S-1/A 1 d143369ds1a.htm S-1/A S-1/A
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As filed with the Securities and Exchange Commission on June 7, 2021.

Registration No. 333-256297

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1 TO FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Janux Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2834   82-2289112
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

11099 N. Torrey Pines Road, Suite 290

La Jolla, California 92037

(858) 750-4700

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

David Campbell, Ph.D.

Chief Executive Officer

Janux Therapeutics, Inc.

11099 N. Torrey Pines Road, Suite 290

La Jolla, California 92037

(858) 750-4700

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Kenneth J. Rollins
Charles S. Kim
James Pennington
Cooley LLP
4401 Eastgate Mall
San Diego, California 92121
(858) 550-6000
  Brian J. Cuneo
Matthew T. Bush
Richard Kim
Latham & Watkins LLP
12670 High Bluff Drive
San Diego, California 92130
(858) 523-5400

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☒

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

Title of Each Class of
Securities to be Registered
  Amount to be
Registered(1)
  Proposed Maximum
Offering Price Per
Share(2)
 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee(3)

Common Stock, $0.001 par value per share

  10,925,000   $17.00   $185,725,000   $20,263

 

 

(1)

Includes 1,425,000 shares that the underwriters have an option to purchase.

(2)

Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)

Of this amount, $10,910 was previously paid.

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated June 7, 2021

PROSPECTUS

9,500,000 Shares

 

 

LOGO

Common Stock

 

 

This is the initial public offering of shares of common stock of Janux Therapeutics, Inc. We are selling 9,500,000 shares of our common stock.

Prior to this offering, there has been no public market for our common stock. We currently expect the initial public offering price will be between $15.00 and $17.00 per share of our common stock.

We have applied to list our common stock on the Nasdaq Global Market under the symbol “JANX.”

We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced reporting requirements in this prospectus and may elect to do so in future filings.

 

 

See the section titled “Risk Factors” beginning on page 13 to read about factors you should consider before deciding to invest in shares of our common stock.

 

 

 

    

Per Share

      

Total

 

Initial public offering price

   $        $  

Underwriting discounts and commissions(1)

   $          $    

Proceeds, before expenses, to us

   $          $    

 

  (1)

See the section titled “Underwriting” for a description of the compensation payable to the underwriters.

We have granted the underwriters an option for a period of 30 days to purchase up to an additional 1,425,000 shares of our common stock at the initial public offering price, less the underwriting discounts and commissions.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on or about                 , 2021.

 

 

 

BofA Securities   Cowen         Evercore ISI

H.C. Wainwright & Co.

The date of this prospectus is                     , 2021.


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TABLE OF CONTENTS

 

    

Page

 

Prospectus Summary

     1  

Risk Factors

     13  

Special Note Regarding Forward-Looking Statements

     73  

Market and Industry Data

     74  

Use of Proceeds

     75  

Dividend Policy

     77  

Capitalization

     78  

Dilution

     81  

Selected Financial Data

     84  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     86  

Business

     100  

Management

     157  

Executive and Director Compensation

     166  

Certain Relationships and Related Party Transactions

     180  

Principal Stockholders

     185  

Description of Capital Stock

     188  

Shares Eligible for Future Sale

     194  

Material U.S. Federal Income Tax Consequences for Non-U.S. Holders

     197  

Underwriting

     201  

Legal Matters

     209  

Experts

     209  

Where You Can Find Additional Information

     209  

Index to Financial Statements

     F-1  

 

 

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside the United States.

 

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus. You should carefully consider, among other things, the sections of this prospectus titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus. Unless the context otherwise requires, the terms “Janux Therapeutics,” “Janux,” “we,” “us,” “our” and similar references in this prospectus refer to Janux Therapeutics, Inc.

Overview

We are an innovative biopharmaceutical company developing next-generation therapeutics based on our proprietary Tumor Activated T Cell Engager (TRACTr) platform technology to better treat patients suffering from cancer. Our initial focus is on developing a novel class of T cell engagers (TCEs), and our lead product candidates are designed to target clinically validated drug targets. While TCE therapeutics have displayed potent anti-tumor activity in hematological cancers, developing TCEs to treat solid tumors has faced challenges due to the limitations of prior TCE technologies, namely (i) overactivation of the immune system leading to cytokine release syndrome (CRS), (ii) on-target, healthy tissue toxicities and (iii) poor pharmacokinetics (PK) leading to short half-life. We are using our TRACTr platform technology to engineer product candidates designed to overcome these limitations. We are developing a broad pipeline with lead programs targeting prostate-specific membrane antigen (PSMA), epidermal growth factor receptor (EGFR), and trophoblast cell surface antigen 2 (TROP2), with all of our programs currently in the preclinical or discovery stage. We expect to submit at least two Investigational New Drug application (IND) submissions by the end of 2022. We expect to initially seek regulatory approval for our product candidates as later lines of therapy in patients with cancer. In subsequent preclinical studies and/or clinical trials, we plan to evaluate our product candidates’ potential for use as earlier lines of therapy. Based on data we have generated in non-human primates (NHPs), we believe our TRACTr product candidates have the potential for (i) significantly reduced risk of toxic CRS responses, (ii) reduced risk of on-target, healthy tissue toxicities, and (iii) improved half-life with once-weekly dosing in humans.

The promise of TCE technologies and their current limitations

TCEs are an emerging class of immunotherapies that bridge a tumor cell and a T cell, to activate and redirect T cells to attack and eliminate tumors. TCEs have demonstrated promising anti-tumor activity in early clinical trials and in multiple animal models that rivals that of chimeric antigen receptor T cell (CAR T cell) therapies, with the distinct advantage that they are not cell therapies, and have the potential to be offered as readily available, off-the-shelf therapies, which would avoid the lengthy, complicated and expensive manufacturing process required for approved autologous CAR T cell therapies. One TCE, blinatumomab, marketed by Amgen as BLINCYTO, has been approved by the U.S. Food and Drug Administration (FDA) and, like the FDA-approved CAR T cell therapies, has been limited to hematological malignancies.

Three properties of existing TCEs have limited their potential to treat solid tumors:

 

   

Cytokine release syndrome (CRS). CRS arises from the systemic activation of T cells and can result in life-threatening elevations in inflammatory cytokines such as interleukin-6 (IL-6). Severe and acute CRS leading to dose-limiting toxicities and deaths has been observed upon the dosing of TCEs developed using other platforms to treat cancer patients in prior clinical studies. This toxicity severely restricts the maximum blood levels of TCEs that can be safely dosed.

 

   

On-target, healthy tissue toxicity. On-target, healthy tissue toxicity, arising from expression of the tumor target in healthy tissue and scarcity of highly tumor-selective antigens, is another limitation



 

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hindering the development of TCEs to treat solid tumor cancers. TCEs developed using other platforms not designed for tumor-specific activation have resulted in clinical holds and dose-limiting toxicities resulting from target expression in healthy tissues.

 

   

Short half-lives. TCEs quickly reach sub-therapeutic levels after being administered as they are quickly eliminated from the body due to their short exposure half-lives. For this reason, TCEs such as blinatumomab are typically administered by a low-dose, continuous infusion pump over a period of weeks to overcome the challenge of a short half-life and to maintain therapeutic levels of the drug in the body. This continuous infusion dosing regimen represents a significant burden for patients.

Our TRACTr platform technology

We believe our proprietary TRACTr platform technology offers the potential to expand the breadth of patients that can be treated with TCEs while reducing the risk of life-threatening toxicities. Each of our proprietary TRACTrs is comprised of an antigen-binding domain, a T cell binding domain, domain-optimized peptide masks, an albumin binding domain, and cleavable peptide linkers. The mask is a peptide designed to bind to the tumor or T cell binding domain and inhibit the binding domain’s interaction with its target thereby inhibiting the activation of T cells. The antigen and T cell binding domains in our TRACTr product candidates may be covalently attached to peptide masks that block binding and activity until they are removed. We use proprietary peptide linker sequences composed of tumor protease recognition sites to attach these masks to the antigen binding domains in a way that is designed to make the masks highly sensitive to removal by tumor proteases but highly stable in the absence of these proteases. In addition, we attach an albumin binding domain to one mask, which is designed to extend the half-life of our TRACTr product candidates until they become activated inside a tumor.

While our TRACTr platform technology is novel and unproven and our product candidates remain in the preclinical or discovery stage, our technology is designed to offer the following features for the discovery and development of novel therapies for the treatment of solid tumors:

 

   

Potential to reduce CRS and on-target, healthy tissue toxicity risk. By engineering our TRACTrs with novel peptide masks that are designed to be selectively activated in the tumor microenvironment, and designed for any activated TCEs to be rapidly cleared from healthy tissue upon escaping from the tumor, our product candidates have the potential to overcome the toxicity challenges of TCEs and systemic immunotherapies in general.

 

   

Potential for extended half-life of our TRACTrs. We designed our TRACTrs with an albumin binding domain to be stable in the bloodstream and to have a long serum half-life before activation. Our TRACTrs have demonstrated long half-lives in NHPs, which we believe translates to the potential for once-weekly dosing in humans. This is in contrast to first-generation TCEs that are rapidly cleared and require high frequency or continuous dosing.

 

   

Potential for activity at low levels of target expression. Our TRACTrs are designed to be active at low levels of tumor target expression where other treatment modalities lose efficacy. In preclinical studies, our TRACTrs did not require high levels of tumor target expression to activate T cells to kill cancer cells.

 

   

Modularity. Our TRACTr platform technology’s modular characteristics enable us to leverage the learnings from the development of our product candidates to progress the discovery process of new TRACTr candidates against a wide variety of targets.

 

   

Manufacturability. The production, development, and manufacturing processes of our TRACTr molecules closely resemble those used for monoclonal antibodies with the potential for a relatively lower cost of goods.



 

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A schematic of our proprietary TRACTrs in development and their modular components is depicted below.

 

 

LOGO

Our lead programs

Our lead TRACTr product candidates are designed to target PSMA, EGFR, and TROP2. Each of these tumor targets are clinically validated and implicated in solid tumors with high prevalence including metastatic castrate-resistant prostate cancer (mCRPC), colorectal cancer (CRC), squamous cell carcinoma of the head and neck (SCCHN), triple-negative breast cancer (TNBC), urothelial cancer (UC), and non-small cell lung cancer (NSCLC). We anticipate submitting INDs for at least two of these product candidates by the end of 2022. We are also applying our proprietary technology to develop a Tumor Activated Immunomodulator (TRACIr) costimulatory bispecific product candidate against programmed death-ligand 1 (PD-L1) and CD28 designed to further enhance the anti-tumor activity of T cells, which we believe has the potential to be used as a single-agent or in combination with our current TRACTr pipeline. Our pipeline is summarized below:

 

 

LOGO



 

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In addition to our wholly-owned pipeline programs, we have a strategic research collaboration with Merck Sharp & Dohme Corp. (Merck) to develop TRACTr product candidates directed against two cancer targets selected by Merck.

Our TRACTr Programs

We are building a broad portfolio of TRACTr programs led by our PSMA, EGFR and TROP2 targeted TRACTrs.

Our PSMA-TRACTr

Our PSMA-TRACTr is designed to target PSMA, a protein expressed in prostate cancer tumors and the vasculature of other tumors. Prostate cancer is the second most common cancer in men, leading to over 33,000 deaths in the United States in 2020. PSMA is known to be highly expressed in prostate cancer which has led to the development of PSMA-targeted biologics, including TCEs. A third-party clinical trial with a continuously infused PSMA-TCE demonstrated clinical benefit, suggesting the potential of a PSMA-TCE approach. Given the challenges of continuous infusion, other companies are developing TCEs that enable once-weekly dosing. However, clinical trial results have shown dose-limiting CRS toxicities as single agents, highlighting the limitations of traditional TCEs. Efforts to mitigate CRS include combining TCEs with the immunosuppressive agent dexamethasone and/or lower sub-efficacious initial priming doses followed by efficacious doses. These strategies have the potential to either reduce the efficacy of the TCE or to introduce other problems in patients who frequently have multiple pre-existing comorbidities. Our PSMA-TRACTr is designed to generate potent anti-tumor activity in mCRPC patients, by enabling the delivery of higher concentrations of active drug to tumors than traditional TCEs. We believe that our PSMA-TRACTr product candidate has the potential to deliver therapeutic benefits to patients while minimizing serious adverse events (SAEs), including the prevention of dose-limiting CRS. We plan to submit an IND for our PSMA-TRACTr product candidate in the first half of 2022.

Our EGFR-TRACTr

Our EGFR-TRACTr is designed to target EGFR, a well-validated target that is over expressed in many cancer types with multiple approved monoclonal antibodies (mAbs), including ERBITUX, marketed by Eli Lilly and Merck KGaA, for the treatment of CRC and SCCHN, and VECTIBIX, marketed by Amgen and Takeda, for the treatment of CRC. Colorectal cancer represents one tumor type for which EGFR is overexpressed, but over 85 percent of patients do not respond to anti-EGFR mAbs and, of those that do, resistance often develops. We believe that EGFR-directed immunotherapies, including TCEs, have the potential to address this high unmet need. Our EGFR-TRACTr is designed to generate potent anti-tumor activity, initially in CRC patients, by enabling the delivery of higher concentrations of active drug to tumors than traditional TCEs. We believe that our EGFR-TRACTr product candidate has the potential to deliver therapeutic benefits to patients while minimizing SAEs, including the prevention of dose-limiting CRS. We selected a development candidate for our EGFR-TRACTr product candidate in the second quarter of 2021, and we plan to submit an IND in the second half of 2022.

Our TROP2-TRACTr

Our TROP2-TRACTr is designed to target TROP2, a clinically validated anti-tumor target for which there is a recently approved anti-TROP2 antibody-drug conjugate (ADC), sacituzumab govitecan, marketed as TRODELVY by Gilead. TRODELVY has been approved to treat metastatic TNBC and UC. Early clinical proof-of-concept has also been demonstrated in NSCLC and several other solid tumor indications potentially targetable by TROP2, including hormone receptor-positive (HR+)/HER2 breast cancer, small cell lung cancer



 

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(SCLC), gastric cancer, esophageal cancer, head and neck cancer, prostate cancer, and endometrial cancer. However, these ADCs are also associated with significant toxicities that limit dosing. Our TROP2-TRACTr is designed to generate potent anti-tumor activity, initially in TNBC patients, by enabling the delivery of higher concentrations of active drug to tumors than traditional TCEs. We believe that our TROP2-TRACTr has the potential to deliver therapeutic benefits to patients while minimizing SAEs, including the prevention of dose-limiting CRS. We believe that our TROP2-TRACTr has the potential to deliver the potent anti-tumor activity of a TCE to patients who have tumors that overexpress TROP2 while also providing increased safety and dosing convenience. We plan to submit an IND for our TROP2-TRACTr in 2023.

Our PD-L1xCD28 costimulatory bispecific

We are also applying our technology to develop a TRACIr, with our first program being a tumor-activated PD-L1xCD28 T cell costimulatory bispecific. This program is designed to amplify existing T cell anti-tumor responses as well as TRACTr activity through a dual mechanism of (i) blocking tumor-expressed immunosuppressive signaling and (ii) activating T cell costimulatory signaling. Our bispecific molecule is designed to bind to immunosuppressive PD-L1 on tumor cells as well as to the CD28 costimulatory receptor on T cells. We believe that our technology’s potential to convert the checkpoint inhibitory signal into an immune system activation signal via costimulation could stimulate further anticancer activity. Like current checkpoint inhibitors, we believe our costimulatory program could be combined with a variety of classes of therapeutics, including chemotherapeutics as well as other immunotherapies. We have shown that the use of this bispecific led to potent T cell-directed tumor cell killing in cell assays in which a checkpoint inhibitor was ineffective. In addition, our costimulatory program enhanced the potency of tumor cell killing when combined with a TCE. We anticipate selecting a development candidate in 2022.

Our Research Collaboration with Merck Sharp & Dohme Corp.

In December 2020, we entered into a research collaboration and exclusive license agreement with Merck to develop TRACTr product candidates that are distinct from those in our internally developed pipeline. Merck has the right to select up to two collaboration targets related to next generation TCE immunotherapies for the treatment of cancer. Merck will receive an exclusive worldwide license for each selected target and intellectual property from the collaboration. In return, we are eligible to receive up to $500.5 million per target in upfront and milestone payments, plus royalties on sales of the products derived from the collaboration. Merck will provide research funding under the collaboration.

We plan to selectively consider other strategic collaboration opportunities in the future.

Our Team and Investors

Our team has deep experience in oncology drug development and protein engineering. We are led by David Campbell, Ph.D., our founder, President and CEO, who has more than 25 years of experience in executive management and served as CSO or CEO of multiple drug discovery and development companies that have created numerous clinical programs and partnerships with large pharma. These include Sitari Pharmaceuticals (acquired by GlaxoSmithKline), Afraxis (partnered with Genentech), and RQx (partnered with Genentech). Neil Gibson, Ph.D., our Head of Oncology, has over 25 years of drug development experience, including serving as Senior Vice President at BioAtla, CSO at Regulus Therapeutics, CSO and Oncology Therapeutic Area Head at Pfizer Oncology, and CSO at OSI Pharmaceuticals. Neil was involved in the discovery, development, and commercialization of several oncology drugs, including temozolomide, sorafenib, erlotinib, and crizotinib. Tommy Diraimondo, Ph.D., our Director of Research, was the co-founder of Sitari Pharmaceuticals (acquired by GlaxoSmithKline). Charles Winter, SVP of CMC, has more than 25 years of bioprocess experience, having served in CMC leadership roles at Genentech, Gilead, Denali Therapeutics, AnaptysBio, and Synthorx (acquired



 

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by Sanofi). At these companies, Charles played key roles in bringing more than 20 molecules into clinical development and six to market, including Avastin, Herceptin, Rituxan, and Xolair. Wayne Godfrey, M.D., our CMO, has more than 22 years of experience in clinical development and research, including serving as Vice President Clinical Development at IGM Biosciences, Inc., Senior Director, Clinical Development at Kite Pharma, Inc., CMO at Etubics Corporation and Senior Director, Clinical Research Oncology at Gilead Sciences.

Since our inception in 2017, we have raised an aggregate of $201 million from leading investors that include, among others, Avalon Ventures, Bregua, Correlation Ventures, OrbiMed and RA Capital Management.

Our Strategy

Our goal is to unleash the potential of our TRACTr platform technology to transform the lives of cancer patients. To achieve this goal, key elements of our strategy include the following:

 

   

Advance our lead TRACTr programs through clinical development;

 

   

Broaden our portfolio of TRACTr product candidates;

 

   

Expand our internal pipeline into logical classes of therapeutics beyond TCEs; and

 

   

Selectively evaluate opportunities to maximize the potential of our programs in partnership with leading biopharmaceutical companies.

Summary of Risks Associated with Our Business

Our business is subject to a number of risks that you should be aware of before making a decision to invest in our common stock. These risks are more fully described in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:

 

   

We have a limited operating history, have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, may not be able to sustain it.

 

   

Even if this offering is successful, we will need to obtain substantial additional funding to complete the development and commercialization of our product candidates. If we are unable to raise this capital when needed, we may be forced to delay, reduce or eliminate our product development programs or other operations.

 

   

Preclinical and clinical development is a lengthy, expensive and uncertain process. The results of preclinical studies and early clinical trials are not always predictive of future results. Any product candidate that we advance into clinical trials may not achieve favorable results in later clinical trials, if any, or receive marketing approval.

 

   

Our product candidates are based on novel technologies, which make it difficult to predict the timing, results and cost of product candidate development and likelihood of obtaining regulatory approval.

 

   

We may rely on third parties to conduct, supervise, and monitor our planned clinical trials and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.



 

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The market opportunity for our product candidates may be relatively small as it will be limited to those patients who are ineligible for or have failed prior treatments and our estimates of the prevalence of our target patient populations may be inaccurate.

 

   

We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

 

   

The COVID-19 pandemic and other epidemic diseases could adversely impact our business, including our planned clinical trials, supply chain and business development activities.

 

   

If we are unable to obtain and maintain sufficient intellectual property protection for our platform technology and product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.

Corporate Information

We were incorporated under the laws of the State of Delaware on June 27, 2017. Our principal executive offices are located at 11099 N. Torrey Pines Road, Suite 290, La Jolla, California 92037, and our telephone number is (858) 750-4700. Our corporate website address is www.januxrx.com. Information contained on, or accessible through, our website shall not be deemed incorporated into and is not a part of this prospectus or the registration statement of which it forms a part. We have included our website in this prospectus solely as an inactive textual reference.

Trademarks and Service Marks

“Janux Therapeutics,” “Janux,” the Janux logo and other trademarks, trade names or service marks of Janux Therapeutics, Inc. appearing in this prospectus are the property of Janux Therapeutics, Inc. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.

Implications of Being an Emerging Growth Company and Smaller Reporting Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (JOBS Act), enacted in April 2012, and we may remain an emerging growth company for up to five years following the closing of this offering. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments not previously approved. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an



 

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emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and therefore we will be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.

We would cease to be an “emerging growth company” upon the earliest to occur of: (i) the last day of the fiscal year in which we have $1.07 billion or more in annual revenue; (ii) the date on which we first qualify as a large accelerated filer under the rules of the Securities and Exchange Commission (SEC); (iii) the date on which we have, in any three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of this offering. We may choose to take advantage of some but not all of these reduced reporting burdens.

We are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended (Exchange Act). We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.



 

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The Offering

 

Common stock offered by us

9,500,000 shares.

 

Option to purchase additional shares

The underwriters have a 30-day option to purchase up to 1,425,000 additional shares of common stock from us.

 

Common stock to be outstanding immediately after this offering

38,001,510 shares (or 39,426,510 shares if the underwriters exercise their option to purchase additional shares in full).

 

Use of proceeds

We estimate that the net proceeds from this offering will be approximately $138.1 million (or approximately $159.3 million if the underwriters exercise in full their option to purchase up to 1,425,000 additional shares of common stock), based on the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use the net proceeds from this offering, along with our existing cash: (i) to fund the development of our PSMA-TRACTr product candidate through the completion of the ongoing IND-enabling studies and planned Phase 1 trial in mCRPC patients; (ii) to fund the development of our EGFR-TRACTr product candidate through the completion of the ongoing IND-enabling studies and planned Phase 1 trial in EGFR overexpressing cancer patients, including CRC patients; (iii) to fund the development of our TROP2-TRACTr program through the completion of the planned IND-enabling studies and planned Phase 1 trial in TROP2 overexpressing cancer patients, including TNBC, UC, and NSCLC patients; (iv) to fund the development of our costimulatory bispecific program through the completion of the planned IND-enabling studies and planned Phase 1 trial in patients with high PD-L1 expressing tumors; and (v) to fund our other research and development activities for our future pipeline, as well as for working capital and other general corporate purposes. See the section of this prospectus titled “Use of Proceeds.”

 

Risk factors

You should read the section of this prospectus titled “Risk Factors” for a discussion of factors to consider carefully, together with all the other information included in this prospectus, before deciding to invest in our common stock.

 

Proposed Nasdaq Global Market symbol

“JANX”


 

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The number of shares of our common stock to be outstanding after this offering is based on 28,501,510 shares of common stock outstanding as of March 31, 2021 (after giving effect to the conversion of all of our shares of convertible preferred stock outstanding as of March 31, 2021 as well as the issuance and subsequent conversion of all of our shares of Series B convertible preferred stock issued and sold in April 2021, into an aggregate of 26,608,460 shares of our common stock immediately prior to the closing of this offering), which includes 666,073 shares outstanding that are subject to our right to repurchase as of such date, and excludes:

 

   

2,131,639 shares of our common stock issuable upon the exercise of outstanding stock options as of March 31, 2021, with a weighted-average exercise price of $2.76 per share;

 

   

2,952,063 shares of our common stock issuable upon the exercise of outstanding stock options granted subsequent to March 31, 2021 and through June 4, 2021, with a weighted-average exercise price of $10.59 per share;

 

   

4,200,000 shares of common stock reserved for future issuance under our 2021 Equity Incentive Plan (2021 Plan), as well as any automatic increases in the number of shares of our common stock reserved for future issuance under the 2021 Plan, which will become effective upon the execution and delivery of the underwriting agreement for this offering (including 1,424,110 shares of common stock reserved for issuance under our 2017 Equity Incentive Plan (Prior Plan), which shares will be added to the 2021 Plan upon its effectiveness);

 

   

466,000 shares of common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan (ESPP), as well as any automatic annual increases in the number of shares of our common stock reserved for future issuance under the ESPP, which will become effective upon the execution and delivery of the underwriting agreement for this offering; and

 

   

90,000 shares of our common stock issuable upon the exercise of stock options to be granted to certain directors under our 2021 Plan, with an exercise price per share equal to the initial public offering price, effective upon the execution and delivery of the underwriting agreement for this offering.

Unless otherwise indicated, all information contained in this prospectus, including the number of shares of common stock that will be outstanding after this offering, assumes or gives effect to:

 

   

the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 26,608,460 shares of our common stock in connection with the closing of this offering;

 

   

no exercise by the underwriters of their option to purchase up to 1,425,000 additional shares of our common stock;

 

   

no exercise of the outstanding options described above;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the closing of this offering and the adoption of our amended and restated bylaws upon the closing of this offering; and

 

   

a one-for-1.281 forward stock split of our common stock, which we effected on June 4, 2021.



 

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Summary Financial Data

The following tables set forth our summary financial data as of, and for the periods ended on, the dates indicated. We have derived the statements of operations data for the years ended December 31, 2019 and 2020 from our audited financial statements included elsewhere in this prospectus. We have derived the statements of operations data for the three months ended March 31, 2020 and 2021 and the balance sheet data as of March 31, 2021 from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of March 31, 2021 and results of operations for the three months ended March 31, 2020 and 2021. You should read the following summary financial data together with our financial statements and the related notes included elsewhere in this prospectus and the sections in this prospectus titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of results that should be expected in any future period.

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2019     2020     2020     2021  
           (unaudited)  
     (in thousands, except share and per share data)  

Statements of Operations Data:

        

Collaboration revenue

   $ —       $ —       $ —       $ 380  

Operating expenses:

        

Research and development

     2,999       3,041       549       1,925  

General and administrative

     772       1,802       277       739  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,771       4,843       826       2,664  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (3,771     (4,843     (826     (2,284

Other expense:

        

Interest expense – related parties

     (233     (206     (97     —    

Increase in fair value of convertible promissory notes – related parties

           (1,735     (490     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (233     (1,941     (587     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (4,004   $ (6,784   $ (1,413   $ (2,284
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share, basic and diluted(1)

   $ (5.98   $ (7.41   $ (1.72   $ (2.06
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares of common stock outstanding, basic and diluted(1)

     669,425       915,146       821,270       1,111,178  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per common share, basic and diluted (unaudited)(2)

     $ (1.06     $ (0.18
    

 

 

     

 

 

 

Pro forma weighted-average shares of common stock outstanding, basic and diluted (unaudited)(2)

       6,415,183         12,472,673  
    

 

 

     

 

 

 

 

(1)

See Note 1 to our financial statements included elsewhere in this prospectus for details on the calculation of our basic and diluted net loss per common share.

(2)

The calculations for the unaudited pro forma net loss per common share, basic and diluted, and the pro forma weighted average shares of common stock outstanding, basic and diluted, assume the conversion of all our outstanding shares of convertible preferred stock into shares of our common stock, as if the conversion had occurred at the beginning of the period presented, or the issuance date, if later.



 

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     As of March 31, 2021  
     Actual      Pro Forma(1)      Pro Forma
As Adjusted(2) (3)
 
    

(unaudited, in thousands)

 

Balance Sheet Data:

        

Cash

   $ 70,769      $ 195,597      $ 333,757  

Working capital(4)

     64,512        189,340        327,629  

Total assets

     71,819        196,647        334,578  

Convertible preferred stock

     77,346        —          —    

Accumulated deficit

     (17,023      (17,023      (17,023

Total stockholders’ equity (deficit)

     (16,771      185,403        323,463  

 

(1)

The pro forma balance sheet data gives effect to (i) the conversion of all outstanding shares of our convertible preferred stock as of March 31, 2021 into an aggregate of 16,311,693 shares of our common stock, which will occur immediately prior to the closing of the offering, (ii) the issuance and sale of shares of our Series B convertible preferred stock in April 2021 for aggregate net proceeds of approximately $124.8 million and the subsequent conversion into 10,296,767 shares of our common stock, which will occur immediately prior to the closing of the offering, (iii) the related reclassification of the carrying value of the convertible preferred stock to permanent equity in connection with the closing of this offering and (iv) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the closing of this offering.

(2)

The pro forma as adjusted balance sheet data gives effect to (i) the pro forma adjustments set forth in footnote (1) above and (ii) our receipt of net proceeds from the sale of 9,500,000 shares of our common stock at the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted balance sheet data is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing.

(3)

Each $1.00 increase or decrease in the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, each of cash, working capital, total assets and total stockholders’ equity by $8.8 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, each of cash, working capital, total assets and total stockholders’ equity by $14.9 million, assuming no change in the assumed initial public offering price of $16.00 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(4)

Working capital is defined as current assets less current liabilities. See our financial statements and the related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.



 

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RISK FACTORS

Investing in our common stock is speculative and involves a high degree of risk. You should consider carefully the risks described below, together with the other information contained in this prospectus, including our financial statements and the related notes included elsewhere in this prospectus and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to invest in our common stock. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See the section titled “Special Note Regarding Forward-Looking Statements.”

Risks Related to Our Limited Operating History, Financial Position and Capital Requirements

We have a limited operating history, have incurred net losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, may not be able to sustain it.

We are an early-stage biopharmaceutical company with a limited operating history that may make it difficult to evaluate the success of our business to date and to assess our future viability. Our operations to date have been limited to organizing and staffing our company, business planning, business development, raising capital, developing and optimizing our technology platform, identifying potential product candidates, undertaking research and preclinical studies for our lead programs, establishing and enhancing our intellectual property portfolio and providing general and administrative support for these operations. All of our product candidates are in preclinical development, and none have been approved for commercial sale. We have never generated any revenue from product sales and have incurred net losses each year since we commenced operations. For the years ended December 31, 2019 and 2020 and the three months ended March 31, 2020 and 2021, our net losses were $4.0 million, $6.8 million, $1.4 million and $2.3 million, respectively. We expect that it will be several years, if ever, before we have a product candidate ready for regulatory approval and commercialization. We expect to incur increasing levels of operating losses over the next several years and for the foreseeable future as we advance our product candidates through clinical development. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ deficit and working capital.

To become and remain profitable, we must develop and eventually commercialize a product or products with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we succeed in commercializing one or more of our product candidates, we may never generate revenue that is significant or large enough to achieve profitability. In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown challenges. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis and we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. Our failure to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

 

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Even if this offering is successful, we will need to obtain substantial additional funding to complete the development and commercialization of our product candidates. If we are unable to raise this capital when needed, we may be forced to delay, reduce or eliminate our product development programs or other operations.

Since our inception, we have used substantial amounts of cash to fund our operations and expect our expenses to increase substantially during the next few years. The development of biopharmaceutical product candidates is capital intensive. As our product candidates enter and advance through preclinical studies and potential clinical trials, we will need substantial additional funds to expand our clinical, regulatory, quality and manufacturing capabilities. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to marketing, sales, manufacturing and distribution. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.

As of March 31, 2021, we had $70.8 million in cash. Based upon our current operating plan, we estimate that our existing cash, together with the estimated net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 24 months. However, the expected net proceeds from this offering will not be sufficient to fund any of our product candidates through regulatory approval, and we will need to raise substantial additional capital to complete the development and commercialization of our product candidates.

We have based these estimates on assumptions that may prove to be incorrect or require adjustment as a result of business decisions, and we could utilize our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:

 

   

the initiation, trial design, progress, timing, costs and results of drug discovery, preclinical studies and clinical trials of our product candidates, and in particular the IND-enabling studies and planned future clinical trials for PSMA-TRACTr, EGFR-TRACTr and TROP2-TRACTr;

 

   

the number and characteristics of clinical programs that we pursue;

 

   

the outcome, timing and costs of seeking FDA, European Medicines Agency (EMA) and any other regulatory approvals for any future drug candidates;

 

   

the costs of manufacturing our product candidates;

 

   

the costs associated with hiring additional personnel and consultants as our preclinical, manufacturing and clinical activities increase;

 

   

the receipt of marketing approval and revenue received from any commercial sales of any of our product candidates, if approved;

 

   

the cost of commercialization activities for any of our product candidates, if approved, including marketing, sales and distribution costs;

 

   

the ability to establish and maintain strategic collaboration, licensing or other arrangements and the financial terms of such agreements;

 

   

the extent to which we in-license or acquire other products and technologies;

 

   

the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

 

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our implementation of additional internal systems and infrastructure, including operational, financial and management information systems;

 

   

our costs associated with expanding our facilities or building out our laboratory space;

 

   

the effects of the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide from the COVID-19 pandemic; and

 

   

the costs of operating as a public company.

Because we do not expect to generate revenue from product sales for many years, if at all, we will need to obtain substantial additional funding in connection with our continuing operations and expected increases in expenses. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially grants, collaborations, licenses or other similar arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. The impact of the COVID-19 pandemic on capital markets may affect the availability, amount and type of financing available to us in the future. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

Raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through equity offerings, debt financings or other capital sources, including potentially grants, collaborations, licenses or other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as limitations on our ability to incur additional debt, make capital expenditures or declare dividends.

To the extent we raise funds through collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. For example, we have entered into a collaboration with Merck Sharp & Dohme Corp. (Merck) to develop certain specified product candidates, which contains exclusive license rights in favor of Merck. If Merck decides not to pursue the collaboration, we will not receive the benefit of the milestone and royalty payments that we would otherwise potentially receive pursuant to our collaboration with Merck and accordingly may need to raise capital from other sources. If we are unable to raise additional funds 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. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or otherwise. Because of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased expenses and cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

 

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Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates

We are early in our development efforts and all of our product candidates and research programs are in the preclinical development or discovery stage. We have no history of conducting clinical trials to test our product candidates in humans.

We are early in our development efforts and most of our operations to date have been limited to developing our platform technology and conducting drug discovery and preclinical studies. We have not yet begun clinical trials for any of our product candidates or development programs. Our platform technology and product candidates remain in the preclinical or discovery stage and our product candidates are based on novel technologies. As a result, we have limited infrastructure, experience conducting clinical trials as a company and regulatory interactions, and cannot be certain that our planned clinical trials will be completed on time, if at all, that our planned development programs would be acceptable to the FDA or other comparable foreign regulatory authorities, or that, if approval is obtained, such product candidates can be successfully commercialized.

Because of the early stage of development of our products candidates, our ability to eventually generate significant revenues from product sales will depend on a number of factors, including:

 

   

completion of additional preclinical studies with favorable results;

 

   

acceptance of INDs by the FDA or similar regulatory filing by comparable foreign regulatory authorities for the conduct of clinical trials of our product candidates and our proposed design of future clinical trials;

 

   

successful enrollment in, and completion of, clinical trials and achieving positive results from the trials;

 

   

demonstrating a risk-benefit profile acceptable to regulatory authorities;

 

   

receipt of marketing approvals from applicable regulatory authorities, including biologics license applications (BLAs), from the FDA and maintaining such approvals;

 

   

making arrangements with third-party manufacturers, or establishing manufacturing capabilities for clinical supply and, if and when approved, for commercial supply;

 

   

establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in combination with others;

 

   

acceptance of our products, if and when approved, by patients, the medical community and third-party payors;

 

   

effectively competing with other therapies;

 

   

obtaining and maintaining third-party coverage and adequate reimbursement;

 

   

obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates; and

 

   

maintaining a continued acceptable safety profile of any product following approval, if any.

The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of our PSMA-TRACTr, EGFR-TRACTr and TROP2-TRACTr candidates, as well as our other product candidates,

 

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which may never occur. In the future, we may also become dependent on other product candidates that we may develop or acquire; however, given our early stage of development, it may be several years, if at all, before we have demonstrated the safety and efficacy of a treatment sufficient to warrant approval for commercialization. If we are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize our product candidates, we may not be able to generate sufficient revenue to continue our business.

Preclinical and clinical development is a lengthy, expensive and uncertain process. The results of preclinical studies and early clinical trials are not always predictive of future results. Any product candidate that we advance into clinical trials may not achieve favorable results in later clinical trials, if any, or receive marketing approval.

Preclinical and clinical development is expensive and can take many years to complete, and their outcome is inherently uncertain. Failure or delay can occur at any time during the drug development process including due to factors outside of our control. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. A number of companies in the biopharmaceutical industry have suffered significant setbacks in clinical trials, even after promising results in earlier preclinical or clinical trials. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. The results of preclinical and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical and initial clinical trials. Notwithstanding any potential promising results in earlier studies, we cannot be certain that we will not face similar setbacks. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.

We may experience delays in initiating our future clinical trials for our product candidates and we cannot be certain that the trials or any other future clinical trials for our product candidates will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or terminated for a variety of reasons, including delay or failure related to:

 

   

the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our planned clinical trials, or the sufficiency of preclinical data to initiate clinical trials;

 

   

the size of the study population for further analysis of the study’s primary endpoints;

 

   

obtaining regulatory approval to commence a trial;

 

   

reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

obtaining institutional review board (IRB) approval at each site;

 

   

recruiting suitable patients to participate in a trial;

 

   

having patients complete a trial or return for post-treatment follow-up;

 

   

addressing patient safety concerns that arise during the course of a trial;

 

   

addressing any conflicts with new or existing laws or regulations;

 

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adding a sufficient number of clinical trial sites; or

 

   

manufacturing sufficient quantities of product candidate for use in clinical trials.

Our product candidates may be used in combination with other cancer drugs, such as other immuno-oncology agents, monoclonal antibodies or other protein-based drugs or small molecule anti-cancer agents such as targeted agents or chemotherapy, which can cause side effects or adverse events that are unrelated to our product candidate but may still impact the success of our clinical trials. Additionally, our product candidates could potentially cause adverse events. The inclusion of critically ill patients in our clinical trials may result in deaths or other adverse medical events due to other therapies or medications that such patients may be using. As described above, any of these events could prevent us from obtaining regulatory approval or achieving or maintaining market acceptance of our product candidates and impair our ability to commercialize our products. Because all of our product candidates are derived from our platform technology, a clinical failure of one of our product candidates may also increase the actual or perceived likelihood that our other product candidates will experience similar failures.

Of the large number of products in development, only a small percentage successfully complete the FDA or comparable foreign regulatory authorities’ approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, financial condition, results of operations and prospects.

Even if we eventually complete clinical testing and receive approval of a BLA or foreign marketing application for our product candidates, the FDA or the comparable foreign regulatory authorities may grant approval contingent on the performance of costly additional clinical trials, including post-market clinical trials. The FDA or the comparable foreign regulatory authorities also may approve a product candidate for a more limited indication or patient population than we originally request, and the FDA or comparable foreign regulatory authorities may not approve the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of that product candidate and would adversely impact our business and prospects.

In addition, the FDA or comparable foreign regulatory authorities may change their policies, adopt additional regulations or revise existing regulations or take other actions, which may prevent or delay approval of our future product candidates under development on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain approvals, increase the costs of compliance or restrict our ability to maintain any marketing authorizations we may have obtained.

Our product candidates are based on novel technologies, which make it difficult to predict the timing, results and cost of product candidate development and likelihood of obtaining regulatory approval.

We have concentrated our research and development efforts on product candidates using our TRACTr platform technology, and our future success depends on the successful development of this approach. We have not yet succeeded and may not succeed in demonstrating efficacy and safety for any product candidates based on our platform technology in clinical trials or in obtaining marketing approval thereafter, and use of our platform technology may not ever result in marketable products. As we have not tested any of our product candidates in humans, and our current data is limited to animal models and preclinical cell lines, the results of our preclinical studies may not translate into humans and many not accurately predict the safety and efficacy of our product candidates in humans. Our approach may be unsuccessful in identifying product candidates for our development programs. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners or establishing our own commercial manufacturing capabilities, which may prevent us from completing our planned clinical trials or commercializing any products

 

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on a timely or profitable basis, if at all. Further, because all of our product candidates and development programs are based on the same platform technology, adverse developments with respect to one of our programs may have a significant adverse impact on the actual or perceived likelihood of success and value of our other programs.

The clinical trial requirements of the FDA, EMA and other comparable foreign regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates.

The immuno-oncology industry is also rapidly developing, and our competitors may introduce new technologies that render our technologies obsolete or less attractive, or limit the commercial value of our product candidates. New technology could emerge at any point in the development cycle of our product candidates. By contrast, adverse developments with respect to other companies that attempt to use a similar approach to our approach may adversely impact the actual or perceived value and potential of our product candidates.

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations.

If we experience delays in or difficulties enrolling our planned clinical trials, our research and development efforts and business, financial condition and results of operations could be materially adversely affected.

We may not be able to initiate or continue our planned clinical trials for our product candidates if we are unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may experience difficulties in patient enrollment or retention in our clinical trials for a variety of reasons. The enrollment of patients depends on many factors, including:

 

   

the patient eligibility criteria defined in the protocol;

 

   

the size of the patient population required for analysis of the trial’s primary endpoints;

 

   

the proximity of patients to study sites;

 

   

the design of the trial;

 

   

our ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

   

clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating;

 

   

our ability to obtain and maintain patient consents; and

 

   

the risk that patients enrolled in clinical trials will drop out of the trials before completion.

 

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In addition, our planned clinical trials may compete with other clinical trials that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Further, because our planned clinical trials are in patients with relapsed/refractory cancer, the patients are typically in the late stages of their disease and may experience disease progression independent from our product candidates, making them unevaluable for purposes of the clinical trial and requiring additional patient enrollment.

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.

Serious adverse events, undesirable side effects or other unexpected properties of our product candidates may be identified during development or after approval, which could lead to the discontinuation of our clinical development programs, refusal by regulatory authorities to approve our product candidates or, if discovered following marketing approval, revocation of marketing authorizations or limitations on the use of our product candidates thereby limiting the commercial potential of such product candidate.

As we continue developing our product candidates and initiate any future clinical trials of our product candidates, serious adverse events (SAEs), undesirable side effects, relapse of disease or unexpected characteristics may emerge causing us to abandon these product candidates or limit their development to more narrow uses or subpopulations in which the SAEs or undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective or in which efficacy is more pronounced or durable. Should we observe any SAEs in our planned clinical trials or identify other undesirable side effects or other unexpected findings depending on their severity, our trials could be delayed or even stopped and our development programs may be halted entirely. The class of T Cell engagers (TCEs) has been associated with overactivation of the immune system leading to cytokine release syndrome (CRS) and on-target healthy tissue toxicities, and while we have designed our TRACTr platform technology and product candidates to mitigate these safety risks, until such time as we complete large-scale human trials there can be no assurances that our product candidates will not experience similar effects.

Even if our product candidates initially show promise in early clinical trials, the side effects of biological products are frequently only detectable after they are tested in larger, longer and more extensive clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. Sometimes, it can be difficult to determine if the serious adverse or unexpected side effects were caused by the product candidate or another factor, especially in oncology subjects who may suffer from other medical conditions and be taking other medications. If serious adverse or unexpected side effects are identified during development or after approval and are determined to be attributed to our product candidate, we may be required to develop a Risk Evaluation and Mitigation Strategy (REMS) to ensure that the benefits of treatment with such product candidate outweigh the risks for each potential patient, which may include, among other things, a communication plan to health care practitioners, patient education, extensive patient monitoring or distribution systems and processes that are highly controlled, restrictive and more costly than what is typical for the industry. Product-related side effects could also result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

In addition, 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:

 

   

regulatory authorities may suspend, withdraw or limit approvals of such product, or seek an injunction against its manufacture or distribution;

 

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regulatory authorities may require additional warnings on the label, including “boxed” warnings, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product;

 

   

we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

 

   

we may be required to change the way a product is administered or conduct additional clinical trials;

 

   

the product may become less competitive, and our reputation may suffer;

 

   

we may decide to remove the product from the marketplace; and

 

   

we may be subject to fines, injunctions or the imposition of civil or criminal penalties.

Interim, topline and preliminary data from our preclinical studies or planned clinical trials may change as more patient data become available, and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose preliminary, interim or topline data from our preclinical studies or planned clinical trials, which may be subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim, topline and preliminary data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our planned clinical trials. Interim, topline, or preliminary data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary, interim or topline data and final data could significantly harm our business prospects.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine to be material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for and commercialize our product candidates, our business, operating results, prospects or financial condition may be harmed.

 

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The regulatory approval process is lengthy, expensive and uncertain, and we may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of our product candidates and adversely impact our ability to generate revenue, our business and our results of operations.

The development, research, testing, manufacturing, labeling, approval, selling, import, export, marketing, promotion and distribution of drug products are subject to extensive and evolving regulation by federal, state and local governmental authorities in the United States, principally the FDA, and by foreign regulatory authorities, which regulations differ from country to country. Neither we nor any current or future collaborator is permitted to market any of our product candidates in the United States until we receive regulatory approval of a BLA from the FDA.

Obtaining regulatory approval of a BLA can be a lengthy, expensive and uncertain process. Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory agencies, that such product candidates are safe and effective for their intended uses. The number of nonclinical studies and clinical trials that will be required for FDA approval varies depending on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product candidate.

Results from nonclinical studies and planned clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering product candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials and result in the FDA or other regulatory authorities denying approval of a product candidate for any or all indications. The FDA may also require us to conduct additional studies or trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program such as the number of subjects in our future clinical trials from the United States.

The FDA or any foreign regulatory bodies can delay, limit or deny approval of our product candidates or require us to conduct additional nonclinical or clinical testing or abandon a program for many reasons, including:

 

   

the FDA or the applicable foreign regulatory agency’s disagreement with the design or implementation of our planned clinical trials;

 

   

negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA or comparable foreign regulatory agencies for approval;

 

   

serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;

 

   

our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that our product candidates are safe and effective for the proposed indication;

 

   

the FDA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from nonclinical studies or clinical trials;

 

   

our inability to demonstrate the clinical and other benefits of our product candidates outweigh any safety or other perceived risks;

 

   

the FDA’s or the applicable foreign regulatory agency’s requirement for additional nonclinical studies or clinical trials;

 

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the FDA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling and/or the specifications of our product candidates;

 

   

the FDA’s or the applicable foreign regulatory agency’s failure to approve the manufacturing processes or facilities of third-party manufacturers with which we contract; or

 

   

the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval.

Of the large number of drugs in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, financial condition, results of operations and prospects.

Even if we eventually complete our planned clinical testing and receive approval of a BLA or foreign marketing application for our product candidates, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials, including Phase 4 clinical trials, and/or in the case of the FDA, the implementation of a REMS, which may be required to ensure safe use of the drug after approval. The FDA or the applicable foreign regulatory agency also may approve a product candidate for a more limited indication or a narrower patient population than we originally requested, and the FDA or applicable foreign regulatory agency may not approve the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of that product candidate and would materially adversely impact our business and prospects.

Even if we obtain regulatory approval for our product candidates, they will remain subject to ongoing regulatory oversight. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions on marketing or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.

Even if we obtain regulatory approval for any of our product candidates, they will be subject to extensive and ongoing regulatory requirements for manufacturing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, sampling and record-keeping. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacture processes (cGMP) regulations, as well as GCPs for any clinical trials that we conduct post-approval, all of which may result in significant expense and limit our ability to commercialize such products. In addition, any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Such regulatory requirements may differ from country to country depending on where we have received regulatory approval.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain

 

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regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability. Moreover, if there are changes in the application of legislation or regulatory policies, or if problems are discovered with a product or our manufacture of a product, or if we or one of our distributors, licensees or co-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include:

 

   

issuing warning or untitled letters;

 

   

mandating modifications to promotional materials or require us to provide corrective information to healthcare practitioners, or require other restrictions on the labeling or marketing of such products;

 

   

seeking an injunction or imposing civil or criminal penalties or monetary fines;

 

   

suspension or imposition of restrictions on operations, including product manufacturing;

 

   

seizure or detention of products, refusal to permit the import or export of products or request that we initiate a product recall;

 

   

suspension, modification or withdrawal of our marketing authorizations;

 

   

suspension of any ongoing clinical trials;

 

   

refusal to approve pending applications or supplements to applications submitted by us;

 

   

refusal to permit the import or export of products; or

 

   

requiring us to conduct additional clinical trials, change our product labeling or submit additional applications for marketing authorization.

Moreover, the FDA and other regulatory authorities strictly regulates the promotional claims that may be made about biologic products. In particular, while physicians may choose to prescribe products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical trials and approved by the regulatory authorities, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant civil, criminal and administrative penalties.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and harm our business, financial condition, results of operations and prospects.

If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could harm our business, financial condition, results of operations and prospects.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, or approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment

 

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of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Separately, in response to the global COVID-19 pandemic, the FDA and regulatory authorities outside the United States have and may adopt restrictions or other policy measures in response to the COVID-19 pandemic that divert resources and delay their attention to any submissions we may make. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we must prioritize our research programs and will need to focus our discovery and development on select product candidates and indications. Correctly prioritizing our research and development activities is particularly important for us due to the breadth of potential product candidates and indications that we believe could be pursued using our platform technology. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may also relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

We may not be successful in our efforts to identify or discover additional product candidates in the future.

Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:

 

   

our inability to design such product candidates with the properties that we desire; or

 

   

potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance.

Research programs to identify new product candidates require substantial technical, financial and human resources. If we are unable to identify suitable additional candidates for preclinical and clinical development, our opportunities to successfully develop and commercialize therapeutic products will be limited.

 

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Risks Related to Manufacturing, Commercialization and Reliance on Third Parties

We may rely on third parties to conduct, supervise, and monitor our planned clinical trials and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.

We do not have the ability to conduct all aspects of our preclinical testing or planned clinical trials ourselves. As a result, we are and expect to remain dependent on third parties to conduct our preclinical studies and any future clinical trials of our product candidates. The timing of the initiation and completion of these studies and trials will therefore be partially controlled by such third parties and may result in delays to our development programs. Nevertheless, we are responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with the applicable protocol, legal requirements, and scientific standards, and our reliance on the CROs and other third parties does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GLP and GCP requirements, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these GLP and GCP requirements through periodic inspections of preclinical study sites, trial sponsors, clinical trial investigators and clinical trial sites. If we or any of our CROs or clinical trial sites fail to comply with applicable GLP or GCP requirements, the data generated in our preclinical studies and planned clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional preclinical or clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to stop and/or repeat clinical trials, which would delay the marketing approval process.

There is no guarantee that any such CROs, clinical trial investigators or other third parties on which we rely will devote adequate time and resources to our development activities or perform as contractually required. These risks are heightened as a result of the efforts of government agencies and the CROs themselves to limit the spread of COVID-19, including quarantines and shelter-in-place orders. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols or meet regulatory requirements, otherwise performs in a substandard manner, or terminates its engagement with us, the timelines for our development programs may be extended or delayed or our development activities may be suspended or terminated. If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in such clinical trials unless we are able to transfer those subjects to another qualified clinical trial site, which may be difficult or impossible. In addition, clinical trial investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA or any comparable foreign regulatory authority concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any marketing application we submit by the FDA or any comparable foreign regulatory authority. Any such delay or rejection could prevent us from commercializing our product candidates.

Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our products.

 

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We plan to contract with third parties for the manufacturing and supply of certain of our product candidates for use in preclinical testing and planned clinical trials, which supply may become limited or interrupted or may not be of satisfactory quality and quantity.

We do not have any manufacturing facilities. We produce in our laboratory relatively small quantities of product for evaluation in our research programs. We plan to rely on third parties for the manufacture of our product candidates for clinical testing and we will continue to rely on such third parties for commercial manufacture if any of our product candidates are approved. We currently have limited manufacturing arrangements and expect that each of our product candidates will only be covered by single source suppliers for the foreseeable future. This reliance increases the risk that we will not have sufficient quantities of our product candidates or products, if approved, or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

Furthermore, all entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in clinical trials must be manufactured in accordance with cGMP requirements. These regulations govern manufacturing processes and procedures, including record keeping, and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA’s Good Laboratory Practice regulations and cGMP regulations enforced by the FDA through its facilities inspection program. Comparable foreign regulatory authorities may require compliance with similar requirements. The facilities and quality systems of our third-party contract manufacturers must pass a pre-approval inspection for compliance with the applicable regulations as a condition of marketing approval of our product candidates. We do not control the manufacturing activities of, and are completely dependent on, our contract manufacturers for compliance with cGMP regulations.

In the event that any of our manufacturers fails to comply with such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, including due to the impact of the COVID-19 pandemic, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third-party, which we may not be able to do on commercially reasonable terms, if at all. In particular, any replacement of our manufacturers could require significant effort and expertise because there may be a limited number of qualified replacements. In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty transferring such skills or technology to another third-party and a feasible alternative may not exist. In addition, certain of our product candidates and our own proprietary methods have never been produced or implemented outside of our company, and we may therefore experience delays to our development programs if and when we attempt to establish new third-party manufacturing arrangements for these product candidates or methods. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third-party manufacture our product candidates. If we are required to or voluntarily change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines and that the product produced is equivalent to that produced in a prior facility. The delays associated with the verification of a new manufacturer and equivalent product could negatively affect our ability to develop product candidates in a timely manner or within budget.

Our or a third-party’s failure to execute on our manufacturing requirements, do so on commercially reasonable terms and timelines and comply with cGMP requirements could adversely affect our business in a number of ways, including:

 

   

inability to meet our product specifications and quality requirements consistently;

 

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an inability to initiate or continue preclinical studies or clinical trials of our product candidates under development;

 

   

delay in submitting regulatory applications, or receiving marketing approvals, for our product candidates, if at all;

 

   

loss of the cooperation of future collaborators;

 

   

subjecting third-party manufacturing facilities or our manufacturing facilities to additional inspections by regulatory authorities;

 

   

requirements to cease development or to recall batches of our product candidates; and

 

   

in the event of approval to market and commercialize our product candidates, an inability to meet commercial demands for our product or any other future product candidates.

Manufacturing our product candidates is complex and our third-party manufacturers may encounter difficulties in production. If any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or prevented.

Manufacturing our product candidates is complex and require the use of innovative technologies to handle living cells. Manufacturing these products requires facilities specifically designed for and validated for this purpose and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, we may be required to provide preclinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes. If microbial, viral or other contaminations are discovered at manufacturing facilities, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials and adversely harm our business. The use of biologically derived ingredients can also lead to allegations of harm, including infections or allergic reactions, or closure of product facilities due to possible contamination.

In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with good manufacturing practices, lot consistency, significant lead times and timely availability of raw materials. Even if we obtain marketing approval for any of our product candidates, there is no assurance that we or our manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other comparable foreign regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential commercial launch of the product or to meet potential future demand. If our manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization, our development and commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

Due to the early nature of our product candidates, the drug product may not be stable over time causing changes to be made to the manufacturing or storage process which may result in delays or stopping the development of the product candidate.

Changes in methods of product candidate manufacturing may result in additional costs or delays.

As product candidates progress through preclinical to late-stage clinical trials to marketing approval and commercialization, it is common that various aspects of the development program, such as manufacturing

 

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methods, are altered along the way in an effort to optimize yield, manufacturing batch size, change drug product dosage form, minimize costs and achieve consistent quality and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and jeopardize our ability to commercialize our product candidates and generate revenue.

Any approved products may fail to achieve the degree of market acceptance by physicians, patients, hospitals, cancer treatment centers, healthcare payors and others in the medical community necessary for commercial success.

If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. For example, current cancer treatments like chemotherapy and radiation therapy are well established in the medical community, and physicians may continue to rely on these treatments. Most of our product candidates target mechanisms for which there are limited or no currently approved products, which may result in slower adoption by physicians, patients and payors. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenue and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

   

efficacy and potential advantages compared to alternative treatments;

 

   

our ability to offer our products for sale at competitive prices;

 

   

convenience and ease of administration compared to alternative treatments;

 

   

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

   

the availability of coverage and adequate reimbursement from third-party payors, and the willingness of patients to pay out of pocket in the absence of coverage or limited third-party payor reimbursement;

 

   

the strength of marketing and distribution support; and

 

   

the prevalence and severity of any side effects.

We may not be able to successfully commercialize our product candidates, if approved, due to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could make it difficult for us to sell our product candidates profitably.

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process, with uncertain results, that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. There may be significant delays in obtaining such coverage and reimbursement for newly approved products, and coverage may not be available, or may be more limited than the purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacture, sale and distribution expenses. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates

 

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may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors, by any future laws limiting drug prices and by any future relaxation of laws that presently restrict imports of product from countries where they may be sold at lower prices than in the United States.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, there is no uniform policy among third-party payors for coverage and reimbursement. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting reimbursement policies, but also have their own methods and approval process apart from Medicare coverage and reimbursement determinations. Therefore, one third-party payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product.

Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

 

   

a covered benefit under its health plan;

 

   

safe, effective and medically necessary;

 

   

appropriate for the specific patient;

 

   

cost-effective; and

 

   

neither experimental nor investigational.

We cannot be sure that reimbursement will be available for any product that we commercialize and, if coverage and reimbursement are available, what the level of reimbursement will be. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with branded therapeutics and therapeutics administered under the supervision of a physician. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Reimbursement may impact the demand for, and the price of, any product for which we obtain marketing approval. Even if we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement are critical to a new product’s acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new products when more established or lower cost therapeutic alternatives are already available or subsequently become available.

For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself may or may not be available. Instead, the hospital or administering physician may be reimbursed only for providing the treatment or procedure in which our product is used. Further, from time to time, the Centers for Medicare & Medicaid Services (CMS) revises the reimbursement systems used to reimburse health care providers, including the Medicare Physician Fee Schedule and Hospital Outpatient Prospective Payment System, which may result in reduced Medicare payments.

 

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We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the successful commercialization of new products. Further, the adoption and implementation of any future governmental cost containment or other health reform initiative may result in additional downward pressure on the price that we may receive for any approved product.

Outside of the United States, many countries require approval of the sale price of a product before it can be marketed, and the pricing review period only begins after marketing or product licensing approval is granted. To obtain reimbursement or pricing approval in some of these countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue, if any, we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if such product candidates obtain marketing approval.

Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the Affordable Care Act) signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (BPCIA) which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. 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 the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product.

We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action, court decisions or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

If any approved products are subject to biosimilar competition sooner than we expect, we will face significant pricing pressure and our commercial opportunity will be limited.

The market opportunity for our product candidates may be relatively small as it will be limited to those patients who are ineligible for or have failed prior treatments and our estimates of the prevalence of our target patient populations may be inaccurate.

Cancer therapies are sometimes characterized as first line, second line, or third line, and the FDA customarily approves new therapies only for a second line or later lines of use. When cancer is detected early

 

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enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever first line therapies, usually chemotherapy, antibody drugs, tumor-targeted small molecules, hormone therapy, radiation therapy, surgery or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor-targeted small molecules or a combination of these. Third line therapies can include chemotherapy, antibody drugs and small molecule tumor-targeted therapies, more invasive forms of surgery and new technologies. We expect to initially seek approval of our product candidates in most instances at least as a second line therapy. Subsequently, depending on the nature of the clinical data and experience with any approved products or product candidates, if any, we may pursue approval as an earlier line therapy and potentially as a first line therapy. But there is no guarantee that our product candidates, even if approved as a second or subsequent line of therapy, would be approved for an earlier line of therapy, and, prior to any such approvals, we may have to conduct additional clinical trials.

Our projections of both the number of people who have PSMA, EGFR, TROP2 or HER2 expression, are based on our assumptions and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new therapies may change the estimated incidence or prevalence of the cancers that we are targeting. Consequently, even if our product candidates are approved for a second or third line of therapy, the number of patients who may be eligible for treatment with our product candidates may turn out to be much lower than expected. In addition, we have not yet conducted market research to determine how treating physicians would expect to prescribe a product that is approved for multiple tumor types if there are different lines of approved therapies for each such tumor type.

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 rely on third parties to research and develop and to manufacture our product candidates, we must share trade secrets with them. 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, 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. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s independent discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

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. For example, any academic institution that we may collaborate with will likely expect to be granted rights to publish data arising out of such collaboration and any joint research and development programs may require us to share trade secrets under the terms of our research and development or similar agreements. 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.

 

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If any of our product candidates are approved for marketing and commercialization and we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market our product candidates, we will be unable to successfully commercialize our product candidates if and when they are approved.

We have no sales, marketing or distribution capabilities or experience. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization, which would be expensive and time consuming, or outsource these functions to other third parties. In the future, we may choose to build a focused sales and marketing infrastructure to sell, or participate in sales activities with our collaborators for, some of our product candidates if and when they are approved.

There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize future products on our own include:

 

   

our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

   

the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the benefits of prescribing any future products;

 

   

the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product portfolios; and

 

   

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability of these product revenue to us are likely to be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. In entering into third-party marketing or distribution arrangements, any revenue we receive will depend upon the efforts of the third parties and we cannot assure you that such third parties will establish adequate sales and distribution capabilities or devote the necessary resources and attention to sell and market any future products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

Even if we obtain FDA approval of any of our product candidates, we may never obtain approval or commercialize such products outside of the United States, which would limit our ability to realize their full market potential.

In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties

 

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and costs for us and may require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our ability to realize the full market potential of our products will be harmed.

Risks Related to Our Collaborations and Other Strategic Agreements

Our existing collaboration with Merck is important to our business. If Merck ceases development efforts under our existing or future collaboration agreements, or if any of those agreements are terminated, these collaborations may fail to lead to commercial products and we may never receive milestone payments or future royalties under these agreements.

We have entered into collaboration with Merck to develop certain specified product candidates. All of our revenue to date has been derived from our existing collaboration agreement with Merck, and a significant portion of our near-term future revenue is expected to be derived from this agreement or other similar agreements into which we may enter in the future. Revenue from research and development collaborations depends upon continuation of the collaborations, payments for research and development services and product supply, and the achievement of milestones, contingent payments and royalties, if any, derived from future products developed from our research. If we are unable to successfully advance the development of our product candidates or achieve milestones, revenue and cash resources from milestone payments under our collaboration agreement will be substantially less than expected.

We are unable to predict the success of our collaborations and we may not realize the anticipated benefits of our strategic collaborations. Our collaborators have discretion in determining and directing the efforts and resources, including the ability to discontinue all efforts and resources, they apply to the development and, if approval is obtained, commercialization and marketing of the product candidates covered by such collaborations. As a result, our collaborators may elect to de-prioritize our programs, change their strategic focus or pursue alternative technologies in a manner that results in reduced, delayed or no revenue to us. Our collaborators may have other marketed products and product candidates under collaboration with other companies, including some of our competitors, and their corporate objectives may not be consistent with our best interests. Our collaborators may also be unsuccessful in developing or commercializing our products. If our collaborations are unsuccessful, our business, financial condition, results of operations and prospects could be adversely affected. In addition, any dispute or litigation proceedings we may have with our collaborators in the future could delay development programs, create uncertainty as to ownership of intellectual property rights, distract management from other business activities and generate substantial expense.

Moreover, to the extent that any of our existing or future collaborators were to terminate a collaboration agreement, we may be forced to independently develop these product candidates, including funding preclinical studies or planned clinical trials, assuming marketing and distribution costs and defending intellectual property rights, or, in certain instances, abandon product candidates altogether, any of which could result in a change to our business plan and have a material adverse effect on our business, financial condition, results of operations and prospects.

We may not realize the benefits of any acquisitions, collaborations, in-license or strategic alliances that we enter into.

We have entered into a research collaboration and exclusive license agreement with Merck and in the future may seek and form strategic alliances, create joint ventures or additional collaborations, or enter into

 

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acquisitions or licensing arrangements with third parties that we believe will complement or augment our existing technologies and product candidates.

These transactions can entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to manage a collaboration or develop acquired products, product candidates or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses, difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and ownership and the inability to retain key employees of any acquired business. As a result, if we enter into acquisition or in-license agreements or strategic partnerships, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, or if there are materially adverse impacts on our or the counterparty’s operations resulting from COVID-19, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction or such other benefits that led us to enter into the arrangement.

We may wish to form additional collaborations in the future with respect to our product candidates, but may not be able to do so or to realize the potential benefits of such transactions, which may cause us to alter or delay our development and commercialization plans.

We may, in the future, decide to collaborate with other biopharmaceutical companies for the development and potential commercialization of those product candidates, including in territories outside the United States or for certain indications. We will face significant competition in seeking appropriate collaborators. We may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate with a third-party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third-party. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of our technologies, product candidates and market opportunities. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with potential collaborators.

Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators and changes to the strategies of the combined company. As a result, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such product candidate, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any planned sales or marketing activities for such product candidate, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

 

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Our product candidates may also require specific components to work effectively and efficiently, and rights to those components may be held by others. We may be unable to in-license any compositions, methods of use, processes or other third party intellectual property rights from third parties that we identify. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, which would harm our business. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology.

Risks Related to Our Industry and Business Operations

The COVID-19 pandemic and other epidemic diseases could adversely impact our business, including our planned clinical trials, supply chain and business development activities.

In December 2019, COVID-19 was reported to have surfaced in Wuhan, China. Since then, the virus has spread to most countries across the world, including all 50 states within the United States, resulting in the World Health Organization characterizing COVID-19 as a pandemic. As a result of measures imposed by the governments in affected regions, many commercial activities, businesses and schools have been suspended as part of quarantines and other measures intended to contain this pandemic. As the COVID-19 pandemic continues to spread around the globe, or if new epidemic diseases arise in the future, we may experience disruptions that could severely impact our business and planned clinical trials, including:

 

   

interruption or delays in our operations, which may impact our ability to conduct and produce preclinical results required for submission of an IND;

 

   

delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

 

   

delays or difficulties in enrolling patients in our planned clinical trials;

 

   

delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

 

   

delays in clinical sites receiving the supplies and materials needed to conduct our planned clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;

 

   

changes in local regulations as part of a response to the COVID-19 pandemic or other epidemic diseases which may require us to change the ways in which our planned clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

 

   

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

 

   

interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data;

 

   

interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines;

 

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risk that participants enrolled in our clinical trials will acquire COVID-19 or other epidemic disease while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events; and

 

   

refusal of the FDA to accept data from clinical trials in affected geographies.

These and other disruptions in our operations and the global economy could negatively impact our business, operating results and financial condition.

The spread of COVID-19 and actions taken to reduce its spread may also materially affect us economically. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, there could be a significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position. In addition, the trading prices for other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms.

COVID-19 and actions taken to reduce its spread continue to rapidly evolve. The extent to which COVID-19 may impede the development of our product candidates, reduce the productivity of our employees, disrupt our supply chains, delay our planned clinical trials, reduce our access to capital or limit our business development activities, will depend on future developments, which are highly uncertain and cannot be predicted with confidence. To the extent the COVID-19 pandemic or other epidemic diseases adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations.

 

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We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use of our product candidates harms patients or is perceived to harm patients even when such harm is unrelated to our product candidates, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims.

The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. There is a risk that our product candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. 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;

 

   

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.

We may not be able to maintain product liability insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability claims, or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

Patients with cancer and other diseases targeted by our product candidates are often already in severe and advanced stages of disease and have both known and unknown significant pre-existing and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.

We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly

 

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dependent on our management, scientific and medical personnel. The loss of the services of any of our executive officers, other key employees, and other scientific and medical advisors, and our inability to find suitable replacements could result in delays in product development and harm our business.

We conduct substantially all of our operations remotely and at our facilities in La Jolla, California. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.

To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Although we have employment agreements with certain of our key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain “key person” insurance policies on the lives of these individuals or the lives of any of our employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.

We expect to expand our development, regulatory and operational capabilities and, as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

As of May 31, 2021, we had 20 employees. As we advance our research and development programs, we will be required to further increase the number of our employees and the scope of our operations, particularly in the areas of research and clinical development, medical affairs, general and administrative matters relating to being a public company, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage any future growth, we must:

 

   

identify, recruit integrate, maintain and motivate additional qualified personnel;

 

   

manage our development efforts effectively, including the initiation and conduct of clinical trials for our product candidates, both as monotherapy and in combination with other therapeutics; and

 

   

improve our operational, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to develop, manufacture and commercialize our product candidates, if approved, will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert financial and other resources, and a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time, to managing these growth activities.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

We face substantial competition, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us.

The development and commercialization of new products is highly competitive. We largely compete in the segments of the pharmaceutical, biotechnology and other related markets that develop immunotherapies for

 

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the treatment of cancer. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, if ever, which could result in our competitors establishing a strong market position before we are able to enter the market or make our development more complicated. Moreover, with the proliferation of new drugs and therapies into oncology, we expect to face increasingly intense competition as new technologies become available. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. The highly competitive nature of and rapid technological changes in the biotechnology and pharmaceutical industries could render our product candidates or our technology obsolete, less competitive or uneconomical.

Other products that are similar to our product candidates have already been approved and other products in the same class are further along in development. As more product candidates within a particular class of biopharmaceutical products proceed through clinical development to regulatory review and approval, the amount and type of clinical data that may be required by regulatory authorities may increase or change. Consequently, the results of our clinical trials for product candidates in those class will likely need to show a risk benefit profile that is competitive with or more favorable than those products and product candidates in order to obtain marketing approval or, if approved, a product label that is favorable for commercialization. If the risk benefit profile is not competitive with those products or product candidates, we may have developed a product that is not commercially viable, that we are not able to sell profitably or that is unable to achieve favorable pricing or reimbursement. In such circumstances, our future product revenue and financial condition would be materially and adversely affected.

Specifically, there are many companies pursuing a variety of approaches to immuno-oncology treatments, including including large pharmaceutical and biotechnology companies, such as AbbVie, Amgen, AstraZeneca/MedImmune, Bristol-Myers Squibb, Johnson & Johnson, Merck, Novartis, Pfizer and Roche/Genentech. Other companies using PSMA-targeting therapeutics for the treatment of cancer include Amgen, Harpoon Therapeutics, Regeneron Pharmaceuticals, Poseida Therapeutics, Sorrento Therapeutics, Tmunity Therapeutic, Crescendo Biologics, Novartis AG and Bayer. We also face competition from biologic prodrug developers such as Akrevia Therapeutics Inc., Amunix Pharmaceuticals, Inc., Bayer AG, BioAtla, LLC, Chugai Pharmaceutical Co., Ltd., CytomX Therapeutics, Inc., Genentech, Inc., Harpoon Therapeutics, Inc., Nektar Therapeutics, Pandion Therapeutics, Inc., Revitope Oncology, Inc., Roche Holding AG and Seattle Genetics Inc.

Many of our competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, preclinical testing, clinical trials, manufacturing and marketing than we do. Future collaborations and mergers and acquisitions may result in further resource concentration among a smaller number of competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors will also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or that may be necessary for, our programs.

The key competitive factors affecting the success of all of our programs are likely to be efficacy, safety, and convenience. If we are not successful in developing, commercializing and achieving higher levels of reimbursement than our competitors, we will not be able to compete against them and our business would be materially harmed.

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. Under legislation enacted in 2017, informally titled the Tax

 

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Cuts and Jobs Act (the Tax Act) as modified by legislation enacted on March 27, 2020, titled the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), U.S. federal net operating losses (NOLs) incurred in taxable years beginning after December 31, 2017, can be carried forward indefinitely to offset future taxable income, but the deductibility of such U.S. federal NOLs in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act.

As of December 31, 2020, we had $12.5 million of U.S. federal NOLs and $12.5 million of state NOLs. Of the total federal NOLs, $12.0 million has an indefinite carryforward period. The remaining federal and total state NOLs have a 20-year carryforward period, and will begin to expire in 2037 unless previously utilized. Our NOL carryforwards are subject to review and possible adjustment by the U.S. and state tax authorities.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a rolling three-year period, the corporation’s ability to use its pre-change NOL carryforwards and certain other tax attributes to offset its post-change income or taxes may be limited. This could limit the amount of NOLs or other applicable tax attributes that we can utilize annually to offset future taxable income or tax liabilities. Subsequent ownership changes and changes to the U.S. tax rules in respect of the utilization of NOLs and other applicable tax attributes carried forward may further affect the limitation in future years. We have not undertaken a Section 382 study, and it is possible that we have previously undergone one or more ownership changes so that our use of net operating losses is subject to limitation. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. 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. For example, California has imposed limits on the usability of California state NOL carryforwards to offset taxable income in tax years beginning after 2019 and before 2023. As a result, we may be unable to use all or a material portion of our NOL carryforwards and other tax attributes, which could adversely affect our future cash flows.

Our business operations and current and future relationships with investigators, health care professionals, consultants, third-party payors and customers are subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, transparency laws and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Although we do not currently have any products on the market, our operations may be, directly or indirectly through our prescribers, customers and third-party payors, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal civil and criminal false claims laws and the Physician Payments Sunshine Act and regulations. Healthcare providers and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. These laws may impact, among other things, our current business operations, including our clinical research activities, and proposed sales, marketing and education programs and constrain the business of financial arrangements and relationships with healthcare providers and other parties through which we may market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to additional healthcare, statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The laws that may affect our ability to operate include:

 

   

the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind,

 

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to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the U.S. federal false claims, including the False Claims Act, which can be enforced through whistleblower actions, and civil monetary penalties laws, which, among other things, impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

 

   

the U.S. federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the U.S. Federal Food, Drug and Cosmetic Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;

 

   

the U.S. federal legislation commonly referred to as Physician Payments Sunshine Act, enacted as part of the Affordable Care Act, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the CMS information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members. Beginning in 2022, such obligations will include payments and other transfers of value provided in the previous year to certain other healthcare professionals, including physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants and certified nurse midwives;

 

   

analogous state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private 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 U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; and state and local laws requiring the registration of pharmaceutical sales representatives; and

 

   

European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments to healthcare providers.

 

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Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, or similar programs in other countries or jurisdictions, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits, 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 delay, reduction, termination or restructuring of our operations. Further, defending against any such actions can be costly and 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. If any of the physicians or other providers or entities with whom we expect to do business is found to not be in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations.

Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may charge for such product candidates.

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product for which we obtain marketing approval.

In March 2010, the Affordable Care Act was enacted, which includes measures that have significantly changed the way health care is financed by both governmental and private insurers. There have been executive, judicial and congressional challenges to certain aspects of the Affordable Care Act. On December 14, 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 as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. The United States Supreme Court is currently reviewing this case, but it is unknown when a decision will be reached. On February 10, 2021, the Biden administration withdrew the federal government’s support for overturning the Affordable Care Act. Further, although the Supreme Court has not yet ruled on the constitutionality of the Affordable Care Act, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace, which began on February 15, 2021 and will remain open through August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the Affordable Care Act. It is also unclear how the Supreme Court ruling, other such litigation and the healthcare reform measures of the Biden administration will impact the Affordable Care Act or our business. We continue to evaluate the effect that the Affordable Care Act and its possible repeal and replacement has on our business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, in August 2011, the Budget Control Act of 2011 was signed into law, which, among other things, included aggregate reductions to Medicare payments to providers of, on average, 2% per fiscal year through 2030, with the exception of a temporary suspension from May 1, 2020 through December 31, 2021, unless Congress takes additional action.

 

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Recently, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. presidential executive orders, congressional inquiries and legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs. It is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control costs pharmaceutical and biological products. Moreover, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs.

We expect that the healthcare reform measures that have been adopted, and that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.

Failure to comply with current or future federal, state and foreign laws and regulations and industry standards relating to privacy and data protection laws could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.

We and our collaborators and third-party providers may be subject to federal, state and foreign data privacy and security laws and regulations. In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our collaborators and third-party providers. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), and their respective implementing regulations, impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates and their covered subcontractors that perform services for them that involve the creation, receipt, maintenance, transmission, use, or disclosure of, individually identifiable health information, relating to the privacy, security, and transmission of such individually identifiable health information. Depending on the facts and circumstances, we could be subject to significant penalties if we violate HIPAA.

In many jurisdictions, enforcement actions and consequences for noncompliance are rising. In the United States, these include enforcement actions in response to rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards that may legally or contractually apply to us. If we fail to follow these security standards, even if no customer information is compromised, we may incur significant fines or experience a significant increase in costs. Many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security and data breaches. Laws in all 50 states require businesses to provide notice to customers whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is costly. States are also constantly amending existing laws, requiring attention to frequently changing regulatory requirements.

 

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Furthermore, California recently enacted the California Consumer Privacy Act (the CCPA) which became effective on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. Further, the California Privacy Rights Act (CPRA) recently passed in California. The CPRA will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. At this time, we do not collect personal information relating to residents of California but should we begin to do so, the CCPA and CPRA may impose new and burdensome privacy compliance obligations on our business and will raise new risks for potential fines and class actions.

Foreign data protection laws, including the EU General Data Protection Regulation (the GDPR), may also apply to health-related and other personal information obtained outside of the United States. The GDPR, which came into effect on May 25, 2018, imposes strict requirements for processing the personal data in the context of the activities of an establishment in the European Economic Area (EEA) and any processing relating to the offering of goods or services to individuals within the EEA and/or monitoring of their behavior in the EEA, including clinical trial data, as well as potential fines for noncompliant companies of up to the greater of €20 million or 4% of annual global revenue for the preceding financial year. The GDPR imposes strict requirements in respect of the processing of personal data, including stringent requirements relating to obtaining consent, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches and taking certain measures when engaging third-party processors. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the European Union. Further, from January 1, 2021, notwithstanding the United Kingdom’s withdrawal from the European Union, by operation of the so called ‘UK GDPR’ (i.e., the GDPR as it continues to form part of the law of the United Kingdom by virtue of section 3 of the EU (Withdrawal) Act 2018 and as subsequently amended) (UK GDPR) the GDPR continues to apply in substantially equivalent form to processing operations carried out in the context of the activities of an establishment in the United Kingdom and any processing relating to the offering of goods or services to individuals in the United Kingdom and/or monitoring of their behavior in the United Kingdom. This can expose organisations to two parallel regimes where the UK GDPR and EU GDPR both apply. For example, the UK GDPR provides for the potential imposition of fines for non-compliance equivalent to those under the GDPR, i.e., fines up to the greater of €20 million (£17.5 million) or 4% of annual global revenue for the preceding financial year. Furthermore, in general terms, there will now be increasing scope for divergence in application, interpretation and enforcement of the data protection law as between the United Kingdom and EEA. In addition, it is unclear how data transfers from the EEA to the United Kingdomwill be regulated. Currently there is a grace period agreed in the EU and United Kingdom Trade and Cooperation Agreement, ending June 30, 2021 at the latest during which the United Kingdom is treated like an EU member state in relation to transfers of personal data. After such period, the United Kingdom will be a “third country” under the GDPR (and transfers of data from the EEA to the United Kingdom will require a ‘transfer mechanism’ such as the Standard Contractual Clauses) unless the European Commission adopts an adequacy decision. The European Commission published draft adequacy decisions on February 19, 2021, however these are subject to further review and it remains to be seen whether or when any such decisions will be adopted. At this time, we do not believe we are subject to the GDPR or the UK GDPR, but should this change, the GDPR and the UK GDPR will increase our responsibility

 

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and potential liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with such protection rules.

Compliance with U.S. and foreign data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure by us or our collaborators and third-party providers to comply with U.S. and foreign data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose such information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain sufficient intellectual property protection for our platform technology and product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.

We rely upon a combination of patents, know-how and confidentiality agreements to protect the intellectual property related to our products and technologies and to prevent third parties from copying and surpassing our achievements, thus eroding our competitive position in our market.

Our success depends in large part on our ability to obtain and maintain patent protection for our platform technology, product candidates and their uses, as well as our ability to operate without infringing the proprietary rights of others. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel discoveries and technologies that are important to our business. Our pending and future patent applications may not result in patents being issued or that issued patents will afford sufficient protection of our product candidates or their intended uses against competitors, nor can there be any assurance that the patents issued will not be infringed, designed around, invalidated by third parties, or effectively prevent others from commercializing competitive technologies, products or product candidates.

Obtaining and enforcing patents is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications or maintain and/or enforce patents that may issue based on our patent applications, at a reasonable cost or in a timely manner, including delays as a result of the COVID-19 pandemic impacting our operations. It is also possible that we will fail to identify patentable aspects of our research and development results before it is too late to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach these agreements and disclose such results before a patent application is filed, thereby jeopardizing our ability to seek patent protection.

Composition of matter patents for biological and pharmaceutical product candidates often provide a strong form of intellectual property protection for those types of products, as such patents provide protection without regard to any method of use. We cannot be certain that the claims in our pending patent applications directed to composition of matter of our product candidates will be considered patentable by the United States Patent and Trademark Office (USPTO) or by patent offices in foreign countries, or that any claims that issue from our patent applications will be considered valid and enforceable by courts in the United States or foreign

 

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countries. Method of use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or prosecute.

The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation, resulting in court decisions, including Supreme Court decisions, which have increased uncertainties as to the ability to enforce patent rights in the future. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, or vice versa.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our potential future collaborators will be successful in protecting our product candidates by obtaining and defending patents. For example, we may not be aware of all third-party intellectual property rights potentially relating to our product candidates or their intended uses, and as a result the impact of such third-party intellectual property rights upon the patentability of our own patents and patent applications, as well as the impact of such third-party intellectual property upon our freedom to operate, is highly uncertain. Patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, inventorship, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending patent applications may be challenged in patent offices in the United States and abroad. Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. For example, our pending patent applications may be subject to third-party pre-issuance submissions of prior art to the USPTO or our issued patents may be subject to post-grant review (PGR) proceedings, oppositions, derivations, reexaminations, or inter partes review (IPR) proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. The degree of future protection for our proprietary rights is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Any failure to obtain or maintain patent protection with respect to our product candidates or their uses could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. We may also rely on trade secret protection as temporary protection for concepts that may be included in a future patent filing. However, trade secret protection will not protect us from innovations that a competitor develops independently of our proprietary know how. If a competitor independently develops a technology that we protect as a trade secret and files a patent application on that technology, then we may not be able to patent that technology in the future, may require a license from the competitor to use our own know-how, and if the license is not available on commercially-viable terms, then we may not be able to launch our product. Although we require all of our employees to assign their inventions to us, and require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot be certain that our

 

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trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, and this scenario could materially adversely affect our business, financial condition and results of operations.

We cannot ensure that patent rights relating to inventions described and claimed in our pending patent applications will issue or that patents based on our patent applications will not be challenged and rendered invalid and/or unenforceable.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our potential future collaborators will be successful in protecting our product candidates by obtaining and defending patents. We have pending U.S. and Patent Cooperation Treaty patent applications in our portfolio; however, we cannot predict:

 

   

if and when patents may issue based on our patent applications;

 

   

the scope of protection of any patent issuing based on our patent applications;

 

   

whether the claims of any patent issuing based on our patent applications will provide protection against competitors;

 

   

whether or not third parties will find ways to invalidate or circumvent our patent rights;

 

   

whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications;

 

   

whether we will need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose;

 

   

whether the patent applications that we own or in-license will result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other foreign countries; and/or

 

   

whether, as the COVID-19 pandemic continues to spread around the globe, we may experience patent office interruption or delays to our ability to timely secure patent coverage to our product candidates.

We cannot be certain that the claims in our pending patent applications directed to our product candidates and/or technologies will be considered patentable by the USPTO or by patent offices in foreign countries. There can be no assurance that any such patent applications will issue as granted patents. One aspect of the determination of patentability of our inventions depends on the scope and content of the “prior art,” information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of a patent claim. Even if the patents do issue based on our patent applications, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. If the breadth or strength of our intellectual

 

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property position with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop and threaten our ability to commercialize our product candidates. In the event of litigation or administrative proceedings, we cannot be certain that the claims in any of our issued patents will be considered valid by courts in the United States or foreign countries.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

   

others may be able to make product candidates that are similar to ours but that are not covered by the claims of the patents that we own or may exclusively license;

 

   

we or future licensors or collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;

 

   

we or future licensors or collaborators might not have been the first to file patent applications covering certain of our inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

 

   

it is possible that noncompliance with the USPTO and foreign governmental patent agencies requirement for a number of procedural, documentary, fee payment and other provisions during the patent process can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;

 

   

it is possible that our pending patent applications will not lead to issued patents;

 

   

issued patents that we own or have exclusively licensed may be revoked, modified, or held invalid or unenforceable, as a result of legal challenges by our competitors;

 

   

our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

   

we may not develop additional proprietary technologies that are patentable;

 

   

we cannot predict the scope of protection of any patent issuing based on our patent applications, including whether the patent applications that we own or in-license will result in issued patents with claims that directed to our product candidates or uses thereof in the United States or in other foreign countries;

 

   

there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns;

 

   

countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing product candidates;

 

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the claims of any patent issuing based on our patent applications may not provide protection against competitors or any competitive advantages, or may be challenged by third parties;

 

   

if enforced, a court may not hold that our patents are valid, enforceable and infringed;

 

   

we may need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose;

 

   

we may choose not to file a patent application in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent application covering such intellectual property;

 

   

we may fail to adequately protect and police our trademarks and trade secrets; and

 

   

the patents of others may have an adverse effect on our business, including if others obtain patents claiming subject matter similar to or improving that covered by our patents and patent applications.

Should any of these or similar events occur, they could significantly harm our business, results of operations and prospects.

We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party 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 the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party 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. For example, we may incorrectly determine that our products are not covered by a third-party patent or may incorrectly predict whether a third-party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

We are currently party to an in-license agreement under which we were granted rights to manufacture certain components of our product candidates. If we breach our obligations under this and future license agreements, we may be required to pay damages, lose our rights to these technologies or both, which would adversely affect our business and prospects.

We rely, in part, on license and other strategic agreements, which subject us to various obligations, including payment obligations for achievement of certain milestones on product sales. For example, we have licensed a cell line to manufacture these products under an agreement with WuXi Biologics. If we fail to comply with the obligations under our license agreements, including as a result of COVID-19 impacting our operations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and our licensors may have the right to terminate the license. If our license agreements are terminated, we may experience significant delays, difficulties, and costs in developing new cell lines and identifying an alternative source to manufacture components of our candidate products covered by our agreements and those being tested or approved in combination with such products. Such an occurrence could materially adversely affect the value of the product candidates being developed under any such agreement.

 

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In addition, the agreements under which we license intellectual property or technology to or from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations or prospects.

In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing intellectual property involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

   

the sublicensing of patent and other rights;

 

   

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

   

the ownership of inventions and know-how resulting from the creation or use of licensed intellectual property by us alone or with our licensors and partners;

 

   

the right to control prosecution, maintenance, enforcement, and defense of the licensed patents and improvements thereof;

 

   

the scope and duration of our payment obligations; and

 

   

the priority of invention of patented technology.

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. We are generally also subject to all of the same risks with respect to protection of intellectual property that we license as we are for intellectual property that we own, which are described herein. If we or our licensor fail to adequately protect this intellectual property, our ability to develop, manufacture, or commercialize products could suffer.

In addition, while we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in products that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize products, we may be unable to achieve or maintain profitability.

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 the relevant research programs or product candidates and our business, financial condition, results of operations and prospects could suffer.

In the future, we may need to obtain licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.

We currently own intellectual property directed to our product candidates and other proprietary technologies. Other pharmaceutical companies and academic institutions may also have filed or are planning to

 

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file patent applications potentially relevant to our business. From time to time, in order to avoid infringing these third-party patents, we may be required to license technology from additional third parties to further develop or commercialize our product candidates. Should we be required to obtain licenses to any third-party technology, including any such patents required to manufacture, use or sell our product candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop or commercialize any of our product candidates could cause us to abandon any related efforts, which could seriously harm our business and operations.

The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital 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.

Moreover, some of our owned patent applications or future patents may be co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents against third parties, and such cooperation may not be provided to us. Furthermore, our owned patents may be subject to a reservation of rights by one or more third parties. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates without infringing the intellectual property and other proprietary rights of third parties. Third parties may allege that we have infringed or misappropriated their intellectual property. Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and, even if resolved in our favor, is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our products candidates. We cannot be certain that our product candidates and other proprietary technologies we may develop will not infringe existing or future patents owned by third parties. We are currently aware of a third party European patent that may cover our products. However, we believe such patent to be invalid and several of our competitors operating in our general technology area are currently challenging the validity of such patent. In any event, we do not plan to launch any product in Europe before the expiration of such patent. Third parties may assert infringement claims against us based on existing or future intellectual property rights. Proving invalidity may be difficult. For example, in the United States, proving invalidity in court requires a showing of clear and convincing evidence to overcome the presumption of validity

 

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enjoyed by issued patents. If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing candidate product or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing candidate product or product. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our investigational products or force us to cease some of our business operations, which could materially harm our business.

We may not be aware of patents that have already been issued and that a third party, for example, a competitor in the fields in which we are developing our product candidates, might assert are infringed by our current or future product candidates, including claims to compositions, formulations, methods of manufacture or methods of use or treatment that cover our product candidates. It is also possible that patents owned by third parties of which we are aware, but which we do not believe are relevant to our product candidates and other proprietary technologies we may develop, could be found to be infringed by our product candidates. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our product candidates. The pharmaceutical and biotechnology industries have produced a considerable number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity may be difficult and there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on our business and operations. 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 litigation. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

We may choose to challenge the enforceability or validity of claims in a third party’s U.S. patent by requesting that the USPTO review the patent claims in an ex-parte re-exam, inter partes review or post-grant review proceedings. These proceedings are expensive and may consume our time or other resources. We may choose to challenge a third party’s patent in patent opposition proceedings in the EPO, or other foreign patent office. The costs of these opposition proceedings could be substantial, and may consume our time or other resources. If we fail to obtain a favorable result at the USPTO, EPO or other patent office then we may be exposed to litigation by a third party alleging that the patent may be infringed by our product candidates or proprietary technologies.

If we are found to infringe a third-party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third-party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us

 

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from commercializing our product candidates or force us to cease some of our business operations, and could divert the time and attention of our technical personnel and management, cause development delays, and/or require us to develop non-infringing technology, which may not be possible on a cost-effective basis, any of which could materially harm our business. In the event of a successful claim of infringement against us, we may have to pay substantial monetary damages, including treble damages and attorneys’ fees for willful infringement, pay royalties and other fees, redesign our infringing drug or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors or other third parties may infringe our patents, trademarks or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. 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 lack of novelty, obviousness, non-enablement or insufficient written description. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. In any patent infringement proceeding, 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 or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention, or decide that the other party’s use of our patented technology falls under the safe harbor to patent infringement under 35 U.S.C. §271(e)(1). 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. 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.

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. 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 litigation. 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 material adverse effect on the price of shares of our common stock. Moreover, we cannot assure you 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.

 

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Because of the expense and uncertainty of litigation, we may not be in a position to enforce our intellectual property rights against third parties.

Because of the expense and uncertainty of litigation, we may conclude that even if a third-party is infringing our issued patent, any patents that may be issued as a result of our pending or future patent applications or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of our company or our stockholders, or it may be otherwise impractical or undesirable to enforce our intellectual property against some third parties. Our competitors or other third parties may be able to sustain the costs of complex patent litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution. In addition, the uncertainties associated with litigation could compromise our ability to raise the funds necessary to continue our preclinical studies, initiate and continue planned clinical trials, continue our internal research programs, in-license needed technology or other product candidates, or enter into development partnerships that would help us bring our product candidates to market.

We may be subject to claims that we have wrongfully hired an employee from a competitor or that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

As is common in the pharmaceutical industry, in addition to our employees, in the future we may engage the services of consultants to assist us in the development of our product candidates. Many of these potential consultants, and many of our employees, were previously employed at, or may have previously provided or may be currently providing consulting services to, other pharmaceutical companies including our competitors or potential competitors. We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of former employers or competitors. Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may become subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor.

While we may litigate to defend ourselves against these claims, even if we are successful, litigation could result in substantial costs and could be a distraction to management. If our defenses to these claims fail, in addition to requiring us to pay monetary damages, a court could prohibit us from using technologies or features that are essential to our product candidates, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. Moreover, any such litigation or the threat thereof may adversely affect our reputation, our ability to form strategic alliances or sublicense our rights to collaborators, engage with scientific advisors or hire employees or consultants, each of which would have an adverse effect on our business, results of operations and financial condition. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

Changes in patent law in the United States and other jurisdictions 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 and is therefore costly, time consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs, and may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our owned patents that issue in the future. Patent reform legislation in the United States and other countries, including the

 

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Leahy-Smith America Invents Act (the Leathy-Smith Act), signed into law on September 16, 2011, could increase those uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Further, because of a lower evidentiary standard in these USPTO post-grant proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Thus, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

After March 2013, under the Leahy-Smith Act, the United States transitioned to a first inventor to file system in which, assuming that the other statutory requirements are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third-party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before we file an application covering the same invention, could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we or our licensors were the first to either (i) file any patent application related to our product candidates and other proprietary technologies we may develop or (ii) invent any of the inventions claimed in our or our licensor’s patents or patent applications. Even where we have a valid and enforceable patent, we may not be able to exclude others from practicing the claimed invention where the other party can show that they used the invention in commerce before our filing date or the other party benefits from a compulsory license. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, the patent positions of companies in the development and commercialization of pharmaceuticals are particularly uncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. For example, in the 2013 case Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to DNA molecules are not patentable. While we do not believe that any of the patents owned or that we may license in the future, if any, by us will be found invalid based on this decision, we cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of our patents.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuities fees and various other governmental fees on patents and/or patent applications are due to be paid to the USPTO and foreign patent agencies in several stages over the

 

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lifetime of the patent and/or patent application. The USPTO and various foreign governmental patent agencies also require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse, including due to the effect of the COVID-19 pandemic on us or our patent maintenance vendors, can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our product candidates, our competitive position would be adversely affected.

We may rely on trade secret and proprietary know-how which can be difficult to trace and enforce and, if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for some of our technology and product candidates, we may also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Elements of our product candidates, including processes for their preparation and manufacture, may involve proprietary know-how, information, or technology that is not covered by patents, and thus for these aspects we may consider trade secrets and know-how to be our primary intellectual property. 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. Because we expect to rely on third parties in the development and manufacture of our product candidates, we must, at times, share trade secrets with them. 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.

Trade secrets and know-how can be difficult to protect. We require our employees to enter into written employment agreements containing provisions of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We and any third parties with whom we share facilities enter into written agreements that include confidentiality and intellectual property obligations to protect each party’s property, potential trade secrets, proprietary know-how, and information. We further seek to protect our potential trade secrets, proprietary know-how, and information in part, by entering into non-disclosure and confidentiality agreements with parties who are given access to them, such as our corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties. With our consultants, contractors, and outside scientific collaborators, these agreements typically include invention assignment obligations. We cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes. We cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Despite these efforts, 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. 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. We may need to share our proprietary information, including trade secrets, with future business partners, collaborators, contractors and others located in countries at heightened risk of theft of trade secrets, including through direct intrusion by private parties or foreign actors, and those affiliated with or controlled by state actors. Further, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third-party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third-party, our competitive position would be harmed.

 

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We may become subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our product candidates or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property. 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 have a material adverse effect on 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.

Our future licensors may have relied on third-party consultants or collaborators or on funds from third parties, such as the U.S. government, such that our licensors are not the sole and exclusive owners of the patents we in-licensed. If other third parties have ownership rights or other rights to our in-licensed patents, they may be able to license such patents to our competitors, and our competitors could market competing products and technology. This could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or 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, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.

Patent rights are of limited duration. In the United States, if all maintenance fees are paid timely, the natural expiration of a patent is generally 20 years after its first effective filing date excluding U.S. provisional patent applications. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such product candidates are commercialized. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from biosimilar or generic products. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours. Upon issuance in the United States, the term of a patent can be increased by patent term adjustment, which is based on certain delays caused by the USPTO, but this increase can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. The term of a United States patent may also be shortened if the patent is terminally disclaimed over an earlier-filed patent. A patent term extension (PTE) based on regulatory delay may be available in the United States. However, only a single patent can be extended for each marketing approval, and any patent can be extended only once, for a single product. Moreover, the scope of protection during the period of the PTE does not extend to the full scope of the claim, but instead only to the scope of the product as approved. Laws governing analogous PTEs in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive an extension if we fail to exercise due diligence during the testing phase or

 

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regulatory review process, apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. If we are unable to obtain PTE or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and our competitors may obtain approval of competing products following our patent expiration and may take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data to launch their product earlier than might otherwise be the case, and our revenue could be reduced, possibly materially.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

Our current or future trademarks or trade names may be challenged, infringed, circumvented or declared generic or descriptive or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. During trademark registration proceedings, we may receive rejections of our applications by the USPTO or in other foreign jurisdictions. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected. We may license our trademarks and trade names to third parties, such as distributors. Although these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names.

Moreover, any name we have proposed to use with our product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. Similar requirements exist in Europe. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA (or an equivalent administrative body in a foreign jurisdiction) objects to any of our proposed proprietary product names, it may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registration may not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. 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.

Risks Related to Our Common Stock and this Offering

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary

 

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from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon the closing of this offering or, if it does develop, it may not be sustainable. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

adverse results or delays in pre-clinical studies or future clinical trials;

 

   

results from our future clinical trials with our future product candidates or of our competitors;

 

   

failure to commercialize our product candidates;

 

   

unanticipated serious safety concerns related to immuno-oncology or related to the use of our product candidates;

 

   

changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;

 

   

any delay in our regulatory filings for our product candidates and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings, including without limitation the FDA’s issuance of a “refusal to file” letter or a request for additional information;

 

   

regulatory or legal developments in the United States and other countries;

 

   

the level of expenses related to future product candidates or clinical development programs;

 

   

our failure to achieve product development goals in the timeframe we announce;

 

   

announcements of acquisitions, strategic alliances or significant agreements by us or by our competitors;

 

   

recruitment or departure of key personnel;

 

   

developments with respect to our intellectual property rights;

 

   

overall performance of the equity markets;

 

   

the economy as a whole and market conditions in our industry;

 

   

trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock;

 

   

the published opinions and third-party valuations by banking and market analysts;

 

   

political uncertainty and/or instability in the United States;

 

   

the ongoing and future impact of the COVID-19 pandemic and actions taken to slow its spread; and

 

   

any other factors discussed in this prospectus.

 

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In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many immuno-oncology companies. Stock prices of many immuno-oncology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. The trading prices for common stock of other biopharmaceutical companies have also been highly volatile as a result of the COVID-19 pandemic.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of May 31, 2021, our executive officers, directors, five percent stockholders and their affiliates beneficially owned approximately 84.6% of our voting stock and, upon closing of this offering, that same group will beneficially own approximately 64.9% of our outstanding voting stock (assuming no exercise of the underwriters’ option to purchase additional shares and no purchases of any shares of common stock by such holders in this offering). Four of our seven directors were appointed by our significant stockholders pursuant to our amended and restated voting agreement, which will terminate upon the closing of this offering. Therefore, even after this offering, these stockholders will have the ability to influence us through their ownership positions. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders, acting together, may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may believe are in your best interest as one of our stockholders.

As described in more detail under the section titled “Non-Employee Director Compensation,” our board of directors has approved option grants to certain of our non-employee directors upon the execution and delivery of the underwriting agreement for this offering, and therefore our non-employee directors may have interests in and arising from this offering that are different from and/or may conflict with the interests of our stockholders.

Substantial amounts of our outstanding shares may be sold into the market when lock-up or market standoff periods end. If there are substantial sales of shares of our common stock, the price of our common stock could decline.

The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, or if there is a large number of shares of our common stock available for sale and the market perceives that sales will occur. After this offering, we will have 38,001,510 outstanding shares of our common stock, based on the number of shares outstanding as of March 31, 2021 (giving effect to the issuance and subsequent conversion of 8,038,073 shares of Series B convertible preferred stock issued and sold in April 2021). All of the shares of common stock sold in this offering will be available for sale in the public market. Substantially all of our outstanding shares of common stock are currently restricted from resale as a result of market standoff and lock-up agreements, as more fully described in the section of this prospectus titled “Shares Eligible for Future Sale.” These shares will become available to be sold 181 days after the date of this prospectus, in addition to shares issuable pursuant to outstanding options. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended (the Securities Act) and various vesting agreements.

After the closing of this offering, certain of our stockholders will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders, subject to market standoff and lockup agreements. We also intend to register shares of common stock subject to outstanding options and reserved for future issuance under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to existing market standoff, lock-up agreements and various vesting agreements.

 

 

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BofA Securities, Inc., Cowen and Company, LLC and Evercore Group L.L.C., may, in their discretion, permit our stockholders to sell shares prior to the expiration of the restrictive provisions contained in those lock-up agreements.

The market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the pro forma as adjusted net tangible book value per share of $7.49 per share as of March 31, 2021, based on the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us because the price that you pay will be substantially greater than the pro forma as adjusted net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon exercise of options to purchase common stock under our equity incentive plans, upon vesting of options to purchase common stock under our equity incentive plans, if we issue restricted stock to our employees under our equity incentive plans or if we otherwise issue additional shares of our common stock. See the section of this prospectus titled “Dilution” for additional information.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

Additional capital will be needed 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, investors may be materially diluted. 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 our 2021 Plan, we will be authorized to grant stock options and other equity-based awards to our employees, directors and consultants. The number of shares of our common stock reserved for issuance under our 2021 Plan will automatically increase on January 1 of each calendar year, beginning on January 1, 2022 through January 1, 2031, in an amount equal to the lesser of (i) 5% of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of each automatic increase; or (ii) a lesser number of shares determined by our board of directors prior to the applicable January 1st. In addition, pursuant to our ESPP, the number of shares of our common stock reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2022 through January 1, 2031, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of each automatic increase, and (ii) 932,000 shares; provided that before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). Unless our board of directors elects not to increase the number of shares available for future grant each year, our stockholders may experience additional dilution, which could cause our stock price to fall.

We will have broad discretion in the use of the net proceeds of this offering and may not use them effectively or in ways that increase the value of our share price.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering, but we currently expect such uses will include advancing our pre-clinical product candidates into

 

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clinical trials and combination trials, advancing our research product candidates into clinical development, supporting our ongoing drug discovery efforts and supporting our growing infrastructure and needs in operating as a public company. We will have broad discretion in the application of the net proceeds, including working capital and other general corporate purposes, and you and other stockholders may disagree with how we spend or invest these proceeds. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.

Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the closing of this offering could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

Following the closing of this offering, our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the closing of this offering will contain provisions that may make the acquisition of our company more difficult, including the following:

 

   

a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

   

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

   

the requirement that a special meeting of stockholders may be called only by a majority vote of our entire board of directors, the chairman of our board of directors or our chief executive officer, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

   

the requirement for the affirmative vote of holders of at least 66-2/3% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the management of our business or our amended and restated bylaws, which may inhibit the ability of an acquirer to affect such amendments to facilitate an unsolicited takeover attempt; and

 

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advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.

For information regarding these and other provisions, see the section of this prospectus titled “Description of Capital Stock.”

Our current amended and restated certificate of incorporation provides, and our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective in connection with the closing of this offering, will 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 and that the federal district courts shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees or the underwriters or any offering giving rise to such claim.

Our current amended and restated certificate of incorporation provides, and our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective in connection with the closing of this offering, will provide, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, or other employees to us or our stockholders; (iii) any action or proceeding asserting a claim against us or any of our current or former directors, officers, or other employees, arising out of or pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; (iv) any action or proceeding to interpret, apply, enforce, or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; (v) any action or proceeding as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and (vi) any action asserting a claim against us or any of our directors, officers, or other employees governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. These provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our current amended and restated certificate of incorporation provides, and our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective in connection with the closing of this offering, will provide, that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the

 

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Securities Act, including any complaint against the underwriters of any offering giving rise to such claim. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our current amended and restated certificate of incorporation, and our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective in connection with the closing of this offering. This may require significant additional costs associated with resolving such action in other jurisdictions and the provisions may not be enforced by a court in those other jurisdictions.

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees and may discourage these types of lawsuits and result in increased costs for investors to bring a claim. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation or bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find either exclusive forum provision contained in our current amended and restated certificate of incorporation, or our amended and restated certificate of incorporation or amended and restated bylaws, which will become effective in connection with the closing of this offering, to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other jurisdictions, all of which could seriously harm our business.

Participation in this offering by our directors, officers, existing stockholders and/or their affiliates would reduce the available public float of our shares.

If any of our directors, officers, existing stockholders and/or their affiliates purchase shares in this offering, such purchases would reduce the available public float of our common stock because such purchasers would be restricted from selling such shares during the 180-day period following this offering and thereafter may be subject to volume limitations pursuant to restrictions under applicable securities laws. As a result, any purchase of shares by our directors, officers, existing stockholders and/or affiliates in this offering will reduce the liquidity of our common stock relative to what it would have been had these shares been purchased by investors that were not directors, officers, existing stockholders and/or our affiliates.

General Risk Factors

We will incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Exchange Act, which will require, among other things, that we file with the SEC annual, quarterly, and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Emerging growth companies and smaller reporting companies are exempted from certain of these requirements, but we may 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.

 

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We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition, results of operations and prospects. The increased costs will decrease our net income or increase our consolidated net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Failure to build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

As a public company, we will operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act, the regulations of the Nasdaq Global Market, the rules and regulations of the Securities and Exchange Commission, expanded disclosure requirements, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. Commencing with our fiscal year ending the year after this offering is completed, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. Prior to this offering, we have never been required to test our internal controls within a specified period and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.

We anticipate that the process of building our accounting and financial functions and infrastructure will require significant additional professional fees, internal costs and management efforts. We expect that we will need to implement a new internal system to combine and streamline the management of our financial, accounting, human resources and other functions. However, such a system would likely require us to complete many processes and procedures for the effective use of the system or to run our business using the system, which may result in substantial costs. Any disruptions or difficulties in implementing or using such a system could adversely affect our controls and harm our business. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management attention. In addition, we may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed, investors could lose confidence in our reported financial information and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.

 

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If we are unable to maintain effective internal controls, our business, financial position and results of operations could be adversely affected.

As a public company, we will be subject to reporting and other obligations under the Exchange Act, including the requirements of SOX Section 404, which require annual management assessments of the effectiveness of our internal control over financial reporting.

The rules governing the standards that must be met for management to determine that our internal control over financial reporting is effective are complex and require significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management may identify material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act of 2002. These reporting and other obligations place significant demands on our management and administrative and operational resources, including accounting resources.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Any failure to maintain effective internal controls could have an adverse effect on our business, financial position and results of operations.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon the closing of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. For example, our directors or executive officers could inadvertently fail to disclose a new relationship or arrangement causing us to fail to make any related party transaction disclosures. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Future changes in financial accounting standards or practices may cause adverse and unexpected revenue fluctuations and adversely affect our reported results of operations.

Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our reported financial position or results of operations. Financial accounting standards in the United States are constantly under review and new pronouncements and varying interpretations of pronouncements have occurred with frequency in the past and are expected to occur again in the future. As a result, we may be required to make changes in our accounting policies. Those changes could affect our financial condition and results of operations or the way in which such financial condition and results of operations are reported. We intend to invest resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from business activities to compliance activities. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Accounting Pronouncements.”

 

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Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.

New income, sales, use, or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us. For example, the Tax Act enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. For example, the CARES Act modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive an economic downturn, which could directly affect our ability to attain our operating goals on schedule and on budget.

Our internal information technology systems, or those of our third-party CROs or other contractors or consultants, may fail or suffer security breaches, loss or leakage of data, and other disruptions, which could result in a material disruption of our product candidates’ development programs, compromise sensitive information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business.

We are increasingly dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course of business, we collect, store and transmit confidential information (including but not limited to intellectual property, proprietary business information and personal information). It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party contractors who have access to our confidential information.

Despite the implementation of security measures, given their size and complexity and the increasing amounts of confidential information that they maintain, our internal information technology systems and those of our third-party CROs and other contractors and consultants are potentially vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by our employees, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks,

 

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social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information), which may compromise our system infrastructure or lead to data leakage. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and reputational damage and the further development and commercialization of our product candidates could be delayed.

We cannot assure you that our data protection efforts and our investment in information technology will prevent significant breakdowns, data leakages, breaches in our systems or other cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition. For example, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs and the development of our product candidates could be delayed. In addition, the loss of pre-clinical study data or future clinical trial data for our product candidates could result in delays in our marketing approval efforts and significantly increase our costs to recover or reproduce the data. Furthermore, significant disruptions of our internal information technology systems or security breaches could result in the loss, misappropriation, and/or unauthorized access, use, or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information, and personal information), which could result in financial, legal, business, and reputational harm to us. For example, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal information regarding our clinical trial subjects or employees, could harm our reputation directly, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.

We or the third parties upon whom we depend may be adversely affected by earthquakes, fires or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate headquarters and main research facility are located in the county of San Diego, California, which in the past has experienced severe earthquakes and fires. If these earthquakes, fires, other natural disasters, terrorism and similar unforeseen events beyond our control prevented us from using all or a significant portion of our headquarters or research facility, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. We do not have a disaster recovery or business continuity plan in place and may incur substantial expenses as a result of the absence or limited nature of our internal or third-party service provider disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business. Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our ability to conduct our clinical trials, our development plans and business.

We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.

U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations (collectively, Trade Laws) prohibit, among other things, companies and their employees, agents, CROs, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities,

 

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and other organizations. We also expect our non-U.S. activities to increase over time. We expect to rely on third parties for research, preclinical studies, and clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other marketing approvals. We can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities.

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 have a material adverse effect on the success of our business.

We, and the third parties with whom we share our facilities, are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Each of our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Each of our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. We could be held liable for any resulting damages in the event of contamination or injury resulting from the use of hazardous materials by us or the third parties with whom we share our facilities, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research and development. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

We may not be able to protect our intellectual property rights throughout the world.

Patent protection is available on a national or regional level. Filing, prosecuting and defending patents throughout the world and on all of our product candidates would be prohibitively expensive. As such, our intellectual property rights outside the United States may not extend to all other possible countries outside the United States and we may not be able to prevent third parties from practicing our inventions in countries outside the United States where we do not have patent protection, or from selling in and importing products into other jurisdictions made using our inventions in such countries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products or technology and may export otherwise infringing products or technology to territories where we have patent protection, but enforcement rights are not as strong as those 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. Further, the legal systems of certain countries particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals or biologics, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any such lawsuits that we initiate and the damages and other remedies awarded, if any, may not be commercially meaningful.

Similarly, if our trade secrets are disclosed in a foreign jurisdiction, competitors worldwide could have access to our proprietary information and we may be without satisfactory recourse. Such disclosure could have a

 

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material adverse effect on our business. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. We plan to enter into contract research and manufacturing relationships with organizations that operate in certain countries that are at heightened risk of theft of technology, data and intellectual property, including through direct intrusion by private parties or foreign actors, and those affiliated with or controlled by state actors. In addition, certain developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties at nominal or no consideration. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third-party, which could materially diminish the value of those patents. In addition, many countries limit the enforceability of patents against government agencies or government contractors. This could limit our potential revenue opportunities. 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.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no or only very few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

 

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We are an “emerging growth company” and a “smaller reporting company” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

 

   

being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

   

not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

not being required to hold a non-binding advisory vote on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved.

In addition, as an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless we later irrevocably elect not to avail ourselves of this exemption. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (1) following the fifth anniversary of the closing of this offering, (2) in which we have total annual gross revenue of at least $1.07 billion or (3) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company, which would allow us to take advantage of many of the same exemptions available to emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation. We will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our strategy, future financial condition, future operations, research and development, planned clinical trials and preclinical studies, the timing and likelihood of regulatory filings and approvals for our product candidates, our ability to commercialize our product candidates, the potential benefits of collaborations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions described in the sections of this prospectus titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this prospectus. Other sections of this prospectus may include additional factors that could harm our business and financial performance. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the section of this prospectus titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act do not protect any forward-looking statements that we make in connection with this offering.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus forms a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.

 

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MARKET AND INDUSTRY DATA

Certain market, industry and competitive data included in this prospectus were obtained from our own internal estimates and research, as well as from publicly available information, reports of governmental agencies and industry publications and surveys. In some cases, we do not expressly refer to the sources from which this data is derived. All of the market and industry data used in this prospectus is inherently subject to uncertainties and involve a number of assumptions and limitations. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section of this prospectus titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $138.1 million (or approximately $159.3 million if the underwriters’ option to purchase additional shares is exercised in full) from the sale of the shares of common stock offered by us in this offering, based on an assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $8.8 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the net proceeds to us by $14.9 million, assuming no change in the assumed initial public offering price of $16.00 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to obtain additional capital to support our operations, to create a public market for our common stock and to facilitate potential future access to the public equity markets. We anticipate that we will use the net proceeds of this offering, along with our existing cash, as follows:

 

   

approximately $20.0 million to fund the development of our PSMA-TRACTr product candidate through the completion of the ongoing IND-enabling studies and planned Phase 1 trial in mCRPC patients;

 

   

approximately $25.0 million to fund the development of our EGFR-TRACTr product candidate through the completion of the ongoing IND-enabling studies and planned Phase 1 trial in EGFR overexpressing cancer patients, including CRC patients;

 

   

approximately $25.0 million to fund the development of our TROP2-TRACTr program through the completion of the planned IND-enabling studies and planned Phase 1 trial in TROP2 overexpressing cancer patients, including TNBC, UC, and NSCLC patients;

 

   

approximately $20.0 million to fund the development of our Costimulatory Bispecific program through the completion of the planned IND-enabling studies and planned Phase 1 trial in patients with high PD-L1 expressing tumors; and

 

   

the remaining proceeds to fund our other research and development activities for our future pipeline, as well as for working capital and other general corporate purposes.

We may also use a portion of the net proceeds from this offering to in-license, acquire or invest in complementary businesses, technologies, products or assets. However, we have no current commitments or obligations to do so.

Based on our current operating plan, we estimate that our existing cash as of the date of this prospectus, together with the estimated net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 24 months.

Our expected use of net proceeds from this offering described above represents our current intentions based upon our present plans and business conditions, which could change in the future as our plans and business conditions continue to evolve. As of the date of this prospectus, we cannot predict with certainty all of the

 

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particular uses for the net proceeds to be received upon the closing of this offering, or the amounts that we will actually spend on the uses set forth above. Further, due to the uncertainties associated with the drug development process, it is difficult to predict the cost and timing required to complete our development programs. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the progress, cost and results of our preclinical and clinical development programs, our ability to obtain additional financing, whether we are able to enter into future strategic collaborations, licensing or other arrangements, and other factors described in the section of this prospectus titled “Risk Factors,” as well as the amount of cash used in our operations and any unforeseen cash needs. We may find it necessary or advisable to use the net proceeds for other purposes, and our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds from this offering.

Our existing cash as of the date of this prospectus, together with the estimated net proceeds from this offering, will not be sufficient to fund development of our product candidates through regulatory approval and commercialization. To obtain the capital necessary to fund our product candidates through regulatory approval and commercialization, we expect to finance our cash needs through public or private equity offerings, debt financings and/or other capital sources which may include strategic collaborations, licensing arrangements or other arrangements with third parties.

Pending their use, we plan to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock, and we do not currently intend to pay any cash dividends on our capital stock in the foreseeable future. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business. Any future determination related to dividend policy will be made at the discretion of our board of directors, subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements.

In addition, our ability to pay cash dividends on our capital stock in the future may be limited by the terms of any future debt or preferred securities we issue or any credit facilities we enter into.

 

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CAPITALIZATION

The following table sets forth our cash and our capitalization as of March 31, 2021:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to (i) the conversion of all outstanding shares of our convertible preferred stock as of March 31, 2021 into an aggregate of 16,311,693 shares of our common stock, which will occur immediately prior to the closing of the offering, (ii) the issuance and sale of shares of our Series B convertible preferred stock in April 2021 for aggregate net proceeds of approximately $124.8 million and the subsequent conversion into 10,296,767 shares of our common stock, which will occur immediately prior to the closing of the offering, (iii) the related reclassification of the carrying value of the convertible preferred stock to permanent equity in connection with the closing of this offering and (iv) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the closing of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to our sale of 9,500,000 shares of our common stock in this offering at the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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This pro forma as adjusted information is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing. The following table should be read together with the sections of this prospectus titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and the related notes included elsewhere in this prospectus.

 

     As of March 31, 2021  
    

Actual

    

Pro Forma

    

Pro Forma As
Adjusted(1)

 
     (unaudited, in thousands, except share and
per share amounts)
 

Cash

   $ 70,769      $ 195,597      $ 333,757  
  

 

 

    

 

 

    

 

 

 

Convertible preferred stock, $0.001 par value; 12,733,569 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   $ 77,346      $ —      $ —  

Stockholders’ equity (deficit):

        

Preferred stock, $0.001 par value per share; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

     —          —          —    

Common stock, $0.001 par value; 17,000,000 shares authorized, 1,893,050 shares issued and 1,226,977 shares outstanding (excluding 666,073 shares subject to repurchase), actual; 200,000,000 shares authorized, 28,501,510 shares issued and 27,835,437 shares outstanding (excluding 666,073 shares subject to repurchase), pro forma; 200,000,000 shares authorized, 38,001,510 shares issued and 37,335,437 shares outstanding (excluding 666,073 shares subject to repurchase), pro forma as adjusted.

     1        28        37  

Additional paid-in capital

     251        202,398        340,449  

Accumulated deficit

     (17,023      (17,023      (17,023
  

 

 

    

 

 

    

 

 

 

Total stockholders’ equity (deficit)

     (16,771      185,403        323,463  
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 60,575      $ 185,403      $ 323,463  
  

 

 

    

 

 

    

 

 

 

 

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $8.8 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $14.9 million, assuming no change in the assumed initial public offering price of $16.00 per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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The number of shares of our common stock to be outstanding after this offering is based on 28,501,510 shares of common stock outstanding as of March 31, 2021 (after giving effect to the conversion of all of our shares of convertible preferred stock outstanding as of March 31, 2021 as well as the issuance and subsequent conversion of all of our shares of Series B convertible preferred stock issued and sold in April 2021, into an aggregate of 26,608,460 shares of our common stock immediately prior to the closing of this offering), which includes 666,073 shares outstanding that are subject to our right to repurchase as of such date, and excludes:

 

   

2,131,639 shares of our common stock issuable upon the exercise of outstanding stock options as of March 31, 2021, with a weighted-average exercise price of $2.76 per share;

 

   

2,952,063 shares of our common stock issuable upon the exercise of outstanding stock options granted subsequent to March 31, 2021 and through June 4, 2021, with a weighted-average exercise price of $10.59 per share;

 

   

4,200,000 shares of common stock reserved for future issuance under our 2021 Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under the 2021 Plan, which will become effective upon the execution and delivery of the underwriting agreement for this offering (including 1,424,110 shares of common stock reserved for issuance under our Prior Plan, which shares will be added to the 2021 Plan upon its effectiveness);

 

   

466,000 shares of common stock reserved for future issuance under our ESPP, as well as any automatic annual increases in the number of shares of our common stock reserved for future issuance under the ESPP, which will become effective upon the execution and delivery of the underwriting agreement for this offering; and

 

   

90,000 shares of our common stock issuable upon the exercise of stock options to be granted to certain directors under our 2021 Plan, with an exercise price per share equal to the initial public offering price, effective upon the execution and delivery of the underwriting agreement for this offering.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our historical net tangible book deficit as of March 31, 2021 was $(16.8) million, or $(8.86) per share of our common stock. Our historical net tangible book deficit is the amount of our total tangible assets less our total liabilities and convertible preferred stock. Historical net tangible book deficit per share represents our historical net tangible book deficit divided by the number of shares of our common stock outstanding as of March 31, 2021 (including 666,073 shares subject to our right to repurchase).

Our pro forma net tangible book value as of March 31, 2021 was $185.4 million, or $6.51 per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to the conversion of all shares of our convertible preferred stock outstanding as of March 31, 2021 into an aggregate of 16,311,693 shares of our common stock, which will occur immediately prior to the closing of the offering, as well as the issuance and sale of our Series B convertible preferred stock in April 2021 for aggregate net proceeds of $124.8 million and subsequent conversion of all of our shares of Series B convertible preferred stock into an aggregate of 10,296,767 shares of our common stock, which will occur immediately prior to the closing of this offering, and the related reclassification of the carrying value of the convertible preferred stock to permanent equity in connection with the closing of this offering. Pro forma net tangible book value per share represents our pro forma net tangible book value divided by the number of shares of our common stock outstanding as of March 31, 2021, after giving effect to the pro forma adjustments described above.

After giving further effect to our issuance and sale of 9,500,000 shares of our common stock in this offering at the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2021 would have been $323.5 million, or $8.51 per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $2.00 to existing stockholders and immediate dilution of $7.49 in pro forma as adjusted net tangible book value per share to investors purchasing common stock in this offering.

Dilution per share to investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share

      $ 16.00  

Historical net tangible book deficit per share as of March 31, 2021

   $ (8.86   

Pro forma increase in historical net tangible book value per share attributable to the pro forma transactions described in the preceding paragraphs

     15.37     
  

 

 

    

Pro forma net tangible book value per share as of March 31, 2021

     6.51     

Increase in pro forma net tangible book value per share attributable to investors purchasing shares in this offering

     2.00     
  

 

 

    

Pro forma as adjusted net tangible book value per share after this offering

        8.51  
     

 

 

 

Dilution per share to investors purchasing shares in this offering

      $ 7.49  
     

 

 

 

 

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Each $1.00 increase or decrease in the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share after this offering by $0.23 and dilution per share to investors purchasing shares in this offering by $0.77, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share after this offering by $0.17 and decrease the dilution per share to investors participating in this offering by $0.17, assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each decrease of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by $0.17 and increase the dilution per share to investors participating in this offering by $0.17, assuming that the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $8.74 per share, representing an immediate increase in pro forma as adjusted net tangible book value per share of $2.23 to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $7.26 to investors purchasing common stock in this offering, assuming an initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, on the pro forma as adjusted basis described above, the differences between the number of shares of common stock purchased from us, the total consideration paid to us and the weighted average price per share paid by existing stockholders and by investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (assuming no purchases of any shares of common stock in this offering by existing stockholders):

 

     Shares
Purchased
    Total
Consideration
    Weighted-
Average
Price Per
Share
 
    

Number

    

Percent

   

Amount

    

Percent

 

Existing stockholders before this offering

     28,501,510        75.0   $ 202,691,000        57.1   $ 7.11  

Investors purchasing shares in this offering

     9,500,000        25.0   $ 152,000,000        42.9   $ 16.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     38,001,510        100.0     $354,691,000        100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase or decrease in the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, the total consideration paid by investors participating in this offering by $9.5 million and, in the case of an increase, would increase the percentage of total consideration paid by investors participating in this offering to 44.3% and, in the case of a decrease, would decrease the percentage of total consideration paid by investors participating in this offering to 41.3%, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, each increase or decrease of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by investors participating in this offering by $16.0 million and, in the case of an increase, would increase the percentage of total consideration paid by investors participating in this offering to 45.3% and, in the case of a decrease, would decrease the percentage of total consideration paid by investors participating in this offering to 40.2%, assuming that the assumed initial public offering price remains the same.

 

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The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters’ option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to 72.3% of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by investors participating in the offering would be increased to 27.7% of the total number of shares of our common stock outstanding after this offering.

The foregoing discussion and tables above (other than the historical net tangible book deficit calculation) are based on 28,501,510 shares of common stock outstanding as of March 31, 2021 (after giving effect to the conversion of all of our shares of convertible preferred stock outstanding as of March 31, 2021 as well as the issuance and subsequent conversion of all of our shares of Series B convertible preferred stock issued and sold in April 2021, into an aggregate of 26,608,460 shares of our common stock immediately prior to the closing of this offering), which includes 666,073 shares outstanding that are subject to our right to repurchase as of such date, and excludes:

 

   

2,131,639 shares of our common stock issuable upon the exercise of outstanding stock options as of March 31, 2021, with a weighted-average exercise price of $2.76 per share;

 

   

2,952,063 shares of our common stock issuable upon the exercise of outstanding stock options granted subsequent to March 31, 2021 and through June 4, 2021, with a weighted-average exercise price of $10.59 per share;

 

   

4,200,000 shares of common stock reserved for future issuance under our 2021 Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under the 2021 Plan, which will become effective upon the execution and delivery of the underwriting agreement for this offering (including 1,424,110 shares of common stock reserved for issuance under our Prior Plan, which shares will be added to the 2021 Plan upon its effectiveness);

 

   

466,000 shares of common stock reserved for future issuance under our ESPP, as well as any automatic annual increases in the number of shares of our common stock reserved for future issuance under the ESPP, which will become effective upon the execution and delivery of the underwriting agreement for this offering; and

 

   

90,000 shares of our common stock issuable upon the exercise of stock options to be granted to certain directors under our 2021 Plan, with an exercise price per share equal to the initial public offering price, effective upon the execution and delivery of the underwriting agreement for this offering.

To the extent that any outstanding options are exercised, or new options or other equity awards are issued under our equity incentive plans, you will experience further dilution. In addition, to the extent that additional capital is raised through the sale of equity or convertible debt securities in the future, the issuance of these securities may result in further dilution to our stockholders.

 

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SELECTED FINANCIAL DATA

The following tables set forth our selected financial data as of, and for the periods ended on, the dates indicated. We have derived the statements of operations data for the years ended December 31, 2019 and 2020 and the balance sheet data as of December 31, 2019 and 2020 from our audited financial statements included elsewhere in this prospectus. We have derived the statements of operations data for the three months ended March 31, 2020 and 2021 and the balance sheet data as of March 31, 2021 from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of March 31, 2021 and results of operations for the three months ended March 31, 2020 and 2021. You should read the following selected financial data together with our financial statements and the related notes included elsewhere in this prospectus and the section in this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of results that should be expected in any future period.

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2019     2020     2020     2021  
           (unaudited)  
     (in thousands, except share and per share data)  

Statements of Operations Data:

        

Collaboration revenue

   $ —       $ —       $ —       $ 380  

Operating expenses:

        

Research and development

     2,999       3,041       549       1,925  

General and administrative

     772       1,802       277       739  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     3,771       4,843       826       2,664  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (3,771     (4,843     (826     (2,284

Other expense:

        

Interest expense – related parties

     (233     (206     (97     —    

Increase in fair value of convertible promissory notes – related parties

     —         (1,735     (490     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (233     (1,941     (587     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (4,004   $ (6,784   $ (1,413   $ (2,284
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share, basic and diluted(1)

   $ (5.98   $ (7.41   $ (1.72   $ (2.06
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares of common stock outstanding, basic and diluted(1)

     669,425       915,146       821,270       1,111,178  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per common share, basic and diluted (unaudited)(2)

     $ (1.06     $ (0.18
    

 

 

     

 

 

 

Pro forma weighted-average shares of common stock outstanding, basic and diluted (unaudited)(2)

       6,415,183         12,472,673  
    

 

 

     

 

 

 

 

(1)

See Note 1 to our financial statements included elsewhere in this prospectus for details on the calculation of our basic and diluted net loss per common share.

(2)

The calculations for the unaudited pro forma net loss per common share, basic and diluted, and the pro forma weighted-average shares of common stock outstanding, basic and diluted, assume the conversion of all our outstanding shares of convertible preferred stock into shares of our common stock, as if the conversion had occurred at the beginning of the period presented, or the issuance date, if later.

 

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     As of December 31,      As of March 31,  
     2019      2020      2021  
                   (unaudited)  
    

(in thousands)

 

Balance Sheet Data:

        

Cash

   $ 658      $ 7,813      $ 70,769  

Working capital (deficit)(1)

     (3,969      12,881        64,512  

Total assets

     679        16,217        71,819  

Convertible promissory notes

     4,000        —          —    

Convertible preferred stock

     3,996        21,624        77,346  

Accumulated deficit

     (7,955      (14,739      (17,023

Total stockholders’ deficit

     (7,944      (14,638      (16,771

 

(1)

Working capital is defined as current assets less current liabilities. See our financial statements and the related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section of this prospectus titled “Selected Financial Data” and our financial statements and related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis are set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, and includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section of this prospectus titled “Risk Factors,” our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are an innovative biopharmaceutical company developing next-generation therapeutics based on our proprietary Tumor Activated T Cell Engager (TRACTr) platform technology to better treat patients suffering from cancer. Our initial focus is on developing a novel class of TCEs, and our lead product candidates are designed to target clinically validated drug targets. While TCE therapeutics have displayed potent anti-tumor activity in hematological cancers, developing TCEs to treat solid tumors has faced challenges due to the limitations of prior TCE technologies, namely (i) overactivation of the immune system leading to cytokine release syndrome (CRS), (ii) on-target, healthy tissue toxicities and (iii) poor pharmacokinetics (PK) leading to short half-life. We are using our TRACTr platform technology to engineer product candidates designed to overcome these limitations. We are developing a broad pipeline with lead programs targeting prostate-specific membrane antigen (PSMA), epidermal growth factor receptor (EGFR), and trophoblast cell surface antigen 2 (TROP2), with all of our programs currently in the preclinical or discovery stage. We expect to submit at least two Investigational New Drug application (IND) submissions by the end of 2022. We expect to initially seek regulatory approval for our product candidates as later lines of therapy in patients with cancer. In subsequent preclinical studies and/or clinical trials, we plan to evaluate our product candidates’ potential for use as earlier lines of therapy. Based on data we have generated in non-human primates (NHPs), we believe our TRACTr product candidates have the potential for (i) significantly reduced risk of toxic CRS responses, (ii) reduced risk of on-target, healthy tissue toxicities, and (iii) improved half-life with once-weekly dosing in humans.

We were incorporated in June 2017. To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, business development, raising capital, developing and optimizing our technology platform, identifying potential product candidates, undertaking research and preclinical studies for our lead programs, establishing and enhancing our intellectual property portfolio and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily with the net proceeds from the issuance of convertible promissory notes, the issuance of convertible preferred stock, the exercise of common stock options and amounts received under a collaboration agreement with Merck.

We have incurred operating losses since our inception and have not yet generated any product revenue. Our net losses were $4.0 million, $6.8 million, $1.4 million and $2.3 million, respectively, for the years ended December 31, 2019 and 2020 and the three months ended March 31, 2020 and 2021. As of March 31, 2021, we had an accumulated deficit of $17.0 million.

From inception to March 31, 2021, we had raised aggregate gross proceeds of approximately $6.5 million from the issuance of convertible promissory notes, $69.0 million from the issuance of shares of our convertible preferred stock, and $1.7 million from the exercise of common stock options. As of March 31, 2021, we had a cash balance of $70.8 million. In April 2021, we issued 8,038,073 shares of our Series B convertible preferred stock at a price of $15.551 per share, resulting in aggregate gross proceeds of $125.0 million.

 

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Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on a variety of factors including the timing and scope of our preclinical studies and our expenditures on other research and development activities and the timing of any revenue recognition under our collaboration agreement with Merck. We expect our expenses and operating losses will increase substantially and that we will continue to incur significant losses for the foreseeable future as we conduct our ongoing and planned research and development activities and conduct preclinical studies and clinical trials, hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company.

We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more product candidates, which will not be for many years, if ever. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially grants, collaborations, licenses or other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates or to our platform technology that we would otherwise prefer to develop and market ourselves.

The global COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the COVID-19 situation closely. The extent of the impact of the COVID-19 on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on our CROs, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and most of our office employees working remotely. We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic may affect our business, operations and clinical development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change.

Support Services Agreement with COI Pharmaceuticals, Inc.

In January 2021, we entered into a Support Services Agreement (the Support Services Agreement) with COI Pharmaceuticals, Inc. (COI), pursuant to which COI provides certain services to us, including general administrative services and facilities support services, and provides us with supplies and equipment, laboratory facilities, and office space. The Support Services Agreement outlines the terms of the services provided by COI to us, as well as the fees and expenses charged for such services.

The initial term of the Support Services Agreement expires in January 2022. The agreement will continue to renew for additional one-year renewal periods until terminated by the parties. Either party may terminate the agreement with 30 days written notice.

Our Research Collaboration with Merck

In December 2020, we entered into a research collaboration and exclusive license agreement with Merck to develop TRACTr product candidates that are distinct from those in our internally developed pipeline. Merck has the right to select up to two collaboration targets related to next generation T cell engager immunotherapies for the treatment of cancer. Merck will receive an exclusive worldwide license for each selected target and intellectual property from the collaboration. In return, we are eligible to receive up to $500.5

 

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million per target in upfront and milestone payments, plus royalties on sales of the products derived from the collaboration. Merck will provide research funding under the collaboration.

Financial Operations Overview

Revenues

To date, we have not generated any revenues from the commercial sale of any products, and we do not expect to generate revenues from the commercial sale of any products for the foreseeable future, if ever. We did not recognize any revenues under our December 2020 collaboration with Merck through December 31, 2020 since we had not completed any substantive research services required by that agreement. We began recognizing revenue under this agreement in 2021.

Research and Development Expenses

To date, our research and development expenses have related primarily to development of our TRACTr platform technology, programs, and discovery efforts, preclinical studies and other preclinical activities related to lead discovery and optimization of development candidates under our TRACTr platform technology and Costimulatory Bispecific development program. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Research and development expenses include:

 

   

salaries and employee-related costs, including stock-based compensation for those individuals involved in research and development efforts;

 

   

external research and development expenses incurred under agreements with CROs and consultants to conduct our preclinical studies;

 

   

laboratory equipment, materials and supplies; and

 

   

facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance, equipment and other supplies.

Certain research and development expenses as listed above include amounts paid to COI Pharmaceuticals, Inc. (COI). COI is a shared service company that provides certain back-office and administrative and research and development support services, including facilities support, to the portfolio companies of Avalon Ventures, an entity that beneficially owns greater than 5% of our outstanding capital stock. The amounts paid to COI include support service fees or mark-ups of up to 5%. For more information see the section titled “Certain Relationships and Related Party Transactions.”

We anticipate that our research and development expenses will substantially increase for the foreseeable future as we continue the development of our TRACTr and Costimulatory Bispecific platforms and the discovery and development of product candidates within our TRACTr and Costimulatory Bispecific programs.

We cannot determine with certainty the timing of initiation, the duration or the completion costs of future clinical trials and preclinical studies of product candidates due to the inherently unpredictable nature of preclinical and clinical development. Preclinical and clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot

 

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forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant general and administrative expenses include facility-related costs, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities; legal fees relating to intellectual property and corporate matters; professional fees for accounting, tax and consulting services; insurance costs; and other operating costs. Our general and administrative expenses include amounts paid to COI for certain back-office and administrative support services, including facilities support. We anticipate that our general and administrative expenses will substantially increase for the foreseeable future as we continue to increase our general and administrative headcount to support our continued research and development activities and, if any of our product candidates receive marketing approval, commercialization activities. We also anticipate increased expenses associated with operating as a public company, including expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission (SEC) requirements, director and officer insurance premiums and investor relations costs.

Interest Expense – Related Parties

Interest expense consists of coupon interest of 8% per annum on our convertible promissory notes that converted in June 2020.

Increase in Fair Value of Convertible Promissory Notes – Related Parties

We issued convertible promissory notes in 2019 and 2020 for which we have elected the fair value option. Until their conversion into Series Seed 2 convertible preferred stock in June 2020, we adjusted the carrying value of our convertible promissory notes to their estimated fair value at each reporting date, with the increases in fair value of the convertible promissory notes recorded as increase in fair value of convertible promissory notes in our statements of operations and comprehensive loss.

We estimated the fair value of our convertible promissory notes using a scenario-based analysis that estimated the fair value of the convertible promissory notes based on the probability-weighted present value of expected future investment returns, considering possible outcomes available to the noteholders.

 

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Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2021

The following table summarizes our results of operations for the three months ended March 31, 2020 and 2021:

 

     Three Months Ended
March 31,
        
     2020      2021      Change  
     (in thousands)  

Collaboration revenue

   $ —        $ 380      $ 380  

Operating expenses:

        

Research and development

     549        1,925        1,376  

General and administrative

     277        739        462  
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     826        2,664        1,838  
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (826      (2,284      (1,458

Other expense:

        

Interest expense – related parties

     (97      —          97  

Increase in fair value of convertible promissory notes – related parties

     (490      —          490  
  

 

 

    

 

 

    

 

 

 

Total other expense

     (587      —          587  
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (1,413    $ (2,284    $ (871
  

 

 

    

 

 

    

 

 

 

Collaboration Revenue

We did not generate any collaboration revenue for the three months ended March 31, 2020. We began recognizing revenue from our December 2020 collaboration with Merck in 2021 when we began to provide the research services required under the agreement.

Research and Development Expense

Research and development expenses were $0.5 million and $1.9 million for the three months ended March 31, 2020 and 2021, respectively. The increase of $1.4 million was due to a net increase related to the development of our TRACTr platform technology and programs of $0.9 million, an increase in personnel and facilities costs of $0.3 million and other research and development costs of $0.1 million.

General and Administrative Expense

General and administrative expenses were $0.3 million and $0.7 million for the three months ended March 31, 2020 and 2021, respectively. The increase of $0.4 million was due primarily to increases of $0.2 million in professional services related primarily to corporate legal fees and audit and tax fees, $0.1 million in personnel related expenses and $0.1 million of stock-based compensation.

Other Expense

Other expense of $0.6 million for the three months ended March 31, 2020 consisted of a $0.5 million increase in the fair value of our convertible promissory notes and $0.1 million of interest expense on our convertible promissory notes. These charges did not recur during the three months ended March 31, 2021 since the related convertible promissory notes had converted in June 2020.

 

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Comparison of the Years Ended December 31, 2019 and 2020

The following table summarizes our results of operations for the years ended December 31, 2019 and 2020:

 

     Years Ended
December 31,
        
     2019      2020      Change  
     (in thousands)  

Operating expenses:

        

Research and development

   $ 2,999      $ 3,041      $ 42  

General and administrative

     772        1,802        1,030  
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     3,771        4,843        1,072  
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (3,771      (4,843      (1,072

Other expense:

        

Interest expense – related parties

     (233      (206      27  

Increase in fair value of convertible promissory notes – related parties

     —          (1,735      (1,735
  

 

 

    

 

 

    

 

 

 

Total other expense

     (233      (1,941      (1,708
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (4,004    $ (6,784    $ (2,780
  

 

 

    

 

 

    

 

 

 

Research and Development Expense

Research and development expenses were $3.0 million and $3.0 million for the years ended December 31, 2019 and 2020, respectively. The increase of $42,000 was due primarily to a net increase related to the development of our TRACTr platform technology and programs.

General and Administrative Expense

General and administrative expenses were $0.8 million and $1.8 million for the years ended December 31, 2019 and 2020, respectively. The increase of $1.0 million was due primarily to increases of $0.6 million in professional services related primarily to corporate legal fees and patent legal fees and $0.4 million in personnel related expenses.

Other Expense

Other expense of $0.2 million for the year ended December 31, 2019 consisted of $0.2 million of interest expense on our convertible promissory notes. Other expense of $1.9 million for the year ended December 31, 2020 consisted of a $1.7 million increase in the fair value of our convertible promissory notes and $0.2 million of interest expense on our convertible promissory notes.

Liquidity and Capital Resources

We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of March 31, 2021, we had cash of $70.8 million.

 

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The following table sets forth a summary of the net cash flow activity for each of the periods indicated:

 

     Years Ended December 31,      Three Months Ended
March 31,
 
     2019      2020      2020      2021  
     (in thousands)  

Net cash provided by (used in):

           

Operating activities

   $ (3,828    $ (4,369    $ (876    $ 5,563  

Investing activities

     —          —          —          (153

Financing activities

     4,000        11,524        1,504        57,546  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net increase in cash

   $ 172      $ 7,155      $ 628      $ 62,956  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Activities

Net cash used in operating activities was $0.9 million for the three months ended March 31, 2020 and net cash provided by operating activities was $5.6 million for the three months ended March 31, 2021. The net cash used in operating activities for the three months ended March 31, 2020 was primarily due to our net loss of $1.4 million, adjusted for a $0.5 million noncash change in the fair value of convertible promissory notes, $0.1 million of noncash interest charges and a $0.1 million change in operating assets and liabilities. The net cash provided by operating activities for the three months ended March 31, 2021 was primarily due to our net loss of $2.3 million, adjusted for $0.1 million of noncash stock-based compensation and a $7.7 million change in operating assets and liabilities primarily related to the collection of $8.0 million of accounts receivable related to our collaboration with Merck.

Net cash used in operating activities was $3.8 million and $4.4 million for the years ended December 31, 2019 and 2020, respectively. The net cash used in operating activities for the year ended December 31, 2019 was primarily due to our net loss of $4.0 million, adjusted for $0.2 million of noncash interest charges. The net cash used in operating activities for the year ended December 31, 2020 was primarily due to our net loss of $6.8 million, adjusted for a $1.7 million noncash charge related to an increase in the fair value of convertible promissory notes, $0.2 million of noncash interest charges, $0.1 million of noncash stock-based compensation and a $0.4 million change in operating assets and liabilities.

Investing Activities

Net cash used in investing activities was $0.2 million for the three months ended March 31, 2021 related to the purchase of $0.2 million of property and equipment. We had no cash flows from investing activities for the three months ended March 31, 2020.

Financing Activities

Net cash provided by financing activities of $1.5 million for the three months ended March 31, 2020 reflected net proceeds from the issuance of convertible promissory notes. Net cash provided by financing activities of $57.5 million for the three months ended March 31, 2021, included $56.0 million of proceeds from the issuance of Series A convertible preferred stock, $1.6 million of proceeds from the exercise of stock options and $0.1 million for the payment of offering costs related to our proposed initial public offering.

Net cash provided by financing activities of $4.0 million for the year ended December 31, 2019 reflected the net proceeds from the issuance of convertible promissory notes. Net cash provided by financing activities of $11.5 million for the year ended December 31, 2020 included $9.0 million of net proceeds from the issuance of Series Seed 2 convertible preferred stock, $2.5 million of proceeds from the issuance of convertible promissory notes and $0.1 million of proceeds from the exercise of stock options.

 

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We received gross proceeds of $125.0 million from our Series B preferred stock financing in April 2021.

Funding Requirements

Based on our current operating plan, we believe that our existing cash, together with the estimated net proceeds from this offering, will be sufficient to meet our anticipated cash requirements through at least the next 24 months. In particular, we expect the net proceeds from this offering, along with our existing cash, will allow us to develop our PSMA-TRACTr product candidate, including the ongoing IND-enabling studies and planned Phase 1 trial in mCRPC patients, develop our EGFR-TRACTr product candidate, including the ongoing IND-enabling studies and planned Phase 1 trial in EGFR overexpressing cancer patients, including CRC patients, develop our TROP2-TRACTr program, including the planned IND-enabling studies and planned Phase 1 trial in TROP2 overexpressing cancer patients, including TNBC, UC, and NSCLC patients, and develop our Costimulatory Bispecific program, including the planned IND-enabling studies and planned Phase 1 trial in patients with high PD-L1 expressing tumors. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.

Our future capital requirements will depend on many factors, including:

 

   

the initiation, trial design, progress, timing, costs and results of drug discovery, preclinical studies and clinical trials of our product candidates, and in particular the IND-enabling studies and planned future clinical trials for PSMA-TRACTr, EGFR-TRACTr and TROP2-TRACTr;

 

   

the number and characteristics of clinical programs that we pursue;

 

   

the outcome, timing and costs of seeking FDA, European Medicines Agency (EMA) and any other regulatory approvals for any future drug candidates;

 

   

the costs of manufacturing our product candidates;

 

   

the costs associated with hiring additional personnel and consultants as our preclinical, manufacturing and clinical activities increase;

 

   

the receipt of marketing approval and revenue received from any commercial sales of any of our product candidates, if approved;

 

   

the cost of commercialization activities for any of our product candidates, if approved, including marketing, sales and distribution costs;

 

   

the ability to establish and maintain strategic collaboration, licensing or other arrangements and the financial terms of such agreements;

 

   

the extent to which we in-license or acquire other products and technologies;

 

   

the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

 

   

our implementation of additional internal systems and infrastructure, including operational, financial and management information systems;

 

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our costs associated with expanding our facilities or building out our laboratory space;

 

   

the effects of the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide from the COVID-19 pandemic; and

 

   

the costs of operating as a public company.

Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially grants, collaborations, licenses or other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. 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 our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with third-party contract organizations and vendors for preclinical studies, manufacturing, research supplies and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts not required to be included in a contractual obligations table.

Under our license agreements, we have payment obligations that are contingent upon future events, such as our achievement of specified development, regulatory and commercial milestones, and we are required to make royalty payments in connection with the sales of products developed under those agreements. As of March 31, 2021, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales. For additional details regarding these agreements, see the section of this prospectus titled “Business – License Agreement with WuXi Biologics (Hong Kong) Limited.”

In April 2021, we entered into a cell line license agreement (Cell Line License Agreement) with WuXi Biologics (Hong Kong) Limited (WuXi Biologics), pursuant to which we received a non-exclusive, worldwide, sublicensable license under certain of WuXi Biologics’ patent rights, know-how and biological materials (WuXi Biologics Licensed Technology), to use the WuXi Biologics Licensed Technology to make, use, sell, offer for sale and import certain therapeutic products produced through the use of the cell line licensed by WuXi Biologics under the Cell Line License Agreement (WuXi Biologics Licensed Product). Specifically, the WuXi Biologics Licensed Technology is used to manufacture a component of our PSMA-TRACTr and EGFR-TRACTr product candidates.

In consideration for the license, we agreed to pay WuXi Biologics a non-refundable, one-time license fee of $150,000 upon Wuxi Biologics’ achievement of a certain technical milestone, which has not yet been achieved. Additionally, if we do not engage WuXi Biologics or its affiliates to manufacture the WuXi Biologics Licensed Products for our commercial supplies, we are required to make royalty payments to WuXi Biologics in an amount equal to a low single-digit percentage of specified portions of net sales of WuXi Biologics Licensed Products manufactured by a third party manufacturer. We have the right (but not the obligation) to buy out our remaining royalty obligations with respect to each WuXi Biologics Licensed Product by paying WuXi Biologics a one-time payment in an amount ranging from low single digit million dollars to a maximum of $15.0 million

 

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depending on the development and commercialization stage of the WuXi Biologics Licensed Product (the Buyout Option), and upon such payment, our license with respect to such WuXi Biologics Licensed Product will become fully paid-up, irrevocable, and perpetual. The royalty obligations will remain in effect during the term of the Cell Line License Agreement so long as we have not exercised the Buyout Option.

The Cell Line License Agreement will continue indefinitely unless terminated (i) by us upon three months’ prior written notice and our payment of all amounts due to WuXi Biologics through the effective date of termination, (ii) by either party for the other party’s material breach that remains uncured for 30 days after written notice, and (iii) by WuXi Biologics if we fail to make a payment and such failure continues for 30 days after receiving notice of such failure.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accruals for research and development expenses, stock-based compensation and fair value measurements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 1 to our financial statements included elsewhere in this prospectus, we believe the following accounting policies and estimates to be most critical to the preparation of our financial statements.

Collaboration Revenue

We determined that our collaboration with Merck is a contract with a customer. We recognize revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration we are entitled to receive in exchange for such product or service. To determine revenue recognition for our contracts with customers, we follow a five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the customer obtains control of the product or service.

A customer is a party that has entered into a contract with us, where the purpose of the contract is to obtain a product or a service that is an output of our ordinary activities in exchange for consideration. To be considered a contract, (i) the contract must be approved (in writing, orally, or in accordance with other customary business practices), (ii) each party’s rights regarding the product or the service to be transferred can be identified, (iii) the payment terms for the product or the service to be transferred can be identified, (iv) the contract must have commercial substance (that is, the risk, timing or amount of future cash flows is expected to change as a result of the contract), and (v) it is probable that we will collect substantially all of the consideration to which we are entitled to receive in exchange for the transfer of the product or the service.

A performance obligation is defined as a promise to transfer a product or a service to a customer. We identify each promise to transfer a product or a service (or a bundle of products or services, or a series of products and services that are substantially the same and have the same pattern of transfer) that is distinct. A product or a service is distinct if both (i) the customer can benefit from the product or the service either on its own or together with other resources that are readily available to the customer and (ii) our promise to transfer the product or the service to the customer is separately identifiable from other promises in the contract. Each distinct

 

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promise to transfer a product or a service is a unit of accounting for revenue recognition. If a promise to transfer a product or a service is not separately identifiable from other promises in the contract, such promises should be combined into a single performance obligation.

The transaction price is the amount of consideration we are entitled to receive in exchange for the transfer of control of a product or a service to a customer. To determine the transaction price, we consider the existence of any significant financing component, the effects of any variable elements, noncash considerations and consideration payable to the customer. If a significant financing component exists, the transaction price is adjusted for the time value of money. If an element of variability exists, we must estimate the consideration we expect to receive and use that amount as the basis for recognizing revenue as the product or the service is transferred to the customer. There are two methods for determining the amount of variable consideration: (i) the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts, and (ii) the mostly likely amount method, which identifies the single most likely amount in a range of possible consideration amounts.

If a contract has multiple performance obligations, we allocate the transaction price to each distinct performance obligation in an amount that reflects the consideration we are entitled to receive in exchange for satisfying each distinct performance obligation. For each distinct performance obligation, revenue is recognized when (or as) we transfer control of the product or the service applicable to such performance obligation. To date, for collaboration arrangements that represent a single performance obligation, the revenues are recognized over time based on actual Full Time Equivalent employees (FTEs) utilized as a percentage of total FTEs expected to be utilized over the expected term of the research services.

In those instances where we first receive consideration in advance of satisfying its performance obligation, we classify such consideration as deferred revenue until (or as) we satisfy such performance obligation. In those instances where we first satisfy our performance obligation prior to our receipt of consideration, the consideration is recorded as accounts receivable.

We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would be recognized is one year or less, or if the amount of the asset is immaterial. Otherwise, such costs are capitalized and amortized to research and development expense ratably in conjunction with the underlying revenue recognition. No incremental costs of obtaining a contract have been incurred to date.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments, if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.

We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of

 

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effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Stock-Based Compensation Expense

Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of equity awards using the Black-Scholes option pricing model and recognize forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Note 6 to our financial statements included elsewhere in this prospectus for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted, if any, during 2019 and 2020 and the three months ended March 31, 2020 and 2021. As of March 31, 2021, the unrecognized stock-based compensation expense related to stock options was $5.5 million and is expected to be recognized as expense over a weighted average period of approximately 3.5 years. The intrinsic value of all outstanding stock options as of March 31, 2021 was approximately $28.2 million, based on the assumed initial public offering price of $16.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), of which approximately $1.0 million related to vested options and approximately $27.2 million related to unvested options.

Common stock valuations

We are required to estimate the fair value of the common stock underlying our equity awards when performing fair value calculations. The fair value of the common stock underlying our equity awards was determined on the grant date by our board of directors. All options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. In the absence of a public trading market for our common stock, on each grant date we develop an estimate of the fair value of our common stock in order to determine an exercise price for the option grants.

Our board of directors considered various objective and subjective factors, along with input from management, to determine the fair value of our common stock, including:

 

   

valuations of our common stock performed with the assistance of independent third-party valuation specialists;

 

   

our stage of development and business strategy, including the status of research and development efforts of our platforms, programs and product candidates, and the material risks related to our business and industry;

 

   

our results of operations and financial position, including our levels of available capital resources;

 

   

the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

 

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the lack of marketability of our common stock as a private company;

 

   

the prices of our convertible preferred stock sold to investors in arm’s length transactions and the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;

 

   

the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions;

 

   

trends and developments in our industry; and

 

   

external market conditions affecting the life sciences and biotechnology industry sectors.

In January 2020, our board of directors determined the fair value of our common stock based on the early stage of development of our company. Subsequent to January 2020, our determinations of the fair value of our common stock included valuations prepared by an independent third-party valuation specialist using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately Held Company Equity Securities Issued as Compensation (the Practice Aid).

The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our company’s future operations, discounting to the present value with an appropriate risk adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Each valuation methodology was considered in our valuations.

Subsequent to January 2020 and through December 31, 2020, we estimated the enterprise value of our business using a market approach. In accordance with the Practice Aid, we considered the various methods for allocating the enterprise value across our classes and series of capital stock to determine the fair value of our common stock at each valuation date. Based on our stage of development and other relevant factors, we concluded that the Option Pricing Method (OPM) was most appropriate for the valuation of our common stock performed by an independent third-party valuation specialist. We believed the OPM was the most appropriate given the expectation of various potential liquidity outcomes and the difficulty of selecting and supporting appropriate enterprise values given our early stage of development. Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options. In March 2021, as a result of our Series A preferred stock financing, we updated our market approach to include the back-solve method that assigns an implied enterprise value based on the most recent round of funding or investment and allows for the incorporation of the implied future benefits and risks of the investment decision assigned by an outside investor. In consideration of a potential initial public offering (IPO), we allocated enterprise value using a hybrid method of the probability weighted expected return method (PWERM), whereby the enterprise value in the IPO scenario is allocated to each class of shares using the fully-diluted shares outstanding and whereby the enterprise value in the non-IPO scenario is allocated using an OPM to reflect the full distribution of possible non-IPO outcomes. The hybrid method is useful when certain discrete future outcomes can be predicted, but also accounts for uncertainty regarding the timing or likelihood of specific alternative exit events.

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly

 

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different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different. Following the closing of this offering, our board of directors will determine the fair value of our common stock based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

Other Company Information

Jumpstart Our Business Startups Act

We are an emerging growth company, as defined in the JOBS Act, and we may remain an emerging growth company for up to five years following the closing of this offering. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Recent Accounting Pronouncements

See Note 1 to our financial statements included elsewhere in this prospectus for a description of recent accounting pronouncements applicable to our financial statements.

Off-Balance Sheet Arrangements

During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our cash consists of cash in a readily available checking account. We do not hold any cash equivalents or short-term investments. As a result, the fair value of our portfolio is insensitive to interest rate changes.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and research and development contract costs. We do not believe that inflation had a material effect on our results of operations during the periods presented.

 

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BUSINESS

Overview

We are an innovative biopharmaceutical company developing next-generation therapeutics based on our proprietary Tumor Activated T Cell Engager (TRACTr) platform technology to better treat patients suffering from cancer. Our initial focus is on developing a novel class of T cell engagers (TCEs), and our lead product candidates are designed to target clinically validated drug targets. While TCE therapeutics have displayed potent anti-tumor activity in hematological cancers, developing TCEs to treat solid tumors has faced challenges due to the limitations of prior TCE technologies, namely (i) overactivation of the immune system leading to cytokine release syndrome (CRS), (ii) on-target, healthy tissue toxicities and (iii) poor pharmacokinetics (PK) leading to short half-life. We are using our TRACTr platform technology to engineer product candidates designed to overcome these limitations. We are developing a broad pipeline with lead programs targeting prostate-specific membrane antigen (PSMA), epidermal growth factor receptor (EGFR), and trophoblast cell surface antigen 2 (TROP2), with all of our programs currently in the preclinical or discovery stage. We expect to submit at least two Investigational New Drug application (IND) submissions by the end of 2022. We expect to initially seek regulatory approval for our product candidates as later lines of therapy in patients with cancer. In subsequent preclinical studies and/or clinical trials, we plan to evaluate our product candidates’ potential for use as earlier lines of therapy. Based on data we have generated in non-human primates (NHPs), we believe our TRACTr product candidates have the potential for (i) significantly reduced risk of toxic CRS responses, (ii) reduced risk of on-target, healthy tissue toxicities, and (iii) improved half-life with once-weekly dosing in humans.

The promise of TCE technologies and their current limitations

TCEs are an emerging class of immunotherapies that bridge a tumor cell and a T cell to activate and redirect T cells to attack and eliminate tumors. TCEs have demonstrated promising anti-tumor activity in early clinical trials and in multiple animal models that rivals that of chimeric antigen receptor T cell (CAR T cell) therapies, with the distinct advantage that they are not cell therapies and have the potential to be offered as readily available, off-the-shelf therapies, which would avoid the lengthy, complicated and expensive manufacturing process required for approved autologous CAR T cell therapies. One TCE, blinatumomab, marketed by Amgen as BLINCYTO, has been approved by the U.S. Food and Drug Administration (FDA) and, like the FDA-approved CAR T cell therapies, has been limited to hematological malignancies.

Three properties of existing TCEs have limited their potential to treat solid tumors:

 

   

Cytokine release syndrome (CRS). CRS arises from the systemic activation of T cells and can result in life-threatening elevations in inflammatory cytokines such as interleukin-6 (IL-6). Severe and acute CRS leading to dose-limiting toxicities and deaths has been observed upon the dosing of TCEs developed using other platforms to treat cancer patients in prior clinical studies. This toxicity severely restricts the maximum blood levels of TCEs that can be safely dosed.

 

   

On-target, healthy tissue toxicity. On-target, healthy tissue toxicity, arising from expression of the tumor target in healthy tissue and scarcity of highly tumor-selective antigens, is another limitation hindering the development of TCEs to treat solid tumor cancers. TCEs developed using other platforms not designed for tumor-specific activation have resulted in clinical holds and dose-limiting toxicities resulting from target expression in healthy tissues.

 

   

Short half-lives. TCEs quickly reach sub-therapeutic levels after being administered as they are quickly eliminated from the body due to their short exposure half-lives. For this reason, TCEs such as blinatumomab (BLINCYTO) are typically administered by a low-dose, continuous infusion pump over a period of weeks to overcome the challenge of a short half-life and to maintain therapeutic levels of the drug in the body. This continuous infusion dosing regimen represents a significant burden for patients.

 

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Our TRACTr platform technology

We believe our proprietary TRACTr platform technology offers the potential to expand the breadth of patients that can be treated with TCEs while reducing the risk of life-threatening toxicities. Each of our proprietary TRACTrs is comprised of an antigen-binding domain, a T cell binding domain, domain-optimized peptide masks, an albumin binding domain, and cleavable peptide linkers. The mask is a peptide designed to bind to the tumor or T cell binding domain and inhibit the binding domain’s interaction with its target thereby inhibiting the activation of T cells. The antigen and T cell binding domains in our TRACTr product candidates may be covalently attached to peptide masks that block binding and activity until they are removed. We use proprietary peptide linker sequences composed of tumor protease recognition sites to attach these masks to the antigen binding domains in a way that is designed to make the masks highly sensitive to removal by tumor proteases but highly stable in the absence of these proteases. In addition, we attach an albumin binding domain to one mask, which is designed to extend the half-life of our TRACTr product candidates until they become activated inside a tumor.

While our TRACTr platform technology is novel and unproven and our product candidates remain in the preclinical or discovery stage, our technology is designed to offer the following features for the discovery and development of novel therapies for the treatment of solid tumors:

 

   

Potential to reduce CRS and on-target, healthy tissue toxicity risk. By engineering our TRACTrs with novel peptide masks that are designed to be selectively activated in the tumor microenvironment, and designed for any activated TCEs to be rapidly cleared from healthy tissue upon escaping from the tumor, our product candidates have the potential to overcome the toxicity challenges of TCEs and systemic immunotherapies in general.

 

   

Potential for extended half-life of our TRACTrs. We designed our TRACTrs with an albumin binding domain to be stable in the bloodstream and to have a long serum half-life before activation. Our TRACTrs have demonstrated long half-lives in NHPs, which we believe translates to the potential for once-weekly dosing in humans. This is in contrast to first-generation TCEs that are rapidly cleared and require high frequency or continuous dosing.

 

   

Potential for activity at low levels of target expression. Our TRACTrs are designed to be active at low levels of tumor target expression where other treatment modalities lose efficacy. In preclinical studies, our TRACTrs did not require high levels of tumor target expression to activate T cells to kill cancer cells.

 

   

Modularity. Our TRACTr platform technology’s modular characteristics enable us to leverage the learnings from the development of our product candidates to progress the discovery process of new TRACTr candidates against a wide variety of targets.

 

   

Manufacturability. The production, development, and manufacturing processes of our TRACTr molecules closely resemble those used for monoclonal antibodies with the potential for a relatively lower cost of goods.

 

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A schematic of our proprietary TRACTrs in development and their modular components is depicted below.

 

 

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Our lead programs

Our lead TRACTr product candidates are designed to target PSMA, EGFR, and TROP2. Each of these tumor targets are clinically validated and implicated in solid tumors with high prevalence, including metastatic castrate-resistant prostate cancer (mCRPC), colorectal cancer (CRC), squamous cell carcinoma of the head and neck (SCCHN), triple-negative breast cancer (TNBC), urothelial cancer (UC), and non-small cell lung cancer (NSCLC). We anticipate submitting INDs for at least two of these product candidates by the end of 2022. We are also applying our proprietary technology to develop a Tumor Activated Immunomodulator (TRACIr) costimulatory bispecific product candidate against programmed death-ligand 1 (PD-L1) and CD28 designed to further enhance the anti-tumor activity of T cells, which we believe has the potential to be used as a single-agent or in combination with our current TRACTr pipeline. Our pipeline is summarized below:

 

 

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In addition to our wholly-owned pipeline programs, we have a strategic research collaboration with Merck Sharp & Dohme Corp. to develop TRACTr product candidates directed against two cancer targets selected by Merck.

 

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Our TRACTr Programs

We are building a broad portfolio of TRACTr programs led by our PSMA, EGFR, and TROP2 targeted TRACTrs.

Our PSMA-TRACTr

Our PSMA-TRACTr is designed to target PSMA, a protein expressed in prostate cancer tumors and the vasculature of other tumors. Prostate cancer is the second most common cancer in men, leading to over 33,000 deaths in the United States in 2020. PSMA is known to be highly expressed in prostate cancer which has led to the development of PSMA-targeted biologics, including TCEs. A third-party clinical trial with a continuously infused PSMA-TCE demonstrated clinical benefit, suggesting the potential of a PSMA-TCE approach. Given the challenges of continuous infusion, other companies are developing TCEs that enable once-weekly dosing. However, clinical trial results have shown dose-limiting CRS toxicities as single agents, highlighting the limitations of traditional TCEs. Efforts to mitigate CRS include combining TCEs with the immunosuppressive agent dexamethasone and/or lower sub-efficacious initial priming doses followed by efficacious doses. These strategies have the potential to either reduce the efficacy of the TCE or to introduce other problems in patients who frequently have multiple pre-existing comorbidities. Our PSMA-TRACTr is designed to generate potent anti-tumor activity in mCRPC patients, by enabling the delivery of higher concentrations of active drug to tumors than traditional TCEs. We believe that our PSMA-TRACTr product candidate has the potential to deliver therapeutic benefits to patients while minimizing serious adverse events (SAEs), including the prevention of dose-limiting CRS. We plan to submit an IND for our PSMA-TRACTr product candidate in the first half of 2022.

Our EGFR-TRACTr

Our EGFR-TRACTr is designed to target EGFR, a well-validated target that is overexpressed in many cancer types with multiple approved monoclonal antibodies (mAbs), including ERBITUX, marketed by Eli Lilly and Merck KGaA, for the treatment of CRC and SCCHN, and VECTIBIX, marketed by Amgen and Takeda, for the treatment of CRC. Beyond CRC and SCCHN, the below figure describes cancers where EGFR may be overexpressed and where there are approved EGFR-directed therapeutics, illustrating the significant unmet medical need for the majority of these patient populations where there are no approved, EGFR-directed treatment options.

 

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Figure 1. Common cancers where EGFR may be overexpressed and where EGFR-directed therapeutics, including tyrosine kinase inhibitors (TKIs) and monoclonal antibodies (mAbs) are already approved

 

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Colorectal cancer represents one tumor type for which EGFR is overexpressed, but approximately 85 percent of patients do not respond to anti-EGFR mAbs and, of those that do, resistance often develops. We believe that EGFR-directed immunotherapies, including TCEs, have the potential to address this high unmet need. Our EGFR-TRACTr is designed to generate potent anti-tumor activity, initially in CRC patients, by enabling the delivery of higher concentrations of active drug to tumors than traditional TCEs. We believe that our EGFR-TRACTr product candidate has the potential to deliver therapeutic benefits to patients while minimizing SAEs, including the prevention of dose-limiting CRS. We selected a development candidate for our EGFR-TRACTr product candidate in the second quarter of 2021, and we plan to submit an IND in the second half of 2022.

Our TROP2-TRACTr

Our TROP2-TRACTr is designed to target TROP2, a clinically validated anti-tumor target for which there is a recently approved anti-TROP2 antibody-drug conjugate (ADC), sacituzumab govitecan, marketed as TRODELVY by Gilead. TRODELVY has been approved to treat metastatic TNBC and UC. Early clinical proof-of-concept has also been demonstrated in NSCLC and several other solid tumor indications potentially targetable by TROP2, including hormone receptor-positive (HR+)/HER2 breast cancer, small cell lung cancer (SCLC), gastric cancer, esophageal cancer, head and neck cancer, prostate cancer and endometrial cancer. However, these ADCs are also associated with significant toxicities that limit dosing. Our TROP2-TRACTr is designed to generate potent anti-tumor activity, initially in TNBC patients, by enabling the delivery of higher concentrations of active drug to tumors than traditional TCEs. We believe that our TROP2-TRACTr has the potential to deliver therapeutic benefits to patients while minimizing SAEs, including the prevention of dose-limiting CRS. We believe that our TROP2-TRACTr has the potential to deliver the potent anti-tumor activity of a TCE to patients who have tumors that overexpress TROP2 while also providing increased safety and dosing convenience. We plan to submit an IND for our TROP2-TRACTr in 2023.

Our PD-L1xCD28 costimulatory bispecific

We are also applying our technology to develop a TRACIr, with our first program being a tumor-activated PD-L1xCD28 T cell costimulatory bispecific. This program is designed to amplify existing T cell anti-tumor responses as well as TRACTr activity through a dual mechanism of (i) blocking tumor-expressed

 

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immunosuppressive signaling and (ii) activating T cell costimulatory signaling. Our bispecific molecule is designed to bind to immunosuppressive PD-L1 on tumor cells as well as to the CD28 costimulatory receptor on T cells. We believe that our technology’s potential to convert the checkpoint inhibitory signal into an immune system activation signal via costimulation could stimulate further anticancer activity. Like current checkpoint inhibitors, we believe our costimulatory program could be combined with a variety of classes of therapeutics, including chemotherapeutics as well as other immunotherapies. We have shown that the use of this bispecific led to potent T cell-directed tumor cell killing in cell assays in which a checkpoint inhibitor was ineffective. In addition, our costimulatory program enhanced the potency of tumor cell killing when combined with a TCE. We anticipate selecting a development candidate in 2022.

Our Research Collaboration with Merck Sharp & Dohme Corp.

In December 2020, we entered into a research collaboration and exclusive license agreement with Merck to develop TRACTr product candidates that are distinct from those in our internally developed pipeline. Merck has the right to select up to two collaboration targets related to next generation TCE immunotherapies for the treatment of cancer. Merck will receive an exclusive worldwide license for each selected target and intellectual property from the collaboration. In return, we are eligible to receive up to $500.5 million per target in upfront and milestone payments, plus royalties on sales of the products derived from the collaboration. Merck will provide research funding under the collaboration.

We plan to selectively consider other strategic collaboration opportunities in the future.

Our Team and Investors

Our team has deep experience in oncology drug development and protein engineering. We are led by David Campbell, Ph.D., our founder, President and CEO, who has more than 25 years of experience in executive management and served as CSO or CEO of multiple drug discovery and development companies that have created numerous clinical programs and partnerships with large pharma. These include Sitari Pharmaceuticals (acquired by GlaxoSmithKline), Afraxis (partnered with Genentech), and RQx (partnered with Genentech). Neil Gibson, Ph.D., our Head of Oncology, has over 25 years of drug development experience, including serving as Senior Vice President at BioAtla, CSO at Regulus Therapeutics, CSO and Oncology Therapeutic Area Head at Pfizer Oncology, and CSO at OSI Pharmaceuticals. Neil was involved in the discovery, development, and commercialization of several oncology drugs, including temozolomide, sorafenib, erlotinib, and crizotinib. Tommy Diraimondo, Ph.D., our Director of Research, was the co-founder of Sitari Pharmaceuticals (acquired by GlaxoSmithKline). Charles Winter, SVP of CMC, has more than 25 years of bioprocess experience, having served in CMC leadership roles at Genentech, Gilead, Denali Therapeutics, AnaptysBio, and Synthorx (acquired by Sanofi). At these companies, Charles played key roles in bringing more than 20 molecules into clinical development and six to market, including Avastin, Herceptin, Rituxan, and Xolair. Wayne Godfrey, M.D., our CMO, has more than 22 years of experience in clinical development and research, including serving as Vice President Clinical Development at IGM Biosciences, Inc., Senior Director, Clinical Development at Kite Pharma, Inc., CMO at Etubics Corporation and Senior Director, Clinical Research Oncology at Gilead Sciences.

Since our inception in 2017, we have raised an aggregate of $201 million from leading investors that include, among others, Avalon Ventures, Bregua, Correlation Ventures, OrbiMed and RA Capital Management.

Our Strategy

Our goal is to unleash the potential of our TRACTr platform technology to transform the lives of cancer patients. To achieve this goal, key elements of our strategy include the following:

 

   

Advance our lead TRACTr programs through clinical development. We intend to submit INDs for our PSMA-TRACTr in the first half of 2022, EGFR-TRACTr in the second half of 2022, and TROP2-TRACTr in 2023, in each instance with the goal of initiating a Phase 1 clinical trial soon after. We believe that our programs have the potential to transform the treatment of metastatic diseases such as mCRPC, CRC, NSCLC, TNBC, UC, SCCHN and a wide range of other tumor types that overexpress PSMA, EGFR or TROP2, which are clinically validated targets.

 

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Broaden our portfolio of TRACTr product candidates. Our TRACTr platform technology’s modular characteristics enable us to leverage the learnings from the development of our product candidates to progress the discovery process of new TRACTr candidates against a wide variety of targets. For our first three programs, once an antibody was identified, we were able to develop a masked tumor binding domain in less than six months to begin evaluating TRACTr development candidates. We are actively pursuing the development of additional TRACTr programs against several other clinically validated targets.

 

   

Expand our internal pipeline into logical classes of therapeutics beyond TCEs. Our tumor-activated masking and bispecific molecule design enables more molecular phenotypes than classic CD3 targeted TCEs. For example, our TRACTr platform technology allows the masking and tumor activation of different T cell therapy modalities, including costimulation via CD28 engagement of a PD-L1/CD28 bispecific molecule, and so we are developing a masked, half-life-extended T cell PD-L1/CD28 bispecific product candidate. We are also applying our TRACTr platform technology to create molecules designed to attract, redirect, or mobilize different types of immune cells to tumor sites that exclude or lack resident immune cells.

 

   

Selectively evaluate opportunities to maximize the potential of our programs in partnership with leading biopharmaceutical companies. We plan to selectively evaluate potential opportunities on a program-by-program basis with biopharmaceutical companies whose research, development, and/or geographic capabilities complement our own with the goal to help mitigate clinical and commercial risk and/or maximize global commercial potential.

T cell engagers as novel therapeutics to overcome the limitations of current immunotherapies

Background

Immunotherapy has ushered in a new era of cancer treatment with unprecedented responses in many tumor types. Unleashing the power of the immune system on cancer cells has been one of the most promising new advancements in a field long dominated by suboptimal approaches such as chemotherapy. One class of immunotherapy, checkpoint inhibitors, has generated encouraging efficacy results and accordingly represents the standard of care in selected tumor types. One subset of checkpoint inhibitors, PD-(L)1 inhibitors, achieved over $19 billion in global sales in 2019. However, despite this clinical benefit for a subset of patients, it is estimated that less than 13 percent of all cancer patients in the United States respond to checkpoint inhibitors. Tumors have evolved to evade and dampen tumor immune surveillance. Consequently, new classes of immunotherapy designed to overcome the various immune-evasion mechanisms that tumors employ have emerged.

TCEs are immunotherapies that bridge tumor-fighting T cells and tumors in a way that overcomes this challenge. TCEs are biologics that are bivalent; that is, they have the capability to bind to two different cell surface targets. By selecting one target on a tumor cell and another on a T cell, the TCE bridges these two cell types to trigger tumor cell killing by the T cell. TCEs can be mass-produced and made available as off-the-shelf therapies. Furthermore, TCEs, as biologics, have pharmacologic properties that allow control of the amount of active drug in the body at any one time. The doses that are delivered can be titrated, and the pharmacokinetics generally follow those of other biologics.

Other approaches to immunotherapy, like cell therapies, such as CAR T cell therapy, are also emerging. We believe the unique characteristics of TCEs render them an attractive immunotherapy alternative to these approaches. While cell therapies have displayed efficacy in treating cancer, these treatments have also led to morbidity and mortality resulting from toxicity. Cell therapies also typically require complex and costly manufacturing strategies, making them unsuitable for a number of aggressive tumors and advanced disease patients. They are largely confined to treatment for hematological malignancies, and CAR T cell therapies have not to date been successfully developed for any solid tumor.

 

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While we believe that TCEs hold promise in treating solid tumors, three properties of TCEs derived from other platforms have limited their potential:

 

   

Cytokine release syndrome (CRS). CRS arises from the systemic activation of T cells and can result in life-threatening elevations in inflammatory cytokines such as IL-6. Severe and acute CRS leading to dose-limiting toxicities and deaths has been observed upon the dosing of TCEs developed using other platforms to treat cancer patients in prior clinical studies. This toxicity severely restricts the maximum blood levels of TCEs that can be safely dosed.

 

   

On-target, healthy tissue toxicity. On-target, healthy tissue toxicity, arising from the expression of the tumor target in healthy tissue and scarcity of highly tumor-selective antigens, is another limitation hindering the development of TCEs to treat solid tumor cancers. TCEs developed using other platforms not designed for tumor-specific activation have resulted in clinical holds and dose-limiting toxicities resulting from target expression in healthy tissues.

 

   

Short half-lives. TCEs quickly reach sub-therapeutic levels after being administered as they are quickly eliminated from the body due to their short exposure half-lives. For this reason, TCEs such as blinatumomab (BLINCYTO) are typically administered by a low-dose, continuous infusion pump for weeks to overcome the challenge of a short half-life and to maintain therapeutic levels of the drug in the body. This continuous infusion dosing regimen represents a significant burden for patients.

Next generation approaches to overcome the challenges of conventional TCEs

First-generation immuno-oncology drugs have an increased risk of systemic toxicity due to the active drug circulating throughout the body. Second generation immuno oncology drugs, such as protease-activated antibodies, have attempted to limit systemic toxicities by being administered in an inactive form and only activated upon exposure to tumor proteases within the tumor microenvironment. However, once these activated drugs leave the tumor, they circulate throughout the body and can accumulate over time, leading to on-target, healthy tissue toxicity in target-expressing tissues. Several product candidates have been developed that take advantage of tumor-associated proteases to activate potent drugs in tumors. These include prodrugs such as leucine-doxorubicin prodrug and masked antibodies such as Probodies being developed by CytomX. In initial clinical trials, CytomX has demonstrated clinical benefit in patients as well as mechanistic proof-of-concept for this masked antibody approach, with 83 percent of the patients having enough tumor protease activity to achieve clinically relevant levels of unmasked antibodies in the tumor. However, an unwanted consequence of CytomX’s approach is that the relatively long half-lives of its drugs in active form led to their accumulation in healthy tissue throughout treatment.

We are developing our TRACTr platform to address the limitations of previous generations of immuno-oncology drugs and to restrict TCE activity to tumors. Our TRACTr TCEs are designed to be activated by tumor-specific proteases, but upon activation, be converted to a form that has a short half-life, with the goal of rapidly eliminating them from the body should they re-enter the circulatory system. A representation of the pharmacokinetic design of first and second generation TCEs and our TRACTrs is shown in the figure below.

 

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Figure 2. Our TRACTr platform technology is designed to limit the activity of our therapies to tumor sites, reducing the risk of on-target, healthy tissue toxicity

 

 

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Our TRACTr Platform Technology

Our TRACTr platform technology is designed to offer the following features for the discovery and development of novel therapies for the treatment of solid tumors:

 

   

Potential to reduce CRS and on-target, healthy tissue toxicity risk. By engineering our TRACTrs with novel peptide masks that are designed to be selectively activated in the tumor microenvironment, and designed for any activated TCEs to be rapidly cleared from healthy tissue upon escaping from the tumor, our product candidates have the potential to overcome the toxicity challenges of TCEs and systemic immunotherapies in general.

 

   

Potential for extended half-life of our TRACTrs. We designed our TRACTrs with an albumin binding domain to be stable in the bloodstream and to have a long serum half-life before activation. Our TRACTrs have demonstrated long half-lives in NHPs, which we believe translates to the potential for once-weekly dosing in humans. This is in contrast to first-generation TCEs that are rapidly cleared and require high frequency or continuous dosing.

 

   

Potential for activity at low levels of target expression. Our TRACTrs are designed to be active at low levels of tumor target expression where other treatment modalities lose efficacy. In preclinical studies, our TRACTrs did not require high levels of tumor target expression to activate T cells to kill cancer cells.

 

   

Modularity. Our TRACTr platform technology’s modular characteristics enable us to leverage the learnings from the development of our product candidates to progress the discovery process of new TRACTr candidates against a wide variety of targets.

 

   

Manufacturability. The production, development, and manufacturing processes of our TRACTr molecules closely resemble those used for monoclonal antibodies with the potential for a relatively lower cost of goods.

TRACTr design and structure

Our TRACTr product candidates are biologics comprised of multiple domains that have been designed to serve specific functions but engineered to function as a single unit. At their core, our TRACTr product

 

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candidates are TCEs that couple a tumor antigen binding domain to a T cell-specific antigen binding domain. Masks cover both binding sites and block activity while our TRACTr product candidate is in circulation and exposed to healthy tissues. We use proprietary peptide linker sequences composed of tumor protease recognition sites to attach these masks to the antigen binding domains in a way that is designed to make the masks highly sensitive to release by tumor proteases. This release exposes both the tumor binding domain and the T cell antigen binding domains to generate a fully activated TCE. This is designed to enable our TRACTr product candidate to bridge the T cells and tumor cells into close proximity and to enable T cell mediated killing of tumor cells.

Our TRACTr product candidates also have a proprietary albumin binding domain that is designed to increase their half-life in serum. This proprietary domain is designed to bind albumin and, by doing so, prevent the rapid degradation and elimination of TRACTr product candidates. In contrast, blinatumomab, a TCE that lacks an albumin binding domain, has a very short half-life in serum and is administered through continuous infusion for 28 days per treatment cycle, with hospitalization recommended for up to the first nine days.

Our TRACTrs are designed to limit binding to their targets in healthy cells. When our TRACTr product candidates are in the non-activated state, they are designed not to activate T cells before they reach the tumor. Upon exposure to tumor proteases, the linkers are designed to be cleaved, and the masks and albumin binding domains are designed to be released to generate a fully active TCE. This is designed to enable tumor-specific T cell activation and tumor cell killing while priming the activated TCE for rapid elimination should it leave the tumor and re-enter circulation. We believe that our TRACTr platform technology’s design to restrict T cell activation specifically to tumor sites provides the opportunity to generate TCEs with broader therapeutic windows. We summarize our TRACTr structure, activation mechanism in tumor tissue, and rapid elimination from healthy tissue once activated below.

 

 

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Our TRACTr development process

We have developed robust processes to select specific sequences for each of these components in a TRACTr both for their individual properties and for their ability to contribute to the desired properties of our fully assembled product candidates.

 

   

Antigen binding domains. Our initial product candidates are based on antigen binding domains, which have been incorporated into other products associated with clinical activity. As we expand our pipeline, we are developing proprietary antigen binding domains against novel targets.

 

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Geometry connecting the antigen binding domains. The orientation of a tumor-specific and a T cell specific antigen binding domain is central to creating a TCE with optimal T cell activation. We have found that the orientation between the two antigen binding domains profoundly affected activity in preclinical studies. For example, we constructed two PSMA TCEs with identical binding domains but of different geometry, where their potency in T cell-directed, PSMA-specific tumor cell killing differed by over 900-fold, as shown in the figure below.

Figure 3. The orientation of the two antigen binding domains in a PSMA-TCE led to an over 900-fold difference in potency in preclinical studies (top), and the configurations of these two TCEs, VH and VL (bottom)

 

 

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Mask Discovery. Each mask sequence is designed to be optimized for a specific antigen-binding domain through an iterative process of phage display and quantitative binding assays designed to select for those masks that are able to prevent binding to the target antigen. We use a directed evolution-based process using proprietary phage libraries. We go through multiple cycles of selection and amplification of potential inhibitory peptides that are capable of blocking the antigen-binding domain from binding to its target with the goal of optimizing masked TCE stability in serum and limiting cleavage to the TME, thereby reducing toxicity. We depict our mask discovery process in the figure below.

Figure 4. Using directed evolution and phage display technology, we identify potential mask sequences that are designed to completely block antigen recognition by our antigen binding domains

 

 

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Single versus dual masks. Our technology allows us to develop product candidates with either one or both antigen binding domains masked depending on the tumor target’s profile. For tumor targets with minimal healthy tissue expression or toxicity concerns, we develop single mask TRACTrs designed to block the T cell binding domain to prevent non-tumor-specific activation of T cells that contributes to CRS. For targets with high/broad healthy tissue expression or toxicity concerns we develop dual mask TRACTrs designed to mask both domains to minimize the risk of healthy tissue toxicity and CRS. We depict the single and dual mask TRACTr structures in the figure below.

Figure 5. We design both single and dual masked TRACTr product candidates based on the healthy tissue expression levels of the tumor-targeted antigen and the risk of healthy tissue toxicity

 

 

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Cleavage linker. We optimized the selection of cleavage linkers by a process that involved the identification of the predominant proteases in solid tumors and mining databases for potential substrates of these proteases. We then screened peptide sequences for their sensitivity to cleavage by these proteases. We specifically identified potential cleavage linker sequences that were rapidly cleaved by a tumor-specific protease to potentially improve anti-tumor TRACTr activities, yet remain stable in human, NHP and mouse serum to limit non-tumor activation. We have identified

 

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several proprietary cleavable linkers that we utilize to seek to optimize efficacy and stability in our TRACTrs as shown in the schematic below.

 

 

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Albumin binding domain. We developed our proprietary albumin binding domain derived from a llama antibody which was optimized for its ability to bind to albumin from both humans and NHPs, the primary preclinical species in which we conduct our in vivo experiments due to the similarity in target sequences and immune function with humans. Our albumin binding domain has a nearly identical binding affinity to albumin from these two species, as shown in the figure below.

Figure 6. Our proprietary albumin binding domain had potent binding to both NHP and human albumin

 

 

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Development viability. Once we have identified the key components for any product candidate, we assemble them and modify the assembled construct using standard techniques to make it more human-like. We then assess its feasibility for development. We are primarily concerned with the following attributes of a potential product candidate:

 

   

Manufacturability using standard mammalian cell expression systems;

 

   

Drug-like properties such as solubility, thermal stability, and stability in human serum; and

 

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Optimal performance with efficient linker cleavage, mask removal, antigen-binding, albumin binding, and functional activity.

Our extensive library of masks and linkers combined with our protein engineering expertise provides us with the ability to generate product candidates that meet the high standards that we have set for therapeutic candidates that we believe have the potential to have clinical activity across a broad spectrum of indications.

Initial proof of technology study

To demonstrate proof of concept for TRACTrs, we tested a TRACTr and a first-generation TCE that both targeted EGFR using identical antigen binding domains. We assessed the risk of developing CRS by dosing both agents in non-human primates (NHPs), a species that was chosen because of the similarity in antigen binding affinities in these NHPs compared to humans, and demonstration that an EGFR bi-specific T cell engager (EGFR-BiTE, or EGFR-TCE) triggered significant CRS and healthy tissue toxicity up to and including death.

Our EGFR-TRACTr included an albumin binding domain intended to increase its half-life in serum in order to extend the interval between dosing, while simultaneously utilizing the protease-mediated cleavage of the linker to remove the domain once our TRACTr was activated. In NHPs, our EGFR-TRACTr was found to have a half-life of over 100 hours compared to approximately one hour for the corresponding EGFR-TCE, as demonstrated below. We believe that this half-life is consistent with the potential for once-weekly dosing in humans. Furthermore, we believe the rapid elimination of the unmasked TCE minimizes the risk of TCE-induced CRS due to short circulation time in serum.

Figure 7. Our EGFR-TRACTr was shown to have an extended half-life in NHPs compared to a corresponding TCE while the unmasked form was rapidly eliminated

 

 

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In this same study, a dose of 3mg/kg and 10mg/kg of the EGFR-TCE resulted in the release of high levels of the inflammatory cytokine IL-6, while 600mg/kg of our EGFR-TRACTr reduced those levels to less than 500pg/ml, which is shown below even though the plasma levels were substantially higher with the TRACTr compared to the TCE. Published studies have shown median IL-6 levels of 122pg/ml in patients with Grade 0-3 CRS and 8,300pg/ml in patients with Grade 4-5 CRS. A similar reduction in the other inflammatory cytokines measured was observed with our TRACTr compared to the EGFR-TCE.

Figure 8. Our EGFR-TRACTr did not lead to CRS in NHPs even at high doses. Inflammatory cytokines evaluated in this study included IL-6, tumor necrosis factor alpha (TNFa), interferon gamma (IFNg), and interleukin-2 (IL-2). TNFa, IFNg, and IL-2 were all below the quantification limit (BQL)

 

 

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The lack of induction of inflammatory cytokines in NHPs associated with CRS in humans is consistent with the potential for the peptide masks to prevent antigen binding and thereby T cell activation. In these studies, the EGFR-TRACTr maximum tolerated dose (MTD) was higher than 600mg/kg due to a lack of CRS, lack of safety observations, and lack of healthy tissue toxicity. In contrast, a published study using a constant infusion of an EGFR-TCE observed an MTD of 30pM plasma levels and 300pM lethal dose plasma levels, where significant liver and kidney toxicities were reported. In similar models, our TRACTr dosed at 600mg/kg had no signs of toxicity and a Cmax of 360nM, further suggesting the potential for improvement in safety via masking.

In a separate study in a mouse model of human colorectal cancer using human HCT116 tumor cells and human immune cells, our EGFR-TRACTr displayed potent anti-tumor activity. As shown in the figure below, our EGFR-TRACTr dosed for 10 days at 1.5mg/kg led to significant tumor shrinkage, which was roughly equivalent to that observed with 0.5mg/kg of the EGFR-TCE.

 

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With the observation of reduced CRS risk for our EGFR-TRACTr relative to the EGFR-TCE (at a substantially lower dose than the TRACTr) in our NHP study, and the observation of comparable anti-tumor activity of our EGFR-TRACTr and the EGFR-TCE (at one third of the dose of the our TRACTr) in our mouse model of human CRC, we believe our EGFR-TRACTr may offer reduced CRS risk relative to the EGFR-TCE when dosed at levels expected to result in anti-tumor activity in humans.

Figure 9. Our EGFR-TRACTr led to significant tumor shrinkage in an HCT116 mouse tumor model

 

 

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Our Lead Programs

Our lead TRACTr product candidates are designed to target PSMA, EGFR, and TROP2. Each of these tumor targets is clinically validated and implicated in solid tumors with high prevalence, including mCRPC, CRC, TNBC, and NSCLC. While our product candidates remain in the preclinical or discovery stage and are based on novel technologies, we anticipate submitting INDs for at least two of these product candidates by the end of 2022. We are also applying our proprietary technology to develop a TRACIr costimulatory bispecific product candidate designed to further enhance the anti-tumor activity of T cells, which we believe has potential to be used as a single-agent or in combination with our current TRACTr pipeline. Our pipeline is summarized below:

 

 

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Our PSMA-TRACTr for the treatment of mCRPC

We are developing our PSMA-TRACTr product candidate for the treatment of mCRPC. In a preclinical study, PSMA-TRACTr showed a 500-fold reduced ability to induce T cell mediated killing of prostate cancer cells when masked compared to when unmasked. In addition, we found that our PSMA-TRACTr was well-tolerated in NHPs, substantially reduced cytokine release relative to the unmasked TCE, and had a prolonged half-life. We plan to submit an IND for our PSMA-TRACTr product candidate in the first half of 2022.

Prostate cancer overview

Prostate cancer is the second most common cancer in men worldwide. Over 3 million men are living with prostate cancer in the United States alone. Approximately 12 percent of men will be diagnosed with prostate cancer at some point during their lifetime. In 2020, there were an estimated 190,000 new prostate cancer diagnoses in the United States, which represents over ten percent of all new cancer diagnoses. Early diagnoses and effective therapies mean that most prostate cancer patients have a prognosis with a mean five-year survival rate of approximately 98 percent. However, an estimated six percent of prostate cancer patients develop metastatic disease, which is associated with a five-year survival rate of approximately 30 percent. There were an estimated 33,000 deaths in the United States due to prostate cancer in 2020.

Treatment options for prostate cancer

Patients diagnosed with localized, low-risk disease may be followed by active surveillance or treated by prostatectomy or radiation therapy. Patients with more advanced disease may undergo more aggressive surgical interventions and androgen deprivation therapy (ADT). Androgens, including testosterone and dihydrotestosterone, activate androgen receptor-dependent gene transcription, which drives the growth of prostate cancer cells. ADT blocks testicular production of testosterone, otherwise known as chemical castration, and is administered for those patients who present initially with regional or advanced disease at diagnosis or develop advanced disease at recurrence. Up to twenty percent of ADT-treated patients develop castration-resistant prostate cancer (CRPC). There are no standard therapies for these patients with treatment options ranging from cytotoxic chemotherapy to immunotherapies, including checkpoint inhibitors and sipuleucel-T, an autologous cell therapy developed as Provenge by Dendreon. The overall survival of patients with mCRPC in two Phase 3 trials was just 25.8 months versus 21.7 months for control patients, highlighting the need for more effective therapies.

PSMA is a validated prostate cancer antigen

PSMA is a prostate-specific transmembrane protein expressed at a 100-fold to 1,000-fold higher level in prostate adenocarcinoma than in the benign prostate. Of importance, PSMA expression is (i) increased when patients are on ADT and (ii) highest in high-grade and mCRPC. Over half of prostate cancer patients treated with radical prostatectomy with high levels of PSMA are likely to have recurrent disease, at a rate that is twice that of patients observed with low levels of PSMA. PSMA is the target of FDA-approved imaging agent, ProstaScint, TCEs, radioisotopes and ADCs in development.

Clinical results published in the journal Immunotherapy in 2020 from a Phase 1 trial of pasotuxizumab, a PSMA-targeted TCE, highlight both the potential of targeting mCRPC with a PSMA-targeted TCE and the limitations of current approaches. Patients in this trial were initially treated with daily subcutaneous injections, but anti-drug antibodies (ADAs) developed in all treated patients, likely due to the high doses that were administered. These high doses of the drug, which has a very short half-life, were required to achieve sufficient drug exposure to the tumor. The trial was then amended so that clinicians could dose patients using continuous intravenous infusion. Prostate-specific antigen (PSA) levels are a validated measure of disease severity in prostate cancer patients. In the intravenous group, a dose-dependent reduction in serum PSA levels was observed, achieving a median best PSA change from baseline of approximately 55 percent in the high dose group. The

 

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percentage of patients with PSA reduction of greater than 50 percent in the top three groups was 33 percent. Two patients had long-term PSA responses, one patient had long-term stable disease with 337 days to tumor progression, and one patient had near-complete regression of lymph node lesions and bone metastases, with 500 days to disease progression. One of the patients who had initially presented with extensive metastatic disease had a reduction in PSA of greater than 96 percent. Within 43 days of treatment, the extent of PSMA-expressing tumor was significantly reduced. By day 85, there was negligible evidence of tumor remaining. While no on-target healthy tissue toxicity was reported, treatment-emergent increases in alanine aminotransferase and aspartate aminotransferase did occur, and over half of patients in this trial developed Grade 3 or Grade 4 drug-related SAEs. Three patients dosed with continuous infusion developed CRS; two were Grade 2 and one was Grade 3.

We believe that our TRACTr platform technology can be used to create a PSMA-TCE with the potential to build upon the preliminary signs of anti-tumor activity observed with pasotuxizumab through improved pharmacokinetics and reduced risk of CRS toxicity.

Our solution: our PSMA-TRACTr product candidate

We designed our PSMA-TRACTr product candidate as a single-masked TRACTr in which the PSMA-binding domain is unmasked. The T cell-specific binding domain (CD3e) is masked to prevent CRS. We illustrate our PSMA-TRACTr structure in the figure below.

Figure 10. Structure of our PSMA-TRACTr

 

 

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We found that our PSMA-TRACTr product candidate exhibited a 500-fold shift in activating T cell killing of PSMA expressing tumor cells in an in vitro assay when it was masked than when the mask was removed, as shown in the figure below. We believe this difference in activity has the potential to greatly reduce toxicities caused by PSMA expression outside of tumors.

Figure 11. Our masked PSMA-TRACTr was 500-fold less potent in activating T cell killing of PSMA expressing tumors than when the mask was removed in an in vitro assay

 

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In NHPs, our PSMA-TRACTr demonstrated a half-life of approximately 119 hours, which we believe translates to once-weekly dosing in humans. In comparison, pasotuxizumab was reported to have a half-life of one to three hours in humans and required continuous intravenous infusion for 5 weeks to maintain sufficient drug exposure, representing a significant burden for patients. We illustrate our PSMA-TRACTr and the PSMA-TCE half-lives in NHPs in the figure below. For comparison, the projected human efficacious dose (pHED) of 100pM for pasotuxizumab based on the clinical trial protocol for its phase 1 study is also shown.

Figure 12. Our PSMA-TRACTr had a half-life of 119 hours in NHPs, which we believe is in line with the potential for once-weekly dosing in humans

 

 

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In this same study, dosing of our PSMA-TRACTr at 87mg/kg resulted in minimal levels of inflammatory cytokine production, relative to an unmasked PSMA-TCE at 10mg/kg, which led to a greater than 130-fold expression of IL-6 as shown in the figure below. We believe these data suggest our PSMA-TRACTr will have the potential to reduce CRS risk relative to an unmasked PSMA-TCE. Furthermore, in a separate, ongoing study of our PSMA-TRACTr dosed at 1,000mg/kg once-weekly for three weeks in NHPs, no dose-limiting toxicities have been identified to date.

Figure 13. Dosing of our PSMA-TRACTr in NHPs had minimal effects on inflammatory cytokine levels, several of which were below the limit of quantification (LOQ). In contrast, dosing of a PSMA-TCE led to substantial levels of IL-6 as well as elevation of other inflammatory cytokines commonly observed in CRS.

 

 

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Clinical development plans

We have initiated IND-enabling studies with our PSMA-TRACTr and plan to submit an IND in the first half of 2022 to conduct a Phase 1 trial in patients with mCRPC to assess safety, tolerability, and pharmacokinetics.

Our EGFR-TRACTr for the treatment of colorectal cancer

We are developing our EGFR-TRACTr product candidate for the treatment of metastatic CRC. We have shown in preclinical studies that our EGFR-TRACTr had an 8,500-fold reduced ability to activate T cells when it is masked compared to when it is unmasked. In addition, we demonstrated that our EGFR-TRACTr was well-tolerated in NHPs, substantially reduced cytokine release relative to the unmasked TCE, and had a prolonged half-life. We selected a development candidate for our EGFR-TRACTr product candidate in the second quarter of 2021, and we plan to submit an IND in the second half of 2022.

Colorectal cancer overview

Colorectal cancer is the second most common cancer in women and the third most common cancer in men worldwide. In 2018, more than 1.8 million people worldwide received colorectal cancer diagnoses, and approximately 900,000 died from the disease. In 2020, there were approximately 150,000 new CRC patients in the United States. Approximately 25 percent of patients have metastatic disease at diagnosis, meaning the disease has spread to other organs, and about 50 percent of patients with CRC will eventually develop metastases. There are an estimated 50,000 new metastatic CRC patients in the United States each year. Over 35 percent of the patients with a new diagnosis of CRC, and over 85 percent of patients with a new metastatic CRC diagnosis, will die within five years. Furthermore, the cumulative recurrence rate of CRC at four years is 100 percent.

 

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EGFR is a validated colorectal cancer target

EGFR is the most commonly overexpressed membrane protein in cancer. In CRC, 80 percent of patients overexpress EGFR, and higher expression levels have been linked to more aggressive metastatic disease, which is associated with poor prognosis, including decreased disease-free survival and overall survival. However, EGFR expression is not limited to tumors and is widely expressed throughout the body, resulting in systemic toxicities with EGFR-directed therapies.

Treatment options for colorectal cancer

Treatment of CRC typically involves cytotoxic chemotherapy in a regimen containing folinic acid, fluorouracil, and irinotecan, called FOLFIRI, and radiation. Anti-EGFR mAbs such as cetuximab (ERBITUX, marketed by Eli Lilly) and panitumumab (VECTIBIX, marketed by Amgen and Takeda) can be added to standard therapy. However, only 10-20 percent of patients respond to anti-EGFR mAb therapies, and of those that do, resistance often develops. Of the 85 percent of CRC patients that are resistant to EGFR mAb treatment, 35 percent to 45 percent are resistant due to KRAS mutations. Treatment with EGFR mAbs is not recommended for patients with KRAS mutations. This suggests that if an anti-EGFR therapeutic that could treat all EGFR overexpressing patients harboring KRAS mutations was developed, the potential treatable population could be significantly expanded. Despite these limitations, anti-EGFR mAbs generated over $2 billion in sales in 2020.

A combination of nivolumab (OPDIVO) and ipilimumab (YERVOY), which are both marketed by Bristol Myers Squibb, as well as pembrolizumab monotherapy (KEYTRUDA, marketed by Merck & Co.), have been approved for the treatment of microsatellite instability-high (MSI-high) CRC. This is a subset of four to five percent of CRC patients with mutations that lead to high genetic instability. These results suggest that EGFR-directed immunotherapies have the potential to treat CRC and that, at least in some patients, there are sufficient T cells to mount an effective immune response.

Our solution: our EGFR-TRACTr product candidate

We designed our EGFR-TRACTr product candidate as a dual-masked TRACTr in which both the EGFR and T cell binding domains are designed to be masked. Based upon the activity of EGFR-TCEs against CRC cell lines that harbor mutations or modifications that render them resistant to anti-EGFR antibodies, we believe our EGFR-TRACTr has the potential to treat an expanded CRC patient population. We illustrate our EGFR-TRACTr structure below.

Figure 14. Structure of our EGFR-TRACTr

 

 

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We found that our EGFR-TRACTr product candidate exhibited an 8,500-fold shift in activating T cell killing of EGFR expressing HCT116 tumor cells in an in vitro assay when it was masked than when the mask was removed, as shown below. We believe this differential in activity has the potential to greatly reduce healthy tissue toxicities caused by EGFR expression outside of tumors.

Since these cells harbor KRAS mutations and are resistant to anti-EGFR antibodies, the observed EGFR-TCE activity suggests that EGFR inhibitor-resistant (including KRAS mutants sensitive to our EGFR-TRACTr) CRC will be sensitive to our EGFR-TRACTr. Our observation is consistent with published studies demonstrating EGFR-TCE activity in cell lines that were resistant to EGFR mAbs and harbored KRAS mutations. The results of our study are depicted in the figure below.

Figure 15. Our masked EGFR-TRACTr was over 8,500-fold less potent at T cell-mediated killing of EGFR-expressing tumor cells than an equivalent unmasked TCE in an in vitro assay

 

 

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In NHPs, our EGFR-TRACTr demonstrated a half-life of approximately 94 hours, which we believe translates to the potential for once-weekly dosing in humans. This compares to the half-life of the unmasked EGFR-TCE of approximately one hour. We illustrate our EGFR-TRACTr and the EGFR-TCE half-lives in a study in NHPs in the figure below.

Figure 16. Our EGFR-TRACTr had a half-life of approximately 94 hours in NHPs, which we believe is in line with once-weekly dosing in humans

 

 

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In this same study, dosing of our EGFR-TRACTr at 100mg/kg resulted in minimal levels of inflammatory cytokine release, relative to an unmasked EGFR-TCE at 10mg/kg, which led to a greater than 20-fold expression of IL-6. We believe these data suggest that our EGFR-TRACTr has the potential to reduce CRS risk relative to an unmasked EGFR-TCE. Furthermore, in a separate, ongoing study of our EGFR-TRACTr dosed at 600mg/kg once-weekly for three weeks in NHPs, no dose limiting toxicities have been identified to date.

Figure 17. Dosing of our EGFR-TRACTr in NHPs had minimal effects on inflammatory cytokine levels. In contrast, dosing of an EGFR-TCE led to substantial levels of IL-6 as well as elevation of other inflammatory cytokines commonly observed in CRS

 

 

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Clinical Development Plans

We have initiated IND-enabling studies with our EGFR-TRACTr and plan to submit an IND in the second half of 2022 to conduct a Phase 1 trial in patients with advanced CRC tumors that express EGFR to assess safety, tolerability, and pharmacokinetics. In addition, we plan to evaluate additional opportunities where EGFR is overexpressed.

TROP2-TRACTr for the treatment of TROP2 overexpressing solid tumors

We are developing our TROP2-TRACTr program to treat TROP2 overexpressing solid tumors, including NSCLC, UC, and TNBC. TROP2 is a cell surface glycoprotein overexpressed by many human carcinomas. In preclinical studies, we have shown that our TROP2-TRACTr had an over 6,500-fold reduced ability to activate T cells when it was masked compared to when it was unmasked. In addition, we demonstrated that our TROP2-TRACTr was well-tolerated in NHPs, substantially reduced cytokine release relative to the unmasked TCE, and had a prolonged half-life. We plan to submit an IND for our TROP2-TRACTr product candidate in 2023.

Triple-negative breast cancer overview

Although some forms of breast cancer are less aggressive and have displayed improving survival rates, there are still highly aggressive forms of disease that represent a significant unmet need. For example, TNBC

 

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tends to present at a later stage than other types of breast cancer and grows, spreads, and recurs faster than most other types. Women with triple-negative breast cancer are also more likely to develop metastases, and typically have a poorer prognosis than other types of breast cancer due to the lack of targeted therapies available for treatment. TNBC is referred to as “triple-negative” because it is estrogen receptor-negative (ER-), progesterone receptor-negative (PR-), and HER2-, and is unlikely to respond to hormonal or HER2-targeted therapies. TNBC accounts for approximately 10-20 percent of all breast cancers and is more aggressive and likely to recur compared to receptor-positive breast cancers. The five-year survival rate for TNBC is approximately 77 percent compared to approximately 92 percent for other types of breast cancers.

Urothelial cancer overview

Cancer that begins in cells that line the urethra, bladder, ureters, renal pelvis, and some other organs are referred to as urothelial carcinoma. UC is the most common type of bladder cancer and bladder cancer is the sixth most common cancer in the United States. UC accounts for 90 percent of all bladder cancers, and can also arise in the renal pelvis and ureters. The American Cancer Society estimates that there will be approximately 83,730 new cases of bladder cancer in the United States in 2021. Despite the approval of checkpoint inhibitors in recent years, the treatment of patients with advanced UC in the second-line setting remains a significant unmet need. The relative five-year survival rate for patients with metastatic UC is about six percent.

Non-small cell lung cancer overview

It is estimated that there will be approximately 235,000 new lung cancer cases and 131,000 lung cancer deaths in the United States in 2021. NSCLC accounts for approximately 84 percent of lung cancer cases. Targeted therapies have been developed for patients with tumors containing alterations in EGFR, and anaplastic lymphoma kinase gene (ALK); however, less than thirty percent of patients are eligible for these therapies. Patients who are ineligible or resistant to these therapies can be treated with immune checkpoint inhibitors. This treatment regimen leads to significant improvements in progression-free survival (PFS) and OS compared to standard chemotherapy. However, despite the availability of these therapies, very few patients are cured of their disease, and the prognosis in NSCLC remains poor, with an overall five-year survival for all patients diagnosed with NSCLC of approximately 25 percent.

TROP2 is a validated cancer target

TROP2 is a transmembrane protein involved in calcium signal transduction. The observed TROP2 level is low in normal tissues, and TROP2 is overexpressed in various cancer types, such as breast, lung, urothelial, endometrial, ovarian, prostate, pancreatic, gastric, colon, head and neck, and glioma. Furthermore, TROP2 functions as an oncogene capable of driving both tumorigenesis and metastasis in epithelial cancers such as colorectal cancer. TROP2 expression in cancer cells has long been correlated with drug resistance, and high levels of TROP2 expression have been shown to correlate with poor prognosis in a variety of cancer types. In a meta-analysis, including data from approximately 2,500 patients, increased TROP2 expression was associated with poor overall survival and disease-free survival outcomes across several solid tumors.

The increased expression of TROP2 in tumors has made it both a prognostic biomarker and a therapeutic target for cancer. Sacituzumab govitecan, marketed as Trodelvy by Gilead, is an anti-TROP2 ADC that received accelerated approval by the FDA in April 2020 as a treatment for metastatic TNBC and UC in April 2021. In metastatic TNBC, this ADC had a 33 percent overall response rate, providing clinical validation of TROP2 as a target. However, sacituzumab govitecan was also associated with significant toxicities: 21 percent of patients reported Grade 3 or Grade 4 serious gastrointestinal events, and 43 percent reported Grade 3 or Grade 4 neutropenia. Beyond TNBC, a published report from the 2019 Genitourinary Cancers Symposium indicated that an objective response was observed with sacituzumab govitecan in approximately 30 percent of highly pretreated urothelial cancer patients. Furthermore, in a Phase 1 trial of datopotamab deruxtecan (DS-1062), an anti-TROP2 ADC in clinical development by AstraZeneca and Daiichi Sankyo, objective responses were obtained by

 

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21 percent to 25 percent of NSCLC patients treated. Promising third-party clinical data in metastatic multiple cancer indications have been reported, including HR+/HER2- breast and urothelial cancers. As a therapeutic target, TROP2’s independence from other therapeutic approaches (e.g., checkpoint inhibitors, Poly (ADP-ribose) polymerase (PARP) inhibitors) lends combination therapy with TROP2 targeted therapies a potentially promising approach.

Our solution: our TROP2-TRACTr program

We designed our TROP2-TRACTr program as a dual-masked TRACTr in which both the TROP2 and the CD3e antigen binding domains are masked in order to minimize the risk of on-target, healthy tissue toxicity. We illustrate our dual masked TROP2-TRACTr structure in the figure below.

Figure 18. Structure of our dual masked TROP2-TRACTr

 

 

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In preclinical in vitro studies, our unmasked TROP2-TCE led to T cell-mediated cell killing of a number of tumor cell lines with potencies that generally correlated with the level of TROP2 expression. The TROP2-TCE was active against both high TROP2-expressing cell lines, such as BxPC3 and NCI-N87, which were sensitized to killing by concentrations of TROP2-TCE of less than 1 pM and the low TROP2-expressing cell line, HCT116 at 10 pM, as shown in the figure below.

Figure 19. Our TROP2-TRACTr led to potent T cell-mediated cell killing across a range of tumor types that express TROP2 in preclinical studies

 

 

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We found that our TROP2-TRACTr exhibited a 12,500-fold shift in activating T cell killing of TROP2 expressing tumor cells in an in vitro assay when it was masked than when the mask was removed. We believe this differential in activity has the potential to greatly reduce toxicities caused by TROP2 expression outside of tumors.

Figure 20. Our masked TROP2-TRACTr was greater than 12,500-fold less potent at activating T cell mediated killing of TROP2-expressing tumor cells than unmasked TROP2-TRACTr in an in vitro assay

 

 

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In NHPs, our TROP2-TRACTr demonstrated a half-life of approximately 90 hours, which we believe is in line with the potential for once-weekly dosing in humans. The half-life of the unmasked TROP2-TCE was less than 2 hours. We illustrate our TROP2-TRACTr and the TROP2-TCE half-lives in our NHP study in the figure below.

Figure 21. Our TROP2-TRACTr had a half-life of 90 hours in NHPs, which we believe is in line with once-weekly dosing in humans

 

 

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In this same study, dosing of our TROP2-TRACTr at 100mg/kg resulted in minimal levels of inflammatory cytokine production, relative to an unmasked TROP2-TCE at 3mg/kg, which led to a greater than 20-fold expression of IL-6 as shown in the figure below. We believe these data suggest our TROP2-TRACTr has the potential to reduce CRS risk relative to an unmasked TROP2-TCE.

Figure 22. Dosing of our TROP2-TRACTr in NHPs had minimal effects on inflammatory cytokine levels. In contrast, dosing of a TROP2-TCE led to substantial levels of IL-6 as well as elevation of other inflammatory cytokines commonly observed in CRS.

 

 

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Clinical development plans

We plan to submit an IND for TROP2-TRACTr in 2023 to conduct a Phase 1 trial in patients with advanced solid tumors that are overexpressing TROP2, including TNBC, UC, and NSCLC, to assess safety, tolerability, and pharmacokinetics.

Our Next Generation Bispecific Co-stimulatory Platform

Activation of T cells is a highly regulated process that typically requires two signaling events for full functionality: the first signal is initiated upon binding of the MHC-antigen complex, which helps distinguish “self” from “non-self” to the T cell receptor (TCR) and the second signal through activation of a costimulatory receptor. While the first recognition signal activates a T cell and triggers T cell mediated toxicity of the recognized cell, if the T cell does not receive a second costimulatory signal it can lead to T cell tolerance whereby the T cells continue to recognize the tumor antigen but do not mount an immune response against the tumor cell. The second costimulatory signal prevents T cell tolerance, and further activates the T cell to enhance T cell cytotoxicity towards the targeted cell. The interaction of tumor cells and T cells with and without our PD-L1/CD28 costimulatory bispecific is depicted in the figure below.

Figure 23. T cell costimulatory bispecific activators such as our PD-L1/CD28 program have the potential to increase activation both as monotherapy and in combination with TCEs

 

 

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Our PD-L1/CD28 costimulatory bispecific is designed to act both as an antagonist of PD-L1 and a conditional agonist of CD28 as shown in the figure above. While CD28 agonism has shown some clinical promise, the efficacy seen with this approach has been limited due to dose-limiting toxicities that result from systemic activation of CD28. Our PD-L1/CD28 costimulatory bispecific is designed to conditionally agonize CD28 only in the presence of PD-L1, which is often overexpressed by tumors to avoid T cell mediated killing. In addition, engagement of PD-L1 by our costimulatory bispecific is designed to block PD-1 binding and provide checkpoint inhibition. We believe this unique combination of potential mechanisms of action could enhance anti-tumor responses and limit the systemic toxicity of CD28 agonism. This is supported by studies in NHPs with our costimulatory bispecific demonstrating a lack of systemic immune system activation as evidenced by the lack of cytokine release, as shown in the figure below.

Figure 24. Dosing of our PD-L1/CD28 costimulatory bispecific in NHPs had minimal effects on inflammatory cytokine levels, and several of these were below limits of quantification

 

 

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Despite unprecedented clinical response rates, most patients fail to respond to therapies targeting PD-1 and PD-L1. We believe this is in part because T cells require costimulation for full functionality. Thus, checkpoint inhibition alone is likely insufficient to fully enable the immune system to attack a tumor. We believe further benefit could be derived by the addition of immune co-stimulatory agents. Preclinical study results comparing a checkpoint antibody with our costimulatory bispecific with PD-L1 expressing tumor cells demonstrated single-agent induction of T cell cytotoxicity and IFNg release with the costimulatory bispecific and lack of activity with the checkpoint antibody, as shown in the figure below. In addition, IL-2 release was observed with the costimulatory bispecific, which is consistent with CD28 agonism. We believe that intra-tumoral release of IL-2 has the potential to further enhance the activity of tumor resident T cells to further improve activity.

Figure 25. Our unmasked PD-L1/CD28 bispecific led to T cell-dependent anti-tumor activity and the release of IFNg and IL-2 from T cells in preclinical studies

 

 

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We plan to clinically evaluate single-agent activity of our costimulatory bispecific to treat patients with PD-L1 expressing tumors, including those refractory to, or relapsed from, approved checkpoint inhibitor

 

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therapies. Additional supporting evidence for this strategy is provided in the figure below, where our costimulatory bispecific demonstrated single-agent T cell-mediated killing of a range of different cancer cells, including breast cancer, NSCLC, and skin cancer.

Figure 26. Our PD-L1/CD28 bispecific as monotherapy led to T cell-mediated cell killing of a number of cell lines

 

 

 

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We also plan to clinically evaluate our costimulatory bispecific in combination with our TRACTrs. Since TCE activation of T cells occurs via the first signal, we expect improved activity when combined with our costimulatory bispecific. In preclinical studies, our costimulatory bispecific enhanced anticancer activity greater than 30-fold when combined with a PSMA-TCE. We believe these data highlight the potential synergy between a PD-L1/CD28 bispecific and a CD3-directed TCE, as shown in the figure below.

Figure 27. Our PD-L1/CD28 bispecific combined with a TCE led to increased cell killing in preclinical studies

 

 

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To reduce potential toxicities and enable combination therapy with our TRACTrs we are currently optimizing the masks for our T cell costimulatory bispecific molecules. We are also modifying them to contain our proprietary cleavable linkers and albumin binding domain with the goal of creating bispecific product candidates that can be safely administered with a long half-life when in the inactive state, and display potent T cell costimulatory activity that is limited to tumor sites. We anticipate developing this bispecific costimulatory molecule both as a monotherapy and in combination with our TRACTr programs. The below schematic illustrates the potentially synergistic benefit of combining our bispecific costimulatory molecule with our TRACTrs. In this scenario, TRACTr-mediated anti-tumor activity is further enhanced through a reversal of tumor-mediated immunesuppression via simultaneous binding to PD-L1 and CD28 mediated by our costimulatory bispecific.

Figure 28. Potential synergistic benefit of combining our bispecific costimulatory molecule with our TRACTrs

 

 

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Manufacturing

Certain features of our TRACTr molecules allow for their production, development, and manufacturing processes to closely resemble those used for monoclonal antibodies. First, our TRACTr molecules are readily expressed at high levels recombinantly in common Chinese hamster ovary cells. Second, our TRACTr molecules bind protein A via the anti-albumin binding domain. Protein A affinity chromatography is the standard technique for capturing recombinant monoclonal antibodies and is a very robust purification procedure used as a capture step due to its specificity. After the protein A affinity chromatography step, TRACTrs are further purified using standard ion exchange and/or hydrophobic-interaction chromatography steps, virus filtration, and ultrafiltration formulation. Our anticipated dosing strategy gives us the advantage of formulating our drug products at low protein concentrations in typical formulation matrices. Through developability and manufacturability assessments, we continue to verify that our TRACTr constructs have advantageous properties that include high solubility, minimal aggregation, and good stability. We believe these properties will allow our products to be manufactured at a substantially lower cost than monoclonal antibodies.

 

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We plan to obtain bulk drug substance (BDS) for our TRACTrs from a single-source third-party contract manufacturer. While any reduction or halt in the supply of BDS from this contract manufacturer could limit our ability to develop our product candidates until a replacement contract manufacturer is found and qualified, we believe that we will have sufficient BDS to support any future clinical trial programs. We are in the process of developing our supply chain for each of our product candidates and intend to put in place agreements under which our third-party contract manufacturers will generally provide us with necessary quantities of BDS and drug product on a project-by-project basis based on our development and commercial supply needs.

All of our TRACTrs will be manufactured from a vial of a master cell bank of that biologic therapeutic’s production cell line. We have or intend to have one master cell bank for each TRACTr that was or will be produced and tested in accordance with current good manufacturing practice (cGMP) and applicable regulations. Each master cell bank is or will be stored in two independent locations, and we intend to produce working cell banks for each product candidate later in product development. It is possible that we could lose multiple cell banks from multiple locations and have our manufacturing severely impacted by the need to replace the cell banks. However, we believe we have an adequate backup should any particular cell bank be lost in a catastrophic event.

We do not own or operate and currently have no plans to establish cGMP manufacturing facilities and laboratories. We currently rely on third-party manufacturers and suppliers for the raw materials and starting components used to make our TRACTrs, and we expect to continue to do so to meet our research and development and commercial activities. Our third-party manufacturers are qualified to manufacture our product candidates under cGMP requirements and other applicable laws, guidance and regulations. We believe there are multiple sources for all of the materials and components required for the manufacture of our product candidates.

Competition

The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. While we believe that our technology, development experience, and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including large pharmaceutical and biotechnology companies, academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for the research, development, manufacturing, and commercialization of cancer immunotherapies. Any product candidates that we successfully develop and commercialize will compete with new immunotherapies that may become available in the future.

We compete in the segments of the pharmaceutical, biotechnology, and other related markets that develop immuno oncology treatments. Many other companies have commercialized and/or are developing immuno oncology treatments for cancer including large pharmaceutical and biotechnology companies, such as AbbVie, Amgen, AstraZeneca, Bristol Myers Squibb, Johnson & Johnson, Merck & Co., Novartis, Pfizer, and Roche/Genentech.

We face significant competition from pharmaceutical and biotechnology companies that target specific tumor-associated antigens using immune cells or other cytotoxic modalities. These generally include immune cell redirecting therapeutics (e.g., T cell engagers), adoptive cellular therapies (e.g., CAR T cell therapies), antibody-drug conjugates, targeted radiopharmaceuticals, targeted immunotoxin, and targeted cancer vaccines.

With respect to our lead PSMA-TRACTr, we are aware of other competing PSMA-targeting clinical-stage therapeutics, which include, but are not limited to: T cell engagers from Amgen, Harpoon Therapeutics, and Regeneron Pharmaceuticals; CAR T cell therapies from Poseida Therapeutics, Sorrento Therapeutics, and Tmunity Therapeutics; NK cell engagers from Crescendo Biologics; and radiopharmaceuticals from Endocyte/Novartis, Point Biopharma, and Bayer.

 

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With respect to our EGFR-TRACTr, we face competition from several targeted therapies approved by the FDA to treat CRC, including, but not limited to, Roche’s bevacizumab, Amgen’s panitumumab, Eli Lilly/Merck KGaA’s cetuximab, Bayer’s regorafenib, and Eli Lilly’s ramucirumab. We also face competition from other anti-EGFR therapies that are in clinical development for CRC. We believe that the most advanced candidates are those being developed by Sorrento Therapeutics and Spectrum Pharmaceuticals.

With respect to our TROP2-TRACTr, Gilead’s sacituzumab govitecan was the first ADC approved by the FDA for the treatment of relapsed/refractory metastatic TNBC. We are aware of other TROP2 therapies that are in clinical development for solid tumors. We believe that the most advanced candidates are Daiichi Sankyo/AstraZeneca’s ADC DS-8201 and KLUS Pharma’s SKB264. Additional competition may come from leading companies in lung cancer and breast cancer, including, but not limited to, AstraZeneca, Bristol Myers Squibb, Merck & Co., Merck KGaA, Pfizer, and Roche.

We are currently developing a pipeline of TRACTr and other protease-activated therapeutics that face increasing competition from other biologic prodrug developers, which include, but are not limited to, Akrevia Therapeutics, Amunix Pharmaceuticals, Bayer AG, BioAtla, Chugai Pharmaceutical Co., CytomX Therapeutics, Genentech, Harpoon Therapeutics, Nektar Therapeutics, Pandion Therapeutics, Revitope Oncology, Roche Holding AG, and Seattle Genetics.

Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical, biotechnology, and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites, and enrolling subjects for any future clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

We could see a reduction or elimination of our commercial opportunity if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we or our collaborators may develop. Our competitors also may obtain FDA or foreign regulatory approval for their products more rapidly than we may obtain approval for our product candidates, which could result in our competitors establishing a strong market position before we or our collaborators are able to enter the market. The key competitive factors affecting the success of all of our programs are likely to be efficacy, safety, and convenience. If we are not successful in developing, commercializing, and achieving higher levels of reimbursement than our competitors, we will not be able to compete against them and our business would be materially harmed.

Research Collaboration and Exclusive License Agreement with Merck Sharp & Dohme Corp.

On December 15, 2020, we and Merck Sharp & Dohme Corp. (Merck), entered into a research collaboration and exclusive license agreement (the Merck Agreement). The Merck Agreement provides that we and Merck will use commercially reasonable efforts to engage in certain research and development activities related to our TRACTr platform technology that are to be funded by Merck up to specified annual limits. Pursuant to the agreement, Merck has the right to designate up to two TRACTr product candidates in each case to be developed against a target (a Collaboration Target). We granted Merck an exclusive, worldwide, royalty-bearing, sublicensable license to certain of our patent rights and know-how with respect to the Collaboration Targets, in each case once designated by Merck, to research, develop, make, have made, use, import, offer to sell, and sell compounds and any licensed products related thereto. Merck selected one of the Collaboration Targets

 

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upon execution of the Merck Agreement and has a specified period of time to select the second Collaboration Target. Following the research term, Merck will have the sole right to research, develop, manufacture, and commercialize the licensed compounds and products directed against the Collaboration Targets.

In consideration of the rights granted to Merck under the Merck Agreement, Merck paid us a one-time upfront payment of $8 million in respect of the first Collaboration Target and is required to pay us an additional one-time payment of $8 million upon the selection of the second Collaboration Target. In addition, Merck is required to make milestone payments to us upon the successful completion of certain regulatory and development milestones, in an aggregate amount not to exceed $142.5 million for each of the two Collaboration Targets ($285 million collectively for both Collaboration Targets). Merck is also required to make milestone payments to us upon the successful completion of certain sales milestones, in an aggregate amount not to exceed $350 million for each licensed product under either of the Collaboration Targets.

Merck is also required to make tiered royalty payments on a product-by-product and country-by-country basis, ranging from low single-digit to low teens percentage royalty rates, on specified portions of annual net sales for licensed products under either of the Collaboration Targets that are commercialized. Such royalties are subject to reduction, on a product-by-product and country-by-country basis, for licensed products not covered by patent claims, or that require Merck to obtain a license to third party intellectual property in order to commercialize the licensed product, or that are subject to compulsory licensing. Merck’s royalty obligation with respect to a given licensed product in a given country begins upon, and ends no less than 10 years following, the first sale of such product in such country.

The Merck Agreement will terminate at the end of the calendar year in which the expiration of all royalty obligations occurs for all licensed products under the agreement. Merck has the unilateral right to terminate the agreement in its entirety or on a Collaboration Target by Collaboration Target basis at any time and for any reason upon prior written notice to us. Both parties have the right to terminate the agreement for an uncured material breach, certain illegal or unethical activities, and insolvency of the other party. Upon expiration of the agreement but not early termination thereof, and provided all payments due under the agreement have been made, Merck’s exclusive licenses under the agreement will become fully paid-up and perpetual.

License Agreement with WuXi Biologics (Hong Kong) Limited

In April 2021, we entered into a cell line license agreement (Cell Line License Agreement) with WuXi Biologics (Hong Kong) Limited (WuXi Biologics), pursuant to which we received a non-exclusive, worldwide, sublicensable license under certain of WuXi Biologics’ patent rights, know-how and biological materials (WuXi Biologics Licensed Technology), to use the WuXi Biologics Licensed Technology to make, use, sell, offer for sale and import certain therapeutic products produced through the use of the cell line licensed by WuXi Biologics under the Cell Line License Agreement (WuXi Biologics Licensed Product). Specifically, the WuXi Biologics Licensed Technology is used to manufacture a component of our PSMA-TRACTr and EGFR-TRACTr product candidates.

In consideration for the license, we agreed to pay WuXi Biologics a non-refundable, one-time license fee of $150,000 upon Wuxi Biologics’ achievement of a certain technical milestone, which has not yet been achieved. Additionally, if we do not engage WuXi Biologics or its affiliates to manufacture the WuXi Biologics Licensed Products for our commercial supplies, we are required to make royalty payments to WuXi Biologics in an amount equal to a low single-digit percentage of specified portions of net sales of WuXi Biologics Licensed Products manufactured by a third party manufacturer. We have the right (but not the obligation) to buy out our remaining royalty obligations with respect to each WuXi Biologics Licensed Product by paying WuXi Biologics a one-time payment in an amount ranging from low single digit million dollars to a maximum of $15.0 million depending on the development and commercialization stage of the WuXi Biologics Licensed Product (the Buyout Option), and upon such payment, our license with respect to such WuXi Biologics Licensed Product will become fully paid-up, irrevocable, and perpetual. The royalty obligations will remain in effect during the term of the Cell Line License Agreement so long as we have not exercised the Buyout Option.

 

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The Cell Line License Agreement will continue indefinitely unless terminated (i) by us upon three months’ prior written notice and our payment of all amounts due to WuXi Biologics through the effective date of termination, (ii) by either party for the other party’s material breach that remains uncured for 30 days after written notice, and (iii) by WuXi Biologics if we fail to make a payment and such failure continues for 30 days after receiving notice of such failure.

Intellectual Property

We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to our business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties. We own the patent applications relating to our TRACTr platform technology. Our intellectual property policy includes seeking to protect our proprietary position by, among other methods, striving to obtain issued patents by filing and prosecuting patent applications in the United States and in jurisdictions outside of the United States, directed to our proprietary technology, inventions, improvements, and product candidates that are important to the development and implementation of our business. We also rely on trade secrets and know-how relating to our proprietary technology and product candidates, continued innovation, and in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field of immunotherapy. We also plan to rely on data exclusivity, market exclusivity, and patent term extensions when available. Our commercial success will depend in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions, and improvements; to preserve the confidentiality of our trade secrets and know-how; to obtain and maintain licenses to use intellectual property owned by third parties; to defend and enforce our proprietary rights, including any patents that we may own in the future; and to operate without infringing on the valid and enforceable patents and other proprietary rights of third parties.

As of May 31, 2021, we own 24 pending U.S. provisional and non-provisional patent applications and two pending patent applications filed under the Patent Cooperation Treaty (PCT). Specifically, we have one PCT patent application directed to compositions of our TRACTr platform technology that are applicable across our PSMA, TROP2, EGFR, and costimulatory bispecific (CD28 and PD-L1) product candidates. We also have three provisional patent applications that cover compositions and applications of various components and aspects of our TRACTr platform technology and have general applicability across various product candidates. We further have four provisional patent applications specific to the PSMA product candidate, four provisional patent applications specific to the TROP2 product candidate, two provisional patent applications specific to the EGFR product candidate, and three provisional patent applications specific to the bispecific product candidate. In addition, we have four provisional patent applications, four non-provisional patent applications and one PCT patent application relating to compositions of our other proprietary antibodies, compounds, technology, inventions, improvements, and other aspects of our technology that are not under active development. Any patents that issue from these pending patent applications are expected to expire between 2038 and 2042, absent any patent term adjustments or extensions. We also possess substantial know-how and trade secrets relating to the development and commercialization of our product candidates, including related manufacturing processes and technology.

With respect to our product candidates and processes, we intend to develop and commercialize in the normal course of business, and we intend to pursue patent protection directed to, when possible, compositions, methods of use, methods of making, dosing, and formulations. We may also pursue patent protection with respect to manufacturing, therapeutic development processes and technologies, and therapeutic delivery technologies.

Issued patents can provide protection for varying periods of time, depending upon the date of filing of the patent application, the date of patent issuance, and the legal term of patents in the countries in which they are obtained. In general, patents issued for applications filed in the United States can provide exclusionary rights for 20 years from the earliest effective filing date excluding U.S. provisional applications. In addition, in certain instances, the term of an issued U.S. patent that is directed to or claims an FDA approved product can be extended to recapture a portion of the term effectively lost as a result of the FDA regulatory review period, which is called patent term extension. The restoration period cannot be longer than five years and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. The term of patents outside

 

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of the United States varies in accordance with the laws of the foreign jurisdiction, but typically is also 20 years from the earliest effective filing date excluding U.S. provisional applications. However, the actual protection afforded by a patent varies on a product-by-product basis, from country-to-country, and depends upon many factors, including the type of patent, the scope of its claims, the availability of regulatory-related extensions, the availability of legal remedies in a particular country, and the validity and enforceability of the patent.

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. No consistent policy regarding the scope of claims allowable in patents in the field of immunotherapy has emerged in the United States. The relevant patent laws and their interpretation outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our technology or product candidates and enforce the patent rights that we may license, and could affect the value of such intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions, and improvements. With respect to company-owned intellectual property, we cannot guarantee that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may file in the future, nor can we be sure that any patents that may be granted to us in the future will be commercially useful in protecting our products, the methods of use or manufacture of those products. Moreover, even the issued patents that we license do not guarantee us the right to practice our technology in relation to the commercialization of our products. Patent and other intellectual property rights in the pharmaceutical and biotechnology space are evolving and involve many risks and uncertainties. For example, third parties may have blocking patents that could be used to prevent us from commercializing our product candidates and practicing our proprietary technology, and the issued patents that we may in-license and those that may issue in the future may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or could limit the term of patent protection that otherwise may exist for our product candidates. In addition, the scope of the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies that are outside the scope of the rights granted under any issued patents that we own or that we may exclusively in-license. For these reasons, we may face competition with respect to our product candidates. Moreover, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any patent protection for such product may expire or remain in force for only a short period following commercialization, thereby reducing the commercial advantage the patent provides. A comprehensive discussion on risks relating to intellectual property is provided under the section of this prospectus titled “Risk Factors—Risks Related to Our Intellectual Property.”

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products, such as our investigational medicines and any future investigational medicines. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

Regulatory Approval in the United States

In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (FDCA) and the Public Health Service Act (PHSA), and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage,

 

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recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of biologic products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as clinical hold, FDA refusal to approve pending biologics license applications (BLAs), warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

A biologic must be approved by the FDA pursuant to a BLA before it may be legally marketed in the United States. The process generally involves the following:

 

   

completion of extensive preclinical laboratory and animal studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice (GLP) requirements;

 

   

submission to the FDA of an investigational new drug application (IND), which must become effective before human clinical trials may begin;

 

   

approval by an institutional review board (IRB) or independent ethics committee at each clinical trial site before each clinical trial may be commenced;

 

   

performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice (GCP) requirements and other regulations to establish the safety and efficacy of the investigational product for each proposed indication;

 

   

submission to the FDA of a BLA;

 

   

payment of any user fees for FDA review of the BLA;

 

   

a determination by the FDA within 60 days of its receipt of a BLA to accept the filing for review;

 

   

satisfactory completion of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the biologic, or components thereof, will be produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biologic’s identity, strength, quality and purity;

 

   

satisfactory completion of any potential FDA audits of the clinical trial sites that generated the data in support of the BLA to assure compliance with GCPs and integrity of the clinical data;

 

   

FDA review and approval of the BLA, including consideration of the views of any FDA advisory committee; and

 

   

compliance with any post-approval requirements, including REMS, where applicable, and post- approval studies required by the FDA as a condition of approval.

Preclinical Studies

Before testing any biological product candidates in humans, the product candidate must undergo rigorous preclinical testing. Preclinical studies include laboratory evaluation of product candidates and formulations, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND. An IND is a request

 

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for authorization from the FDA to administer an investigational product to humans and must become effective before human clinical trials may begin. Some long-term preclinical testing may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical Trials

The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with GCPs, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors; as well as (iii) under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated in the trial. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about certain clinical trials, including clinical trial results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. Information related to the product, patient population, phase of investigation, clinical trial sites and investigators and other aspects of the clinical trial is then made public as part of the registration.

A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of a BLA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the clinical trial was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.

Clinical trials are generally conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, which may overlap or be combined:

 

   

Phase 1 clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacokinetics, pharmacologic action, side effect tolerability, safety of the product candidate, and, if possible, early evidence of effectiveness.

 

   

Phase 2 clinical trials generally involve studies in disease-affected patients to evaluate proof of concept and/or determine the dosing regimen(s) for subsequent investigations. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects and safety risks are identified, and a preliminary evaluation of efficacy is conducted.

 

   

Phase 3 clinical trials generally involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use and to establish the overall benefit/risk relationship of the product and provide an

 

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adequate basis for product labeling. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the biologic.

A single Phase 3 or Phase 2 trial with other confirmatory evidence may be sufficient in rare instances to provide substantial evidence of effectiveness (generally subject to the requirement of additional post-approval studies).

The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including non-compliance with regulatory requirements or a finding that the patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug or biologic has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated checkpoints based on access to certain data from the trial.

Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional information about the chemistry and physical characteristics of the drug or biologic as well as 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 and, among other things, companies must develop methods for testing the identity, strength, quality, potency and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the investigational medicines do not undergo unacceptable deterioration over their shelf life.

FDA Review Process

Following completion of the clinical trials, the results of preclinical studies and clinical trials are submitted to the FDA as part of a BLA, along with proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety, purity, and potency of the investigational product to the satisfaction of the FDA. FDA approval of a BLA must be obtained before a biologic or drug may be marketed in the United States. The cost of preparing and submitting a BLA is substantial. Under the PDUFA, each BLA must be accompanied by a substantial user fee. The FDA adjusts the PDUFA user fees on an annual basis. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication. The applicant under an approved BLA is also subject to an annual program fee.

The FDA reviews all submitted BLAs before it accepts them for filing and may request additional information. The FDA must make a decision on accepting a BLA for filing within 60 days of receipt, and such decision could include a refusal to file by the FDA. Once the submission is accepted for filing, the FDA begins an in-depth review of the BLA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months, from the filing date, in which to complete its initial review of an original BLA and respond to the applicant, and six months from the filing date of an original BLA designated for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs, and the review process can be extended by FDA requests for additional information or clarification.

Before approving a BLA, the FDA will generally conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The FDA will not approve the product 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.

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products or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee, but it generally follows such recommendations when making decisions on approval. The FDA likely will reanalyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process.

After the FDA evaluates a BLA, it will issue either an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the biologic with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter generally outlines the deficiencies in the BLA and may require additional clinical data, additional pivotal clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing in order for FDA to reconsider the application. If a Complete Response Letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application or request an opportunity for a hearing. Even if such data and information are submitted, the FDA may decide that the BLA does not satisfy the criteria for approval.

As a condition of BLA approval, the FDA may require a Risk Evaluation and Mitigation Strategy (REMS) to help ensure that the benefits of the biologic outweigh the potential risks to patients. A REMS can include medication guides, communication plans for healthcare professionals and elements to assure a product’s safe use (ETASU). An ETASU can include, but is not limited to, special training or certification for prescribing or dispensing the product, dispensing the product only under certain circumstances, special monitoring and the use of patient-specific registries. The requirement for a REMS can materially affect the potential market and profitability of the product. Moreover, the FDA may require substantial post-approval testing and surveillance to monitor the product’s safety or efficacy.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States but for which there is no reasonable expectation that the cost of developing and making the product for this type of disease or condition will be recovered from sales of the product in the United States.

Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation on its own does not convey any advantage in or shorten the duration of the regulatory review and approval process.

Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application user fee. In addition, if a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same product for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety, or providing a major contribution to patient care, or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication. In the latter case, because healthcare professionals are free to prescribe products for off-label uses based on their independent medical judgement, the competitor’s product could be used for the orphan indication despite another product’s orphan exclusivity.

 

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An orphan-designated product may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Expedited Development and Review Programs

The FDA offers a number of expedited development and review programs for qualifying product candidates.

For example, the fast track program is intended to expedite or facilitate the process for reviewing new products that meet certain criteria. Specifically, product candidates are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to both the product and the specific indication for which it is being studied. The sponsor of a new biologic candidate can request the FDA to designate the candidate for a specific indication for fast track status concurrent with, or after, the submission of the IND for the candidate. The FDA must determine if the biologic candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast track product’s BLA before the application is complete. This “rolling review” is available if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA. Any product submitted to the FDA for marketing, including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review, such as breakthrough therapy, priority review and accelerated approval.

Breakthrough therapy designation may be granted for products that are intended, alone or in combination with one or more other products, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Under the breakthrough therapy program, the sponsor of a new biologic candidate may request that the FDA designate the candidate for a specific indication as a breakthrough therapy concurrent with, or after, the submission of the IND for the biologic candidate. The FDA must determine if the biological product qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor’s request. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process, providing timely advice to the product sponsor regarding development and approval, involving more senior staff in the review process, assigning a cross-disciplinary project lead for the review team and taking other steps to design the clinical studies in an efficient manner.

Priority review may be granted for products that are intended to treat a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies. The FDA will attempt to direct additional resources to the evaluation of an application designated for priority review in an effort to facilitate the review, and for original BLAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date (as compared to ten months under standard review).

Accelerated approval may be granted for products that are intended to treat a serious or life-threatening disease or condition on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions or survives. The accelerated approval

 

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pathway is most often used in settings in which the course of a disease is long, and an extended period of time is required to measure the intended clinical benefit of a product, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the development and approval of products for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large studies to demonstrate a clinical or survival benefit. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required post-marketing studies or if such studies fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or the time period for FDA review or approval may not be shortened. Furthermore, fast track designation, breakthrough therapy designation, priority review and accelerated approval do not change the standards for approval, but may expedite the development or approval process.

Pediatric Information

Under the Pediatric Research Equity Act (PREA), BLAs or supplements to BLAs must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the biological product is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA generally does not apply to any biological product for an indication for which orphan designation has been granted. However, beginning in 2020, PREA will apply to BLAs for orphan-designated biologics if the biologic is a molecularly targeted cancer product intended for the treatment of an adult cancer and is directed at a molecular target that FDA has determined is substantially relevant to the growth or progression of a pediatric cancer.

The Best Pharmaceuticals for Children Act (the BPCA) provides a six-month extension of any exclusivity—patent or non-patent—for a biologic if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new biologic in the pediatric population may produce health benefits in that population, FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.

Post-Approval Requirements

Once a BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of biologics, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. Biologics may be marketed only for the approved indications and in a manner consistent with the provisions of the approved labeling. Although physicians may prescribe products for off-label uses as the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products for which marketing clearance has not been issued. Companies may only share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling.

Adverse event reporting and submission of periodic safety summary reports is required following FDA approval of a BLA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and

 

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surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, biological product manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Biologic manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects a biologic product’s manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with required regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

Once an approval is granted, the FDA may withdraw the 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 or other restrictions under a REMS program. Other potential consequences include, among other things:

 

   

restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market or product recalls;

 

   

fines, warning or other enforcement-related letters or holds on post-approval clinical studies;

 

   

refusal of the FDA to approve pending BLAs or supplements to approved BLAs, or suspension or revocation of product approvals;

 

   

product seizure or detention, or refusal to permit the import or export of products; or

 

   

injunctions or the imposition of civil or criminal penalties.

Biosimilars and Exclusivity

The Biologics Price Competition and Innovation Act of 2009 (the BPCIA) created an abbreviated approval pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA-licensed reference biological product. Biosimilarity, which requires that the biological product be highly similar to the reference product notwithstanding minor differences in clinically inactive components and 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 trial or trials. Interchangeability requires that a biological product be biosimilar to the reference product and that the product can be expected to produce the same clinical results as the reference product in any given patient and, for products administered multiple times to an individual, that the product and the reference product 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 biological product without such alternation or switch. A reference biological product is granted 12 years of exclusivity from the time of first licensure of the product and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest or other related entity) for a change (not including a modification to the structure of the

 

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biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity or potency.

The BPCIA is complex and only recently implemented by the FDA. Recent government proposals have sought to reduce the twelve-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation and meaning of the BPCIA is subject to significant uncertainty.

Regulatory Approval in the European Union

The EMA is a decentralized scientific agency of the European Union. It coordinates the evaluation and monitoring of centrally authorized medicinal products. It is responsible for the scientific evaluation of applications for EU marketing authorizations, as well as the development of technical guidance and the provision of scientific advice to sponsors. The EMA decentralizes its scientific assessment of medicines by working through a network of about 4,500 experts throughout the European Union, nominated by the member states. The EMA draws on resources of over 40 National Competent Authorities of European Union member states.

The process regarding approval of medicinal products in the European Union follows roughly the same lines as in the United States and likewise generally involves satisfactorily completing each of the following:

 

   

preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable EU Good Laboratory Practice regulations;

 

   

submission to the relevant national authorities of a clinical trial application (CTA) for each trial in humans, which must be approved before the trial may begin in each country where patient enrollment is planned;

 

   

performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;

 

   

submission to the relevant competent authorities of a MAA, which includes the data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labelling;

 

   

satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced cGMP;

 

   

potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and

 

   

review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the product.

Preclinical Studies

Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the quality and potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the compounds for testing must comply with the relevant international, EU and national legislation, regulations and guidelines. The results of the preclinical tests, together with relevant manufacturing information and analytical data, are submitted as part of the CTA.

 

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Clinical Trials