Item
1. Business
We are
a late clinical-stage biopharmaceutical company working to develop the first U.S. Food and Drug Administration, or FDA, -approved
ophthalmic formulation of bevacizumab for use in retinal indications. Our goal is to launch ONS-5010 as the first and only approved
bevacizumab in the United States, Europe, Japan and other markets for the treatment of wet age-related macular degeneration, or
wet AMD, diabetic macular edema, or DME, and branch retinal vein occlusion, or BRVO.
ONS-5010
is an investigational ophthalmic formulation of bevacizumab under development to be administered as an intravitreal injection for
the treatment of wet AMD and other retinal diseases. Bevacizumab is a full-length, humanized anti-VEGF (Vascular Endothelial Growth
Factor) recombinant monoclonal antibody, or mAb, that inhibits VEGF and associated angiogenic activity. The study design for
our Phase 3 clinical program to evaluate ONS-5010 as an ophthalmic formulation of bevacizumab was reviewed at an end of Phase 2
meeting with the FDA in April 2018, and we filed our investigational new drug application, or IND, with the FDA in the first quarter
of calendar 2019.
Our Phase
3 program for ONS-5010 in wet AMD involves two clinical trials, which we refer to as NORSE 1 and NORSE 2, evaluating ONS-5010 against
ranibizumab (LUCENTIS). Enrollment in the NORSE 1 study is complete with 61 patients enrolled, all in Australia. The NORSE 2 study
has been initiated and began enrolling wet AMD patients in July 2019. The NORSE 2 study is expected to enroll a total of at least
220 patients and is being conducted in the United States. The endpoint for both studies is a mean increase in baseline visual acuity
at 11 months for ONS-5010 dosed on a monthly basis compared to LUCENTIS dosed using the alternative PIER clinical trial dosing
regimen of three-monthly doses followed by quarterly dosing.
Currently,
the cancer drug Avastin (bevacizumab) is used off-label for the treatment of wet AMD and other retinal diseases such as DME and
BRVO even though Avastin has not been approved by regulatory authorities for use in these diseases. If the ONS-5010 clinical program
is successful, it will support our plans to submit for regulatory approval in multiple markets in 2021 including the United States,
Europe and Japan. Because there are no approved bevacizumab products for the treatment of retinal diseases in such major markets,
we are developing ONS-5010 as a novel biologic and not using the biosimilar drug development pathway that would be required if
Avastin were an approved drug for the targeted diseases. If approved, we believe ONS-5010 has potential to mitigate risks associated
with off-label use of bevacizumab. Off-label use of bevacizumab is currently estimated to account for at least 50% of all wet AMD
prescriptions in the United States.
Our
Strategy
Our goal
is to launch ONS-5010 as the first, and only, approved bevacizumab for ophthalmic use in the United States, Europe, Japan and other
markets. In order to achieve this goal, we have adopted a streamlined clinical and regulatory strategy to quickly and efficiently
complete the process required to submit a Biologics License Application, or BLA, with the FDA at the earliest opportunity. The
key elements of our strategy include:
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Leveraging the ophthalmic drug development and commercialization expertise
of our leadership team. Members of our executive team have extensive expertise in developing and commercializing treatments
for retinal diseases, such as wet AMD. We intend to leverage their collective experience to further the development of, and execute
an optimal commercial strategy for, ONS-5010.
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Engaging with regulatory
agencies to establish clear guidelines for potential approval. We have continued our approach to work closely with regulatory
authorities to develop and conduct clinical trials that we believe will appropriately support approval of our product candidates
if our clinical trials are successful. As an ophthalmic formulation of bevacizumab, we believe ONS-5010 has a well-defined regulatory
pathway.
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Conducting and efficiently executing clinical trials inside and outside
of the United States to support potential approval. We have designed our ONS-5010 clinical program to take advantage of
reduced costs for clinical trials
conducted outside of the United States, as appropriate. We intend to further this strategy, in a manner that will support a BLA
submission in the United States at the earliest opportunity for ONS-5010.
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Reducing and managing costs to minimize additional investment to complete
our development programs. We have made the strategic decision to outsource the commercial manufacturing and future clinical
trial supply manufacturing for our product candidates. We believe this will significantly reduce future overhead costs not directly
related to our ONS-5010 program.
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Our
Product Candidate Portfolio
Our product
candidate portfolio includes our lead product candidate, ONS-5010, which we are actively developing, as well as our biosimilar
product candidates, which we only plan to further advance upon entering into a license or co-development agreement with a partner
in the major markets. We refer to these legacy biosimilar product candidates as our inactive development portfolio.
Active
Development Portfolio
ONS-5010
— Bevacizumab for Ophthalmic Use
ONS-5010
is an investigational ophthalmic formulation of bevacizumab under development to be administered as an intravitreal injection for
the treatment of wet AMD and other retinal diseases. We currently intend to commercialize both vial and pre-filled syringe formulations
if approved.
Bevacizumab
is a full-length, humanized anti-VEGF recombinant mAb that inhibits VEGF and associated angiogenic (the growth of new blood vessels)
activity. With wet AMD, abnormally high levels of VEGF are secreted in the eye. VEGF is a protein that promotes the growth of new
abnormal blood vessels. Anti-VEGF injection therapy blocks this growth. Since the advent of anti-VEGF therapy, it has become the
standard of care treatment option within the retina community globally.
Previously,
we were developing ONS-5010 as a biosimilar (ONS-1045) of the cancer drug Avastin for use in oncology indications. In the ONS-1045
program, our bevacizumab met the primary and secondary endpoints in a three-arm single-dose pharmacokinetic, or PK, Phase 1 clinical
trial (see “—Inactive Development Portfolio-ONS-1045— Bevacizumab (Avastin) Biosimilar”). All the PK endpoints
met the bioequivalency criteria of the geometric mean ratios within 90% confidence interval of 80-125% when compared to both U.S.-
and E.U.-sourced Avastin reference products. We are developing ONS-5010 as an ophthalmic formulation of bevacizumab for
a BLA filing and not using the biosimilar drug development pathway. The following figure demonstrates the concentration-time
profile of ONS-1045, U.S.-licensed Avastin, and E.U.-licensed Avastin as the mean. The vertical line at time zero denotes dosing.
These results suggest a high degree of similarity among the three products.
Comparative
Potency of ONS-1045 versus Avastin (U.S. and E.U.)
Market
Opportunity
Age-related
macular degeneration, or AMD, is a common eye condition and a leading cause of vision loss among people age 50 and older. Wet AMD
is a form of “late stage” AMD and is also called neovascular AMD. In wet AMD, abnormal blood vessels grow underneath
the retina. These vessels can leak fluid and blood, which may lead to swelling and damage of the macula causing vision loss. With
wet AMD, abnormally high levels of VEGF are secreted in the eyes. VEGF is a protein that promotes the growth of new abnormal blood
vessels. Anti-VEGF injection therapy blocks this growth. Since the advent of anti-VEGF therapy, it has become the standard of care
treatment option within the retina community, globally. Wet AMD is a significant disease worldwide, with an estimated prevalence
of over 2.8 million patients diagnosed in the United States, top five European countries and Japan alone in 2018 (GlobalData).
Annual revenue from LUCENTIS and EYLEA (two approved anti-VEGF therapies) was approximately $9.0 billion in 2018. Although bevacizumab
is not currently FDA-approved for use in treating wet AMD, it is believed that bevacizumab currently accounts for at least 50%
of all wet AMD prescriptions in the United States, where Avastin is repackaged through compounding pharmacies and prescribed off-label.
If approved, we believe ONS-5010 has potential to mitigate
risks associated with off-label repackaging of bevacizumab.
DME is
caused by a complication of diabetes called diabetic retinopathy. Diabetic retinopathy is the most common diabetic eye disease
and the leading cause of irreversible blindness in working age Americans. Diabetic retinopathy usually affects both eyes and is
caused by ongoing damage to the small blood vessels of the retina. The leakage of fluid into the retina may lead to swelling of
the surrounding tissue, including the macula. DME is the most common cause of vision loss in people with diabetic retinopathy.
DME can occur at any stage of diabetic retinopathy, although it is more likely to occur in later stages of the disease. There were
approximately 1.0 million patients with DME in the United States, top five European countries and Japan alone in 2018 (GlobalData).
In BRVO,
retinal vein occlusions occur when there is a blockage of veins carrying blood with needed oxygen and nutrients away from the nerve
cells in the retina. A blockage in the main vein of the retina is referred to as a central retinal vein occlusion, or CRVO, while
a blockage in a smaller vein is called a branch retinal vein occlusion, or BRVO. Per the American Academy of Ophthalmology, retinal
vein occlusions are the second most common retinal vascular disorder after diabetic retinopathy. There were an estimated 0.3 million
patients with BRVO in the United States, top five European countries and Japan alone in 2018 (GlobalData).
Clinical
Development Status
The
study design for our Phase 3 clinical program to evaluate ONS-5010 as an ophthalmic formulation of bevacizumab was reviewed with
the FDA at an end of Phase 2 meeting in April 2018. We began enrolling patients in the NORSE 2 study in July 2019. NORSE 2 is
the second study in the Phase 3 clinical program for ONS-5010 for the treatment of wet AMD. We are conducting the NORSE 2 study
in the United States. The NORSE 1 study, the first clinical study in the Phase 3 clinical trial program for ONS-5010, completed
enrollment in Australia in August 2019. If the program is successful, it will support our plans to submit for regulatory approval
in multiple markets in 2021, including the United States, Europe and Japan. Because enrollment completed in August 2019, we currently
expect to report top line data from NORSE 1 in the third quarter of calendar 2020. For NORSE 2, we expect to report top line data
and submit a BLA in the first calendar quarter of 2021.
We have
also received agreement from the FDA on three Special Protocol Assessments, or SPAs, for three additional registration clinical
trials for our ongoing Phase 3 program for ONS-5010. The agreements reached with the FDA on these SPAs cover the protocols for
NORSE 4, a registration clinical trial to treat BRVO, and NORSE 5 and NORSE 6, two registration clinical trials to treat DME. We
intend to initiate NORSE 4, 5 and 6 in 2020 after completion of enrollment in NORSE 2.
NORSE 1
NORSE 1 completed enrollment
in August 2019 with a total of 61 patients at nine sites in Australia. The study is the first of two ongoing, clinical trials evaluating
ONS-5010 against ranibizumab for wet AMD. The endpoint for the study is a mean change in baseline visual acuity at 11 months for
ONS-5010 dosed on a monthly basis compared to ranibizumab dosed using the PIER alternative dosing regimen of three monthly doses
followed by quarterly dosing. We currently expect to announce a readout of the topline results from NORSE 1 in the third quarter
of calendar year 2020.
NORSE 2
NORSE 2 is the second of
our two required clinical trials evaluating ONS-5010 against ranibizumab for wet AMD. We began enrolling patients in July 2019,
and the study is expected to enroll a total of at least 220 patients at sites in the United States. Patients enrolled in the ONS-5010-002
study will be treated for 11 months. The endpoint for the study is a mean increase in baseline visual acuity of at least five letters
at 11 months for ONS-5010 dosed on a monthly basis compared to ranibizumab dosed using the approved PIER alternative dosing regimen
of three-monthly doses followed by quarterly dosing. We currently anticipate full enrollment for NORSE 2 in the first quarter of
calendar year 2020.
Inactive
Development Portfolio
ONS-3010
— Adalimumab (Humira) Biosimilar
Humira,
the reference product for ONS-3010, is a subcutaneous injectable mAb that binds to tumor necrosis factor alpha, or TNFα. TNFα
belongs to a family of pro-inflammatory cytokines, or soluble protein mediators, that are key initiators of immune-mediated inflammation
in many different diseases, such as rheumatoid arthritis, psoriatic arthritis, psoriasis, ankylosing spondylitis, Crohn’s
disease and ulcerative colitis. Several biologic agents, including Humira, have been developed to inhibit the inflammatory activity
of TNFs in the context of these diseases and are collectively referred to as the anti-TNF class of therapeutics.
We have
successfully completed a randomized, double-blind, single-dose and single-center Phase 1 clinical trial comparing ONS-3010 to Humira
in 198 subjects receiving a 40mg dose in three treatment arms: ONS-3010, U.S.-Humira and E.U.-Humira. This Phase 1 clinical trial
was performed at the Center for Human Drug Research in Leiden, the Netherlands under the auspices of the Stichting Beoordeling
Ethiek Biomedisch Onderzoek. In this trial, ONS-3010 met its primary and secondary endpoints, demonstrating a similar PK profile,
as well as an immunogenicity profile equivalent to both U.S. - and E.U.-Humira across all three treatment arms. ONS-3010 was well-tolerated
and demonstrated a favorable safety profile, which was similar to the safety profile for both U.S.- and E.U.-Humira and demonstrated
a lower injection site reaction rate than both U.S.- and E.U.-Humira.
Regulatory
Status and Development Plan
Prior
to commencement of our Phase 1 clinical trial in 2014, we received feedback from both FDA and the European Medicines Agency, or
EMA, which provided guidance for the design of the clinical trial and our similarity testing approach. Since completion of the
Phase 1 clinical trial, we had additional regulatory meetings with the FDA and the EMA, as well as other national regulatory agencies
such as the Medicines and Healthcare Products Regulatory Agency, or MHRA, the Swedish Medical Products Agency, and the Canadian
regulatory agency, Health Canada, to obtain further guidance on the Phase 3 clinical trial design in plaque psoriasis and the general
similarity development plan for registration. We have out-licensed all of the emerging markets development rights to third parties.
Future development of ONS-3010 as a biosimilar for Humira in the United States and other developed markets will only occur if
we secure a development partner or sell those development rights completely.
ONS-1045
— Bevacizumab (Avastin) Biosimilar
Avastin,
the reference product for ONS-1045, is a mAb administered by infusion that interferes with tumor growth by binding to VEGF, a protein
that stimulates the formation of new blood vessels and is approved for use in the United States, Europe and elsewhere for the treatment
of various forms of cancer.
We have
completed a randomized, double-blind, single-dose and single-center Phase 1 clinical trial comparing ONS-1045 to U.S.-licensed
Avastin and E.U.-licensed Avastin in 135 subjects. This Phase 1 trial was performed at the Center for Human Drug Research in Leiden,
the Netherlands under the auspices of the Stichting Beoordeling Ethiek Biomedisch Onderzoek. PK data, safety and immunogenicity
were collected for a total of 98 days after a single 2.0 mg/kg dose. In this trial, ONS-1045 met its primary and secondary endpoints
demonstrating a similar PK profile, as well as an immunogenicity profile equivalent to both U.S.- and E.U.-Avastin. Safety was
comparable across all three groups. Immunogenicity was low with only one subject in the E.U.-licensed Avastin arm developing an
anti-drug antibody, or ADA, at day 98. No neutralizing antibodies were detected in any arm. The results of the Phase 1 trial (shown
in the figure included under “—Active Development Portfolio — ONS-5010 — Bevacizumab for Ophthalmic Use”)
suggest a high degree of similarity between the three products.
Regulatory
Status and Development Plan
Prior to
the commencement of the Phase 1 clinical trial in 2015, we received feedback from both the FDA and the EMA, which provided guidance
for the clinical trial design and similarity testing approach. We have completed the next series of our regulatory interactions
to obtain further guidance on our confirmatory trial design. Based on input from the FDA, EMA, MHRA and the Danish Health and Medicines
Agency, we believe we have designed the appropriate confirmatory trial. We have outlicensed all of the emerging markets development
rights to third parties. Future development of ONS-1045 as a biosimilar for Avastin in the United States and other developed markets
will only occur if we secure a development partner or sell those development rights completely.
Commercialization,
Sales and Marketing
We currently
own all of the development and commercialization rights to ONS-5010. Our commercialization strategy is to maximize the revenue
potential of ONS-5010, which could potentially include marketing it ourselves if approved, as well as seeking and securing licensing
opportunities to fund its continued development. If approved, we believe that ONS-5010 will be entitled to 12 years marketing exclusivity
against biosimilar competition.
For many
years, anti-VEGF therapy has been the standard of care for many ophthalmic diseases, including wet AMD, DME and BRVO. However,
although multiple branded drugs have been approved for these indications (e.g., LUCENTIS, EYLEA and BEOVU), they are very
expensive. Doctors who wish to treat their retinal patients with a less expensive anti-VEGF drug often use bevacizumab. But because
there is no FDA-approved ophthalmic formulation of bevacizumab, doctors must use repackaged bevacizumab (Avastin) provided by compounding
pharmacists. Despite clinicians’ widespread acceptance and use of bevacizumab to treat ophthalmic diseases such as wet AMD,
DME and BRVO, no manufacturer has previously sought approval from FDA of bevacizumab for these purposes.
The
repackaged bevacizumab for ophthalmic use that is provided by compounding pharmacies can carry known risks of
contamination (including silicone oil droplet contamination from syringes) and inconsistent potency, with potentially severe consequences,
as leading retinal societies have reported. For these reasons, the retina community and payors have shown interest in the development
of an ophthalmic formulation of bevacizumab that could be an on-label alternative to repackaged bevacizumab from compounding pharmacists.
To meet
this retinal market need, we are developing ONS-5010 as an investigational ophthalmic formulation of bevacizumab. If approved,
it will provide an FDA-approved and European Agency-approved, viable treatment option across the spectrum of anti-VEGF ophthalmic
drugs that treat wet AMD, DME and BRVO. Additionally, if approved, it would avoid the safety, sterility, potency, availability and
syringe drawbacks that can occur with repackaged bevacizumab from compounding pharmacies.
Additionally,
if ONS-5010 is approved and commercialized, we expect to price it responsibly to help mitigate the high cost of on-label treatment
for retinal diseases. Both in the U.S. and globally, the high cost of treating retinal diseases such as wet AMD, DME and BRVO can
result in patients receiving an insufficient number of treatments, or potentially no treatment at all. Our commercial strategy
includes a focus on becoming the step therapy of choice for retinal diseases for branded and long acting options. where an anti-VEGF
therapy is indicated. Step therapy is a type of prior authorization for drugs that begins treatment for a medical condition with
the most preferred drug therapy and progresses to other therapies only if necessary.
By ensuring
the consistent availability of safe, sterile and fully potent on-label bevacizumab for intravitreal injection, at a responsible
price, ONS-5010, if approved, has the potential to become the anti-VEGF cornerstone of care for retinal diseases. It may also provide
synergies with future long-acting agents and adjunct therapies for advanced treatment of wet AMD, DME and BRVO. ONS-5010 has the
potential, if approved and commercialized with a responsible pricing strategy, to help lower the aggregate costs of treating
retinal diseases for the overall healthcare system.
To provide
additional resources to fund the ONS-5010 program, in addition to pursuing potential strategic collaborations and partnerships
for ONS-5010, we also intend to continue to pursue potential strategic collaborations, and partnerships with biotechnology and
pharmaceutical companies in the United States and other regions for our clinical stage biosimilar assets, or even the outright
sale of the development rights of these assets outside of the emerging markets territories previously licensed. Currently, we have
a joint participation agreement in place for ONS-3010 with Zhejiang Huahai Pharmaceutical Co., Ltd., or Huahai, whereby we share
post-Phase 1 development costs with Huahai, and proportionately share the revenues from commercialization of ONS-3010 in the United
States, Canada, European Union, or E.U., Japan, Australia and New Zealand. We could also be required to form a joint venture to
further develop and commercialize ONS-3010 with Huahai in the agreed countries, if so, requested by Huahai. However, we do not
have any other development and commercialization agreements for the United States or for major ex-U.S. markets, such as the E.U.
and Japan.
For emerging
markets opportunities, in 2012 and 2013, we established early country-specific partnerships for ONS-3010 and ONS-1045 in China
with Huahai, in India with IPCA Laboratories Limited, or IPCA, and in Mexico with Laboratories Liomont, S.A. de C.V., or Liomont,
and in September 2017 we entered into an agreement with BioLexis Pte. Ltd., or BioLexis, our controlling stockholder, providing
for the license of rights to ONS-3010 and ONS-1045 in emerging markets excluding China, India and Mexico. To date, these agreements
have collectively provided an aggregate of $29.0 million in payments as of September 30, 2019.
Collaboration
and License Agreements
We enter
into collaboration and license agreements in the ordinary course of our business. We have in-licensed certain technology from Selexis
SA, or Selexis, that we used to research and develop our product candidates. For product candidates developed using the Selexis
technology, we enter into commercial license agreements with Selexis that give us rights to commercialize, file investigational
new drugs, or INDs and enter into collaborative arrangements with third parties for the further development and commercialization
of such biosimilar product candidates.
MTTR
— Strategic Partnership Agreement (ONS-5010)
In February 2018,
we entered into a strategic partnership agreement with MTTR, LLC, or MTTR, to advise on regulatory, clinical and commercial strategy
and assist in obtaining approval of ONS-5010, our bevacizumab therapeutic product candidate for ophthalmic indications. Under
the terms of the agreement, we paid MTTR a $58,333 monthly consulting fee through December 2018. Beginning January 2019, the monthly
fee increased to $105,208 per month, and then, after launch of ONS-5010 in the United States, will increase to $170,833 per month
(the amount of which is reduced by 50% in the event net sales of ONS-5010 are below a certain threshold million per year). We
also agreed to pay MTTR a tiered percentage of the net profits of ONS-5010 ranging in the low- to mid-teens, with the ability
to credit monthly fees paid to MTTR. In March 2018, we amended the MTTR agreement and agreed to pay a one-time fee of $268,553
to MTTR by September 2020 if certain regulatory milestones are achieved earlier than anticipated. In June 2019, we entered into
a further amendment of our strategic partnership agreement with MTTR pursuant to which we increased the aggregate monthly payments
to MTTR under the existing agreement from $105,208 to $170,724 through December 2019 by adding an additional monthly retainer
of $115,516, and an offset of $50,000 to the existing monthly retainer while the additional monthly retainer is in effect. MTTR
earned an aggregate $1,744,933 and $602,629 during the
years ended September 30, 2019 and 2018, respectively, which includes monthly consulting fees and expense reimbursement.
Unless earlier terminated, the
MTTR agreement expires, on a country-by-country basis, upon the later of expiration of any regulatory exclusivity in such country
and, in certain major market countries, ten years after launch of ONS-5010 in such major market country, and in all other countries
in the territory, ten years after launch of ONS-5010 in any country in the territory. Either party may terminate the MTTR agreement
upon the uncured material breach of the agreement by the other party or upon a bankruptcy or insolvency of the other party. Additionally,
we are permitted to terminate the MTTR agreement in the event of certain specified development or commercial failures of ONS-5010
and may terminate either the entire MTTR agreement or with respect to certain consultants in the event that certain consultants
are not able to perform their obligations under the MTTR Agreement, and a suitable replacement consultant is not found. Additionally,
in the event of a change of control of our company or sale of our rights to ONS-5010, MTTR will be entitled to additional consideration
equal to its profit-sharing percentage multiplied by the value of the applicable transaction that relates to ONS-5010 (subject
to certain adjustments).
In November 2018 we appointed
Terry Dagnon as our Chief Operating Officer and Jeff Evanson as our Chief Commercial Officer. Although each is an executive officer
of our company, they are providing services to us pursuant to our strategic partnership agreement with MTTR, are compensated by
MTTR, and each has an ownership interest in MTTR. See also Item 13 “Certain Relationships and Related Transactions, and Director
Independence—MTTR LLC - ONS 5010 Strategic Partnership Agreement.”
Selexis
— Humira (ONS-3010), Avastin (ONS-5010 and ONS-1045) and Herceptin (ONS-1050)
In October 2011, we entered
into a research license agreement with Selexis, whereby we acquired a non-exclusive license to conduct research internally or in
collaboration with third parties to develop recombinant proteins from cell lines created in mammalian cells using the Selexis expression
technology, or the Selexis Technology. The research license expired on October 9, 2018, and accordingly, we are no longer using
the Selexis Technology in our research.
Selexis also granted us
a non-transferrable option to obtain a perpetual, non-exclusive, worldwide commercial license under the Selexis Technology to manufacture,
or have manufactured, a recombinant protein produced by a cell line developed using the Selexis Technology for clinical testing
and commercial sale. We exercised this option in April 2013 and entered into three commercial license agreements with Selexis for
our ONS-3010, ONS-1045 (which covers ONS-5010) and ONS-1050 product candidates. We paid an upfront licensing fee to Selexis for
each commercial license and also agreed to pay a fixed milestone payment for each licensed product. In addition, we are required
to pay a single-digit royalty on a final product-by-final product and country-by-country basis, based on worldwide net sales of
such final products by us or any of our affiliates or sub-licensees during the royalty term. At any time during the term, we have
the right to terminate our royalty payment obligation by providing written notice to Selexis and paying Selexis a royalty termination
fee.
Commercial
License Agreements
On
April 11, 2013, following the exercise of our option to enter a commercial license under the Selexis research license, we entered
into commercial license agreements with Selexis for each of the ONS-3010, ONS-1045 and ONS-1050 (a biosimilar to Herceptin that
we are no longer developing) biosimilar product candidates that were developed under the research license (which agreements were
subsequently amended on May 21, 2014). Under the terms of each commercial license agreement, we acquired a non-exclusive worldwide
license under the Selexis Technology to use the cell lines developed under the research license and related materials, to manufacture
and commercialize licensed and final products, with a limited right to sublicense.
We
were required to pay an upfront licensing fee of CHF 65,000 (approximately $0.1 million) to Selexis for each commercial license
and also agreed to pay up to CHF 365,000 (approximately $0.4 million) in milestone payments for each licensed product. In addition,
we are required to pay a single-digit royalty on a final product-by-final product and country-by-country basis, based on worldwide
net sales of such final products by us or any of our affiliates or sublicensees during the royalty term. The royalty term for each
final product in each country is the period commencing from the first commercial sale of the applicable final product in the applicable
country and ending on the expiration of the specified patent coverage. At any time during the term, we have the right to terminate
our royalty payment obligation by providing written notice to Selexis and paying Selexis a royalty termination fee of CHF 1,750,000
(approximately $1.8 million). The initiation of our Phase 3 clinical program for ONS-5010 in fiscal 2019 triggered a CHF 65,000
(approximately $0.1 million) milestone payment to Selexis under the commercial license agreement,
which we paid in November, 2019. As of September 30, 2019, we have paid Selexis an aggregate
of approximately $0.4 million under the commercial license agreements.
Each of
our commercial agreements with Selexis will expire in its entirety upon the expiration of all applicable Selexis patent rights.
The licensed patent rights consist of two patent families. The first patent family relates to methods of transferring cells, and
is filed in the United States, Australia, Canada, Europe, Japan and Singapore. This patent family will begin to expire worldwide
in 2022. The second patent family claims DNA compositions of matter useful for having protein production increasing activity. This
patent family is filed in the United States, Australia, Canada, China, Europe, Hong Kong, Israel, India, Japan, South Korea, Russia,
Singapore and South Africa. This patent family will begin to expire worldwide in 2025. Either party may terminate the related agreement
in the event of an uncured material breach by the other party or in the event the other party becomes subject to specified bankruptcy,
winding up or similar circumstances.
Either
party may also terminate the related agreement under designated circumstances if the Selexis Technology infringes third-party intellectual
property rights. In addition, we have the right to terminate each of the commercial agreements at any time for our convenience;
however, with respect to the agreements relating to ONS-3010 and ONS-1045, this right is subject to Liomont’s consent pursuant
to a corresponding letter we executed in conjunction with the standby agreement entered into between Selexis and Liomont on November
11, 2014. The standby agreement permits Liomont to assume the license under the applicable commercial agreement for Mexico upon
specified triggering events involving our bankruptcy, insolvency or similar circumstances.
Ex-U.S.
Collaboration and License Agreements
Aside from
our joint participation agreement in place for ONS-3010 with Huahai, whereby we agreed to share post-Phase 1 clinical development
costs, and proportionately share the revenues from commercialization of ONS-3010 in the United States, Canada, E.U. and Japan,
among other markets, and under which we could be required to form a joint venture with Huahai for ONS-3010 if so requested by Huahai,
we do not have any commercial license or development agreements for the United States or for major ex-U.S. markets, such as the
E.U. or Japan. We currently have collaboration and license agreements for smaller ex-U.S. markets and, collectively, such agreements
have provided an aggregate of $29.0 million in payments as of September 30, 2019 for our most advanced biosimilar product candidates.
Our contracts include agreements with IPCA (for ONS-3010, ONS-1045 and ONS-1050 in India and other regional markets), Liomont (for
ONS-3010 and ONS-1045 in Mexico), Huahai (for ONS-3010 and ONS-1045 in China) and BioLexis (for ONS-3010 and ONS-1045 in emerging
markets excluding China, India and Mexico). Our arrangements with these partners generally include a strategic license for a defined
territory for agreed biosimilar product candidates and may also include agreements to assist with research and development to assist
our contract counterparty in establishing their own mAb research, development and manufacturing capabilities. Under our existing
strategic licensing agreements, we generally received an upfront payment upon execution, and have the ability to earn additional
regular milestone payments and the right to receive royalties (generally a mid-single digit to low-teens percentage rate) based
on net sales in the agreed territory. Our existing agreements to assist with research and development also included an upfront
payment upon execution, and we have the ability to earn additional regular milestone payments, and the right to receive royalties
(generally a mid-single digit to low-teens percentage rate) based on net sales in the agreed territory.
Generally,
our agreements expire on a product-by-product basis on the date of the expiration of the royalty revenue term for all products
in the territory. The royalty revenue term is 10 years from the date of first commercial sale and any renewal is subject to good
faith negotiation. The license term for the agreed territory is perpetual. Either party may terminate the agreement in its entirety
or with respect to a particular product if the other party materially breaches the agreement, subject to specified notice and
cure periods. In addition, we have the right to terminate the agreement in connection with any interference, opposition or challenge
of our patent rights. If the agreement is terminated due to our breach, our contract counterparty is generally free to use all
applicable technology and know-how that we have provided under the agreement.
As noted
above, our collaboration agreements with Huahai also includes a joint participation agreement, which provides for the co-funding
of development of ONS-3010 in the United States, Canada, E.U., Japan, Australia and New Zealand and the proportionate sharing of
the revenues from commercialization of ONS-3010 in the agreed countries, and also provides for the formation of a joint venture
with Huahai to further develop and commercialize ONS-3010 with Huahai in the agreed countries, if so requested by Huahai.
In the
event Huahai funds its proportionate share of development costs incurred after completion of the “Phase-3 Ready Package,”
Huahai would be entitled to retain its 51% value ownership, with us entitled to retain our 49% value ownership, of ONS-3010 in
the agreed countries. Similarly, revenues from the commercialization of ONS-3010 in the agreed countries (including major markets
such as the United States and the E.U., among others), would also be shared based on such proportional ownership interests. In
the event that Huahai does not fund its proportionate share of such development costs, the joint participation agreement provides
for a proportionate adjustment to our respective value ownership interests based on our respective investments in such development
costs, which would increase our value ownership interest in ONS-3010.
Throughout
the term of the joint participation agreement, we and our affiliates are prohibited from, directly or indirectly, conducting or
having conducted or funding any discovery, research, development, regulatory, manufacturing or commercialization activity, alone
or in collaboration with a third party, of any biosimilar product having the same reference product as the ONS-3010 compound or
corresponding products, for use in the United States, Canada, E.U., Japan, Australia and New Zealand, other than ONS-3010 with
Huahai pursuant to the joint participation agreement.
Unless
terminated early upon mutual agreement of the parties, or due to a material breach of either party that is uncured, the joint participation
agreement will terminate upon entry into a mutually acceptable collaboration agreement between us and Huahai for ongoing development
and commercialization of ONS-3010 in the agreed countries, or we and Huahai enter into an agreed license with a third party for
such ongoing development and commercialization of ONS-3010 in the agreed countries. If the joint participation agreement is terminated
for cause due to our breach, we could be required to refund Huahai any amounts funded by Huahai to develop ONS-3010, as well as
pay Huahai a 6% royalty on net sales made by us or an affiliate, as well as 25% of revenues we receive from a sublicensee for commercial
sales of ONS-3010 until the aggregate of such payments is equal to 10 times the amount Huahai funded for the development of ONS-3010.
Furthermore,
if we were to file a voluntary petition in bankruptcy, or have an involuntary petition filed that we could not dismiss within 120
days, then Huahai would be granted an exclusive license to continue the development and commercialization of ONS-3010 in the agreed
countries.
As of September
30, 2019, we have received an aggregate of $5.0 million of payments from IPCA under our various agreements, an aggregate of $3.0
million of payments from Liomont under our various agreements, an aggregate of $16.0 million of payments from Huahai under our
various agreements, $10.0 million of which were pursuant to the joint participation agreement and an aggregate of $5.0 million
from BioLexis under our joint development and licensing agreement.
Competition
Competition
in the area of pharmaceutical research and development is intense and significantly depends on scientific and technological factors.
These factors include the availability of patent and other protection for technology and products, the ability to commercialize
technological developments and the ability to obtain regulatory approval for testing, manufacturing and marketing. Our competitors
include major pharmaceutical and specialized biotechnology companies, many of which have financial, technical and marketing resources
significantly greater than ours. In addition, many biotechnology companies have formed collaborations with large, established
companies to support research, development and commercialization of products that may be competitive with ours. Academic institutions,
governmental agencies and other public and private research organizations are also conducting research activities and seeking
patent protection and may commercialize products on their own or through joint ventures. We are aware of certain other products
manufactured or under development by competitors that are used for the treatment of the health conditions that we have targeted
for product development. We can provide no assurance that developments by others will not render our technology obsolete, noncompetitive
or harm our development strategy, that we will be able to keep pace with new technological developments or that our technology
will be able to supplant established products and methodologies in the therapeutic areas that are targeted by us. The foregoing
factors could have a material adverse effect on our business, prospects, financial condition and results of operations. These
companies, as well as academic institutions, governmental agencies and private research organizations, also compete with us in
recruiting and retaining highly qualified scientific personnel and consultants.
We will encounter competition
from existing firms that offer competitive solutions in ocular diseases. These competitive companies could develop products that
are superior to, or have greater market acceptance, than the products being developed by us. We will have to compete against other
biotechnology and pharmaceutical companies with greater market recognition and greater financial, marketing and other resources.
Wet-AMD Market
AMD is a medical condition
that usually affects older adults and generally results in a loss of vision. AMD occurs in “dry” (non-exudative) and
“wet” (exudative) forms. Wet AMD is the advanced form of macular degeneration that involves the formation of abnormal
and leaky blood vessels in the back of the eye behind the retina, through a process known as choroidal neovascularization. While
the wet form accounts for approximately 15% of all AMD cases, according to the National Eye Institute, it is responsible for 90%
of severe vision loss associated with AMD. The National Eye Institute also estimates that the prevalence of wet AMD among adults
40 years or older in the United States is approximately 1.75 million people. In addition, more than 200,000 new cases are diagnosed
annually in North America.
Competitive Landscape in Wet-AMD
Off-label use of bevacizumab
(Avastin) is estimated to be at least 50% of the overall market in the United States. The current FDA approved market leaders for
the treatment of wet AMD are VEGF inhibitors, including LUCENTIS and EYLEA. Annual revenue (worldwide) was approximately $9.0 billion
in 2018 for the approved anti-VEGF therapeutics LUCENTIS and EYLEA alone. Additionally, in 2019, BEOVU (brolucizumbab-dbll) was
approved by the FDA as another anti-VEGF for the treatment of wet AMD. Bevacizumab, LUCENTIS, EYLEA and BEOVU are all administered
via frequent intravitreal injections directly into the eye. We are developing ONS-5010 as an approved bevacizumab for the treatment
of wet AMD, as well as DME and BRVO.
In addition
to the other treatments used in patients with wet AMD, there are various other companies with product candidates in Phase 1, 2
and 3 clinical trials for the treatment of wet AMD. Programs currently in Phase 2 or Phase 3 clinical trials include, but are not
limited to:
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Abicipar Pegol, a VEGF targeting DARPin molecule being developed by Allergan plc;
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X-82, an oral tyrosine kinase inhibitor being developed by Tyrogenex, Inc.;
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ALG-1001, an integrin targeting peptide being developed by Allegro Ophthalmics LLC;
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Zimura, a C-3 inhibitor being developed by Ophthotech Corporation;
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RG7716, a bispecific antibody to both VEGF-A and Ang2 being developed by Hoffman-La Roche AG;
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OPT-302, an inhibitor of VEGF-C and VEGF-D being developed by Opthea Limited; and
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PAN-90806, a selective inhibitor of VEGF being developed by PanOptica Inc.
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All of these product candidates
in clinical development, with the exception of X-82 and PAN-90806, use an intravitreal route of administration much like the current
standards of care. We believe that ONS-5010 has potential competitive advantages through the familiarity of patients and physicians
in using off-label Avastin. We also believe we have reduced the risk in our clinical program by leveraging our prior work in developing
a biosmilar drug product candidate for Avastin as a treatment for cancer. However, clinical trial data from other clinical programs
may negatively impact our ability to garner future financing or business collaborations, combinations or transactions with other
pharmaceutical and biotechnology companies.
Intellectual Property
Our commercial success depends in part
on our ability to avoid infringing the proprietary rights of third parties, our ability to obtain and maintain proprietary protection
for our technologies where applicable and to prevent others from infringing our proprietary rights. We seek to protect our proprietary
technologies by, among other methods, evaluating relevant patents, establishing defensive positions, monitoring E.U. oppositions
and pending intellectual property rights, preparing litigation strategies in view of the U.S. legislative framework and filing
U.S. and international patent applications on technologies, inventions and improvements that are important to our business. As
of September 30, 2019, we own one U.S. patent, one foreign patent, seven pending U.S. non-provisional applications, and 50 pending
international applications that were nationalized from eight Patent Cooperation Treaty, or PCT, applications, and one pending
PCT application, which relate to formulations developed for ONS-3010, ONS-5010/ONS-1045 and ONS-1050, methods of antibody purification,
methods for purifying antibodies to separate isoforms, methods of use, methods of reducing high molecular weight species, and
modulating afucosylated species as well as efficiently determining the amino acid sequence of antibodies. Our first PCT application
was nationalized in April 2016 in Australia, Canada, China, Europe, Hong Kong, India, Japan, Mexico and the United States. If
granted, patents issuing from these nine applications are expected to expire in 2034, absent any adjustments or extensions. Our
second PCT application was nationalized in July 2017 in Europe and the United States. If granted, patents issuing from these two
applications are expected to expire in 2036, absent any adjustments or extensions. Our third PCT application was nationalized
in June 2018 in Australia, Canada, China, Europe, India, Japan, Mexico and the United States. If granted, patents issuing from
these eight applications are expected to expire in 2036, absent any adjustments or extensions. Our fourth PCT application was
nationalized in July 2018 in Australia, Canada, China, Europe, India, Japan, Mexico and the United States. If granted, patents
issuing from these eight applications are expected to expire in 2037, absent any adjustments or extensions. Our fifth PCT application
was nationalized in July 2018 in Australia, Canada, China, Europe, India, Japan, Mexico and the United States. If granted, patents
issuing from these eight applications are expected to expire in 2037, absent any adjustments or extensions. Our sixth PCT application
was nationalized in July 2018 in Australia, Canada, China, Europe, India, Japan, Mexico and the United States. If granted, patents
issuing from these eight applications are expected to expire in 2037, absent any adjustments or extensions. Our seventh PCT application
was nationalized in August 2018 in Australia, Canada, China, Europe, India, Japan, Mexico and the United States. If granted, patents
issuing from these eight applications are expected to expire in 2037, absent any adjustments or extensions. Our eighth PCT application
was nationalized in August 2018 in Australia, Canada, China, Europe, India, Japan, Mexico and the United States. If granted, patents
issuing from these eight applications are expected to expire in 2037, absent any adjustments or extensions. Any patents that may
eventually issue claiming priority to our provisional patent application are expected to expire in 2039. We also rely on trade
secrets, know-how and continuing technological innovation to develop and maintain our proprietary position.
The term of individual patents depends
upon the legal term of the patents in countries in which they are obtained. In most countries, including the United States, the
patent term is generally 20 years from the earliest date of filing a non-provisional patent application in the applicable country.
In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a
patentee for administrative delays by the United States Patent and Trademark Office in examining and granting a patent or may be
shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an
earlier expiration date.
Regulatory
Government
Regulation and Product Approval
The FDA and
other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among
other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling,
packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval
reporting of biologics such as those we are developing. We, along with 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 product candidates.
The process required
by the FDA before biologic product candidates may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests and animal studies performed in accordance with the
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FDA’s current Good Laboratory Practices, or GLP, regulation;
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submission to the FDA of an IND, which must become effective before clinical
trials may begin and must be updated annually or when significant changes are made;
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approval by an independent Institutional Review Board, or IRB, or ethics
committee at each clinical site before the trial is commenced;
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performance of adequate and well-controlled human clinical trials to establish
the safety, purity and potency of the proposed biologic product candidate for its intended purpose;
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preparation of and submission to the FDA of a BLA after completion of all pivotal clinical trials;
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satisfactory completion of an FDA Advisory Committee review, if applicable;
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a determination by the FDA within 60 days of its receipt of a BLA to file
the application for review;
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satisfactory completion of an FDA pre-approval inspection of the manufacturing
facility or facilities at which the proposed product is produced to assess compliance with cGMP and to assure that the facilities,
methods and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected
clinical investigation sites to assess compliance with Good Clinical Practices, or GCP; and
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FDA review and approval of the BLA to permit commercial marketing of the
product for particular indications for use in the United States.
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Preclinical
and Clinical Development
Prior to beginning
the first clinical trial with a product candidate in the United States, we must submit an IND to the FDA. An IND is a request for
authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission
is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in
vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry,
manufacturing, and controls information; and any available human data or literature to support the use of the investigational product.
An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt
by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial.
In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or
questions before the clinical trial can begin. Submission of an IND therefore may or 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 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 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 study sponsor, known
as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check
points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable
safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting
of ongoing clinical studies and clinical study results to public registries.
For purposes
of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.
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Phase 1 — The investigational product is initially introduced into
healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage
tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing
doses, and, if possible, to gain early evidence on effectiveness.
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Phase 2 — The investigational product is administered to a limited
patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule
and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information
prior to beginning larger and more expensive Phase 3 clinical trials.
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Phase 3 — The investigational product is administered to an expanded
patient population 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 to provide an adequate basis for product approval.
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In some
cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain
more information about the product. These so- called Phase 4 studies may be made a condition to approval of the BLA. Concurrent
with clinical trials, companies may complete additional animal studies and develop additional information about the biological
characteristics of the product candidate and must finalize a process for manufacturing the product in commercial quantities in
accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the
product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the
final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested,
and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration
over its shelf life.
BLA
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 are submitted to the FDA as part of a BLA requesting approval to market the product for
one or more indications. The BLA must include all relevant data available from pertinent preclinical and clinical studies, including
negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s
chemistry, manufacturing, controls, and proposed labeling, among other things. The submission of a BLA requires payment of a substantial
application user fee to FDA, unless a waiver or exemption applies.
Once a BLA has
been submitted, the FDA’s goal is to review standard applications within ten months after it accepts the application for
filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In both
standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or
clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility
in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety,
purity and potency. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before
approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not
approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements
and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA,
the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application,
manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often
will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA
ultimately may decide that the application does not satisfy the regulatory criteria for approval.
After the FDA
evaluates a 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. An approval letter authorizes commercial
marketing of the product with specific prescribing information for specific indications. A Complete Response letter will describe
all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the
application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required
inspections, testing submitted product lots, and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA
may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional
information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied,
require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy
of a product.
If
regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations
on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation
and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. 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 also may condition approval
on, among other things, changes to proposed labeling 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.
Post-Approval
Requirements
Any products
manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including,
among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling
and distribution, and advertising and promotion of the product. 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. There also are continuing user fee requirements,
under which FDA assesses an annual program fee for each product identified in an approved BLA. Biologic manufacturers and their
subcontractors are required to register their establishments with the FDA and certain state agencies and are subject to periodic
unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation
requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending
on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation
and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we
may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality
control to maintain compliance with cGMP and other aspects of regulatory compliance.
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, 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:
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restrictions on the marketing or manufacturing of a product, complete withdrawal of the product
from the market or product recalls;
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fines, warning letters or holds on post-approval clinical studies;
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refusal of the FDA to approve pending applications or supplements to approved applications, or
suspension or revocation of existing product approvals;
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product seizure or detention, or refusal of the FDA to permit the import or export of products; or
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injunctions or the imposition of civil or criminal penalties.
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The FDA closely
regulates the marketing, labeling, advertising and promotion of biologics. 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. Such off-label uses are common across medical specialties.
Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. 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.
Biosimilars
and Reference Product Exclusivity
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the
ACA, signed into law in 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA,
which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-approved
reference biological product. To date, a number of biosimilars have been licensed under the BPCIA, and numerous biosimilars have
been approved in Europe. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.
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. Complexities
associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products
are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out
by the FDA.
Under the BPCIA,
an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference
product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until
12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company
may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing
that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety,
purity and potency of its product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable
products.
Other U.S.
Healthcare Laws and Compliance Requirements
Although we
currently do not have any products on the market, our current and future arrangements with healthcare professionals, principal
investigators, consultants, customers and third-party payors expose us to broadly applicable healthcare regulation and enforcement
by the federal government and the states and foreign governments in which we conduct our business. These laws include, without
limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security and physician sunshine laws and
regulations.
The federal
Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, soliciting, receiving
or providing remuneration, directly or indirectly, in cash or in kind, either to induce or award the referral of an individual,
for an item or service or the purchasing, recommending or ordering of a good or service, for which payment may be made under federal
healthcare programs such as the Medicare and Medicaid programs. The federal Anti-Kickback Statute is subject to evolving interpretations.
In the past, the government has enforced the federal Anti-Kickback Statute to reach large settlements with healthcare companies
based on, in certain cases, sham consulting and other financial arrangements with physicians. Further, the Patient Protection and
Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act,
among other things, amends the intent requirement of the federal Anti-Kickback Statute and the criminal statutes governing healthcare
fraud. A person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them in order
to commit a violation. In addition, the Affordable Care Act provides that 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 civil False Claims Act or federal civil monetary penalties statute.
Additionally,
the federal false claims and civil monetary penalties laws, including the civil False Claims Act prohibit, among other things,
knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the U.S. government,
or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government. Actions under
the civil False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of
the government. The federal government has used the civil False Claims Act, and the accompanying threat of significant liability,
in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the country, for example, in connection
with the promotion of products for unapproved uses and other illegal sales and marketing practices.
The
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that
prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare
benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit
program, 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.
HIPAA, as amended
by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, imposes
requirements regarding the privacy and security of individually identifiable health information, including mandatory contractual
terms, for covered entities, or certain healthcare providers, health plans, and healthcare clearinghouses, and their business associates
that provide services to the covered entity that involve individually identifiable health information. HITECH also increased the
civil and criminal penalties that may be imposed against covered entities and business associates and gave state attorneys general
new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA.
In addition,
there has been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers.
The Affordable Care Act, among other things, via the Physician Payments Sunshine Act, imposes annual reporting requirements on
certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid,
or the Children’s Health Insurance Program, with specific exceptions, for payments made by them to physicians and teaching
hospitals, as well as ownership and investment interests held by physicians and their immediate family members.
Certain states
also impose restrictions on pharmaceutical manufacturer marketing practices and/or require the tracking and reporting of gifts,
compensation and other remuneration to physicians. Certain states and local governments require the registration of pharmaceutical
sales representatives. Additionally, analogous state and foreign laws and regulations, such as state anti-kickback and false claims
laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental
third party payors, including private insurers. State laws may also apply that require pharmaceutical companies to comply with
the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal
government or otherwise restrict payments that may be made to healthcare providers or other potential referral sources. In addition,
certain states require drug manufacturers to report information related to payments and other transfers of value to physicians
and other healthcare providers or marketing expenditures or drug pricing. In addition, state and local laws may require the registration
of pharmaceutical sales representatives. We may also be subject to, and foreign laws governing the privacy and security of health
information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA,
thus complicating compliance efforts.
The shifting
commercial compliance environment and the need to build and maintain robust systems to comply with different compliance and/or
reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may violate one or more of
the requirements. If our operations are found to be in violation of any of such laws or any other governmental regulations that
apply to us, we may be subject to significant penalties, including, without limitation, civil, criminal and administrative penalties,
damages, fines, disgorgement, additional reporting requirements and oversight if we become subject to a corporate integrity agreement
or similar agreement to resolve allegations of non-compliance with these laws, the curtailment or restructuring of our operations,
exclusion from participation in federal and state healthcare programs and individual imprisonment, any of which could adversely
affect our ability to operate our business and our financial results.
Healthcare
Reform
The
Affordable Care Act has had, and is expected to continue to have, a significant impact on the healthcare industry. The
Affordable Care Act was designed to expand coverage for the uninsured while at the same time containing overall healthcare
costs. With regard to pharmaceutical products, among other things, the Affordable Care Act expanded and increased industry
rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare
prescription drug benefit. There have been judicial, Congressional and executive branch challenges to certain aspects of the
Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the
future. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of
the Affordable Care Act such as removing or delaying penalties, starting January 1, 2019, for not complying with the
Affordable Care Act’s individual mandate to carry health insurance, delaying the implementation of certain Affordable
Care Act-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who
participate in Medicare Part D. Additionally, on December 15, 2018, a Texas U.S. District Court Judge ruled that the
Affordable Care Act is unconstitutional in its entirety because the individual mandate was repealed by Congress. While the
Texas U.S. District Court Judge, as well as the current presidential administration and the Centers for Medicare &
Medicaid Services, or CMS, have stated that the ruling will have no immediate effect pending appeal of the decision. We
continue to evaluate the effect that the Affordable Care Act has on our business. Other legislative changes have been
proposed and adopted in the United States since the Affordable Care Act was enacted. For example, through the process created
by the Budget Control Act of 2011, there are automatic reductions of Medicare payments to providers up to 2% per fiscal year,
which went into effect in April 2013 and, due to subsequent legislative amendments, will remain in effect through 2029 unless
additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act
of 2012, which, among other things, further reduced Medicare payments to several providers. In addition, there has been
heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products,
which have 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. At the federal level, the
Trump administration’s budget proposals for fiscal years 2019 and 2020 contain further drug price control measures that
could be enacted during the budget process or in other future legislation. In addition, the current presidential
administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains
additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare
programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug
products paid by consumers. The Department of Health and Human Services, or HHS, has started soliciting feedback on some of
these measures and, at the same, is implementing others under its existing authority. While some of these measures may
require additional authorization to become effective, U.S. Congress and the Trump administration have indicated that they
will continue to seek new legislative and/or administrative measures to control drug costs. Although
a number of these, and other measures may require authorization to become effective, Congress and the executive branch have
each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. In the
coming years, additional legislative and regulatory changes could be made to governmental health programs that could
significantly impact pharmaceutical companies and the success of our product candidates. At the state level, legislatures
have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological 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. The Affordable Care Act, as well as other federal, state and foreign healthcare reform
measures that have been and may be adopted in the future, could harm our future revenues.
International
Regulation
In addition
to regulations in the United States, foreign regulations also govern clinical trials, commercial sales and distribution of product
candidates within their jurisdiction. The regulatory approval process varies from country to country and the time to approval may
be longer or shorter than that required for FDA approval. In the European Union, the approval of a biosimilar for marketing is
based on an opinion issued by the European Medicines Agency and a decision issued by the European Commission. However, substitution
of a biosimilar for the innovator is a decision that is made at the local (national) level on a country-by-country basis. Additionally,
a number of European countries do not permit the automatic substitution of biosimilars for the reference product. Many countries
also have published their own legislation outlining a regulatory pathway for the development and approval of biosimilars. In some
cases, countries have either adopted European guidance or are following guidance issued by the World Health Organization. Although
similarities are apparent across these various regulatory guidance, there is also the potential for additional country-specific
requirements.
Pharmaceutical
Coverage, Pricing and Reimbursement
In the
United States and other countries, sales of any products for which we receive regulatory approval for commercial sale will
depend in part on the availability of coverage and the adequacy of reimbursement from third-party payors, including
government health administrative authorities, managed care organizations, private health insurers and other organizations.
Third-party payors are increasingly examining the medical necessity and cost effectiveness of drug products and services in
addition to safety and efficacy and, accordingly, significant uncertainty exists as to the reimbursement status of newly drug
products. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate
will be approved. Further, there is no uniform policy for coverage and reimbursement in the United States. Third-party payors
often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have
their own methods and approval process apart from Medicare determinations. As such, one payor’s determination to
provide coverage for a drug product does not assure that other payors will also provide coverage for the drug product.
Adequate third-party reimbursement may not be available to enable us to realize an appropriate return on our investment in
product development. Obtaining and maintaining adequate reimbursement for our product candidates, once approved, may be
difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the
level of reimbursement compared to existing approved biologics and other therapies. There may be significant delays
in obtaining coverage and reimbursement for newly approved drugs in the United States, and coverage may be more limited than
the indications for which the product is approved by the FDA or similar regulatory authorities outside the United States. In
addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment
programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic
products. Adoption of price controls and cost-containment measures and adoption of more restrictive policies in jurisdictions
with existing controls and measures could further limit our net revenue and results. Decreases in third-party reimbursement
for our product candidates or a decision by a third-party payor to not cover our product candidates could reduce physician
utilization of our products and have a material adverse effect on our sales, results of operations and financial
condition.
Employees
As of September
30, 2019, we had 14 full-time employees, two of whom were primarily engaged in research and development activities and two of whom
have a Ph.D. degree. We also have two full-time consultants, who act as executive officers. None of our employees are represented
by a labor union or covered by a collective bargaining agreement.
Facilities
We occupy approximately
66,000 square feet of office, manufacturing and laboratory space in Cranbury, New Jersey, under a lease, as amended, that expires
in February 2028. Most of this space is no longer being used by us and we are in the process of attempting to sublease all or part
of the facility to reduce expenses.
Corporate
Information
We initially incorporated in January 2010 in
New Jersey as Oncobiologics, Inc., and in October 2015, we reincorporated in Delaware by merging with and into a Delaware corporation.
In November 2018, we changed our name to Outlook Therapeutics, Inc. Our headquarters are located at 7 Clarke Drive, Cranbury, New
Jersey, 08512, and our telephone number at that location is (609) 619-3990. Our website address is www.outlooktherapeutics.com.
The information contained on, or that can be accessed through, our website is not part of, and is not incorporated by reference
into this Annual Report on Form 10-K.
Item 1A.
Risk Factors
You should
consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report
on Form 10-K. If any of the following risks are realized, our business, financial condition, results of operations and prospects
could be adversely affected. The risks described below are not the only risks facing our company. Risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition, results of
operations and/or prospects.
Risks Related
to Our Financial Condition and Capital Requirements
We have
incurred significant losses and negative cash flows from operations since our inception and expect to continue to incur significant
losses and negative cash flows from operations for at least the next 12 months.
We
are a late clinical-stage biopharmaceutical company and we have incurred net losses in each year since our inception in
January 5, 2010, including net losses of $34.5 million and $30.1 million for
the years ended September 30, 2019 and 2018, respectively.
We have devoted
substantially all of our financial resources to identify, develop and manufacture our product candidates, including conducting,
among other things, analytical characterization, process development and manufacture, formulation and clinical trials, regulatory
filing and communication activities and providing general and administrative support for these operations. To date, none of our
product candidates have been approved for sale and we have financed our operations primarily through the sale of equity securities
and debt financings, as well as to a limited degree, payments under our co-development and license agreements with Zhejiang Huahai
Pharmaceutical Co., Ltd., or Huahai, Laboratorios Liomont, S.A. de C.V., or Liomont, IPCA Laboratories Limited, or IPCA, and BioLexis
Pte. Ltd., or BioLexis. The amount of our future net losses will depend, in part, on our ability to generate revenue from product
sales, the rate of our future expenditures and our ability to obtain funding through equity or debt financing or strategic licensing
or co-development collaborations.
We expect to
continue to incur significant expenses and operating losses for at least the next 12 months. We anticipate that our expenses may
increase substantially if and as we:
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continue the clinical development of our lead product
candidate, ONS-5010;
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advance ONS-5010 into additional clinical trials;
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change or add contract
manufacturing providers, clinical research service providers, testing laboratories, device suppliers, legal service providers or
other vendors or suppliers;
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seek regulatory and marketing
approvals for ONS-5010 in the United States and other markets if we successfully complete clinical trials;
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establish a sales, marketing
and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
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seek to identify, assess,
acquire or develop other product candidates that may be complementary to ONS-5010;
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make upfront, milestone, royalty or other payments
under any license agreements;
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seek to create, maintain, protect and expand our intellectual
property portfolio;
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engage in litigation, including patent litigation,
with respect to our product candidates;
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seek to attract and retain skilled personnel;
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create
additional infrastructure to support our operations as a public company and any future commercialization efforts; and
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experience
any delays or encounter issues with any of the above, including but not limited to failed clinical trials, conflicting results,
safety issues or regulatory challenges that may require longer follow-up of existing studies, additional major studies or additional
supportive studies in order to pursue marketing approval.
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Our
failure to become and remain profitable would decrease our value and could impair our ability to raise
capital, maintain our research and development efforts, expand our business or continue our operations. A decline in our
value could also cause you to lose all or part of your investment.
Our independent
registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
As
described in their audit report, our auditors have included an explanatory paragraph that states that we have
incurred recurring losses and negative cash flows from operations and have a stockholders' deficit at September 30, 2019
of $16.1 million, $6.7 million of convertible senior secured notes that become due on December 22, 2019, $3.6 million
unsecured indebtedness due on demand, and $1.0 million of unsecured notes also due on demand, but subject to a forbearance
agreement through March 2020. These matters raise substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
If we cannot continue as a viable entity, our securityholders may lose some or all of their investment in our company.
We have
never generated any revenue from product sales and may never be profitable.
Although we
have received upfront and milestone payments from our license and collaboration agreements, we have no products approved for commercialization
and have never generated any revenue from product sales. Our ability to generate revenue and achieve profitability depends on our
ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory
and marketing approvals necessary to commercialize, ONS-5010 for the treatment of wet age related macular degeneration, or wet
AMD, and our other targeted indications, and as appropriate, any of our other product candidates. We cannot predict when we will
begin generating revenue from product sales, as this depends heavily on our success in many areas, including but not limited to:
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completing
clinical development of ONS-5010 for the treatment of wet AMD and the other targeted indications, and any other product candidates
we may develop in the future;
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obtaining
regulatory and marketing approvals for ONS-5010 and any other product candidates for which we or our partners complete clinical
trials;
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securing
a manufacturing partner for ONS-5010 and any approved product candidates to support clinical development, regulatory requirements
and the market demand for any such approved product candidates;
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launching
and commercializing ONS-5010 and any other product candidates for which we or our partners obtain regulatory and marketing approval;
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obtaining third-party coverage and adequate reimbursements
for our products;
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obtaining
market acceptance of ONS-5010 and any other product candidates for which we obtain regulatory and marketing approval as viable
treatment options;
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negotiating
favorable terms in any collaboration, licensing or other arrangements into which we may enter;
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maintaining,
protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and
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attracting, hiring and retaining qualified personnel.
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Even if ONS-5010
or one or more of our other product candidates is approved for commercialization, we anticipate incurring significant costs to
commercialize any such product. Our expenses could increase beyond our expectations if we are required by the U.S. Food and Drug
Administration, or the FDA, the European Medicines Agency, or the EMA, other regulatory agencies, domestic or foreign, or by any
unfavorable outcomes in intellectual property litigation filed against us, to change our manufacturing processes or assays or to
perform clinical, preclinical or other types of studies in addition to those that we currently anticipate. In cases where we are
successful in obtaining regulatory approvals to market one or more of our product candidates, our revenue will be dependent, in
part, upon:
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the size of the markets in the territories for which
we gain regulatory approval;
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the number of competitors in such markets;
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the market acceptance of our products;
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the accepted price for the product;
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the ability to obtain coverage and adequate reimbursement
for the product;
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the quality and performance of our products, including
the relative safety and efficacy; and
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whether we own, or have partnered, the commercial
rights for that territory.
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If the market
for ONS-5010 or any other product candidates we may develop in the future, or our share of that market, is not as large as we
expect, the number of indications approved by regulatory authorities is narrower than we expect or the target population for treatment
is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such
products to become profitable. If we are unable to successfully complete development and obtain regulatory approval for ONS-5010,
our business will be harmed.
We will
need to raise substantial additional funding to complete the development of our product candidate pipeline. This additional funding
may not be available on acceptable terms or at all. Failure to obtain this necessary capital when needed may force us to delay,
limit or terminate our product development efforts or other operations.
Developing product
candidates is an expensive, risky and lengthy process. We are currently advancing ONS-5010 through clinical development but have
decided to secure additional development partners before advancing our biosimilar product candidates into and through clinical
trials. Our expenses may increase in connection with our ongoing activities, particularly as we continue the research and development
of, continue and initiate clinical trials of, and seek marketing approval for, ONS-5010.
As
of September 30, 2019, our cash balance was $8.0 million. We expect that our current cash resources and anticipated proceeds
from the sale of New Jersey net operating losses, or NOLs, and research and development credits, will be sufficient to fund
our operations into March 2020, excluding any repayment of debt. We will require substantial additional capital
to complete the clinical development of, obtain regulatory approvals for, and commercialize ONS-5010. However, our
operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds
sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution
arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or a combination of these
approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional
capital if market conditions are favorable or if we have specific strategic considerations.
Any additional
fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop
and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient
amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may negatively impact the holdings or the
rights of our stockholders, and the issuance of additional securities, whether equity or debt, by us or the possibility of such
issuance may cause the market price of our securities to decline. The incurrence of indebtedness could result in increased fixed
payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur
additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions
that could adversely impact our ability to conduct our business. For example, our senior secured notes issued between December
2016 and May 2017 include restrictions on our ability to incur additional indebtedness and pay stockholder dividends, among other
restrictions. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier
stage than would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or
otherwise agree to terms unfavorable to us, any of which may harm our business, operating results and prospects. Even if we believe
we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable
or for specific strategic considerations. If we are unable to obtain funding on a timely basis, we may be required to significantly
curtail, delay or discontinue one or more of our development programs or the commercialization of any product candidates. We may
also be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could harm our
business, financial condition and results of operations.
Raising
additional capital may cause dilution to our securityholders, restrict our operations or require us to relinquish rights to our
technologies or product candidates.
Until such time,
if ever, as we can generate product revenues, we expect to finance our cash needs through a combination of equity and debt financings,
as well as selectively continuing to enter into collaborations, strategic alliances and licensing arrangements. We do not currently
have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible
debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences
that adversely affect your rights as a securityholder. Debt financing, if available, may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or
declaring dividends, and may be secured by all or a portion of our assets.
If we
raise funds by selectively continuing to enter into collaborations, strategic alliances or licensing arrangements with third
parties, we may have to relinquish additional valuable rights to our technologies, future revenue streams, research programs
or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional
funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and market product candidates that we would
otherwise prefer to develop and market ourselves. If we are unable to raise additional funds through collaborations,
strategic alliances or licensing arrangements, we may be required to terminate product development or future
commercialization efforts or to cease operations altogether.
Risks Related
to the Discovery and Development of Our Product Candidates
We are
highly dependent on the success of ONS-5010, our only product candidate in active development, and if ONS-5010 does not successfully
complete clinical development or receive regulatory approval, or is not successfully commercialized, our business may be harmed.
We currently
have no products that are approved for commercial sale and may never be able to develop marketable products. We expect that a substantial
portion of our efforts and expenditures in the foreseeable future will be devoted to the advancement of ONS-5010, our only product
candidate in active development, through clinical trials and the regulatory approval process, as well as the commercialization
of ONS-5010 following regulatory approval, if received. We cannot assure you that we will be able to successfully complete the
necessary clinical trials and/or obtain regulatory approval and develop sufficient commercial capabilities for ONS-5010. Accordingly,
our business currently depends heavily on the successful completion of clinical development and subsequent regulatory approval
and commercialization of ONS-5010.
We cannot be
certain that ONS-5010 will receive regulatory approval or be successfully commercialized even if we receive regulatory approval
in our targeted markets. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of products
are, and will remain, subject to extensive regulation by the FDA and other regulatory authorities in the United States and other
countries that each have differing regulations. We are not permitted to market ONS-5010 in the United States until we receive approval
from the FDA, or in any foreign country until we receive the requisite approvals from the appropriate authorities in such countries
for marketing authorization.
There can be
no assurance that our ongoing clinical trial of ONS-5010 for wet AMD will produce results sufficient for us to receive regulatory
approval. We have not submitted a biologics license application, or BLA, for any product candidate to the FDA or any comparable
application to any other regulatory authority. Obtaining approval from the FDA or similar regulatory approval is an extensive,
lengthy, expensive and inherently uncertain process, and the FDA or other foreign regulatory authorities may delay, limit or deny
approval of ONS-5010 for many reasons, including:
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we may not be able to demonstrate that ONS-5010 is effective as a treatment
for any of our currently targeted indications to the satisfaction of the FDA or other relevant regulatory authorities;
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the relevant regulatory authorities may require additional pre-approval studies
or clinical trials, which would increase our costs and prolong our development timelines;
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the results of our clinical trials may not meet the level of statistical
or clinical significance required by the FDA or other relevant regulatory authorities for marketing approval;
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the FDA or other relevant regulatory authorities may disagree with the number,
design, size, conduct or implementation of our clinical trials;
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the FDA or other relevant regulatory authorities may not find the data from
nonclinical studies or clinical trials sufficient to demonstrate that the clinical and other benefits of these products outweigh
their safety risks;
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the FDA or other relevant regulatory authorities may disagree with our interpretation
of data or significance of results from the nonclinical studies and clinical trials of ONS-5010 and any future product candidate,
or may require that we conduct additional trials;
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the FDA or other relevant regulatory authorities may require development
of a risk evaluation and mitigation strategy, or REMS, or its equivalent, as a condition of approval;
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the FDA or other relevant regulatory authorities may require additional post-marketing
studies, which would be costly;
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the FDA or other relevant regulatory authorities may identify deficiencies
in the manufacturing processes or facilities of our third-party manufacturers; or
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the FDA or other relevant regulatory authorities may change their approval
policies or adopt new regulations.
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Due to
our limited resources and access to capital, we have, and will continue to need to, prioritize development of certain product candidates;
and these decisions may prove to have been wrong and may harm our business.
Because we have
limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount
of resources to allocate to each. We are currently focusing only on one active development program, ONS-5010, and are no longer
actively developing ONS-3010, ONS-1045 or the other biosimilar product candidates in our pipeline. We currently do not intend to
actively develop such biosimilar product candidates absent additional development or licensing partners. Our decisions concerning
the allocation of research, collaboration, management and financial resources toward particular product candidates or therapeutic
areas may not lead to the development of viable commercial products and may divert resources away from better opportunities. Similarly,
our potential decisions to delay, terminate or collaborate with third parties in respect to certain product development programs
may also prove not to be optimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding
the market potential of our product candidates or misread trends in the pharmaceutical industry, our business, financial condition
and results of operations could be harmed.
Clinical
drug development is a lengthy and expensive process and we may encounter substantial delays in our clinical trials or may fail
to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
ONS-5010,
our only product candidate in active development, will require extensive clinical testing before we are prepared to submit an application
for regulatory approval. Before obtaining marketing approval from regulatory authorities for
the sale of our product candidates, we and our collaboration partners must conduct clinical trials to demonstrate the safety and
efficacy of the product candidates in humans.
We cannot guarantee
that any clinical trials will be conducted as planned or completed on schedule, if at all. For example, we only completed enrollment
in the NORSE 1 pivotal study in August 2019, which was delayed from our original expectation of March 2019. A failure of one or
more clinical trials can occur at any stage of testing, and our future clinical trials may not be successful. Events that may prevent
successful or timely completion of clinical development include but are not limited to:
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inability to generate sufficient preclinical, toxicology or other in vivo
or in vitro data to support the initiation of human clinical trials;
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delays in reaching a consensus with regulatory agencies on study design;
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delays in reaching agreement on acceptable terms with prospective contract
research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary
significantly among different CROs and clinical trial sites;
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delays in obtaining required IRB approval at each clinical trial site;
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imposition of a clinical hold by regulatory agencies, after review of an
investigational new drug, or IND, application or amendment or equivalent filing, or an inspection of our clinical trial operations
or trial sites, or as a result of adverse events reported during a clinical trial;
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further delays in recruiting suitable patients to participate in our clinical trials;
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difficulty collaborating with patient groups and investigators;
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failure by our CROs, other third parties or us to adhere to clinical trial requirements;
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failure to perform in accordance with the FDA’s good clinical practice,
or GCP, requirements or applicable regulatory guidelines in other countries;
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delays in having subjects complete participation in a study or return for
post-treatment follow-up, or subjects dropping out of a study;
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occurrence of adverse events associated with the product candidate that
are viewed to outweigh its potential benefits;
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changes in regulatory requirements and guidance that require amending or
submitting new clinical protocols;
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the cost of clinical trials of our product candidates being greater than we anticipate;
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clinical trials of our product candidates producing negative or inconclusive
results, which may result in us deciding or regulators requiring us to conduct additional clinical trials or abandon product development
programs; and
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delays in manufacturing, testing, releasing, validating or importing/exporting
and/or distributing sufficient stable quantities
of our product candidates for use in clinical trials or the inability to do any of the foregoing.
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Any inability
to successfully complete preclinical studies and clinical development could result in additional costs to us or impair our ability
to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct
additional clinical trials to bridge our modified product candidates to earlier versions.
The results
of previous clinical trials may not be predictive of future results, and the results of our current and planned clinical trials
may not satisfy the requirements of the FDA, EMA or other foreign regulatory agencies.
Clinical failure
can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of
our current and future collaborators may decide, or regulators may require us, to conduct additional clinical or preclinical testing.
We will be required to demonstrate with substantial evidence through well controlled clinical trials that our product candidates
are as safe and effective for use in a specific patient population before we can seek regulatory approvals for their commercial
sale. Success in early clinical trials does not mean that future larger registration clinical trials will be successful because
product candidates in later-stage clinical trials may fail to demonstrate equivalent safety and efficacy to the satisfaction of
the FDA, EMA and other foreign regulatory agencies despite having progressed through initial clinical trials. Product candidates
that have shown promising results in early clinical trials may still fail in subsequent confirmatory clinical trials. Similarly,
the outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and
interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical industry,
including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials,
even after obtaining promising results in earlier clinical trials.
In addition,
the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of
a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical
trial to support regulatory approval. In some instances, there can be significant variability in safety or efficacy results between
different trials of the same product candidate due to numerous factors, including but not limited to changes in trial protocols,
differences in size and type of the patient populations, adherence to the dosing regimen and the rate of dropout among clinical
trial participants.
Further, our
product candidates may not be approved even if they achieve their primary endpoints in Phase 3 clinical trials or registration
trials. The FDA, EMA and other foreign regulatory agencies may disagree with our trial design and our interpretation of data from
preclinical studies and clinical trials. In addition, any of these regulatory authorities may change the requirements for the approval
of a product candidate even after reviewing and providing comments or advice on a protocol for a Phase 3 clinical trial that has
the potential to result in FDA or other agencies’ approval. We initially intend to seek approval for ONS-5010 for the treatment
of wet AMD. Any of the regulatory authorities may approve a product candidate for fewer indications than we request or may grant
approval contingent on the performance of costly post-marketing clinical trials.
Our product
candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit
the commercial profile of an approved label or result in significant negative consequences following marketing approval, if granted.
As with
most pharmaceutical products, use of our product candidates could be associated with side effects or adverse events, which
can vary in severity and frequency. Side effects or adverse events associated with the use of our product candidates may be
observed at any time, including in clinical trials or when a product is commercialized. Undesirable side effects caused by
our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result
in a more restrictive label or the delay or denial of regulatory approval by the FDA or other foreign authorities. Results of
our trials could reveal a high and unacceptable severity and prevalence of side effects, toxicity or other safety issues, and
could require us to perform additional studies or halt development or sale of these product candidates or expose us to
product liability lawsuits that will harm our business. In such an event, we may be required by regulatory agencies to
conduct additional animal or human studies regarding the safety and efficacy of our product candidates that we have not
planned or anticipated or our studies could be suspended or terminated, and the FDA or comparable foreign regulatory
authorities could order us to cease further development of or deny or withdraw approval of our product candidates for any or
all targeted indications. There can be no assurance that we will resolve any issues related to any product-related adverse
events to the satisfaction of the FDA or any other regulatory agency in a timely manner, if ever, which could harm our
business, prospects and financial condition.
Additionally,
product quality characteristics have been shown to be sensitive to changes in process conditions, manufacturing techniques, equipment
or sites and other related considerations, and as such, any manufacturing process changes we implement prior to or after regulatory
approval could impact product safety.
Additionally,
if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects
caused by such products, a number of potentially significant negative consequences could result, including but not limited to:
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regulatory authorities may withdraw approvals of such product;
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regulatory authorities may require additional warnings on the label;
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we may be required to create a Risk Evaluation and Mitigation Strategy plan,
which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan
for healthcare providers and/or other elements to assure safe use;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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Any of these
events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could
significantly harm our business, results of operations and prospects.
If we receive
approval, regulatory agencies including the FDA, EMA and other foreign regulatory agency regulations require that we report certain
information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of
our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event.
We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we
have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse
event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations,
the FDA, EMA or other foreign regulatory agencies could take action including but not limited to criminal prosecution, the imposition
of civil monetary penalties, seizure of our products or delay in approval or clearance of future products.
If product
liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization
of our current or future product candidates, and our existing insurance coverage may not be sufficient to satisfy any liability
that may arise.
Drug-related
side effects could affect patient recruitment for clinical trials, the ability of enrolled patients to complete our studies or
result in potential product liability claims. We currently carry product liability insurance in the amount of $10.0 million per
product candidate and we are required to maintain product liability insurance pursuant to certain of our license agreements. We
may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to
liability. A successful product liability claim or series of claims brought against us could negatively impact our results of operations
and business. In addition, regardless of merit or eventual outcome, product liability claims may result in impairment of our business
reputation, withdrawal of clinical trial participants, costs due to related litigation, distraction of management’s attention
from our primary business, initiation of investigations by regulators, substantial monetary awards to patients or other claimants,
the inability to commercialize our product candidates and decreased demand for our product candidates, if approved for commercial
sale. Furthermore, we may also not be able to take advantage of limitations on product liability lawsuits that apply to generic
drug products, which could increase our exposure to liability for products deemed to be dangerous or defective.
Failure
to obtain regulatory approval in any targeted jurisdiction would prevent us from marketing our products to a larger patient population
and reduce our commercial opportunities.
We and
our collaboration partners have not initiated marketing efforts in any jurisdiction. In order to market our products in
Europe, the United States and other jurisdictions, we and our collaboration partners must obtain separate regulatory
approvals and comply with numerous and varying regulatory requirements. The EMA is responsible for the regulation and
recommendation for approval of human medicines in the E.U. This procedure results in a single marketing authorization that is
valid in all E.U. countries, as well as in Iceland, Liechtenstein and Norway. The time required to obtain approval abroad may
differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks
associated with obtaining FDA approval and we may not obtain foreign regulatory approvals on a timely basis, if at all.
Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign
regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We or our
collaboration partners may not be able to file for regulatory approvals and may not receive necessary approvals to
commercialize our products within Europe, the United States or in other jurisdictions. Failure to obtain these approvals
would harm our business, financial condition and results of operations.
Even if
we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.
If ONS-5010,
or any other product candidates we may pursue, 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 manufacturing facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements,
including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP,
regulations. As such, our current and future manufacturing partners will be subject to continual review and inspections to assess
compliance with cGMP and adherence to commitments made in any non-disclosure agreement, BLA or marketing authorization application.
Accordingly, we and our collaborators and suppliers 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 or our collaboration partners receive for our product 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 may contain requirements for potentially
costly additional clinical trials and surveillance to monitor the safety and efficacy of the product candidate. We will be required
to report certain adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities.
Any new legislation addressing drug safety issues could result in delays in product development or commercialization or increased
costs to assure compliance. We will have to comply with requirements concerning advertising and promotion for our products. Promotional
communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent
with the information in the product’s approved label. As such, we are not allowed to promote our products for indications
or uses for which they do not have approval. If our product candidates are approved, we must submit new or supplemental applications
and obtain approval for certain changes to the approved products, product labeling or manufacturing process. We could also be asked
to conduct post-marketing clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets.
An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously
unknown problems with an approved product, such as adverse events of unanticipated severity or frequency or problems with our manufacturing
facilities or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions
on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory
requirements, a regulatory agency or enforcement authority may, among other things:
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issue untitled and warning letters;
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impose civil or criminal penalties;
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suspend or withdraw regulatory approval;
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suspend any of our ongoing clinical trials;
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refuse to approve pending applications or supplements to approved
applications submitted by us;
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impose restrictions on our operations, including closing our manufacturing
facilities; or
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seize or detain products or require a product recall.
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Any government
investigation of alleged violations of law could require us to expend significant time and resources in response and could generate
negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability
to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn,
the value of our company and our operating results will be negatively impacted.
The development
and commercialization of pharmaceutical products is subject to extensive regulation, and we may not obtain regulatory approvals
for ONS-5010 in any of the indications for which we plan to develop it, or any future product candidates, on a timely basis or
at all.
The clinical
development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion, export, import, marketing, distribution,
adverse event reporting, including the submission of safety and other post-marketing information and reports, and other possible
activities relating to ONS-5010, as well as any other product candidate that we may develop in the future, are subject to extensive
regulation. Marketing approval of biologics in the United States requires the submission of a BLA to the FDA and we are not permitted
to market any product candidate in the United States until we obtain approval from the FDA of the BLA for that product. A BLA must
be supported by extensive clinical and preclinical data, as well as extensive information regarding pharmacology, chemistry, manufacturing
and controls.
FDA approval
of a BLA is not guaranteed, and the review and approval process is an expensive and uncertain process that may take several years.
The FDA also has substantial discretion in the approval process. The number and types of preclinical studies and clinical trials
that will be required for BLA approval varies depending on the product candidate, the disease or the condition that the product
candidate is designed to treat and the regulations applicable to any particular product candidate. Despite the time and expense
associated with preclinical studies and clinical trials, failure can occur at any stage. The results of preclinical and early clinical
trials of ONS-5010 or any future product candidates may not be predictive of the results of our later-stage clinical trials.
Clinical trial
failure may result from a multitude of factors including flaws in trial design, dose selection, placebo effect, patient enrollment
criteria and failure to demonstrate favorable safety or efficacy traits, and failure in clinical trials can occur at any stage.
Companies in the biopharmaceutical industry frequently suffer setbacks in the advancement of clinical trials due to lack of efficacy
or adverse safety profiles, notwithstanding promising results in earlier trials. Based upon negative or inconclusive results, we
may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained
from clinical trials are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do,
which may further delay, limit or prevent marketing approval.
The FDA could
delay, limit or deny approval of a product candidate for many reasons, including because they:
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may not deem our product candidate to be adequately safe and effective;
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may not agree that the data collected from clinical trials are acceptable
or sufficient to support the submission of a BLA or other submission or to obtain regulatory approval, and may impose requirements
for additional preclinical studies or clinical trials;
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may determine that adverse events experienced by participants in our clinical
trials represents an unacceptable level of risk;
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may determine that population studied in the clinical trial may not be sufficiently
broad or representative to assure safety in the full population for which we seek approval;
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may not accept clinical data from trials which are conducted at clinical
facilities or in countries where the standard of care is potentially different from that of the United States;
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may disagree regarding the formulation, labeling and/or the specifications;
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may not approve the manufacturing processes or facilities associated with our product candidate;
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may change approval policies or adopt new regulations; or
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may not accept a submission due to, among other reasons, the content or formatting
of the submission.
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Generally, public
concern regarding the safety of pharmaceutical products could delay or limit our ability to obtain regulatory approval, result
in the inclusion of unfavorable information in our labeling, or require us to undertake other activities that may entail additional
costs. We have not obtained FDA approval for any product. This lack of experience may impede our ability to obtain FDA approval
in a timely manner, if at all, for ONS-5010.
If we experience
delays in obtaining approval or if we fail to obtain approval of ONS-5010, our commercial prospects will be harmed and our ability
to generate revenues will be materially impaired which would adversely affect our business, prospects, financial condition and
results of operations.
Any delays
in the commencement or completion, or termination or suspension, of our planned or future clinical trials could result in increased
costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
Any delays in
the commencement or completion, or termination or suspension, of our planned or future clinical trials could result in increased
costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects. Before we can initiate
clinical trials of ONS-5010 in the United States in any distinct indication, we must submit the results of preclinical and/or other
studies to the FDA along with other information, including information about ONS-5010 chemistry, manufacturing and controls and
our proposed clinical trial protocol, as part of an IND or similar regulatory filing.
Before obtaining
marketing approval from the FDA for the sale of ONS-5010 in any indication, we must conduct extensive clinical studies to demonstrate
the safety and efficacy of ONS-5010. Clinical testing is expensive, time consuming and uncertain as to outcome. In addition, we
expect to rely in part on preclinical, clinical and quality data generated by CROs, and other third parties for regulatory submissions
for ONS-5010. While we have or will have agreements governing these third parties’ services, we have limited influence over
their actual performance. If these third parties do not make data available to us, or, if applicable, make regulatory submissions
in a timely manner, in each case pursuant to our agreements with them, our development programs may be significantly delayed and
we may need to conduct additional studies or collect additional data independently. In either case, our development costs would
increase.
The FDA may
require us to conduct additional studies for ONS-5010 or any future product candidate before it allows us to initiate clinical
trials under any IND, which may lead to additional delays and increase the costs of our development programs. Any such delays in
the commencement or completion of our planned or future clinical trials could significantly affect our product development costs.
We do not know whether our planned trials will begin on time or be completed on schedule, if at all. The commencement and completion
of clinical trials can be delayed for a number of reasons, including delays related to:
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the FDA disagreeing as to the design or implementation of our clinical studies;
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obtaining FDA authorizations to commence a trial or reaching a consensus
with the FDA on trial design;
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any failure or delay in reaching an agreement with CROs and clinical trial
sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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obtaining approval from one or more IRBs;
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IRBs refusing to approve, suspending or terminating the trial at an investigational
site, precluding enrollment of additional subjects, or withdrawing their approval of the trial;
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changes to clinical trial protocol;
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clinical sites deviating from trial protocol or dropping out of a trial;
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manufacturing sufficient quantities of product candidate or obtaining sufficient
quantities of combination therapies for use in clinical trials;
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subjects failing to enroll or remain in our trial at the rate we expect,
or failing to return for post-treatment follow-up;
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subjects choosing an alternative treatment, or participating in competing
clinical trials;
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lack of adequate funding to continue the clinical trial;
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subjects experiencing severe or unexpected drug-related adverse effects;
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occurrence of serious adverse events in trials of the same class of agents
conducted by other companies;
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selection of clinical end points that require prolonged periods of clinical
observation or analysis of the resulting data;
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a facility manufacturing our product candidates or any of their components
being ordered by the FDA to temporarily or permanently shut down due to violations of current good manufacturing practice, or cGMP,
regulations or other applicable requirements, or infections or cross-contaminations of product candidates in the manufacturing
process;
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any changes to our manufacturing process that may be necessary or desired;
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third-party clinical investigators losing the licenses or permits necessary
to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical
trial protocol, good clinical practices, or GCP, or other regulatory requirements;
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third-party contractors not performing data collection or analysis in a
timely or accurate manner; or
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third-party contractors becoming debarred or suspended or otherwise penalized
by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to
find a substitute contractor, and we may not be able to use some or all of the data produced by such contractors in support of
our marketing applications.
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We could also
encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are
being conducted, by a Data Safety Monitoring Board for such trial or by the FDA.
Such authorities may impose
such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with
regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA resulting
in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using
a pharmaceutical, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical
trial. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols
to comply with these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which
may impact the costs, timing or successful completion of a clinical trial.
Any delays in
completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize our ability
to commence product sales and generate revenues which may harm our business, financial condition and prospects significantly.
If we
experience delays or difficulties in enrolling patients in our planned clinical trials, our receipt of necessary regulatory approval
could be delayed or prevented.
We may not be
able to initiate or continue our planned clinical trials for ONS-5010 if we are unable to identify and enroll a sufficient number
of eligible patients to participate in these trials as required by the FDA. Some of our competitors may have ongoing clinical trials
for product candidates that would treat the same indications as ONS-5010, and patients who would otherwise be eligible for our
clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Patient enrollment is also
affected by other factors, including:
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severity of the disease under investigation;
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our ability to recruit clinical trial investigators of appropriate competencies and experience;
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invasive procedures required to obtain evidence of the product candidate’s performance
during the clinical trial;
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availability and efficacy of approved medications for the disease under investigation;
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eligibility criteria defined in the protocol for the trial in question;
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the size of the patient population required for analysis of the trial’s primary endpoints;
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perceived risks and benefits;
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efforts to facilitate timely enrollment in clinical trials;
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reluctance of physicians to encourage patient participation in clinical trials;
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the ability to monitor patients adequately during and after treatment;
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our ability to obtain and maintain patient consents; and
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proximity and availability of clinical trial sites for prospective patients.
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Our inability
to enroll a sufficient number of patients for our clinical trials would result in significant delays or may require us to abandon
one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs, which
would cause the value of our company to decline and limit our ability to obtain additional financing.
Adverse
side effects or other safety risks associated with ONS-5010 could delay or preclude approval, cause us to suspend or discontinue
clinical trials, abandon further development, limit the commercial profile of an approved label, or result in significant negative
consequences following marketing approval, if any.
As is the case
with pharmaceuticals generally, it is likely that there may be side effects and adverse events associated with ONS-5010 in our
planned clinical trials. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects
or unexpected characteristics. Undesirable side effects caused by ONS-5010 could result in the delay, suspension or termination
of clinical trials by us or the FDA for a number of reasons. If we elect or are required to delay, suspend or terminate any clinical
trial, the commercial prospects of ONS-5010 will be harmed and our ability to generate product revenues from this product candidate
will be delayed or eliminated. Serious adverse events observed in clinical trials could hinder or prevent market acceptance of
ONS-5010. Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly.
Moreover,
if ONS-5010 is associated with undesirable side effects in clinical trials or have characteristics that are unexpected, we
may elect to abandon or limit its development to more narrow uses or subpopulations in which the undesirable side effects or
other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the
commercial expectations for ONS-5010, if approved. We may also be required to modify our study plans based on findings in our
clinical trials. Many biologics that initially showed promise in early stage testing have later been found to cause side
effects that prevented further development. In addition, regulatory authorities may draw different conclusions or require
additional testing to confirm these determinations.
It is possible
that as we test ONS-5010 in larger, longer and more extensive clinical trials including for additional indications, or as the use
of ONS-5010 become more widespread if it receives regulatory approval, illnesses, injuries, discomforts and other adverse events
that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported
by patients. If such side effects become known later in development or upon approval, if any, such findings may harm our business,
financial condition and prospects significantly.
In addition,
if ONS-5010 receives marketing approval, and we or others later identify undesirable side effects caused by ONS-5010, a number
of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw approval of ONS-5010;
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we may be required to recall a product or change the way ONS-5010 is administered
to patients;
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regulatory authorities may require additional warnings on the label, such
as a “black box” warning or a contraindication, or issue safety alerts, Dear Healthcare Provider letters, press releases
or other communications containing warnings or other safety information about the product;
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we may be required to implement a REMS, or create a medication guide outlining
the risks of such side effects for distribution to patients;
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additional restrictions may be imposed on the marketing or promotion of the
particular product or the manufacturing processes for the product or any component thereof;
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we could be sued and held liable for harm caused to patients;
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ONS-5010 could become less competitive; and
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our reputation may suffer.
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Any of these
events could prevent us from achieving or maintaining market acceptance of ONS-5010, if approved, and could significantly harm
our business, results of operations and prospects.
Risks Related
to Commercialization of Our Product Candidates
We face
intense competition and rapid technological change and the possibility that our competitors may develop therapies that are similar,
more advanced or more effective than ours. Other products may be approved and successfully commercialized before ours, which may
adversely affect our financial condition and our ability to successfully commercialize our product candidates.
We expect to
enter highly competitive pharmaceutical markets. Successful competitors in the pharmaceutical markets have demonstrated the ability
to effectively discover, obtain patents, develop, test and obtain regulatory approvals for products, as well as an ability to effectively
commercialize, market and promote approved products. Numerous companies, universities and other research institutions are engaged
in developing, patenting, manufacturing and marketing of products competitive with those that we are developing. Many of these
potential competitors are large, experienced pharmaceutical companies that enjoy significant competitive advantages, such as substantially
greater financial, research and development, manufacturing, personnel and marketing resources. These companies also have greater
brand recognition and more experience in conducting preclinical testing and clinical trials of product candidates and obtaining
FDA and other regulatory approvals of products.
We have competitors
both in the United States and internationally, including major multinational pharmaceutical companies, specialty pharmaceutical
companies and biotechnology companies. Some of the pharmaceutical and biotechnology companies we expect to compete with include,
for example, Novartis, which currently markets LUCENTIS and Regeneron, with their product Eylea, both of which have been approved
for use in patients with wet AMD. Furthermore, the cancer drug Avastin, sold by Roche, is used off-label in wet AMD patients although
it has not been approved for use in these patients. Our ONS-5010 is being developed as an approved alternative to the use of off-label
Avastin as well as the much more expensive approved therapies. In addition, these companies and other, smaller, biotechnology and
pharmaceutical companies are also developing new treatments for wet AMD and are at various stages of pre-clinical and clinical
development.
Many of
our competitors have substantially greater financial, technical and other resources, such as larger research and development
staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the pharmaceutical
industry may result in even more resources being concentrated in our competitors. As a result, these companies may obtain
regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products.
Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large, established companies. Our competitors may succeed in developing, acquiring or licensing on an
exclusive basis, products that are more effective or less costly than any product candidate that we may develop; they may
also obtain patent protection that could block our products; and they may obtain regulatory approval, product
commercialization and market penetration earlier than we do. Product candidates developed by our competitors may render
ONS-5010 and any of our other potential product candidates uneconomical, less desirable or obsolete, and we may not be
successful in marketing our product candidates against competitors.
We expect additional
companies to seek approval to manufacture and market anti-VEGF therapies for ophthalmic indications. If other anti-VEGF therapies
are approved and successfully commercialized before ONS-5010, we may never achieve significant market share for this product, our
revenue would be reduced and, as a result, our business, prospects and financial condition could be harmed.
The commercial
success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party
payors and others in the medical community.
Even with the
requisite approvals from the FDA and comparable foreign regulatory authorities, the commercial success of ONS-5010, or any other
product candidates we may pursue, will depend in part on the medical community, patients and third-party payors accepting our product
candidates as medically useful, cost-effective and safe. Even though we expect to be able to price ONS-5010 responsibly, if approved,
there is no guarantee that ONS-5010 or any other product that we bring to the market will gain market acceptance by physicians,
patients, third-party payors and others in the medical community. The degree of market acceptance of any of our product candidates,
if approved for commercial sale, will depend on a number of factors, including but not limited to:
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the safety and efficacy of the product in clinical trials, and potential advantages over competing
treatments;
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the publication of unfavorable safety or efficacy data concerning our product by third-parties;
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the prevalence and severity of any side effects, including any limitations or warnings contained
in a product’s approved labeling;
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the clinical indications for which approval is granted;
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recognition and acceptance of our product candidates over our competitors’ products;
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prevalence of the disease or condition for which the product is approved;
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the cost of treatment, particularly in relation to competing treatments;
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the willingness of the target patient population to try our therapies and of physicians to prescribe
these therapies;
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the strength of marketing and distribution support and timing of market introduction of competitive
products;
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the extent to which the product is approved for inclusion on formularies of hospitals and managed
care organizations;
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publicity concerning our products or competing products and treatments;
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the extent to which third-party payors provide coverage and adequate reimbursement for
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ONS-5010, or any other product
candidates we may pursue, if approved;
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our ability to maintain compliance with regulatory requirements; and
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labeling or naming imposed by FDA or other regulatory agencies.
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Even if ONS-5010,
or any other product candidate we may develop in the future, displays an equivalent or more favorable efficacy and safety profile
in preclinical and clinical trials, market acceptance of the product candidate will not be fully known until after it is launched
and may be negatively affected by a potential poor safety experience and the track record of other product candidates. Our efforts
to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources,
may be under-resourced compared to large well-funded pharmaceutical entities and may never be successful. If ONS-5010, or any other
product candidates we may develop in the future, are approved but fail to achieve an adequate level of acceptance by physicians,
patients, third-party payors and others in the medical community, we will not be able to generate sufficient revenue to become
or remain profitable.
Even if
ONS-5010 is approved, off-label repackaging of Avastin at compounding pharmacies may continue, which could have a material adverse
effect on our business and financial condition.
It is
currently estimated that Avastin accounts for at least 50% of wet AMD prescriptions in the United States, notwithstanding
that such use is off-label and requires repackaging at a compounding pharmacy. Even if ONS-5010 is approved for use as a
treatment for wet AMD, there is no guarantee that we will be effective in reducing, the off-label use of Avastin and other
drugs in the United States or other major markets where we plan to seek regulatory approval and market ONS-5010 if approved.
If we are not successful in reducing off-label use of Avastin or other drugs with ONS-5010, our business and financial
condition could be adversely affected.
We currently
have no marketing and sales organization. If we are unable to establish sales and marketing capabilities in jurisdictions for which
we choose to retain commercialization rights, we may be unable to generate any revenue.
We currently
have no marketing or sales organization. We do not yet have any products approved for sale, and we, as a company, have no experience
selling and marketing any pharmaceutical products. To successfully commercialize any products, we will need to develop these capabilities,
either on our own or with others. If ONS-5010 receives regulatory approval, we may intend to establish a sales and marketing organization
with technical expertise and supporting distribution capabilities to commercialize our product candidates in major markets where
we may choose to retain commercialization rights. Doing so will be expensive, difficult and time-consuming. Any failure or delay
in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization
of our products. Further, given our lack of prior experience in marketing and selling our products, our initial estimate of the
size of the required sales force may be materially more or less than the size of the sales force actually required to effectively
commercialize our product candidates. As such, we may be required to hire substantially more sales representatives and medical
support liaisons to adequately support the commercialization of ONS-5010 or we may incur excess costs as a result of hiring more
sales representatives than necessary. With respect to certain geographical markets, we may enter into collaborations with other
entities to utilize their local marketing and distribution capabilities, but we may be unable to enter into such agreements on
favorable terms, if at all. If our future collaboration partners do not commit sufficient resources to commercialize our future
products, if any, and we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient
product revenue to sustain our business. If we are unable to establish sales and marketing capabilities for any approved product,
whether on our own or through collaborations, our results of operations will be negatively impacted.
We may
need to enter into alliances with other companies that can provide capabilities and funds for the development and commercialization
of our product candidates. If we are unsuccessful in forming or maintaining these alliances on favorable terms, our business could
be harmed.
Because we are
a late clinical stage biopharmaceutical company, we have found it necessary to enter into alliances with other companies. For example,
we entered into a strategic partnership agreement for consulting services for ONS-5010, pursuant to which we pay a monthly fee
and may have to share a portion of net profits, if any. We have also entered into service agreements for clinical trials, and co-development
and license agreements for our biosimilar product candidates. In the future, we may also find it necessary to form other alliances
or joint ventures with major pharmaceutical companies to jointly develop and/or commercialize the inactive biosimilar product candidates
in our pipeline and any other product candidates that we may develop. In such alliances, we would expect our collaboration partners
to provide substantial capabilities in regulatory affairs, as well as sales and marketing. We may not be successful in entering
into any such alliances. Even if we do succeed in securing such alliances, we may not be able to maintain them if, for example,
development or approval of a product candidate is delayed or sales of an approved product are disappointing. If we are unable to
secure or maintain such alliances, we may not have the capabilities necessary to continue or complete development of our product
candidates and bring them to market, which may have an adverse effect on our business.
In addition
to commercialization capabilities, we may depend on our alliances with other companies to provide substantial additional funding
for development and potential commercialization of our product candidates. We may not be able to obtain funding on favorable terms
from these alliances, and if we are not successful in doing so, we may not have sufficient funds to develop a particular product
candidate internally or to bring product candidates to market. Failure to bring ONS-5010, or any other product candidates we may
develop in the future, to market will prevent us from generating sales revenue, and this will substantially harm our business.
Furthermore, any delay in entering into these alliances could delay the development and commercialization of our product candidates
and reduce their competitiveness even if they reach the market. As a result, our business and operating results may be harmed.
The third-party
coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and
reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate
revenue.
Pricing, coverage
and reimbursement of ONS-5010, or any other product candidates we may develop in the future, if approved, may not be adequate to
support our commercial infrastructure. Our per-patient prices may not be sufficient to recover our development costs and potentially
achieve profitability. The availability of coverage and adequacy of reimbursement by governmental and private payors are essential
for most patients to be able to afford expensive treatments such as ours, if approved. Accordingly, sales of our product candidates
will depend substantially, both domestically and abroad, on the extent to which the costs of ONS-5010 and any of our other product
candidates will be paid for by third-party payors such as health maintenance, managed care organizations, pharmacy benefit and
similar healthcare management organizations private health insurers and other third-party payors. If coverage and reimbursement
are not available, or are available only at insufficient levels, we may not be able to successfully commercialize our product candidates.
Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower
cost therapeutic alternatives are already available or subsequently become available. Even if coverage is provided, the approved
reimbursement amount may not be adequate to allow us to realize a return on our investment.
There is significant
uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, third-party
payors play an important role in determining the extent to which new drugs and biologics will be covered and reimbursed. The Medicare
program covers certain individuals aged 65 or older or those who are disabled or suffering from end-stage renal disease. The Medicaid
program, which varies from state to state, covers certain individuals and families who have limited financial means and/or certain
disabilities. The Medicare and Medicaid programs increasingly are used as models for how third-party payors develop their coverage
and reimbursement policies for drugs and biologics. It is difficult to predict at this time what third-party payors will decide
with respect to the coverage and reimbursement for our biosimilar product candidates, if approved. In addition, in the United States,
no uniform policy of coverage and reimbursement for biologics exists among third-party payors. Therefore, coverage and reimbursement
for biologics can differ significantly from payor to payor. As a result, the process for seeking favorable coverage determinations
often is time-consuming and costly and may 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 obtained. Our inability to promptly obtain
coverage and profitable reimbursement rates from third-party payors for any approved products that we develop could have an adverse
effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
Outside the
United States, pharmaceutical businesses are generally subject to extensive governmental price controls and other market regulations.
We believe the increasing emphasis on cost-containment initiatives in the E.U., Canada and other countries has and will continue
to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject
to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices
for medical products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation
could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States,
the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially
reasonable revenue and profits.
Moreover, increasing
efforts by governmental and third-party payors in the United States and abroad to control healthcare costs may cause such organizations
to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide
adequate payment for ONS-5010, or any other product candidates we may develop in the future,. We expect to experience pricing pressures
in connection with the sale of ONS-5010, or any other product candidates we may develop in the future, if approved, due to the
trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.
Risks Related
to Our Reliance on Third Parties
We rely
on third parties to conduct our preclinical and clinical trials and perform other tasks for us. If these third parties do not successfully
carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain
regulatory approval for or commercialize our product candidates and our business could be harmed.
We have relied
upon and plan to continue to rely upon CROs to monitor and manage data for our ongoing clinical development programs. We rely on
these parties for execution of our preclinical and clinical trials and we can only control certain aspects of their activities.
Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol,
legal, regulatory and scientific requirements and standards and our reliance on the CROs does not relieve us of our regulatory
responsibilities. We and our CROs and other vendors are required to comply with cGMP, GCP, and Good Laboratory Practices, or GLP,
which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the EEA and comparable
foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these
regulations through periodic inspections of study sponsors, principal investigators, study sites and other contractors. If we,
any of our CROs, service providers or investigators fail to comply with applicable regulations or GCPs, the data generated in our
preclinical and clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require
us to perform additional preclinical and clinical trials before approving our marketing applications. We cannot assure you that
upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply
with GCP requirements. In addition, our clinical trials must be conducted with products produced under cGMP regulations. Failure
to comply by any of the participating parties or ourselves with these regulations may require us to repeat clinical trials, which
would delay the regulatory approval process. Moreover, our business may be implicated if our CROs or any other participating parties
violate federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
If any of our
relationships with any of these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs
or do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us
under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our on-going
preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure
to adhere to our protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated
and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate
higher costs than anticipated. As a result, our results of operations and the commercial prospects for our product candidates would
be harmed, our costs could increase and our ability to generate revenue could be delayed.
Changing or
adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition
period when a new CRO commences work. As a result, delays may occur, which can negatively impact our ability to meet our desired
clinical development timelines. We may encounter challenges or delays in the future and these delays or challenges may have an
adverse effect on our business, financial condition and prospects.
Previously,
we manufactured bulk drug substance for preclinical and clinical supplies of our product candidates in our in-house facility. Our
business could be harmed if our new contract manufacturer is unable to manufacture our product candidates at the necessary quantity
or quality levels.
We no
longer have the infrastructure or capability internally to manufacture supplies of ONS-5010, or any other product candidate,
for use in clinical development, and we lack the resources and the capability to manufacture any product candidates on a
clinical or commercial scale. If we are unable to manufacture or have manufactured sufficient supplies of ONS-5010 or any
other product candidates, our development efforts would be delayed, which would adversely affect our business and prospects.
We have selected FUJIFILM Diosynth Biotechnologies to manufacture and supply us with our product candidates for future
clinical development, as well as to establish commercial supplies of our product candidates. Successfully transferring
complicated manufacturing techniques to contract manufacturing organizations and scaling up these techniques for commercial
quantities is time consuming and we may not be able to achieve such transfer or do so in a timely manner. If our need for
contract manufacturing services increases during a period of industry-wide production capacity shortage, we may not be able
to produce our product candidates on a timely basis or on commercially viable terms. Any significant delay or discontinuation
in the supply of a product candidate for an ongoing clinical trial due to the need to replace a third-party manufacturer
could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product
candidates, which could harm our business and results of operations.
Reliance on
third-party manufacturers entails additional risks, including reliance on the third party for regulatory compliance and quality
assurance, the possible breach of the manufacturing agreement by the third party and the possible termination or nonrenewal of
the agreement by the third party at a time that is costly or inconvenient for us. In addition, third-party manufacturers may not
be able to comply with cGMP or similar regulatory requirements outside the United States. Our failure or the failure of our third-party
manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions,
civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating
restrictions and criminal prosecutions, any of which could adversely affect supplies of ONS-5010 or any other product candidates
that we may develop. Any failure or refusal to supply the components for our product candidates that we may develop could delay,
prevent or impair our clinical development or commercialization efforts. If our contract manufacturers were to breach or terminate
their manufacturing arrangements with us, the development or commercialization of the affected products or product candidates could
be delayed, which could have an adverse effect on our business. Any change in our manufacturers could be costly because the commercial
terms of any new arrangement could be less favorable and because the expenses relating to the transfer of necessary technology
and processes could be significant.
If ONS-5010
or any of our product candidates are approved, we may need to enter into agreements with another third party for contract manufacturing
in order to produce the quantities necessary to meet anticipated market demand. If we are unable to build and stock our product
candidates in sufficient quantities to meet the requirements for the launch of these candidates or to meet future demand, our revenue
and gross margins could be adversely affected. Although we believe that we will not have any material supply issues, we cannot
be certain that we will be able to obtain long-term supply arrangements for our product candidates or materials used to produce
them on acceptable terms, if at all. If we are unable to arrange for third-party manufacturing, or to do so on commercially reasonable
terms, we may not be able to complete development of our product candidates or market them.
Any adverse
developments affecting the manufacture of ONS-5010 could substantially increase our costs and limit supply for such product candidate.
The process of manufacturing our ONS-5010 and
our other mAb product candidates is complex, highly regulated and subject to several risks, including but not limited to:
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failure to establish
contracts with contract manufacturing organization, or CMOs, and device vendors where applicable;
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product loss due
to contamination, equipment failure or improper installation or operation of equipment or vendor or operator error;
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infringing intellectual
property rights of third parties relating to manufacturing and quality testing;
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failure to achieve
or maintain compliance with FDA’s requirements for acceptance of the applicable manufacturing facilities; and
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labor shortages,
natural disasters and power failures.
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Even minor deviations
from normal manufacturing processes for any of our product candidates could result in reduced production yields, product defects
and other supply disruptions. In addition, if we require a change in CMO, this will add time along with financial and personnel
resources to change manufacturing sites. If microbial, viral or other contaminations are discovered in our product candidates or
in our manufacturing facilities, our facilities may need to be closed for an extended period of time to investigate and remedy
the contamination.
Any adverse
developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages,
lot failures, withdrawals or recalls or other interruptions in the supply of our product candidates. We may also have to take inventory
write-offs and incur other charges and expenses for product candidates that fail to meet specifications, undertake costly remediation
efforts or seek more costly manufacturing alternatives.
We may
depend on third parties for the commercialization of ONS-5010, and failure to commercialize in those markets could harm our business
and operating results.
We may
need to identify third-parties and then negotiate the terms of the development and commercialization agreements for the
United States and major ex-U.S. markets, such as the E.U. and Japan. We may not be successful in identifying contract
counterparties, and we may not be able to reach agreements with such parties on terms that are as favorable to our company as
we would anticipate. We do not have in place any licensing agreements for commercialization of ONS-5010. Our current
arrangements are for our inactive biosimilar product candidates, and aside from one U.S. arrangement for ONS-3010, are for
smaller ex-U.S. markets where we would not otherwise intend to commercialize our biosimilar product candidates, such as
China, Mexico and India, among others. If any entity with whom we enter into a commercialization arrangement fails to
exercise commercially reasonable efforts to market and sell our approved products in their respective licensed jurisdictions
or are otherwise ineffective in doing so, our business will be harmed and we may not be able to adequately remedy the harm
through negotiation, litigation, arbitration or termination of the license agreements.
Moreover, any
disputes with our collaboration partners concerning the adequacy of their commercialization efforts will substantially divert the
attention of our senior management from other business activities and will require us to incur substantial legal costs to fund
litigation or arbitration proceedings.
In the event
that any of our license agreements terminate, we may need to find another partner in those markets to commercialize and in certain
instances, manufacture any product candidates. Further, upon any such termination, our contract counterparties may still have the
right to commercialize these product candidates in such markets, which may affect our ability to commercialize in the same markets.
Our reliance
on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or
that our trade secrets will be misappropriated or disclosed.
Because we expect
to rely on third parties to manufacture our current and any future product candidates, and we expect to continue to collaborate
with third parties on the development of our current and any future product candidates, we must, at times, share trade secrets
with them. We also conduct joint research and development programs that may require us to share trade secrets under the terms of
our collaboration or similar agreements. For example, under our joint participation arrangement with Huahai, we are obligated to
share with Huahai certain information relating to the development of ONS-3010, including reports from nonclinical studies and clinical
trials. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material
transfer agreements, consulting agreements or other similar agreements with our advisors, employees, CROs, third-party contractors
and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights
of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions
employed when working with third parties, 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. Any disclosure, either intentional or unintentional, by our employees, the employees
of third parties with whom we share our facilities or third-party consultants and vendors that we engage to perform research, clinical
trials or manufacturing activities, or misappropriation by third parties (such as through a cybersecurity breach) of our trade
secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding
our competitive position in our market. Further, adequate remedies may not exist in the event of unauthorized use or disclosure.
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.
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. Policing
unauthorized use of our or our licensors’ intellectual property is difficult, expensive and time-consuming, and we may be
unable to determine the extent of any unauthorized use. Moreover, enforcing a claim that a party illegally disclosed or misappropriated
a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and
outside the United States are less willing or unwilling to protect trade secrets. 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
are required to co-fund the development of, and proportionately share in the revenue from, the commercialization of ONS-3010
in the United States, Canada, E.U., Japan, Australia and New Zealand under a joint participation agreement with Huahai. We
may also be required to form a joint venture to further co-develop and commercialize ONS-3010 with Huahai in the agreed
countries, if so requested by Huahai.
We currently
have a joint participation arrangement with Huahai that provides for the co-funding of the development of ONS-3010 in the United
States, Canada, E.U., Japan, Australia and New Zealand and the proportionate sharing of the revenue from commercialization of ONS-3010
in such countries, in the event we were to restart the active development of this program. If so, we could also be required to
further co-develop and commercialize ONS-3010 with Huahai in the agreed countries pursuant to a joint venture, if so requested
by Huahai, as contemplated by our joint participation agreement. Under the joint participation agreement, assuming Huahai funds
its proportionate share of development costs incurred after completion of the “Phase-3 Ready Package” for ONS-3010,
we will have a 49% value ownership interest with Huahai having a 51% value ownership interest in ONS-3010. Accordingly, our share
of any potential revenues from the successful commercialization of ONS-3010 in the agreed countries, including major markets such
as the United States and E.U., would also be in proportion to such ownership interests. While we anticipate that we will each act
in accordance with the terms of our agreement for the joint development and commercialization of ONS-3010, we cannot control Huahai,
nor can we predict with any certainty that our interests will be aligned and that we will successfully collaborate.
We currently
engage single source suppliers for clinical trial services and multiple source suppliers for future drug substance manufacturing,
f ill-finish manufacturing and product testing of ONS-5010. The loss of any of these suppliers, or any future single source suppliers,
could harm our business.
Our
ONS-5010 product candidate is fill-finished by Ajinomoto Bio-Pharma Services, Inc., or Ajinomoto. As such, we are heavily dependent
on Ajinomoto for supplying us with sufficient supply of ONS-5010. Additionally, we no longer plan to manufacture ONS-5010 bulk
drug substance at our facilities and have selected FUJIFILM Diosynth Biotechnologies to conduct all future manufacturing of ONS-5010
bulk drug substance. Although we believe that there are alternate sources for these services, we cannot assure you that identifying
and establishing new relationships would not result in significant delay in the development of ONS-5010. Additionally, we may
not be able to enter into arrangements with alternative vendors on commercially reasonable terms, or at all. A delay in the development
of ONS-5010 or having to enter into a new agreement with a different third party on less favorable terms than we have with our
current suppliers could negatively impact our business.
Risks Related
to Intellectual Property
If we
infringe or are alleged to infringe intellectual property rights of third parties, our business could be harmed. Third-party claims
of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial
success depends in large part on avoiding infringement of the patents and proprietary rights of third parties. There have been
many lawsuits and other proceedings involving patent and other intellectual property rights in the pharmaceutical industry, including
patent infringement lawsuits, interferences, oppositions and reexamination proceedings before the U.S. Patent and Trademark Office,
or USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which
are owned by third parties, exist in the fields in which we are developing product candidates. As the pharmaceutical industry expands
and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent
rights of third parties.
Our research,
development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patents
owned or controlled by other parties.
Third parties
may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent
applications with claims to compositions, formulations, methods of manufacture or methods for treatment related to the use or manufacture
of our product candidates. We have conducted patent searches for third-party patents with respect to our lead product candidate,
and are not aware of third-party patent families with claims that, if valid and enforceable, could be construed to cover such product
candidates or their respective methods of manufacture or use. We cannot guarantee that any of our analyses are complete and thorough,
nor can we be sure that we have identified each and every patent and pending application in the United States and abroad that is
relevant or necessary to the commercialization of our product candidates. Moreover, because patent applications can take many years
to issue, there may be currently pending patent applications that may later result in issued patents covering our product candidates.
The existence of any patent with valid and enforceable claims covering one or more of our product candidates could cause substantial
delays in our ability to introduce a candidate into the U.S. market if the term of such patent extends beyond our desired product
launch date.
There may also
be patent applications that have been filed but not published and if such applications issue as patents, they could be asserted
against us. For example, in most cases, a patent filed today would not become known to industry participants for at least 18 months
given patent rules applicable in most jurisdictions that do not require publication of patent applications until 18 months after
filing. Moreover, we may face claims from non-practicing third-party entities that have no relevant product revenue and against
whom our own patent portfolio may have no deterrent effect. In addition, the scope of patent claims is subject to interpretation
by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate
that our product candidates, products or methods either do not infringe the asserted patent claims or that the claims are invalid
and/or unenforceable, and we may not be successful.
Proving that
a patent is invalid or unenforceable 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. In proceedings before courts in
the E.U., the burden of proving invalidity of a patent also usually rests on the party alleging invalidity. Even if we are successful
in litigation, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted,
which could harm our business. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.
Third parties
could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to
pay substantial monetary damages. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately
quantified in advance. If a patent infringement suit were brought against us, we could be forced to stop or delay research, development,
manufacturing or sales of the product or product candidate that is the subject of the suit. Ultimately, we could be prevented from
commercializing a product or be forced to cease some aspect of our business operations if, as a result of actual or threatened
patent infringement claims, we are unable to enter into licenses on commercially acceptable terms or at all. If, as a result of
patent infringement claims or to avoid potential claims, we choose or are required to seek licenses from third parties, these licenses
may not be available on acceptable terms or at all. Even if we are able to obtain a license, the license may obligate us to pay
substantial license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors
gaining access to the same intellectual property.
Parties making
claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop
and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would likely involve
substantial litigation expense and would likely be a substantial diversion of employee resources from our business. In the event
of a successful claim of infringement against us, we may, in addition to being blocked from the market, have to pay substantial
monetary damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing
products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
In addition
to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference,
derivation or post-grant proceedings declared or granted by the USPTO and similar proceedings in foreign countries, regarding intellectual
property rights with respect to our current or future products. An unfavorable outcome in any such proceedings could require us
to cease using the related technology or to attempt to license rights to it from the prevailing party or could cause us to lose
valuable intellectual property rights. Our business could be harmed if the prevailing party does not offer us a license on commercially
reasonable terms, if any license is offered at all. Litigation or other proceedings may fail and, even if successful, may result
in substantial costs and distract our management and other employees. We may also become involved in disputes with others regarding
the ownership of intellectual property rights.
Third parties
may submit applications for patent term extensions in the United States or other jurisdictions where similar extensions are available
and/or Supplementary Protection Certificates in the E.U. states (including Switzerland) seeking to extend certain patent protection
that, if approved, may interfere with or delay the launch of one or more of our product candidates.
The cost to
us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Patent litigation and other
proceedings may fail, and even if successful, may result in substantial costs and distract our management and other employees.
Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability
to compete in the marketplace.
So called
“submarine” patents may be granted to our competitors that may significantly alter our launch timing expectations,
reduce our projected market size, cause us to modify our product or process or block us from the market altogether.
The term “submarine”
patent has been used in the pharmaceutical industry and in other industries to denote a patent issuing from a U.S. application
with an effective filing date prior to June 8, 1995 that was not published, publically known or available prior to its grant. Submarine
patents add substantial risk and uncertainty to our business. Submarine patents may be issued to our competitors covering our product
candidates and thereby cause significant market entry delay, defeat our ability to market our product candidates or cause us to
abandon development and/or commercialization of a product candidate.
The issuance
of one or more submarine patents may harm our business by causing substantial delays in our ability to introduce a candidate into
the U.S. market.
We may
not identify relevant patents or may incorrectly interpret the relevance, scope or expiration of a patent, which might adversely
affect our ability to develop and market our products.
We cannot guarantee
that 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, are complete and thorough, 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 our product candidates in any jurisdiction.
The scope of
a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution
history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively
impact our ability to market our products or pipeline candidates. We may incorrectly determine that our products are not covered
by a third party patent. Further, we may conclude that a well-informed court or other tribunal would find the claims of a relevant
third-party patent to be invalid based on prior art, enablement, written description, or other ground, and that conclusion may
be incorrect, which may negatively impact our ability to market our products or pipeline molecules.
Many patents
may cover a marketed product, including but not limited to the composition of the product, methods of use, formulations, cell line
constructs, vectors, growth media, production processes and purification processes. The identification of all patents and their
expiration dates relevant to the production and sale of a reference product is extraordinarily complex and requires sophisticated
legal knowledge in the relevant jurisdiction. It may be impossible to identify all patents in all jurisdictions relevant to a marketed
product. We may not identify all relevant patents, or incorrectly determine their expiration dates, which may negatively impact
our ability to develop and market our products.
Our failure
to identify and correctly interpret relevant patents may negatively impact our ability to develop, market and commercialize our
products.
We may
become involved in lawsuits to protect or enforce any future patents, which could be expensive, time-consuming and unsuccessful.
We
have one issued patent and when and if we do obtain additional issued patents, we may discover that competitors are
infringing these patents. Expensive and time-consuming litigation may be required to enforce our patents. If we or one of our
collaboration partners were to initiate legal proceedings against a third party to enforce a patent covering one of our
product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or
unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability
are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements,
including but not limited to lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could
include an allegation that someone involved in the prosecution of the patent withheld relevant or material information
related to the patentability of the invention from the USPTO or made a misleading statement during prosecution. The outcome
following legal assertions of invalidity and unenforceability is unpredictable, and there is a risk that a court will decide
that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other
party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court
will construe the patent’s claims narrowly and 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. An adverse outcome in a litigation
or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors
and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any
of these occurrences could adversely affect our competitive business position, business prospects and financial condition.
Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and
instead award only monetary damages, which may or may not be an adequate remedy.
Similarly, if
we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or
that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case,
we could ultimately be forced to cease use of such trademarks.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during any litigation we initiate to enforce our patents.
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 have a negative impact on the market price of our securities.
Moreover, 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.
We may
be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential
information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals
and retain independent contractors and consultants and members on our board of directors who were previously employed at universities
or other pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees,
consultants and independent contractors do not use the proprietary information or know-how of others in their work for us and we
are not currently subject to any claims that they have done so, we may in the future be subject to such claims. Litigation may
be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we
may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful
in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
In addition,
while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property
to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each
party who in fact develops intellectual property that we regard as our own, which may result in claims by or against us asserting
ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights. 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.
We currently
have one issued patent. If we are unable to obtain and maintain effective patent rights for our product candidates or any future
product candidates, we may not be able to prevent competitors from using technologies we consider important in our successful development
and commercialization of our product candidates, resulting in loss of any potential competitive advantage our patents may have
otherwise afforded us.
While our principal
focus in matters relating to intellectual property is to avoid infringing the valid and enforceable rights of third parties, we
also rely upon a combination of patents, trade secret protection and confidentiality agreements to protect our own intellectual
property related to our product candidates and development programs. Our ability to enjoy any competitive advantages afforded by
our own intellectual property depends in large part on our ability to obtain and maintain patents and other intellectual property
protection in the United States and in other countries with respect to various proprietary elements of our product candidates,
such as, for example, our product formulations and processes for manufacturing our products and our ability to maintain and control
the confidentiality of our trade secrets and confidential information critical to our business.
We
have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our
products that are important to our business. This process is expensive and time-consuming, and we may not be able to file and
prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that
we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent
protection. There is no guarantee that any patent application we file will result in an issued patent having claims that
protect our products; and, as a result, we may not be able to effectively prevent others from commercializing competitive
products. Additionally, while the basic requirements for patentability are similar across jurisdictions, each jurisdiction
has its own specific requirements for patentability. We cannot guarantee that we will obtain identical or similar patent
protection covering our products in all jurisdictions where we file patent applications.
The patent positions
of biopharmaceutical companies generally are highly uncertain and involve complex legal and factual questions for which legal principles
remain unresolved. As a result, the patent applications that we own or license may fail to result in issued patents with claims
that cover our product candidates in the United States or in other foreign countries for many reasons. There is no assurance that
all potentially relevant prior art relating to our patents and patent applications has been found, considered or cited during patent
prosecution, which can be used to invalidate a patent or prevent a patent from issuing from a pending patent application. Even
if patents do successfully issue, and even if such patents cover our product candidates, third parties may challenge their validity,
enforceability or scope, which may result in such patent claims being narrowed, found unenforceable or invalidated. Furthermore,
even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide
exclusivity for our product candidates or prevent others from designing around our claims. Any of these outcomes could impair our
ability to prevent competitors from using the technologies claimed in any patents issued to us, which may have an adverse impact
on our business.
Patents granted
by the European Patent Office may be opposed by any person within nine months from the publication of their grant and, in addition,
may be challenged before national courts at any time.
Furthermore,
even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent
others from designing around our claims. If the breadth or strength of protection provided by the patents and patent applications
we hold, license or pursue with respect to our product candidates is threatened, it could threaten our ability to prevent third
parties from using the same technologies that we use in our product candidates. In addition, recent changes to the patent laws
of the United States provide additional procedures for third parties to challenge the validity of issued patents based on patent
applications filed after March 15, 2013. If the breadth or strength of protection provided by the patents and patent applications
we hold or pursue with respect to our current or future product candidates is challenged, then it could threaten our ability to
prevent competitive products from using our proprietary technology. Further, because patent applications in the United States and
most other countries are confidential for a period of time, typically for 18 months after filing, we cannot be certain that we
were the first to either (i) file any patent application related to our product candidates or (ii) invent any of the inventions
claimed in our patents or patent applications. Furthermore, for applications filed before March 16, 2013 or patents issuing from
such applications, an interference proceeding can be provoked by a third party or instituted by the USPTO to determine who was
the first to invent any of the subject matter covered by the patent claims of our applications and patents. If third parties have
filed such applications after March 15, 2013, a derivation proceeding in the United States can be initiated by such third parties
to determine whether our invention was derived from theirs.
In addition to
our one issued patent, we have filed over 50 patent applications in the U.S. and other jurisdictions, which are currently pending,
directed to various aspects of our product candidates. We cannot offer any assurances about which, if any, patents will be issued,
the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened or infringed
by third parties. Any successful actions by third parties to challenge the validity or enforceability of any patents that may be
issued to us could deprive us of the ability to prevent others from using the technologies claimed in such issued patents.
Further, if
we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection
could be reduced.
We
have filed patent applications directed to our own proprietary formulations and processes for our product candidates when we
have believed securing such patents may afford a competitive advantage. For example, the companies that originated Humira and
Avastin® (AbbVie and Genentech, respectively) own patents directed to formulations for these products. Rather
than wait for the expiration of these formulation patents, we have developed our own proprietary formulations for these
products that we believe are not covered by valid claims of third-party patents, including AbbVie or Genentech’s
formulation patents; and we have filed patent applications directed to our formulations. We cannot guarantee that our
proprietary formulations will avoid infringement of third-party patents.
Moreover, because competitors may be able to develop their own proprietary product formulations, it is uncertain whether
issuance of any of our pending patent applications directed to formulations of adalimumab (Humira) and bevacizumab
(Avastin®) would cover the formulations of any competitors. For example, we are aware that Sandoz is
developing biosimilar versions of adalimumab (Humira) and has filed patent applications directed to formulations of
adalimumab (Humira). We are also aware that Boehringer is developing a biosimilar version of adalimumab (Humira) and has
filed a patent application directed to formulations of adalimumab (Humira). We have also filed patent applications, none of
which have yet issued, directed to aspects of our downstream manufacturing processes for various biosimilars, including
ONS-3010. In contrast to our patent applications directed to formulations of ONS-3010, the proprietary technologies embodied
in our process-related patent filings, while directed to inventions we believe may provide us with competitive advantage,
were not developed by us to avoid third-party patents. As in the case of our formulation patent filings, it is highly
uncertain and we cannot predict whether our patent filings on process enhancements will afford us a competitive advantage
against third parties.
Obtaining
and maintaining our patent protection depends on compliance with various procedural requirements, document submissions, fee payment
and other requirements imposed by governmental patent agencies. Our patent protection could be reduced or eliminated for non-compliance
with these requirements.
The USPTO and
various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other
provisions during the patent process. 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. However, there are situations in which noncompliance can result in abandonment or lapse
of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such
an event, competitors might be able to enter the market earlier than would otherwise have been the case.
We may
not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting,
defending and enforcing patents on product candidates in all countries throughout the world would be prohibitively expensive, and
our intellectual property rights in some countries outside the United States can be less extensive than those in the United States.
In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state
laws in the United States. Further, licensing partners may choose not to file patent applications in certain jurisdictions in which
we may obtain commercial rights, thereby precluding the possibility of later obtaining patent protection in these countries. Consequently,
we may not be able to prevent third parties from practicing our inventions in all countries outside the United States or importing
products made using our inventions into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions
where we have not obtained patent protection to develop their own products and may also export infringing products to territories
where we have patent protection, but the ability to enforce our patents is not as strong as that in the United States. These products
may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent
them from competing.
Many companies
have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal
systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets
and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing
of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions,
whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business,
could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not being approved,
and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages
or other remedies awarded, if any, may not be commercially meaningful. Governments of some foreign countries may force us to license
our patents to third parties on terms that are not commercially reasonable or acceptable to us. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
Changes
in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the
case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity.
Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition,
the United States has recently enacted and is currently implementing wide-ranging patent reform legislation, including the
Leahy-Smith America Invents Act, or the America Invents Act, signed into law on September 16, 2011.
As of March
16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent
when two or more patent applications claiming the same invention are filed by different parties. A third party that files a patent
application in the USPTO before us could therefore be awarded a patent covering an invention of ours even if we had made the invention
before it was made by the third party. The change to “first-to-file” from “first-to-invent” is one of the
changes to the patent laws of the United States resulting from the America Invents Act. Among some of the other significant changes
to the patent laws are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third
parties to challenge any issued patent in the USPTO via procedures including post-grant and inter partes review. 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 patent invalidated in a Patent Office 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 or our licensors or collaborators will be successful in defending the patent, which would
result in a loss of the challenged patent right. It is not yet clear what, if any, impact the America Invents Act will have on
the operation of our business. However, the America Invents Act and its implementation could increase the uncertainties and costs
surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents, all of which could
harm our business and financial condition.
Further, recent
court rulings in cases such as Association for Molecular Pathology v. Myriad Genetics, Inc. (Myriad I); BRCA1- & BRCA2-Based
Hereditary Cancer Test Patent Litig., (Myriad II); and Promega Corp. v. Life Technologies Corp. have narrowed the scope of patent
protection available in certain circumstances and weakened the rights of patent owners in certain situations.
In addition
to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty
with respect to the value of patents, once obtained. Depending on future actions by the United States Congress, the Federal Courts
and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain
new patents or to enforce existing patents and patents that we might obtain in the future.
If we
are unable to maintain effective proprietary rights for our product candidates or any future product candidates, we may not be
able to compete effectively in our markets.
While we have
filed patent applications to protect certain aspects of our own proprietary formulation and process developments, we also rely
on trade secret protection and confidentiality agreements to protect proprietary scientific, business and technical information
and know-how that is not or may not be patentable or that we elect not to patent. However, confidential information and trade secrets
can be difficult to protect. Moreover, the information embodied in our trade secrets and confidential information may be independently
and legitimately developed or discovered by third parties without any improper use of or reference to information or trade secrets.
We seek to protect the scientific, technical and business information supporting our operations, as well as the confidential information
relating specifically to our product candidates by entering into confidentiality agreements with parties to whom we need to disclose
our confidential information, such as, our employees, consultants, board members, contractors, potential collaborators and financial
investors. However we cannot be certain that such agreements have been entered into with all relevant parties. We also seek to
preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical
and electronic security of our information technology systems, but it is possible that these security measures could be breached.
While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached and we
may not have adequate remedies for any breach. Our confidential information and trade secrets thus may become known by our competitors
in ways we cannot prove or remedy.
Although
we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants,
advisors and any third parties who have access to our proprietary know-how, information or technology to enter into
confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed. We cannot
guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors
will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and
techniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including
our trade secrets, and we may not be able to obtain adequate remedies for such breaches.
Misappropriation
or unauthorized disclosure of our trade secrets could impair our competitive position and may harm our business. Additionally,
if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties
for misappropriating any trade secret. We cannot guarantee that our employees, former employees or consultants will not file patent
applications claiming our inventions. Because of the “first-to-file” laws in the United States, such unauthorized patent
application filings may defeat our attempts to obtain patents on our own inventions.
We may
be subject to claims challenging the inventorship of our patent filings and other intellectual property.
We may in the
future be subject to claims that former employees, collaborators or other third parties have an interest in our patent applications
or patents we may be granted or other intellectual property as an inventor or co-inventor. For example, we may have inventorship
or ownership disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates.
Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership
of or right to use valuable intellectual property. Such an outcome could harm our business. Even if we are successful in defending
against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
If we
fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third
parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that
are important to our business.
We are party
to a non-exclusive worldwide commercial license agreements with Selexis SA, or Selexis, pertaining to clinical testing and sale
of its cell line expression technology and we may enter into additional license agreements in the future. Our commercial license
agreements with Selexis impose, and we expect that future license agreements will impose, various milestone payments, royalty payments
and other obligations on us. If we fail to comply with our obligations under these agreements or if we are subject to a bankruptcy,
we may be required to make certain payments to the licensor of our license or the licensor may have the right to terminate the
license, in which event we would not be able to develop or market products covered by the license. Additionally, the milestone
and other payments associated with these licenses will make it less profitable for us to develop our product candidates.
In the event
we breach any of our obligations under these agreements, we may incur significant liability to our licensing partners. Disputes
may arise regarding intellectual property subject to a licensing agreement, including but not limited to:
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the scope of rights granted under the license agreement and other interpretation-related issues;
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the extent to which our technology and processes infringe on intellectual property of the licensor
that is not subject to the licensing agreement;
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the sublicensing of patents and other rights;
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our diligence obligations under the license agreement and what activities satisfy those diligence
obligations;
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the ownership of inventions and know-how resulting from the joint creation or use of intellectual
property by our licensors and us and our collaborators; and
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the priority of invention of patented technology.
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If disputes over
intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements
on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates and that could
harm our business.
We may
not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
We currently
have rights to certain intellectual property through licenses from third parties, including Selexis, to develop ONS-5010/ONS-1045
and ONS-3010. Because we may find that our programs require the use of proprietary rights held by third parties, the growth of
our business may depend in part on our ability to acquire, in-license or use these proprietary rights. We may be unable to acquire
or in-license compositions, methods of use, processes or other third-party intellectual property rights from third parties that
we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual property rights
is a competitive area, and a number of more established companies are also pursuing 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, financial resources and greater clinical development and commercialization capabilities. In addition, companies
that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire
third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.
If we are unable
to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property
rights we have, we may have to abandon development of that program and our business and financial condition could suffer.
Risks Related
to Our Business Operations
We may
not be successful in our efforts to identify, develop or commercialize additional product candidates.
Although a substantial
amount of our current effort will focus on the continued clinical testing, potential approval and commercialization of ONS-5010,
the long-term success of our business also depends upon our ability to identify, develop and commercialize additional product candidates.
Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus
our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Our development
efforts may fail to yield additional product candidates suitable for clinical development and commercialization for a number of
reasons, including but not limited to the following:
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we may not be successful in identifying potential product candidates that
pass our strict screening criteria;
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we may not be able to overcome technological hurdles to development or a
product candidate may not be capable of producing commercial quantities at an acceptable cost, or at all;
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we may not be able to assemble sufficient resources to acquire or discover
additional product candidates;
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our product candidates may not succeed in preclinical or clinical testing;
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competitors may develop alternatives that render our product candidates obsolete
or less attractive or the market for a product candidate may change such that a product candidate may not justify further development.
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If any of these
events occur, we may be forced to abandon our development efforts for a program or programs or we may not be able to identify,
develop or commercialize additional product candidates, which would harm our business and could potentially cause us to cease operations.
We incur
significant increased costs as a result of operating as a public company, and our management is required to devote substantial
time to new compliance initiatives.
As a public
company, we expect to continue to incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and The Nasdaq
Stock Market LLC, or Nasdaq, have imposed various requirements on public companies. Although legislation permits “emerging
growth companies” and “smaller reporting companies” such as our company to postpone compliance with certain requirements
for a transition period or for so long as we remain a “smaller reporting company,” we 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 add to our legal and financial compliance
costs and make some activities more time-consuming and costly.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and
disclosure controls and procedures. In particular, we are required to perform system and process evaluation and testing of
our internal control over financial reporting to allow management to report, on the effectiveness of our internal control
over financial reporting by Section 404 of the Sarbanes-Oxley Act, or Section 404. Our testing may reveal deficiencies in our
internal control over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 requires
us to incur substantial accounting expense and expend significant management efforts. We currently do not have an internal
audit group and rely on independent contractors for control monitoring and for the preparation and review of our consolidated
financial statements. If we are not able to comply with the requirements of Section 404 in a timely manner or if we identify
or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting
that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions
or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management
resources.
New laws and
regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley
Act and rules adopted by the SEC and by Nasdaq, would likely result in increased costs to us as we respond to their requirements.
We are
highly dependent on the services of our key executives and personnel, and if we are not able to retain these members of our management
or recruit additional management, clinical and scientific personnel, our business will suffer.
We are highly
dependent on the principal members of our management and scientific and technical staff. The loss of service of any of our management
or key scientific and technical staff could harm our business. In addition, we are dependent on our continued ability to attract,
retain and motivate highly qualified additional management, clinical and scientific personnel. If we are not able to retain our
management and to attract, on acceptable terms, additional qualified personnel necessary for the continued development of our business,
we may not be able to sustain our operations or grow.
We may not be
able to attract or retain qualified personnel in the future due to the intense competition for qualified personnel among biotechnology,
pharmaceutical and other businesses. Our industry has experienced a high rate of turnover of management personnel in recent years.
If we are not able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience
constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital
and our ability to implement our business strategy.
Our future performance
will also depend, in part, on our ability to successfully integrate newly hired executive officers into our management team and
our ability to develop an effective working relationship among senior management. Our failure to integrate these individuals and
create effective working relationships among them and other members of management could result in inefficiencies in the development
and commercialization of our product candidates, harming future regulatory approvals, sales of our product candidates and our results
of operations. Additionally, we do not currently maintain “key person” life insurance on the lives of our executives
or any of our employees.
Healthcare
legislative reform measures may harm our business and results of operations.
In
the United States, there have been and continue to be a number of legislative initiatives to improve the access to and
quality of healthcare, and to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or together, the Affordable Care Act, was
passed, which substantially changes the way health care is financed by both governmental and private insurers and
significantly impacts the U.S. pharmaceutical industry. The Affordable Care Act, among other things, imposes 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, increases the minimum Medicaid rebates owed by manufacturers under the
Medicaid Drug Rebate Program, extends the rebate program to individuals enrolled in Medicaid managed care organizations, adds
a provision to increase the Medicaid rebate for line extensions or reformulated drugs, establishes annual fees on
manufacturers and importers of certain branded prescription drugs and biologic agents, and promotes a new Medicare Part D
coverage gap discount program. The Affordable Care Act also expands eligibility for Medicaid programs and introduced a new
Patient Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative
clinical effectiveness research, along with funding for such research. There have been judicial, Congressional and executive
branch challenges to certain aspects of the Affordable Care Act, and we expect there will be additional challenges and
amendments to the Affordable Care Act in the future. While Congress has not passed comprehensive repeal legislation, it has
enacted laws that modify certain provisions of the Affordable Care Act such as removing or delaying penalties, starting
January 1, 2019, for not complying with the Affordable Care Act’s individual mandate to carry health insurance,
delaying the implementation of certain Affordable Care Act-mandated fees, and increasing the point-of-sale discount that is
owed by pharmaceutical manufacturers who participate in Medicare Part D. Additionally, on December 15, 2018, a Texas U.S.
District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the individual mandate
was repealed by Congress. While the Texas U.S. District Court Judge, as well as the current presidential administration and
the Centers for Medicare & Medicaid Services, or CMS, have stated that the ruling will have no immediate effect pending
appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the
Affordable Care Act will impact the Affordable Care Act and our business. We continue to evaluate the potential impact of the
Affordable Care Act and its possible repeal or replacement on our business.
In addition,
other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example,
on August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A
Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for
the years 2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction
to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year,
which went into effect on April 1, 2013 and, due to subsequent legislative amendments, will stay in effect through 2029 unless
additional Congressional action is taken. Additionally, on January 2, 2013, President Obama signed into law the American Taxpayer
Relief Act of 2012, which among other things, further reduced Medicare payments to certain providers, including physicians, hospitals
and cancer treatment centers. In addition, there has been heightened governmental scrutiny recently over the manner in which drug
manufacturers set prices for their marketed products, which have 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.
At the federal level, the Trump administration’s budget proposals for fiscal years 2019 and 2020 contain further drug price
control measures that could be enacted during the budget process or in other future legislation. In addition, the current presidential
administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional
proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize
manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers.
The Department of Health and Human Services, or HHS, has started soliciting feedback on some of these measures and, at the same,
is implementing others under its existing authority. Although a number of these, and other measures may require authorization through
additional legislation to become effective, Congress and the executive branch have each indicated that it will continue to seek
new legislative and/or administrative measures to control drug product costs. At the state level, legislatures have increasingly
passed legislation and implemented regulations designed to control pharmaceutical and biological 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.
We expect that
the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous
coverage criteria and lower reimbursement, and additional downward pressure on the price that we receive for any approved product.
Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments
from private payors. The implementation of cost containment measures or other healthcare reforms could result in reduced demand
for our product candidates or additional pricing pressures, and may prevent us from being able to generate revenue, attain profitability
or commercialize our drugs.
We are
subject, directly and indirectly, to federal and state healthcare laws and regulations, including fraud and abuse, false claims,
physician payment transparency and health information privacy and security laws. If we are unable to comply or have not fully complied
with such laws, we could face substantial penalties.
Our
operations are directly and indirectly through our current and future arrangements with healthcare professionals, principal
investigators, consultants, customers and third-party payors subject to various federal and state fraud and abuse laws,
including without limitation, the federal Anti-Kickback Statute, the civil False Claims Act and physician sunshine laws and
regulations. These laws may impact, among other things, our clinical research, proposed sales, marketing and education
programs. In addition, we may be subject to patient data privacy and security regulation by both the federal government and
the states in which we conduct our business. The healthcare laws that may affect our ability to operate include but are not
limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things,
persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly,
in cash or in kind, to induce, reward, or in return for either the referral of an individual for, or the purchase, recommendation,
order or furnishing of an item or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare
and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty
laws, including the civil False Claims Act, which can be enforced by private individuals through civil whistleblower or qui tam
actions, which prohibit, among other things, individuals or entities from knowingly presenting or causing to be presented claims
for payment from Medicare, Medicaid or other government health programs that are false or fraudulent and which may apply to entities
that provide coding and billing advice to customers;
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the federal Health Insurance Portability and Accountability Act of 1996,
or HIPAA, which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any
healthcare benefit program and making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and
Clinical Health Act, and their implementing regulations, which imposes certain requirements, including mandatory contractual terms,
relating to the privacy, security and transmission of individually identifiable health information on health plans, certain healthcare
providers, and healthcare clearinghouses, known as covered entities, and their business associates that provide services to the
covered entity that involve individually identifiable health information;
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the federal legislation commonly referred to as the Physician Payments Sunshine Act under the
Affordable Care Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment
is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report
annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value
made by such manufacturers to physicians and teaching hospitals and ownership and investment interests held by physicians and
their immediate family members and applicable group purchasing organizations; and
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analogous state and foreign laws and regulations, such as anti-kickback
and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state
laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and
the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare
providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments
and other transfers of value to physicians and other healthcare providers or marketing expenditures or drug pricing; state and
local laws that require the registration of pharmaceutical sales representatives; and state and foreign laws governing the privacy
and security of health information in certain circumstances, many of which differ from each other in significant ways and may not
have the same effect, thus complicating compliance efforts.
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Because of the
breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that
some of our business activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reform
legislation has strengthened these laws. For example, the Affordable Care Act, among other things, amends the intent requirement
of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge
of these statutes or specific intent to violate them in order to commit a violation. Moreover, the Affordable Care Act provides
that 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 civil False Claims Act.
If
our operations are found to be in violation of any of the laws described above or any other governmental regulations that
apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages,
fines, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, individual
imprisonment, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, additional
reporting requirements and oversight if we become 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. Defending against any such actions can be
costly, time-consuming and may require significant financial and personnel resources.
Therefore, even
if we are successful in defending against any such actions that may be brought against us, our business may be impaired.
The international
aspects of our business expose us to business, regulatory, political, operational, financial and economic risks associated with
doing business outside of the United States.
We currently
have limited international operations of our own and have a number of international collaborations. Doing business internationally
involves a number of risks, including but not limited to:
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multiple, conflicting and changing laws and regulations such as privacy
regulations, tax laws, export and import restrictions, employment laws, regulatory requirements and other governmental approvals,
permits and licenses;
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failure by us or our collaboration partners to obtain and maintain regulatory
approvals for the use of our products in various countries;
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additional potentially relevant third-party patent rights;
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complexities and difficulties in obtaining protection and enforcing our intellectual property;
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difficulties in staffing and managing foreign operations by us or our collaboration partners;
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complexities associated with managing multiple payor reimbursement regimes,
government payors or patient self-pay systems by our collaboration partners;
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limits in our or our collaboration partners’ ability to penetrate international markets;
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financial risks, such as longer payment cycles, difficulty collecting accounts
receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency
exchange rate fluctuations;
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natural disasters, political and economic instability, including wars, terrorism
and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions;
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certain expenses including, among others, expenses for travel, translation and insurance; and
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regulatory and
compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the
purview of the U.S. Foreign Corrupt Practices Act, its books and records provisions or its anti-bribery provisions.
If we
fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur
costs that could harm our business.
Our research,
development and manufacturing activities and our third-party suppliers’ activities involve the controlled storage, use and
disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our suppliers
are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.
In some cases, these hazardous materials and various wastes resulting from their use are stored at our facilities pending their
use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts,
research, development and manufacturing efforts and business operations, and environmental damage resulting in costly clean-up
and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and
specified waste products. Although we believe that the safety procedures utilized by us for handling and disposing of these materials
generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate
the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting
damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use
of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change
frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our
future compliance. We do not currently carry biological or hazardous waste insurance coverage.
Risks Related
to Ownership of Our Securities
The trading
price of our securities is likely to be volatile, and purchasers of our securities could incur substantial losses.
The market price
of our securities is likely to be volatile. The stock market in general and the market in which we operate have experienced extreme
volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility,
investors may not be able to sell their securities at a profit. The market price of our securities could be subject to wide fluctuations
in response to a variety of factors, including but not limited to:
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the success of competitive services, products or technologies;
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adverse results or delays in preclinical or clinical trials;
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any inability to obtain additional funding;
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any delay in filing an IND, BLA or other regulatory submission for ONS-5010,
or any of our product candidates when planned, and any adverse development or perceived adverse development with respect to the
applicable regulatory agency’s review of that IND, BLA or other regulatory submission;
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the perception of limited market sizes or pricing for ONS-5010 or any of
our other product candidates;
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failure to successfully develop and commercialize ONS-5010 or any of our
other product candidates;
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post-marketing safety issues relating to our product candidates generally;
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failure to maintain our existing strategic collaborations or enter into new collaborations;
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failure by us or our licensors and strategic collaboration partners to prosecute,
maintain or enforce our intellectual property rights;
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changes in laws or regulations applicable to our products;
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any inability to obtain adequate product supply for our product candidates
or the inability to do so at acceptable prices;
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adverse regulatory decisions;
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introduction of new products, services or technologies by our competitors;
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failure to meet or exceed financial projections we may provide to the public;
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failure to meet or exceed the financial projections of the investment community;
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the perception of the pharmaceutical industry by the public, legislatures,
regulators and the investment community;
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announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us, our strategic collaboration partners or our competitors;
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disputes or other developments relating to proprietary rights, including
patents, litigation matters and our ability to obtain patent protection for our technologies;
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additions or departures of key scientific or management personnel;
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significant lawsuits, including stockholder litigation and litigation filed
by us or filed against us pertaining to patent infringement or other violations of intellectual property rights;
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the outcomes of any citizens petitions filed by parties seeking to restrict or limit the approval
of our product candidates; 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 stock;
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changes in the market valuations of similar companies;
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general economic, industry or market conditions;
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sales of our securities by us or our stockholders in the future;
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trading volume of our securities;
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issuance of patents to third parties that could prevent our ability to commercialize our product
candidates;
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the loss of one or more employees constituting our leadership team;
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changes in regulatory requirements that could make it more difficult for us to develop our product
candidates; and
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the other factors described in this “Risk Factors” section.
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In addition,
biopharmaceutical companies in particular have experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the
market price of our securities, regardless of our actual operating performance.
BioLexis
has beneficial ownership of a significant percentage of our common stock, has the right to designate a majority of our board of
directors, and is able to exert significant control over matters subject to stockholder approval, preventing new investors from
influencing significant corporate decisions.
As
of September 30, 2019, BioLexis beneficially owns 23,589,499 shares of our common stock, which includes 1,225,789 shares of
common stock issuable upon conversion of 66,451 shares of our voting Series A-1 convertible preferred stock and 8,294,216
shares of common stock issuable upon exercise of warrants outstanding. Accordingly, BioLexis currently beneficially owns
approximately 61.8% of our common stock and controls 51.2% of our outstanding voting power. Under an investor rights
agreement, as amended, with BioLexis, BioLexis also currently has the power to designate a majority of our board of
directors, and two of our five board members were designated by BioLexis. BioLexis’ interests may not coincide with
the interests of other securityholders. BioLexis has the ability to influence our company through both its ownership position
and control of our board of directors, which may prevent or discourage unsolicited acquisition proposals or offers for our
capital stock that you may believe are in your best interest as one of our securityholders.
Our quarterly
operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which
may cause our stock price to fluctuate or decline.
Our quarterly
operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations
may occur due to a variety of factors, many of which are out of our control and may be difficult to predict, including but not
limited to:
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our ability to successfully develop, market and sell ONS-5010 and any other product candidates;
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the cost of clinical development for ONS-5010 and any other product candidates;
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the success of competitive products or technologies;
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results of clinical trials of our product candidates or those of our competitors;
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developments or disputes concerning patent applications, issued patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the level of expenses related to any of our product candidates or clinical development programs;
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the results of our efforts to discover, develop, manufacture, acquire or in-license additional
product candidates;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities
analysts;
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variations in our financial results or those of companies that are perceived to be similar to us;
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market conditions in the pharmaceutical and biotechnology sectors;
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general economic, industry and market conditions; and
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the other factors described in this “Risk Factors” section.
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If our quarterly
operating results fall below the expectations of investors or securities analysts, the market price of our securities could decline
substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our securities
to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should
not be relied upon as an indication of our future performance.
If securities
or industry analysts do not publish research, or publish unfavorable research, about our business, the market price of our securities
and trading volume could decline.
The trading
market for our securities will depend in part on the research and reports that securities or industry analysts publish about us
or our business, our market and our competitors. We do not have any control over these analysts. If any analysts who cover us in
the future downgrade our securities or change their opinion of our securities, the market price of our securities would likely
decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose
visibility in the financial markets, which could cause the market price of our securities or trading volume to decline.
We are
an “emerging growth company” and, due to the reduced reporting requirements applicable to emerging growth companies,
certain investors may find investing in our securities less attractive.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the 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, reduced disclosure obligations regarding
executive compensation in this prospectus 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. We could be an emerging growth company for up to five years from our initial public offering, although
circumstances could cause us to lose that status earlier, including if the market value of our common stock held by
non-affiliates exceeds $700 million as of March 31 (the end of our second fiscal quarter) of any fiscal year before that time
or if we have total annual gross revenue of $1.07 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 September 30 (the last day of our fiscal year) or, if we
issue more than $1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an
emerging growth company immediately. We cannot predict if investors will find our securities less attractive because we may
rely on this exemption. If some investors find our securities less attractive as a result, there may be a less active trading
market for our securities and the market price of our securities may be more volatile.
We have
and will continue to incur significant costs and demands upon management as a result of complying with the laws and regulations
affecting public companies in the United States, which may harm our operating results.
As a public
company listed in the United States, we have and will continue to incur significant additional legal, accounting and other expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations
implemented by the SEC and Nasdaq, may increase legal and financial compliance costs and make some activities more time-consuming.
These laws, regulations and standards are subject to varying interpretations, and as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving
laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion
of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts
to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against
us, and our business may be harmed.
Further, failure
to comply with these laws, regulations and standards might also make it more difficult for us to obtain certain types of insurance,
including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult
for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as
members of senior management.
Due
to the speculative nature of warrants, there is no guarantee that it will ever be profitable for holders of the Series A
warrants to exercise such warrants.
The Series A
warrants represent the right to acquire shares of our common stock at a fixed price for a limited period of time. If not exercised
prior to their expiration dates, such warrants expire and have no further value. In the event the price of a share of our common
stock price does not exceed the exercise price of the warrants, such warrants may not have any value. Moreover, the market value
of the warrants is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their initial
public offering price. There can be no assurance that the market price of our common stock will ever equal or exceed the exercise
price of the warrants, and, consequently, whether it will ever be profitable for holders of the Series A warrants to exercise such
warrants.
Future
sales and issuances of our common stock or rights to purchase securities, including pursuant to our equity incentive plans, exercise
of warrants or conversion of outstanding convertible preferred securities, could result in additional dilution of the percentage
ownership of our stockholders and could cause the market price of our securities to fall.
We
will need additional capital in the future to continue our planned operations. To the extent we raise additional capital by
issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible
securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time.
If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be
materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and
new investors could gain rights superior to our existing stockholders.
Pursuant to
the 2015 Equity Incentive Plan, or the 2015 Plan, our management is authorized to grant stock options and other equity-based awards
to our employees, directors and consultants. Under the 2015 Plan, the number of shares of our common stock reserved for issuance
as of September 30, 2019 was 1,309,950 shares, and our stockholders approved an increase of an additional 1,500,000 shares at our
2019 annual meeting of stockholders held on September 12, 2019. The number of shares available for future grant under the 2015
Plan also provides for an “evergreen” increase on an annual basis unless our board of directors determines otherwise.
In addition, we have reserved shares for issuance under our 2016 Employee Stock Purchase Plan, or the ESPP, which similarly provides
for an annual “evergreen” increase unless determined otherwise by our board of directors. If our board of directors
does not elect to reduce the annual increases in the number of shares available for future grant under the 2015 Plan or the ESPP,
our stockholders may experience additional dilution, which could cause the market price of our securities to fall. We also currently
have issued and outstanding a number of warrants to purchase an aggregate of 15,968,013 shares of our common stock, at prices ranging
from $2.90 to $12.00 per share, as well as shares of our Series A-1 convertible preferred stock, which are currently convertible
into an aggregate 1,225,789 shares of our common stock.
Our ability
to use our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred
substantial losses during our history and do not expect to become profitable in the near future, and we 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. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation
undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity
ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes (such as research tax credits) to offset its post-change income
or taxes may be limited. We may have experienced ownership changes in the past and may experience ownership changes in the future
as a result of subsequent shifts in our stock ownership (some of which shifts are outside our control). As a result, if we earn
net taxable income, our ability to use our pre-change NOLs to offset such taxable income will be subject to limitations. Similar
provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level,
there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase
state taxes owed. Recently enacted U.S. tax legislation has also impacted the ability to fully utilize NOL carryforwards generated
in periods after December 31, 2017. As a result, even if we attain profitability, we may be unable to use a material portion of
our NOLs and other tax attributes, which could adversely affect our future cash flows.
We do not
intend to pay dividends on our capital stock, and as such any returns will be limited to the value of our securities.
We have never
declared or paid any cash dividends on our capital stock. We currently anticipate that we will retain future earnings for the development,
operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.
Any return to securityholders will therefore be limited to the appreciation of their securities. In addition, our senior secured
notes issued December 2016 through May 2017 restrict our ability to pay dividends, and the terms of our Series A-1 convertible
preferred stock may also act to limit our ability to pay dividends as we may not declare or pay any dividends on our common stock
unless we also concurrently declare and set aside for payment or distribution, as applicable, participating dividends for our Series
A-1 convertible preferred stock.
Provisions
in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law,
could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit
our securityholders or remove our current management.
Our amended
and restated certificate of incorporation, amended and restated bylaws, as amended and Delaware law contain provisions that may
have the effect of delaying or preventing a change in control of us or changes in our management. Our charter documents also contain
other provisions that could have an anti-takeover effect, such as:
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establishing a classified board of directors so that not all members of our board of directors
are elected at one time;
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permitting the board of directors to establish the number of directors and fill any vacancies
and newly created directorships;
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providing that directors may only be removed for cause;
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prohibiting cumulative voting for directors;
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requiring super-majority voting to amend some provisions in our amended and restated certificate
of incorporation and amended and restated bylaws;
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authorizing the issuance of “blank check” preferred stock that our board of directors
could use to implement a stockholder rights plan;
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eliminating the ability of stockholders to call special meetings of stockholders; and
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prohibiting stockholder action by written consent, which requires all stockholder actions to
be taken at a meeting of our stockholders.
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These provisions,
alone or together, could delay, deter or prevent hostile takeovers and changes in control or changes in our management.
In addition,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,
which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.
Any provision
of our amended and restated certificate of incorporation or amended and restated bylaws, as amended or Delaware law that has the
effect of delaying or deterring a change in control could limit the opportunity for our securityholders to receive a premium for
their securities and could also affect the price that some investors are willing to pay for our securities.
Our amended
and restated certificate of incorporation and our amended and restated bylaws, as amended, provide that the Court of Chancery of
the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit
our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended
and restated certificate of incorporation and our amended and restated bylaws, as amended, provide 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: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting
a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation
or our amended and restated bylaws, as amended, or any action asserting a claim against us that is governed by the internal affairs
doctrine. This provision would not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act
of 1934, as amended, or any other claim for which the U.S. federal courts have exclusive jurisdiction.
The choice of
forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers
and other employees. If a court were to find the choice of forum provision contained in our amended and restated certificate of
incorporation or in our amended and restated bylaws, as amended, to be inapplicable or unenforceable in an action, we may incur
additional costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.