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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
 
Form
 10-Q
 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
Commission File Number
001-33038
 
ZIOPHARM Oncology, Inc.
(Exact name of registrant as specified in its charter)
 
     
Delaware
 
84-1475642
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
One First Avenue, Parris Building 34, Navy Yard Plaza
Boston, Massachusetts 02129
(617)
259-1970
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
 
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common
 
ZIOP
 
The Nasdaq Stock Market LLC
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes:  
    No:  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes:  
    No:  
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 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes:  
    No:  
The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of April 
24
, 2020, was 214,286,337 shares.
 
 

Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
 10-Q
contains forward-looking statements that are based on our current beliefs and expectations. These forward-looking statements may be accompanied by such words as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “target,” “will” and other words and terms of similar meaning, although not all forward-looking statements contain these identifying words. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.
The forward-looking statements in this Quarterly Report include, but are not limited to, statements about:
 
our ability to raise substantial additional capital to fund our planned operations in the near term;
 
estimates regarding our expenses, use of cash, timing of future cash needs and anticipated capital requirements;
 
the development of our product candidates, including statements regarding the initiation, timing, progress and results of our preclinical clinical studies, clinical trials and research and development programs;
 
our ability to advance our product candidates through various stages of development, especially through pivotal safety and efficacy trials;
 
the risk that final trial data may not support interim analysis of the viability of our product candidates;
 
our expectation regarding the safety and efficacy of our product candidates;
 
the timing, scope or likelihood of regulatory filings and approvals from the U.S. Food and Drug Administration or equivalent foreign regulatory agencies for our product candidates and for which indications;
 
our ability to license additional intellectual property relating to our product candidates from third parties and to comply with our existing license agreements;
 
our ability to enter into partnerships or strategic collaboration agreements, our ability to achieve the results contemplated and the potential benefits to be derived from relationships with collaborators;
 
our ability to maintain and establish collaborations and licenses;
 
developments and projections relating to competition from other pharmaceutical and biotechnology companies or our industry;
 
our estimates regarding the potential market opportunity for our product candidates;
 
the anticipated rate and degree of commercial scope and potential, as well as market acceptance of our product candidates for any indication, if approved;
 
the anticipated amount, timing and accounting of contract liability (formerly deferred revenue), milestones and other payments under licensing, collaboration or acquisition agreements, research and development costs and other expenses;
 
our intellectual property position, including the strength and enforceability of our intellectual property rights;
 
our ability to attract and retain qualified employees and key personnel;
 
the impact of government laws and regulations in the United States and foreign countries;
 
our expectations regarding the impact of the ongoing coronavirus disease 2019, or COVID-19, pandemic, including the expected duration of disruption and immediate and long-term impact and effect on our business and operations;
 
the diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
 
the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing
COVID-19
pandemic; and
 
other risks and uncertainties, including those listed under Part I, Item 1A, “Risk Factors”.
Any forward-looking statements in this Quarterly Report on Form
 10-Q
reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and elsewhere in this Quarterly Report on Form
 10-Q.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form
10-Q,
“Ziopharm,” the “Company,” “we,” “us” and “our” refer to ZIOPHARM Oncology, Inc. and its subsidiaries.
NOTE REGARDING TRADEMARKS
All trademarks, trade names and service marks appearing in this Quarterly Report on Form
10-Q
are the property of their respective owners.
2

Table of Contents
ZIOPHARM Oncology, Inc.
Table of Contents
             
 
 
Page
 
Part I - Financial Information
 
 
 
             
Item 1.
     
 
             
     
4
 
             
     
5
 
             
     
6
 
             
     
7
 
             
     
8
 
             
Item 2.
     
24
 
             
Item 3.
     
33
 
             
Item 4.
     
33
 
         
Part II - Other Information
 
 
 
             
Item 1.
     
35
 
             
Item 1A.
     
35
 
             
Item 2.
     
73
 
             
Item 3.
     
73
 
             
Item 4.
     
73
 
             
Item 5.
     
73
 
             
Item 6.
     
74
 
3

Table of Contents
Part I - Financial Information
Item 1. Financial Statements
ZIOPHARM Oncology, Inc.
BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
 
March 31,
2020
 
 
December 31,
2019
 
ASSETS
 
 
 
 
 
 
Current assets:
   
     
 
Cash and cash equivalents
  $
171,002
    $
79,741
 
Receivables
   
782
     
3,330
 
Prepaid expenses and other current assets
   
19,836
     
22,421
 
                 
Total current assets
   
191,620
     
105,492
 
Property and equipment, net
   
3,784
     
1,110
 
Right of use asset
   
2,079
     
2,272
 
Deposits
   
130
     
130
 
Other
non-current
assets
   
666
     
110
 
                 
Total assets
  $
198,279
    $
109,114
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
Current liabilities:
   
     
 
Accounts payable
  $
396
    $
906
 
Accrued expenses
   
15,355
     
10,846
 
Lease liability - current portion
   
828
     
774
 
                 
Total current liabilities
   
16,579
     
12,526
 
Lease liability
 
-
noncurrent portion
   
1,363
     
1,578
 
                 
Total liabilities
   
17,942
     
14,104
 
                 
Commitments and contingencies (Note
6
)
   
     
 
Stockholders’ equity:
   
     
 
Common stock, $0.001 par value; 250,000,000 shares authorized; 214,286,337 and 181,803,320 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
   
214
     
182
 
Additional
paid-in
capital
   
882,541
     
778,953
 
Accumulated deficit
   
(702,418
   
(684,125
                 
Total stockholders’ equity
   
180,337
     
95,010
 
                 
Total liabilities and stockholders’ equity
  $
198,279
    $
109,114
 
                 
The accompanying notes are an integral part of the unaudited interim financial statements.
4

Table of Contents
ZIOPHARM Oncology, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share data)
 
For the Three Months Ended March 31,
 
 
2020
 
 
2019
 
Operating expenses:
   
     
 
Research and development
 
$
12,706
   
$
9,476
 
General and administrative
   
5,954
     
4,145
 
                 
Total operating expenses
   
18,660
     
13,621
 
                 
Loss from operations
   
(18,660
)    
(13,621
)
Other income, net
   
367
     
187
 
                 
Net loss
  $
(18,293
)   $
(13,434
)
Basic and diluted net loss per share
  $
(0.09
  $
(0.08
)
Weighted average common shares outstanding used to compute basic and diluted net loss per share
   
199,814,768
     
160,640,859
 
                 
The accompanying notes are an integral part of the unaudited interim financial statements.
5

Table of Contents
ZIOPHARM Oncology, Inc.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2019 and 2020
(unaudited)
(in thousands, except share and per share data)
                                         
For the Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
   
Additional Paid
In Capital
 
 
Accumulated
Deficit
 
 
Total Stockholders’
Equity
 
 
Shares
 
 
Amount
 
Balance at December 31, 2018
   
161,066,136
    $
161
    $
651,732
    $
(566,329
)   $
85,564
 
                                         
Stock-based compensation
   
—  
     
—  
     
1,456
     
—  
     
1,456
 
Issuance of restricted common stock
   
1,393,536
     
1
     
999
     
—  
     
1,000
 
Cancelled restricted common stock
   
(7,333
)    
—  
     
—  
     
—  
     
—  
 
Repurchase of restricted common stock
   
(165,178
)    
—  
     
(370
)    
—  
     
(370
)
Net loss
   
     
     
—  
     
(13,434
)    
(13,434
)
                                         
Balance at March 31, 2019
   
162,287,161
    $
162
    $
653,817
    $
(579,763
)   $
74,216
 
                                         
                                         
For the Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
   
Additional Paid
In Capital
Common Stock
 
 
Accumulated
Deficit
 
 
Total Stockholders’
Equity
 
 
Shares
 
 
Amount
 
Balance at December 31, 2019
   
181,803,320
    $
182
    $
778,953
    $
(684,125
)   $
95,010
 
                                         
Stock-based compensation
   
—  
     
—  
     
1,940
     
—  
     
1,940
 
Exercise of employee stock options
   
2,333
     
     
4
     
—  
     
4
 
Issuance of restricted common stock
   
555,900
     
1
     
(1
)    
—  
     
—  
 
Issuance of common stock in connection with a public offering, net of commissions and expenses of $5.9 million
   
29,110,111
     
29
     
88,632
     
     
88,661
 
Issuance of common stock in connection with an at the market offering, net of commissions and expenses of $0.4 million
   
2,814,673
     
2
     
13,013
     
—  
     
13,015
 
Net loss
   
—  
     
—  
     
—  
     
(18,293
)    
(18,293
)
                                         
Balance at March 31, 2020
   
214,286,337
    $
214
    $
882,541
    $
(702,418
)   $
180,337
 
                                         
 
 
 
 
 
The accompanying notes are an integral part of the unaudited interim financial statements.
6

Table of Contents
ZIOPHARM Oncology, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
For the Three Months Ended
March 31,
 
 
2020
 
 
2019
 
Cash flows from operating activities:
   
     
 
Net loss
  $
(18,293
)   $
(13,434
)
Adjustments to reconcile net loss to net cash used in operating activities:
   
     
 
Depreciation
   
142
     
140
 
Stock-based compensation
   
1,940
     
1,456
 
Bonus paid in common stock, net
   
—  
     
630
 
Change in operating assets and liabilities
   
     
 
(Increase) decrease in:
   
     
 
Receivables
   
2,548
     
1,009
 
Prepaid expenses and other current assets
   
2,585
     
(1,058
)
Right of use asset
 
 
193
 
 
 
(1,589
)
Deposits
   
—  
     
(2
)
Other noncurrent assets
   
(556
)    
2,817
 
Increase (decrease) in:
   
     
 
Accounts payable
   
(510
)    
152
 
Accrued expenses
   
2,206
     
(1,929
)
Deferred rent
   
—  
     
17
 
Lease
liabilities
   
(161
   
1,559
 
                 
Net cash used in operating activities
   
(9,906
)    
(10,232
)
                 
Cash flows from investing activities:
   
     
 
Purchases of property and equipment
   
(513
)    
(10
)
                 
Net cash used in investing activities
   
(513
)    
(10
)
                 
Cash flows from financing activities:
   
     
 
Proceeds from exercise of stock options
   
4
     
—  
 
Issuance of common stock in connection with a public offering, net
   
88,661
     
—  
 
Issuance of common stock in connection with at the market offerings, net
   
13,015
     
—  
 
                 
Net cash provided by financing activities
   
101,680
     
—  
 
                 
Net increase (decrease) in cash and cash equivalents, and restricted cash
   
91,261
     
(10,242
)
Cash and cash equivalents, and restricted cash, beginning of period
   
79,741
     
61,729
 
                 
Cash and cash equivalents, and restricted cash, end of period
  $
171,002
    $
51,487
 
                 
Supplementary disclosure of cash flow information:
 
 
 
 
 
 
Compensation paid in restricted stock, gross
  $
—  
    $
1,000
 
                 
Property and equipment included in accrued expenses
  $
2,303
    $
—  
 
                 
The accompanying notes are an integral part of the unaudited interim financial statements.
7

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. Business
Overview
ZIOPHARM Oncology, Inc., which is referred to herein as “ZIOPHARM,” or the “Company,” is a biopharmaceutical company seeking to develop, acquire, and commercialize, on its own or with partners, a diverse portfolio of immuno-oncology therapies.
The Company’s operations to date have consisted primarily of conducting research and development and raising capital to fund those efforts. The Company’s fiscal year ends on December 31.
The Company has operated at a loss since its inception in 2003 and has no recurring revenues from operations. The Company anticipates that losses will continue for the foreseeable future. As of March 31, 2020, the Company had approximately $171.0 million of cash and cash equivalents and the Company’s accumulated deficit was approximately $702.4 million. Given its current development plans, the Company anticipates cash resources will be sufficient to fund operations into the
mid-2022.
 The Company’s ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing or to achieve profitable operations, as to which no assurances can be given. Cash requirements may vary materially from those now planned because of changes in the Company’s focus and direction of its research and development programs, competitive and technical advances, patent developments, regulatory changes or other developments. If adequate additional funds are not available when required, or if the Company is unsuccessful in entering into partnership agreements for further development of its product candidates, management may need to curtail its development efforts and planned operations to conserve cash.
Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form
10-Q
pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and note disclosures required by generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations.
It is management’s opinion that the accompanying unaudited interim financial statements reflect all adjustments (which are normal and recurring) that are necessary for a fair statement of the results for the interim periods. The unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2019 filed with the SEC on March 2, 2020, or the
Annual Report
.
The
year-end
balance sheet data was derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States.
The results disclosed in the statements of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.
8

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. Business (Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.
The Company’s most significant estimates and judgments used in the preparation of its financial statements are:
 
Clinical trial expenses;
 
Collaboration agreements;
 
Fair value measurements of stock-based compensation; and
 
Income taxes
Impact of COVID-19 Pandemic
With the global spread of the ongoing COVID-19 pandemic in the first quarter of 2020, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business. The extent to which the COVID-19 pandemic impacts the Company’s business, clinical development and regulatory efforts and the value of its common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its business plan and strategy, as well as risks and uncertainties common to companies in the biopharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidates; delays or problems in obtaining clinical supply, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; biopharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of complying with applicable regulatory requirements. In addition, to the extent the ongoing COVID-19 pandemic adversely affects its business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.
Subsequent Events
The Company evaluated all events and transactions that occurred after the balance sheet date through the date of this filing. During this period, the Company did not have any material subsequent events that impacted its financial statements or disclosures.
9

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
2. Financings
February 2020 Public Offering
On February 5, 2020, the Company entered into an underwriting agreement with Jefferies, as representative of the several underwriters named therein, relating to the issuance and sale of 27,826,086 shares of its common stock. The price to the public in the offering was $3.25 per share, and the underwriters agreed to purchase the shares from the Company pursuant to the underwriting agreement at a purchase price of $3.055 per share. Under the terms of the underwriting agreement, the Company also granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 4,173,912 shares of common stock at a purchase price of $3.055 per share.
The offering was made pursuant to the Company’s effective registration statement on Form
S-3ASR
(File No.
 333-232283)
previously filed with the SEC, and a prospectus supplement thereunder. The underwriters purchased the 27,826,086 shares on February 5, 2020. The net proceeds from the offering were approximately $84.8 million after deducting underwriting discounts and offering expenses paid by the Company.
On March 10, 2020, the underwriters exercised their option to purchase an additional 1,284,025 shares. The net proceeds were approximately $3.9 million after deducting underwriting discounts and offering expenses paid by the Company.
At-the-Market
Offering
During the three months ended March 31, 2020, the Company sold an aggregate of 2,814,673 shares of its common stock. The offering was made pursuant to the Company’s effective registration statement on Form
S-3ASR
(Registration Statement No.
 333-232283)
previously filed with the SEC, and a prospectus supplement thereunder. The net proceeds from the offering were approximately $13.0 million after deducting underwriting discounts and estimated offering expenses payable by the Company. There were no similar sales during the three months ended March 31, 2019.
3. Summary of Significant Accounting Policies
The Company’s significant accounting policies were identified in the Company’s Annual Report. There have been no material changes in those policies since the filing of its Annual Report except as noted below.
New Accounting Pronouncements
In August 2018, the FASB issued ASU No.
 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
, or ASU
2018-03.
The guidance in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Under the new guidance, transfers between asset classes and the valuation related to level 3 assets is modified. The new standard is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within each annual reporting period. The adoption did not have a material impact on the Company’s financial statements.
10

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
4. Fair Value Measurements
The Company accounts for its financial assets and liabilities using fair value measurements. The authoritative accounting guidance defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:
  Level 1 - Quoted prices in active markets for identical assets or liabilities.
  Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
  Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 were as follows:
($ in thousands)
 
   
Fair Value Measurements at Reporting Date Using
 
Description
 
Balance as of
March 31, 2020
   
Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Assets:
   
     
     
     
 
Cash equivalents
  $
74,343
    $
74,343
    $
 —  
    $
 —  
 
                                 
($ in thousands)
 
   
Fair Value Measurements at Reporting Date Using
 
Description
 
Balance as of
December 31, 2019
   
Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Assets:
   
     
     
     
 
Cash equivalents
  $
68,031
    $
68,031
    $
 —  
    $
 —  
 
                                 
11

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
4. Fair Value Measurements (Continued)
The cash equivalents represent deposits in short-term United States treasury money market mutual funds quoted in an active market and classified as a Level 1 asset.
5. Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. The Company’s potentially dilutive shares, which include outstanding common stock options, unvested restricted stock and preferred stock, have not been included in the computation of diluted net loss per share for any of the periods presented as the result would be anti-dilutive. Such potentially dilutive shares of common stock at March 31, 2020 and 2019 consisted of the following:
 
March 31,
 
 
2020
 
 
2019
 
Stock options
   
6,676,879
     
5,416,085
 
Inducement stock options
   
1,030,000
     
500,000
 
Unvested restricted stock
   
1,495,536
     
1,621,845
 
Warrants
   
22,272,727
     
18,939,394
 
                 
 
31,475,142
   
26,477,324
 
                 
6. Commitments and Contingencies
License Agreements
Exclusive License Agreement with PGEN Therapeutics
On October 5, 2018, the Company entered into the License Agreement, with PGEN Therapeutics, or PGEN, a wholly owned subsidiary of Precigen Inc., or Precigen, which was formerly known as Intrexon Corporation. As between the Company and PGEN, the terms of the License Agreement replace and supersede the terms of: (a) that certain Exclusive Channel Partner Agreement by and between the Company and Precigen, dated January 6, 2011, as amended by the First Amendment to Exclusive Channel Partner Agreement effective September 13, 2011, the Second Amendment to the Exclusive Channel Partner Agreement effective March 27, 2015, and the Third Amendment to Exclusive Channel Partner Agreement effective June 29, 2016, which was subsequently assigned by Precigen to PGEN; (b) certain rights and obligations pursuant to that certain License and Collaboration Agreement effective March 27, 2015 between the Company, Precigen and ARES TRADING Trading S.A., or Ares Trading, a subsidiary of Merck KGaA, or Merck, as assigned by Precigen to PGEN, or the Ares Trading Agreement; (c) that certain License Agreement between the Company, Precigen, and MD Anderson, with an effective date of January 13, 2015, or the MD Anderson License, which was subsequently assigned by Precigen and assumed by PGEN effective as of January 1, 2018; and (d) that certain Research and Development Agreement between the Company, Precigen and MD Anderson with an effective date of August 17, 2015, or the Research and Development Agreement, and any amendments or statements of work thereto.
12

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
6. Commitments and Contingencies (Continued)
Pursuant to the terms of the License Agreement, PGEN has granted the Company exclusive, worldwide rights to research, develop and commercialize (i) products utilizing PGEN’s RheoSwitch
®
gene switch, or RTS
®
, for the treatment of cancer, referred to as
IL-12
Products, (ii) CAR products directed to (A) CD19 for the treatment of cancer, referred to as CD19 Products, and (B) a second target for the treatment of cancer, subject to the rights of Ares Trading to pursue such target under the Ares Trading Agreement, and (iii)
 T-cell
receptor, or TCR, products designed for neoantigens for the treatment of cancer. PGEN has also granted the Company an exclusive, worldwide, royalty-bearing,
sub-licensable
license for certain patents relating to the
Sleeping Beauty
technology to research, develop and commercialize TCR products for both neoantigens and shared antigens for the treatment of cancer, referred to as TCR Products.
The Company is solely responsible for all aspects of the research, development and commercialization of the exclusively licensed products for the treatment of cancer. The Company is required to use commercially reasonable efforts to develop and commercialize
IL-12
Products and CD19 Products and after a
two-year
period, the TCR Products.
PGEN has also granted the Company an exclusive, worldwide, royalty-bearing,
sub-licensable
license to research, develop and commercialize products utilizing an additional construct that expresses RTS
IL-12
for the treatment of cancer, referred to as Gorilla
IL-12
Products.
In consideration of the licenses and other rights granted by PGEN, the Company will pay PGEN an annual license fee of
 
$0.1 
million. The Company paid
 $0.1 
million during the three months ending March 31, 2020. The Company did 
not
make any annual license payments for the three months ended March 31, 2019.
The Company will also make milestone payments totaling up to an
 additional $52.5 million
for each exclusively licensed program upon the initiation of later stage clinical trials and upon the approval of exclusively licensed products in various jurisdictions. In addition, the Company will pay PGEN tiered royalties ranging from
low-single
digit to high-single digit on the net sales derived from the sales of any approved
IL-12
Products and CAR Products. The Company will also pay PGEN royalties ranging from
low-single
digit to
mid-single
digit on the net sales derived from the sales of any approved TCR Products, up to a maximum royalty
 amount of $100.0 million in the aggregate. The Company will also pay PGEN 20% of any sublicensing income received by the Company relating to the licensed products.
The Company is responsible for all development costs associated with each of the licensed products, other than Gorilla
IL-12
Products. The Company and PGEN will share the development costs and operating profits for Gorilla
IL-12
Products, with the Company responsible for 80% of the development costs and receiving 80% of the operating profits, and PGEN responsible for the remaining 20% of the development costs and receiving 20% of the operating profits.
PGEN will pay the Company royalties ranging from
low-single
digits to
mid-single
digits on the net sales derived from the sale of PGEN’s CAR products, up to $50.0 million.
For
 the three months ended March 31, 2020, there were no liabilities and expenses for services performed by PGEN. As of March 31, 2019, the Company recorded $0.9 million in current liabilities for amounts due to PGEN. For the three months ended March 31, 2019, the Company expensed $1.2 million for services performed by PGEN.
13

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
6. Commitments and Contingencies (Continued)
License Agreement—The University of Texas MD Anderson Cancer Center
On January 13, 2015, the Company, together with Precigen, entered into the MD Anderson License with MD Anderson (which Precigen subsequently assigned to PGEN). Pursuant to the MD Anderson License, the Company, together with Precigen, holds an exclusive, worldwide license to certain technologies owned and licensed by MD Anderson including technologies relating to novel CAR
T-cell
therapies,
non-viral
gene transfer systems, genetic modification and/or propagation of immune cells and other cellular therapy approaches, Natural Killer, or NK Cells, and TCRs, arising from the laboratory of Laurence Cooper, M.D., Ph.D., who became the Company’s Chief Executive Officer in May 2015 and was formerly a tenured professor of pediatrics at MD Anderson and is now currently a visiting scientist under that institution’s policies.
The term of the MD Anderson License expires on the last to occur of (a) the expiration of all patents licensed thereunder, or (b) the twentieth anniversary of the date of the MD Anderson License; provided, however, that following the expiration of the term of the MD Anderson License, the Company, together with PGEN, shall then have a fully-paid up, royalty free, perpetual, irrevocable and sublicensable license to use the licensed intellectual property thereunder. After ten years from the date of the MD Anderson License and subject to a 90-day cure period, MD Anderson will have the right to convert the MD Anderson License into a non-exclusive license if ZIOPHARM and PGEN are not using commercially reasonable efforts to commercialize the licensed intellectual property on a case-by-case basis. After five years from the date of the MD Anderson License and subject to a 180-day cure period, MD Anderson will have the right to terminate the MD Anderson License with respect to specific technology(ies) funded by the government or subject to a third-party contract if the Company and PGEN are not meeting the diligence requirements in such funding agreement or contract, as applicable. MD Anderson may also terminate the agreement with written notice upon material breach by the Company and PGEN, if such breach has not been cured within 60 days of receiving such notice. In addition, the MD Anderson License will terminate upon the occurrence of certain insolvency events for both the Company and PGEN and may be terminated by the mutual written agreement of the Company, PGEN, and MD Anderson.
On August 17, 2015, the Company, Precigen and MD Anderson entered into the Research and Development, or the 2015 Agreement to formalize the scope and process for the transfer by MD Anderson, pursuant to the terms of the MD Anderson License, of certain existing research programs and related technology rights, as well as the terms and conditions for future collaborative research and development of new and ongoing research programs.
Pursuant to the 2015 Agreement, the Company, Precigen and MD Anderson formed a joint steering committee to oversee and manage the new and ongoing research programs. Under the License Agreement with PGEN, the Company and PGEN agreed that PGEN would no longer participate on the joint steering committee after the date of the License Agreement. As provided under the MD Anderson License, the Company provided funding for research and development activities in support of the research programs under the Research and Development Agreement for a period of three years and in an amount of no less than $15.0 million and no greater than $20.0 million per year.
On October 22, 2019, the Company entered into an amendment to the Research and Development Agreement extending its term until December 31, 2026.
During the three months ended March 31, 2020 and 2019, the Company made no payments to MD Anderson. The net balance of cash resources on hand at MD Anderson available to offset expenses and future costs is $18.0 million, which is included in prepaid expenses and other current assets on the Company’s balance sheet at March 31, 2020.
On October 22, 2019, the Company entered into the 2019 Research and Development Agreement, or the 2019 Agreement, with The University of Texas M.D. Anderson Cancer Center, or MD Anderson, pursuant to which the parties agreed to collaborate with respect to the Company’s
Sleeping Beauty
immunotherapy program, which uses
non-viral
gene transfer to stably express and clinically evaluate neoantigen-specific TCRs in T cells. Under the 2019 Agreement, the parties will, among other things, collaborate on programs to expand the Company’s TCR library and conduct clinical trials.
The Company will own all intellectual property developed under the 2019 Agreement and will retain all rights to intellectual property for oncology products manufactured using
non-viral
gene transfer technologies under the Agreement, including the Company’s
Sleeping Beauty
technology. The Company has granted MD Anderson an exclusive license for such intellectual property outside the field of oncology and to develop and commercialize autologous TCR products manufactured using viral gene transfer technologies, and a
non-exclusive
license for allogeneic TCR products manufactured using viral-based technologies.
14

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
6. Commitments and Contingencies (Continued)
The Company has agreed, beginning on January 1, 2021, to reimburse MD Anderson up to a total of $20.0 million for development costs under the 2019 Agreement. In addition, the Company will pay MD Anderson royalties on net sales of its TCR products at rates in the low single digits. The Company is required to make performance-based payments upon the successful completion of clinical and regulatory benchmarks relating to its TCR products. The aggregate potential benchmark payments are $36.5 million, of which only $3.0 million will be due prior to the first marketing approval of the Company’s TCR products. The royalty rates and benchmark payments owed to MD Anderson may be reduced upon the occurrence of certain events. The Company also agreed that it will sell the Company’s TCR products to MD Anderson at preferential prices and will sell its TCR products in Texas exclusively to MD Anderson for a limited period of time following the first commercial sale of the Company’s TCR products.
In connection with the execution of the 2019 Agreement, the Company issued MD Anderson a warrant to purchase 3,333,333 shares of common stock. Refer to Note 9 –
Warrants
for further details.
License Agreement with the National Cancer Institute
On May 28, 2019, the Company entered into a patent license agreement, or the Patent License, with the National Cancer Institute, or the NCI. Pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property to develop and commercialize patient-derived (autologous), peripheral blood
T-cell
therapy products engineered by transposon-mediated gene transfer to express TCRs reactive to mutated KRAS, TP53 and EGFR. In addition, pursuant to the Patent License, the Company holds an exclusive, worldwide license to certain intellectual property for manufacturing technologies to develop and commercialize autologous, peripheral blood
T-cell
therapy products engineered by
non-viral
gene transfer to express TCRs, as well as a
non-exclusive,
worldwide license to certain additional manufacturing technologies.
Pursuant to the terms of the Patent License, the Company is required to pay the NCI a cash payment in the aggregate amount of $1.5 million payable in $0.5 million installments within sixty days,
six-months,
and the twelve-month anniversary of the effective date of the agreement of the Patent License.
The $1.5 million was expensed in the second quarter of 2019 with $0.5 million remaining in current liabilities at Mar
ch 31, 2020.
The Company also reimbursed the NCI for past patent expenses in the aggregate amount of approximately $46 thousand.
15

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
6. Commitments and Contingencies (Continued)
The terms of the Patent License also require the Company to pay the NCI minimum annual royalties in the amount of $0.3 million, which amount will be reduced to $0.1 million once the aggregate minimum annual royalties paid by the Company equals $1.5 million. The first minimum annual royalty payment is payable on the date that is eighteen months following the date of the Patent License. As of March 31, 2020, the Company included a prepayment of $0.3 million related to the Patent License as prepaid expenses and other current assets on the Company’s Balance Sheet.
The Company is also required to make performance-based payments upon successful completion of clinical and regulatory benchmarks relating to the licensed products. The aggregate potential benchmark payments are $4.3 million, of which aggregate payments of $3.0 million are due only after marketing approval in the United States or in Europe, Japan, Australia, China or India. The first benchmark payment of $0.1 million will be due upon the initiation of the Company’s first sponsored phase 1 clinical trial of a licensed product or licensed process in the field of use licensed under the Patent License.
In addition, the Company is required to pay the NCI
one-time
benchmark payments following aggregate net sales of licensed products at certain net sales up to $1.0 billion. The aggregate potential amount of these benchmark payments is $12.0 million. The Company must also pay the NCI royalties on net sales of products covered by the Patent License at rates in the low to
mid-single
digits depending upon the technology included in a licensed product. To the extent the Company enters into a sublicensing agreement relating to a licensed product, the Company is required to pay the NCI a percentage of all consideration received from a sublicensee, which percentage will decrease based on the stage of development of the licensed product at the time of the sublicense.
The Patent License will expire upon expiration of the last patent contained in the licensed patent rights, unless terminated earlier. The NCI may terminate or modify the Patent License in the event of a material breach, including if the Company does not meet certain milestones by certain dates, or upon certain insolvency events that remain uncured following the date that is 90 days following written notice of such breach or insolvency event. The Company may terminate the Patent License, or any portion thereof, in the Company’s sole discretion at any time upon 60 days’ written notice to the NCI. In addition, the NCI has the right to: (i) require the Company to sublicense the rights to the product candidates covered by the Patent License upon certain conditions, including if the Company is not reasonably satisfying required health and safety needs and (ii) terminate or modify the Patent License, including if the Company is not satisfying requirements for public use as specified by federal regulations.
On January 8, 2020, the Company entered into an amendment to the patent license agreement which expanded the TCR library to include additional TCR’s reactive to mutated KRAS and TP53. Under the amendment, the Company paid $0.6 million during the three months ending March 31, 2020.
Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute
On January 10, 2017, the Company announced the signing of a CRADA, with the NCI for the development of adoptive cell transfer, or ACT,-based immunotherapies genetically modified using the
Sleeping Beauty
transposon/transposase system to express TCRs for the treatment of solid tumors. The principal goal of the CRADA is to develop and evaluate ACT for patients with advanced cancers using autologous peripheral blood lymphocytes, or PBL, genetically modified using the
non-viral
Sleeping Beauty
system to express TCRs that recognize neoantigens expressed within a patient’s cancer. Research conducted under the CRADA will be at the direction of Steven A. Rosenberg, M.D., Ph.D., Chief of the Surgery Branch at the NCI, in collaboration with the Company’s researchers and PGEN researchers. In February 2019, the Company extended the CRADA with the NCI for two years, committing an additional $5.0 million to this program.
 
As of March 31, 2020, the Company recorded a liability of $0.6 million in accrued expenses. The Company paid $0.6 million during the three months ended March 31, 2019.
16

Table of Contents
ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
6. Commitments and Contingencies (Continued)
Ares Trading License and Collaboration Agreement
On March 27, 2015, the Company, together with PGEN, signed the Ares Trading Agreement, with Ares Trading S.A., a subsidiary of the biopharmaceutical business of Merck KGaA, Darmstadt, Germany, through which the parties established a collaboration for the research and development and commercialization of certain products for the prophylactic, therapeutic, palliative or diagnostic use for cancer in humans.
PGEN was entitled to receive $5.0 million, from Ares Trading, payable in equal quarterly installments over two years for each identified product candidate, which will be used to fund discovery work. The Company was responsible for costs exceeding the quarterly installments and all other costs of the preclinical research and development. For the three months ended March 31, 2020 and 2019, the Company incurred no expenses under the Ares Trading Agreement.
Ares Trading paid a
non-refundable
upfront fee of $115.0 million to PGEN as consideration for entry into the Ares Trading Agreement. Pursuant to the Third Amendment to Exclusive Channel Partner Agreement, or the 2016 ECP Amendment, the Company was entitled to receive 50% of the upfront fee, or $57.5 million, which was received from PGEN in July 2015.
Patent and Technology License Agreement—The University of Texas MD Anderson Cancer Center and the Texas A&M University System
On August 24, 2004, the Company entered into a patent and technology license agreement with MD Anderson and the Texas A&M University System, which the Company refers to, collectively, as the Licensors. Under this agreement, the Company was granted an exclusive, worldwide license to rights (including rights to U.S. and foreign patent and patent applications and related improvements and
know-how)
for the manufacture and commercialization of two classes of organic arsenicals (water- and lipid-based) for human and animal use. The class of water-based organic arsenicals includes darinaparsin.
Under the terms of the agreement, the Company may be required to make additional payments to the Licensors upon achievement of certain other milestones in varying amounts which, on a cumulative basis could total up to an additional $4.5 million. In addition, the Licensors are entitled to receive single digit percentage royalty payments on sales from a licensed product and will also be entitled to receive a portion of any fees that the Company may receive from a possible sublicense under certain circumstances.
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ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
6. Commitments and Contingencies (Continued)
Collaboration Agreement with Solasia Pharma K.K.
On March 7, 2011, the Company entered into a License and Collaboration Agreement with Solasia Pharma K.K., or Solasia
,
which was amended on July 31, 2014 to include an exclusive worldwide license. Pursuant to the License and Collaboration Agreement, the Company granted Solasia an exclusive license to develop and commercialize darinaparsin in both intravenous and oral forms and related organic arsenic molecules, in all indications for human use.
As consideration for the license, the Company is eligible to receive from Solasia development- and sales-based milestones, a royalty on net sales of darinaparsin, once commercialized, and a percentage of any sublicense revenues generated by Solasia. Solasia will be responsible for all costs related to the development, manufacturing and commercialization of darinaparsin. The Company’s Licensors, as defined in the agreement, will receive a portion of all milestone and royalty payments made by Solasia to the Company in accordance with the terms of the license agreement with the Licensors.
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ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
7. Leases
 
In June 2012, the Company entered into a master lease for the Company’s corporate
 office
headquarters in Boston, which was originally set to expire in August 2016, but renewed through August 31, 2021. As of March 31, 2020 and December 31, 2019, a total security deposit of $0.1 million is included in deposits on the Company’s balance sheet.
On January 
30
,
2018
, the Company entered into a lease agreement for office space in Houston at MD Anderson. Under the terms of the Houston lease agreement, the Company leases approximately two hundred and ten square feet and are required to make rental payments at an average monthly rate of approximately $
1
 thousand through
April 2021
. All future rent expense incurred in Houston, will be deducted from the Company’s prepayments at MD Anderson.
On March 12, 2019, the Company entered into a lease agreement for office space in Houston. Under the terms of the Houston lease agreement, the Company leases approximately one thousand and thirty-eight square feet and is required to make rental payments at an average monthly rate of approximately $2.0 thousand through April 2021. On October 15, 2019, the Company entered into a lease agreement for additional office space in Houston. Under the terms of the Second Houston Lease, the Company leases approximately eight thousand four hundred and forty-three square feet and is initially required to make rental payments of approximately $17.0 thousand through February 2027, subject to an annual base rent increase of approximately 3.0% throughout the term
.
The components of lease expense were as follows:
 
 
Three Months Ended March 31,
 
(in thousands)
 
2020
   
2019
 
Operating lease cost
  $
236
    $
178
 
                 
Total lease cost
  $
236
    $
178
 
 
 
 
 
 
 
 
 
 
Weighted-average remaining lease term (years)
   
4.39
     
2.40
 
Weighted-average discount rate
   
8.00
%    
8.00
%
As of March 31, 2020, the maturities of the Company’s operating lease liabilities for the years ended December 31, were as follows (in thousands):
Maturity of Lease Liabilities
 
Operating Leases
 
2020 (excluding the three months ended March 31, 2020)
 
$
720
 
2021
   
701
 
2022
   
213
 
2023
   
220
 
2024
   
226
 
Thereafter
   
514
 
         
Total lease payments
   
2,594
 
Less: Imputed Interest and Adjustments
   
(403
)
         
Present value of lease payments
  $
2,191
 
         
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ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
8
. Stock-Based Compensation
The Company recognized stock-based compensation expense on all employee and
non-employee
awards as follows:
                 
 
For the three months ended March 31,
 
(in thousands)
 
2020
   
2019
 
Research and development
  $
530
    $
433
 
General and administrative
   
1,410
     
1,023
 
                 
Stock-based compensation expense
  $
1,940
    $
1,456
 
                 
 
 
 
 
The Company granted an aggregate of 896,000 stock options during the three months ended March 31, 2020 with a weighted-average grant date fair value of $2.64 per share. The Company granted an aggregate of 1,496,333 stock options during the three months ended March 31, 2019 with a weighted average grant date fair value of $1.62 per share.
On January 6, 2019, the Company paid an accrued annual performance bonus by issuing 446,428 shares of common stock.
For the three months ended March 31, 2020 and 2019, the fair value of stock options was estimated on the date of grant using a Black-Scholes option valuation model with the following assumptions:
                 
 
For the three months ended 
March 31
,
 
 
2020
 
 
2019
 
Risk-free interest rate
   
0.50
 -
 1.68%
     
2.28
 -
 2.53%
 
Expected life in years
   
6 - 6.25
     
6 - 6.25
 
Expected volatility
   
71.11
 -
 73.01%
     
78.87
 -
 85.00%
 
Expected dividend yield
   
0%
     
0%
 
 
 
 
 
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ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
8. Stock-Based Compensation (Continued)
Stock option activity under the Company’s stock option plan for the three months ended March 31, 2020 is as follows:
                                 
(in thousands, except share and per share data)
 
Number of
Shares
 
 
Weighted-
Average
Exercise Price
 
 
Weighted-
Average
Contractual
Term (Years)
 
 
Aggregate
Intrinsic Value
 
Outstanding, December 31, 2019
   
5,842,879
    $
3.21
     
     
 
Granted
   
896,000
     
4.17
     
     
 
Exercised
   
(2,333
)    
1.87
     
     
 
Cancelled
   
(59,667
)    
4.67
     
     
 
                                 
Outstanding, March 31, 2020
   
6,676,879
    $
3.95
     
8.15
    $
864
 
                                 
Options exercisable, March 31, 2020
   
3,024,728
    $
4.05
     
6.83
    $
509
 
                                 
Options exercisable, December 31, 2019
   
2,765,357
    $
     4.39
     
6.70
    $
     3,603
 
                                 
Options available for future grant
   
1,066,275
     
     
     
 
                                 
 
 
 
 
At March 31, 2020, total unrecognized compensation costs related to unvested stock options outstanding amounted to $10.1 million. The cost is expected to be recognized over a weighted-average period of 1.78 years.
A summary of the status of unvested restricted stock for the
three
 months ended March 31, 2020 is as follows:
                 
 
Number of Shares
 
 
Weighted-Average

Grant Date Fair Value
 
Non-vested,
December 31, 201
9
   
939,636
    $
2.93
 
Granted
   
555,900
     
4.21
 
Vested
   
  
     
  
 
Cancelled
   
  
     
  
 
                 
Non-vested,
March 31, 2020
   
1,495,536
    $
     3.41
 
                 
 
 
 
 
At March 31, 2020, total unrecognized compensation costs related to unvested restricted stock outstanding amounted to $4.5 million. The cost is expected to be recognized over a weighted-average period of 1.59 years.
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ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
9
. Warrants
In connection with the Company’s November 2018 private placement which provided net proceeds of approximately $47.1 million, the Company issued warrants to purchase an aggregate of 18,939,394 shares of common stock which became exercisable six months after the closing of the private placement. The warrants have an exercise price of $3.01 per share and have a five-year term. The relative fair value of the warrants was estimated at $18.4 million using a Black-Scholes model with the following assumptions: expected volatility of 71%, risk free interest rate of 2.99%, expected life of five years and no dividends.
The Company assessed whether the warrants require accounting as derivatives. The Company determined that the warrants were (1) indexed to the Company’s own stock and (2) classified in stockholders’ equity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815,
Derivatives and Hedging
. As such, the Company has concluded the warrants meet the scope exception for determining whether the instruments require accounting as derivatives and should be classified in stockholders’ equity.
On July 26, 2019 and September 12, 2019, the Company entered into agreements with existing investors for the exercise of previously issued warrants to purchase common stock in a private placement. Pursuant to the terms of the agreements, investors exercised their 2018 warrants for an aggregate of 17,803,031 shares of common stock, at an exercise price of $3.01 per share. The warrants exercised were originally issued by the Company in
the November 2018
 private placement. Proceeds from the warrant exercise, after deducting placement agent fees and other related expenses of $1.1 million were approximately $52.5 million. The Company issued participating investors new warrants to purchase up to 17,803,031 additional shares of common stock as an inducement for the warrant holders to exercise their 2018 warrants early. The 2019 warrants will expire on the fifth anniversary of the initial exercise date and have an exercise price of $7.00. The 2019 warrants were valued using a Black-Scholes valuation model and resulted in a $60.8 million
non-cash
charge to the Company’s statement of operations in 2019.
On October 22, 2019, the Company entered into the 2019 Agreement with MD Anderson. In connection with the execution of the 2019 Agreement, the Company issued MD Anderson a warrant to purchase 3,333,333 shares of common stock. The warrant has an initial exercise price of $0.001 per share and grant date fair value of $14.5 million. The warrant expires on December 31, 2026 and vests upon the occurrence of certain clinical milestones. The Company will recognize expense on the warrant in the same manner as if the Company paid cash for services to be rendered.
For the three months ended March 31, 2020, work related to the clinical milestones has not been started and therefore the Company did not recognize any expense related to the warrant.
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ZIOPHARM Oncology, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
1
0
. Joint Venture
On December 18, 2018, the Company entered into a Framework Agreement with TriArm Therapeutics, Ltd., or TriArm, pursuant to which the parties agreed to launch Eden BioCell, Ltd., or Eden BioCell, to lead clinical development and commercialization of certain Sleeping Beauty-generated CAR-T therapies as set forth in a separate license agreement.
On January 3, 2019, Eden BioCell was incorporated in Hong Kong as a private company. Eden BioCell, the Company and TriArm entered into a Share Subscription Agreement on January 23, 2019, where the Company and TriArm agreed to contribute certain intellectual property, services and cash (only with respect to TriArm) to Eden BioCell to subscribe for a certain number of newly issued ordinary shares in the share capital of Eden BioCell. On the closing date, upon the issuance and subscription of the shares, in respect of the aforementioned consideration, 10,000,000 ordinary shares were issued to the Company and 10,000,000 ordinary shares were issued to TriArm.
The closing of the transaction occurred on July 5, 2019. The Framework Agreement and Share Subscription Agreements were each respectively amended to be effective as of this date. Upon consummation of the joint venture, Eden BioCell and the Company also entered into a license agreement, pursuant to which the Company licensed the rights to Eden BioCell for third-generation
Sleeping Beauty
-generated
CAR-T
therapies targeting the CD19 antigen for the territory of China (including Macau and Hong Kong), Taiwan and Korea. Eden BioCell will be responsible for certain milestone and royalty payments to related to the Company’s license agreements with MD Anderson and PGEN (Note
6
). TriArm entered into a Master Services Agreement with Eden BioCell and contributed $10.0 million of cash on the closing date. TriArm also committed to contribute an additional $25.0 million to Eden BioCell over time through the achievement of specified milestones. TriArm and the Company each received a 50% equity interest in the joint venture in exchange for their contributions to Eden BioCell.
As of July 5, 2019, as a result of the design and purpose of Eden BioCell, the Company determined that Eden BioCell was considered a variable interest entity, or VIE, and concluded that it is not the primary beneficiary of the VIE as it did not have the power to direct the activities of the VIE that most significantly impact its performance. Rather, the Company accounts for the equity interest in Eden BioCell under the equity method of accounting as it has the ability to exercise significant influence over the operations of Eden BioCell.
The Company determined that Eden BioCell was not a customer and therefore, accounted for the transaction as the transfer of nonfinancial assets to be recognized at their fair value on the contribution date. The fair value of the intellectual property contributed to Eden BioCell had a de minimis value due to the early stage of the technology and the likelihood of clinical success.
Due to the de minimis fair value of the intellectual property contributed, the Company did not record a gain or loss on this transaction and recognized no value for its equity-method investment.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission, or the SEC, on March 2, 2020, or the Annual Report.
Except for the historical information contained herein, the matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, words such as “may,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.
Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.
The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors.
We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing next generation immuno-oncology platforms that leverage cell- and gene-based therapies to treat patients with cancer. We are developing two immuno-oncology platform technologies that utilize the immune system by employing innovative cell engineering and novel, controlled gene expression technologies designed to deliver safe, effective, and scalable non-viral cell- and viral-based gene therapies for the treatment of multiple cancer types. Our first platform is referred to as
Sleeping Beauty
and is based on the genetic engineering of immune cells using a non-viral transposon/transposase system that is intended to stably reprogram T cells outside of the body for subsequent infusion. Our second platform is referred to as Controlled IL-12 and is designed to stimulate expression of interleukin 12, or IL-12, a master regulator of the immune system, in a controlled and safe manner to focus the patient’s immune system to more effectively attack cancer cells. We intend to use both of our platforms to become a leading immuno-oncology company focused on developing innovative, cost-effective therapies primarily aimed at the large unmet needs in solid tumors.
Using our
Sleeping Beauty
platform, we are developing T cell receptor, or TCR, T cell therapies to target solid tumors. Our program designs and manufactures T cells that are intended to target tumor-specific antigens, thereby delivering personalized therapy that can attack patients’ malignancies. These genetic changes are referred to as neoantigens as they are only expressed by the tumor, reducing the potential for toxicity upon targeting normal cells. Under our Cooperative Research and Development Agreement, the National Cancer Institute, or NCI, is conducting a phase 2 clinical trial to evaluate autologous peripheral blood lymphocytes genetically modified with the
Sleeping Beauty
system to express autologous (personalized) TCRs. The U.S. Food and Drug Administration, or FDA, has cleared the investigational new drug, or IND, application submitted by the NCI for this clinical trial. The trial was initiated in October 2019 and preparations to enable patient enrollment by the NCI are underway. We expect the trial will enroll patients with a broad range of solid tumors over the next several years. In addition, we are currently planning a clinical program to study our TCR approach with The University of Texas MD Anderson Cancer Center, or MD Anderson. Under this program, we expect to clinically evaluate both our Personalized TCR Approach and our Library TCR Approach.
Our Controlled IL-12 platform uses virotherapy based on an engineered replication-incompetent adenovirus, referred to as Ad-RTS-hIL-12, plus veledimex as a gene delivery system to conditionally produce IL-12, a potent, naturally occurring anti-cancer protein, to treat patients with solid tumors where a specific target is unknown. Our Controlled IL-12 platform
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Table of Contents
allows us to deliver IL-12 in a tunable dose as the cytokine is under transcriptional control of the RheoSwitch Therapeutic System
®
(RTS
®
). We are currently studying our Controlled IL-12 Platform as a monotherapy in a Phase 1 clinical trial of patients with recurrent glioblastoma multiforme, or rGBM. Our substudy of this clinical trial is fully enrolled with 36 patients and is designed to encourage use of low-dose steroids and 20 mg veledimex to further understand the potential of Controlled IL-12 as a monotherapy. We are also developing our Controlled IL-12 platform in combination with immune checkpoint inhibitors. We have completed dosing in a Phase 1 dose-escalation clinical trial of Ad-RTS-hIL-12 plus veledimex in combination with PD-1 antibody OPDIVO
®
(nivolumab) in patients with rGBM. Dosing is ongoing in a Phase 2 clinical trial evaluating Ad-RTS-hIL-12 plus veledimex in combination with PD-1 antibody Libtayo
®
(cemiplimab-rwlc) for the treatment of recurrent or progressive glioblastoma multiforme in adults.
We are developing chimeric antigen receptor, or CAR, T cell, or CAR+ T, therapies targeting CD19 on malignant B cells using our
Sleeping Beauty
platform in collaboration with MD Anderson. In a Phase 1 trial, we plan to infuse donor-derived T cells after allogeneic bone marrow transplantation, or BMT, for recipients who have relapsed with CD19+ leukemias and lymphomas with our CD19-specific CAR+ T therapies manufactured using our rapid personalized manufacture, or RPM, technology. RPM enables T cells to be infused as soon as the day after gene transfer which is made possible by the genetic modification of resting T cells to express CAR and membrane bound IL-15, or mbIL15. We are also advancing our RPM technology in Greater China with Eden BioCell, Ltd., or Eden BioCell, our joint venture with TriArm Therapeutics, Ltd. Eden BioCell will lead the clinical development and commercialization of
Sleeping Beauty
-generated CD19-specific RPM CAR+ T therapies using patient-derived (autologous) T cells in order to treat patients with relapsed or refractory CD19+ leukemias and lymphomas.
We have not generated significant revenue and have incurred significant net losses in each year since our inception. For the three months ended March 31, 2020, we had a net loss of $18.3 million, and, as of March 31, 2020, we have incurred approximately $702.4 million of accumulated deficit since our inception in 2003. We expect to continue to incur significant operating expenditures and net losses. Further development of our product candidates will likely require substantial increases in our expenses as we:
  continue to undertake clinical trials for product candidates;
  seek regulatory approvals for product candidates;
  work with regulatory authorities to identify and address program-related inquiries;
  implement additional internal systems and infrastructure;
  hire additional clinical, scientific and management personnel; and
  scale-up the formulation and manufacturing of our product candidates.
We continue to seek additional financial resources to fund the further development of our product candidates. If we are unable to obtain sufficient additional capital, one or more of these programs could be delayed, and we may be unable to continue our operations at planned levels and be forced to reduce our operations. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.
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Table of Contents
Recent Developments
COVID-19 Business Update
The current
COVID-19
pandemic has presented a significant health and economic challenge around the world and is affecting our employees, partners and business operations. The full extent to which the
COVID-19
pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted.
In response to the global spread of the COVID-19 pandemic, we implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees, our business, including our clinical trials, and our partners. We have implemented work-from-home policies for most of our employees in response to the
COVID-19
pandemic. The effects of our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition. We continue to work with our partners, including the NCI and MD Anderson, to mitigate the impact the
COVID-19
pandemic is having on our business.
Clinical and Regulatory Developments
Under our Cooperative Research and Development Agreement, or CRADA, the NCI is undertaking a phase 2 clinical trial testing autologous peripheral blood lymphocytes genetically modified with the
Sleeping Beauty
system to express TCRs that recognize neoantigens expressed by patients with a broad range of solid tumors. In response to the
COVID-19
pandemic, the NCI has implemented work restrictions that have delayed its activities for this clinical trial. As a result, we have assumed the final product-engineering runs that we expect will enable the NCI to begin enrolling patients more quickly after it has lifted these restrictions.
We recently received feedback from the FDA to our
pre-IND
meeting request for the TCR clinical trial we are planning with MD Anderson. We expect this trial will evaluate treatments using (i) TCR
+
T cells expressing recipient-derived (autologous) TCRs, which we refer to as our Personalized TCR Approach, and (ii) TCR
+
T cells expressing third party (allogeneic) TCRs from a library, which we refer to as our Library TCR Approach. The feedback from the FDA will inform the clinical trial design and IND submission for this clinical trial. We are closely monitoring the impact that
COVID-19
may have on both our and our partners’ ability to prepare for this clinical trial.
Each of the clinical trials of our Controlled
IL-12
program continues to progress. As previously announced, patient enrollment is now complete in our phase 1 clinical trial of adult patients with rGBM evaluating
Ad-RTS-hIL-12
plus daily veledimex in combination with OPDIVO, as well as our Phase 1 clinical trial of patients with rGBM evaluating
Ad-RTS-hIL-12
as a monotherapy. We expect to provide an update for each of these clinical trials at the American Society of Clinical Oncology (ASCO) 2020 Annual Meeting, including a subset of patients with unifocal disease who received a single administration of
 Ad-RTS-hIL-12
 with 20 mg daily dosing of veledimex along with low-dose steroids.
We also continue to enroll patients in our phase 2 clinical trial evaluating Controlled
IL-12
in combination with
PD-1
antibody Libtayo
®
(cemiplimab-rwlc) for the treatment of rGBM in adults. Despite patient enrollment slowing in some centers since the
COVID-19
pandemic outbreak, we continue to expect to complete our projected enrollment during the first half of 2020. We have also begun evaluating
Ad-RTS-hIL-12
plus veledimex in a clinical trial of
Ad-RTS-hIL-12
plus veledimex for the treatment of glioma in the pontine region of the brain, known as diffuse intrinsic pontine glioma, or DIPG.
Eden BioCell has continued to make significant progress preparing for a clinical trial of
Sleeping Beauty
-generated CD19-specific RPM CAR
+
T therapies using patient-derived (autologous) T cells to treat patients with relapsed or refractory CD19
+
leukemias and lymphomas. We expect Eden BioCell to submit an IND in Taiwan for this clinical trial in 2020 and we have elected to prioritize our resources on this clinical trial to support our autologous program while retaining the ability to pursue an autologous clinical trial in the United States in the future.
All our preparations have been made for our U.S. Phase 1 trial clinical trial infusing donor-derived T cells after allogeneic BMT for recipients who have relapsed with CD19
+
leukemias and lymphomas with our CD19-specific CAR
+
T therapies manufactured using our RPM technology. This clinical trial is being performed in collaboration with MD Anderson, which has informed us that, in response to the
COVID-19
pandemic, it has limited operations and is delaying the site initiation required to begin enrolling patients in this clinical trial.
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Table of Contents
Financial Updates
On February 5, 2020, we completed an underwritten public offering for the issuance and sale of 27,826,086 shares of our common stock, at a price of $3.25 per share. On March 10, 2020, the underwriters exercised their option to purchase an additional 1,284,025 shares. The net proceeds from the offering, including the exercise of the overallotment option, was $88.7 million after deducting underwriting discounts and offering expenses paid by us.
During the three months ended March 31, 2020, we sold an aggregate of 2,814,673 shares of our common stock in an at-the-market offering. The net proceeds from the offering were approximately $13.0 million after deducting underwriting discounts and estimated offering expenses payable by us.
With our strong cash balance, including the proceeds of our recent February 2020 public offering and sales from our ATM facility, we anticipate having sufficient liquidity to make planned investments in our business this year in support of our long-term growth strategy. We believe that our cash, cash equivalents and marketable securities as of March 31, 2020 will fund our current operating plans into mid-2022. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations.
Financial Overview
Overview of Results of Operations
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Research and development expenses.
Research and development expenses during the three months ended March 31, 2020 and 2019 were as follows:
                                 
 
Three months ended
March 31,
   
 
 
 
($ in thousands)
 
2020
 
 
2019
 
 
Change
 
Research and development
  $
 12,706
    $
9,476
    $
 3,230
     
34
%
Research and development expenses for the three months ended March 31, 2020 increased by $3.2 million when compared to the three months ended March 31, 2019. During the three months ended March 31, 2020, our research and development costs associated with our gene therapy programs increased by $1.6 million which was related to trial related expenses, while our cell therapy expenses increased by $0.6 million due to costs associated with our licensing of IP from the NCI, developmental manufacturing expenses, and our employee related expenses increased $1.0 million due to headcount increases.
Our research and development expense consists primarily of salaries and related expenses for personnel, costs of contract manufacturing services, costs of facilities and equipment, fees paid to professional service providers in conjunction with our clinical trials, fees paid to contract research organizations in conjunction with preclinical animal studies, costs of materials used in research and development, consulting, license and milestone payments and sponsored research fees paid to third parties.
We have not accumulated and tracked our internal historical research and development costs or our personnel and personnel-related costs on a
program-by-program
basis. Our employee and infrastructure resources are allocated across several projects, and many of our costs are directed to broadly applicable research endeavors. As a result, we cannot state the costs incurred for each of our oncology programs on a
program-by-program
basis.
For the three months ended March 31, 2020, our clinical stage projects included a phase 1 clinical trial with
Ad-RTS-IL-12
plus veledimex in progressive glioblastoma; an
investigator-led
phase 1 clinical trial infusing our 2nd generation CD19-specific CAR
+
T cells in patients with advanced lymphoid malignancies; and a phase 1 clinical trial of
Ad-RTS-hIL-12
with veledimex for the treatment of pediatric brain tumors. The expenses incurred by us to third parties for our phase 1 clinical trial with
Ad-RTS-IL-12
plus veledimex in progressive glioblastoma were $1.0 million for the three months ended March 31, 2020 and $12.3 million from the project’s inception in June 2015 through March 31, 2020. The expenses incurred by us to third parties for our
investigator-led
phase 1 clinical trial infusing our 2nd generation CD19-specific CAR
+
T cells in patients with advanced lymphoid malignancies were $0.2 million for the three months ended March 31, 2020 and
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$6.3 million from the project’s inception in December 2015 through March 31, 2020. The expenses incurred by us to third parties for our
investigator-led
phase 1 clinical trial of
Ad-RTS-hIL-12
with veledimex for the treatment of pediatric brain tumors were $0.3 million for the three months ended March 31, 2020 and $2.3 million from the project’s inception in October 2017 through March 31, 2020. The expense incurred by us to third party for our
investigator-led
phase 2 clinical trial of
Ad-RTS-hIL-12
with veledimex in combination with cemiplimab-rwlc in progressive glioblastoma were $1.7 million for the three months ended March 31, 2020 and $3.4 million from the projects inception in June 2019 through March 31, 2020.
Our future research and development expenses in support of our current and future programs will be subject to numerous uncertainties in timing and cost to completion. We test potential products in numerous preclinical studies for safety, toxicology and efficacy. We may conduct multiple clinical trials for each product. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products to focus our resources on more promising products or indications. Completion of clinical trials may take several years or more, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product. It is not unusual for preclinical and clinical development of each of these types of products to require the expenditure of substantial resources.
We estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines:
         
Clinical Phase
 
Estimated Completion Period
 
Phase 1
   
1 - 2 years
 
Phase 2
   
2 - 3 years
 
Phase 3
   
2 - 4 years
 
The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others, the following:
  The number of clinical sites included in the trials;
  The length of time required to enroll suitable patents;
  The number of patients that ultimately participate in the trials;
  The duration of patient
follow-up
to ensure the absence of long-term product-related adverse events; and
  The efficacy and safety profile of the product.
As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our programs or when and to what extent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our programs in a timely manner or our failure to enter into appropriate collaborative agreements could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from
time-to-time
in order to continue with our product development strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.
General and administrative expenses.
General and administrative expenses during the three months ended March 31, 2020 and 2019 were as follows:
                                 
 
Three months ended
March 31,
   
 
 
 
($ in thousands)
 
2020
 
 
2019
 
 
Change
 
General and administrative
  $
5,954
    $
4,145
    $
1,809
     
44
%
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General and administrative expenses for the three months ended March 31, 2020 increased by $1.8 million as compared to three months ended March 31, 2019. The increase during the three months ended March 31, 2020 was primarily due to an increase of $1.1 million of salary and employee related expenses, including stock compensation, along with an increase of $0.6 million of legal expenses, incurred to expand our patent portfolio and an increase of $0.3 million in facilities offset by a $0.2 million decrease of business development .
Other income, (net).
Other income, net for the three months ended March 31, 2020 and 2019 was as follows:
                                 
 
Three months ended
March 31,
   
 
 
 
($ in thousands)
 
2020
 
 
2019
 
 
Change
 
Other income, net
  $
367
    $
187
    $
180
     
96
%
Other income for the three months ended March 31, 2020 increased by $0.2 million as compared to the three months ended March 31, 2019 because invested funds increased.
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Liquidity and Capital Resources
Source of liquidity
We have not generated any revenue from product sales. Since inception, we have incurred net losses and negative cash flows from our operations.
As of March 31, 2020, we have approximately $171.0 million of cash and cash equivalents. During the three months ended March 31, 2020, we completed an underwritten public offering of 29,110,111 shares of common stock, which includes a partial exercise by the underwriters of its over-allotment option of 1,284,025 shares from us at a price to the public of $3.25, less underwriting discounts. Our net proceeds from the sale of the shares, after deducting the underwriting discounts and offering expenses of $5.9 million, were $88.7 million.
At-the-Market offering program
In June 2019, we entered into an “at-the-market”, or ATM, open market sales agreement with Jefferies LLC, or Jefferies, acting as sale agent with an aggregate offering value of up to $100.0 million which allows us to sell shares of our common stock through the facilities of the Nasdaq Global Select Market. Subject to the terms of the open market sales agreement, we are able to determine, at our sole discretion, the timing and number of shares to be sold under this ATM facility. The compensation to Jefferies for sales of our common stock pursuant to the open market sale agreement will be an amount equal to 3% of the gross proceeds of any shares of common stock sold under the sales agreement. During the three months ended March 31, 2020, we sold 2,814,673 shares of common stock under the ATM facility for net cash proceeds of $13.0 million, after deducting commission fees of $0.4 million.
Funding requirements
Given our current development plans, we expect that our existing cash and cash equivalents will be sufficient to fund our current operations into mid-2022. We currently do not have any committed sources of additional capital at this time. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate. Management does not know whether additional financing will be on terms favorable or acceptable to us when needed, if at all. If adequate additional funds are not available when required, or if we are unsuccessful in entering into partnership agreements for further development of our products, management may need to curtail development efforts. The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital when and if needed. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which would adversely affect our business prospects, or we may be unable to continue operations.
In addition to these factors, our actual cash requirements may vary materially from our current expectations due to a number of other factors that may include, but are not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs associated with the development of our product candidates, our ability to secure partnering arrangements, and the costs of filing, prosecuting, defending and enforcing our intellectual property rights. If we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to us or at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritize among them.
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Cash flows
The following table summarizes our net decrease in cash, cash equivalents, and restricted cash for the three months ended March 31, 2020:
                 
 
Three months ended March 31,
 
($ in thousands)
 
2020
 
 
2019
 
Net cash provided by (used in):
   
     
 
Operating activities
  $
(9,906
)   $
(10,232
)
Investing activities
   
(513
)    
(10
)
Financing activities
   
101,680
     
—  
 
                 
Net increase (decrease) in cash, cash equivalents, and restricted cash
  $
91,261
    $
(10,242
)
                 
Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net loss for:
 
Non-cash
operating items such as depreciation and stock-based compensation; and
  Changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in results of operations.
Net cash used in operating activities for the three months ended March 31, 2020 was $9.9 million, as compared to net cash used in operating activities of $10.2 million for the three months ended March 31, 2019. The net cash used in operating activities for the three months ended March 31, 2020 was primarily due to our net loss of $18.3 million, the change in other noncurrent assets of $0.6 million, the change in accounts payable of $0.5 million, offset by the change receivables of $2.6 million, the change in prepaid and other assets of $2.6 million primarily related to the use of our funds at MD Anderson, the change in $2.3 million of accrued expenses, and
non-cash
stock-based compensation on $1.9 million. The net cash used in operating activities for the three months ended March 31, 2019 was primarily due to our net loss of $13.4 million, and the change in accrued expenses and other liabilities of $1.8 million, offset by non-cash expenses of $2.2 million and the change in receivables, prepaid and other current assets of $2.8 million.
Net cash used in investing activities was $0.5 million for the three months ended March 31, 2020 compared to $10 thousand for the three months ended March 31, 2019. For the three months ended March 31, 2020, the cash used was for the purchase of equipment for our offices in Houston.
Net cash provided by financing activities the three months ended March 31, 2020 was $101.7 million. The net cash was provided by $88.7 million from the issuance of common stock in our public offering, net and $13.0 million from the issuance of common stock in our at the market offerings, net.
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Operating capital and capital expenditure requirements
We anticipate that losses will continue for the foreseeable future. At March 31, 2020, our accumulated deficit was approximately $702.4 million. Our actual cash requirements will depend on and could increase significantly as a result of a number of factors, including:
  the scope, number, initiation, progress, timing, costs, design, duration, any potential delays, and results of clinical trials and nonclinical studies for our current or future product candidates;
  changes in the focus, direction and pace of our development programs;
  the effect of competitive and technical advances and market developments;
  costs associated with the development of our product candidates;
  our ability to establish and maintain partnering, collaborations or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
  diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing
COVID-19
pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
  the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing
COVID-19
pandemic;
  our need and ability to hire additional management and scientific and medical personnel;
  the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
  costs of filing, prosecuting, defending and enforcing any patent claims and any other intellectual property rights, or other developments; and
  other matters identified under Part II, Item 1A. “Risk Factors.”
Working capital as of March 31, 2020 was $175.0 million, consisting of $191.6 million in current assets and $16.6 million in current liabilities. Working capital as of December 31, 2019 was $93.0 million, consisting of $105.5 million in current assets and $12.5 million in current liabilities.
Contractual Obligations
The following table summarizes our outstanding obligations as of March 31, 2020 and the effect those obligations are expected to have on our liquidity and cash flows in future periods:
                                         
($ in thousands)
 
Total
 
 
Less than
1 year
 
 
2 - 3 years
 
 
4 - 5 years
 
 
More than
5 years
 
Operating leases
  $
2,594
    $
962
    $
727
    $
450
    $
 455
 
CRADA
   
5,000
     
3,125
     
1,875
     
—  
     
—  
 
Royalty and license fees
   
3,900
     
850
     
700
     
700
     
1,650
 
                                         
Total
  $
11,494
    $
4,937
    $
3,302
    $
1,150
    $
 2,105
 
                                         
Our commitments for operating leases relate to the lease for our corporate headquarters in Boston, Massachusetts, and office and laboratory space in Houston, Texas. On December 21, 2015 and April 15, 2016, we renewed the sublease for our corporate headquarters in Boston, Massachusetts through August 31, 2021. On January 30, 2018, we entered into a lease agreement for office space in Houston, Texas at MD Anderson through April 2021. On March 12, 2019, we entered into a lease agreement for additional office space in Houston through April 2021. On October 15, 2019, we entered into another lease agreement for additional office and laboratory space in Houston through February 2027.
On January 10, 2017, we announced the signing of a CRADA with the NCI for the development of
ACT-based
immunotherapies genetically modified using the
Sleeping Beauty
transposon/transposase system for the treatment of solid tumors. In February 2019, we extended the CRADA with the NCI until January 9, 2022.
On May 28, 2019, we entered into a patent license agreement, or the Patent License, with the NCI. The terms of the Patent License require us to pay the NCI minimum annual royalties in the amount of $0.3 million, which amount will be reduced to $0.1 million once the aggregate minimum annual royalties paid by us equals $1.5 million. The first minimum annual royalty payment is payable on the date that is eighteen months following the date of the Patent License.
On October 5, 2018, we entered into the License Agreement with PGEN. Under the License Agreement, we are obligated to pay PGEN an annual licensing fee of $0.1 million expected to be paid through the term of the agreement.
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Off-balance
sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Estimates
In our Annual Report our most critical accounting policies and estimates upon which our financial status depends were identified as those relating to clinical trial expenses; collaboration agreements; fair value measurements for stock-based compensation; and income taxes. We reviewed our policies and determined that those policies remain our most critical accounting policies for the three months ended March 31, 2020.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk is limited to our cash. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain our cash in interest-bearing bank accounts in global banks, United States treasuries and other government-backed investments, which are subject to minimal interest rate risk.
Effect of Currency Exchange Rates and Exchange Rate Risk Management
We currently have no studies outside of the United States. Therefore, any currency fluctuations will not have a material impact on our financial position, results of operations or cash flows.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule
13a-15(e)
or
15d-15(e)
promulgated under the Exchange Act, as of March 31, 2020. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2020, our disclosure controls and procedures were not effective due to a material weakness identified in our internal control over financial reporting as described below under “Management’s Report on Internal Control over Financial Reporting”.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for us. Internal control over financial reporting (as defined in Rule
13a-15(f)
of the Exchange Act) is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected
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As of December 31, 2019, Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
As previously disclosed under “Item 9A. Controls and Procedures” in our Annual Report on Form
10-K
for our fiscal year ended December 31, 2019, we identified the following deficiency that existed as of December 31, 2019 which continued to exist at March 31, 2020. This deficiency represented a material weakness in our internal control over financial reporting. A material weakness is a control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected.
As of December 31, 2019, and March 31, 2020, management identified a material weakness in the design and effectiveness of our internal control over financial reporting. We did not design and maintain effective controls relating to the monitoring and oversight of expensing third party clinical trial costs. Specifically, our internal controls were not designed effectively to provide reasonable assurance regarding the accurate and timely evaluation of the amount of third-party costs to record.
Based on this evaluation, management concluded that our internal control over financial reporting was not effective at both December 31, 2019 and March 31, 2020 because of the material weakness described above.
Despite the existence of the material weakness described above, our financial statements as of both December 31, 2019 and March 31, 2020, are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America.
Remediation
We have implemented and are continuing to implement measures to remediate the control deficiency that constituted the above material weakness by implementing changes to our internal control over financial reporting. We are in the process of designing, implementing and testing measures to remediate the underlying causes of the control deficiency that gave rise to the material weakness. In addition, we are providing
in-house
accounting personnel training to ensure that they have the relevant expertise related to the monitoring and oversight of expensing third party clinical trial costs. We will continue to monitor the effectiveness of these controls and will make any further changes management determines appropriate.
Changes in Internal Controls over Financial Reporting
Except for the material weakness and related remediation efforts discussed above, there were no other changes in our internal control over financial reporting (as defined in Rule
13a-15(f)
of the Exchange Act) that occurred during the fiscal quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
In the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing business activities from time to time. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affect our results of operations, cash flows or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us because of defense costs, diversion of management attention and resources and other factors.
As of March 31, 2020, based on information readily available, there are no material matters that, in the opinion of management, are likely to result in a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. Risk Factors
The following important factors could cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management from time to time. The risk factors in this Quarterly Report have been revised to incorporate changes to our risk factors from those included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes, which may be material, from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission. The market price of our common stock could decline if one or more of these risks or uncertainties actually occur, causing you to lose all or part of your investment. The impact of COVID-19 may also exacerbate other risks discussed in this filing, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise. Additional risks that we currently do not know about, or that we currently believe to be immaterial, may also impair our business. Certain statements below are forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” in this report.
RISKS RELATED TO OUR BUSINESS AND FINANCIAL CONDITION
* Our business, operations and clinical development plans and timelines could be adversely affected by the effects of health epidemics, including the
COVID-19
 pandemic, on the manufacturing, clinical development and other business activities performed by us or by third parties with whom we conduct business, including our contract manufacturers, clinical research organizations, or CROs, shippers and others.
Our business could be adversely affected by health epidemics wherever we have clinical trial sites or other business operations. In addition, health epidemics could cause significant disruption in the operations of third-party manufacturers, CROs and other third parties upon whom we rely. For instance, certain of our collaborators such as MD Anderson and National Cancer Institute, or NCI have taken precautionary measures in response to the
COVID-19
pandemic which we believe will delay the commencement of our clinical trials planned at these institutions.
We have implemented work-from-home policies for most of our employees. The effects of our work-from-home policies and travel restrictions may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.
We depend on a worldwide supply chain to manufacture products and clinical supply used in our preclinical studies and clinical trials. Quarantines,
 shelter-in-place
 and similar government orders, or the expectation that such orders, shutdowns or other restrictions could occur, whether related to
 COVID-19
 or other infectious diseases, could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost, or ease of transportation of materials, which could disrupt our supply chain.
If our relationships with our suppliers or other vendors are terminated or scaled back as a result of the
 COVID-19
 pandemic or other health epidemics, we may not be able to enter into arrangements with alternative suppliers or vendors or do so on commercially reasonable terms or in a timely manner. Switching or adding additional suppliers or vendors involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new supplier or vendor commences work. As a result, delays may occur, which could adversely impact our ability to meet our desired clinical development timelines, as well as any future commercialization timelines. Although we carefully manage our relationships with our suppliers and vendors and discuss business continuity plans, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not harm our business.
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In addition, our preclinical studies and clinical trials have been and may continue to be affected by the
 COVID-19
 pandemic. Clinical site initiation, patient enrollment and activities that require visits to clinical sites, including data monitoring, have been and may continue to be delayed due to prioritization of hospital resources toward the
 COVID-19
 pandemic or concerns among patients about participating in clinical trials during a pandemic. Some patients may have difficulty following certain aspects of clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, if we are unable to successfully recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to
 COVID-19
 or experience additional restrictions by their institutions, city, or state our clinical trial could be adversely impacted.
The spread of
 COVID-19,
 which has caused a broad impact globally, may also materially affect us economically. While the potential economic impact brought by, and the duration of,
 COVID-19
 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of
 COVID-19
 could materially affect our business and the value of our common stock.
The global pandemic of
 COVID-19
 continues to evolve rapidly. The ultimate impact of the
 COVID-19
 pandemic or a similar health epidemic is highly uncertain and subject to change. The
COVID-19
pandemic may have a material impact on our operations, and we continue to monitor the situation closely.
*We will require substantial additional financial resources to continue ongoing development of our product candidates and pursue our business objectives; if we are unable to obtain these additional resources when needed, we may be forced to delay or discontinue our planned operations, including clinical testing of our product candidates.
We have not generated significant revenue and have incurred significant net losses in each year since our inception. For the three months ended March 31, 2020, we had a net loss of $18.3 million, and, as of March 31, 2020 we have incurred approximately $702.4 million of accumulated deficit since our inception in 2003. We expect to continue to incur significant operating expenditures and net losses. Further development of our product candidates will likely require substantial increases in our expenses as we:
  continue to undertake clinical trials for product candidates;
 
 
scale-up
the formulation and manufacturing of our product candidates;
 
  seek regulatory approvals for product candidates;
 
  work with regulatory authorities to identify and address program-related inquiries;
 
  implement additional internal systems and infrastructure; and
 
  hire additional personnel.
 
As of March 31, 2020, we have approximately $101.7 million of cash and cash equivalents.
Given our current development plans, we anticipate our cash resources will be sufficient to fund our operations into
mid-2022
and we have no committed sources of additional capital at this time. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate. Management does not know whether additional financing will be on terms favorable or acceptable to us when needed, if at all.
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Our actual cash requirements may vary materially from our current expectations for a number of other factors that may include, but are not limited to, changes in the focus and direction of our development programs, slower than expected progress of our research and development efforts, changes in governmental regulation, competitive and technical advances, costs associated with the development of our product candidates, our ability to secure partnering arrangements, and costs of filing, prosecuting, defending and enforcing our intellectual property rights.
The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. If we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to us or at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritize among them.
*We need to raise additional capital to fund our operations. The manner in which we raise any additional funds may affect the value of your investment in our common stock.
Until such time, if ever, as we can generate substantial revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings and license and collaboration agreements. We do not have any committed external source of funds. The unpredictability of the capital markets may severely hinder our ability to raise capital within the time periods needed or on terms we consider acceptable, if at all. In addition, the recent outbreak of the novel coronavirus known as COVID-19 has significantly disrupted global financial markets, negatively impacted U.S. market conditions and may reduce opportunities for us to seek out additional funding. In particular, a decline in the market price of our common stock could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. Moreover, if we fail to advance one or more of our current product candidates to later-stage clinical trials, successfully commercialize one or more of our product candidates, or acquire new product candidates for development, we may have difficulty attracting investors that might otherwise be a source of additional financing.
To the extent that we raise additional capital by issuing equity securities, our existing stockholders’ ownership will 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 preferred 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. Any debt financing that we enter into may involve covenants that restrict our operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of our assets as well as prohibitions on our ability to create liens, pay dividends, redeem our stock or make investments. Furthermore, the impact of COVID-19 on global financial markets could make the terms of any available financing less attractive to use and more dilutive to our existing shareholders. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. If we raise additional funds through collaborations, strategic alliances or marketing, distribution 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.
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Our plans to develop and commercialize
non-viral
and viral adoptive cellular therapies based on engineered cytokines and CAR
T-cell
as well as TCR therapies can be considered as new approaches to cancer treatment, the successful development of which is subject to significant challenges.
We intend to employ technologies such as the technology licensed from MD Anderson pursuant to the MD Anderson License described above, and from PGEN, pursuant to the License Agreement, to pursue the development and commercialization of
non-viral
and viral adoptive cellular therapies based on cytokines,
T-cells,
CARs and TCRs, possibly under control of the RTS
®
and other switch technologies targeting both hematologic and solid tumor malignancies. Because this is a new approach to cancer immunotherapy and cancer treatment generally, developing and commercializing product candidates subjects us to a number of challenges, including:
  obtaining regulatory approval from the FDA and other regulatory authorities that have very limited experience with the commercial development of genetically modified and/or unmodified
T-cell
therapies for cancer;
 
  identifying and manufacturing appropriate TCRs from patient and from third parties that can be administered to a patient;
 
  developing and deploying consistent and reliable processes for engineering a patient’s and/or donor’s
T-cells
ex vivo
and infusing the
T-cells
back into the patient;
 
  possibly conditioning patients with chemotherapy in conjunction with delivering each of the potential products, which may increase the risk of adverse side effects of the potential products;
 
  educating medical personnel regarding the potential side effect profile of each of the potential products, such as the potential adverse side effects related to cytokine release;
 
  addressing any competing technological and market developments;
 
  developing processes for the safe administration of these potential products, including long-term
follow-up
for all patients who receive the potential products;
 
  sourcing additional clinical and, if approved, commercial supplies for the materials used to manufacture and process the potential products;
 
  developing a manufacturing process and distribution network with a cost of goods that allows for an attractive return on investment;
 
  establishing sales and marketing capabilities after obtaining any regulatory approval to gain market acceptance;
 
  developing therapies for types of cancers beyond those addressed by the current potential products;
 
  maintaining and defending the intellectual property rights relating to any products we develop;
 
  and not infringing the intellectual property rights, in particular, the patent rights, of third parties, including competitors, such as those developing
T-cell
therapies.
 
We cannot assure you that we will be able to successfully address these challenges, which could prevent us from achieving our research, development and commercialization goals.
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