
states, apply regardless of the payor. Additionally, to the extent that our products are approved by and sold in a foreign country, we
may be subject to similar foreign laws.
We may be subject to data privacy and security regulations by both
the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic
and Clinical Health Act, or HITECH, and their implementing regulations, impose requirements relating to the privacy, security and transmission
of individually identifiable health information on certain health care providers, health care clearinghouses, and health plans, known
as covered entities, as well as independent contractors, or agents of covered entities that create, receive or obtain individually identifiable
health information in connection with providing a service on behalf of a covered entity, known as a business associates. Among other things,
the passage of HITECH made HIPAA’s privacy and security standards directly applicable to business associates and their covered subcontractors.
HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable
to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts
to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws
govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant
ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus complicating compliance efforts.
Additionally, the federal Physician Payments Sunshine Act, or the
Sunshine Act, within the Patient Protection and Affordable Care Act, or ACA, and its implementing regulations, require that certain
manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments
or other transfers of value made or distributed to physicians, as broadly defined by such law, certain advanced non-physician health
care practitioners, and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, such
individuals or entities, and to report annually certain ownership and investment interests held by physicians and their immediate
family members. In addition, many states also govern the reporting of payments or other transfers of value, many of which differ
from each other in significant ways, are often not pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus
further complicating compliance efforts.
In order to distribute products commercially, we must comply with state
laws that require the registration of manufacturers and wholesale distributors of drug and biological products in a state, including,
in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no
place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of
product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking
and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology
companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales,
marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies
and other health care entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use
in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially subject to
federal and state consumer protection and unfair competition laws.
Ensuring business arrangements with third parties comply with applicable
health care laws and regulations is a costly endeavor. If our operations are found to be in violation of any of the federal and state
health care laws described above or any other current or future governmental regulations that apply to us, we may be subject to penalties,
including without limitation, significant civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment,
exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions
brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual
damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting obligations and integrity
oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these
laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business
and our results of operations. Any action against us for violation of these laws, even if we successfully defend against it, could cause
us to incur significant legal expenses and divert our management’s attention from the operation of our business. The complex compliance
environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance
or reporting requirements increases the possibility that a health care company may run afoul of one or more of the requirements.
Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement
status of any programs or development candidates for which we may obtain regulatory approval. In the United States and in foreign markets,
sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party
payors provide coverage and establish adequate reimbursement levels for such products. In the United States, third-party payors include
federal and state health care programs, private managed care providers, health insurers and other organizations. Coverage and adequate
reimbursement from governmental health care programs, such as Medicare and Medicaid in the United States, and commercial payors are critical
to new product acceptance.
Third-party payors decide which therapeutics they will pay for and
establish reimbursement levels. In the United States, the principal decisions about reimbursement for new medicines are typically made
by CMS. CMS decides whether and to what extent our products will be covered and reimbursed under Medicare and private payors tend
to follow CMS to a substantial degree. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including
the third-party payor’s determination that use of a therapeutic is a covered benefit under its health plan, safe, effective and
medically necessary, appropriate for the specific patient, cost-effective and neither experimental nor investigational.
We cannot be sure that reimbursement will be available for any product
that we commercialize and, if coverage and reimbursement are available, we cannot be sure that the level of reimbursement will be adequate.
Coverage may also be more limited than the purposes for which the product is approved by the FDA or comparable foreign regulatory authorities.
Limited coverage and less than adequate reimbursement may reduce the demand for, or the price of, any product for which we obtain regulatory
approval.
Third-party payors are increasingly challenging the price, examining
the medical necessity, and reviewing the cost-effectiveness of medical products, therapies, and services, in addition to questioning their
safety and efficacy. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated
with branded drugs and biologics, as well as drugs and biologics administered under the supervision of a physician. We may need to conduct
expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to
the costs required to obtain FDA approvals. Our programs and development candidates may not be considered medically necessary or cost-effective.
Obtaining coverage and reimbursement approval of a product from a third-party payor is a time-consuming and costly process that could
require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our product on a payor-by-payor
basis, with no assurance that coverage and adequate reimbursement will be obtained. A third-party payor’s decision to provide coverage
for a product does not imply that an adequate reimbursement rate will be approved. Additionally, in the United States there is no uniform
policy among third-party payors for coverage or reimbursement. Third-party payors often rely upon Medicare coverage policy and payment
limitations in setting their own coverage and reimbursement policies, but also have their own methods and approval processes. Therefore,
one third-party payor’s determination to provide coverage for a product does not ensure that other payors will also provide coverage
for the product. Adequate third-party payor reimbursement may not be available to enable us to maintain price levels sufficient to realize
an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels,
we may not be able to successfully commercialize any program or development candidate that we successfully develop.
Many pharmaceutical manufacturers must calculate and report certain
price reporting metrics, such as average sales price and best price, to the government, such as average sales price and best price. These
prices for drugs or biologics may be reduced by mandatory discounts or rebates required by government health care programs or private
payors and by any future relaxation of laws that presently restrict imports of drugs or biologics from countries where drugs may be sold
at lower prices than in the United States. Further, certain of our products, if approved, may be administered by a physician. Under currently
applicable U.S. law, certain products that are not self-administered by the patient (including injectable drugs) may be eligible for coverage
under Medicare through Medicare Part B. Medicare Part B is part of original Medicare, the federal health care program that provides
health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain drug and biological products,
that are medically necessary to treat a beneficiary’s health condition. As a condition of receiving Medicare Part B reimbursement
for a manufacturer’s eligible drugs or biologicals, the manufacturer is required to participate in other government health care
programs, including the Medicaid Drug Rebate Program and the 340B Drug Pricing Program. The Medicaid Drug Rebate Program requires biopharmaceutical
manufacturers to enter into and have in effect a national rebate agreement with the Secretary of HHS as a condition for states to receive
federal matching funds for the manufacturer’s outpatient therapeutic products furnished to Medicaid patients. Under the 340B Drug
Pricing Program, the manufacturer must extend discounts to entities that participate in the program.
Different pricing and reimbursement schemes exist in other countries.
In the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and
control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate
positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement
or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular
program or development candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines
but monitor and control company profits. The downward pressure on health care costs has become intense. As a result, increasingly high
barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets
exert a commercial pressure on pricing within a country.
The marketability of any programs or development candidates for which
we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide coverage and adequate
reimbursement. In addition, emphasis on managed care, the increasing influence of health maintenance organizations, and additional legislative
changes in the United States has increased, and we expect will continue to increase, the pressure on health care pricing. The downward
pressure on the rise in health care costs has become very intense. Coverage policies and third-party reimbursement rates may change at
any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval,
less favorable coverage policies and reimbursement rates may be implemented in the future.
Health Care Reform
In the United States and some jurisdictions outside the United States,
there have been, and continue to be, proposed legislative and regulatory changes to the current health care systems that could prevent
or delay marketing approval of programs and development candidates, restrict or regulate post-approval activities, and affect the ability
to profitably sell programs and development candidates for which marketing approval is obtained. The FDA’s and other regulatory
authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory
approval of our product and therapeutic candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption
of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we otherwise
may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition
and results of operations. Moreover, among policy makers and payors in the United States and elsewhere, there is significant interest
in promoting changes in health care systems with the stated goals of containing health care costs, improving quality and/or expanding
access.
For example, the ACA was enacted in March 2010 and has had a
significant impact on the health care industry in the United States. The ACA expanded coverage for the uninsured while at the same
time containing overall health care costs. With regard to biopharmaceutical products, the ACA, among other things, addressed a new
methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled,
infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug
Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual
fees on manufacturers of certain branded prescription drugs, and created a new Medicare Part D coverage gap discount program.
Additionally, the Creating and Restoring Equal Access to Equivalent Samples Act, or CREATES Act, was enacted on December 20,
2019 to address the concern articulated by both the FDA and others in the industry that some brand manufacturers have improperly
restricted the distribution of their products, including by invoking the existence of a REMS for certain products, to deny generic
product developers access to samples of brand products. Because generic product developers need samples to conduct certain
comparative testing required by the FDA, some have attributed the inability to timely obtain samples as a cause of delay in the
entry of generic products. To remedy this concern, the CREATES Act establishes a private cause of action that permits a generic
product developer to sue the brand manufacturer to compel it to furnish the necessary samples on “commercially reasonable,
market-based terms.” Whether and how generic product developments will use this new pathway, as well as the likely outcome of
any legal challenges to provisions of the CREATES Act, remain highly uncertain and its potential effects on any of our future
commercial products are unknown.
Following several years of litigation in the federal courts, in June 2021,
the U.S. Supreme Court dismissed a challenge on procedural groups that argued the ACA is unconstitutional in its entirety because the
individual mandate was repealed by Congress. In addition, on August 16, 2022, President Biden signed the Inflation Reduction Act
of 2022, or the IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage
in ACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program
beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program.
Further legislative and regulatory changes under the ACA remain possible, but it is unknown what form any such changes or any law would
take, and how or whether it may affect the biopharmaceutical industry as a whole or our business in the future. We expect that changes
or additions to the ACA, the Medicare and Medicaid programs, and changes stemming from other health care reform measures, especially with
regard to health care access, financing or other legislation in individual states, could have a material adverse effect on the health
care industry in the United States.
In addition, other legislative changes have been proposed and adopted
in the United States since the ACA that affect health care expenditures. These changes include aggregate reductions to Medicare payments
to providers pursuant to the Budget Control Act of 2011, which began in 2013 and, due to subsequent legislative amendments, will remain
in effect through 2032, unless additional Congressional action is taken.
Moreover, there has been heightened governmental scrutiny over the
manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed
and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship
between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
In addition, the IRA has multiple provisions that may impact the prices
of drug products that are both sold into the Medicare program and throughout the United States. Starting in 2023, a manufacturer of a
drug or biological product covered by Medicare Parts B or D must pay a rebate to the federal government if the drug product’s price
increases faster than the rate of inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate
owed to the federal government is directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally,
starting in payment year 2026, CMS will negotiate drug prices annually for a select number of single source Part D drugs without
generic or biosimilar competition. On August 29, 2023, the list of the first ten drugs that will be subject to price negotiations
was published, although the Medicare drug price negotiation program is currently subject to legal challenges. CMS will also negotiate
drug prices for a select number of Part B drugs starting for payment year 2028. If a drug product is selected by CMS for negotiation,
it is expected that the revenue generated from such drug will decrease. The IRA permits HHS to implement many of these provisions through
guidance, as opposed to regulation, for the initial years. HHS has and will continue to issue and update guidance as these programs as
implemented. These provisions take effect progressively starting in fiscal year 2023. It is unclear how the IRA will be implemented but
is likely to have a significant impact on the pharmaceutical industry. Further, on February 14, 2023, HHS released a report outlining
three new models for testing by the Centers for Medicare & Medicaid Services Innovation Center which will be evaluated on their
ability to lower the cost of drugs, promote accessibility, and improve quality of care. It is unclear whether the models will be utilized
in any health reform measures in the future. Additionally, on December 7, 2023, the Biden administration announced an initiative
to control the price of prescription drugs through the use of march-in rights under the Bayh-Dole Act. On December 8, 2023, the National
Institute of Standards and Technology published for comment a Draft Interagency Guidance Framework for Considering the Exercise of March-In
Rights which for the first time includes the price of a product as one factor an agency can use when deciding to exercise march-in rights.
While march-in rights have not previously been exercised, it is uncertain if that will continue under the new framework.
Individual states in the United States have also increasingly
passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. For example, on
January 5, 2024, the FDA approved Florida’s Section 804 Importation Program, or SIP, proposal to import certain
drugs from Canada for specific state healthcare programs. It is unclear how this program will be implemented, including which drugs
will be chosen, and whether it will be subject to legal challenges in the United States or Canada. Other states have also submitted
SIP proposals that are pending review by the FDA. Any such approved importation plans, when implemented, may result in lower drug
prices for products covered by those programs.
We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative or executive action, either in the United States or abroad. We expect that additional
state and federal health care reform measures will be adopted in the future, any of which could limit the amounts that federal and state
governments will pay for health care products and services, including any future drug products for which we secure marketing approval.
Additional Regulation
In addition to the foregoing, state and federal laws regarding environmental
protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the
Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal of various biological, chemical
and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment
or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material
compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business.
We cannot predict, however, how changes in these laws may affect our future operations.
We are also subject to numerous federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous
or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now or in the future.
Employees and Human Capital Resources
As of December 31, 2023, we had 55 full-time employees, including
38 who hold advanced degrees. Of these 55 employees, 26 were engaged in research and development activities and 29 were engaged in general
and administrative activities. None of our employees are represented by labor unions or covered by collective bargaining agreements. We
consider our relationship with our employees to be good.
Our human capital resources objectives include, as applicable, identifying,
recruiting, retaining a diverse pool of qualified talent, training, incentivizing, and integrating our existing new employees, advisors,
and consultants. We offer a competitive total rewards package, updated in 2024 based on market research. We incentivize high performers
through an annual bonus program based on our company and individual performance for which all employees are eligible. We also offer equity
incentive plans, the purpose of which are to attract, retain and reward employees through the granting of share-based compensation awards
in order to increase stockholder value and the success of our company by motivating team members to perform to the best of their abilities
and achieve our objectives.
Facilities
We currently lease 11,113 square feet of office space and laboratory
space in Exton, Pennsylvania and under a lease that expires on March 31, 2025 and 14,348 square feet of office and laboratory space
in Bothell, Washington under a lease that expires on October 31, 2028, or the Bothell Lease. We believe the leased spaces are sufficient
to meet our immediate facility needs, and that any additional space we may require will be available on commercially reasonable terms.
Exhibit 99.2
RISK FACTORS
An investment
in shares of our common stock involves a high degree of risk. You should carefully consider the following risk factors, together with
the information contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities
and Exchange Commission, or SEC, on March 16, 2023 and our Quarterly Report on Form 10-Q for the quarter September 30,
2023, filed with the SEC on November 9, 2023, including our consolidated financial statements and
the related notes, and our other filings with the SEC, before deciding whether to invest in our common stock. The occurrence of any of
the events or developments described below could harm our business, financial condition, results of operations and/or prospects or cause
our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may
make from time to time. In such an event, the market price of our common stock could decline and you may lose all or part of your investment.
You should consider all of the risk factors described when evaluating our business.
Risks Related to Our Business
We are a biotechnology company with a history of losses. We expect
to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.
We are a biotechnology company with a history of losses. Since
our inception, we have devoted substantially all of our resources to research and development, raising capital, pursuing strategic
transactions, building our management team and building our intellectual property portfolio, and we have incurred significant
operating losses. As of September 30, 2023, we had an accumulated deficit of $130.2 million. Our net losses were $14.2 million
and $29.1 million for the nine months ended September 30, 2023 and 2022, respectively. Substantially all our losses have
resulted from expenses incurred in connection with our research and development programs and from general and administrative costs
associated with our operations. In October 2023, we closed the merger with Morphimmune, Inc., or the Merger, and completed our
PIPE transaction for gross proceeds of approximately $125.0 million, before deducting any fees or offering expenses. To date, we
have not generated any revenue from product sales, and we have not identified or sought or obtained regulatory approval for the
marketing or sale of any product. Furthermore, we do not expect to generate any revenue from product sales for the foreseeable
future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and
development activities and the regulatory approval process for our development candidates.
We expect our net losses to increase substantially as we continue our
operations; however, the amount of our future losses is uncertain. Our ability to achieve or sustain profitability, if ever, will depend
on, among other things, successfully identifying and developing our development candidates, obtaining regulatory approvals for marketing
and commercialization, manufacturing on commercially reasonable terms, performance as anticipated by our vendors, entering into additional
potential future strategic partnerships and performing and meeting milestones on strategic partnerships, establishing a sales and marketing
organization or suitable third-party alternatives for any approved product and raising sufficient funds to finance business activities.
If we, or our present or potential future partners, are unable to commercialize one or more of our programs or development candidates,
or if sales revenue from any program or development candidate that receives approval is insufficient, we will not achieve or sustain profitability,
which could have a material and adverse effect on our business, financial condition, results of operations and prospects. Any predictions
you make about our future success or viability may not be as accurate as they could be if we had a history of successfully developing
and commercializing pharmaceutical products.
We have a limited operating history, which may make it difficult
to evaluate our drug development capabilities and predict our future performance.
We are early in our development efforts and we have not initiated clinical
trials for any of our drug candidates. We were formed in January 2020, have no drugs approved for commercial sale and have not generated
any revenue from drug sales. Our ability to generate drug revenue, which we do not expect will occur for many years, if ever, will depend
on the successful development and eventual commercialization of our drug candidates, which may never occur. We may never be able to develop
or commercialize a marketable drug.
Our current and future drug candidates require additional discovery
research, preclinical development, clinical development, regulatory approval in multiple jurisdictions to market, manufacturing validation,
obtaining current good manufacturing practice, or cGMP, manufacturing supply, capacity and expertise, building of a commercial and distribution
organization, substantial investment and significant marketing efforts before we generate any revenue from drug sales.
Our limited operating history may make it difficult to evaluate our
drug candidates and predict our future performance. Our short history as an operating company makes any assessment of our future success
or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage companies
in evolving fields. If we do not address these risks successfully, our business will suffer. Similarly, we expect that our financial condition
and operating results will fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which
are beyond our control. As a result, our stockholders should not rely upon the results of any quarterly or annual period as an indicator
of future operating performance.
In addition, we may encounter unforeseen expenses, difficulties, complications,
delays and other known and unknown circumstances. As we advance our drug candidates, we will need to transition from a company with a
research focus to a company capable of supporting clinical development and if successful, commercial activities. We may not be successful
in such a transition.
We have never as a company conducted or completed clinical trials,
submitted a New Drug Application, obtained FDA approval for marketing, or successfully commercialized a drug product, and we may be unable
to do so. If we close the Ayala Asset Purchase, the acquisition of AL102, which is in Phase 3 development, may not result in our ability
to obtain new drug application, or NDA, approval or successfully commercialize AL102.
As an organization, we have not yet demonstrated
an ability to successfully complete clinical development, obtain regulatory approvals, manufacture a commercial-scale product, or arrange
for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Prior
to obtaining approval to commercialize a product candidate in the United States or elsewhere, we or our collaborators must demonstrate
with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory agencies,
that such product candidates are safe and effective for their intended uses. We have not yet conducted or completed any clinical trials
for our development candidates. We also have limited experience as a company in preparing and submitting marketing applications and have
not previously submitted an NDA or other comparable foreign regulatory submission for any product candidate. In addition, we have had
limited interactions with the FDA or other comparable foreign regulatory authorities and cannot be certain how many additional clinical
trials of our development candidates will be required or how such additional trials should be designed. Consequently, we may be unable
to successfully and efficiently execute and complete necessary clinical trials in a way that leads to submission of an application for
and obtaining regulatory approval of any of our development candidates. If we successfully acquire AL102, its prior development will not
have been conducted by us. As a result, our assumptions about AL102's development potential are based in large part on the data generated
from such trials conducted by Ayala and we may observe materially and adversely different results in any ongoing or future clinical trials.
In addition, results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical
or clinical data for AL102 is promising, compliance or data integrity issues may later arise and even if not, the data may not be sufficient
to support approval by the FDA or comparable foreign regulatory authorities. Approval of AL102 or any other applications that we may submit
may be delayed by several years, or may require us to expend significantly more resources than we have available.
In addition, even if we were to obtain marketing
approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may
impose significant limitations in the form of narrow indications, warnings, or a post-marketing risk management strategy such as a REMS
or the equivalent in another jurisdiction. Regulatory authorities may grant approval contingent on the performance of costly post-marketing
clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for
the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects
for AL102 or our earlier stage product candidates.
We will need to raise substantial additional funds to advance
development of our development candidates, our discovery engine and our target effector and ADC platforms, and we cannot guarantee that
we will have sufficient funds available in the future to develop and commercialize them.
The research and development of biotechnology products is capital-intensive.
If our development candidates continue to advance through preclinical studies and clinical trials, we will need substantial additional
funds to expand our development, regulatory, manufacturing, marketing and sales capabilities. We have used substantial funds to develop
our development candidates and will require significant funds to continue to develop our platform and conduct further research and development,
including preclinical studies and clinical trials, to seek regulatory approvals and to manufacture and market products, if any, that are
approved for commercial sale. In addition, we incur additional costs associated with operating as a public company.
Based on our current operating plan, we believe that our cash as of
December 31, 2023, together with the remaining gross proceeds from the PIPE transaction and without giving effect to the closing
of the Asset Purchases, will be sufficient to fund our operations for at least 12 months from the filing date of this Current Report on
Form 8-K. Our future capital requirements and the period for which we expect our existing resources to support our operations may
vary significantly from what we expect, including should either or both the Asset Purchases close. Our monthly spending levels vary based
on new and ongoing research and development and other corporate activities. Because the length of time and activities associated with
successful research and development of biotechnology products is highly uncertain, we are unable to estimate the actual funds we will
require for development and any approved marketing and commercialization activities.
Any additional capital-raising efforts may divert our management from
their day-to-day activities, which may adversely affect our ability to develop and, if approved, commercialize our current and any future
development candidates. Additional funding may not be available on acceptable terms, or at all. As a result of actual or anticipated changes
in interest rates and economic inflation and the impact of the Russia/Ukraine conflict and Israel-Hamas conflict, the global credit and
financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability,
declines in consumer confidence, declines in economic growth, and uncertainty about economic stability. If the equity and credit markets
deteriorate, including as a result of recent or future bank failures, it may make any necessary debt or equity financing more difficult
to obtain in a timely manner on favorable terms or at all.
The timing and amount of our operating expenditures will depend largely
on factors outside of our control, some of which are discussed in this section, including the following:
| • | the scope, number, timing and progress of preclinical and clinical development activities; |
| • | the price and pricing structure that we are able to obtain from our third party contract manufacturers to manufacture our preclinical
study and clinical trial materials and supplies and other vendors relevant to advancement of our programs; |
| • | our ability to maintain our current licenses, conduct our research and development programs and establish new strategic partnerships
and collaborations; |
| • | the costs involved in obtaining, maintaining, enforcing and defending patents and other intellectual property rights and the resources
needed to pursue regulatory approvals; |
| • | the Merger and the costs related to the integration of business, operations, networks, systems, technologies, policies and procedures;
and |
| • | our efforts to enhance operational systems, secure sufficient laboratory space and hire additional personnel, including personnel
to support development of our development candidates and satisfy our obligations as a public company. |
To date, we have primarily financed our operations through the sale
of equity securities and convertible debt, and through our collaborations. We may seek to raise any necessary additional capital through
a combination of public or private equity offerings, debt financings, additional collaborations, strategic alliances, licensing arrangements,
government contracts and other marketing arrangements. We cannot assure you that we will be successful in acquiring additional funding
at levels sufficient to fund our operations on terms favorable to us or at all. If we are unable to obtain adequate financing when needed,
we may have to delay, reduce the scope of or suspend one or more of our preclinical studies, clinical trials, research and development
programs or commercialization efforts. Because of the numerous risks and uncertainties associated with the development and commercialization
of our development candidates and the extent to which we may enter into collaborations with third parties to participate in their development
and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our
current and anticipated preclinical studies and clinical trials. To the extent that we raise additional capital through additional collaborations,
strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights, future revenue streams or
research programs or to grant licenses on terms that may not be as favorable to us. If we do raise additional capital through public or
private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital
through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends.
We do not expect to realize revenue from product sales (either directly
or through our collaborators) in the foreseeable future, if at all, and unless and until they are clinically tested, approved for commercialization
and successfully marketed.
Risks Related to our Pending Asset Acquisitions
Our pending asset purchases may not be completed on the terms
or timeline currently contemplated, or at all.
On February 5, 2024, we entered into an Asset
Purchase Agreement with Ayala Pharmaceuticals, Inc., or Ayala, pursuant to which we will acquire Ayala’s AL101 and AL102 programs
and assume certain of Ayala’s liabilities associated with the acquired assets, or the Ayala Asset Purchase. We expect the Ayala
Asset Purchase to close late in the first quarter of 2024 or early in the second quarter of 2024, subject to customary closing conditions,
including approval of Ayala’s stockholders. Additionally, on December 22, 2023, we entered into an Asset Purchase Agreement
with Atreca, Inc., or Atreca, pursuant to which we will acquire certain antibody-related assets
and materials owned by Atreca, or the Atreca Asset Purchase, and collectively with the Ayala Asset Purchase, the Asset Purchases.
We anticipate the Atreca Asset Purchase to close in the first half of 2024, subject to customary closing conditions, including the approval
Atreca’s stockholders.
There are certain risks and uncertainties relating to the Asset Purchases.
For example, neither Asset Purchase may be completed, or may not be completed in the time frame, on the terms or in the manner currently
anticipated. There can be no assurance that the conditions to closing of each Asset Purchase will be satisfied or waived or that other
events will not intervene to delay or result in the failure to close such Asset Purchase. In addition, both we and the counterparty to
each respective Asset Purchase has the ability to terminate the respective asset purchase agreement under certain circumstances. Failure
to complete either Asset Purchase would prevent us from realizing the anticipated benefits of such Asset Purchase. We would also remain
liable for significant transaction costs, including legal, accounting and financial advisory fees.
In addition, the market price of our Common Stock may reflect various
market assumptions as to whether the Asset Purchases will be completed. Consequently, the completion of, the failure to complete, or any
delay in the closing of either or both Asset Purchases could result in a significant change in the market price of our Common Stock.
Even if the Asset Purchases are completed, we may fail to realize
the business benefits anticipated as a result of Asset Purchases.
The success of the Asset Purchases will depend, in part, on our ability
to successfully integrate, develop and advance the acquired assets. If we are unable to do so following the Asset Purchases, the anticipated
benefits of the Asset Purchases may not be realized fully or at all, or may take longer to realize than expected. Any failure to timely
realize the anticipated benefits of the Asset Purchases could have a material adverse effect on our business, operating results, financial
condition and stock price. Furthermore, Ayala and Atreca may have unknown or contingent liabilities that we would assume in the respective
Asset Purchases and that were not discovered during the course of our due diligence. These liabilities could include exposure to unexpected
compliance and regulatory violations and issues, clinical trial design or contract manufacturing and supply issues or delays that may
impact the timing to submit an NDA, unanticipated obligations to vendors and other creditors and other problems that could result in significant
costs and delays to us.
All of these factors could cause decrease or delay the expected accretive
effect of the transactions, negatively impact the price of our Common Stock, or have a material adverse effect on our business, financial
condition and results of operations.
The due diligence process that we undertook in connection with
the Asset Purchases may not have revealed all facts that may be relevant in connection with each respective Asset Purchase.
In deciding whether to enter into the respective asset purchase agreements,
we conducted the due diligence investigation that we deemed reasonable and appropriate based on the facts and circumstances applicable
to the respective Asset Purchase. When conducting due diligence, we evaluate important and complex business, financial, tax, intellectual
property rights, legal, health care and regulatory issues. In addition to our employees, outside consultants, legal advisors and accountants
were involved in the due diligence process in varying degrees. Despite our efforts, the results of our due diligence may not be complete
and accurate or, even if complete and accurate, may not be sufficient to identify all relevant facts, which could prevent us from realizing
the anticipated benefits we expect to achieve as a result of the applicable Asset Purchase and our business and results of operations
could be adversely affected.
Our business and the business of the seller of assets in the
respective Asset Purchase may be adversely affected by the announcement of the Asset Purchase.
Parties with whom we or the seller in the applicable Asset Purchase
do business may experience uncertainty associated with the applicable Asset Purchase, including with respect to current or future business
relationships with us or the applicable seller. These business relationships may be subject to disruption as licensors, third party service
providers and others may attempt to (i) negotiate changes in existing business relationships, (ii) delay, defer or cease providing
services to us or the applicable seller or (iii) consider entering into business relationships with parties other than us or the
applicable seller, including our competitors or those of the applicable seller. These disruptions could have a material adverse effect
on our business and the assets to be acquired in the applicable Asset Purchase.
The Asset Purchases could divert management attention or disrupt
our business, which in either case could adversely affect our future business, operations and financial results following the Asset Purchases.
Whether or not the Asset Purchases are completed, the announcement
and pendency of the Asset Purchases could divert management’s attention or disrupt our business and the development of our current
pipeline. Our management has devoted significant attention and resources to the Asset Purchases and we expect they will need to continue
to do so. To the extent this diversion of attention and resources to the Asset Purchases limits management from continuing to focus on
ongoing business operations as they have in the past, our business could be adversely impacted. We and are dependent on the experience
and industry knowledge of our respective senior management and other key employees to execute our respective business plans.
Risks Related to Our Discovery, Development and Regulatory Approval
of Development Candidates
We may not be successful in our efforts to use and expand our
discovery engine or Targeted Effector and ADC platforms to build a pipeline.
A key element of our strategy is to use and expand our discovery engine
and Targeted Effector and ADC platforms to build a pipeline and progress the pipeline through preclinical and clinical development for
the treatment of various diseases. Our scientific research that forms the basis of our discovery efforts based on our discovery engine
and Targeted Effector and ADC platforms is ongoing. Further, the scientific evidence to support the feasibility of discovering and developing
products based on our technologies has not been established. In addition, our discovery engine or Targeted Effector and ADC platforms
may not be proven to be superior to competing technologies. Even if we are successful in building our pipeline, the development candidates
that we identify may not be suitable for clinical development or generate acceptable clinical data, including as a result of being shown
to have unacceptable effects or other characteristics that indicate that they are unlikely to be products that will receive marketing
approval from regulatory authorities or achieve market acceptance. If we or our collaborators do not successfully develop and commercialize
development candidates, we will not be able to generate product revenue in the future.
We are early in our development efforts and may be unable to
advance any of our development candidates through clinical development, obtain regulatory approval and ultimately commercialize them,
or we may experience significant delays in doing so, either ourselves or through a partner.
We are in the early stages of our development efforts and will need
to continue to progress our development candidates through preclinical studies and submit INDs to the FDA or appropriate regulatory documents
to applicable foreign authorities prior to initiating their clinical development. We have no products on the market that have gained regulatory
approval and do not currently have any active clinical trials. Our ability to generate revenue and achieve and sustain profitability depends
on our ability to continue to identify programs and nominate development candidates, advance them into preclinical and clinical development
and obtain regulatory approvals for and successfully commercializing them, either alone or through a collaboration.
Before obtaining regulatory approval for the commercial distribution
of any programs or development candidates, we, either alone or with or through a collaborator, must conduct extensive preclinical studies,
followed by clinical trials to demonstrate their safety and efficacy in humans. We cannot be certain of the timely completion or outcome
of our research and development activities or our planned clinical studies and cannot predict if the FDA or other regulatory authorities
will ultimately support the further advancement of our development candidates. Our development candidates are in the early stages, and
we are subject to the risks of failure inherent in the development of candidates based on novel approaches, targets and mechanisms of
action.
We submitted an IND for the IMM-BCP-01 program to the FDA in November 2021.
In March 2022, the FDA communicated that the clinical study can be initiated for our antibody cocktail for the treatment of SARS-CoV-2
following a brief clinical hold, and we initiated the Phase 1b study of IMM-BCP-01 in patients infected with SARS-CoV-2 in June 2022.
On January 6, 2023, we announced that we successfully completed dosing of the first cohort of patients in a Phase 1b study with no
significant treatment-related adverse events. We have decided to seek a partner in order to continue the trial and for any further development
activities. No assurance can be given that we will be able to find a suitable partner for IMM-BCP-01, that any potential partner will
offer us satisfactory partnering terms or that any such partner will have success in its development and commercialization efforts.
We
expect to submit to the FDA INDs for three product candidates in the first quarter of 2025: IM-4320, IM-1021 and an undisclosed 177Lu-
FAP potential development candidate. However, there can be no assurance that we will be able to do so as anticipated or that we will not
face regulatory hurdles, including the requirement to provide additional data.
If
we do not advance IM-4320, IM-1021 or fail to nominate and advance a 177Lu-FAP potential
development candidate to IND, we may incur significant delays and expense identifying another development candidate, if any. Accordingly,
you should consider our prospects in light of the costs, uncertainties, delays, and difficulties frequently encountered by biotechnology
companies such as ours.
We may not have the financial resources to continue development of,
or to enter into new collaborations for, our development candidates. This may be exacerbated by one or more of the following:
| • | negative or inconclusive results from our preclinical studies or clinical trials or the preclinical studies or clinical trials of
others for development candidates similar to ours, leading to a decision or requirement to conduct additional preclinical studies or clinical
trials or abandon a program; |
| • | product-related side effects experienced by participants in our clinical trials or by individuals using drugs or therapeutic antibodies
similar to ours; |
| • | delays in IND submissions or comparable foreign applications, or delays or failure in obtaining the necessary approvals from regulators
to commence a clinical trial, or a suspension or termination of a clinical trial once commenced; |
| • | inadequate supply or quality of components or materials or other supplies necessary for the conduct of our preclinical studies or
clinical trials; |
| • | poor effectiveness of our development candidates during preclinical studies or clinical trials; |
| • | capital expenditures used to expand our current pipeline; |
| • | unfavorable FDA or other regulatory agency inspection and review of a clinical trial or manufacture site; failure of our third-party
contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner,
or at all; or |
| • | the FDA or other regulatory agencies interpreting our data differently than we do. |
Further, we and any existing or potential future partners may never
receive necessary marketing and commercialization approvals from regulatory authorities. Even if we or a potential future partner obtains
regulatory approval, the approval may be for targets, disease indications or patient populations not as broad as we intended or desired
or may require labeling that includes significant use or distribution restrictions or safety warnings. We or a potential future partner
may be subject to post-marketing testing requirements to maintain regulatory approval.
We may pursue particular programs or development candidates over
others; these decisions may prove to be wrong and may adversely impact our business.
In
the natural course of progressing our development candidates, we may make decisions about the prioritization of development candidates
that may prove to be incorrect. In addition, because we have limited financial and other resources, we may be limited in our ability to
pursue all potential development candidates of interest, including IM-4320, IM-1021, 177Lu-FAP
and, subject to closing the Ayala Asset Purchase, AL102, even if we would otherwise choose to do so if these limitations did not exist.
For these reasons, we may fail to capitalize on viable opportunities. If we do not accurately evaluate the commercial potential or target
market for a program or development candidate, we may relinquish valuable rights to it through partnership, licensing or other royalty
arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.
As
a targeted radioligand therapy, our 177Lu-FAP program may face additional and
potentially unpredictable challenges.
Lutetium-177
(177Lu), or Lu-177, oncology therapy is relatively new, and only two Lu-177 therapies have
been approved in the United States or the European Union and only a limited number of clinical trials of products based on Lu-177 therapies
have commenced. As such, it is difficult to accurately predict the developmental challenges we may incur in advancing 177Lu-FAP program
through candidate nomination, preclinical studies and clinical trials, if at all. The 177Lu-FAP program
is subject to risks described above as well as others that may include:
| • | interruptions to our ability to obtain sufficient supply of Lu-177 for our preclinical needs and potential future clinical and commercial
needs; |
| • | we may not be able to find suitable vendors, including contract research organizations, or CROs and clinical manufacturing organizations,
for our development due to the limited number of suppliers qualified to work with radioactive material, or we may develop sole-source
relationships with vendors, which may present additional risks inherent to a sole-source relationship; |
| • | if we initiate a clinical trial, our ability to recruit patients may be negatively impacted by the limited number of sites that can
administer radioligand therapies; |
| • | if our product is successfully approved for commercial sale, our revenue may be negatively impacted by the limited number of sites
that can administer radioligand therapies; and |
| • | due to the short half-life of Lu-177, we may incur significant expense developing the means required to effectively and timely distribute
drug products to clinical sites and, if approved, to sites for administration to patients. |
There
is no guarantee that our collaboration with AbbVie will result in the successful discovery and validation of targets
for further development and commercialization by AbbVie.
Related to the AbbVie collaboration, there is no guarantee that our
discovery engine will successfully discover and validate targets, or that such targets may become the subject of further successful development
and commercialization by AbbVie. Additionally, if there is any conflict, dispute, disagreement, or issue of nonperformance between us
and AbbVie regarding our rights or obligations under the Collaboration Agreement, AbbVie may have a right to terminate the agreement or
reduce the payments due to us thereunder.
We have obtained rights to use human samples in furtherance of
our research and development. However, if we failed to obtain appropriate permission to use these samples or exceed the scope of the permissions
given, our program could be adversely affected.
With respect to certain of our development candidates, our discovery
process involves gathering tissue samples from humans. While we attempt to ensure that we and our vendors have obtained these samples
with all necessary permissions, there is a risk that one or more individuals from whom samples were collected, or their representatives
may assert that we have either failed to obtain appropriate permission or exceeded the scope of permission granted. In such circumstances,
we could be required to pay monetary damages, to pay a continuing royalty on any products created or invented by analyzing the person’s
sample or even to cease using the sample and any and all materials derived from or created through analysis of the sample, any of which
could result in a change to our business plan and materially harm our business, financial condition, results of operations and prospects.
Further, in some cases, these penalties could materially impact the performance, availability, or validity of studies conducted by us
or on our behalf. Even in the absence of violations resulting in penalties, regulatory and other authorities may refuse to authorize the
conduct or to accept the results of studies for regulatory or ethical reasons, which could impact our ability to progress our program
into clinical trials, and peer-reviewed journals may refuse to publish scientific findings, which could limit our ability to disseminate
information related to this program.
Clinical trials are expensive, time-consuming and difficult to
design and implement.
Human clinical trials are expensive and difficult to design and implement,
in part because they are subject to rigorous regulatory requirements. Because our development candidates are based on new technologies
and discovery approaches, we expect that they will require extensive research and development and have substantial manufacturing and processing
costs. In addition, costs to treat study participants and to treat potential side effects that may result from our development candidates
may be significant. Accordingly, our clinical trial costs are likely to be high and could have a material and adverse effect on our business,
financial condition, results of operations and prospects.
Preliminary results from our preclinical studies and clinical
trials that we announce or publish from time to time may change as more data become available and as the data undergo audit and verification
procedures. Furthermore, clinical development has an uncertain outcome, and results of earlier studies and trials may not be predictive
of future trial results.
From time to time, we may publish preliminary results from our preclinical
studies and clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the
clinical outcomes may materially change as enrollment continues and more data becomes available. Preliminary or top-line results also
remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary
data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data is available.
Differences between preliminary or interim data and final data could significantly affect our business prospects.
It is impossible to predict when or if any of our programs or development
candidates will prove effective and safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory
authorities, we must, as applicable, complete preclinical studies and then conduct extensive clinical trials to demonstrate the safety
and efficacy in humans. Clinical testing can take many years to complete, and its outcome is inherently uncertain. The results of preclinical
studies and early clinical trials of any of our development candidates may not be predictive of the results of later-stage clinical trials.
In addition, development candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite
having progressed through preclinical studies and initial clinical trials. A number of pharmaceutical companies have suffered significant
setbacks in advanced clinical trials due to lack of efficacy or safety profiles, notwithstanding promising results in earlier trials.
In addition, if we successfully acquire AL102, the acquisition of AL102 would mean that its prior development was not conducted by us,
and we did not conduct any of the preclinical studies for the ROR1 ADC we in-licensed from Zentalis. As a result, our assumptions about
the potential of these programs are based in large part on the data generated in preclinical studies and clinical trials conducted by
these third parties. Results from nonclinical studies and clinical trials can be interpreted in different ways. We may observe materially
and adversely different results in any ongoing or future preclinical studies or clinical trials, or later discover errors or other issues
with the data generated by these third parties.
We do not know whether planned preclinical studies and clinical trials
will be completed on schedule or at all, or whether planned clinical trials will begin on time, need to be redesigned, enroll participants
on time or be completed on schedule, if at all. Our development programs may be delayed for a variety of reasons, including delays related
to:
| • | inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation
of clinical trials; |
| • | delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for clinical trials; |
| • | delays in developing suitable assays for screening participants for eligibility for trials with respect to certain development candidates; |
| • | delays in reaching agreement with the FDA, European Medicines Agency or other regulatory authorities as to the design or implementation
of our clinical trials; |
| • | reaching agreement on acceptable terms with prospective CROs, and clinical trial sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and clinical trial sites; |
| • | obtaining institutional review board, or IRB, approval at each clinical trial site; |
| • | recruiting suitable participants to participate in a clinical trial and having participants complete a clinical trial or return for
post-treatment follow-up; |
| • | clinical trial sites, CROs or other third parties deviating from trial protocol or dropping out of a trial; |
| • | failure to perform in accordance with the FDA’s good clinical practice, or GCP requirements, or applicable regulatory guidelines
in other countries; |
| • | any unresolved ethical issues associated with enrolling patients in clinical trials in lieu of prescribing existing treatments that
have established safety and efficacy profiles; |
| • | addressing participant safety concerns that arise during the course of a trial, including occurrence of adverse events that are viewed
to outweigh potential benefits; |
| • | external factors such as an epidemic or pandemic which prevent execution of the study(ies) or recruitment of subjects to a trial or
trials; or |
| • | having inadequate supply or quality of components or materials or other supplies necessary for the conduct of our preclinical studies
or clinical trials. |
Furthermore, we expect to rely on CROs and clinical trial sites to
ensure the proper and timely conduct of our clinical trials and, while we expect to enter into agreements governing their committed activities,
we have limited influence over their actual performance.
Clinical trials may be suspended or terminated by us, our partners,
the IRBs of the institutions in which such trials are being conducted, the Data Safety Monitoring Board for such trials or by the FDA
or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory
requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities
resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, inability to recruit appropriate subjects
or an adequate number of subjects, failure to demonstrate a benefit from using a drug or therapeutic biologic, changes in governmental
regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion
of, or termination of, any clinical trial of any of our programs, the commercial prospects will be harmed, and our ability to generate
product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow our product development
and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may materially
and adversely affect our business, financial condition, results of operations and prospects. In addition, many of the factors that cause,
or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval.
If we encounter difficulties enrolling participants in our clinical
trials, our clinical development activities could be delayed or otherwise adversely affected.
We may not be able to initiate or continue clinical trials for our
programs or development candidates if we are unable to locate and enroll a sufficient number of eligible participants to participate in
these trials as required by the FDA or other regulatory authorities. The enrollment of participants depends on many factors, including:
| • | the severity of the disease under investigation; |
| • | the eligibility criteria defined in the clinical trial protocol and the size of the population required for analysis of the trial’s
primary endpoints; |
| • | the existence of approved therapies, or ones available under Emergency Use Authorizations, for treating similar populations may limit
recruitment into the clinical trial; |
| • | the willingness or availability of eligible individuals to participate in our clinical trials; |
| • | the proximity and availability of clinical trial sites; |
| • | the referral practices of physicians; |
| • | our ability to recruit clinical trial investigators with the appropriate competencies and experience; |
| • | perceptions as to the potential advantages of the candidate being studied in relation to other available therapies, including any
new drugs that may be approved for the indications we are investigating; |
| • | our ability to obtain and maintain participant consents; and |
| • | the risk that those enrolled in clinical trials will drop out of the trials before completion. |
In addition, our future clinical trials will compete with other clinical
trials for development candidates that are in the same therapeutic areas as those being pursued by us, and this competition will reduce
the number and types of participants available to us, because some participants who might have opted to enroll in our trials may instead
opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we
expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the
number of participants who are available for our clinical trials at such clinical trial sites. Additionally, because we anticipate that
some of our oncology clinical trials will be in patients with advanced solid tumors, the patients are typically in the late stages of
the disease and may experience disease progression or adverse events independent from our development candidates, making them unevaluable
for purposes of the trial and requiring additional enrollment. Delays in enrollment may result in increased costs or may affect the timing
or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance
the development of our pipeline.
We face substantial competition, which may result in others discovering,
developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown
to be safer or more effective than ours, then our commercial opportunity will be reduced or eliminated.
The development and commercialization of new product candidates is
highly competitive. We compete in the segments of the pharmaceutical, biotechnology and other related markets that develop therapies for
the treatment of cancer, which is highly competitive with rapidly changing standards of care. As such, our commercial opportunity could
be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe
side effects, are more convenient, or are less expensive than any products that we may develop or that would render any products that
we may develop obsolete or non-competitive. Our competitors also may obtain marketing approval for their products more rapidly than we
may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter
the market.
In oncology, we expect to compete with companies advancing antibodies,
antibody drug conjugates (ADCs), small molecules, targeted radiotherapies, and other therapeutic modalities. We are aware of competitors
who are pursuing antibody-based discovery approaches, including, but not limited to, AbCellera Biologics, Inc.; Adaptive Biotechnologies
Corporation, or Adaptive; AIMM Therapeutics B.V.; IGM Biosciences, Inc.; OncoReponse, Inc. We also expect to compete with companies
pursuing targeted radiotherapies, including, but not limited to, RayzeBio, Fusion Pharmaceuticals, POINT Biopharma, Aktis Oncology, Actinium
Pharmaceuticals, and Yantai LNC Biotechnology. In addition, we expect to compete with large, multinational pharmaceutical companies that
discover, develop and commercialize antibodies, ADCs, small molecules, targeted radiotherapies, and other therapeutics for use in treating
cancer such as Immunogen (acquired by AbbVie Inc.), AstraZeneca; Amgen; Bayer AG, Bristol-Myers Squibb Company; Eli Lilly and Company;
Genentech, Inc. (a member of Roche group); Merck & Co. Inc.; Novartis; Seagen (acquired by Pfizer) and Johnson &
Johnson. If any future product candidates identified through our current lead programs are eventually approved for sale, they will likely
compete with a range of treatments that are either in development or currently marketed for use in those same disease indications.
Subject to the closing of the Ayala Transaction and our acquisition
of AL102, we expect to compete with companies advancing treatment of desmoid tumors, including but not limited to, SpringWorks Therapeutics, Inc.
In November 2023, Springworks received FDA approval for its oral gamma secretase inhibitor, OGSIVEOTM (nirogacestat), for the treatment
of adult patients with progressing tumors who require systemic treatment. Desmoid tumors treatments also include surgery, hormonal therapy,
targeted therapy and chemotherapy.
There are several other companies developing FAP-targeted radioligand
therapies which may represent the most direct competition to our 177Lu-FAP program. Novartis is advancing a FAP-targeted radioligand therapy
(177Lu-FAP-2286) that was acquired from Clovis Oncology and is currently in Phase 1/2. Clovis previously presented Phase 1 data for FAP-2286
(June 2022.) In December 2023, Eli Lilly and Company acquired POINT Biopharma, which is developing a FAP-targeted radioligand
therapy (PNT2004) that is currently in Phase 1. POINT presented a trial-in-progress poster discussing trial design (June 2023) and
expects to release data from that trial in the first half of 2024. In addition, POINT has disclosed two preclinical radioligand programs
targeting FAP. Yantai LNC Biotechnology has also initiated a Phase 1 trial for another FAP-targeted radioligand therapy (LNC1004.) Additionally,
our 177Lu-FAP program faces competition from competitors who may have superior access to a consistent supply of radioactive isotopes.
In January 2023, we exclusively licensed a preclinical ROR1
ADC program from Zentalis with the potential to address hematologic and solid tumor indications. There are several other companies
developing antibodies, antibody-drug conjugates, and CAR-T therapies targeting ROR1, and they may represent the most direct
competition to our ROR1 ADC program. Merck has an ADC program (Zilovertamab vedotin) in a Phase 2/3 clinical trial for B-cell
lymphoma. Boehinger Ingelheim has an ADC program in a Phase 1/2 clinical trial (NBE-002) in solid tumors, and Legochem Biosciences
has an ADC program (LCB71) in a Phase 1 trial in solid tumors. Companies advancing clinical ROR1-CAR T therapy programs include
Octernal Therapeutics (ONCT-808) in a Phase 1/2 in B-cell malignancies, and Lyell Immunopharma (LYL797) in a Phase 1 trial. Many of
our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical
studies, conducting clinical studies, obtaining regulatory approvals and marketing approved products than we have. These competitors
also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical study sites
and patient registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our
programs. In addition, these larger companies may be able to use their greater market power to obtain more favorable supply,
manufacturing, distribution and sales-related agreements with third parties, which could give them a competitive advantage over
us.
Further, as more product candidates within a particular class of drugs
proceed through clinical development to regulatory review and approval, the amount and type of clinical data that may be required by regulatory
authorities may increase or change. Consequently, the results of our clinical trials for product candidates in that class will likely
need to show a risk benefit profile that is competitive with or more favorable than those products and product candidates in order to
obtain marketing approval or, if approved, a product label that is favorable for commercialization. If the risk benefit profile is not
competitive with those products or product candidates, or if the approval of other agents for an indication or patient population significantly
alters the standard of care with which we tested our product candidates, we may have developed a product that is not commercially viable,
that we are not able to sell profitably or that is unable to achieve favorable pricing or reimbursement. In such circumstances, our future
product revenue and financial condition would be materially and adversely affected.
Mergers and acquisitions in the pharmaceutical and biotechnology industries
may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These
third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical study sites
and subject enrollment for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our current or future
products or programs.
The market may not be receptive to our development candidates,
and we may not generate any revenue from their sale, partnering or licensing.
Even if regulatory marketing approval is obtained, we may not generate
or sustain revenue from sales of the corresponding product. Market acceptance will depend on, among other factors:
| • | the timing of our receipt of any marketing and commercialization approvals and the terms of such approvals; |
| • | limitations or warnings contained in any labeling approved by the FDA or other regulatory authority; |
| • | relative convenience and ease of administration; |
| • | the availability of coverage and adequate government and third-party payor reimbursement and the pricing of our products, particularly
as compared to alternative treatments; and |
| • | availability of alternative effective treatments for the disease indications that our programs or development candidates are intended
to treat and the relative risks, benefits and costs of those treatments. |
If any program or development candidate we commercialize fails to achieve
market acceptance, it could have a material and adverse effect on our business, financial condition, results of operations and prospects.
If the market opportunities for our development candidates are
smaller than we believe they are, our future product revenues may be adversely affected, and our business may suffer.
Our understanding of the number of people who suffer from certain types
of medical conditions that may be able to be treated by our current and future potential development candidates is based on estimates.
These estimates may prove to be incorrect, and new studies may reduce the estimated incidence or prevalence of these diseases. The number
of patients in the United States or elsewhere may turn out to be lower than expected or may not be otherwise amenable to treatment. Additionally,
patients may become increasingly difficult to identify and access, all of which would adversely affect our business prospects and financial
condition. In particular, the treatable population for various oncology indications may further be reduced if our estimates of addressable
populations are erroneous or sub-populations of patients do not derive benefit from our development candidates.
Further, there are several factors that could contribute to making
the actual number of participants in clinical studies less than the potentially addressable market. These include the lack of widespread
availability of, and limited reimbursement for, new therapies in many underdeveloped markets.
If we or others identify undesirable side effects caused by a
development candidate undergoing clinical trials, our ability to market and derive revenue from the program or development candidate could
be compromised.
Undesirable side effects caused by any development candidates could
cause regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or
denial of regulatory approval by the FDA or other regulatory authorities. Results of our clinical trials could reveal a high and unacceptable
severity and prevalence of these side effects. In such an event, our trials could be suspended or terminated, and the FDA or other regulatory
authorities could order us to cease further development of or deny approval of a development candidate for any or all targeted indications.
Such side effects could also affect recruitment or the ability of enrolled participants to complete the trial or result in potential product
liability claims. Any of these occurrences may materially and adversely affect our business and financial condition and impair our ability
to generate revenues.
Further, clinical trials by their nature utilize a sample of the potential
population. With a limited number of participants and limited duration of exposure, rare and severe side effects of a program or development
candidate may only be uncovered when a significantly larger number of participants are exposed to the development candidate or when participants
are exposed for a longer period of time.
In the event that any of our development candidates receive regulatory
approval and we or others identify undesirable side effects caused by one of these products, any of the following adverse events could
occur, which could result in the loss of significant revenue to us and materially and adversely affect our results of operations and business:
| • | regulatory authorities may withdraw their approval of the product, seize the product or additional restrictions may be imposed on
the marketing of the particular product or the manufacturing processes for the product or any component thereof; |
| • | we may be required to recall the product, change the way the product is administered, conduct additional preclinical studies or clinical
trials or change the labeling of the product; |
| • | we may be sued, subject to fines, injunctions or the imposition of civil or criminal penalties; and |
| • | regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication
or a limitation on the indications for use or impose restrictions on the distribution in the form of a Risk Evaluation and Mitigation
Strategy, or REMS, in connection with approval. |
If any of our development candidates is approved for marketing
and commercialization in the future and we are unable to develop sales, marketing and distribution capabilities on our own or enter into
agreements with third parties to perform these functions on acceptable terms, we will be unable to successfully commercialize any such
future products.
We currently have no sales, marketing or distribution capabilities,
which are necessary in order to commercialize each program and development candidate that gains FDA approval, which would be expensive
and time-consuming, or enter into strategic partnerships with third parties to perform these services. If we decide to market any approved
products directly, we will need to commit significant financial and managerial resources to develop a marketing and sales force with technical
expertise and supporting distribution, administration and compliance capabilities. If we rely on third parties with such capabilities
to market any approved products or decide to co-promote products with partners, we will need to establish and maintain marketing and distribution
arrangements with third parties, and there can be no assurance that we will be able to enter into such arrangements on acceptable terms
or at all. In entering into third-party marketing or distribution arrangements, any revenue we receive will depend upon the efforts of
the third parties and we cannot assure you that such third parties will establish adequate sales and distribution capabilities or be successful
in gaining market acceptance for any approved product. If we are not successful in commercializing any product approved in the future,
either on our own or through third parties, our business and results of operations could be materially and adversely affected.
A Fast Track Designation from the FDA, even if granted for any
of our product candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood
that our product candidates will receive regulatory approval.
The FDA has granted Fast Track designation for AL102 for
progressing desmoid tumors. We intend to seek such designation for some or all of our product candidates. The Fast Track program is
intended to expedite or facilitate the process for reviewing new product candidates that meet certain criteria. Specifically, drugs
and biologic are eligible for Fast Track designation if they are intended, alone or in combination with one or more drugs or
biologics, to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs
for the disease or condition. Fast Track designation applies to the combination of the product candidate and the specific indication
for which it is being studied. The sponsor of a Fast Track product candidate has opportunities for more frequent interactions with
the applicable FDA review team during product development and, once a biologics license application, or BLA, or NDA is submitted,
the application may be eligible for priority review. An NDA or BLA submitted for a Fast Track product candidate may also be eligible
for rolling review, where the FDA may consider for review sections of the NDA or BLA on a rolling basis before the complete
application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA or BLA, the FDA agrees to
accept sections of the NDA or BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon
submission of the first section of the application.
The FDA has broad discretion whether or not to grant this designation.
Even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to
grant it. Even if we do receive Fast Track Designation for any of our product candidates, such product candidates may not experience a
faster development process, review or approval compared to conventional FDA procedures. The FDA may also withdraw Fast Track Designation
if it believes that the designation is no longer supported by data from our clinical development program. Furthermore, such a designation
does not increase the likelihood that AL102 or any other product candidate that may be granted Fast Track designation will receive regulatory
approval in the U.S. Many product candidates that have received Fast Track Designation have ultimately failed to obtain approval.
We may attempt to secure approval from the FDA through the use
of the accelerated approval pathway. If we are unable to obtain such approval, we may be required to conduct additional preclinical studies
or clinical trials beyond those that we contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary
regulatory approvals. Even if we receive accelerated approval from the FDA, if our confirmatory trials do not verify clinical benefit,
or if we do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw any accelerated approval we have obtained.
We may in the future seek accelerated approval for our one or more
of our product candidates. Under the accelerated approval program, the FDA may grant accelerated approval to a product candidate designed
to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination
that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict
clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context
of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker,
such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but
is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than
an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality
or other clinical benefit.
The accelerated approval pathway may be used in cases in which the
advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from
a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct,
in a diligent manner, additional confirmatory studies to verity and describe the drug’s clinical benefit. If such post-approval
studies fail to confirm the drug’s clinical benefit or are not completed in a timely manner, the FDA may withdraw its approval of
the drug on an expedited basis. In addition, in December 2022, President Biden signed an omnibus appropriations bill to fund the
U.S. government through fiscal year 2023. Included in the omnibus bill is the Food and Drug Omnibus Reform Act of 2022, which among other
things, provided FDA new statutory authority to mitigate potential risks to patients from continued marketing of ineffective drugs previously
granted accelerated approval. Under these provisions, the FDA may require a sponsor of a product seeking accelerated approval to have
a confirmatory trial underway prior to such approval being granted.
Prior to seeking accelerated approval for any of our product candidates,
we intend to seek feedback from the FDA and will otherwise evaluate our ability to seek and receive accelerated approval. There can be
no assurance that after our evaluation of the feedback and other factors we will decide to pursue or submit an NDA for accelerated approval
or any other form of expedited development, review or approval. Furthermore, if we decide to submit an application for accelerated approval
for our product candidates, there can be no assurance that such application will be accepted or that any expedited development, review
or approval will be granted on a timely basis, or at all. The FDA or other comparable foreign regulatory authorities could also require
us to conduct further studies prior to considering our application or granting approval of any type. A failure to obtain accelerated approval
or any other form of expedited development, review or approval for our product candidate would result in a longer time period to commercialization
of such product candidate, if any, could increase the cost of development of such product candidate and could harm our competitive position
in the marketplace.
We may fail to obtain orphan drug designations from the FDA for
our product candidates, and even if we obtain such designations, we may be unable to maintain the benefits associated with orphan drug
designation, including the potential for market exclusivity.
Regulatory authorities in some jurisdictions, including the U.S., may
designate biologics or drugs designed to address relatively small patient populations as “orphan drugs.” Under the Orphan
Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined
as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the
United States, where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales
in the United States. In the U.S., orphan designation entitles a party to financial incentives such as opportunities for grant funding
for clinical trial costs, tax advantages and user-fee waivers. In addition, if a product candidate that has orphan designation subsequently
receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug
exclusivity, which means that the FDA may not approve any other applications, including an NDA, to market the same drug for the same disease
or condition for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug
exclusivity or where the manufacturer is unable to assure sufficient product quantity.
In November 2023, the FDA granted Orphan Drug Designation to AL102
for the treatment of desmoid tumors, and we may seek additional Orphan Drug Designations for our product candidates. There can be no assurances
that we will be able to obtain such designations. Even if we, or any future collaborators, obtain orphan drug designation for a product
candidate, we, or they, may not be able to obtain or maintain orphan drug exclusivity for that product candidate. Further, even if we,
or any future collaborators, obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from
competition because different drugs with different active ingredients may be approved for the same disease or condition. Even after an
orphan drug is approved, the FDA can subsequently approve the same drug or biologic for the same disease or condition if the FDA concludes
that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care,
or the manufacturer of the product with orphan exclusivity is unable to maintain sufficient product quantity. Orphan drug designation
neither shortens the development or regulatory review time of a drug nor gives the drug or biologic any advantage in the regulatory review
or approval process.
If we are required by the FDA to obtain approval of a companion
diagnostic in connection with approval of any of our product candidates, and we do not obtain, or face delays in obtaining, FDA approval
of such companion diagnostic, we will not be able to commercialize such product candidate and our ability to generate revenue will be
materially impaired.
According to FDA guidance, if the FDA determines that a companion diagnostic
device is essential to the safe and effective use of a novel therapeutic product or indication, the FDA generally will not approve the
therapeutic product or new therapeutic product indication if the companion diagnostic is not also approved or cleared for that indication.
Depending on the data from our clinical trials, we may decide to collaborate with diagnostic companies during our clinical trial enrollment
process to help identify patients with characteristics that we believe will be most likely to respond to our product candidates. If a
satisfactory companion diagnostic is not commercially available in this situation, we may be required to develop or obtain such test,
which would be subject to regulatory approval requirements. The process of obtaining or creating such diagnostic is time consuming and
costly.
Companion diagnostics are developed in conjunction with clinical programs
for the associated product and are subject to regulation as medical devices by the FDA and comparable foreign regulatory authorities,
and the FDA has generally required premarket approval of companion diagnostics for cancer therapies. The approval or clearance of a companion
diagnostic as part of the therapeutic product’s further labeling limits the use of the therapeutic product to only those patients
who express the specific characteristic that the companion diagnostic was developed to detect.
If the FDA or a comparable foreign regulatory authority requires approval
or clearance of a companion diagnostic for any of our product candidates, whether before or after the product candidate obtains regulatory
approval, we and/or third-party collaborators may encounter difficulties in developing and obtaining approval or clearance for these companion
diagnostics. Any delay or failure by us or third-party collaborators to develop or obtain regulatory approval or clearance of a companion
diagnostic could delay or prevent approval or continued marketing of the relevant product. We or our collaborators may also experience
delays in developing a sustainable, reproducible and scalable manufacturing process for the companion diagnostic or in transferring that
process to commercial partners or negotiating insurance reimbursement plans, all of which may prevent us from completing our clinical
trials or commercializing our product candidates, if approved, on a timely or profitable basis, if at all.
Additional regulatory burdens and other risks and uncertainties
in foreign markets may limit our growth.
Our future growth may depend, in part, on our ability to engage in
development and commercialization efforts in foreign markets for which we may rely on strategic partnership with third parties. We will
not be permitted to market or promote any program or development candidate before we receive regulatory approval from the applicable regulatory
authority in a foreign market, and we may never receive such regulatory approval. To obtain separate regulatory approval in foreign countries,
we generally must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing,
among other things, clinical trials and commercial sales, pricing and distribution of a program or development candidate, and we cannot
predict success in these jurisdictions. If we obtain approval of any of our programs or development candidates and ultimately commercialize
any such program or development candidate in foreign markets, we would be subject to risks and uncertainties, including the burden of
complying with complex and changing foreign regulatory, tax, accounting and legal requirements and the reduced protection of intellectual
property rights in some foreign countries. Pricing flexibility may be limited in foreign markets which may further limit revenue.
Our business entails a significant risk of product liability,
which may not be sufficiently covered by our insurance.
As we move into conducting preclinical studies and clinical trials,
we will be exposed to significant product liability risks inherent in the development, testing, manufacturing and marketing of antibody
treatments. Product liability claims could delay or prevent completion of our development programs. If we succeed in marketing products,
such claims could result in an FDA investigation of the safety and effectiveness of our products, our manufacturing processes and facilities
or our marketing programs and potentially a recall of our products or more serious enforcement action, limitations on the approved indications
for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may
also result in decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion of management’s
time and our resources, substantial monetary awards to trial participants or patients and a decline in our stock price. Any insurance
we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability
insurance is becoming increasingly expensive. As a result, our partners or we may be unable to obtain sufficient insurance at a reasonable
cost to protect us against losses caused by product liability claims that could have a material and adverse effect on our business, financial
condition, results of operations and prospects.
Risks Related to Government Regulation
We are subject to stringent and evolving U.S. and foreign laws,
regulations, and rules, contractual obligations, industry standards, policies and other obligations related to data privacy and security.
Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or government enforcement actions;
private litigation (including class claims) and mass arbitration demands; fines and penalties; disruptions of our business operations;
adverse publicity; and other consequences that could negatively affect our operating results and business.
In the ordinary course of business, we collect, receive, store, process,
generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, process) personal
information and other sensitive information, including proprietary and confidential business data, trade secrets, intellectual property,
data we collect about trial participants in connection with clinical trials, and sensitive third-party data, Due to these data processing
activities, we and our current and potential collaborators are subject to numerous data privacy and security obligations, such as federal,
state, local and foreign laws and regulations, guidance, industry standards, external and internal privacy and security policies, contractual
requirements, and other obligations related to data privacy and security.
In the United States, numerous federal, state and local laws and regulations,
including federal health information privacy laws (e.g., the Health Insurance Portability and Accountability Act, or HIPAA, as amended
by the Health Information Technology for Economic and Clinical Health Act, or HITECH, state data breach notification laws, state health
information privacy laws, federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act),
and other similar laws (e.g., wiretapping laws), that govern the collection, use, disclosure and protection of health-related and
other personal information could apply to our operations or the operations of our collaborators. For example, HIPAA imposes specific requirements
relating to the privacy, security, and transmission of individually identifiable protected health information. We may obtain health information
from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security
requirements under HIPAA, or other data privacy and security laws. Depending on the facts and circumstances, we could be subject to criminal
penalties if we knowingly obtain, use, or disclose protected health information maintained by a HIPAA-covered entity in a manner that
is not authorized or permitted by HIPAA. However, determining whether protected health information has been handled in compliance with
applicable privacy standards and our contractual obligations can be complex and may be subject to changing interpretation. Many state
laws govern the data privacy and security of personal information and data in specified circumstances, are often not pre-empted by HIPAA,
and may have a more prohibitive effect than HIPAA, thus complicating compliance efforts. In the past few years, numerous U.S. states—including
California, Virginia, Colorado, Connecticut, and Utah—have enacted comprehensive privacy laws that impose certain obligations on
covered businesses, including providing specific disclosures in privacy notices and affording residents with certain rights concerning
their personal information. As applicable, such rights may include the right to access, correct, or delete certain personal information,
and to opt-out of certain data processing activities, such as targeted advertising, profiling, and automated decision-making. The exercise
of these rights may impact our business and ability to provide our products and services. Certain states also impose stricter requirements
for processing certain personal information, including sensitive information, such as conducting data privacy impact assessments. These
state laws allow for statutory fines for noncompliance. For example, the California Consumer Privacy Act of 2018, as amended by
the California Privacy Rights Act of 2020, or CPRA, and collectively, CCPA, applies to personal information of consumers, business representatives,
and employees who are California residents, and requires covered businesses to provide specific disclosures in privacy notices about such
businesses’ data collection, use and sharing practices, and provide such consumers certain rights concerning their personal information,
such as ways to opt-out of certain sales or transfers of personal information and other processing activities, and the right to access,
correct, or delete certain personal information. The CCPA provides for fines of up to $7,500 per intentional violation and allows private
litigants affected by certain data breaches to recover significant statutory damages. While there is currently an exception for protected
health information that is subject to HIPAA and clinical trial regulations, the CCPA increases compliance costs and potential liability
with respect to other personal information we maintain about California residents. Similar laws are being considered in several other
states, as well as at the federal and local levels, and we expect more states to pass similar laws in the future. While these states,
like the CCPA, also exempt some data processed in the context of clinical trials, these developments further complicate compliance efforts,
and increase legal risk and compliance costs for us and the third parties upon whom we rely.
Outside the United States, an increasing number of laws, regulations,
and industry standards govern data privacy and security. For example, the European Union’s General Data Protection Regulation, or EU GDPR, and the United Kingdom’s GDPR, or UK GDPR, and collectively, GDPR, impose strict requirements for processing personal information.
For example, under the GDPR, companies may face temporary or definitive bans on data processing and other corrective actions; fines of
up to 20 million Euros under the EU GDPR, 17.5 million pounds sterling under the UK GDPR or, in each case, 4% of annual global revenue,
whichever is greater; or private litigation related to processing of personal information brought by classes of data subjects or consumer
protection organizations authorized at law to represent their interests. Compliance with foreign data privacy and security laws and regulations,
such as the GDPR, should it become applicable to us, could require us to take on more onerous obligations in our contracts, restrict our
ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions.
Our employees and personnel use generative artificial
intelligence, or AI, technologies to perform their work, and the disclosure and use of personal information in generative AI
technologies is subject to various privacy laws and other privacy obligations. Governments have passed and are likely to pass
additional laws regulating generative AI. Our use of this technology could result in additional compliance costs, regulatory
investigations and actions, and lawsuits. If we are unable to use generative AI, it could make our business less efficient and
result in competitive disadvantages.
We also use AI and machine learning, or ML, technologies to
assist us in making certain decisions, which is regulated by certain data privacy and security laws. Due to inaccuracies or flaws in
the inputs, outputs, or logic of the AI/ML, the model could be biased and could lead us to make decisions that could bias certain
individuals (or classes of individuals), and adversely impact their rights, employment, and ability to obtain certain pricing,
products, services, or benefits.
In addition to data privacy and security laws, we are contractually
subject to industry standards adopted by industry groups, and, we are, or may become subject to such obligations in the future. We are
also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be
successful. For example, certain data privacy and security laws, such as the CCPA, require our customers to impose specific contractual
restrictions on their service providers. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information,
as well as the providers who share this information with us, may contractually limit our ability to use and disclose personal information.
We publish privacy policies, marketing materials and other statements,
such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security. If these policies,
materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices,
we may be subject to investigation, enforcement actions by regulators or other adverse consequences.
Obligations related to data privacy and security (and consumers’
data privacy expectations) are quickly changing, becoming increasingly stringent, and creating uncertainty. Additionally, these obligations
may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for
and complying with these obligations requires us to devote significant resources, which may necessitate changes to our services, information
technologies, systems, and practices and to those of any third parties that process personal information on our behalf.
We may at times fail (or be perceived to have failed) in our efforts
to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely
may fail to comply with such obligations, which could negatively impact our business operations. Failure to comply with U.S. and foreign
data privacy and security laws and regulations could result in government enforcement actions (e.g., investigations, fines, penalties,
audits, inspections, and similar); litigation (including class claims) or mass arbitration demands; additional reporting requirements
and/or oversight; bans on processing personal information; orders to destroy or not use personal information; and imprisonment of company
officials. Claims that we have violated individuals’ privacy rights, failed to comply with data privacy and security laws, or breached
our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend and could result in adverse
publicity that could harm our business. Plaintiffs have become increasingly more active in bringing privacy-related claims against companies,
including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation
basis, and, if viable, carry the potential for monumental statutory damages, depending on the volume of data and the number of violations.
Any of the aforementioned events could have a material adverse effect
on our reputation, business, or financial condition, including but not limited to: interruptions or stoppages in our business operations
(including, as relevant, clinical trials); inability to process personal information or to operate in certain jurisdictions; limited ability
to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial
changes to our business model or operations.
Health care legislative reform measures may have a material adverse
effect on our business and results of operations.
In the United States, there have been and continue to be a number of
legislative initiatives to contain health care costs. For example, in March 2010, the ACA was signed into law. This legislation changed
the system of health care insurance and benefits and was intended to broaden access to health care coverage, enhance remedies against
fraud and abuse, add transparency requirements for the health care and health insurance industries, impose taxes and fees on the health
care industry, impose health policy reforms, and control costs. This law also contains provisions that would affect companies in the pharmaceutical
industry and other health care related industries by imposing additional costs and changes to business practices. Since its enactment,
there have been judicial and congressional challenges to certain aspects of the ACA. For example, on June 17, 2021, the U.S. Supreme
Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the individual mandate
was repealed by Congress. In addition, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (IRA) into
law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through
plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly
lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. The uncertainty around the future
of the ACA and other health reform measures, and in particular the impact to reimbursement levels, may lead to uncertainty or delay in
the purchasing decisions of our customers, which may in turn negatively impact on our product sales. We continue to evaluate the effect
that the ACA and any other health reform measures could have on our business. Additional federal and state legislative and regulatory
developments are likely, and we expect ongoing initiatives in the United States to increase pressure on drug and biologic pricing and
reimbursement. Such reforms could have an adverse effect on anticipated revenues from development candidates that we may successfully
develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop development
candidates.
Further, among other things, the Inflation Reduction Act of 2022, or
the IRA, has multiple provisions that may impact the prices of drug products that are both sold into the Medicare program and throughout
the United States. Starting in 2023, CMS began to implement the program in which a manufacturer of a drug or biological product covered
by Medicare Parts B or D must pay a rebate to the federal government if the drug product’s price increases faster than the rate
of inflation. This calculation is made on a drug product by drug product basis and the amount of the rebate owed to the federal government
is directly dependent on the volume of a drug product that is paid for by Medicare Parts B or D. Additionally, starting in payment year
2026, the Centers for Medicare & Medicaid Services, or CMS, will negotiate drug prices annually for a select number of single
source Part D drugs without generic or biosimilar competition. On August 29, 2023, the list of the first ten drugs that will
be subject to price negotiations was published, although the Medicare drug price negotiation program is currently subject to legal challenges.
CMS will also negotiate drug prices for a select number of Part B drugs starting for payment year 2028. If a drug product is selected
by CMS for negotiation, it is expected that the revenue generated from such drug will decrease. CMS has and will continue to issue and
update guidance as these programs are implemented. The IRA permits HHS to implement many of these provisions through guidance, as opposed
to regulation, for the initial years. HHS has and will continue to issue and update guidance as these programs as implemented. It is unclear
how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry.
Further, on February 14, 2023, HHS released a report outlining
three new models for testing by the Centers for Medicare & Medicaid Services Innovation Center which will be evaluated on their
ability to lower the cost of drugs, promote accessibility, and improve quality of care. It is unclear whether the models will be utilized
in any health reform measures in the future. Additionally, on December 7, 2023, the Biden administration announced an initiative
to control the price of prescription drugs through the use of march-in rights under the Bayh-Dole Act. On December 8, 2023, the National
Institute of Standards and Technology published for comment a Draft Interagency Guidance Framework for Considering the Exercise of March-In
Rights which for the first time includes the price of a product as one factor an agency can use when deciding to exercise march-in rights.
While march-in rights have not previously been exercised, it is uncertain if that will continue under the new framework.
Individual states in the United States have also increasingly
passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. For example, on
January 5, 2024, the FDA approved Florida’s Section 804 Importation Program, or SIP, proposal to import certain
drugs from Canada for specific state healthcare programs. It is unclear how this program will be implemented, including which drugs
will be chosen, and whether it will be subject to legal challenges in the United States or Canada. Other states have also submitted
SIP proposals that are pending review by the FDA. Any such approved importation plans, when implemented, may result in lower drug
prices for products covered by those programs.
Those new laws and initiatives may result in additional reductions
in Medicare and other health care funding, which could have a material adverse effect on our future customers and accordingly, our financial
operations. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or
if we are not able to maintain regulatory compliance, we may lose any marketing approval that we otherwise may have obtained and we may
not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.
We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative or executive action, either in the United States or abroad. We expect that additional
state and federal health care reform measures will be adopted in the future, any of which could limit the amounts that federal and state
governments will pay for health care products and services, which could result in reduced demand for our development candidates or additional
pricing pressures, or otherwise adversely impact our operations.
If we or our existing or potential future partners, manufacturers
or other service providers fail to comply with health care laws and regulations, we or they could be subject to enforcement actions, which
could affect our ability to develop, market and sell our products and may harm our reputation.
Health care providers and third-party payors, among others, will play
a primary role in the prescription and recommendation of any programs or development candidates for which we obtain marketing approval.
Our current and future arrangements with third-party payors, providers and customers, among others, may expose us to broadly applicable
fraud and abuse and other health care laws and regulations that may constrain the business or financial arrangements and relationships
through which we market, sell and distribute our development candidates for which we obtain marketing approval. These laws and regulations,
include:
| • | the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare
item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the
other. Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution,
the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing
or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Further, a person or entity does not
need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
| • | federal civil and criminal false claims laws, including the federal False Claims Act, which prohibit any person from knowingly presenting,
or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement
to get a false claim paid. Over the past few years, several pharmaceutical and other healthcare companies have been prosecuted under these
laws for a variety of alleged promotional and marketing activities, including: allegedly providing free items and services, sham consulting
fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were
then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to government
healthcare programs for non-covered, off-label uses; and submitting inflated best price information to the Medicaid Drug Rebate Program
to reduce liability for Medicaid rebates. In addition, the government may assert that a claim including items or services resulting from
a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act; |
| • | HIPAA, which prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare
benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, of any of the money or property owned
by, or under the custody or control of, any healthcare benefit program, regardless or the payor (e.g., public or private), willfully obstructing
a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or
making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits,
items or services; like the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or
specific intent to violate it in order to have committed a violation; |
| • | HIPAA, as amended by HITECH, and their respective implementing regulations, including the Final Omnibus Rule which impose requirements
relating to the privacy, security and transmission of individually identifiable health information on certain health care providers, health
care clearinghouses, and health plans, known as covered entities, as well as independent contractors, or agents of covered entities that
create, receive or obtain individually identifiable health information in connection with providing a service on behalf of a covered entity,
known as a business associates, and their covered subcontractors; |
| • | the federal transparency requirements known as the federal Physician Payments Sunshine Act, created as part of the Patient Protection
and Affordable Care Act, or ACA, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available
under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the government
information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists,
podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals,
as well as ownership and investment interests held by physicians and their immediate family members; and |
| • | analogous local, state and foreign laws and regulations such as state anti-kickback and false claims laws, that may apply to sales
or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including
private insurers; some state laws that require biotechnology companies to comply with the industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related
to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; some state laws that
require biotechnology companies to report information on the pricing of certain drug products; and some state and local laws require the
registration or pharmaceutical sales representatives. |
Ensuring that our future business arrangements with third parties comply
with applicable health care laws and regulations could involve substantial costs. The shifting compliance environment and the need to
build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements
increases the possibility that a health care company may run afoul of one or more of the requirements. It is possible that governmental
authorities will conclude that our business practices, including certain advisory agreements we have entered into with physicians who
are paid, in part, in the form of stock or stock options, do not comply with current or future statutes, regulations, agency guidance
or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation
of any such requirements, we may be subject to significant penalties, including criminal and civil monetary penalties, damages, fines,
individual imprisonment, disgorgement, contractual damages, reputational harm, exclusion from participation in government health care
programs, integrity obligations, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal
of pre-marketing product approvals, private qui tam actions brought by individual whistleblowers in the name of the government, refusal
to allow us to enter into supply contracts, including government contracts, additional reporting requirements and oversight if subject
to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment
or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
We intend to develop and implement a comprehensive corporate compliance
program prior to the commercialization of our development candidates. Although effective compliance programs can mitigate the risk of
investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged
or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention from the operation
of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations
may be costly to us in terms of money, time and resources. Moreover, federal, state or foreign laws or regulations are subject to change,
and while we, our collaborators, manufacturers and/or service providers currently may be compliant, that could change due to changes in
interpretation, prevailing industry standards or other reasons.
Any
programs or development candidates for which we intend to seek approval as biologic products may face competition
sooner than anticipated.
Even if we are successful in achieving regulatory approval to commercialize
a program or development candidate ahead of our competitors, our development candidates may face competition from biosimilar or generic
products. In the United States, our antibody-based programs and development candidates are expected to be regulated by the FDA as biological
products, and we intend to seek approval for these development candidates pursuant to the BLA pathway. The Biologics Price Competition
and Innovation Act of 2009, or BPCIA, created an abbreviated pathway for FDA approval of biosimilar and interchangeable biological products
based on a previously licensed reference product. Under the BPCIA, an application for a biosimilar biological product cannot be approved
by the FDA until 12 years after the original reference biological product was approved under a BLA. The law is complex and is still being
interpreted and implemented by the 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 the FDA, any such processes could have a material
adverse effect on the future commercial prospects for our programs and development candidates.
We believe that any of our development candidates approved as a biological
product under a BLA should qualify for the 12-year period of exclusivity available to reference biological products. However, there is
a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our development
candidates to be reference biological products pursuant to its interpretation of the exclusivity provisions of the BPCIA for competing
products, potentially creating the opportunity for generic follow-on biosimilar competition sooner than anticipated. Moreover, the extent
to which a biosimilar product, 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 including whether a future competitor seeks an interchangeability designation for a biosimilar of one of our products.
Under the BPCIA as well as state pharmacy laws, only interchangeable biosimilar products are considered substitutable for the reference
biological product without the intervention of the health care provider who prescribed the original biological product. However, as with
all prescribing decisions made in the context of a patient-provider relationship and a patient’s specific medical needs, health
care providers are not restricted from prescribing biosimilar products in an off-label manner. In addition, a competitor could decide
to forego the abbreviated approval pathway available for biosimilar products and to submit a full BLA for product licensure after completing
its own preclinical studies and clinical trials. In such a situation, any exclusivity for which our development candidates may be eligible
under the BPCIA would not prevent the competitor from marketing its biological product as soon as it is approved.
In Europe, the European Commission has granted marketing authorizations
for several biosimilar products pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over
the past few years. In addition, companies may be developing biosimilar products in other countries that could compete with our products,
if approved. If competitors are able to obtain marketing approval for biosimilars referencing our development candidates, if approved,
our future products may become subject to competition from such biosimilars, whether or not they are designated as interchangeable, with
the attendant competitive pressure and potential adverse consequences. Such competitive products may be able to immediately compete with
us in each indication for which our development candidates may have received approval.
If
the FDA, EMA or other comparable foreign regulatory authorities approve generic versions of any of our small molecule
drug candidates that receive marketing approval, or such authorities do not grant our products appropriate periods of exclusivity before
approving generic versions of those products, the sales of our products, if approved, could be adversely affected.
Once an NDA is approved, the product covered thereby becomes a “reference
listed drug” in the FDA’s publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly
known as the Orange Book. Manufacturers may seek approval of generic versions of reference listed drugs through submission of abbreviated
new drug applications, or ANDAs, in the United States. In support of an ANDA, a generic manufacturer need not conduct clinical trials
to assess safety and efficacy. Rather, the sponsor generally must show that its product has the same active ingredient(s), dosage form,
strength, route of administration and conditions of use or labelling as the reference listed drug and that the generic version is bioequivalent
to the reference listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic products may be significantly
less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer
them at lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product
or reference listed drug is typically lost to the generic product.
The FDA may not approve an ANDA for a generic product until any applicable
period of non-patent exclusivity for the reference listed drug has expired. The Federal Food, Drug and Cosmetic Act provides a period
of five years of non-patent exclusivity for a new drug containing a new chemical entity. Specifically, in cases where such exclusivity
has been granted, an ANDA may not be submitted to the FDA until the expiration of five years unless the submission is accompanied by a
Paragraph IV certification that a patent covering the reference listed drug is either invalid or will not be infringed by the generic
product, in which case the sponsor may submit its application four years following approval of the reference listed drug.
Generic drug manufacturers may seek to launch generic products following
the expiration of any applicable exclusivity period we obtain if our small molecule product candidates are approved, even if we still
have patent protection for such products. Competition that our products could face from generic versions of our products could materially
and adversely affect our future revenue, profitability, and cash flows and substantially limit our ability to obtain a return on the investments
we have made in those product candidates.
Disruptions at the FDA, the SEC and other government agencies
caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel,
or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, or otherwise
prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively
impact our business.
The ability of the FDA to review and approve new products can be affected
by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment
of user fees, and statutory, regulatory, and policy changes, and other events that may otherwise affect the FDA’s ability to perform
routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of
the SEC and other government agencies on which our operations may rely, including those that fund research and development activities
is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary
for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example,
in recent years, including beginning on December 22, 2018, the U.S. government shut down several times and certain regulatory agencies,
such as the FDA and the SEC, had to furlough critical employees and stop critical activities.
If a prolonged government shutdown occurs, or if global health concerns
prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it
could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material
adverse effect on our business. Further, in our operations as a public company, future government shutdowns or delays could impact our
ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Even if we receive regulatory approval of our development candidates,
we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense,
and we may be subject to penalties if we fail to comply with regulatory requirements.
If our development candidates are approved, they will be subject to
ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct
of post- marketing studies, and submission of safety, efficacy, and other post-market information, including both federal and state requirements
in the United States and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturers’ facilities must comply with
extensive FDA, and comparable foreign regulatory authority, requirements, including ensuring that quality control and manufacturing procedures
conform to cGMP regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess
compliance with cGMP and adherence to commitments made in any biologics license application, or BLA, other marketing applications, and previous
responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time, money, and effort in
all areas of regulatory compliance, including manufacturing, production, and quality control.
Any regulatory approvals that we receive for our development candidates
may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or
contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the
safety and efficacy of the program and development candidate. The FDA may also require a Risk Evaluation and Mitigation Strategy, or REMS
program as a condition of approval of our development candidates, which could entail requirements for long-term patient follow-up, a medication
guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries
and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our development candidates,
we will have to comply with requirements including submissions of safety and other post-marketing information and reports, registration,
as well as continued compliance with cGMP and GCP for any clinical trials that we conduct post-approval.
The FDA strictly regulates marketing, labeling, advertising, and promotion
of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions
of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses,
and a company that is found to have improperly promoted off-label uses may be subject to significant liability.
Failure to comply with regulatory requirements, may result in revisions
to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks;
or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other
things:
| • | restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
| • | fines, warning letters or other enforcement-related letters or clinical holds on post-approval clinical trials; |
| • | refusal of the FDA to approve pending BLAs or supplements to approved BLAs, or suspension or revocation of product approvals; |
| • | product seizure or detention, or refusal to permit the import or export of products; |
| • | injunctions or the imposition of civil or criminal penalties; and |
| • | consent decrees, corporate integrity agreements, debarment, or exclusion from federal health care programs; or mandated modification
of promotional materials and labeling and the issuance of corrective information. |
The policies of the FDA and of other regulatory authorities may change
and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our development candidates.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action,
either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements
or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and
we may not achieve or sustain profitability.
Even if we are able to commercialize any program or development
candidate, the program and development candidate may become subject to unfavorable pricing regulations or third-party coverage and reimbursement
policies, which would harm our business.
We cannot be sure that coverage and reimbursement will be available
for, or accurately estimate the potential revenue from, our development candidates or assure that coverage and reimbursement will be available
for any product that we may develop. The regulations that govern marketing approvals, pricing and reimbursement for new drug and biological
products vary widely from country to country. Some countries require approval of the sale price of a drug or biologic before it can be
marketed. In many countries, the pricing review period begins after marketing or product approval is granted. In some foreign markets,
prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. We are
monitoring these regulations as several of our programs move into later stages of development; however, many of our programs are currently
in the earlier stages of development and we will not be able to assess the impact of price regulations for a number of years. As a result,
we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that could delay our
commercial launch of the product and negatively impact any potential revenues we may be able to generate from the sale of the product
in that country and potentially in other countries due to reference pricing.
Our ability to commercialize any products successfully will also depend
in part on the extent to which coverage and adequate reimbursement/payment for these products and related treatments will be available
from government health administration authorities, private payors and other organizations. Even if we succeed in bringing one or more
products to the market, these products may not be considered medically necessary and/or cost-effective, and the amount reimbursed for
any products may be insufficient to allow us to sell our products on a competitive basis. At this time, we are unable to determine their
cost effectiveness or the likely level or method of reimbursement for our development candidates. Increasingly, third-party payors, such
as government and private insurance plans, are requiring that biotechnology companies provide them with predetermined discounts from list
prices and are seeking to reduce the prices charged or the amounts paid for biotechnology products. If the price we are able to charge
for any products we develop, or the payments provided for such products, is inadequate in light of our development and other costs, our
return on investment could be adversely affected.
We currently expect that any drugs we develop may need to be administered
under the supervision of a physician on an outpatient basis. Under currently applicable U.S. law, certain therapeutic products that are
not usually self-administered (such as most injectable drugs and biologics) may be eligible for coverage under the Medicare Part B
program if:
| • | they are incident to a physician’s services; |
| • | they are reasonable and necessary for the diagnosis or treatment of the illness or injury for which they are administered according
to accepted standards of medical practice; and |
| • | they have been approved by the FDA and meet other requirements of the statute. |
There may be significant delays in obtaining coverage for newly-approved
biologics, and coverage may be more limited than the indications for which the biologic is approved by the FDA or comparable foreign regulatory
authorities. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally
rely on third-party payors to pay all or part of the costs associated with their prescription medications. Patients are unlikely to use
our products unless coverage is provided, and payment is adequate to cover all or a significant portion of the cost of our products. Therefore,
coverage and adequate payment is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards
that disfavor new products when more established or lower cost therapeutic alternatives are already available or subsequently become available.
Moreover, eligibility for coverage does not imply that any of our products, if approved, will be paid for in all cases or at a rate that
covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new drugs or biologics, if
applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement may be based on payments allowed
for lower-cost products that are already reimbursed, may be incorporated into existing payments for other services and may reflect budgetary
constraints or imperfections in Medicare data. Net prices for drugs or biologics may be reduced by mandatory discounts or rebates required
by government health care programs or private payors and by any future relaxation of laws that presently restrict imports of medicines
from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage
policy and payment limitations in setting their own reimbursement rates. However, no uniform policy requirement for coverage and reimbursement
for drug or biologic products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug and
biologic products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming
and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately,
with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Additionally,
we or our collaborators may develop companion diagnostic tests for use with our current and future potential development candidates. We
or our collaborators will be required to obtain coverage and reimbursement for these tests separate and apart from the coverage and reimbursement
we may seek for our current and future potential development candidates. Our inability to promptly obtain coverage and adequate reimbursement
rates from both government-funded and private payors for new products we develop and for which we obtain regulatory approval could adversely
affect our operating results, our ability to raise capital needed to commercialize products, and our overall financial condition.
We believe that the efforts of governments and third-party payors to
contain or reduce the cost of health care and legislative and regulatory proposals to broaden the availability of health care will continue
to affect the business and financial condition of pharmaceutical and biotechnology companies. A number of legislative and regulatory changes
in the health care system in the United States and other major health care markets have been proposed and/or adopted in recent years,
and such efforts have expanded substantially in recent years.
We are subject to U.S. and foreign anti-corruption and anti-money
laundering laws with respect to our operations and non-compliance with such laws can subject us to criminal or civil liability and harm
our business.
We are subject to the FCPA, the U.S. domestic bribery statute contained
in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and possibly other state and national anti-bribery and anti-money laundering
laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees,
agents, third-party intermediaries, joint venture partners and collaborators from authorizing, promising, offering or providing, directly
or indirectly, improper payments or benefits to recipients in the public or private sector. We interact with officials and employees of
government agencies and government-affiliated hospitals, universities and other organizations. In addition, we may engage third-party
intermediaries to promote our clinical research activities abroad or to obtain necessary permits, licenses and other regulatory approvals.
We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives,
contractors, partners and agents, even if we do not explicitly authorize or have actual knowledge of such activities.
We adopted a Code of Business Conduct and Ethics and implemented training
programs, policies and procedures to ensure compliance with such code. The Code of Business Conduct and Ethics mandates compliance with
the FCPA and other anti-corruption laws applicable to our business throughout the world. However, we cannot assure you that our employees
and third-party intermediaries will comply with this code or such anti-corruption laws. Noncompliance with anti-corruption and anti-money
laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions,
disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension or debarment from contracting
with certain persons, the loss of export privileges, reputational harm, adverse media coverage and other collateral consequences. If any
subpoenas, investigations or other enforcement actions are launched, or governmental or other sanctions are imposed, or if we do not prevail
in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed.
In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources
and significant defense and compliance costs and other professional fees. In certain cases, enforcement authorities may even cause us
to appoint an independent compliance monitor which can result in added costs and administrative burdens.
Risks Related to Manufacturing, Commercialization and Reliance on
Third Parties
If we choose to pursue collaborations and other strategic transactions,
we may not be able to enter into such transactions on acceptable terms, if at all, which could adversely affect our development and commercialization
activities, impact our cash position, increase our expense, and present significant distractions to our management.
From time to time, we may consider strategic transactions, such as
the Asset Purchases, collaborations like our Collaboration Agreement with AbbVie, the Zentalis License Agreement, acquisitions of companies
like the merger with Morphimmune, other asset purchases, joint ventures and out- or in-licensing. For example, we will evaluate and, if
strategically attractive, may seek to enter into collaborations, including with biotechnology or biopharmaceutical companies or healthcare
institutions. The competition for partners is intense, and the negotiation process is time-consuming and complex. If we desire to enter
into strategic transactions but are not able to do so, we may not have access to the required liquidity or expertise to further develop
our development candidates, our discovery engine, Targeted Effector and ADC platforms. Any such collaboration, or other strategic transaction,
may require us to incur non-recurring or other charges, increase our near- and long-term expenditures and pose significant integration
or implementation challenges or disrupt our management or business. We may acquire additional technologies and assets, form strategic
alliances or create joint ventures with third parties that we believe will complement or augment our existing business, but we may not
be able to realize the benefit of acquiring such assets. Conversely, any new collaboration that we do enter into may be on terms that
are not optimal for us. These transactions would entail numerous operational and financial risks, including:
| • | exposure to unknown liabilities and higher-than-expected collaboration, acquisition or integration costs, write-downs of assets or
goodwill or impairment charges, increased amortization expenses; and |
| • | disruption of our business and diversion of our management’s time and attention in order to manage a collaboration or develop
acquired products, programs or technologies, including impairment of relationships with key suppliers, manufacturers or customers of any
acquired business due to changes in management and ownership. |
Accordingly, although there can be no assurance that we will undertake
or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing
or other risks and our business could be materially harmed by such transactions. Conversely, any failure to enter any collaboration or
other strategic transaction that would be beneficial to us could delay the development and potential commercialization of our development
candidates and have a negative impact on the competitiveness of any program or development candidate that reaches market.
In addition, to the extent that any of our current or potential future
partners were to terminate a collaboration agreement, we may be forced to independently develop our development candidates, including
funding preclinical studies or clinical trials, assuming marketing and distribution costs and maintaining, enforcing and defending intellectual
property rights, or, in certain instances, abandoning any program or development candidate altogether, any of which could result in a
change to our business plan and materially harm our business, financial condition, results of operations and prospects.
If third parties on which we intend to rely to conduct our current
and future preclinical and clinical studies do not perform as contractually required, fail to satisfy regulatory or legal requirements
or miss expected deadlines, our programs could be delayed with material and adverse impacts on our business and financial condition.
We intend to rely on third-party clinical investigators, CROs, clinical
data management organizations and consultants to design, conduct, supervise and monitor certain preclinical studies and any clinical trials.
Because we intend to rely on these third parties and will not have the ability to conduct certain preclinical studies or clinical trials
independently, we will have less control over the timing, quality and other aspects of such preclinical studies and clinical trials than
we would have had we conducted them on our own. These investigators, CROs and consultants will not be our employees and we will have limited
control over the amount of time and resources that they dedicate to our programs. These third parties may have contractual relationships
with other entities, some of which may be our competitors, which may draw time and resources from our programs. The third parties with
which we may contract might not be diligent, careful or timely in conducting our preclinical studies or clinical trials, resulting in
the preclinical studies or clinical trials being delayed or unsuccessful.
The FDA requires certain preclinical studies to be conducted in accordance
with good laboratory practices and clinical trials must be conducted in accordance with GCPs, including for designing, conducting, recording
and reporting the results of preclinical studies and clinical trials to ensure that data and reported results are credible and accurate
and that the rights, integrity and confidentiality of clinical trial participants are protected. Our reliance on third parties that we
do not control will not relieve us of these responsibilities and requirements. Any adverse development or delay in our clinical trials
could have a material and adverse impact on our commercial prospects and may impair our ability to generate revenue.
Because we may rely on third parties for manufacturing, supply
and testing, some of which may be sole source vendors, for preclinical and clinical development materials and commercial supplies, our
supply may become limited or interrupted or may not be of satisfactory quantity or quality.
We may rely on third-party contract manufacturers for our preclinical
and future clinical trial product materials and commercial supplies. We do not intend to produce any meaningful quantity of materials
needed for preclinical and clinical development through our internal resources, and we do not currently own manufacturing facilities for
producing such supplies. While we intend to try to avoid sole-source arrangements with any of our manufacturing, supply and testing vendors,
it may not always be possible to do so. We cannot assure you that our preclinical or future clinical development product supplies and
commercial supplies will not be limited or interrupted, especially with respect to any sole source third-party manufacturing and supply
partners or will be of satisfactory quality or continue to be available at acceptable prices. In particular, any replacement of our manufacturers
could require significant effort and expertise because there may be a limited number of qualified replacements.
The manufacturing process for a program or development candidate is
subject to FDA and other regulatory authority review. Suppliers and manufacturers must meet applicable manufacturing requirements and
undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with regulatory standards,
such as cGMP. In the event that any of our future manufacturers fails to comply with such requirements or to perform its obligations to
us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other
reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or
enter into an agreement with another third party, which we may not be able to do on reasonable terms, or at all. In some cases, the technical
skills or technology required for manufacture may be unique or proprietary to the original manufacturer and we may have difficulty transferring
such skills or technology to another third party and a feasible alternative may not exist. These factors would increase our reliance on
such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our materials.
If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities
and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification
of a new manufacturer could negatively affect our ability to develop in a timely manner or within budget.
If we are unable to obtain or maintain third-party manufacturing for
any program or development candidate, or to do so on commercially reasonable terms, we may not be able to complete our development and
commercialization efforts successfully. Our or a third party’s failure to execute on our manufacturing requirements and comply with
cGMP could adversely affect our business in a number of ways, including:
| • | an inability to initiate or continue clinical trials; |
| • | delay in submitting regulatory applications, or receiving regulatory approvals; |
| • | loss of the cooperation of a potential future partner; |
| • | subjecting third-party manufacturing facilities or our potential future manufacturing facilities to additional inspections by regulatory
authorities; |
| • | requirements to cease distribution or to recall batches; and |
| • | in the event of approval to market and commercialize a product, an inability to meet commercial demands. |
We may be unable to successfully scale manufacturing in sufficient
quality and quantity, which would delay or prevent us from completing our development and commercialization efforts, if any.
In order to conduct our research and development efforts, including
clinical trials, for our development candidates, we will need to manufacture large quantities. If any programs or development candidates
are commercialized, we will need to scale up our manufacturing efforts even further. We currently expect to continue to use third parties
for our manufacturing needs, as we do not currently have, nor do we currently intend to establish, our own manufacturing capacity. Our
manufacturing partners may be unable to successfully increase the manufacturing capacity for any program or development candidate in a
timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities and our manufacturers may
fail to perform under their contracts with us, which could result in an unexpected need to change manufacturers. If we or our manufacturing
partners are unable to successfully scale the manufacture at any stage, in sufficient quality and quantity, the development, testing and
clinical trials of that program or development candidate may be delayed or infeasible, and regulatory approval or commercial launch of
any potential resulting product may be delayed or not obtained, which could significantly harm our business.
Our significant reliance on third-party vendors could impair
our ability to implement our business plan.
We rely on, and expect to continue to rely on, third-party vendors
for many aspects of our business. We depend on these third parties, and likely will continue to depend on them, to perform their obligations
in a timely manner consistent with contractual and regulatory requirements. We also at times need to rely, and may continue to need to
rely, on certain vendors as our sole source for research, development, manufacturing or other services, establishing additional or replacement
sole source vendors, if required, may not be accomplished quickly. In addition, these vendors may now or in the future partner with and
conduct services for third parties developing in enabling technologies that are competitive with our platform and/or current or future
development candidates. If we are unable to make arrangements with a vendor for a particular need, or maintain our relationship with that
vendor, on commercially reasonable terms, we may not be able to develop and commercialize our programs or development candidates successfully
or operate our business as we intend, which could harm our business, result of operations, financial condition and prospects.
A cyber-attack or breach of our information technology systems,
or those of the third parties’ upon which we rely, could cause adverse consequences, including but not limited to regulatory investigations
or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; and other adverse consequences.
In the ordinary course of business, we and the third parties upon which
we rely collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and
share (collectively, process) proprietary, confidential, and sensitive data, including our clinical trial data or personal information
(collectively, sensitive data).
Cyber-attacks, malicious internet-based activity, online and offline
fraud, and other similar activities threaten the confidentiality, integrity, and availability of our sensitive data and information technology
systems, and those of the third parties upon which we rely. Such threats are prevalent and continue to rise, are increasingly difficult
to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,”
organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported
actors.
Some actors now engage and are expected to continue to engage in cyber-attacks,
including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities.
During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these
attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to conduct
our business as presently conducted.
We and the third parties upon which we rely are subject to a variety
of evolving threats, including but not limited to social-engineering attacks (including through deep fakes, which may be increasingly
more difficult to identify as fake, and phishing attacks), malicious code (such as viruses and worms), malware (including as a result
of advanced persistent threat intrusions), denial-of-service attacks, credential stuffing, credential harvesting, personnel misconduct
or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or
other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, attacks enhanced or facilitated
by AI, and other similar threats.
In particular, severe ransomware attacks are becoming increasingly
prevalent and can lead to significant interruptions in our operations, ability to provide our products or services, loss of sensitive
data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack,
but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments.
Remote work has become more common and has increased risks to our information
technology systems and data, as more of our employees utilize network connections, computers and devices outside our premises or network,
including working at home, while in transit and in public locations.
Future or past business transactions (such as acquisitions or integrations)
could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities
present in acquired or integrated entities’ systems and technologies. Furthermore, we may discover security issues that were not
found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information
technology environment and security program.
We rely on third parties and technologies to operate critical business
systems to process sensitive data in a variety of contexts, including, without limitation, cloud-based infrastructure, data center facilities,
encryption and authentication technology, employee email, and other functions. Our ability to monitor these third parties’ information
security practices is limited, and these third parties may not have adequate information security measures in place. If the third parties
upon which we rely experience a security incident or other interruption, we could experience adverse consequences. While we may be entitled
to damages if the third parties upon which we rely fail to satisfy their privacy or security-related obligations to us, any award may
be insufficient to cover our damages, or we may be unable to recover such award. In addition, supply-chain attacks have increased in frequency
and severity, and we cannot guarantee that third parties’ infrastructure in our supply chain or our third-party partners’
supply chains have not been compromised.
While we have implemented security measures designed to protect against
security incidents, there can be no assurance that these measures will be effective. We take steps designed to detect, mitigate and remediate
vulnerabilities in our information security systems (such as our hardware and/or software, including that of third parties upon which
we rely), but we may not be able to detect, mitigate, and remediate all such vulnerabilities including on a timely basis. Further, we
may experience delays in developing and deploying remedial measures and patches designed to address identified vulnerabilities.
Any of the previously identified or similar threats could cause a security
incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss,
alteration, encryption, disclosure of, or access to our sensitive data or our information technology systems, or those of the third parties
upon whom we rely. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to
conduct our business as presently conducted. We may expend significant resources or modify our business activities (including our clinical
trial activities) to try to protect against security incidents. Certain data privacy and security obligations may require us to implement
and maintain specific security measures or industry-standard or reasonable security measures to protect our information technology systems
and sensitive data.
Applicable data privacy and security obligations may require us to
notify relevant stakeholders, including affected individuals, customers, regulators, and investors, of security incidents. Such disclosures
are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party
upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse
consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional
reporting requirements and/or oversight; restrictions on processing sensitive data (including personal information); litigation (including
class claims) and mass arbitration demands; indemnification obligations; negative publicity; reputational harm; monetary fund diversions;
diversion of management attention; interruptions in our operations (including availability of data); disputes with physicians and other
healthcare providers, clinical trial participants and our partners; increases in operating expenses; expenses or lost revenues or other
adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition, prospects
and cash flows.
Further, our contracts may not contain limitations of liability, and
even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities,
damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate
or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will
continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.
In addition to experiencing a security incident, third parties may
gather, collect, or infer sensitive data about us from public sources, data brokers, or other means that reveals competitively sensitive
details about our organization and could be used to undermine our competitive advantage or market position. Additionally, sensitive data
of the Company could be leaked, disclosed, or revealed as a result of or in connection with our employees’, personnel’s, or
vendors’ use of generative artificial intelligence technologies.
Our current laboratory operations are concentrated in two locations,
and we or the third parties upon whom we depend on may be adversely affected by natural or other disasters and our business continuity
and disaster recovery plans may not adequately protect us from a serious disaster.
Our current business operations are concentrated in the greater Seattle
and Philadelphia areas. Any unplanned event, such as flood, fire, explosion, extreme weather condition, medical epidemics, including any
potential effects from a pandemic, such as the COVID-19 pandemic, power shortage, telecommunication failure or other natural or manmade
accidents or incidents that result in us being unable to fully utilize our facilities or the manufacturing facilities of our third-party
contract manufacturers, or lose our repository of blood-based and other valuable laboratory samples, may have a material and adverse effect
on our ability to operate our business, particularly on a daily basis, and have significant negative consequences on our financial and
operating conditions. Loss of access to these facilities may result in increased costs, delays in the development efforts or interruption
of our business operations. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant
portion of our locations, that damaged critical infrastructure, such as our research facilities or the manufacturing facilities of our
third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for
us to continue our business for a substantial period of time. In addition, terrorist acts or acts of war targeted at the United States,
and specifically the greater Seattle and Philadelphia areas, could cause damage or disruption to us, our employees, facilities, partners
and suppliers. The disaster recovery and business continuity plan we have in place may prove inadequate in the event of a serious disaster
or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity
plans, which could have a material adverse effect on our business. As part of our risk management policy, we maintain insurance coverage
at levels that we believe are appropriate for our business. However, in the event of an accident or incident at these facilities, we cannot
assure you that the amounts of insurance will be sufficient to satisfy any damages and losses. If our facilities, or the manufacturing
facilities of our third-party contract manufacturers, are unable to operate because of an accident or incident or for any other reason,
even for a short period of time, any or all of our research and development programs may be harmed. Any business interruption may have
a material and adverse effect on our business and financial condition.
Risks Related to Our Intellectual Property
It is difficult and costly to protect our intellectual property
and our proprietary technologies, and we may not be able to ensure their protection.
Our success will depend in part on obtaining and maintaining patent
protection and trade secret protection for our targeted effector-based therapeutics, as well as on successfully defending these patents
against potential third-party challenges. Our ability to protect our targeted effector-based therapeutics from unauthorized making, using,
selling, offering to sell or importing by third parties is dependent on the extent to which we have rights under valid and enforceable
patents that cover these activities.
The patent positions of pharmaceutical, biotechnology and other life
sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain
unresolved and have in recent years been the subject of much litigation. Changes in either the patent laws or in interpretations of patent
laws in the United States and other countries may diminish the value of our intellectual property. Over the past decade, U.S. federal
courts have increasingly invalidated pharmaceutical and biotechnology patents during litigation often based on changing interpretations
of patent law. Further, the determination that a patent application or patent claim meets all the requirements for patentability is a
subjective determination based on the application of law and jurisprudence. The ultimate determination by the USPTO or by a court or other
trier of fact in the United States, or corresponding foreign national patent offices or courts, on whether a claim meets all requirements
of patentability cannot be assured. We cannot be certain that all relevant information has been identified. Accordingly, we cannot predict
the breadth of claims that may be allowed or enforced in our own patent portfolio.
We cannot provide assurances that any of our patent applications will
be found to be patentable, including over our own prior art publications or patent literature, or will issue as patents. Neither can we
make assurances as to the scope of any claims that may issue from our pending and future patent applications nor to the outcome of any
proceedings by any potential third parties that could challenge the patentability, validity or enforceability of our patent portfolio
in the United States or foreign jurisdictions. Any such challenge, if successful, could limit patent protection for our targeted effector-based
therapeutics and/or materially harm our business.
In addition to challenges during litigation, third parties can challenge
the validity of our patents in the United States using post-grant review and inter partes review proceedings, which some third
parties have been using to cause the cancellation of selected or all claims of issued patents of competitors. For a patent filed March 16,
2013 or later, a petition for post-grant review can be filed by a third party in a nine-month window from issuance of the patent. A petition
for inter partes review can be filed immediately following the issuance of a patent if the patent has an effective filing date
prior to March 16, 2013. A petition for inter partes review can be filed after the nine-month period for filing a post-grant
review petition has expired for a patent with an effective filing date of March 16, 2013 or later. Post-grant review proceedings
can be brought on any ground of invalidity, whereas inter partes review proceedings can only raise an invalidity challenge based
on published prior art and patents. These adversarial actions at the USPTO review patent claims without the presumption of validity afforded
to U.S. patents in lawsuits in U.S. federal courts and use a lower burden of proof than used in litigation in U.S. federal courts. Therefore,
it is generally considered easier for a competitor or third party to have a U.S. patent invalidated in a USPTO post-grant review or inter
partes review proceeding than invalidated in a litigation in a U.S. federal court. If any of our patents are challenged by a third
party in such a USPTO proceeding, there is no guarantee that we will be successful in defending the patent, which may result in a loss
of the challenged patent right to us.
The degree of future protection for our proprietary rights is uncertain
because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive
advantage. For example:
| • | we may not be able to generate sufficient data to support full patent applications that protect the entire breadth of developments
in one or more of our targeted effector-based therapeutics programs; |
| • | it is possible that one or more of our pending patent applications will not become an issued patent or, if issued, that the patent(s) claims
will have sufficient scope to protect our any one of targeted effector-based therapeutics, provide us with commercially viable patent
protection or provide us with any competitive advantages; |
| • | if our pending applications issue as patents, they may be challenged by third parties as invalid or unenforceable under United States
or foreign laws; |
| • | we may not successfully commercialize our targeted effector-based therapeutics, if approved, before our relevant patents expire; |
| • | we may not be the first to make the inventions covered by our patent portfolio; or |
| • | we may not develop additional proprietary technologies or targeted effector-based therapeutics that are separately patentable. |
In addition, to the extent that we are unable to obtain and maintain
patent protection for our targeted effector-based therapeutics, or in the event that such patent protection expires, it may no longer
be cost-effective to extend our portfolio by pursuing additional development of any of our targeted effector-based therapeutics for follow-on
indications.
Obtaining and maintaining our patent protection depends on compliance
with various procedural, document submission, fee payment and other requirements imposed by government patent agencies, and our patent
protection could be reduced or eliminated for non-compliance with these requirements.
In order to obtain and maintain our patent, we are required to pay
application fees, periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents or applications to
the USPTO and various government patent agencies outside of the United States over the lifetime of our owned and in-licensed patents or
applications and any patent rights we may own or in-license in the future. The USPTO and various non-U.S. government patent agencies require
compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. We employ
reputable law firms and other professionals to help us comply with these requirements, and we are also dependent on our licensors to take
the necessary action to comply with these requirements with respect to our in-licensed intellectual property. In many cases, an inadvertent
lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however,
in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss
of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar
or identical products or platforms, which could have a material adverse effect on our business prospects and financial condition.
Patent terms may not be able to protect our competitive position
for an adequate period of time with respect to our current or future targeted effector-based therapeutics.
Patents have a limited lifespan. In the United States, if all
maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional or
international Patent Corporation Treaty filing date. The patent term of a U.S. patent may be lengthened by patent term adjustment,
which compensates a patentee for administrative delays by the USPTO in granting a patent, or may be shortened if a patent is
terminally disclaimed over an earlier-filed patent.
Various extensions may be available, but the life of a patent, and
the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new commercial
products arising from our platforms, patents protecting such products might expire before or shortly after such products are commercialized.
In the United States, the Drug Price Competition and Patent Term Restoration
Act of 1984 permits a Patent Term Extension, or PTE, of up to five years beyond the normal expiration of the patent to compensate patent
owners for loss of enforceable patent term due to the lengthy regulatory approval process. A PTE grant cannot extend the remaining term
of a patent beyond a total of 14 years from the date of the product approval. Further, PTE may only be applied once per product, and only
with respect to an approved indication - in other words, only one patent (for example, covering the product itself, an approved
use of said product, or a method of manufacturing said product) can be extended by PTE. We anticipate applying for PTE in the United States.
Similar extensions may be available in other countries where we are prosecuting patents and we likewise anticipate applying for such extensions.
The granting of such patent term extensions is not guaranteed and is
subject to numerous requirements. We might not be granted an extension because of, for example, failure to apply within applicable periods,
failure to apply prior to the expiration of relevant patents or otherwise failure to satisfy any of the numerous applicable requirements.
In addition, to the extent we wish to pursue patent term extension based on a patent that we in-license from a third party, we would need
the cooperation of that third party. Moreover, the applicable authorities, including the FDA and the USPTO in the United States, and any
equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may
refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be
able to obtain approval of competing products following our patent expiration by referencing our clinical and preclinical data and launch
their product earlier than might otherwise be the case. If this were to occur, it could have a material adverse effect on our ability
to generate revenue.
Changes in U.S. patent law or the patent law of other countries
or jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our current or any future targeted
effector-based therapeutics.
The United States Congress is responsible for passing laws establishing
patentability standards. As with any laws, implementation is left to federal agencies and the federal courts based on their interpretations
of the laws. Interpretation of patent standards can vary significantly within the United States Patent and Trademark office, or the USPTO,
and across the various federal courts, including the U.S. Supreme Court. Recently, the Supreme Court has ruled on several patent cases,
generally limiting the types of inventions that can be patented. Further, there are open questions regarding interpretation of patentability
standards that the Supreme Court has yet to decisively address. Absent clear guidance from the Supreme Court, the USPTO has become increasingly
conservative in its interpretation of patent laws and standards.
In addition to increasing uncertainty with regard to our ability to
obtain patents in the future, the legal landscape in the U.S. has created uncertainty with respect to the value of patents. Depending
on any actions by Congress, and future decisions by the lower federal courts and the U.S. Supreme Court, along with interpretations by
the USPTO, the laws and regulations governing patents could change in unpredictable ways and could weaken our ability to obtain new patents
or to enforce our existing patents and patents that we might obtain in the future.
The U.S. Supreme Court has ruled on several patent cases in recent
years; these cases often narrow the scope of patent protection available to inventions in the biotechnology and pharmaceutical spaces.
For example, in Association for Molecular Pathology v. Myriad Genetics, Inc., or Myriad, the Supreme Court ruled that
a “naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated,” and
invalidated Myriad Genetics’ claims on the isolated BRCA1 and BRCA2 genes. To the extent that any of our patent application claims
are deemed to be directed to natural products, or to lack an inventive concept above and beyond an isolated natural product, a court may
decide the claims are directed to patent-ineligible subject matter and are invalid. The application of Myriad to biotechnology
inventions has continued to develop and may continue to change over time. Subsequent rulings in cases or guidance or procedures issued
by the USPTO relating to patent eligibility may have a negative impact on our business.
In Amgen Inc. v. Sanofi, or Amgen, the U.S. Supreme Court
held that certain of Amgen’s patent claims defined a class of antibodies by their function of binding to a particular antigen. The
Court further wrote that because the patent claims defined the claimed class of antibodies only by their function of binding to a particular
antigen, a skilled artisan would have to use significant trial and error to identify and make all of the molecules in that class. The
Court ultimately held that Amgen failed to properly enable its patent claims. Certain claims of our patent portfolio relate to broad classes
of therapeutic agents, antibodies or antigen binding fragments. To the extent that a court finds that the skilled artisan would need significant
trial and error to identify all the species in that class, the court may find the claims invalid under Amgen. Depending on future
actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations
governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents
and patents that we might obtain in the future.
Further, a new court system recently became operational in the European
Union. The Unified Patent Court, or UPC, began accepting patent cases on June 1, 2023. The UPC is a common patent court with jurisdiction
over patent infringement and revocation proceedings effective for multiple member states of the European Union. The broad geographic reach
of the UPC could enable third parties to seek revocation of any of our European patents in a single proceeding at the UPC rather than
through multiple proceedings in each of the individual European Union member states in which the European patent is validated. Under the
UPC, a successful revocation proceeding for a European Patent under the UPC would result in loss of patent protection in those European
Union countries. Accordingly, a single proceeding under the UPC could result in the partial or complete loss of patent protection in numerous
European Union countries. Such a loss of patent protection could have a material adverse impact on our business and our ability to commercialize
our technology and product candidates and, resultantly, on our business, financial condition, prospects and results of operations. Moreover,
the controlling laws and regulations of the UPC will develop over time and we cannot predict what the outcomes of cases tried before the
UPC will be. The case law of the UPC may adversely affect our ability to enforce or defend the validity of our European patents. Patent
owners have the option to opt-out their European Patents from the jurisdiction of the UPC, defaulting to pre-UPC enforcement mechanisms.
We have decided to opt out certain European patents and patent applications from the UPC. However, if certain formalities and requirements
are not met, our European patents and patent applications could be subject to the jurisdiction of the UPC. We cannot be certain that our
European patents and patent applications will avoid falling under the jurisdiction of the UPC, if we decide to opt out of the UPC.
We may not be able to protect our intellectual property rights
throughout the world, which could negatively impact our business.
Filing, prosecuting, enforcing and defending patents protecting our
current or future targeted effector-based therapeutics in all countries throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the United States can be less extensive than those in the United States. The requirements
for patentability may differ in certain countries, particularly in developing countries; thus, even in countries where we do pursue patent
protection, there can be no assurance that any patents will issue with claims that cover our targeted effector-based therapeutics.
Moreover, our ability to protect and enforce our intellectual property
rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, the laws of some foreign jurisdictions
do not protect intellectual property rights to the same extent as the laws in the United States and Europe. Many companies have encountered
significant difficulties in protecting and defending such rights in such jurisdictions. The legal systems of certain countries, including
certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating
to biotechnology, which could make it difficult for us to stop the infringement of our owned and in-licensed patents or the marketing
of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our owned or
in-licensed intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and could divert our
efforts and attention from other aspects of our business. Such proceedings could also put our owned or in-licensed patents at risk of
being invalidated or interpreted narrowly, could put our owned or in-licensed patent applications at risk of not issuing, and could provoke
third parties to assert claims against us or our licensors. We or our licensors may not prevail in any lawsuits or other adversarial proceedings
that we or our licensors initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly,
our and our licensors’ efforts to enforce such intellectual property and proprietary rights around the world may be inadequate to
obtain a significant commercial advantage from the intellectual property that we develop or in-license.
Further, many countries have compulsory licensing laws under which
a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against
government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially
diminish the value of its patents. If we or any of our licensors are forced to grant a license to third parties with respect to any patents
relevant to our business, our competitive position in the relevant jurisdiction may be impaired and our business prospects may be materially
adversely affected.
Proceedings to enforce our patent rights, whether successful or not,
could result in substantial costs and divert our efforts and resources from other aspects of our business. Further, such proceedings could
put our patents at risk of being invalidated, held unenforceable or interpreted narrowly; put our pending patent applications at risk
of not issuing; and 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. Furthermore, while we intend to protect our intellectual property
rights in major markets for our targeted effector-based therapeutics, we cannot ensure that we will be able to initiate or maintain similar
efforts in all jurisdictions in which we may wish to market our products, if approved. Accordingly, our efforts to protect our intellectual
property rights in such countries may be inadequate.
In order to protect our competitive position around our future
products, we may become involved in lawsuits to enforce our patents or other intellectual property, which could be expensive, time consuming
and unsuccessful and which may result in our patents being found invalid or unenforceable.
Competitors may seek to commercialize competitive products to our current
or future targeted effector-based therapeutics. In order to protect our competitive position, we may become involved in lawsuits asserting
infringement of our patents, or misappropriation or other violations of other of our intellectual property rights. Litigation is expensive
and time consuming and would likely divert the time and attention of our management and scientific personnel. There can be no assurance
that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years
before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the
attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
If we or our licensors file a patent infringement lawsuit against a
perceived infringer, such a lawsuit could provoke the defendant to counterclaim that we infringe their patents and/or that our patents
are invalid and/or unenforceable. In patent litigation in the United States, it is commonplace for a defendant to counterclaim alleging
invalidity and/or unenforceability. In any patent litigation there is a risk that a court will decide that the asserted patents are invalid
or unenforceable, in whole or in part, and that we do not have the right to stop the defendant from using the invention at issue. With
respect to a counterclaim of invalidity, we cannot be certain that there is no invalidating prior art of which we and the patent examiner
were unaware during prosecution. There is also a risk that, even if the validity of such patents is upheld, the court will construe the
patent claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds
that our patent claims do not cover the invention. If any of our patents are found invalid or unenforceable, or construed narrowly, our
ability to stop the other party from launching a competitive product would be materially impaired. Further, such adverse outcomes could
limit our ability to assert those patents against future competitors. Loss of patent protection would have a material adverse impact on
our business.
Even if we establish infringement of any of our patents by a competitive
product, a court may decide not to grant an injunction against further infringing activity, thus allowing the competitive product to continue
to be marketed by the competitor. It is difficult to obtain an injunction in U.S. litigation and a court could decide that the competitor
should instead pay us a “reasonable royalty” as determined by the court, and/or other monetary damages. A reasonable royalty
or other monetary damages may or may not be an adequate remedy. Loss of exclusivity and/or competition from a related product would have
a material adverse impact on our business.
Litigation often involves significant amounts of public disclosures.
Such disclosures could have a materially adverse impact on our competitive position or our stock prices. During any litigation we would
be required to produce voluminous records related to our patents and our research and development activities in a process called discovery.
The discovery process may result in the disclosure of some of our confidential information. There could also be public announcements of
the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results
to be negative, it could adversely affect the price of our common shares.
Litigation is inherently expensive, and the outcome is often uncertain.
Any litigation likely would substantially increase our operating losses and reduce our resources available for development activities.
Further, we may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors
may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater
financial resources. As a result, we may conclude that even if a competitor is infringing any of our patents, the risk-adjusted cost of
bringing and enforcing such a claim or action may be too high or not in the best interest of our company or our stockholders. In such
cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious
action or solution.
If in the future, we in-license any patent rights, we may not have
the right to file a lawsuit for infringement and may have to rely on a licensor to enforce these rights for us. If we are not able to
directly assert our licensed patent rights against infringers or if a licensor does not vigorously prosecute any infringement claims on
our behalf, we may have difficulty competing in certain markets where such potential infringers conduct their business, and our commercialization
efforts may suffer as a result.
Concurrently with an infringement litigation, third parties may also
be able to challenge the validity of our patents before administrative bodies in the United States or abroad. Such mechanisms include
re-examination, post grant review and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. Such proceedings
could result in revocation or amendment of our patents in such a way that they no longer cover our products, potentially negatively impacting
any concurrent litigation.
We may need to acquire or license additional intellectual property
from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
A third party may hold intellectual property, including patent rights,
that are important or necessary to the development of our targeted effector-based therapeutics. It may be necessary for us to use the
patented or proprietary technology of one or more third parties to commercialize our current and future targeted effector-based therapeutics.
The licensing and acquisition of third-party intellectual property
rights is a competitive area, and a number of more established companies may pursue strategies to license or acquire third-party intellectual
property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size,
cash resources and greater clinical development. If we are unable to acquire such intellectual property outright, or obtain licenses to
such intellectual property from such third parties when needed or on commercially reasonable terms, our ability to commercialize any of
our targeted effector-based therapeutics, if approved, would likely be delayed or we may have to abandon development of that targeted
effector-based therapeutic and our business and financial condition could suffer. Further, we may be required to expend significant time
and resources to redesign our targeted effector-based therapeutics or the methods for manufacturing them, or to develop or license replacement
technology, all of which may not be commercially or technically feasible. In such events, there could be a material adverse effect on
our ability to commercialize and our business and financial condition.
If we in-license additional targeted effector-based therapeutics in
the future, we might become dependent on proprietary rights from third parties with respect to those targeted effector-based therapeutics.
Any termination of such licenses could result in the loss of significant rights and would cause material adverse harm to our ability to
develop and commercialize any targeted effector-based therapeutics subject to such licenses. Even if we are able to in-license any such
necessary intellectual property, it could be on nonexclusive terms, including with respect to the use, field or territory of the licensed
intellectual property, thereby giving our competitors and other third parties access to the same intellectual property licensed to us.
In-licensing IP rights could require us to make substantial licensing and royalty payments. Patents licensed to us could be put at risk
of being invalidated or interpreted narrowly in litigation filed by or against our licensors or another licensee or in administrative
proceedings. If any in-licensed patents are invalidated or held unenforceable, we may not be able to prevent competitors or other third
parties from developing and commercializing competitive products.
We may not have the right to control the prosecution, maintenance,
enforcement or defense of patents and patent applications that we license from third parties. In such cases, we would be reliant on the
licensor to take any necessary actions. We cannot be certain that such licensor would act with our best interests in mind, or in compliance
with applicable laws and regulations, or that their actions would result in valid and enforceable patents. For example, it is possible
that a licensor’s actions in enforcing and/or defending a patent licensed by use may be less vigorous than had we conducted them
ourselves. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
Disputes may also arise between us and our licensors regarding intellectual
property subject to a license agreement, including:
| • | the scope of rights granted under the license agreement and other interpretation-related issues; |
| • | our financial or other obligations under the license agreement; |
| • | whether and the extent to which our technology and processes infringe intellectual property of the licensor that is not subject to
the licensing agreement; |
| • | our right to sublicense patent and other rights to third parties under collaborative development relationships; |
| • | our diligence obligations with respect to the use of licensed technology in relation to our development and commercialization of our
targeted effector-based therapeutics and what activities satisfy those diligence obligations; |
| • | the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us
and our partners; and |
| • | the priority of invention of patented technology. |
If disputes over intellectual property that we have licensed prevent
or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and
commercialize the affected targeted effector-based therapeutics.
The risks described elsewhere pertaining to our intellectual property
rights also apply to the intellectual property rights that we may own or in-license now or in the future, and any failure by us or our
licensors to obtain, maintain, defend and enforce these rights could have an adverse effect on our business. In some cases we may not
have control over the prosecution, maintenance or enforcement of the patents that we license, and may not have sufficient ability to provide
input into the patent prosecution, maintenance and defense process with respect to such patents, and potential future licensors may fail
to take the steps that we believe are necessary or desirable in order to obtain, maintain, defend and enforce the licensed patents.
If
we fail to comply with our obligations under any license, collaboration or other intellectual property-related agreements, we may be required
to pay damages and could lose intellectual property rights that may be necessary for developing, commercializing and protecting our current
or future targeted effector-based therapeutics, or we could lose certain rights to grant sublicenses.
We are reliant upon in-licenses to certain patent rights and proprietary
technology from third parties, such as Thomas Jefferson University, or TJU, and Purdue University, that are important or necessary to our
discovery engine, Targeted Effector platform and pipeline.
Our current license agreements impose, and any future license agreements
we enter into are likely to impose, various development, commercialization, funding, milestone, royalty, diligence, sublicensing, insurance,
patent prosecution, and enforcement or other obligations on us. In certain circumstances, our licensed patent rights are subject to our
reimbursing our licensors for their patent prosecution and maintenance costs. For example, our license agreements with Zentalis, TJU and
Purdue each require us to bear the costs of filing and maintaining patent applications. If we are in breach of our license agreements,
we may be required to pay damages and the licensor may have the right to terminate the license. License termination could result in a
material adverse effect on our ability to use our discovery engine and/or Targeted Effector platform and our ability to develop, manufacture,
and sell products that are discovered using or are covered by the licensed technology or could enable a competitor to gain access to the
licensed technology.
Under our current and future license agreements, we may not have
all intellectual property rights necessary for developing, commercializing, and protecting our current or future targeted effector-based
therapeutics.
We may not have the right to control the preparation, filing, prosecution,
maintenance, enforcement and defense of patents and patent applications that we license from third parties. For example, pursuant to our
license agreements with TJU and Purdue, while we may comment on patent applications and may lead enforcement of the patents and patent
applications, the licensing institution is responsible for the preparation, filing, prosecution and maintenance and defense of the patents
and patent applications. While we may provide input on patent strategy, including strategy relating to patent drafting and prosecution,
we cannot be certain that the in-licensed patents and patent applications will be prepared, filed, prosecuted, maintained, and defended
in a manner consistent with the best interests of our business. If our licensors and future licensors lose rights to licensed patents
or patent applications, our right to develop and commercialize any of our targeted effector-based therapeutics that is the subject of
such licensed rights could be materially adversely affected.
Moreover, our licensors may own or control intellectual property that
has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing, misappropriating
or otherwise violating the licensor’s intellectual property rights. In addition, while we cannot currently determine the amount
of the royalty obligations we would be required to pay on sales of future products if infringement or misappropriation were found, those
amounts could be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we
use in products that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize products,
we may be unable to achieve or maintain profitability.
In addition, the agreements under which we currently license intellectual
property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to disagreement regarding
interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope
of our rights to the relevant intellectual property or technology or increase what we believe to be our financial or other obligations
under the relevant agreement, either of which could have a material adverse impact on our business and ability to achieve profitability.
Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing
arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize any affected targeted effector-based
therapeutics, which could have a material adverse effect on our business and financial conditions.
Intellectual property rights of third parties could adversely
affect our ability to commercialize our targeted effector-based therapeutics, and we might be required to litigate third parties to engage
in development or marketing efforts, which may not be available on commercially reasonable terms or at all.
Our commercial success depends, in part, on our ability to develop,
manufacture, market and sell our targeted effector-based therapeutics without infringing, misappropriating or otherwise violating the
intellectual property and other proprietary rights of third parties. However, our research, development and commercialization activities
may be subject to claims that we infringe, misappropriate or otherwise violate patents or other intellectual property rights owned or
controlled by third parties. Third parties may have U.S. and non-U.S. issued patents and pending patent applications relating to targeted
effector-based therapeutics or components thereof, methods of manufacturing our targeted effector-based therapeutics or components thereof,
and/or methods of use for the treatment of the disease indications for which we are developing our targeted effector-based therapeutics.
If any third-party patents or patent applications are found to cover any of our targeted effector-based therapeutics, or their methods
of use or manufacture, we may not be free to manufacture or market such targeted effector-based therapeutics as planned without obtaining
a license, which may not be available on commercially reasonable terms, or at all. We or our licensors, or any future strategic partners,
may be party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights. In some instances,
we may be required to indemnify our licensors for the costs associated with any such adversarial proceedings or litigation.
There is a substantial amount of intellectual property litigation in
the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings
regarding intellectual property rights with respect to our targeted effector-based therapeutics, including patent infringement lawsuits
in the U.S. or abroad. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture
or methods for treatment related to the composition, use or manufacture of our targeted effector-based therapeutics. Our competitive position
may materially suffer if patents issued to third parties or other third-party intellectual property rights cover our targeted effector-based
therapeutics or elements thereof or our manufacture or uses relevant to our development plans. In such cases, we may not be in a position
to develop or commercialize current or future targeted effector-based therapeutics unless we successfully pursue litigation to nullify
or invalidate the third-party intellectual property right concerned or enter into a license agreement with the intellectual property right
holder, if available on commercially reasonable terms. There may be issued patents of which we are not aware, held by third parties that,
if found to be valid and enforceable, could be alleged to be infringed by our current or future targeted effector-based therapeutics.
There also may be pending patent applications of which we are not aware that may result in issued patents, which could be alleged to be
infringed by our current or future targeted effector-based therapeutics. Additionally, claims in pending patent applications, subject
to certain limitations, can be amended in a manner that could cover our targeted effector-based therapeutics. If a third-party infringement
claim should successfully be brought, we may be required to pay substantial damages or be forced to abandon our current or future targeted
effector-based therapeutics or to seek a license from any patent holders. No assurances can be given that a license will be available
on commercially reasonable terms, if at all.
Third parties may assert infringement claims against us based on patents
that exist now or may arise in the future, regardless of the merit of such patents or infringement claims. The outcome of intellectual
property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology
industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which
patents cover various types of products or methods of use or manufacture. The scope of protection afforded by a patent is subject to interpretation
by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that
the relevant product or methods of using the product either do not infringe the patent claims of the relevant patent or that the patent
claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States,
proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.
Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific
personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. In addition,
parties making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they
have substantially greater resources, and we may not have sufficient resources to bring these actions to a successful conclusion.
While we perform periodic searches for relevant patents and patent
applications with respect to our targeted-effector therapeutics, and uses thereof, we cannot guarantee the completeness or thoroughness
of any of our patent searches or analyses including, but not limited to, the identification of relevant patents, the scope of patent claims
or the expiration of relevant patents, nor can we be certain that we have identified each and every patent and pending application in
the United States and abroad that is relevant to or necessary for the commercialization of any of our targeted effector systems in any
jurisdiction. Because patent applications can take many years to issue, there may be currently pending patent applications which may later
result in issued patents that any of our targeted effector systems may be accused of infringing. In addition, third parties may obtain
patents in the future and claim that use of our technologies infringes upon these patents. Accordingly, third parties may assert infringement
claims against us based on intellectual property rights that exist now or arise in the future. The outcome of intellectual property litigation
is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries have produced
a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types
of targeted effector-based therapeutics or components thereof or methods of use or manufacture. The scope of protection afforded by a
patent is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement,
we would need to demonstrate that the relevant product or methods of using the product either do not infringe the patent claims of the
relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult.
For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption
of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and
attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our
business and operating results. In addition, parties making claims against us may be able to sustain the costs of complex patent litigation
more effectively than we can because they have substantially greater resources, and we may not have sufficient resources to bring these
actions to a successful conclusion.
Numerous third-party U.S. and foreign issued patents and pending patent
applications exist which are related to our targeted effector-based therapeutics or components of our targeted effector-based therapeutics.
For example, we are aware of patent portfolios related to compounds containing FAP targeting ligands that are owned by 3B Pharmaceuticals,
Cornell University, Institute of Organic Chemistry and Biochemistry of the Czech Academy of Sciences, and Johns Hopkins University.
There may also be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods
for treatment related to the use or manufacture of our targeted effector-based therapeutics.
If our defenses to such assertions of infringement were unsuccessful,
we could be liable for a court-determined reasonable royalty on our existing sales and further damages to the patent owner (or licensee),
such as lost profits. Such royalties and damages could be significant. If we are found to have willfully infringed the claims of a third
party's patent, the third party could be awarded treble damages and attorney's fees. Further, if we are found to infringe, misappropriate
or otherwise violate a third party’s intellectual property rights, we could be forced, including by court order, to cease developing,
manufacturing or commercializing the infringing product. We might, if possible, also be forced to redesign current or future targeted
effector-based therapeutics so that we no longer infringe, misappropriate or violate the third-party intellectual property rights. Alternatively,
we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing
or marketing the infringing product. If we were required to obtain a license to continue to manufacture or market the affected product,
we may be required to pay substantial royalties or grant cross-licenses to our patents. Even if we were able to obtain a license, it could
be nonexclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us. We cannot assure
you that any such license will be available on acceptable terms, if at all. Ultimately, we could be prevented from commercializing a product,
or be forced to cease some aspect of our business operations as a result of claims of patent infringement or violation of other intellectual
property rights, Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified
in advance, including the demeanor and credibility of witnesses and the identity of any adverse party. This is especially true in intellectual
property cases that may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree. Furthermore,
we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license,
it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us; alternatively or additionally
it could include terms that impede or destroy our ability to compete successfully in the commercial marketplace. In addition, we could
be found liable for significant monetary damages, including treble damages and attorneys’ fees if we are found to have willfully
infringed a patent. A finding of infringement could prevent us from commercializing a product or force us to cease some of our business
operations, which could harm our business. Claims that we have misappropriated the confidential information or trade secrets of third
parties could have a similar negative impact on our business. Furthermore, because of the substantial amount of discovery required in
connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information
could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could
have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results
of operations, financial condition and prospects.
Any of these events, even if we were ultimately to prevail, could require
us to divert substantial financial and management resources that we would otherwise be able to devote to our business, which could have
a material adverse effect on our financial condition and results of operations.
Others may challenge inventorship or claim an ownership interest
in our intellectual property which could expose it to litigation and have a significant adverse effect on its prospects.
Determinations of inventorship can be subjective. While we undertake
to accurately identify correct inventorship of inventions made on our behalf by our employees, consultants and contractors, an employee,
consultant or contractor may disagree with our determination of inventorship and assert a claim of inventorship. Any disagreement over
inventorship could result in our being forced to defend our determination of inventorship in a legal action which could result in substantial
costs and be a distraction to our senior management and scientific personnel.
While we typically require employees, consultants and contractors who
may develop intellectual property on our behalf to execute agreements assigning such intellectual property to us, we may be unsuccessful
in obtaining execution of assignment agreements with each party who in fact develops intellectual property that we regard as our own.
Moreover, even when we obtain agreements assigning intellectual property to us, the assignment of intellectual property rights may not
be self-executing or the assignment agreements may be breached. In either case, we may be forced to bring claims against third parties,
or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Furthermore,
individuals executing agreements with us may have preexisting or competing obligations to a third party, such as an academic institution,
and thus an agreement with us may be ineffective in perfecting ownership of inventions developed by that individual. If we are unsuccessful
in obtaining assignment agreements from an employee, consultant or contractor who develops intellectual property on our behalf, the employee,
consultant or contractor may later claim ownership of the invention. Any disagreement over ownership of intellectual property could result
in our losing ownership, or exclusive ownership, of the contested intellectual property, paying monetary damages and/or being enjoined
from clinical testing, manufacturing and marketing of the affected product candidate(s). Even if we are successful in prosecuting or defending
against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel.
If we are unable to protect the confidentiality of our trade
secrets, our business and competitive position would be harmed.
We consider trade secrets, including confidential and unpatented know-how,
important to the maintenance of our competitive position. We may rely on trade secrets or confidential know-how to protect certain aspects
of our technology, especially where patent protection is believed by us to be of limited value. We expect to rely on third parties for
future manufacturing of our targeted effector-based therapeutics, and any future targeted effector-based therapeutics. We also expect
to collaborate with third parties on the development of our targeted effector-based therapeutics and any future targeted effector-based
therapeutics. As a result of the aforementioned collaborations, we must, at times, share trade secrets with our collaborators. We also
conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development
partnerships or similar agreements.
Trade secrets or confidential know-how can be difficult to maintain
as confidential. We protect and plan to protect trade secrets and confidential and unpatented know-how, in part, by entering into confidentiality
agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with us prior to beginning
research or disclosing proprietary information. With parties, such as our employees, corporate collaborators, outside scientific collaborators,
CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent
assignment agreements with our employees and consultants under which they are obligated to maintain confidentiality and to assign their
inventions to us. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including
our trade secrets. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose
our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. The need to share trade secrets and other confidential information increases the risk that such
trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used
in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s
discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect
on our business and results of operations. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret or securing
title to an employee- or consultant-developed invention if a dispute arises, is difficult, expensive and time-consuming, and the outcome
is unpredictable.
The enforceability of confidentiality agreements may vary from jurisdiction
to jurisdiction. In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and
consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication
rights. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our
agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s
discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
We may be subject to claims by third parties that we or our employees
or consultants have wrongfully used or disclosed their alleged trade secrets or other proprietary information.
Many of our current or former employees or consultants and our licensors’
current or former employees or consultants, including our senior management, were previously employed at universities or biotechnology
or biopharmaceutical companies, including some which may be competitors or potential competitors. Although we take commercially reasonable
steps to ensure that our employees do not use the proprietary information, know-how or trade secrets of others in their work for us, including
incorporating such intellectual property into our targeted effector-based therapeutics, we may be subject to claims that we or these employees
have misappropriated the intellectual property of a third party. Litigation or arbitration may be necessary to defend against these claims.
If we fail in defending against such claims, in addition to paying
monetary damages, we may sustain reputational damage, lose valuable intellectual property rights or key personnel or may be enjoined from
using such intellectual property. Further, it may become necessary for us to obtain a license from such third party to commercialize any
of our products. Such license(s) may not be available on commercially reasonable terms or at all. Any such proceedings and possible
aftermath would likely divert significant resources from our core business, including distracting our technical and management personnel
from their normal responsibilities. A loss of key personnel or their work product could limit our ability to commercialize, or prevent
us from commercializing, our current or future targeted effector-based therapeutics, which could materially harm our business. Even if
we are successful in defending against any such claims, litigation or arbitration could result in substantial costs and could be a distraction
to management.
If our trademarks and trade names are not adequately protected,
then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented,
declared generic or determined to be infringing on other marks. We rely on both registration and common law protection for our trademarks.
As a means to enforce our trademark rights and prevent infringement, we may be required to file trademark claims against third parties
or initiate trademark opposition proceedings. This can be expensive and time-consuming, particularly for a company of our size. We may
not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name
recognition by potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar
to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential
trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations
of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based
on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. During trademark
registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may
be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties
are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation
proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to
use for our products in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register
it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion
with other product names. If the FDA objects to any of our proposed product names, we may be required to expend significant additional
resources in an effort to identify a usable substitute name that would qualify under applicable trademark laws, not infringe the existing
rights of third parties and be acceptable to the FDA. If we are unable to establish name recognition based on our trademarks and trade
names, we may not be able to compete effectively and our business may be adversely affected.
Intellectual property rights do not necessarily address all potential
threats to our business.
The degree of future protection afforded by our intellectual property
rights is uncertain because intellectual property rights have limitations and may not adequately protect our business, or permit us to
maintain our competitive advantage. The following examples are illustrative:
| • | others may be able to make products or formulations that are similar or competitive to our targeted effector-based therapeutics, but
that are not covered by the claims of any patents that we own, license or control; |
| • | we or any of our licensors or strategic partners might not have been the first to make the inventions covered by the issued patents
or pending patent applications that we own, license or control; |
| • | we or our licensors or strategic partners might not have been the first to file patent applications covering certain of our owned
and in-licensed inventions; |
| • | others may independently develop the same, similar, or alternative technologies without infringing, misappropriating or violating
our owned or in-licensed intellectual property rights; |
| • | it is possible that our owned or in-licensed pending patent applications will not lead to issued patents; |
| • | others may have access to the same intellectual property rights licensed to us on a non-exclusive basis in the future; |
| • | issued patents that we own, in-license, or control may not provide us with any competitive advantages, or may be narrowed or held
invalid or unenforceable, including as a result of legal challenges; |
| • | our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor
from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights,
and may then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
| • | we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file
a patent covering such trade secrets or know-how; |
| • | ownership of our patent portfolio may be challenged by third parties; |
| • | patent enforcement is expensive and time-consuming and difficult to predict; thus, we may not be able to enforce any of our patents
against a competitor; and |
| • | the patents of third parties or pending or future patent applications of third parties, if issued, may have an adverse effect on our
business. |
Should any of these events occur, they could have a material adverse
impact on our business and financial condition.
Risks Related to Our Business Operations and Industry
We may be unable to successfully integrate the Immunome and Morphimmune
businesses and realize the anticipated benefits of the Merger.
The completed transaction involved the Merger of two companies which
previously operated as independent companies. We will be required to devote significant management attention and resources to integrating
our business practices and operations with those of Morphimmune in order to effectively realize synergies as a combined company, including
leveraging anticipated synergies across technology platforms. Potential difficulties we may encounter in the integration process include
the following:
| • | the inability to successfully combine the two businesses in a manner that permits us to realize the technology platform synergies
anticipated to result from the Merger, which would result in the anticipated benefits of the Merger not being realized in the time frame
currently anticipated or at all; |
| • | the complexities associated with managing the larger combined businesses and integrating personnel from the two companies, while at
the same time attempting to (i) continue pursuing pre-clinical and clinical development of existing development candidates, (ii) researching
and developing new development candidates based on each company’s respective platforms, and (iii) identifying and pursuing
other potential strategic transactions or collaborations; |
| • | the additional complexities of combining two companies with different histories, operating structures and technology foundations; |
| • | the complexities associated with and integration issues relating to reconstituting our board of directors and changing our management
team; |
| • | the failure to successfully manage relationships with the combined supplier and vendor bases of the two companies; |
| • | the failure to retain key employees of either of the two companies; |
| • | potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger; and |
| • | performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by
completing the Merger and integrating the companies’ operations. |
For all these reasons, it is possible that the integration process
could result in the distraction of our management, the disruption of our ongoing business or inconsistencies in our standards, controls,
procedures and policies, any of which could adversely affect our ability to maintain relationships with current and potential future vendors,
regulators, collaboration partners, and employees or to achieve the anticipated benefits of the Merger, or could otherwise adversely affect
our business and financial results.
Any
inability to attract and retain qualified key management, technical personnel and employees would impair our
ability to implement our business plan.
Our success largely depends on the continued service of key management,
advisors and other specialized personnel. While we have a written employment agreement with our management team and each of our key employees,
those employment arrangements are at-will and could be terminated at any time. The loss of one or more members of our executive team,
management team or other key employees or advisors could delay our research and development programs and have a material and adverse effect
on our business, financial condition, results of operations and prospects. We do not currently maintain “key man” insurance
on any of our executive officers.
The relationships that our key management team members have cultivated
within our industry make us particularly dependent upon their continued employment with us. We are dependent on the continued service
of our technical personnel because of the highly technical nature of our programs, development candidates and technologies and the specialized
nature of the regulatory approval process. Our future success will depend in large part on our continued ability to attract and retain
other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, manufacturing,
governmental regulation and commercialization. We face competition for personnel from other companies, universities, public and private
research institutions, government entities and other organizations.
As of December 31, 2023, we had 55 full-time employees. The continued
operation of our business and execution of our plans will require material additional staffing within the next twelve months. We cannot
provide assurance that we will be able to hire or retain adequate staffing levels to advance our platform, develop our programs or development
candidates or run our operations or to accomplish our objectives.
We expect to continue to incur substantial expenses related to
the completed Merger.
We expect to continue to incur substantial expenses in connection with
the completed Merger and the related integration of business, operations, networks, systems, technologies, policies and procedures. While
we have assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond our
control that could affect the total amount or the timing of our integration expenses. Many of the expenses that will be incurred, by their
nature, are difficult to estimate accurately at the present time. Due to these factors, the transaction and integration expenses could
be greater or could be incurred over a longer period of time than we currently expect.
We may experience difficulties in managing our growth and expanding
our operations.
As our development candidates enter and advance through preclinical
studies and any clinical trials, we will need to expand our development, regulatory and manufacturing capabilities or contract with other
organizations to provide these capabilities for us. We may also experience difficulties in the discovery and development of new development
candidates using our discovery engine or Target Effector and/or ADC platforms if we are unable to meet demand as we grow our operations.
In the future, we also expect to have to manage additional relationships with collaborators, suppliers and other organizations. Our ability
to manage our operations and future growth will require us to continue to improve our operational, financial and management controls,
reporting systems and procedures and secure adequate facilities for our operational needs. We may not be able to implement improvements
to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and
controls.
Our employees, principal investigators, vendors and commercial
partners may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of fraud or other misconduct by our employees,
principal investigators, vendors and commercial partners. Misconduct by employees could include intentional failures to comply with FDA
regulations, provide accurate information to the FDA, comply with manufacturing standards we may establish, comply with federal and state
health care fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities
to us. In particular, sales, marketing and business arrangements in the health care 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.
Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory
sanctions and serious harm to our reputation. For example, individuals conducting the non-interventional clinical studies that we sponsor
through which we obtain antibodies for development into potential antibody-based therapeutics may violate applicable laws and regulations
regarding personal information. It is not always possible to identify and deter 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 material and adverse
effect on our business and financial condition, including the imposition of significant criminal, civil, and administrative fines or other
sanctions, such as monetary penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government-funded health
care programs, such as Medicare and Medicaid, integrity obligations, reputational harm and the curtailment or restructuring of our operations.
Risks Related to our Common Stock
An active trading market for our common stock may not be sustained,
which may make it difficult for you to sell your shares.
The trading market for our common stock on The Nasdaq Capital Market
has been limited and an active trading market for our shares may not be sustained. If an active market for our common stock is not sustained,
it may be difficult for you to sell your shares at a price that is attractive to you, or at all.
The market price of our common stock is expected to be volatile,
and purchasers of our common stock could incur substantial losses.
The market price of our common stock could be subject to significant
fluctuations. Market prices for securities of biotechnology, early-stage pharmaceutical and other life sciences companies have historically
been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:
| • | our ability to obtain regulatory approvals for our development candidates, and delays or failures to obtain such approvals; |
| • | failure of any of our development candidates, if approved, to achieve commercial success; |
| • | failure by us to maintain our existing third-party license and supply agreements; |
| • | failure by us or our licensors to prosecute, maintain, or enforce our intellectual property rights; |
| • | changes in laws or regulations applicable to our development candidates; |
| • | any inability to obtain adequate supply of our development candidates or the inability to do so at acceptable prices; |
| • | adverse regulatory authority decisions; |
| • | introduction of new products, services or technologies by our competitors; |
| • | failure to meet or exceed any projections we may provide to the public; |
| • | failure to meet or exceed the financial and development projections of the investment community; |
| • | the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community; |
| • | the effects of the Merger and PIPE transaction, which materially increases our public float; |
| • | announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by us or our competitors; |
| • | disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent
protection for our technologies; |
| • | additions or departures of key personnel; |
| • | significant lawsuits, including patent or stockholder litigation; |
| • | if securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading
opinion regarding our business and stock; |
| • | changes in the market valuations of similar companies; |
| • | general market or macroeconomic conditions; |
| • | sales of our common stock by us or our stockholders in the future; |
| • | trading volume of our common stock; |
| • | failure to maintain compliance with the listing requirements of The Nasdaq Capital Market; |
| • | announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant
contracts, commercial relationships or capital commitments; |
| • | adverse publicity generally, including with respect to other products and potential products in such markets; |
| • | the introduction of technological innovations or new therapies that compete with our potential products; |
| • | changes in the structure of health care payment systems; and |
| • | period-to-period fluctuations in our financial results. |
Moreover, the stock markets in general have experienced substantial
volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also
adversely affect the trading price of our common stock.
In the past, following periods of volatility in the market price of
a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation,
if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our
profitability and reputation.
Our principal stockholders and management own a significant percentage
of our stock and will be able to exert significant control over matters subject to stockholder approval.
Certain of our executive officers, directors and large stockholders
own a significant percentage of our outstanding capital stock. As a result of their share ownership, these stockholders will have the
ability to influence us through their ownership positions. These stockholders may be able to determine all matters requiring stockholder
approval. For example, these stockholders, acting together, may be able to control elections of directors, amendments of our organizational
documents, or approval of any merger, sale of assets, or other major corporate transaction. These shareholders’ interests may not
always coincide with our corporate interests or the interests of other shareholders, and these shareholders may exercise their voting
and other rights in a manner with which you may not agree or that may not be in the best interests of our other shareholders. This may
prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may believe are in your best interest
as one of our stockholders.
Future sales and issuances of our common stock or rights to purchase
common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our
stockholders and could cause our stock price to fall.
We expect that significant additional capital may be needed in the
future to continue our planned operations, including further development of our programs and development candidates, preparing IND filings,
conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating
a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions
at prices and in a manner we determine from time to time. In this regard, we filed a shelf registration statement on Form S-3, which
was declared effective by the SEC on October 14, 2021, pursuant to which we may issue from time to time securities with an aggregate
value of up to $200.0 million in one or more offerings at prices and terms to be determined at the time of sale. In October 2023,
we completed our Merger and concurrent PIPE transaction for gross proceeds of approximately $125.0 million before deducting fees and offering
expenses. An aggregate of 21,690,871 shares of our common stock at $5.75 per share were issued pursuant to the subscription agreements
and have been registered for resale pursuant to a registration statement on Form S-3 filed with the SEC and made effective on November 27,
2023. Additionally, we have and may issue shares of our common stock in connection with strategic transactions, including, for example
the Zentalis License and the Ayala Asset Purchase.
We issued 2,298,586 shares to Zentalis in connection with the Zentalis
License and, subject to the closing of the Ayala Asset Purchase, we will issue Ayala 2,175,489, both of which we are required to register
on for resale on or before April 8, 2024. The shares issued to Zentalis and that may be issued to Ayala are subject and will be subject
to (i) a six-month lock up with respect to half of the shares and (ii) an orderly market disposition. Notwithstanding these
contractual protections, any sales of these shares may cause our stock price to fall.
Additionally, on February 13, 2024, we filed an automatic shelf
registration statement on Form S-3, pursuant to which we may issue from time-to-time securities with an unlimited value in one or
more offerings at prices and terms to be determined at the time of sale. If we sell common stock, convertible securities or other equity
securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders,
and new investors could gain rights, preferences and privileges senior to the holders of our common stock.
Pursuant to our 2020 Plan, our management is authorized to grant stock
options to our employees, directors and consultants. The aggregate number of shares of our common stock that may be issued pursuant to
stock awards under our 2020 Plan shall not exceed 8,080,286 shares. Additionally, the number of shares of our common stock reserved for
issuance under our 2020 Plan will automatically increase on January 1 of each year, beginning on January 1, 2021 and continuing
through and including January 1, 2030, by 4% of the total number of shares of our capital stock outstanding on December 31 of
the preceding calendar year, or a lesser number of shares determined by our board of directors. Unless our board of directors elects not
to increase the number of shares available for future grant each year, our stockholders may experience additional dilution, which could
cause our stock price to fall. Additionally, pursuant to Morphimmune Inc.’s 2020 Equity Incentive Plan, or the Morphimmune Plan,
the aggregate number of shares that may be issued pursuant to stock awards under the Morphimmune Plan is 2,429,630 shares. We do not currently
intend to issue any further awards under the Morphimmune Plan.
We
are an “emerging growth company” and our election of reduced reporting requirements applicable to emerging
growth companies may make our common stock less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart
Our Business Startups Act, or JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions
from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, or Section 404,
reduced disclosure obligations regarding executive compensation in this Annual Report and our periodic reports and proxy statements and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved. In addition, as an emerging growth company, we are only required to provide two years of audited
financial statements and two years of selected financial data in this Annual Report. We could be an emerging growth company for up to
five years following the completion of our IPO, although circumstances could cause us to lose that status earlier, including if we are
deemed to be a “large accelerated filer,” which occurs when the market value of our common stock that is held by non-affiliates
exceeds $700 million as of the prior June 30, or if we have total annual gross revenue of $1.235 billion or more during any
fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31, or
if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, in which case we would no longer
be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we could still qualify as a
“smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements
including not being required to comply with the auditor attestation requirements of Section 404 and reduced disclosure obligations
regarding executive compensation in this Annual Report and our other periodic reports and proxy statements. We cannot predict if investors
will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our share price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting
new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves
of an exemption that allows us to delay adopting new or revised accounting standards until such time as those standards apply to private
companies. As a result, we will not be subject to the same new or revised accounting standards as other public companies that comply with
the public company effective dates, including but not limited to the new lease accounting standard. We have also elected to take advantage
of certain of the reduced disclosure obligations in this Quarterly Report and may elect to take advantage of other reduced reporting requirements
in future filings. As a result of these elections, the information that we provide to our stockholders may be different than you might
receive from other public reporting companies. However, if we later decide to opt out of the extended period for adopting new accounting
standards, we would need to disclose such decision and it would be irrevocable.
Our ability to use net operating loss carryforwards and other
tax attributes may be limited.
We have incurred losses during our history, and we do not expect to
become profitable in the near 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, if at all. Under current law, U.S.
federal NOL carryforwards generated in taxable periods beginning after December 31, 2017, may be carried forward indefinitely, but
the deductibility of such NOL carryforwards is limited to 80% of taxable income. It is uncertain if and to what extent various states
will conform to federal law. In addition, under Sections 382 and 383 of the Code, federal NOL carryforwards and other tax attributes may
become subject to an annual limitation in the event of certain cumulative changes in ownership. An “ownership change” pursuant
to Section 382 of the Code generally occurs if one or more stockholders or groups of stockholders who own at least 5% of a company’s
stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.
Our ability to utilize our NOL carryforwards and other tax attributes to offset future taxable income or tax liabilities may be limited
as a result of ownership changes, including changes in connection with the Merger and potential changes due to other transactions. Similar
rules may apply under state tax laws. If we earn taxable income, such limitations could result in increased future income tax liability
to us, and our future cash flows could be adversely affected.
Capital appreciation, if any, will be a stockholder’s sole
source of gain.
We have never declared or paid cash dividends on our capital stock.
We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. As a result,
capital appreciation, if any, of our common stock will be an Immunome stockholder’s sole source of gain for the foreseeable future.
Anti-takeover
provisions in our charter documents and under Delaware law could make an acquisition of our company, which may
be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove
our current management.
Provisions in our amended and restated certificate of incorporation
and our amended and restated bylaws may delay or prevent an acquisition of our company or a change in our management. In addition, these
provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult
for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members
of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management
team. These provisions include:
| • | a prohibition on actions by our stockholders by written consent; |
| • | a requirement that special meetings of stockholders, which our company is not obligated to call more than once per calendar year,
be called only by the chairman of our board of directors, our chief executive officer, or our board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors; |
| • | advance notice requirements for election to our board of directors and for proposing matters that can be acted upon at stockholder
meetings; |
| • | division of our board of directors into three classes, serving staggered terms of three years each; and |
| • | the authority of the board of directors to issue preferred stock with such terms as the board of directors may determine. |
Moreover, because we are incorporated in Delaware, we are governed
by the provisions of Section 203 of the Delaware General Corporation Law, as amended, or DGCL, which prohibits a person who owns
in excess of 15% of our outstanding voting stock from merging or combining with u-s for a period of three years after the date of the
transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved
in a prescribed manner. These provisions would apply even if the proposed merger or acquisition could be considered beneficial by some
stockholders.
Our amended and restated certificate of incorporation provides
that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive
forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that
the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware
statutory or common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of
breach of a fiduciary duty; (iii) any action or proceeding asserting a claim against us or any of our current or former directors,
officers or other employees, arising out of or pursuant to any provision of the DGCL, our amended and restated certificate of incorporation
or our amended and restated bylaws; and (iv) any action asserting a claim against us or any of our directors, officers or other employees,
governed by the internal affairs doctrine; provided, that, this provision would not apply to suits brought to enforce a duty or liability
created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction.
Furthermore, Section 22 of the Securities Act creates concurrent
jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction
to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings
by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal
district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising
under the Securities Act.
These exclusive-forum provisions may limit a stockholder’s ability
to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may
discourage these types of lawsuits against us and our directors, officers, and other employees. While the Delaware courts have determined
that such choice of forum provisions are facially valid, and several state trial courts have enforced such provisions and required that
suits asserting Securities Act claims be filed in federal court, there is no guarantee that courts of appeal will affirm the enforceability
of such provisions and a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum
provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of
our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action
in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. If
a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable
in an action, we may incur further significant additional costs associated with litigating Securities Act claims in state court, both
state and federal court, or other jurisdictions which could seriously harm our business, financial condition, results of operations, and
prospects.
We could be subject to securities class action litigation or
stockholder derivative litigation.
Securities litigation or stockholder derivative litigation frequently
follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business
combination transaction. We may become involved in this type of litigation in connection with the Merger. Additionally, in the past, securities
class action litigation has often been brought against a company following a decline in the market price of its securities. This risk
is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If
we face any litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could
harm our business.
General Risk Factors
Unfavorable global economic and political conditions could adversely
affect our business, financial condition or results of operations.
The results of our operations could be adversely affected by general
conditions in the global economy, the global financial markets and the global political conditions. The United States and global economies
are facing growing inflation, higher interest rates and potential recession. Furthermore, a severe or prolonged economic downturn, including
a recession or depression or political disruption such as the war between Ukraine and Russia and the Israel-Hamas conflict could result
in a variety of risks to our business, including weakened demand for our development candidates, if approved, relationships with any vendors
or business partners located in affected geographies and our ability to raise additional capital when needed on acceptable terms, if at
all. A weak or declining economy or political disruption, including any international trade disputes, could also strain our manufacturers
or suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our potential products. Any
of the foregoing could seriously harm our business, and we cannot anticipate all of the ways in which the political or economic climate
and financial market conditions could seriously harm our business.
In addition, actual events involving limited liquidity, defaults, non-performance
or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services
industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have
in the past and may in the future lead to market-wide liquidity problems. Furthermore, concerns regarding the U.S. or international financial
systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and
operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult to acquire financing
on acceptable terms or at all. Any decline in available funding or access to cash and liquidity resources could, among other risks, adversely
impact our and our vendors’, collaborators’ and other business relations’ ability to meet operating expenses, financial
obligations or fulfill other obligations, potentially resulting in breaches of financial and/or contractual obligations and/or result
in violations of federal or state wage and hour laws. Any of these impacts could have material adverse impacts on our business operations,
financial condition and results of operations.
Future changes in financial accounting standards or practices
may cause adverse and unexpected revenue fluctuations and adversely affect our reported results of operations.
Future changes in financial accounting standards may cause adverse,
unexpected revenue fluctuations and affect our reported financial position or results of operations. Financial accounting standards in
the United States are constantly under review and new pronouncements and varying interpretations of pronouncements have occurred with
frequency in the past and are expected to occur again in the future. As a result, we may be required to make changes in our accounting
policies. Those changes could affect our financial condition and results of operations or the way in which such financial condition and
results of operations are reported. We intend to invest resources to comply with evolving standards, and this investment may result in
increased general and administrative expenses and a diversion of management time and attention from business activities to compliance
activities. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Recent
Accounting Pronouncements” in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
Changes in tax laws or regulations that are applied adversely
to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.
New income, sales, use or other tax laws, statutes, rules, regulations
or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing
tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example,
legislation informally titled the Tax Cuts and Jobs Act; the Coronavirus Aid, Relief, and Economic Security Act; and the Inflation Reduction
Act enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities
with respect to such legislation may affect us, and certain aspects of such legislation could be repealed or modified in future legislation.
The Biden administration and Congress could also enact other tax law changes that could have an adverse effect on our operations, cash
flows and results from operations and contribute to overall market volatility. In addition, it is uncertain if and to what extent various
states will conform to federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to
our operations, the taxation of foreign earnings, and the deductibility of expenses could have a material impact on the value of our deferred
tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense.
If we unable to maintain an effective system of disclosure controls
and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable
regulations could be impaired.
As a public company, we are subject to requirements of the Sarbanes-Oxley
Act, the regulations of the Nasdaq Capital Market, the rules and regulations of the SEC, expanded disclosure requirements, accelerated
reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include, among other
things, that we maintain corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures.
This will require that we incur substantial professional fees and internal costs to expand our accounting and finance functions and that
we expend significant management efforts. We may experience difficulty in meeting these reporting requirements in a timely manner.
Our current controls and any new controls that we develop may become
inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over
financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered
in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and
may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control
over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered
public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually
be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal
control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which
would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these
requirements, we may not be able to remain listed on The Nasdaq Capital Market.
If we cannot provide reliable financial reports or prevent fraud, our
business and results of operations could be harmed, investors could lose confidence in our reported financial information and we could
be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Any failure to maintain effective disclosure
controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations
and financial condition and could cause a decline in the trading price of our common stock.
Our disclosure controls and procedures may not prevent or detect
all errors or acts of fraud.
We are subject to certain reporting requirements of the Exchange Act.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we
file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal
controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons,
by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in
our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.
We incur significant costs as a result of operating as a public
company, and our management is required to devote substantial time to public company reporting and compliance initiatives.
As a public company listed on The Nasdaq Capital Market, we incur significant
expenses for director and officer insurance, legal services, accounting services and other expenses that we did not incur as a private
company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC, and The Nasdaq Capital Market
have imposed various requirements on public companies. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act,
or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank
Act that required the SEC to adopt rules and regulations in these areas such as “say on pay” and proxy access. Recent
legislation permits smaller “emerging growth companies” to implement many of these requirements over a longer period and up
to five years from the pricing of our initial public offering. We intend to continue to take advantage of this legislation but cannot
guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses.
Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may
lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in
which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial
amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance
costs and make some activities more time-consuming and costlier. For example, these rules and regulations make it more difficult
and more expensive for us to obtain director and officer liability insurance and we are required to incur substantial costs to maintain
our current levels of such coverage.
If securities or industry analysts publish inaccurate or unfavorable
research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the
research and reports that securities or industry analysts publish about us or our business. If only very few securities analysts commence
coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If
one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business,
our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly,
demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.
If we do not comply with laws regulating the protection of the
environment and health and human safety, our business could be adversely affected.
Our research, development and manufacturing involve the use of hazardous
and radioactive materials and various flammable and toxic chemicals. We are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of these hazardous and radioactive materials and waste products. Although we believe
our procedures for storing, handling and disposing of these materials in our facilities comply with the relevant guidelines of the Commonwealth
of Pennsylvania, the State of Washington and the Occupational Safety and Health Administration of the U.S. Department of Labor, the risk
of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for substantial
resulting damages. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing
laboratory procedures, exposure to blood-borne pathogens and the handling of animals and biohazardous materials. Our workers’ compensation
insurance may not provide adequate coverage against costs and expenses we may incur due to injuries to our employees resulting from the
use of these materials. Our current environmental liability insurance covering certain of our facilities could be inadequate for all environmental
liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or
radioactive materials and waste products. Additional federal, state and local laws and regulations affecting our operations may be adopted
in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.
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