10-K 1 d80362d10k.htm FORM 10-K Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-36781

 

 

Juno Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   46-3656275

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

307 Westlake Avenue North, Suite 300

Seattle, WA

  98109
(Address of principal executive offices)   (Zip Code)

(206) 582-1600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share   The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act.    Yes  ¨    No  x

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates as of June 30, 2015 was $2,833,756,799.

The number of shares outstanding of the registrant’s common stock as of February 18, 2016 was 104,059,558.

 

 

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s Proxy Statement for the registrant’s 2016 Annual Meeting of Stockholders will be filed with the Commission within 120 days after the close of the registrant’s 2015 fiscal year and are incorporated by reference in Part III.

 

 

 


Table of Contents

Juno Therapeutics, Inc.

Annual Report on Form 10-K

TABLE OF CONTENTS

 

          Page  
   PART I   

Item 1.

   Business      3   

Item 1A.

   Risk Factors      61   

Item 1B.

   Unresolved Staff Comments      115   

Item 2.

   Properties      115   

Item 3.

   Legal Proceedings      115   

Item 4.

   Mine Safety Disclosures      115   
   PART II   

Item 5.

   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      116   

Item 6.

   Selected Financial and Other Data      119   

Item 7.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      122   

Item 7A.

   Quantitative and Qualitative Disclosures About Market Risk      141   

Item 8.

   Financial Statements and Supplementary Data      142   

Item 9.

   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      188   

Item 9A.

   Controls and Procedures      188   

Item 9B.

   Other Information      190   
   PART III   

Item 10.

   Directors, Executive Officers and Corporate Governance      191   

Item 11.

   Executive Compensation      191   

Item 12.

   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      191   

Item 13.

   Certain Relationships and Related Transactions and Director Independence      191   

Item 14.

   Principal Accountant Fees and Services      191   
   PART IV   

Item 15.

   Exhibits and Financial Statement Schedules      192   
   Signatures      193   

 

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PART I

Forward-Looking Statements and Market Data

This Annual Report on Form 10-K contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. All statements other than statements of historical facts contained in this report are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “aim,” “potential,” “continue,” “ongoing,” “goal,” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words.

These statements involve risks, uncertainties and other factors that may cause 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 report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this report include, but are not limited to, statements about:

 

    the success, cost and timing of our product development activities and clinical trials;

 

    our ability and the potential to successfully advance our technology platform to improve the safety and effectiveness of our existing product candidates;

 

    the potential for our identified research priorities to advance our chimeric antigen receptor (“CAR”) and T cell receptor (“TCR”) technologies;

 

    the potential of our collaboration with Celgene and the ability and willingness of Celgene to be our commercialization partner outside of North America; 

 

    the ability and willingness of our third-party research institution collaborators to continue research and development activities relating to our product candidates;

 

    the potential of our other research and development and strategic collaborations, including our collaborations with Editas Medicine, Inc., Fate Therapeutics, Inc., and MedImmune Limited; 

 

    our ability to obtain orphan drug designation or breakthrough status for our CD19 product candidates and any other product candidates, or to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;

 

    the ability to license additional intellectual property relating to our product candidates;

 

    our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;

 

    our ability to commercialize our products in light of the intellectual property rights of others;

 

    our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates;

 

    our plans to research, develop and commercialize our product candidates;

 

    the potential of the technologies we have acquired through strategic transactions, such as the acquisition of Stage Cell Therapeutics GmbH, X-Body, Inc., and AbVitro Inc.;

 

    the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

 

    regulatory developments in the United States and foreign countries;

 

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    our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

    our plans to develop our own manufacturing facilities, including our manufacturing facility in Bothell, Washington;

 

    the success of competing therapies that are or may become available;

 

    our ability to attract and retain key scientific or management personnel;

 

    the accuracy of our estimates regarding expenses, success payments, future revenue, capital requirements, profitability, and needs for additional financing;

 

    fluctuations in the trading price of our common stock;

 

    the anticipated benefits of our litigation settlement with the Trustees of the University of Pennsylvania and Novartis;

 

    our plans regarding our corporate headquarters; and

 

    our use of the proceeds from our initial public offering and proceeds received from Celgene.

In addition, you should refer to Part I—Item 1A—“Risk Factors” in this report for a discussion of other important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

This report also contains estimates, projections and other information concerning our industry, our business, and the markets for our products and product candidates, including data regarding the estimated size of those markets, their projected growth rates, the perceptions and preferences of patients and physicians regarding certain therapies and other prescription, prescriber and patient data, as well as data regarding market research, estimates and forecasts prepared by our management. We obtained the industry, market and other data throughout this report from our own internal estimates and research, as well as from industry publications and research, surveys and studies conducted by third parties.

Unless the context requires otherwise, in this report the terms “Juno,” “we,” “us” and “our” refer to Juno Therapeutics, Inc. and its wholly-owned subsidiaries on a consolidated basis.

 

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ITEM 1. BUSINESS.

Overview

We are building a fully-integrated biopharmaceutical company focused on re-engaging the body’s immune system to revolutionize the treatment of cancer. Founded on the vision that the use of human cells as therapeutic entities will drive one of the next important phases in medicine, we are developing cell-based cancer immunotherapies based on our CAR and high-affinity TCR technologies to genetically engineer T cells to recognize and kill cancer cells. We have shown compelling clinical responses in clinical trials using multiple cell-based product candidates to address refractory B cell lymphomas and leukemias, and we also have a number of ongoing trials exploring our platform in solid-organ cancers and in combination with various strategies to overcome the immune-suppressive effects of cancer. Longer term, we aim to improve and leverage our cell-based platform to develop additional product candidates to address a broad range of cancers and human diseases, including moving forward our pre-clinical product candidates that target additional hematologic and solid-organ cancers.

In the third quarter of 2015, we began a Phase II trial of JCAR015 that could support accelerated U.S. regulatory approval in adult relapsed/refractory (“r/r”) B cell acute lymphoblastic leukemia (“ALL”) as early as 2017. We also began a Phase I trial with JCAR017 in adult r/r aggressive B cell non-Hodgkin lymphoma (“NHL”), with the potential to move to a registration trial for that product candidate in 2016 or early 2017. We are continuing to enroll patients in an ongoing Phase I/II trial for JCAR014 in B cell malignancies, and although we do not plan to move JCAR014 into registration trials, we plan to use this trial to explore important questions that may improve our platform overall. To date, data from the JCAR014 trial have provided encouraging early insights on how to improve our efficacy and safety in patients with ALL, NHL, and chronic lymphocytic leukemia (“CLL”). The IND has cleared for and we plan to enroll patients through 2016 in a Phase Ib clinical trial combining JCAR014 with MedImmune’s investigational programmed death ligand 1 (“PD-L1”) immune checkpoint inhibitor, durvalumab, for the treatment of adult r/r B cell NHL. We have also begun Phase I trials for five additional product candidates that target different cancer-associated proteins in hematological and solid organ cancers. We also expect to commence a Phase I trial through our collaborator MSK of a CD19/4-1BBL “armored” CAR in 2016 and a Phase I trial for one or both of CD19/CD40L and CD19/IL-12 “armored” CARs in 2016 or 2017.

Cancer is a leading cause of death in developed countries. Cancer is characterized by the uncontrolled proliferation of abnormal cells. Cancer cells contain mutated proteins and may overexpress other proteins normally found in the body at low levels. The immune system typically recognizes abnormal protein expression and eliminates these cells in a highly efficient process known as immune surveillance. Cancer cells’ ability to evade immune surveillance is a key factor in their growth, spread, and persistence. In the last five years, there has been substantial scientific progress in countering these evasion mechanisms using immunotherapies, or therapies that activate the immune system. Immunotherapies are increasingly recognized as an important part of today’s frontier in the treatment of cancer.

A central player in cancer immunotherapy is a type of white blood cell known as the T cell. In healthy individuals, T cells identify and kill infected or abnormal cells, including cancer cells. We leverage two technologies—CARs and TCRs—to activate a patient’s own T cells so that they attack cancer cells. Through genetic engineering, we insert a gene for a particular CAR or TCR construct into the T cell that enables it to recognize cancer cells. Our CAR technology directs T cells to recognize cancer cells based on the expression of specific proteins located on the cell surface, whereas our TCR technology provides the T cells with a specific T cell receptor to recognize protein fragments derived from either the surface or inside the cell.

We are investing substantially in manufacturing processes that we believe will be commercially scalable for both CARs and TCRs, and plan to manufacture clinical trial material from a Juno-operated manufacturing facility in Bothell, Washington, beginning in the first quarter of 2016. We harvest blood cells from a cancer patient, separate the appropriate T cells, activate the cell, insert the gene sequence for the CAR or TCR construct into the

 

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cell’s DNA, and grow these modified T cells to the desired dose level. The modified T cells can then be infused into the patient or frozen and stored for later infusion. Once infused, the T cells are designed to multiply, through a process known as cell expansion, when they encounter the targeted proteins and to kill the targeted cancer cells.

Our scientific founders and their institutions include world leaders in oncology, immunology, and cell therapy, and they actively contribute towards developing our product candidates and technologies. Collectively, these stakeholders share our commitment to bringing our product candidates to market and our vision of revolutionizing medicine through developing a broadly applicable cell-based platform. We have also entered into a number of strategic collaborations with commercial companies that we believe will help us manufacture and commercialize our product candidates around the world or develop additional or improved product candidates, including Celgene, Editas Medicine, Inc. (“Editas”), Fate Therapeutics, Inc. (“Fate Therapeutics”), and MedImmune Limited (“MedImmune”).

Clinical-Stage CD19 Product Candidates

Our most advanced product candidates, JCAR015, JCAR017, and JCAR014, leverage CAR technology to target CD19, a protein expressed on the surface of almost all B cell leukemias and lymphomas. Despite significant advances over the past two decades, lymphoma and leukemia are estimated to account for approximately 45,000 annual deaths in the United States.

 

    ALL Progress and Strategy. JCAR015, in data presented at the American Society of Hematology (“ASH”) meeting in December 2015 (“ASH 2015”), achieved an 82% complete remission (“CR”) rate in 45 evaluable adult patients with r/r ALL who received our CAR T cell product candidate in an ongoing Phase I clinical trial, as of a data cutoff date of November 2, 2015. The complete molecular remission (“CRm”) rate by flow cytometry, a more stringent measure of a response defined by the absence of minimal residual disease (“MRD”), was 67%. This patient population has disease that has recurred despite multiple prior intensive chemotherapy and/or antibody regimens. Historical long-term complete remission rates without JCAR015 in a similar population are approximately 10% using standard of care therapy. We initiated a Phase II trial in 2015 exploring JCAR015 in adult r/r ALL that could support accelerated U.S. regulatory approval.

JCAR014, in investigator-reported data presented at ASH 2015 in patients with r/r ALL, showed that since the change to a fludarabine/cyclophosphamide (“flu/cy”) pre-conditioning chemotherapy regimen, 17 out of 17 patients, or 100%, have achieved both a CR and CRm. While more follow-up is needed, data to date suggest that JCAR014 plus this pre-conditioning regimen has improved durability of response. We do not plan to move JCAR014 into registration studies, but we plan to apply its insights into pre-conditioning regimens and the importance of both depth of response and cell persistence across our portfolio.

JCAR017, in data presented at the 4th International Conference on Immunotherapy in Pediatric Oncology (“CIPO”) in September 2015 (“CIPO 2015”), achieved an 91% CR rate and 91% CRm rate in 32 evaluable patients with pediatric r/r ALL in the Phase I portion of an ongoing Phase I/II trial, as of a data cutoff date in September 2015. In this trial, JCAR017 has shown the highest cell expansion and longest cell persistence in patients of any of our CD19-directed product candidates prior to the introduction of flu/cy conditioning. We believe that product candidates with greater cell expansion and cell persistence are likely to lead to improved clinical benefit. We are currently enrolling more patients in this trial and exploring the impact of a flu/cy conditioning regimen on JCAR017’s efficacy and safety in this setting.

 

   

NHL Progress and Strategy. Data presented at ASH 2015 from the Phase I portion of an ongoing Phase I/II trial with JCAR014 demonstrated that using a flu/cy pre-conditioning regimen prior to treatment with JCAR014 led to significantly greater expansion and longer persistence of the CAR T cells in the body in patients with r/r NHL. The improved expansion and persistence translated into better patient outcomes, particularly at the dose we plan to use going forward. At this dose, 7 of 11 r/r

 

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NHL patients, or 64%, had a complete response, and in those r/r NHL patients with diffuse large B cell lymphoma (“DLBCL”), 6 out of 8 patients, or 75%, had a complete response. Patients from this portion of the trial have been followed for between two and nine months, and as of the data cut-off date of December 1, 2015, all patients with a complete response remained in remission. We plan to continue treating patients with JCAR014 in 2016 in order to explore various treatment strategies to improve the cell expansion and cell persistence of the CAR T cells in the body, as well as test JCAR014 in combination with other agents, including a Phase Ib trial with the MedImmune checkpoint inhibitor durvalumab in which we plan to enroll adult r/r NHL patients in 2016.

Based upon these JCAR014 data, data on expansion and persistence for JCAR017, and insights from across our CD19 trials, we initiated a multi-center, Phase I trial exploring JCAR017 in r/r NHL in 2015, with the potential to advance to a registration trial in 2016 or early 2017 that may support accelerated U.S. regulatory approval.

 

    CLL Progress and Strategy. Data presented at ASH 2015 from an ongoing Phase I/II trial of JCAR014 with our current dosing and pre-conditioning strategy demonstrated a complete response in four out of seven, or 57%, r/r CLL patients, and seven out of seven, or 100%, had either a complete or partial response. As of the data cutoff date of December 1, 2015, all of these responses were ongoing at time points ranging from two to 14 months. We plan to enroll more r/r CLL patients in this trial in early 2016, and if the data remain consistent with these early findings, move toward a registration trial as rapidly as possible.

We also expect to commence a Phase I trial through our collaborator Memorial Sloan Kettering Cancer Center (“MSK”) of a CD19/4-1BBL “armored” CAR in 2016 in one or more B cell malignancies and a Phase I trial for one or both of CD19/CD40L and CD19/IL-12 “armored” CARs in 2016 or 2017. We also intend to begin a Phase I trial for our fully human CD19 CAR in 2016 in one or more B cell malignancies.

JCAR015, JCAR017, and JCAR014 differ in multiple respects, including the types of T cells used, sites of engagement, and activation signal within the cells. We believe clinical experience with multiple CD19 CARs in patients with B cell malignancies gives us the opportunity to learn about the product characteristics that lead to the best patient outcomes. We intend to apply these learnings as rapidly as we can to improve our future product candidates. Our goal is to bring best-in-class therapies to market across a range of B cell malignancies, focusing on improving efficacy, safety, and patient experience.

Additional Product Candidates and Research Strategy

We have begun Phase I trials for four additional product candidates using our CAR technology, directed against CD22, L1CAM, MUC-16, and ROR-1. We also began a new Phase I clinical trial for a fifth product candidate, using our TCR technology, directed against WT-1. CD22, L1CAM, MUC-16, ROR-1, and WT-1 are proteins that are overexpressed on certain cancer cells.

At ASH 2015, we reported initial data from a Phase I trial exploring our CD22-directed CAR T cell product candidate in patients with r/r ALL. CD22 is expressed by most B cell malignancies, including NHL, ALL, and CLL. Within these CD22 positive malignancies, it is generally expressed on all of a patient’s cancer cells. Additionally, as experience grows with CD19-directed CAR T cell product candidates, CD19 epitope loss has been recognized as an important mechanism of patient relapse after treatment with a CD19-directed CAR T cell, particularly in pediatric ALL. CD22 is expressed on the vast majority of these tumors, and may provide an alternative treatment for these patients. In this dose escalation trial, we saw initial signs of activity, with 2 out of 7, or 29% of patients achieving a CR and no dose-limiting toxicities. These data include only one patient enrolled above the lowest dose in this trial. We recently achieved the first clinical milestone under our license agreement with Opus Bio, Inc. (“Opus Bio”) for this product candidate, for which we paid Opus Bio a milestone payment in equity. We plan to enroll more patients and present additional data from this trial during 2016. Combining CD19

 

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and CD22 may increase the selection pressure on the cancer and significantly reduce the overall risk of relapse. As a result, we also plan to investigate combination approaches.

The trials for the product candidates targeting L1CAM, MUC-16, ROR-1, and WT-1 may provide greater insights into our technologies’ applicability to a wider range of patients including those with common solid tumors. Our MUC-16 directed product candidate is an “armored” CAR that secretes the cytokine IL-12, which we believe may help overcome the inhibitory effects that the tumor micro-environment can have on T cell activity. We also plan to begin Phase I testing of our first CD19-directed “armored” CAR in one or more B cell malignancies within the next several months. We expect to have initial data from all of these product candidates over the next six to 18 months.

We believe there are a number of areas for ongoing research that may significantly impact our long-term success with CARs and TCRs, including:

 

    Cell Selection and Composition. We believe that a defined cell composition has the potential to improve the consistency, potency, cell persistence, and tolerability of CAR and TCR based treatments. The greater product composition consistency achieved with defined cell composition may also facilitate regulatory approval. We are exploring defined cell composition with several of our product candidates, including JCAR014 and JCAR017, which consist of a defined composition of T cells known as CD8+ and CD4+ T cells. We are continuing to focus on improving our understanding of the different types of T cells in an effort to identify the subsets of T cells that optimize efficacy and safety. We intend to leverage our experience with these product candidates as we advance our pipeline. Our acquisition of Stage Cell Therapeutics GmbH (“Stage”) in 2015 gives us access to potential best-in-class cell selection technologies.

 

    Cell Persistence. We believe the persistence of our engineered T cells, meaning the duration of time CARs or TCRs have anti-tumor activity in the body, has a meaningful impact on clinical outcomes. We are continuing to invest in technologies to optimize the cell persistence of our genetically-engineered T cells, including technologies related to cell composition, cell signaling, non-immunogenic fully human single chain variable fragments (“scFvs”), and modulation of a patient’s immune system. We are building internal capabilities through both hiring and via acquisitions such as X-Body, Inc. (“X-Body”) and AbVitro, and collaborations with companies such as Editas and Fate Therapeutics.

 

    Target Protein Selection. We are using bioinformatics, in vitro analyses, animal data, and clinical experience to identify additional target tumor proteins. Our CAR and TCR technologies enable us to explore target proteins located inside cells (“intracellular proteins”) and proteins located on the cell surface (“extracellular proteins”), giving us the potential to treat a wide array of cancers. We are also investing in technologies that have the potential to accelerate our generation of TCRs and CARs to new targets. For instance, our acquisition of AbVitro Inc. in early 2016 gave us access to a leading next-generation single cell sequencing platform that allows for the identification of full-length, natively paired antibodies and T cell receptors across millions of single cells simultaneously from patient tumor or blood samples.

 

    Cell Signaling. Researchers have used CAR T cells for more than two decades in the treatment of cancer. A key insight over the past decade was the addition of a costimulatory domain to the construct. The costimulatory domain amplifies intracellular signaling after the binding domain interacts with a target protein, magnifying the activation of the T cell. We are advancing two next-generation CAR technologies, which we refer to as bispecific CARs and “armored” CARs. Bispecific CARs incorporate a second binding domain on the CAR T cell designed to either amplify or inhibit signaling, a feature that may increase the CAR T cells’ ability to distinguish between cancer cells and normal cells. “Armored” CARs deliver cytokines or other stimulatory signals to modify the tumor microenvironment. We believe these technologies may be important for the treatment of solid tumors.

 

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The following table summarizes our product candidate pipeline and our active and planned clinical trials:

 

LOGO

Our Strategy

Our current focus is to create best-in-class cancer therapies using human T cells. We believe that genetically-engineered T cells have the potential to meaningfully improve survival and quality of life for cancer patients. Key elements of our strategy include:

Expedite clinical development, regulatory approval, and commercialization of our CD19 product candidates. We began a Phase II trial in adult r/r ALL in mid-2015 with JCAR015 and a Phase I trial in adult r/r NHL in 2015 with JCAR017, with a potential to move to a registration trial in adult r/r NHL with JCAR017 in 2016 or early 2017. We believe data from these trials, if positive, may lead to an accelerated U.S. regulatory approval for the treatment of adult r/r ALL as early as 2017 and NHL thereafter. If approved in r/r ALL, we plan to commercialize this CD19 product candidate in the U.S. with our own specialty sales force. We expect that data from our U.S. registration trials for our CD19 product candidates will also serve as part of our European Union (“EU”) regulatory package. We have begun dialogues with EU regulators and expect to enroll our first patients in clinical studies in the EU in 2016 or 2017. Celgene has an option to license certain assets, including immune-oncology product candidates, from our pipeline. If Celgene exercises this option, it will serve as our primary commercialization partner outside of North America and China.

Invest in our platform to maximize the beneficial outcomes for cancer patients. Because our CAR and TCR technologies are designed to target both proteins on the cell surface and inside the cell, we believe we have the potential to treat a wide array of cancers, including solid tumors. We believe there are multiple ways to continue to improve efficacy and tolerability of each of these technologies. We have begun Phase I trials for four product

 

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candidates targeting cancer-associated proteins other than CD19, and we expect to begin a fifth in early 2016. We plan to begin Phase I testing of our first CD19-directed “armored” CAR in one or more B cell malignancies within the next several months. As data emerge from these studies, we may advance one or more of these product candidates beyond proof of concept trials. We, together with our collaborators, intend to advance multiple additional product candidates into clinical testing over the next five years, with an increasing focus on addressing solid tumors, which cause the vast majority of cancer-related deaths in the developed world. Additionally, we believe that there may be multiple opportunities to improve the efficacy or safety of our product candidates by manipulating the genome, RNA, cell signaling pathways within a cell, or cell surface proteins. To that end, we have made substantial internal investments in these capabilities and entered into collaborations with companies such as Editas, Fate Therapeutics, and Celgene. We expect to continue to build our internal capabilities and to look to access best-in-class technologies outside the company with the goal of making better products for patients.

Develop process development and manufacturing capabilities to be a competitive advantage. We are investing significant resources to optimize process development and manufacturing. We believe these efforts will lead to better product characterization, a more efficient production cycle, and greater flexibility in implementing manufacturing enhancements. In turn, these improvements may lead to a lower cost of manufacturing, streamlined regulatory reviews, greater convenience for patients and physicians, and better patient outcomes. Additionally, this investment in characterizing and controlling our process has the potential to allow us to better exploit future biologic insights into what cell types improve patient outcomes. We have used contract manufacturing organizations (“CMOs”) to provide speed, flexibility and limit upfront capital investment, and successfully brought a CMO on-line to manufacture JCAR015. We have also established a Juno-run manufacturing facility in Bothell, Washington, and are in the process of completing the necessary steps for regulatory approval for this facility. We plan to begin manufacturing clinical trial material from this facility in 2016 and commercial products, subject to the required regulatory approvals, during 2017. In addition, in 2015 we acquired Stage, a company with potential best-in-class cell selection and cell activation technologies as well as automation technologies. We are integrating these technologies into our manufacturing platform. Our overall goal in process development and manufacturing is to maximize patient benefit and carefully manage our cost structure.

Leverage our relationships with our founding institutions, scientific founders and other scientific advisors. Our world-renowned scientific founders and founding institutions, have a history of seminal discoveries and significant experience in oncology, immunology, and cell therapy. We intend to be a science-driven company in all our strategic decision-making and to continue to use our scientific founders’ insights, discoveries, and know-how as we develop our pipeline and technologies.

Background

Immune System and T Cells

The immune system recognizes danger signals and responds to threats at a cellular level. It is often described as having two arms. The first arm is known as the innate immune system, which recognizes non-specific signals of infection or abnormalities as a first line of defense. The innate immune system is the initial response to an infection, and the response is the same every time regardless of prior exposure to the infectious agent. The second arm is known as the adaptive immune system, which is composed of highly specific, targeted cells and provides long-term recognition and protection from infectious agents and abnormal processes such as cancer. The adaptive immune response is further subdivided into humoral, or antibody-based, and cellular, which includes T cell-based immune responses.

The most significant components of the cellular aspect of the adaptive immune response are T cells, so called because they generally mature in the thymus. T cells are involved in both sensing and killing infected or abnormal cells, as well as coordinating the activation of other cells in an immune response. These cells can be

 

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classified into two major subsets, CD4+ T cells and CD8+ T cells, based on cell surface expression of CD4 or CD8 glycoprotein. Both subsets of T cells have specific functions in mounting an immune response capable of clearing an infection or eliminating cancerous cells. CD4+ T cells, or helper T cells, are generally involved in coordinating the immune response by enhancing the activation, expansion, migration, and effector functions of other types of immune cells. CD8+ T cells, or cytotoxic T cells, can directly attack and kill cells they recognize as infected or otherwise abnormal, and are aided by CD4+ T cells. Both types of T cells are activated when their T cell receptor recognizes and binds to a specific protein structure expressed on the surface of another cell. This protein structure is composed of the major histocompatibility complex (“MHC”) and a small protein fragment, or peptide, derived from either proteins inside the cell or on the cell surface. Circulating CD4+ and CD8+ T cells survey the body differentiating between MHC/peptide structures containing “foreign” peptides and those containing “self” peptides. A foreign peptide may signal the presence of an immune threat, such as an infection or cancer, causing the T cell to activate, recruit other immune cells, and eliminate the targeted cell.

Although the immune system is designed to identify foreign or abnormal proteins expressed on tumor cells, this process is often defective in cancer patients. The defective process sometimes occurs when the cancer cells closely resemble healthy cells and go unnoticed or if tumors lose their protein expression. Additionally, cancer cells employ a number of mechanisms to escape immune detection to suppress the effect of the immune response. Some tumors also encourage the production of regulatory T cells that block cytotoxic T cells that would normally attack the cancer.

Our CAR and TCR Technologies

Our CAR and TCR technologies alter T cells ex vivo, or outside the body, so that the T cells can recognize specific proteins on the surface or inside cancer cells or other diseased cells in order to kill those diseased cells. As depicted below, with both our CAR and TCR technologies, we (1) harvest a patient’s white blood cells in a process called leukapheresis, and while ex vivo we (2) select and activate certain T cells of interest. (3) Gene sequences for the CAR or TCR construct are transferred into the T cell DNA using a viral vector, such as a lentivirus or a gamma retrovirus. The number of cells is (4) expanded until it reaches the desired dose. These genetically engineered cells are (5) infused back into the patient.

 

LOGO

When the engineered T cell engages the target protein on the cancer cell, it triggers further multiplication of the cells in the body and activation of a cytotoxic, or cell-killing, response against the cancer cell. These T cells have an “auto-regulatory” capability that stimulates their multiplication in the presence of the target protein and a reduction in the number of such cells as the target protein declines.

The genetically-engineered CARs and TCRs are designed to help a patient’s immune system overcome survival mechanisms employed by cancer cells. CAR technology directs T cells to recognize cancer cells based on expression of specific cell surface proteins, whereas high-affinity TCR technology provides the T cells with a specific T cell receptor that recognizes protein fragments derived from either intracellular or extracellular proteins. The differences in these two technologies may enable us to develop immunotherapies targeting a broad array of cancer-associated proteins, including those expressed by solid organ cancers.

 

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For both the CAR and TCR technologies, we believe that the T cell subsets used in treatment may have a significant impact on cell persistence, efficacy, and/or tolerability. We are investing significant resources in understanding the optimal cells and cell conditions for treatment. Animal data have shown that using a defined composition of CD8+ cells and CD4+ cells can improve the frequency, robustness, and duration of an anti-tumor response. Animal data have also shown that certain CD8+ T cells, when implanted, are more likely to persist as part of the T cell memory pool with the capability of self-renewal, which may lead to a longer duration of the therapeutic effect in patients. We believe our focus on optimizing cells and cellular conditions increases our probability of generating best-in-class therapeutics. Moreover, we believe that the enhanced product characterization that results from a defined cell population may provide greater consistency across patients and give us an improved process development and a potential advantage with clinicians, patients, and regulators.

In some patients, it may be important to control the proliferation and survival of the engineered T cells after they are infused. Our scientific founders have developed technology that inserts a gene into the cell that leads to expression of an inactive truncated EGF receptor (“EGFRt”). Commercially available antibodies, such as cetuximab, can bind to EGFRt and initiate a process that leads to rapid killing, or ablation, of the engineered T cells. This killing effect with cetuximab has been observed in animal studies, but not yet in human studies. Several of our product candidates, including JCAR014 and JCAR017, incorporate this technology. In some of our manufacturing processes, we also use EGFRt as means of identifying the T cells that have been genetically modified to include the CAR construct.

Differences between CARs and TCRs

There are three main differences between CARs and TCRs:

 

    Site of Protein Recognition. CARs recognize proteins expressed on the cell’s surface, whereas TCRs recognize peptide fragments from proteins expressed either inside the cell or on the cell’s surface. TCRs are capable of targeting a broader range of proteins and may be able to more selectively target cancer cells or target a broader array of tumor types.

 

    MHC Restriction. TCRs recognize proteins that are presented to the immune system as a peptide bound to an MHC, and are therefore restricted to a certain MHC type. MHC types vary across the human population. It is estimated that approximately 80% of the U.S. population has one of the four most common MHC types. Due to this variability, multiple different TCR product candidates will be needed to address any given target protein for a broad population. In contrast, CARs are capable of recognizing the target protein regardless of MHC type. Additionally, most of the TCR product candidates developed in the field to date have been designed to recognize peptides in the context of Class I MHC, which activates CD8+ cells and not CD4+ cells. The implications of the preferential CD8+ activation are not clear, but given the importance of CD8+ and CD4+ cells in a typical immune response, activation of a CD4+ cellular response is likely important in generating maximum efficacy.

 

    Maturity of the Technology. The life sciences industry has been developing antibodies for several decades and we believe scientific advances made with this technology can be leveraged to rapidly and predictably generate scFvs to incorporate into a CAR construct and enable it to target a specific protein. Industrial production of TCRs is relatively new, and we are investing in improving our understanding of important variables such as the optimal binding efficiency and structure.

CARs

There are several key components to our CAR technology, each of which may have a significant impact on its utility in cancer immunotherapy:

 

   

Targeting Element. Our CAR construct typically uses an scFv, also referred to as a binding domain, to recognize a protein of interest. The scFv is derived from the portion of an antibody that specifically recognizes a target protein, and when it is expressed on the surface of a CAR T cell and subsequently binds to a target protein on a cancer cell, it is able to maintain the CAR T cell in proximity to the

 

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cancer cell and trigger the activation of the T cell. For example, our most clinically-advanced CAR T cell programs use an scFv from a mouse-derived antibody to target a cell surface protein called CD19. Through our 2015 acquisition of X-Body, we have access to a library of fully human scFvs and our AbVitro acquisition enables us to identify naturally occurring antibodies. We plan to use both of these technologies in the development of future product candidates.

 

    Spacer and Transmembrane Domain. The spacer connects the extracellular scFv targeting element to the transmembrane domain, which transverses the cell membrane and connects to the intracellular signaling domain. Data from our scientific founders suggest that the spacer may need to be varied to optimize the potency of the CAR T cell toward the cancer cell due to factors such as the size of the target protein, the region of the target protein where the scFv binds, and the size and affinity of the scFv. Through our collaborations, we have access to a library of spacer constructs.

 

    Costimulatory Domains. Upon recognition and binding of the scFv of the CAR T cell to the cancer cell, there is a conformational change that leads to an activation signal to the cell through CD3-zeta, an intracellular signaling protein. Our current CAR constructs also include either a CD28 or 4-1BB costimulatory signaling domain to mimic a “second signal” that amplifies the activation of the CAR T cells, leading to a more robust signal to the T cell to multiply and kill the cancer cell. Additionally, we are exploring the use of a “third signal” in improving the efficacy of our CAR T technology. In 2016, we intend to begin human testing of an “armored CAR” that include adding both a CD28 co-stimulatory domain and another signal through 4-1BB ligand.

 

LOGO

Next-Generation CAR Technology

We are investing significant resources and are developing deep expertise on how each element of the CAR construct affects the potency and durability of the T cell response that ensues, as we believe these will be the key determinants for the long-term ability to create novel CAR T cell products with improved patient benefit.

As we build on the specificity of our technologies and our understanding of mechanisms of immune evasion used by cancer cells, we are advancing two next-generation CAR technologies that incorporate mechanisms to either dampen or amplify T cell activation signals present on the cancer cells or in the tumor microenvironment. Our “armored” CAR technology can incorporate the production or expression of locally acting signaling proteins to amplify the immune response within the tumor microenvironment with the goal of minimizing systemic side effects. An example of such a signaling protein is interleukin 12 (“IL-12”), which can stimulate T cell activation

 

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and recruitment. We believe “armored” CAR technology will be especially useful in solid tumor indications, in which microenvironment and potent immunosuppressive mechanisms have the potential to make the establishment of a robust anti-tumor response more challenging.

Our bispecific CAR technology, which includes a second binding domain on the CAR T cell designed to either amplify or inhibit signaling, a feature that may increase our CAR T cells’ ability to distinguish between cancer cells and normal cells. For example, a CAR T cell can be engineered such that it would be triggered in the presence of one target protein, but if a second protein is present it would be inhibited. Alternatively, it could also be engineered such that two target proteins would be required for maximal activation. These approaches may increase the specificity of the CAR for tumor relative to normal tissue.

The exhibit below shows a bispecific CAR, in this case an inhibitory CAR (“iCAR”) that employs an inhibitory signal to improve specificity.

 

LOGO

We are also exploring a number of technologies that modulate T cell biology and their biologic properties in patients. For example, we have partnered with Editas, a leader in applying genome editing such as CRISPR/Cas9 and Talon technologies to create human therapeutics, and Fate Therapeutics, a leader in using pharmacologic modulators such as small molecules to alter the properties of cells while they are ex vivo. With Editas, we are exploring the biologic implication on our engineered T cell technologies of knocking-out or altering the function of a number of human genes. With Fate Therapeutics, we are exploring the potential for these modulators to alter intracellular signaling pathways, with the potential to alter the subtype of T cell or the state of the T cell. The goal of these modifications is to improve efficacy and safety of our products.

TCRs

Much like our CAR technology, our high-affinity TCR technology is designed to activate a potent immune response against cancer through the introduction of engineered T cells. The gene sequence we introduce with our TCR technology encodes for the proteins required to assemble a TCR that recognizes a specific MHC/peptide structure. Modified T cells expressing a TCR construct have the potential advantage of recognizing peptides from cancer-associated proteins expressed either on the surface of or inside the tumor cell, which may allow us to target a broad range of tumors. Beyond the fact that TCRs can recognize peptides derived from intracellular proteins, another advantage of TCRs is that they are fully human and therefore may be less likely to elicit an immune response against the infused TCR cells.

 

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The engagement of a TCR is restricted to a certain MHC type. Due to the variability of MHC types across the human population, different TCRs will be required for various segments of the population. Our TCR constructs are selected by screening healthy donors for naturally-occurring high-affinity TCRs against a MHC/ peptide combination of interest. Depending on the binding affinity of the selected TCR construct, it is either used directly or modified by mutating a specific region, the hypervariable domain, of the TCR binding pocket to create a higher affinity construct. Based on the limited number of patients who have received any TCR treatment to date, these TCR cells appear to behave like endogenous T cells after re-infusion back into the patient. They undergo a process similar to an endogenous T cell of cell expansion and cytotoxic activation upon recognition of their defined cancer-associated proteins.

 

LOGO

Important areas of investment for us going forward will be industrializing the creation and manufacturing of TCRs, improving screening processes to better ensure that TCR constructs do not cross-react with normally expressed or other proteins, and finding costimulatory signals to enhance the potency of the genetically engineered cells.

We recently acquired AbVitro, a company based in Boston, Massachusetts with technology to perform next-generation, high throughput, single cell sequencing. This technology allows us to interrogate millions of cells per experiment. An important application for this technology will be to find high affinity, naturally occurring, matched chain TCRs from the normal human immune repertoire, which we believe have a lower risk of unexpected off-target binding than TCRs that have manipulated or mutagenized during development. We believe this technology will significantly improve the speed at which we find these TCRs, allowing us to optimize binding affinity and develop TCRs for a larger percentage of the population.

 

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Product Pipeline

CD19-Directed Product Candidates

Overview

Our three most advanced clinical candidates, JCAR015, JCAR017, and JCAR014, use CAR T cell technology to target CD19. We have worldwide rights to commercialize each of these product candidates. These product candidates differ in several respects as outlined below. We believe our access to and clinical experience with multiple CD19 CARs in patients with B cell malignancies gives us the opportunity to bring best-in-class therapies to market across a range of different blood cancers. We have treated over 250 patients with anti-CD19 CAR T cells.

 

    CD19-Directed Clinical Product Pipeline Overview     
         JCAR015   JCAR017   JCAR014     
 

Binding Domain

  SJ25C1   FMC63   FMC63   
 

Indications

  Adult ALL  

Pediatric ALL

Adult aggressive NHL

  NHL, Adult ALL, CLL   
 

Costimulatory Domain

  CD28   4-1BB   4-1BB   
 

Cell Population

  CD4+ & CD8+ upfront selection  

CD4+ & CD8+

in a defined ratio

  CD4+ & CD8+ in a defined ratio   
 

Ablation Technology

  None   EGFRt   EGFRt   
          
 

Viral Vector

  Gamma Retroviral   Lentiviral   Lentiviral   
                  

We believe CD19 presents an attractive immunotherapeutic target for our technology for a number of reasons:

 

    CD19 is expressed by most B cell malignancies including NHL, ALL, and CLL. Within these CD19 positive malignancies, it is generally expressed on all of a patient’s cancer cells.

 

    CD19 is expressed on all stages of B lineage cells, and it is present in the vast majority of precursor B cell ALL cases.

 

    CD19 is not known to be expressed on any healthy tissue other than B cells. Although treatment with a CD19-directed therapy has the potential to deplete B cells, experience with Rituxan has shown that humans can live with B cell depletion for a prolonged period. Further, CD19 is not expressed on hematopoietic stem cells, and therefore B cells should return when the CAR T cell is no longer present.

B Cell Acute Lymphoblastic Leukemia

ALL is an uncontrolled proliferation of lymphoblasts, which are immature white blood cells. The lymphoblasts, which are produced in the bone marrow, cause damage and death by inhibiting the production of normal cells. Approximately 6,000 patients are diagnosed with ALL in the United States each year, and although just over half of the new diagnoses are in adult patients, the vast majority of the approximately 1,400 deaths per year occur in adults. There are two main types of ALL, B cell ALL and T cell ALL. Approximately 80% of cases of ALL are B cell ALL, which we aim to address with our CD19 product candidates.

Treatment outcomes for ALL patients can be distinguished between CR and CRm rates. CR occurs when there is no clinical evidence of the disease based on less than 5% blast cells in the marrow, blood cell counts within normal limits, and no signs or symptoms of the disease. CRm occurs when a patient has all of the above outcomes and there is no evidence of ALL cells in the marrow when using sensitive tests such as polymerase chain reaction (“PCR”) and/or flow cytometry. CR rates are the typical regulatory standard, but recent evidence suggests patients that achieve a CRm have a better long-term prognosis.

 

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Current standard-of-care treatment for both adults and children involves multi-drug chemotherapeutic regimens, and in some cases hematopoietic stem cell transplant (“HSCT”). In adults with ALL, approximately 80% of patients will demonstrate a complete remission with their initial course of chemotherapy. However, approximately 60% of patients who have so demonstrated a complete remission with their initial course of chemotherapy will relapse. Most patients that relapse after the first course of chemotherapy will die in well under a year, and patients that have failed at least two salvage therapies have a median survival that is typically around three months. Allogeneic HSCT, which uses hematopoietic stem cells from a matched donor, offers the potential for disease eradication in some individuals, however, the option is available only to approximately a third of patients due to the lack of compatible stem cell source, general health, or the high risk of complications. Even with HSCT, approximately 20-30% of patients die of treatment-related complications and the median disease-free survival is less than six months.

 

    ALL Efficacy with Current Standard of Care Therapy     
    ALL Treatment Course  

CR Rate

(Complete Remission)

    
  1st Induction   80-90%   
  1st Salvage Chemotherapy   31-44%   
  >1st Salvage Chemotherapy   20-23%   
  >2nd Salvage Chemotherapy   5-8%   
          

Antibody-based platforms, including bispecific T cell enhancers (“BiTEs”) and antibody–drug conjugates (“ADCs”) have also been explored in this disease setting. The FDA granted accelerated approval in late 2014 to blinatumomab, a CD19 BiTE given by continuous infusion due to its short serum half life, for treatment of individuals with r/r Philadelphia-chromosome negative ALL. Despite a CR rate of 42% and a CRm rate of 31%, which represent a meaningful improvement versus historical standards, the median duration of response was just under 6 months. Another novel agent, inotuzumab ozogamicin (“inotuzumab”), a CD22 monoclonal ADC conjugated to calicheamicin, has been studied in adults with r/r ALL. The reported results from a Phase III randomized trial of inotuzumab plus induction chemotherapy, as compared against induction chemotherapy on its own, demonstrated a CR rate of 81% but a median duration of response of 4.6 months. Although these novel agents have improved CR rates, such outcomes are not uniform with later relapses, higher burden disease, or in all age groups. Thus, significant unmet need remains. Of note, the majority of inotuzumab treated patients were in first relapse, while the blinatumomab data and data for JCAR015 are primarily in patients after a second or greater relapse.

B Cell Non-Hodgkin Lymphomas

NHL is the most common cancer of the lymphatic system. NHL is not a single disease, but rather a group of several closely related cancers. Although the various types of NHL have some things in common, they differ in their appearance under the microscope, their molecular features, their growth patterns, their impact on the body, and treatment. Over 70,000 cases of NHL are diagnosed annually in the United States, and 85% derive from B cell lineages, which express CD19. B cell NHLs are a large group of cancers that are typically divided into aggressive (fast-growing) and indolent (slow-growing) types.

Aggressive NHL also represents a collection of lymphoma subtypes. The most common histologic type of aggressive lymphoma is diffuse large B cell lymphoma (“DLBCL”), which is also the most common subtype of all NHLs, and represents approximately 40% of new cases annually. Unlike indolent lymphomas, which have a median survival time as long as 20 years, DLBCL, if left untreated, may have survival measured in weeks to months. Patients often present with a rapidly enlarging mass in a lymphatic region. Extranodal involvement or

 

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associated constitutional symptoms are uncommon, although the presence of these symptoms indicates a more aggressive phenotype. Patients with DLBCL who are unable to undergo autologous HSCT and are treated solely with chemotherapy have a poor prognosis with a median survival of approximately six months, compared to a median survival of approximately 12 months for patients who are able to undergo autologous HSCT.

The indolent lymphomas represent a wide group of tumors that often have a long natural history characterized by frequent relapses; together, the indolent lymphomas account for approximately 55% of NHL incidence in the United States. Although these malignancies are treated routinely with a combination of chemotherapy and antibodies, there is no standard of care for relapsed indolent NHL. The typical treatment approaches include multiple rounds of induction chemotherapy or more aggressive salvage therapies, including autologous HSCT, which uses the patient’s own hematopoietic stem cells. Unfortunately, these treatments are generally not curative. Patients with recurrent or progressive indolent lymphoma may be candidates for allogeneic HSCT, which can provide long-term disease free survival to some.

Chronic Lymphocytic Leukemia

CLL is the most common type of leukemia, and it occurs most frequently in older individuals, with diagnoses in persons under 30 years of age occurring only rarely. Each year, approximately 21,000 patients are diagnosed with CLL in the United States. Nearly all CLL is characterized by CD5+ B cells, which express CD19. Approximately 80–85% of individuals with CLL have standard risk disease at diagnosis, and for them the level of disease burden determines both prognosis and the need for immediate treatment or “watchful waiting” before the initiation of any therapy. Over time, CLL develops poor risk features, including expression of CD38, ZAP70, unmutated immunoglobulin heavy chain sequences, or cytogenetic abnormalities or gene mutations. Approximately 15–20% of CLL patients can initially present with poor risk disease. Median progression-free survival in these high risk groups is often under 12 to 18 months after frontline therapy, and less than 12 months in relapsed/refractory disease.

The goal of therapy in CLL for individuals with both treatment naïve and relapsed/refractory disease is a clinical complete response. Strong correlations have been demonstrated between depth of response, specifically to levels below detectable MRD by flow cytometry, and survival. An array of therapies have been evaluated and approved for use in treatment naive and relapsed/refractory CLL, including combination chemotherapy, chemoimmunotherapy, ibrutinib, idelalisib, alemtuzumab, and ofatumumab, and several others continue in development. However, the enthusiasm for these agents has generally been tempered by the low likelihood of complete responses, challenging toxicities, and limited duration of disease responses. Individuals with CLL are generally not considered candidates for allogeneic or autologous transplantation due in part to the median age of 71 years at diagnosis. Therefore, significant opportunity exists for novel therapies to address this unmet need with agents that are tolerated in this patient population.

JCAR015

Overview. JCAR015 is our most advanced development product candidate, and in an ongoing Phase I study, it has demonstrated clinically meaningful complete remission rates in adult patients with r/r ALL. As a result, we have begun a Phase II, multicenter pivotal trial in this setting. JCAR015 uses a CD28 costimulatory domain and a CD4+ and CD8+ selection step to select out T cells from peripheral blood mononuclear cells (“PBMC”). This combined CD4+ and CD8+ selection process significantly reduces B cell leukemia contamination. JCAR015 was originally developed at MSK. The trials for JCAR015 have not employed any manufacturing screening assay to exclude patients from treatment, which may broaden the scope of any eventual marketing approval of JCAR015 as compared to others’ CD19 directed product candidates where such assays have been used.

Clinical Experience. JCAR015 continues enrolling r/r ALL patients in a single-center, Phase I open label clinical trial. This trial was initiated in January 2010. An investigational new drug (“IND”) application for JCAR015 was submitted in January 2007 by MSK, the Phase I trial sponsor for the treatment of relapsed/refractory CLL. The

 

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IND was amended in September 2009 to add a protocol for the treatment of r/r ALL in adults. The main goals of the trial are to determine the safety and appropriate dose of the modified T cells in patients with B cell malignancies. We have focused our efforts in this trial and with this therapy towards patients with r/r ALL, a patient population with few or no alternatives. Initially, patients enrolled in this trial received low-intensity conditioning chemotherapy prior to receiving their CAR T cell dose, but more recently, the trial has also evaluated alternative pre-conditioning regimens and novel cell dosing schedules for use in our pivotal Phase II trial.

As of a data cutoff date of November 2, 2015, 82% of the 45 evaluable patients receiving CAR T cells achieved CR and 67% of patients achieved a CRm using PCR and/or flow cytometry in a population relapsed or refractory to prior intensive chemotherapy and/or novel antibody regimens.

 

  

Summary of Clinical Data

JCAR015

  
         Disease Burden(1)          
          Minimal Residual    Morphologic(2)    Total     
 

Number of Patients

   21    25(3)    46(3)   
 

Complete Remission(4)

   19/21 (90%)    18/24 (75%)    37/45 (82%)   
 

Complete Molecular Remission(5)

   15/21 (71%)    15/24 (63%)    30/45 (67%)   
 

Severe CRS(6)

   0/21 (0%)    11/25 (44%)    11/46 (24%)   
 

Grade 3 and Above Neurotoxicity

   3/21 (14%)    10/25 (40%)    13/46 (28%)   
             
 

(1) Minimal residual disease = presence of no more than 5% lymphoblasts in a patient’s bone barrow; morphologic disease = more than 5% lymphoblasts in a patient’s bone marrow

(2) Includes one subject with extra-medullary disease only

(3) Includes one subject who was evaluable for safety outcomes, but not for efficacy

(4) Includes both complete remission and complete remission with incomplete hematological recovery

(5) Measured by flow cytometry or PCR

(6) Defined as requiring mechanical ventilator or significant vasopressor support

 

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As demonstrated by the following chart, CR rates were consistent across demographic and disease characteristics.

 

  

Summary of CR by Subgroups

JCAR015

  

 

LOGO

The notable side effects of JCAR015 are severe cytokine release syndrome (“sCRS”) and severe neurotoxicity. sCRS is a condition that, by convention, is currently defined clinically by certain side effects, including hypotension, or low blood pressure, when such side effects are serious enough to lead to intensive care unit care with mechanical ventilation or significant vasopressor support. CRS is generally believed to result from the release of inflammatory proteins in the body as the CAR T cells rapidly multiply in the presence of the target tumor proteins. Severe neurotoxicity can have several clinical manifestations, including confusion, aphasia, encephalopathy, myoclonus and generalized seizure.

 

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Severe neurotoxicity is defined as events having grade 3 or higher severity as defined by Common Terminology Criteria for Adverse Events (“CTCAE”) for each manifestation. These severe neurotoxicity events may require ICU level care. As of a data cutoff date of November 2, 2015, approximately 24% of 46 adult r/r ALL patients experienced sCRS, with a rate of 0% in patients with minimal residual disease and 44% in patients with morphologic disease. Approximately 28% of 46 adult r/r ALL patients experienced severe neurotoxicity, with a rate of 14% in patients with minimal residual disease and 40% in patients with morphologic disease. We define minimal residual disease as the presence of no more than 5% lymphoblasts in a patient’s bone marrow and morphologic disease as more than 5% lymphoblasts in a patient’s bone marrow. Among the patients with sCRS, there have been two deaths that we believe were either directly or indirectly related to sCRS. Other than sCRS and severe neurotoxicity, JCAR015 has been generally well tolerated.

The following table identifies the prevalence of adverse events that are at least possibly related to JCAR015 based on clinical data through November 2, 2015 that are CTCAE grade 3 or higher.

Grade 3 or Higher Treatment-Emergent Adverse Events that Are

at Least Possibly Related to Study Treatment

JCAR015

 

 

         

Total Treated

(N=46)

    
 

Any AE as Specified

   40 (87.0%)   
 

Blood and lymphatic system disorders

   21 (45.7%)   
 

Febrile neutropenia

   21 (45.7%)   
 

Cardiac disorders

   5 (10.9%)   
 

Atrial fibrillation

   1 (2.2%)   
 

Atrial tachycardia

   1 (2.2%)   
 

Sinus tachycardia

   3 (6.5%)   
 

Left ventricular dysfunction

   1 (2.2%)   
 

General disorders and administration site conditions

   5 (10.9%)   
 

Pyrexia

   3 (6.5%)   
 

Chills

   1 (2.2%)   
 

Fatigue

   1 (2.2%)   
 

Infections and infestations

   3 (6.5%)   
 

Pneumonia

   1 (2.2%)   
 

Sepsis

   1 (2.2%)   
 

Sinusitis

   1 (2.2%)   
 

Investigations

   16 (34.8%)   
 

Alanine aminotransferase increased

   6 (13.0%)   
 

Blood alkaline phosphatase increased

   6 (13.0%)   
 

Aspartate aminotransferase increased

   6 (13.0%)   
 

Blood bilirubin increased

   5 (10.9%)   
 

Blood creatinine increased

   2 (4.3%)   
 

Blood creatine phosphokinase increased

   1 (2.2%)   
 

Neutrophil count

   1 (2.2%)   
 

Neutrophil count decreased

   1 (2.2%)   
 

Metabolism and nutrition disorders

   32 (69.6%)   
 

Hypocalcaemia

   21 (45.7%)   
 

Hypophosphataemia

   25 (54.3%)   
 

Hyperglycaemia

   10 (21.7%)   
 

Hypokalaemia

   11 (23.9%)   
 

Hyponatraemia

   6 (13.0%)   

 

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Total Treated

(N=46)

    
 

Hyperkalaemia

   4 (8.7%)   
 

Hypermagnesaemia

   2 (4.3%)   
 

Hypertriglyceridaemia

   1 (2.2%)   
 

Hypoalbuminaemia

   1 (2.2%)   
 

Nervous system disorders

   14 (30.4%)   
 

Encephalopathy

   14 (30.4%)   
 

Paraesthesia

   1 (2.2%)   
 

Peripheral motor neuropathy

   1 (2.2%)   
 

Seizure

   1 (2.2%)   
 

Respiratory, thoracic and mediastinal disorders

   8 (17.4%)   
 

Hypoxia

   6 (13.0%)   
 

Dyspnoea

   3 (6.5%)   
 

Respiratory failure

   2 (4.3%)   
 

Skin and subcutaneous tissue disorders

   1 (2.2%)   
 

Dermatitis acneiform

   1 (2.2%)   
       1 (3.6%)   
 

Erythema multiforme

   1 (2.2%)   
       1 (3.6%)   
 

Vascular disorders

   14 (30.4%)   
 

Hypotension

   14 (30.4%)   
       9 (32.1%)   
 

Hypertension

   1 (2.2%)   
 

Gastrointestinal disorders

   1 (2.2%)   
 

Small intestinal haemorrhage

   1 (2.2%)   
 

Renal and urinary disorders

   1 (2.2%)   
 

Acute kidney injury

   1 (2.2%)   
 

Uncoded Events

   1 (2.2%)   
 

Muscle weakness - extremity-lower

   1 (2.2%)   
 

Immune system disorders

   3 (6.5%)   
 

Cytokine release syndrome

   3 (6.5%)   

Several protocol changes were made in April 2014 after treatment-emergent adverse events led to the death of two patients. The most important changes included using a lower dose of CAR T cells (1x10^6/kg vs 3x10^6/kg) in patients with morphologic r/r ALL, excluding patients with Class III or IV congestive heart failure as defined by the New York Heart Association, excluding patients with active central nervous system leukemia or symptomatic central nervous system leukemia within 28 days, adding sCRS as a dose limiting toxicity, and restricting a patient from receiving a second treatment of JCAR015 if the patient experienced any non-hematologic CTCAE grade 4 toxicities, including sCRS, with the prior JCAR015 treatment. Prior to the protocol changes, patients typically received a dose of 3x10^6 CAR T cells/kg regardless of the level of disease burden. We continue to examine the effect of a second scheduled dose delivered approximately three weeks following the first dose and the use of alternative pre-conditioning regimens containing fludarabine and cyclophosphamide. We expect to have additional data from this trial over the next six to 18 months.

 

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In the following figure, we show the investigator-reported survival rate as of November 2, 2015 of the 45 evaluable r/r ALL patients treated with JCAR015. Although it is difficult to compare across trials, the survival rate compares favorably to historical controls, which have a median survival of approximately three months, and one-year overall survival of approximately 14%. In this single arm Phase I trial, individuals achieving a CR demonstrated a plateau in overall survival of approximately 50% at one year and beyond (Kaplan-Meier estimate of OS rate at 12 months is 0.45 with 95% confidence interval of [0.25, 0.63]).

 

   Overall Survival: All JCAR015 Patients   

 

LOGO

Source: MSK ASH 2015 Presentation

 

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Patients with r/r ALL who achieve a CR with treatment may proceed to an allogeneic HSCT. In this trial, 13 patients have, as of a data cutoff date of November 2, 2015, received an allogeneic HSCT after attaining a CR with JCAR015. In the figure below, we show the investigator-reported survival rate as of November 2, 2015 of r/r ALL patients treated with JCAR015 that responded to treatment, with separate curves for patients that receive an allogeneic HSCT at some point after treatment and those that do not.

 

  

Overall Survival:

By HSCT Status Post CAR T Cells – CRm Patients

  

 

LOGO

Source: MSK ASH 2015 Presentation.

We began a Phase II, multicenter, pivotal trial in 2015 under a Juno-sponsored IND. We plan to treat approximately 90 adult r/r ALL patients with JCAR015 across more than 15 world-class cancer centers in order to have approximately 50 evaluable patients, which is defined as r/r ALL patients with morphologic ALL at the time of JCAR015 infusion. The trial design includes optimized dosing schedule and pre-conditioning. The primary endpoint is overall response rate, defined as the proportion of subjects with CR or CR with incomplete hematological recovery. Patients will also be evaluated and followed for several secondary endpoints, including but not limited to safety, durability of responses, cellular kinetics, disease control rate, and comparability of Phase II manufacturing product to Phase I manufacturing product.

JCAR017

Overview. JCAR017 also targets CD19, but differs from JCAR015 in several important respects. JCAR017 uses the 4-1BB costimulatory domain, a different scFv binding domain and a defined cell composition made up of a 1:1 ratio of CD4+ T cells and CD8+ T cells. This defined cell composition is attained by using separate CD4+ and CD8+ selection and processing and then controlling for the number of each cell subtype in the final product. This minimizes the leukemia contamination risk and provides a consistent T cell phenotype ratio.

JCAR017 is currently in development for pediatric patients with r/r ALL, and more recently, for adults with r/r aggressive NHL. In the Phase I/II pediatric r/r ALL trial, the Phase I portion initially enrolled patients whose leukemia has recurred after an allogeneic HSCT, but later the entry criteria were broadened to include all

 

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pediatric patients with r/r ALL. JCAR017 was originally developed at Seattle Children’s Research Institute (“SCRI”). A Phase I NHL trial began in 2015 and is enrolling adults with r/r aggressive NHL to explore this product candidate’s efficacy in this setting and to explore multi-dose schedules.

Clinical Experience. JCAR017 is being evaluated in a Phase I/II clinical trial in pediatric r/r ALL. An IND application for JCAR017 was submitted in November 2013 by SCRI, the Phase I/II trial sponsor, for the treatment of CD19 positive pediatric leukemia. The trial was initiated in January 2014. The Phase I/II trial is designed to evaluate four dose levels: 5x10^5 T cells/kg, 1x10^6 T cells/kg, 5x10^6 T cells/kg, and 1x10^7 T cells/kg. The primary endpoints of the trial are to evaluate the preliminary toxicity, safety, and efficacy of JCAR017, and the feasibility of manufacturing and releasing JCAR017, in children and young adults with CD19- positive pediatric leukemia. The secondary endpoints of the trial include assessing persistence of the modified T cells and potentially assessing the efficacy of cetuximab to eliminate the modified T cells. Patients enrolled in this trial initially received low-intensity chemotherapy prior to receiving their CAR T cell dose, and maximum tolerated dose was determined to be 5x10^6 T cells/kg. More recently, a much lower cell dose of 5x10^5 T cells/kg has been tested with intensified pre-conditioning, and early results with this regimen have demonstrated an improved risk/benefit profile for this agent.

Based on investigator-reported data presented at the American Association for Cancer Research Annual Meeting held in April 2015 (“AACR 2015”), as of a data cutoff date of April 10, 2015, 22 patients had been treated in the Phase I portion of the trial, of which 91% experienced a CRm, as represented by the following table:

 

  

Summary of Clinical Data

JCAR017

  
 

Number of Patients

   22   
 

CR

   21/22 (95%)(1)   
 

CRm(2)

   20/22 (91%)(1)   
 

sCRS(3)

   6/22 (27%)   
 

Severe Neurotoxicity

   4/22 (18%)   
       
 

(1) One non-responder received steroids at line placement for apheresis

(2) Measured by flow cytometry

(3) Defined as requiring mechanical ventilator or significant vasopressor support

 

Source: SCRI AACR 2015 Presentation.

In an investigator-reported update of outcomes presented at CIPO 2015, as of a data cutoff date in September 2015, 91% (29/32) patients have experienced a CRm.

Patients treated in this trial have experienced the highest cell expansion and longest cell persistence in the body of any of our CD19-directed product candidates prior to the introduction of flu/cy conditioning. Improving cell expansion and persistence translates into an increase in exposure of cancer cells in the body to the CAR T cells, the active ingredient in our treatment. Increasing this exposure is an important goal of our basic and translational research. We believe, and data from studies for product candidates such as JCAR014 show, that increasing this exposure translates into improved clinical benefit. Additionally, JCAR017 is a defined cell product that has a number of manufacturing related advantages compared to JCAR014 that may translate into both better clinical results and long-term cost of goods. Because of these potential advantages in both exposure and manufacturing, we have chosen to move forward with JCAR017 as the backbone for our multi-center, Phase I trial in r/r NHL. We also plan to study it across a number of additional treatment settings if results continue to support these potential advantages.

 

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We began a multicenter Phase I trial in 2015 of JCAR017 in adults with r/r aggressive NHL under a Juno-sponsored IND. We plan to treat approximately 48 r/r NHL patients in this Phase I trial. The primary endpoints of the trial are to evaluate preliminary toxicity, safety, and cell expansion and cell persistence of JCAR017. The secondary endpoints of the trial include assessing efficacy, durability of responses, progression-free survival, and overall survival.

JCAR014

Overview. JCAR014 also targets CD19. JCAR014 uses the 4-1BB costimulatory domain and is composed of CD8+ T cells and CD4+ T cells in a defined ratio. JCAR014 was originally developed at the Fred Hutchinson Cancer Research Center (“FHCRC”).

Clinical Experience. JCAR014 is being evaluated in a Phase I/II trial as a treatment for adults with any of several B cell malignancies, including ALL, NHL, and CLL, in patients relapsed or refractory to standard therapies. An IND application for JCAR014 was submitted in March 2013 by FHCRC’s Stanley Riddell, the Phase I/II trial sponsor, for the treatment of CD19-positive advanced B cell malignancies. The trial was initiated in May 2013. The Phase I/II trial is designed to evaluate three dose levels: 2x10^5 T cells/kg, 2x10^6 T cells/kg, and 2x10^7 T cells/kg. The highest dose level of 2x10^7 T cells/kg has been discontinued as it exceeded the maximum tolerated dose as defined by the study. The primary endpoint of the trial is to evaluate the feasibility and preliminary safety of using JCAR014 to treat CD19-positive advanced B cell malignancies. The secondary endpoints of the trial include assessing the duration of persistence of the modified T cells, determining whether the modified T cells traffic in the bone marrow and function in vivo, determining if the modified T cells have antitumor activity in patients with measurable tumor burden prior to T cell transfer, and determining if the treatment is associated with tumor lysis syndrome. As of a data cutoff date of December 1, 2015, 71 patients have been treated in the Phase I portion of the trial, of which 30 patients had r/r ALL, 32 patients had r/r NHL, and nine patients had r/r CLL. Patients enrolled in this trial initially received low-intensity chemotherapy prior to receiving their CAR T cell dose. This trial has systematically evaluated alternative pre-conditioning regimens and established a flu/cy pre-conditioning regimen that supports significantly improved cell expansion, cell persistence, and complete response rates. The combination of this regimen and the JCAR014 defined cell product also demonstrated relatively low frequency of severe CRS and neurotoxicity at lower dosing levels for all diseases.

A key finding of the early phase of the trial was that patients with greater cell expansion and longer cell persistence generally derived better clinical benefit. Data for JCAR014 using a flu/cy pre-conditioning regimen were presented at ASH 2015 and demonstrated improved cell expansion and cell persistence in individuals with r/r ALL, r/r NHL, and r/r CLL.

In r/r ALL, 17 patients have been treated with JCAR014 using a flu/cy pre-conditioning regimen, with 100% achieving a CR and a CRm based upon investigator-reported interim data. The reported follow-up was relatively short, but clearly was showing improved durability of response.

In r/r NHL, the JCAR014 experience with flu/cy pre-conditioning in 18 evaluable patients demonstrated a complete response rate of 50%, as defined by International Working Group Criteria [2007], and produced severe CRS in 20% and severe neurotoxicity in 35% of patients. At the currently planned dose for r/r NHL patients, 2x10^6 T cells/kg, in 11 evaluable patients, JCAR014 has achieved a 64% complete response rate and 82% complete or partial response rate. In the eight r/r NHL patients with DLBCL, 75% had a complete response and 100% of patients had a complete or partial response. At this dose, 9% of r/r NHL patients experienced sCRS and 18% of r/r NHL patients had severe neurotoxicity. For the JCAR014 trial, sCRS is defined as the occurrence of certain side effects, which can include hypotension or respiratory distress that required ICU level care. Patients from this portion of the trial have been followed for between two and nine months, and as of the data cut-off date of December 1, 2015, all patients with a complete response remained in remission.

 

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In r/r CLL, seven patients have been treated with JCAR014 using a flu/cy pre-conditioning regimen. All seven had either a complete or partial response, with four, or 57%, having a complete response. As of the December 1, 2015 cutoff date, no patient in this portion of the trial had had their cancer progress with follow-up of between two and 14 months.

As presented at ASH 2015, in the full Phase I portion of the trial, this defined cell product candidate displayed a side effect profile that is similar to our other CD19-directed product candidates in the types of adverse events observed. In this trial, 13% of patients with r/r NHL have experienced sCRS and 28% of r/r NHL patients experienced severe neurotoxicity, 23% of r/r ALL patients experienced sCRS and 50% of r/r ALL patients experienced severe neurotoxicity, and 11% of patients with r/r CLL have experienced sCRS and 33% of patients with r/r CLL have experienced severe neurotoxicity. There have been two patient deaths in r/r ALL patients treated with JCAR014—one at the highest dose, 2x10^7 T cells/kg, and one at the middle dose, 2x10^6 T cells/kg—that we believe were either directly or indirectly related to sCRS or severe neurotoxicity. There have also been two patient deaths in r/r NHL patients treated with JCAR014, both at the highest dose, that we believe were either directly or indirectly related to sCRS or severe neurotoxicity. As a result of the patient deaths, the highest dose level is no longer being used on the trial and the middle dose level is no longer being used in r/r ALL patients.

Overall in this study, as of December 1, 2015, we have treated 30 patients with r/r ALL with various conditioning regimens. Based on investigator-reported interim data, 100% of the 29 evaluable patients had a CR and 93% of the 29 evaluable patients had a CRm.

We have treated 32 patients with r/r NHL. Based on investigator-reported interim data, 63% of the 30 evaluable patients had a partial or complete response.

We have treated 9 patients with r/r CLL. Based on investigator-reported interim data, 89% of the 9 patients had a partial or complete response.

The following figure compares the experience in r/r NHL with JCAR014 as of a data cutoff date of December 1, 2015, comparing the data for patients who received a flu/cy conditioning regimen to those who did not, and comparing the data for the three dose levels used in the patients who received flu/cy conditioning:

 

   JCAR014: NHL Experience Provides Important Insights   

 

    Conditioning Regimen   Non-Flu/Cy   Flu/Cy     
    Dose Level   All Doses
N=12
  2*105/kg
N=3
  2*106/kg
N=11
  2*107/kg
N=4–6
    
     
 

Efficacy

                  
 

CR

  1/12   1/3   7/11   1/4   
      (8%)   (33%)   (64%)   (25%)   
 

CR/PR

  6/12   1/3   9/11   3/4   
      (50%)   (33%)   (82%)   (75%)   
     
 

Toxicity

                  
 

sCRS

  0/12   0/3   1/11   3/6   
      (0%)   (0%)   (9%)   (50%)   
 

Severe Neurotoxicity

  2/12   1/3   2/11   4/6   
      (17%)   (33%)   (18%)   (67%)   

 

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Adding fludarabine to our pre-treatment chemotherapy regimen has meaningfully impacted the cell expansion and cell persistence of JCAR014, and these early clinical data show an improved clinical benefit. The exact mechanism of this effect from fludarabine is not yet known, but several hypotheses include:

 

    an impact on the patient’s own, or endogenous, CD8+, cytotoxic T cells, which can lead to a lower risk of a patient immune response to JCAR014;

 

    a decrease in endogenous CD4+ regulatory T cells, which may help the CAR T cells grow better and persist in an active state for longer;

 

    a decrease in endogenous T cells leading to an increase in cytokine production that is favorable to CAR T cell growth and survival; and/or

 

    a direct effect on lymph node architecture, which improves access of CAR T cells to the cancer.

CR, CRm, and complete responses are important surrogate markers for patients. Ultimately, survival is the most important measure of clinical benefit for cancer patients. While the results are not from a randomized trial, and longer follow-up is necessary, the figures below show that the improvement in cell exposure is translating into improved response rates and into improved survival, as of a data cutoff date of December 1, 2015. These figures show the overall survival of r/r ALL and r/r NHL patients who received JCAR014 at dose levels 1 and 2, comparing those who received flu/cy pre-conditioning and those who did not. We believe that the level of any plateau on an overall survival curve can be important information for physicians and patients.

 

  Overall Survival After CAR T Cell Infusion in ALL and NHL Patients at Dose Levels 1 & 2   

 

LOGO

Based on data from this trial, the depth and duration of response in r/r NHL, r/r CLL, and /r ALL with JCAR014 appear to correlate with the cell expansion and cell persistence of the product candidate in the patient’s body. With JCAR014, we have seen significant antitumor responses together with relatively low frequency of severe CRS and neurotoxicity, even with intensified chemotherapy regimens, suggesting that defined ratio CD4+ and CD8+ T cell products may have potential cell dose control advantages, which may improve potency and safety.

JCAR017, like JCAR014, is a defined cell product, but JCAR017 has a number of manufacturing-related advantages. Hence, our current plan is to develop JCAR017 rather than JCAR014. However, we plan to continue enrolling patients in the ongoing Phase I/II trial for JCAR014 in 2016 in order to explore additional treatment strategies to improve the exposure of the CAR T cells. We expect to have additional data from this trial in 2016. In addition, the IND has cleared for and we plan to enroll patents through 2016 in a Phase Ib trial, sponsored by FHCRC, in r/r NHL patients using the combination of JCAR014 with MedImmune’s PD-L1 checkpoint inhibitor durvalumab. We believe that this and other combination trials will provide key insights on the next set of development trials in lymphoma and CLL. These trials may also potentially inform strategies for solid organ tumor settings and next generation CAR constructs.

 

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CD19 Strategy and Development Plans

With respect to adult r/r ALL, we are currently enrolling our multicenter Phase II potential registration trial for JCAR015. Data from this trial may allow for FDA accelerated approval as early as 2017.

With respect to r/r NHL, we initiated our multi-center Phase I trial for JCAR017 in adults in 2015. This product candidate appears to have the highest cell expansion and longest cell persistence in the absence of flu/cy conditioning, and most favorable therapeutic window of any of our CD19-directed product candidates based on the data generated to date. If data from this trial continue to show favorable expansion and persistence as well as clinical responses, we plan to utilize this drug candidate in our r/r NHL and r/r CLL trials moving forward. We continue to enroll patients in the ongoing Phase I/II trial for JCAR014 in r/r NHL, and we plan to use the ongoing Phase I/II trial to explore important questions that will inform our clinical strategy for other product candidates and improve our platform overall, such as exploring alternative chemotherapy preparation regimens and immune-modulatory strategies to improve cell persistence. In 2016, we expect to have additional data from the Phase I/II JCAR014 trial and initial data from our Phase I JCAR017 trial. Depending upon the results of these trials, we intend to begin registration trials in aggressive r/r NHL and r/r CLL in 2016 or early 2017 to support U.S. regulatory approval.

We believe our access to and clinical experience with multiple CD19 trials gives us the opportunity to bring best-in-class therapies to market across a range of B cell malignancies, as well as to make technology improvements to create better products over time. Key areas of focus include investigating the effect of varying cell compositions, the “armored” CAR approach, combinations with other immuno-oncology agents, and human binding domains.

We are planning Phase I trials in one or more B cell malignancies for up to three different “armored” CAR product candidates that target CD19. These product candidates are designed to explore the potential for synergistic effects of a CD19-directed CAR T cell and the production or expression of locally acting signaling proteins by the CAR T cell, specifically 4-1BBL, CD40L, and IL-12. We expect to commence a Phase I trial through our collaborator MSK of a CD19/4-1BBL “armored” CAR in 2016, and a Phase I trial for one or both of CD19/CD40L and CD19/IL-12 “armored” CARs in 2016 or 2017.

The IND has cleared for and we plan enrollment through 2016 for a Phase Ib trial, sponsored by FHCRC, in r/r NHL patients using the novel combination of JCAR014 with MedImmune’s PD-L1 checkpoint inhibitor durvalumab. We believe that this, and other combination trials will provide key insights on the next set of development trials in lymphoma and solid tumor settings, and also potentially inform next generation CAR constructs. Also, we are also planning to initiate a Phase I trial in one or more B cell malignancies in 2016 using a CD19-directed CAR product candidate that uses a fully human scFv. We expect several generations of product improvements for this target over the coming years, as we work to optimize patient outcomes for patients with lymphoma or leukemia.

As described in more detail under the caption “Licenses and Third-Party Collaborations” below, Celgene has the right to opt in to our CD19 program and thereby exclusively license our CD19 product candidates for development and commercialization outside of North America and China. Celgene has an opt-in decision on our CD19 program in 2016, and should Celgene exercise this option, we expect that we, along with Celgene, will outline more of our strategy in these geographies. Should Celgene not exercise its option, we will either develop and commercialize our CD19 portfolio ourselves or seek another partner in some or all of these geographies.

Additional Product Candidates

We are exploring the potential of our CAR and TCR technologies against targets that have the potential to treat cancers not currently targeted by CD19-directed products—in particular, difficult-to-treat solid organ tumors such as certain breast, lung, and pancreatic cancers, as well as B cell malignancies that do not express CD19. We

 

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and our collaborators are working on a number of product candidates in early clinical or late-stage pre-clinical development that target different cancer proteins. We began clinical testing of four candidates in 2015 targeting cancer-associated proteins other than CD19 and plan to begin clinical testing of a fifth in early 2016, and these trials will continue to enroll patients in 2016.

JCAR018: CD22

CD22 is a cell surface protein widely expressed on B lymphocytes. It is expressed by most B cell malignancies, including NHL, ALL, and CLL. Within these CD22 positive malignancies, it is generally expressed on all of a patient’s cancer cells. Additionally, treatment with CD19-directed therapies has led to the emergence in some patients of CD19-negative cancer cells. To date, these patients’ cancer cells have retained CD22 expression, potentially making a CD22-directed CAR T cell product candidate an important potential treatment for these patients. Similar to CD19, CD22 is not known to be expressed on any healthy tissue other than B cells. It is also not expressed on hematopoietic stem cells, and therefore B cells should return when the CAR T cell is no longer present.

JCAR018 is the CD22-directed CAR product candidate with respect to which we have licensed technology from Opus Bio. This product candidate was originally developed at the NCI. It has a fully human scFv and a 4-1BB costimulatory domain. Data from mouse models suggest that JCAR018 will have comparable efficacy in lymphoma and leukemia as CD19-directed CAR T cells. Patient enrollment has commenced in a Phase I trial sponsored by the NCI. This Phase I trial will enroll patients one year to 30 years in age that have CD22-positive r/r ALL or r/r NHL. The trial is open to patients who have either CD19-negative or CD19-positive disease and who have or have not received previous CAR T cell treatment. Preliminary results with the lowest JCAR018 cell dose, as well as one patient at the next highest dose, were presented at ASH 2015. JCAR018 demonstrated anti-tumor activity in r/r ALL patients, including both patients that had previously been treated with an anti-CD19 CAR therapy and those who had not, with two out of seven achieving a CRm. The product candidate had generally manageable adverse events. The dose escalation portion of this trial will continue during 2016. We recently achieved the first clinical milestone under our license agreement for this product candidate, for which paid Opus Bio a milestone payment in equity. We plan to present additional data from this trial later in 2016.

JCAR023: L1CAM (CD171)

L1CAM, also known as CD171, is a cell-surface adhesion molecule that plays an important role in the development of a normal nervous system. It is overexpressed in neuroblastoma, and there is increasing evidence of aberrant expression in a variety of solid organ tumors, including glioblastoma and lung, pancreatic, and ovarian cancers.

JCAR023 is our L1CAM directed CAR T cell product candidate, which was originally developed at SCRI. It has a defined cell composition. Preliminary data from a non-human primate study has shown no evidence of reactivity of JCAR023 to normal tissues at cell doses 10-100 fold higher than the anticipated target dose in humans. SCRI is conducting a Phase I trial of JCAR023 in in patients with refractory or recurrent pediatric neuroblastoma, under a SCRI-sponsored IND. The Phase I protocol-defined dose-escalation will continue during 2016.

JCAR020: MUC-16 / IL-12

MUC-16 is a protein overexpressed in the majority of ovarian cancers, but not on the surface of normal ovary cells. CA-125 is a protein found in the blood of ovarian cancer patients that results from the cleavage of MUC-16. CA-125 levels in the blood are a common test for ovarian cancer progression because they correlate with cancer progression. Our MUC-16/IL-12 product candidate, JCAR020, which was originally developed at MSK, has a binding domain that recognizes an extracellular domain of MUC-16 that remains following cleavage of CA-125.

 

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JCAR020 is our first development candidate that uses our “armored CAR” technology. IL-12 is a cytokine that can help overcome the inhibitory effects that the tumor micro-environment can have on T cell activity. Systemic delivery of IL-12 has been limited to date by severe side effects, which have included severe hematological toxicity, severe hepatic dysfunction, and immune reactive events such as colitis, some of which resulted in deaths and trial stoppage. However, we believe local delivery to the tumor may provide efficacy while avoiding these side effects. JCAR020 secretes IL-12. Because CAR T cells aggregate at the target protein, IL-12 delivery is likely to concentrate in areas with significant MUC-16 protein expression, in this case, MUC-16 expressing cancers. We believe the armored CAR utilizing IL-12 has the potential to enhance T cell potency and persistence. MSK is conducting a Phase I trial of JCAR020 in ovarian cancer, under an MSK-sponsored IND. The Phase I trial for JCAR020 opened for enrollment in 2015, and the trial will continue to enroll patients at ascending doses in 2016. In addition to assessing safety and preliminary efficacy, the trial is designed to provide potential biomarker and translational insights.

JCAR024: ROR-1

ROR-1 is a protein expressed in the formation of embryos, but in normal adult cells its surface expression is predominantly found at low levels on adipocytes, or fat cells, and briefly on precursors to B cells, or pre-B cells, during normal B cell maturation. ROR-1 is overexpressed on a wide variety of cancers including a subset of non-small cell lung cancer, triple negative breast cancer, pancreatic cancer, and prostate cancer. It is highly expressed on B cell chronic lymphocytic leukemia and mantle cell lymphoma.

JCAR024 is our ROR-1-directed CAR T cell product candidate, which was originally developed at FHCRC. It has a defined cell composition. Preliminary data in non-human primates has shown no evidence of acute clinically relevant side effects at cell doses exceeding the anticipated target dose in humans. We began a Phase I trial in early 2016 of JCAR024 in patients with ROR-1 expressing cancers, under a FHCRC-sponsored IND. We are also developing a next generation ROR-1-directed CAR T cell product candidate.

JTCR016: WT-1

Our lead high-affinity TCR T cell product candidate, JTCR016, targets WT-1, an intracellular protein that is overexpressed in a number of cancers, including adult myeloid leukemia (“AML”) and non-small cell lung, breast, pancreatic, ovarian, and colorectal cancers. This product candidate was originally developed at FHCRC. An IND application for JTCR016 was submitted in May 2012 by FHCRC’s Aude Chapuis, the sponsor of a Phase I/II trial for this product candidate, for the treatment of high risk or relapsed AML, myelodysplasic syndrome, and chronic myeloid leukemia in patients who have received an allogeneic HSCT.

Based on investigator-reported interim data presented at CIPO 2015 from the Phase I portion of this trial, JTCR016 has been generally well tolerated and has demonstrated no off-target effects. JTCR016 has also demonstrated TCR cell persistence beyond one year in a majority of subjects. This trial continues to monitor for AML disease relapse in this high risk population. We expect additional data from this trial in 2016.

The following adverse events of CTCAE grades 3 or 4 were experienced by more than one patient, whether or not treatment related, based on investigator-reported interim data as of November 10, 2014: lymphopenia, thrombocytopenia, anemia, hypotension, neutrophil count decreased, hyponatremia, hypophosphatemia, fever, fatigue, and infection. There were no observed events of sCRS or severe neurotoxicity in these patients.

We are also enrolling patients in a separate FHCRC-sponsored Phase I trial of JTCR016 in advanced NSCLC patients and are planning another FHCRC-sponsored Phase I trial of JTCR016 in earlier-stage AML patients.

 

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Process Development and Manufacturing

We are devoting significant resources to process development and manufacturing in order to optimize the safety and efficacy of our product candidates, as well as to reduce our per unit manufacturing costs. The manufacture of our product candidates involves complex processes, including the separation of the appropriate T cells from blood product collected from the patient, the activation of the T cells, the insertion of the gene sequence for the CAR or TCR construct into the cell’s DNA, and the growth in the number of these modified T cells to the desired dose level. We have established a semi-automated, closed platform for this process, and we are investing further resources in improving and further automating the process so as to reduce the cost of manufacturing.

We continue to leverage our relationships with our academic partner institutions for manufacturing for some of our Phase I/II clinical trials. Doing so has significantly accelerated our ability to advance clinical trials, gain insights into the multiple manufacturing processes, and establish an infrastructure for future Phase I and II trials.

Our manufacturing strategy is designed to meet the demand needs of clinical supply and commercial launch. We have successfully brought on-line a CMO to manufacture JCAR015 and are in the final stages of establishing our own manufacturing facility to support manufacturing under established current good manufacturing practices (“cGMP”). This approach will position us to support multicenter clinical trials and commercialization.

Our goal is to carefully manage our cost structure, maximize optionality, and drive long-term cost of goods as low as possible. As such, we established manufacturing capabilities at a CMO to increase the speed at which we could bring cGMP capacity on-line to support our JCAR015 clinical program. We plan to complement the use of the CMO by establishing our own cGMP manufacturing facility. In 2015 we entered into a ten-year lease for a facility in Bothell, Washington, which we have comprehensively remodeled to enable cGMP manufacturing. We are in the process of completing the necessary steps for regulatory approval for this facility, and we plan to begin manufacturing clinical trial material from this facility in 2016 and commercial products, subject to the required regulatory approvals, during 2017. We believe that operating our own manufacturing facility will provide us with enhanced control of material supply for both clinical trials and the commercial market, will enable the more rapid implementation of process changes, and will allow for better long-term margins.

Our manufacturing strategy is currently structured to support our U.S. development plans. Although we believe the general manufacturing strategy developed for the United States will be applicable in other geographies, specific strategies for other geographies will be developed as part of our clinical and commercial plans for such other geographies. As such, we are currently developing our strategy for geographies outside of the U.S., in collaboration with Celgene and other potential partners.

Commercialization Plan

We currently have no sales, marketing or commercial product distribution capabilities and have no experience as a company in marketing products. We intend to build our own global commercialization capabilities over time as well as to leverage Celgene’s global capabilities in certain geographies on assets that Celgene opts into.

According to Decision Resources Group’s projections, the combined global market for ALL, DLBCL, and CLL combined is expected to exceed $20 billion by 2025. In the United States alone, there are approximately 6,000 patients diagnosed with ALL, 42,000 patients diagnosed with NHL and another 21,000 diagnosed with CLL each year. If any of our CD19 product candidates are approved, we expect to commercialize those products in the United States with an experienced sales, marketing, payer access and distribution organization including a national specialty hematology sales force.

Outside the United States, we have not yet defined our regulatory and commercial strategy for our CD19 product candidates. Based on the collaboration agreement Juno entered into with Celgene, if Celgene exercises its option for the CD19 program, we would expect to outline our global plan for further development and commercialization of

 

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our CD19 product candidates in partnership with Celgene in 2016. With respect to product candidates arising out of other programs that Celgene opts in to, we would expect to leverage Celgene’s global development and commercial capabilities in those territories where Celgene receives development and commercialization rights. With respect to product candidates arising from programs for which Celgene chooses not to exercise its option, we would expect to identify strategic partners for ongoing global commercialization of such product candidates, which may include biopharmaceutical partners, distributors, and contract sales and marketing organizations, or we may decide to establish our own commercial infrastructure. We plan to further evaluate these alternatives as we approach approval for one of our product candidates.

As additional product candidates advance through our pipeline, our commercial plans will evolve as we consider elements such as the market potential, the unmet clinical need, the competitive landscape, development costs, etc., in order to efficiently and successfully commercialize our assets.

Intellectual Property

We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to our business, including seeking, maintaining, and defending patent rights, whether developed internally or licensed from our collaborators or other third parties. Our policy is to seek to protect our proprietary position by, among other methods, filing patent applications in the United States and in jurisdictions outside of the United States related to our proprietary technology, inventions, improvements, and product candidates that are important to the development and implementation of our business. We also rely on trade secrets and know-how relating to our proprietary technology and product candidates, continuing innovation, and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in the field of immunotherapy. We additionally rely on data exclusivity, market exclusivity, and patent term extensions when available, and plan to seek and rely on regulatory protection afforded through orphan drug designations. Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions, and improvements; to preserve the confidentiality of our trade secrets; to maintain our licenses to use intellectual property owned by third parties; to defend and enforce our proprietary rights, including our patents; and to operate without infringing on the valid and enforceable patents and other proprietary rights of third parties.

We have developed and in-licensed numerous patents and patent applications and possess substantial know-how and trade secrets relating to the development and commercialization of immunotherapy product candidates, including related manufacturing processes and technology. Many of these in-licensed patents and patent applications claim the inventions of investigators at MSK, FHCRC, SCRI, NIH, City of Hope, and St. Jude, as described in more detail below under the caption “Licenses and Third-Party Collaborations.” As of January 31, 2016, our owned and licensed patent portfolio consists of approximately 22 licensed U.S. issued patents, approximately 26 licensed U.S. pending patent applications, approximately 38 owned U.S. issued patents, and approximately 35 owned U.S. pending patent applications covering certain of our proprietary technology, inventions, and improvements and our most advanced product candidates, as well as approximately five owned patents issued in jurisdictions outside the United States, approximately 39 licensed patents issued in jurisdictions outside of the United States, approximately 169 licensed patent applications pending in jurisdictions outside of the United States (including eight licensed pending Patent Cooperation Treaty applications), and approximately 61 owned patent applications pending in jurisdictions outside of the United States (including 14 owned pending Patent Cooperation Treaty applications) that, in many cases, are counterparts to the foregoing U.S. patents and patent applications. For example, these patents and patent applications include claims directed to:

 

    proprietary CARs, T cell receptors and antibodies;

 

    proprietary CAR constructs, including those with customized spacer domains for improved tumor recognition;

 

    engineered transgenes for T cell selection and in vivo ablation;

 

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    proprietary gene transfer vectors;

 

    reversible reagents for cell selection, expansion and engineering;

 

    systems and processes for generating and manufacturing cells for adoptive immunotherapy;

 

    adoptive immunotherapy using defined T cell compositions;

 

    multispecific cellular therapy approaches, including bispecific CARs, cells and compositions;

 

    formulations, dosages, and treatment methods for adoptive immunotherapy, including those for reducing toxicity associated with adoptive immunotherapy;

 

    approaches for improving exposure to therapeutic cell product and promoting resistance to factors of tumor microenvironments; and

 

    libraries and high throughput methods for the discovery of antigen-binding molecules and targets.

As for the immunotherapy products and processes we develop and commercialize, in the normal course of business, we intend to pursue, when possible, composition, method of use, dosing and formulation patent protection. We may also pursue patent protection with respect to manufacturing and drug development processes and technology. The patents and patent applications outside of the United States in our portfolio are held primarily in Europe, Canada, Japan, and Australia.

Individual patents extend for varying periods of time, depending upon the date of filing of the patent application, the date of patent issuance, and the legal term of patents in the countries in which they are obtained. Generally, patents issued for applications filed in the United States are effective for 20 years from the earliest effective filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result of the FDA regulatory review period. The restoration period cannot be longer than five years and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. The duration of patents outside of the United States varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. Our issued patents will expire on dates ranging from 2019 to 2031. If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates ranging from 2021 to 2037. However, the actual protection afforded by a patent varies on a product-by-product basis, from country-to-country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country, and the validity and enforceability of the patent.

The patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. No consistent policy regarding the scope of claims allowable in patents in the field of immunotherapy has emerged in the United States. The patent situation outside of the United States is even more uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions and enforce our intellectual property rights, and more generally could affect the value of our intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions, and improvements. With respect to both licensed and company-owned intellectual property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our products and the methods used to manufacture those products. Moreover, even our issued patents do not guarantee us the right to practice our technology in relation to the commercialization of our products. We have conducted analyses of the patent landscape with respect to our CD19 product candidates, and based on these analyses, we believe we will have freedom to operate with respect to our most advanced CD19 product candidates, by which we mean we believe that we will be able to commercialize them. However, the area of patent and other intellectual property rights in biotechnology is an

 

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evolving one with many risks and uncertainties, and third parties may have blocking patents that could be used to prevent us from commercializing our patented product candidates and practicing our proprietary technology. Our issued patents and those that may issue in the future may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or limit the length of the term of patent protection that we may have for our product candidates. In addition, the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies. For these reasons, we may have competition for our product candidates. Moreover, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.

Patent disputes are sometimes interwoven into other business disputes. For example, we were a party in a lawsuit captioned Trustees of the University of Pennsylvania v. St. Jude Children’s Research Hospital, Civil Action No. 2:13-cv-01502-SD (E.D. Penn.), which concerned both a contractual dispute between St. Jude Children’s Research Hospital (“St. Jude”) and the Trustees of the University of Pennsylvania (“Penn”), and a dispute about U.S. Patent No. 8,399,645 (the “’645 Patent”), which St. Jude has exclusively licensed to us. This lawsuit settled in April 2015.

As of December 31, 2015, our registered trademark portfolio currently contains 32 registered trademarks and pending trademark applications, consisting of four pending trademark applications in the United States, and 17 registered trademarks and 11 pending trademark applications in Australia, Canada, China, the European Community (including Germany), India, Japan, Korea, and Singapore, and under the Madrid Protocol. We may also rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets are difficult to protect. We seek to protect our technology and product candidates, in part, by entering into confidentiality agreements with those who have access to our confidential information, including our employees, contractors, consultants, collaborators, and advisors. We also seek to preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical security of our premises and physical and electronic security of our information technology systems. Although we have confidence in these individuals, organizations, and systems, agreements or security measures may be breached and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or may be independently discovered by competitors. To the extent that our employees, contractors, consultants, collaborators, and advisors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. For this and more comprehensive risks related to our proprietary technology, inventions, improvements and products, please see the section captioned “Risks Related to Intellectual Property” in Part I—Item 1A—“Risk Factors” of this report.

Licenses and Third-Party Collaborations

Celgene Corporation

Collaboration Agreement

In June 2015, we entered into a master research and collaboration agreement (the “Celgene Collaboration Agreement”) with Celgene Corporation and a wholly owned subsidiary of Celgene Corporation (collectively, “Celgene”) pursuant to which Juno and Celgene will research, develop and commercialize novel cellular therapy product candidates and other immuno-oncology and immunology therapeutics, including, in particular, CAR and TCR product candidates. The Celgene Collaboration Agreement became effective on July 31, 2015 and was amended and restated in August 2015 to clarify certain procedural aspects relating to a party’s exercise of an option for a given program, and to provide additional detail regarding a party’s entry into the applicable development and commercialization agreement thereafter. Pursuant to the collaboration, each of Celgene and Juno will conduct independent programs to research, develop, and commercialize such product candidates (including, in the case of Juno, our CD19 and CD22 programs). As detailed below, each party has certain options

 

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to obtain either an exclusive license to develop and commercialize specified product candidates arising from specified types of programs conducted by the other party within the scope of the collaboration, or the right to participate in the co-development and co-commercialization of specified product candidates arising from such programs.

The parties may exercise their options with respect to specified product candidates arising under programs within the scope of the collaboration until July 31, 2025, which is the tenth anniversary of the effective date of the Celgene Collaboration Agreement (the “Research Collaboration Term”), subject to a tail period applicable to certain programs, for which options have not yet been exercised as of the expiration of the Research Collaboration Term. For therapeutic product candidates that are directed to the target of a program for which an option is exercised, but for which the party exercising its option has not elected to obtain rights upon option exercise, each party is obligated during the remainder of the Research Collaboration Term to continue to offer the other party the right to exercise an additional option to obtain rights to develop and commercialize such other product candidates in such program until commencement of a pivotal clinical trial, upon terms set forth in the Celgene Collaboration Agreement. If a party does not exercise its option with respect to a program that is subject to the other party’s exclusive right to exercise an option prior to the expiration of all applicable option exercise periods for such product candidates in such program, the option with respect to such product candidates and such program will expire and the party required to offer such product candidates and program to the other party is free to develop and commercialize such product candidates independently.

Pursuant to the Celgene Collaboration Agreement, each party is solely responsible for research and development activities conducted under its programs prior to the other party’s exercise of an option. Following a party’s exercise of its option for a program, the parties will enter into an agreed form of license agreement or co-development and co-commercialization agreement for such program, as applicable, which agreement will set forth the allocation of rights and responsibilities as between the parties for development and commercialization activities for product candidates arising out of such program in the Celgene Territory and the Juno Territory, as applicable (as each is defined below).

Options under Celgene Collaboration Agreement

First, we granted Celgene options to obtain an exclusive license with respect to Juno’s internally conducted programs, to develop and commercialize specified types of immuno-oncology and immunology therapeutics that are selected by Celgene at the time it exercises such options and are directed to the molecular targets that are the subject of the relevant Juno programs. Juno will retain the right to develop and commercialize product candidates arising from such programs in the United States, Canada and Mexico, and for cellular therapy product candidates, China (such countries, the “Juno Territory” and all other countries, the “Celgene Territory”). Celgene may exercise the foregoing options on a program-by-program basis at various time points through completion of certain clinical trials with respect to product candidates in each program. Upon Celgene’s exercise of such option for specified product candidates for a program, the parties are obligated to enter into either a license agreement or a co-development and co-commercialization agreement as specified below.

If Celgene exercises an option with respect to our internally developed programs within the scope of the collaboration, including our CD19 and CD22 programs, Juno and Celgene will enter into an agreed form of a license agreement pursuant to which Celgene receives an exclusive, royalty-bearing license to develop and commercialize, at Celgene’s cost, specified therapeutic product candidates directed to the targets of such Juno programs in the Celgene Territory, and Juno retains all rights to develop further and commercialize, at Juno’s cost, such therapeutic product candidates in the Juno Territory, subject to Celgene’s right to exercise an option for a specified number of such programs, excluding the CD19 program and the CD22 program, to co-promote such product candidates in the Juno Territory (in which case the parties would execute a co-development and co-commercialization agreement as specified below). Under all such license agreements, Juno has the right to participate in specified commercialization activities arising from such programs in certain major European markets.

 

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For internally developed Juno programs for which Celgene exercises one of its specified number of rights to co-develop and co-commercialize product candidates arising in such program, as described above, the parties shall enter into an agreed form of co-development and co-commercialization agreement, pursuant to which Celgene shall have the right to co-develop and co-commercialize such product candidates, with the parties each entitled to bear and receive an equal share of the profits and losses arising out of such programs following the exercise of such co-promote right. In general, under such agreements, Juno will be the lead party for development and commercialization activities for such product candidates in the Juno Territory, and Celgene will be the lead party for development and commercialization activities for such product candidates in the Celgene Territory. Under such agreements, Celgene has the right to elect to participate in up to a specified percentage of specified commercialization activities for such product candidates in the Juno Territory, and Juno has the right to elect to participate in up to a specified percentage of specified commercialization activities for such product candidates in certain major European markets.

If Juno exercises its option with respect to specified product candidates arising in internally developed Celgene programs within the scope of the collaboration, the parties are obligated to enter into a co-development and co-commercialization agreement pursuant to which Juno bears thirty percent (30%) and Celgene bears seventy percent (70%) of global profits and losses. Under such co-development and co-commercialization agreements, Celgene is the lead party for all development and commercialization activities for such product candidates worldwide, subject to Juno’s right to participate in up to a specified percentage of specified commercialization activities in North America under certain circumstances and in certain major European countries.

Furthermore, each party will have the exclusive right to exercise options to co-develop and co-commercialize product candidates arising out of programs for which the other party in-licenses or acquires rights that are within the scope of their collaboration, where such rights are available to be granted, with the parties each bearing an equal share of the profits and losses arising out of such programs following the exercise of such option. In general, for such programs where the rights are in-licensed or acquired by Juno and for which Celgene exercises its options, Juno will be the lead party for development and commercialization of product candidates arising from such programs in the Juno Territory, subject to Celgene’s right to elect to participate in certain commercialization activities for such product candidates in the Juno Territory, and Celgene will be the lead party for development and commercialization of product candidates arising in such programs in the Celgene Territory, subject to Juno’s right to elect to participate in certain commercialization activities for such product candidates in certain major European markets. Conversely, for such programs where the rights are in-licensed or acquired by Celgene and for which Juno exercises its options, Celgene will be the lead party for development and commercialization activities for product candidates arising from such programs on a worldwide basis, subject to Juno’s right to elect to participate in certain commercialization activities for such product candidates in the Juno Territory and in certain major European markets. The party exercising an option for these in-licensed or acquired programs is required to pay to the other party an upfront payment equal to one half of the costs incurred by other party in connection with the acquisition of rights to such programs.

In addition to an upfront cash payment of approximately $150.2 million under the Celgene Collaboration Agreement, Celgene is required to pay to Juno an additional upfront fee if Celgene exercises its option for each of the CD19 Program and the CD22 Program, totaling, if the options are exercised for both programs during the initial opt-in window, $100.0 million. Upon a party’s exercise of the option for any other program (other than certain in-licensed or acquired programs where a party exercises its option at the time such program is acquired), the party exercising the option is required to pay to the other party an upfront payment at the time of exercise of its option, calculated as a multiple of the costs incurred by the other party in relation to the development activities for such program prior to the exercise of the option, with such multiple based on the point in development of such product at which such party exercises such option. For programs for which the parties have entered into a license agreement, Juno will also receive royalties from Celgene, for product candidates arising from the CD19 and CD22 programs, at a percentage in the mid-teens of net sales of such product candidates in the Celgene Territory, and for product candidates arising from other Juno programs that are subject to a license agreement,

 

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tiered royalties on net sales of such product candidates in the Celgene Territory, at percentages ranging from the high single digits to the mid-teens, calculated based on the stage of development at which Celgene exercises its option for such program.

In addition to each party’s rights with respect to development and commercialization of product candidates arising from programs in the collaboration as set forth above, the parties have agreed to enter into a manufacturing and supply agreement that will govern the terms of manufacture and supply of cellular therapy product candidates and other product candidates included within collaboration programs following the exercise of an option for each such program. Under this agreement, Juno would manufacture and supply cellular therapy product candidates for the Juno Territory, and provide certain support for the manufacture and supply of cellular therapy product candidates for the Celgene Territory. Celgene would be responsible for the supply of other types of product candidates for which options are exercised.

The Celgene Collaboration Agreement will terminate upon the later of the last-to-expire of all option exercise periods, or, if an option is exercised by a party for one or more programs in the collaboration, upon the termination or expiration of the last-to-exist license agreement or co-development and co-commercialization agreement, as applicable, for any such program. The Celgene Collaboration Agreement may be terminated by either party for the insolvency of, or for an uncured material breach of the Celgene Collaboration Agreement by, the other party. Celgene may terminate the Celgene Collaboration Agreement in its entirety for any reason by providing Juno with prior written notice if there are no active development and commercialization agreements in place. Juno may terminate the Celgene Collaboration Agreement if Juno exercises its termination rights under the Voting and Standstill Agreement (as defined below) between the Parties for Celgene’s breach of certain covenants therein, or if either party terminates the Purchase Agreement (as defined below) other than as a result of a failure by Juno to meet specified closing conditions under such agreement. Either party also has the right to terminate the Celgene Collaboration Agreement on a program-by-program basis if the other party or any of its affiliates challenges the validity, scope or enforceability of or otherwise opposes, any patent included within the intellectual property rights licensed to the other party under the Celgene Collaboration Agreement.

On a program-by-program basis and prior to the exercise of an option, either party may terminate the Celgene Collaboration Agreement either in its entirety or with respect to one or more programs on prior written notice to the other party in the case of an uncured material breach by the other party that frustrates the fundamental purpose of the Celgene Collaboration Agreement,. On a program-by-program basis following the exercise of an option for a program, either Party may also terminate any license agreement, or co-development and co-commercialization agreement for such program upon prior notice for an uncured material breach by the other party with respect to such program that frustrates the fundamental purpose of such agreement. Either party may terminate a license agreement or co-development and co-commercialization agreement upon the bankruptcy or insolvency of the other party. Either party also has the right to terminate the license agreement or the co-development and co-commercialization agreement if the other party or any of its affiliates challenges the validity, scope or enforceability of or otherwise opposes, any patent included within the intellectual property rights licensed to the other party under such agreement.

Equity Placement

In June 2015, we also entered into a share purchase agreement (the “Purchase Agreement”) with Celgene. Pursuant to the Purchase Agreement, we agreed to sell 9,137,672 shares of our common stock to Celgene at an aggregate cash price of approximately $849.8 million, or $93.00 per share of common stock, at an initial closing. The initial closing occurred on August 4, 2015.

First Period Top-Up Rights

Starting in 2016 and until June 29, 2020, Celgene has the annual right, following the filing of each Annual Report on Form 10-K filed by Juno (including this report), to purchase additional shares from Juno at a market average price, allowing it to “top up” to an ownership interest equal to 10% of the then-outstanding shares (after

 

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giving effect to such purchase), subject to adjustment downward in certain circumstances. If Celgene does not exercise its top-up right in full in any given year, then the percentage of ownership targeted for a top-up stock purchase for the next year will be reduced to Celgene’s percentage ownership at the time of such non-exercise or partial exercise (after giving effect to the issuance of shares in any partial exercise). Based on the number of shares of common stock outstanding as of February 18, 2016 as set forth on the cover of this report, we estimate that Celgene will have the right to acquire approximately 1,268,283 shares of our common stock if exercises the “top up” right triggered by the filing of this report.

First Acquisition Right

During the period beginning on June 29, 2019 and ending on June 28, 2020, subject to Celgene opting in to a certain number of Juno programs under the Celgene Collaboration Agreement, Celgene will have the right (the “First Acquisition Right”) to purchase up to 19.99% of the then-outstanding shares of Juno’s common stock (after giving effect to such purchase) at the closing price of the common stock on the principal trading market (currently The NASDAQ Global Select Market) on the date of exercise (the “FAR Base Price”), plus a premium on all shares in excess of the number of shares for which Celgene would then be able to purchase if it then had a top-up right as described in the preceding paragraph.

Second Period Top-Up Rights

After the closing of the purchase of shares upon the exercise of the First Acquisition Right until the SAR Termination Date (as defined below), in the event that Celgene has been diluted after exercising the First Acquisition Right, Juno will, following the filing of each Annual Report on Form 10-K filed by Juno, offer Celgene the right to purchase additional shares from Juno at 105% of market average price, allowing Celgene to “top up” to an ownership interest (after giving effect to such purchase) equal to the percentage ownership of shares that Celgene obtained upon exercise of the First Acquisition Right, subject to adjustment downward in certain circumstances. If Celgene does not exercise its top-up right in full in any year in which it is offered such right by Juno, then the percentage of ownership targeted for a top-up stock purchase for the next year it is offered such top-up right will be reduced to Celgene’s percentage ownership at the time of such non-exercise or partial exercise (after giving effect to the issuance of shares in any partial exercise). The “SAR Termination Date” is the later of (a) June 29, 2025, and (b) the earlier of (x) the date that is 6 months following the date that the conditions to the exercise of the Second Acquisition Right (as defined herein) are satisfied and (y) December 29, 2025.

Second Acquisition Right

During the period beginning on June 29, 2024 and ending on the SAR Termination Date, subject to each of Celgene and Juno opting into a certain number of programs under the Celgene Collaboration Agreement, and provided that Celgene exercised the First Acquisition Right so as to obtain a percentage ownership of 17% of Juno, Celgene will have the right (the “Second Acquisition Right”) to purchase up to 30% of the then-outstanding shares of Juno’s common stock (after giving effect to such purchase) at the closing price of the common stock on the principal trading market on the date of exercise (the “SAR Base Price”), plus a premium on all shares in excess of the number of shares for which Celgene would then be able to purchase if it then had a top-up right as described in the preceding paragraph.

Final Top-Up Rights

Following the closing of the purchase of shares upon the exercise of the Second Acquisition Right and until the Celgene Collaboration Agreement expires or is terminated, Celgene would have the annual right, in the event that Celgene has been diluted after exercising the Second Acquisition Right, following the filing of each Annual Report on Form 10-K filed by Juno, to purchase additional shares from Juno at a price equal to 105% of market average price, allowing it to “top up” to the percentage ownership it had attained upon exercising the Second Acquisition Right, less 250 basis points, subject to adjustment downward in certain circumstances. If Celgene

 

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does not exercise its top-up right in full in any given year, then the percentage of ownership targeted for a top-up stock purchase for the next year will be reduced to Celgene’s percentage ownership at the time of such non-exercise or partial exercise (after giving effect to the issuance of shares in any partial exercise).

These rights and the other described top-up rights, as well as the First Acquisition Right and Second Acquisition Right, may be limited or eliminated in certain circumstances when and if Celgene disposes of any of its shares.

Conditions to Closing; Termination; Stockholder Approval

Closings of top-up rights, the First Acquisition Right, and the Second Acquisition Right, are subject to customary closing conditions, including termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. We have the ability to terminate Celgene’s future purchase rights under the Purchase Agreement in the event that Celgene breaches certain of its obligations under the Voting and Standstill Agreement (described below), Celgene undergoes a change in control, or the Celgene Collaboration Agreement terminates or expires.

The Purchase Agreement limits the aggregate number of shares that may be issued thereunder to 19.99% of Juno’s common stock outstanding immediately prior to the entry into the Purchase Agreement, unless stockholder approval is obtained for additional issuances of Juno stock in accordance with NASDAQ rules. We have agreed to submit the additional equity issuances for approval by our stockholders at our 2016 annual meeting of stockholders.

Voting and Standstill Agreement

In connection with the Purchase Agreement, we entered into a voting and standstill agreement (the “Voting and Standstill Agreement”) with Celgene in June 2015. Pursuant to the Voting and Standstill Agreement, until the later of the fifth anniversary of the date of the Voting and Standstill Agreement and the expiration or earlier termination of the Celgene Collaboration Agreement, Celgene will be bound by certain “standstill” provisions which generally will prevent it from purchasing outstanding shares of Juno common stock or common stock equivalents, making a tender offer or encouraging or supporting a third party tender offer, calling a meeting of Juno’s stockholders, nominating a director whose nomination has not been approved by Juno’s board of directors (the “Board”), soliciting proxies in opposition to the recommendation of the Board, depositing shares of common stock in a voting trust, assisting a third party in taking such actions, entering into discussions with a third party as to such actions, or requesting or proposing in writing to the Board or any member thereof that Juno amend or waive any of these limitations. Celgene has also agreed not to dispose of any shares of common stock beneficially owned by it during certain specified lock-up periods, other than under certain exceptions. Following the expiration of such lock-up periods, Celgene may sell shares subject to certain manner of sale and volume limitations, as well as restrictions on sales to persons defined as “competitors.” Celgene has agreed generally to vote its shares in accordance with the recommendations of the majority of Juno’s Board.

We have agreed to give Celgene certain Board designation rights until at least June 29, 2020, and thereafter for as long as Celgene and its affiliates beneficially own at least 7.5% of the voting power of Juno’s outstanding shares. Dr. Thomas O. Daniel is Celgene’s current designee on the Board. Juno has agreed to nominate Dr. Daniel for election and reelection as a director on the Board, provided in each case that Dr. Daniel is reasonably acceptable to the nominating and governance committee of the Board. Celgene may designate another nominee to replace Dr. Daniel upon Dr. Daniel’s departure from the Board or as a replacement nominee for election at a meeting of stockholders at which such position is up for election. Except for the first such subsequent designee, any such subsequent designee may not be an employee or officer of Celgene, must be independent under NASDAQ rules, and must be reasonably acceptable to the nominating and governance committee of the Board. The first subsequent designee may be an “officer” of Celgene Corporation for purposes of Section 16 of the Securities Exchange Act of 1934, as amended, within the meaning of Rule 16a-1(f) thereunder, provided that such designee is reasonably acceptable to the nominating and governance committee of the Board.

 

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The rights and restrictions applicable to Celgene under the Voting and Standstill Agreement are subject to termination upon the occurrence of certain events, including certain events involving a change of control, or potential change of control, of Juno.

Registration Rights Agreement

In connection with the Purchase Agreement, we also entered into a registration rights agreement (the “Celgene Registration Rights Agreement”) with Celgene in June 2015. Pursuant to the Celgene Registration Rights Agreement, if and as Celgene is permitted to sell shares under the Voting and Standstill Agreement, Juno has agreed to, upon the written request of Celgene, prepare and file with the Securities and Exchange Commission a registration statement on Form S-3 for purposes of registering the resale of the shares specified in Celgene’s written request or, if Juno is not at such time eligible for the use of Form S-3, use its commercially reasonable efforts to prepare and file a registration statement on a Form S-1 or alternative form that permits the resale of the shares. Juno has also agreed, among other things, to indemnify Celgene under the registration statement from certain liabilities and to pay all fees and expenses (excluding any legal fees of the selling holder(s) above $10,000 per registration statement, and any underwriting discounts and selling commissions) incident to the Juno’s obligations under the Celgene Registration Rights Agreement.

Fred Hutchinson Cancer Research Center License and Collaboration Agreement

In October 2013, we entered into a license agreement with FHCRC that grants us an exclusive, worldwide, sublicensable license under certain patent rights, and a non-exclusive, worldwide, sublicensable license under certain technology, to research, develop, manufacture, improve, and commercialize products and processes covered by such patent rights or incorporating such technology for all therapeutic uses for the treatment of human cancer. This agreement was amended and restated in November 2014. The patents and patent applications covered by this agreement are directed, in part, to CAR constructs, including target specific constructs and customized spacer regions, TCR constructs, and their use for immunotherapy. Pursuant to this license agreement, as of January 31, 2016, we have rights to five pending U.S. patent applications, one pending Patent Cooperation Treaty application, and a number of other patent applications in jurisdictions outside the United States. We paid to FHCRC an upfront payment of $250,000 upon entering into this agreement. We are required to pay to FHCRC an annual maintenance fee of $50,000 for the first four years of the agreement’s term and thereafter minimum annual royalties of $100,000 per year, with such payments reduced by the amount of running royalties paid to FHCRC in the applicable prior year. We may be obligated to pay to FHCRC up to a maximum of $6.75 million per licensed product, which includes JCAR014 and JCAR017, upon our achievement of certain specified clinical and regulatory milestones. In addition, the license agreement provides that we are required to pay to FHCRC low single-digit royalties based on annual net sales of the licensed products by us and by our sublicensees. We are also required to pay to FHCRC a portion of the payments that we receive from sublicensees of the rights licensed to us by FHCRC, on a tiered basis, up to a cap. In addition, we have agreed to use a set amount of these sublicensee payments to support the research and development of licensed products, and if, by the fifth anniversary of the license agreement, we have received at least such amount in sublicensee payments but have spent less than such amount on such research and development activities, we must pay to FHCRC the difference between such set amount and the actual amounts we have spent on such activities.

The license agreement will expire on the later of the expiration of the last to expire of the licensed patents rights covering a licensed product, on a country-by-country basis, or 15 years following the regulatory approval of the first licensed product. We may terminate the agreement at will upon 90 days’ notice, in its entirety, on a country-by-country basis, or with respect to any aspect of any licensed patent. FHCRC has the right to terminate the agreement upon 90 days’ notice in the event of our uncured breach, but upon 45 days’ notice if such breach is of a payment or reporting obligation, and upon written notice if we are more than three days late with any payment obligation on any two occasions within a 12-month period. FHCRC may also terminate the agreement upon 30 days’ written notice if we challenge, or notify FHCRC that we intend to challenge, the validity or enforceability of any of the licensed patent rights, and the agreement will terminate automatically in the event of our

 

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bankruptcy or insolvency. Upon termination, but not expiration, of the agreement, we are required, upon FHCRC’s request, to timely enter into good faith negotiations with FHCRC’s future licensees for the purpose of granting licensing rights to our modifications to or improvements upon the licensed patents or technologies.

Also in October 2013, we entered into a collaboration agreement with FHCRC relating to the research and development of cellular immunotherapy products. The research is conducted under project orders containing plans and budgets approved by the parties. We have an exclusive option to obtain a royalty-bearing license to intellectual property owned by FHCRC that is developed in connection with the work conducted under the collaboration agreement, such license to be exclusive with respect to patents and patent applications and non- exclusive with respect to any other intellectual property. In addition, FHCRC granted us an exclusive, perpetual, royalty-free, sublicenseable license to any such intellectual property that constitutes an improvement to any process used to manufacture any human cellular and tissue-based collaboration study product, for the development and/or commercialization of cellular immunotherapy products.

The term of the collaboration agreement shall continue for six years from the effective date, unless earlier terminated. Either party may terminate the collaboration agreement, in its entirety or with respect to a particular collaboration project, upon 30 days’ prior written notice in the case of the other party’s uncured material breach. Either we or FHCRC may also terminate upon written notice in the event of the other party’s bankruptcy or insolvency.

In connection with the collaboration agreement in October 2013, we entered into a letter agreement with FHCRC pursuant to which we issued to FHCRC 3,274,998 shares of our common stock and also agreed to make success payments to FHCRC, payable in cash or publicly-traded equity at our discretion. In December 2015, we amended this letter agreement to make certain clarifying amendments thereto. These success payments are based on increases in the per share fair market value of our common stock during the term of the success payment agreement, which is a period of time that begins on the date of our collaboration agreement with FHCRC and ends on the later of: (1) the eighth anniversary of that date and (2) the earlier of (a) the eleventh anniversary of that date and (b) the third anniversary of the first date on which the FDA issues formal written approval for us to market a pharmaceutical or biologic product developed at least in part by our company. Success payments are owed (if applicable) after measurement of the value of our common stock in connection with the following valuation measurement dates during the term of the success payment agreement: (1) December 19, 2014 (the date our common stock first became publicly traded upon our initial public offering); (2) the date on which we sell, lease, transfer, or exclusively license all or substantially all of our assets to another company; (3) the date on which we merge or consolidate with or into another entity (other than a merger in which our pre-merger stockholders own a majority of the shares of the surviving entity); (4) any date on which ARCH Venture Fund VII, L.P. or C.L. Alaska L.P. transfers a majority of its shares of company capital stock held by it on such date to a third party; (5) every second anniversary of any event described in the preceding clauses (1), (2), (3) or (4), but only upon a request by FHCRC made within 20 calendar days after receiving written notice from us of such event; and (6) the last day of the term of the success payment agreement. Any success payment will generally be made within 90 days after the applicable valuation measurement date, except that (1) in the case of an initial public offering, the payment was required on December 21, 2015, which was the first business day following the first anniversary of the date our common stock first became publicly traded upon our initial public offering, and (2) in the case of a merger or sale of all of our company’s assets, the success payment will be made on the earlier of the 90th day following the transaction or the first date that transaction proceeds are paid to any of our stockholders. In the case of an initial public offering, the value of our common stock for determining whether a success payment was owed was determined by the average closing price of a share of our common stock over the consecutive 90 calendar day period preceding December 19, 2015, which was the first anniversary of the date our common stock first became publicly traded following our initial public offering. In the case of a valuation measurement date triggered by each second anniversary of our stock first becoming publicly traded, the value of our common stock for determining whether a success payment is owed will be determined by the average closing price of a share of our common stock over the consecutive 90 calendar day period preceding such anniversary date, so long as our common stock is publicly tradeable during such 90 calendar day period. On all other

 

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valuation measurement dates (if any), the value will be determined either, in the case of a merger or stock sale, by the consideration paid in the transaction for each share of our stock or, in all other cases, by a baseball arbitration process. The amount of a success payment is determined based on whether the value of our common stock meets or exceeds certain specified threshold values ascending from $20.00 per share to $160.00 per share, in each case subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. Each threshold is associated with a success payment, ascending from $10 million at $20.00 per share to $375 million at $160.00 per share, payable if such threshold is reached. Any previous success payments made to FHCRC are credited against the success payment owed as of any valuation measurement date, so that FHCRC does not receive multiple success payments in connection with the same threshold. The success payments paid to FHCRC will not exceed, in aggregate, $375 million, which would be owed only when the value of the common stock reaches $160.00 per share. In June 2014, we entered into an agreement with FHCRC to provide that certain indirect costs related to the collaboration projects conducted by FHCRC are creditable against any success payments, and we amended this agreement in December 2015. If we elect to make a success payment in shares of our common stock, the number of shares to be issued is computed by dividing the dollar amount of the success payment by the volume weighted average trading price of a share of our common stock on the trading day preceding the date on which the success payment is made.

In December 2015, success payments to FHCRC were triggered in the aggregate amount of $75.0 million, less indirect cost offsets of $3.3 million. We elected to make the payment in shares of our common stock, and thereby issued 1,601,085 shares of our common stock to FHCRC in December 2015.

Memorial Sloan Kettering License and Research Agreement

In November 2013, we entered into a license agreement with MSK that grants us a worldwide, sublicensable license to certain patent rights and intellectual property rights related to certain know-how to develop, make, and commercialize licensed products and to perform services for all therapeutic and diagnostic uses, which license is exclusive with respect to such patent rights and tangible materials within such know-how, and nonexclusive with respect to such know-how and related intellectual property rights. The patents and patent applications covered by this agreement are directed, in part, to CAR constructs, including bispecific and armored CARs, and their use for immunotherapy. Pursuant to this license agreement, as of January 31, 2016, we have rights to three issued U.S. patents, four pending U.S. patent applications, and a number of other patents and patent applications in jurisdictions outside the United States. Upon entering the agreement, we paid MSK an upfront payment of $6.9 million, and we are required to pay to MSK annual minimum royalties of $100,000 commencing on the fifth anniversary of the license agreement, with such payments creditable against royalties. The license agreement requires us to pay to MSK mid-to-high single-digit royalties based on annual net sales of licensed products or the performance of licensed services by us and our affiliates and sublicensees, which royalty will be reduced in the case of licensed products or services that are not covered by a valid patent in the country in which such products or services are manufactured or commercialized. In addition, if the first product we commercialize contains a chimeric antigen receptor T cell that is not a licensed product under the terms of the agreement, we are required to pay to MSK a below-single-digit royalty on net sales of such product for ten years after the first commercial sale of such product. We may also be obligated to pay to MSK up to a maximum of $6.75 million in clinical and regulatory milestone payments for each licensed product, which includes JCAR015. In addition, we are required to pay to MSK a percentage of certain payments that we receive from sublicensees of the rights licensed to us by MSK, which percentage will be based upon the date we receive such payments, the commitments we make for the development of licensed products under the agreement, or the achievement of certain clinical milestones.

The license agreement will expire, on a country-by-country and licensed-product-by-licensed-product and/or licensed-service-by-licensed-service basis, until the later of the expiration of the last to expire of the patents and patent applications covering such licensed product or service, the expiration of any market exclusivity period granted by a regulatory authority for such licensed product or service in such country, ten years from the first commercial sale of such licensed product or service in such country, or ten years from the first commercial sale of such licensed product or service in such country, where such product or service was never covered by a valid

 

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patent or patent application in such country. Upon the expiration of the agreement in any country for a particular licensed product, we will retain a nonexclusive, royalty-free license in such country to the licensed know-how useful to manufacture or commercialize such product. MSK may terminate the license agreement upon 90 days’ notice in the event of our uncured material breach, or upon 30 days’ notice if such breach is of a payment obligation. MSK may also terminate the agreement upon written notice in the event of our bankruptcy or insolvency or our conviction of a felony relating to the licensed products, or if we challenge the validity or enforceability of any licensed patent right. In addition, we have the right to terminate the agreement in its entirety at will upon 30 days’ notice to MSK, but if we have commenced the commercialization of licensed products we can only terminate at will if we cease all development and commercialization of licensed products.

Also in November 2013, we entered into a master sponsored research agreement, which we refer to as the MSRA, with MSK focused on research and development relating to chimeric antigen receptor T cell technology. The research is conducted under project orders containing plans and budgets approved by the parties. We have an exclusive option to obtain an exclusive, worldwide, royalty-bearing, sublicensable license to intellectual property owned by MSK developed in connection with the work conducted under the MSRA, and an exclusive option to obtain an exclusive, worldwide, sublicensable license to MSK’s interest in any improvements to the intellectual property licensed by us to MSK for conducting a research project. If the exclusive license agreement with MSK described above is still in effect, any such intellectual property licensed by us pursuant to our exercise of either such option shall be included within the rights licensed to us under the exclusive license agreement, although we may agree to additional diligence and other obligations. The term of the MSRA shall continue until the activities set forth in each statement of work entered into under the MSRA are completed. The MSRA may be terminated by either party upon 90 days’ notice in the event of the other party’s uncured material breach. MSK may terminate the MSRA upon 30 days’ notice in the event of our uncured failure to make a payment.

Also in November 2013, we entered into a master clinical study agreement, which we refer to as the MCSA, for clinical studies to be conducted at MSK on our behalf. Each such clinical study will be conducted in accordance with a written plan and budget and protocol approved by the parties. We have an exclusive option to obtain an exclusive, worldwide, royalty-bearing, sublicensable license to intellectual property owned by MSK developed in connection with the work conducted under the MCSA, and an exclusive option to obtain an exclusive, worldwide, sublicensable license to MSK’s interest in any improvements to the intellectual property licensed by us to MSK to conduct any clinical study under the MCSA. If the exclusive license agreement with MSK described above is still in effect, any such intellectual property licensed by us pursuant to our exercise of either such option shall be automatically included within the rights licensed to us under the exclusive license agreement. The MCSA has a term of five years and may be terminated by either party upon 30 days’ notice in the event of the other party’s uncured material breach, or upon written notice in the event of the other party’s bankruptcy or insolvency.

In connection with these arrangements, in November 2013 we entered into a letter agreement with MSK pursuant to which we issued to MSK 500,000 shares of our common stock and agreed to make success payments to MSK, payable in cash or publicly-traded equity at our discretion. In December 2015, we amended this letter agreement to make certain clarifying amendments thereto. These success payments are based on increases in the per share fair market value of our common stock during the term of the success payment agreement, which is a period of time that begins on the date of our research agreement with MSK and ends on the later of (1) the eighth anniversary of that date and (2) the earlier of (a) the 11th anniversary of that date and (b) the third anniversary of the first date on which the FDA issues formal written approval for us to market a pharmaceutical or biologic product developed at least in part by our company. Success payments will be owed (if applicable) after measurement of the value of our common stock in connection with the following valuation measurement dates during the term of the success payment agreement: (1) December 19, 2014 (the date our common stock first became publicly traded upon our initial public offering); (2) the date on which we sell, lease, transfer, or exclusively license all or substantially all of our assets to another company; (3) the date on which we merge or consolidate with or into another entity (other than a merger in which our pre-merger stockholders own a majority of the shares of the surviving entity); (4) any date on which ARCH Venture Fund VII, L.P. or C.L. Alaska L.P.

 

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transfers a majority of its shares of company capital stock held by it on such date to a third party; (5) every second anniversary of any event described in the preceding clauses (1), (2), (3) or (4); and (6) the last day of the term of the success payment agreement. Any success payment will generally be made within 90 days after the applicable valuation measurement date, except that (1) in the case of an initial public offering, the payment will be made on March 19, 2016, which the date that is 90 days after the first anniversary of the date our common stock first became publicly traded upon our initial public offering, and (2) in the case of a merger or sale of all of our company’s assets, the success payment will be made on the earlier of the 90th day following the transaction or the first date that transaction proceeds are paid to any of our stockholders. In the case of an initial public offering, the value of our common stock for determining whether a success payment was owed was determined by the average closing price of a share of our common stock over the consecutive 90 calendar day period preceding December 19, 2015, which was the first anniversary of the date our common stock first became publicly traded following our initial public offering. In the case of a valuation measurement date triggered by each second anniversary of our stock first becoming publicly traded, the value of our common stock for determining whether a success payment is owed will be determined by the average closing price of a share of our common stock over the consecutive 90 calendar day period preceding such anniversary date, so long as our common stock is publicly tradeable during such 90 calendar day period. On all other valuation measurement dates (if any), the value will be determined either, in the case of a merger or stock sale, by the consideration paid in the transaction for each share of our stock or, in all other cases, by a baseball arbitration process. The amount of a success payment is determined based on whether the value of our common stock meets or exceeds certain specified threshold values ascending from $40.00 per share to $120.00 per share, in each case subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. Each threshold is associated with a success payment, ascending from $10 million at $40.00 per share to $150 million at $120.00 per share, payable if such threshold is reached. Any previous success payments made to MSK are credited against the success payment owed as of any valuation measurement date, so that MSK does not receive multiple success payments in connection with the same threshold. The success payments paid to MSK will not exceed, in aggregate, $150 million, which would be owed only when the value of the common stock reaches $120.00 per share. In October 2015, we entered into an agreement with MSK to provide that certain indirect costs related to certain clinical studies and research projects are creditable against any success payments, and we amended this agreement in December 2015. If we elect to make a success payment in shares of our common stock, the number of shares to be issued is computed by dividing the dollar amount of the success payment by the volume weighted average trading price of a share of our common stock on the trading day preceding the date on which the success payment is made.

In December 2015, a success payment to MSK was triggered in the amount of $10.0 million, which is required to be paid, less indirect cost offsets, on March 18, 2016.

Seattle Children’s Research Institute License and Collaboration Agreement

In February 2014, we entered into a license agreement with SCRI that grants to us an exclusive, worldwide, royalty-bearing sublicensable license to certain patent rights to develop, make, and commercialize licensed products and to perform licensed services for all therapeutic, prophylactic, and diagnostic uses. The patents and patent applications covered by this agreement are directed, in part, to regulated transgene expression and CAR constructs, including bispecific CARs and customized spacer regions, and their use for immunotherapy. Pursuant to this license agreement, as of January 31, 2016, we have rights to one pending U.S. patent application, five pending Patent Cooperation Treaty applications, and a number of other pending patent applications in jurisdictions outside the United States. Under the terms of the agreement, we paid SCRI an upfront payment of $200,000 and are required to pay to SCRI annual license maintenance fees, creditable against royalties and milestone payments due to SCH, of $50,000 per year for the first five years and $200,000 per year thereafter. Pursuant to the license agreement, we are obligated to pay to SCRI low single-digit royalties based on annual net sales of licensed products and licensed services by us and our affiliates and sublicensees. Based on the progress we make in the advancement of licensed products, including JCAR014 and JCAR017, we may be required to make clinical and regulatory milestone payments totaling up to $13.3 million in the aggregate per licensed

 

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product and up to $3.0 million in commercial milestone payments. In addition, we are required to pay to SCRI a percentage of the payments that we receive from sublicensees of certain rights licensed to us by SCRI, up to an aggregate of $15 million, which percentage will be based upon the date we receive such payments and the achievement of certain clinical and regulatory milestones. The term of the license agreement will continue until the expiration or abandonment of all licensed patents and patent applications. We have the right to terminate the agreement at will upon 60 days’ written notice to SCRI. SCRI may terminate the agreement upon 90 days’ notice in the event of our uncured material breach, or upon 30 days’ notice if such breach is of a payment obligation. SCRI may terminate the agreement immediately if we challenge the enforceability, validity, or scope of any licensed patent right or assist a third party to do so. The agreement will terminate immediately in the event of our bankruptcy or insolvency.

Also in February 2014, we entered into a sponsored research agreement with SCRI. The research is conducted under project orders containing plans and budgets approved by the parties. We have an exclusive option to obtain an exclusive license to certain improvements, inventions, and other intellectual property rights owned by SCRI developed in connection with the work conducted under the sponsored research agreement. In some circumstances, we may be required to pay an option exercise fee to SCRI of up to $100,000 per improvement. When improvements provide substantial new functionality or commercial benefit and can be practiced without a license to any of the patents already licensed under the license agreement, we may agree to additional royalties, development milestones, and diligence obligations. The initial term of the sponsored research agreement was five years, and has since been extended through April 2020. SCRI may terminate the agreement for any reason upon 180 days’ notice, or immediately if the principal investigator is unable to continue performing the research and there is no successor acceptable to both parties. Either party may terminate the agreement upon 30 days’ notice in the event of the other party’s uncured material breach.

City of Hope License Agreement

In November 2009, ZetaRx LLC (“ZetaRx”) entered into a license agreement with City of Hope (“COH”) pursuant to which ZetaRx was granted an exclusive, worldwide, royalty-bearing license under certain patent rights to manufacture and commercialize products involving genetically engineered white blood cells for the treatment or prevention of disease in humans. The patents and patent applications covered by this agreement are directed, in part, to CAR constructs, including bispecific CARs and T cell ablation technologies, and their use for immunotherapy. Pursuant to this license agreement, as of January 31, 2016, we have rights to 12 issued U.S. patents, three pending U.S. patent applications, and a number of other patents and patent applications in jurisdictions outside the United States. The license is sublicensable with consent, and our sublicensees cannot grant further sublicenses. This license agreement was assumed by us in connection with our acquisition of certain of ZetaRx’s assets in October 2013. Under the terms of the license agreement, we are required to pay COH an annual license maintenance fee of $25,000, which payment is creditable against any other royalties due for the applicable year. In addition, the license agreement requires us to pay COH low single-digit royalties on annual net sales by us and our sublicensees. In addition, we are required to pay COH a fixed percentage of certain payments we receive from sublicensees of the technology licensed to us by COH.

The license agreement shall expire, on a country-by-country basis, upon the expiration of the last to expire of the patent rights licensed to us in such country. The agreement may be terminated by either party upon 30 days’ prior written notice in the event of the other party’s uncured material breach. In addition, COH may terminate the agreement immediately upon written notice in the event of bankruptcy or insolvency of our company, or if we do not reach certain clinical milestones by certain dates.

St. Jude Children’s Research Hospital Agreement; Sublicense to Penn and Novartis

In December 2013, we entered into an agreement with St. Jude (the “St. Jude License Agreement”) pursuant to which we (1) obtained control over, and are obliged to pursue and defend, St. Jude’s causes of action in a pending litigation in the Eastern District of Pennsylvania, Trustees of the University of Pennsylvania v. St. Jude

 

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Children’s Research Hospital, Civil Action No. 2:13-cv-01502-SD (the “Penn litigation”), in which we and St. Jude were each adverse to Penn and Novartis, and (2) acquired an exclusive, worldwide, royalty-bearing license under certain patent rights owned by St. Jude, including the ’645 Patent, to develop, make, and commercialize licensed products and services for all therapeutic, diagnostic, preventative, and palliative uses. The patents and patent applications covered by this agreement are directed, in part, to CAR constructs capable of signaling both a primary and a co-stimulatory pathway. Pursuant to the St. Jude License Agreement, as of January 31, 2016, we have rights to one issued U.S. patent and three pending U.S. patent applications. The Penn litigation concerned both the ’645 Patent and a contractual dispute between St. Jude and Penn. We also obtained settlement authority in the Penn litigation, subject to certain conditions.

Upon entering into this the St. Jude License Agreement, we made an initial payment to St. Jude of $25 million. In addition, the agreement requires us to pay St. Jude low single-digit royalties on net sales of licensed products and services. We are also obligated to pay a $100,000 minimum annual royalty for the first two years of the agreement, and a $500,000 minimum royalty thereafter through the term of the agreement. In addition, we are required to make milestone payments of up to an aggregate of $62.5 million upon the achievement of specified clinical, regulatory, and commercialization milestones for licensed products, which includes JCAR014 and JCAR017. In addition, we are required to pay St. Jude a percentage of certain payments we receive from sublicensees of the rights licensed to us by St. Jude or in settlement of litigation with respect to such rights. We were also required to pay a percentage of St. Jude’s reasonable legal fees incurred in connection with the Penn litigation.

The term of the St. Jude License Agreement will expire, on a country-by-country basis, upon the expiration of the last to expire of the licensed patents and patent applications in such country. The agreement may be terminated by either party in the event of the other party’s bankruptcy or insolvency, or upon advance written notice in the event of the other party’s uncured breach. We may terminate the agreement at will, in its entirety or with respect to any particular licensed patent or patent application, upon advance written notice to St. Jude.

In April 2015, St. Jude and we agreed to settle the litigation with Penn and Novartis. In connection with such settlement, we entered into a sublicense agreement (the “Penn/Novartis Sublicense Agreement”) with Penn and an affiliate of Novartis pursuant to which Juno granted to Novartis a non-exclusive, royalty-bearing sublicense under certain patent rights, including the ‘645 Patent, to develop, make and commercialize licensed products and licensed services for all therapeutic, diagnostic, preventative and palliative uses. This sublicense is not sublicensable without our prior written consent, although Novartis may authorize third parties to act on its behalf with respect to the manufacture, development or commercialization of Novartis’ licensed products and licensed services. Pursuant to the Penn/Novartis Sublicense Agreement, Novartis paid Juno $12.3 million upon the effectiveness of such agreement, which amount was first applied to cover certain predetermined litigation expenses incurred by St. Jude, with the remainder divided between Juno and St. Jude at a fixed ratio. In addition, Novartis is also required to pay mid-single digit royalties on the U.S. net sales of products and services related to the disputed contract and patent claims (the “Novartis Royalty Payments”), a low double digit percentage of the royalties Novartis pays to Penn for global net sales of those products (the “Penn Royalty Payments”), and milestone payments upon the achievement of specified clinical, regulatory and commercialization milestones for licensed products (the “Novartis Milestone Payments”). If Juno achieves any of the milestones prior to Novartis, the related Novartis Milestone Payment will be reduced by 50%. In addition, if Juno achieves any milestone after Novartis, Juno will reimburse Novartis 50% of any Novartis Milestone Payment previously paid by Novartis to Juno in respect of such milestone. These milestones largely overlap with the milestones for which Juno may owe a payment to St. Jude under the St. Jude License Agreement and the Novartis Milestone Payments would in effect serve to partially offset Juno’s obligations to St. Jude with respect to such milestones.

The term of the Penn/Novartis Sublicense Agreement will expire when there are no remaining payment obligations due under the agreement. The Penn/Novartis Sublicense Agreement may be terminated by either party in the event of the other party’s bankruptcy or insolvency or upon the occurrence of certain specified breaches, or upon advance written notice in the event of the other party’s uncured material breach. Novartis may terminate the Penn/Novartis Sublicense Agreement at will upon advance written notice to Juno.

 

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In connection with the settlement, Juno also amended the St. Jude License Agreement to provide the terms by which the Penn/Novartis Sublicense Agreement would be treated under the St. Jude License Agreement. The net effect of the Penn/Novartis Sublicense Agreement and amendment to the St. Jude License Agreement is that (1) Juno will pass through a percentage of the Novartis Royalty Payments to St. Jude, and (2) Juno will pass through a portion of the Penn Royalty Payments and Novartis Milestone Payments to St. Jude.

In the first quarter of 2016, Novartis paid us $5.8 million upon the achievement of a clinical milestone by Novartis, $5.0 million of which we are required to pass on to St. Jude. In the event we separately achieve the same clinical milestone in the future, we will be required to reimburse Novartis $2.9 million.

License Agreements with Fred Hutchinson Cancer Research Center assumed from ZetaRx

We assumed two license agreements with FHCRC in connection with our acquisition of certain of ZetaRx’s assets in October 2013. ZetaRx entered into these license agreements with FHCRC in 2009 (the “2009 FHCRC Agreement”) and 2012 (the “2012 FHCRC Agreement”). These agreements were amended and restated in November 2014. Under each of these license agreements, we received an exclusive, worldwide, sublicensable license under patent and technology rights to make, manufacture, use, and commercialize products (and, under the 2009 FHCRC Agreement only, services) for all fields of use. The patents and patent applications covered by these agreements are directed, in part, to defined T cell compositions and their use for immunotherapy. Pursuant to these license agreements, as of January 31, 2016, we have rights to one issued U.S. patent, four pending U.S. patent applications, one issued patent in a jurisdiction outside the United States, one pending Patent Cooperation Treaty application, and a number of other patent applications in jurisdictions outside the United States. Pursuant to each of the agreements, we are required to pay FHCRC a low single-digit running royalty based on annual net sales of licensed products (and, under the 2009 FHCRC Agreement only, licensed services) by us and by our affiliates and sublicensees. In addition, under each agreement, we are required to pay to FHCRC a minimum annual royalty of $5,000 until we receive FDA approval of a licensed product, and a minimum annual royalty of $20,000 thereafter for the remainder of the applicable agreement term, which payments will be creditable against any running royalties due to FHCRC under the respective license agreements. Under the 2012 FHCRC Agreement, we are required to pay to FHCRC up to an aggregate of $1.35 million upon our achievement of certain clinical and regulatory milestones relating to the licensed products, which includes JCAR014 and JCAR017. In addition, under each of the license agreements, we are required to pay FHCRC a fixed percentage of certain payments that we receive from sublicensees of the rights licensed to us by FHCRC, up to a cap.

Unless earlier terminated, each of these license agreements will expire upon the expiration of the last to expire of the patent rights licensed to us under the respective agreements. Each agreement may be terminated by FHCRC upon 90 days’ written notice if we fail to provide satisfactory written evidence that we have submitted an IND application to the FDA, by June 2015 in the case of the 2009 FHCRC Agreement, and by January 2017 in the case of the 2012 FHCRC Agreement. We have the right to terminate each of the agreements at will, in part or in their entirety, upon 60 days’ written notice to FHCRC. Each of the license agreements may also be terminated by FHCRC in the event of our bankruptcy or insolvency, upon 90 days’ written notice in the event of our uncured material breach, and upon 30 days’ written notice in the event of our uncured breach of a payment or reporting obligation. Upon termination, but not expiration, of either of these license agreements, we must grant to FHCRC a royalty-bearing, non-exclusive, non-sublicensable license with respect to any improvements we make based on the patents or technology licensed to us under the respective agreements.

Royalty and Milestone Obligations for JCAR015 and JCAR017

Under our existing license agreements, our overall royalty burden for net sales of each of JCAR015 and JCAR017 in the United States is less than 10%. We anticipate that the royalty burden will be lower outside of the United States. As of the date of this report, based on our planned manufacturing processes for JCAR015 and JCAR017, the aggregate maximum amount of milestone payments we could be required to make under our existing license and collaboration agreements is $19.3 million and $95.5 million for JCAR015 and JCAR017,

 

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respectively. Included in the foregoing figures for JCAR015 and JCAR017 are $5.7 million and $67.4 million, respectively, in milestone payments that would be paid only for the first product candidate to meet the associated milestone. The amount of overlap among JCAR015 and JCAR017 with respect to milestones that would be paid only for the first product candidate to achieve the associated milestone is $5.7 million for JCAR015 and JCAR017, such that the combined aggregate maximum amount of milestone payments for JCAR015 and JCAR017 is $109.1 million. Certain milestones would be paid in euros, which have been estimated in U.S. dollars for the foregoing figures based on the exchange rate as of December 31, 2015.

Opus Bio License Agreement

In December 2014, we entered into a license agreement with Opus Bio pursuant to which we were granted an exclusive, worldwide, sublicensable license under certain patent rights and data to research, develop, make, have made, use, have used, sell, have sold, offer to sell, import and otherwise exploit products that incorporate or use engineered T cells directed against CD22 and that are covered by such patent rights or use or incorporate such data. Certain of the licensed patent rights are in-licensed by Opus Bio from the National Institutes of Health (“NIH”). The patents and patent applications covered by this agreement are directed, in part, to various human monoclonal antibodies specific for CD22 and their use in immunotherapy. Pursuant to this license agreement, as of January 31, 2016, we have rights to four issued U.S. patents, three pending U.S. patent applications, and a number of other patents and patent applications in jurisdictions outside the United States. The licensed data was generated under an agreement between Opus Bio and the National Cancer Institute (“NCI”) and Opus Bio’s rights to the licensed data are not exclusive. Our rights to such data are therefore exclusive only as between us and Opus, and non-exclusive as between us and third parties, who may license such data from the NCI. Our license from Opus Bio is limited to the field of treating B cell malignancies that express CD22 on their cell surface using CARs containing certain specified antibody binding fragments. Under the agreement, we will be required to use commercially reasonable efforts to research, develop, and commercialize licensed products. Such development must be in accordance with the timelines provided in the license agreement for achievement of certain clinical, regulatory, and commercial benchmarks, and with the development plans set forth in Opus Bio’s agreements with the NIH. In November 2015, the license agreement was amended to adjust certain of these timelines.

Upon the effectiveness of this license in December 2014, we made an upfront payment to Opus Bio of $20.0 million in cash and issued to Opus Bio 1,602,564 shares of our common stock. Upon our achievement of certain clinical, regulatory, and commercial milestones set forth in the license agreement, we will be obligated to pay Opus Bio additional consideration. The consideration due upon achievement of the first three clinical milestones would consist of additional shares of our common stock in an amount equal to the dollar value specified for the applicable milestone, which is $52.5 million in the aggregate for the three milestones, divided by the greater of $10.92 and the arithmetic average of the daily volume-weighted average price of our common stock on The NASDAQ Global Select Market over the 30 trading days preceding the achievement of the milestone, up to a maximum of 4,807,692 shares in the aggregate (this minimum per share value and maximum number of shares subject, in each case, to adjustment for any stock dividend, stock split, combination of shares, or other similar events). Upon our achievement of any subsequent milestones, we will be obligated to pay Opus Bio cash consideration, which potential milestone payments total $215.0 million in the aggregate. Once certain milestones have been achieved, we will be required to spend at least $2.5 million per year on development and commercialization of licensed products. In January 2016, the first clinical milestone of $20.0 million was achieved, and we issued 408,068 shares of our common stock as payment. The license agreement further provides that we are required to pay to Opus Bio tiered royalties based on annual net sales of licensed products by us and by our sublicensees, at rates ranging from the low-single to mid-single digits. We will also be required to make certain pass-through payments owed by Opus Bio to NIH under its NIH license agreements, including certain patent costs, development and commercial milestones of up to $2.8 million in the aggregate, and low single-digit royalties based on annual net sales.

Our obligations to pay royalties to Opus Bio will expire, on a country-by-country and licensed-product- by-licensed-product basis, upon the later of the expiration of the last-to-expire patent covering such product in such

 

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country and the expiration of the period of data protection or market exclusivity or similar protection granted by the regulatory authority in such country for such product. The license agreement will expire on the expiration of our payment obligations to Opus Bio and to the NIH. We may terminate the agreement at will upon 30 days’ prior written notice. Opus Bio has the right to terminate the agreement immediately in the event of our material breach, including our failure to meet certain regulatory, clinical, and commercial deadlines, that remains uncured after a period of notice from Opus Bio, and immediately upon notice in the event of our bankruptcy or insolvency. If we terminate for convenience, or if Opus Bio terminates due to our material breach, then we will be subject to obligations allowing Opus Bio to continue to develop licensed products, including transfer of certain materials and products, transfer of ownership of certain regulatory documents and any approved trademarks or brand names, the assignment of third-party agreements solely related to the licensed products and necessary for the research, development, or commercialization of the licensed products, our continued manufacture of the licensed products, and the grant of certain non-exclusive licenses under certain technology controlled by us. If we terminate the license agreement for convenience and Opus elects to continue to develop the licensed products, then we have the option to resume our rights under the license agreement in exchange for additional payment obligations to Opus.

Other Licenses and Third-Party Collaboration Agreements

We have entered into a number of other license agreements and collaboration agreements with third parties in connection with our preclinical and clinical research and development activities. These include, among others:

 

    A collaboration and license agreement with Fate Therapeutics to identify and utilize small molecules to modulate our genetically-engineered T cell product candidates to improve their therapeutic potential for cancer patients.

 

    A collaboration and license agreement with Editas to pursue research programs utilizing Editas’ genome editing technologies with Juno’s CAR and TCR technologies.

 

    A clinical study collaboration agreement with MedImmune to conduct combination clinical trials in immuno-oncology with one of our investigational CD19-directed CAR product candidates and MedImmune’s investigational PD-L1 immune checkpoint inhibitor, MEDI4736.

Acquisitions

During 2015 and early 2016, we have completed three business acquisitions to augment our research and development capabilities and to improve our supply chain and long-term cost of goods.

Stage Cell Therapeutics

In May 2015, we acquired Stage, a company focused on developing technology platforms, including novel reagents and automation technologies, that enable the development and production of cell therapeutics. The acquisition of Stage is intended to provide us access to transformative cell selection and activation capabilities, next generation manufacturing automation technologies, enhanced control of our supply chain, and lower expected long-term cost of goods.

As consideration for the Stage acquisition, we paid €52.5 million in cash and issued an aggregate of 486,279 shares of common stock to the selling shareholders. We also agreed to pay additional amounts of up to an aggregate of €135.0 million in cash based on the achievement of certain technical, clinical, regulatory, and commercial milestones related to novel reagents (€40.0 million), advanced automation technology (€65.0 million), and Stage’s existing clinical pipeline (€30.0 million).

 

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X-Body

In June 2015, we acquired X-Body, a company focused on the discovery of human monoclonal antibodies and discovery of TCR binding domains. The X-Body acquisition is intended to augment our capabilities to create best-in-class engineered T cells against a broad array of cancer targets.

As consideration for the X-Body acquisition, we paid $21.3 million in cash and issued an aggregate of 366,434 shares of common stock to the former X-Body stockholders. We also agreed to pay additional amounts in cash upon the realization of specified milestones substantially as follows, with respect to products generated using the X-Body technology: $5.0 million per target upon the achievement, during a specified period, of a certain regulatory milestone for products that utilize a certain type of binding mechanism; up to $30.0 million upon the achievement, during a specified period, of regulatory and clinical milestones for the first product using another type of binding mechanism (any product using such type of binding mechanism, a “Type X Product”); $5.0 million per product upon the achievement, during a specified period, of a certain regulatory milestone for a certain number of subsequent Type X Products; $50.0 million upon the achievement, during a specified period, of a clinical milestone related to the first product with certain specified binding properties (a “Type Y Product”); and $20.0 million upon the achievement, during a specified period, of a clinical milestone related to the first product with certain other specified binding properties. If a Type X Product or a Type Y Product is commercialized, we can choose either to make a commercialization milestone payment for such a product or to pay a low single-digit royalty on net sales of such a product.

AbVitro

In January 2016, we acquired AbVitro, a company with a leading next-generation single cell sequencing platform. The AbVitro acquisition is intended to augment our capabilities to create best-in-class engineered T cells against a broad array of cancer targets. We will initially use this technology in our translation research assays, to find and generate fully-human TCRs and antibodies, and to find novel targets.

As consideration for the AbVitro acquisition, we paid approximately $78 million in cash and issued 1,289,188 shares of our common stock. There are no milestone payment obligations under the terms of the AbVitro acquisition.

We and Celgene have agreed in principle to enter into an agreement to license Celgene a subset of the acquired AbVitro technology and to grant Celgene options to certain related potential product rights emanating from the acquired technology.

Competition

The biotechnology and pharmaceutical industries, including the gene therapy field, are characterized by rapidly advancing technologies, intense competition and a strong emphasis on intellectual property. We face substantial competition from many different sources, including large biopharmaceutical companies, midsize/smaller public and privately-held biotechnology firms, academic research institutions, governmental agencies, and public and private research institutions.

In addition to the current standard of care treatments for patients, a large number of commercial and academic clinical trials are being pursued by variety of parties in the field of immunotherapy. Early positive clinical results from these trials have fueled continued interest in the field of immunotherapy. In the CAR and TCR space, our competitors include, but are not limited to, Novartis / Penn, Kite Pharma / Amgen / NCI, Cellectis / Pfizer / Servier, Johnson & Johnson / Transposagen Biopharmaceuticals, bluebird bio, Bellicum, Celyad, NantKwest, Intrexon / Ziopharm / MD Anderson Cancer Center, Unum Therapeutics, Adaptimmune / GlaxoSmithKline, ImmunoCellular Therapeutics, and Autolus. We also face competition from non-cell based treatments offered by companies such as Amgen, Pfizer, Abbvie, AstraZeneca, Bristol-Myers, Incyte, Merck, and Roche. For instance,

 

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the FDA approved Amgen’s blinotumomab for the treatment of r/r ALL in 2014, and that product has achieved a complete remission rate of approximately 40% in clinical trials. We also anticipate Pfizer’s inotuzumab to be approved for the treatment of r/r ALL as early as 2016, which has shown a CR rate of approximately 80% in clinical trials. Many of our larger current or potential competitors, either alone or with their collaboration partners, have greater financial resources and deeper expertise in manufacturing, preclinical testing, clinical trial execution, regulatory matters and commercializing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and gene therapy industries may result in even more resources being concentrated among a smaller number of very capable competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining experienced scientific and management personnel, patient enrollment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs’ success.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that alone or in combination have better efficacy, less toxicity, more convenience, or are less expensive than the products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we do, which may also include broader labels, which could result in our competitors establishing a strong market position before we are able to enter the market. The key competitive factors affecting the success of all of our programs are likely to be their efficacy, safety, and convenience, along with our ability to simply operationalize the use of our products.

Government Regulation

The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.

The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:

 

    completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s current Good Laboratory Practices (“GLP”) regulation;

 

    submission to the FDA of an IND which must become effective before clinical trials may begin and must be updated annually or when significant changes are made;

 

    approval by an independent Institutional Review Board (“IRB”) or ethics committee at each clinical site before the trial is commenced;

 

    performance of adequate and well-controlled human clinical trials to establish the safety, purity and potency of the proposed biologic product candidate for its intended purpose;

 

    preparation of and submission to the FDA of a BLA after completion of all pivotal clinical trials;

 

    satisfactory completion of an FDA Advisory Committee review, if applicable;

 

    a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;

 

   

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facilities, methods and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected clinical investigations to assess compliance with Good Clinical Practices (“GCP”); and

 

    FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United States.

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all. Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

When a trial using genetically engineered cells is conducted at, or sponsored by, institutions receiving NIH funding for recombinant DNA research, prior to the submission of an IND to the FDA, a protocol and related documentation is submitted to and the study is registered with the NIH Office of Biotechnology Activities (“OBA”) pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules (“NIH Guidelines”). Compliance with the NIH Guidelines is mandatory for investigators at institutions receiving NIH funds for research involving recombinant DNA, and many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. The NIH is responsible for convening the Recombinant DNA Advisory Committee (“RAC”), a federal advisory committee that discusses protocols that raise novel or particularly important scientific, safety, or ethical considerations at one of its quarterly public meetings. The OBA will notify the FDA of the RAC’s decision regarding the necessity for full public review of a protocol. RAC proceedings and reports are posted to the OBA web site and may be accessed by the public. If the FDA allows the IND to proceed, but the RAC decides that full public review of the protocol is warranted, the FDA will request at the completion of its IND review that sponsors delay initiation of the protocol until after completion of the RAC review process.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies, including our Phase II trial for JCAR015, also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.

 

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For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap.

 

    Phase I—The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.

 

    Phase II—The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase II clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase III clinical trials.

 

    Phase III—The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

 

    Phase IV—In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so- called Phase IV studies may be made a condition to approval of the BLA.

Phase I, Phase II and Phase III testing may not be completed successfully within a specified period, if at all, and there can be no assurance that the data collected will support FDA approval or licensure of the product. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

BLA Submission and Review by the FDA

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by investigators. The submission of a BLA requires payment of a substantial User Fee to FDA, and the sponsor of an approved BLA is also subject to annual product and establishment user fees. These fees are typically increased annually. A waiver of user fees may be obtained under certain limited circumstances.

Once a BLA has been submitted, the FDA’s goal is to review the application within ten months after it accepts the application for filing, or, if the application relates to an unmet medical need in a serious or life-threatening indication, six months after the FDA accepts the application for filing. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety, purity and potency.

 

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The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

The testing and approval process requires substantial time, effort and financial resources, and each may take several years to complete. The FDA may not grant approval on a timely basis, or at all, and we may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing our products. After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may request additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy (“REMS”) plan to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies. In addition, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.

A sponsor may seek approval of its product candidate under programs designed to accelerate FDA’s review and approval of new drugs and biological products that meet certain criteria. Specifically, new drugs and biological products are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. For a fast track product, the FDA may consider sections of the BLA for review on a rolling basis before the complete application is submitted if relevant criteria are met. A fast track designated product candidate may also qualify for priority review, under which the FDA sets the target date for FDA action on the BLA at six months after the FDA accepts the application for filing. Priority review is granted when there is evidence that the proposed product would be a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious disease or condition. If criteria are not met for priority review, the application is subject to the standard FDA review period of 10 months after FDA accepts the application for filing. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.

 

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Under the accelerated approval program, the FDA may approve a BLA on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Post-marketing studies or completion of ongoing studies after marketing approval are generally required to verify the biologic’s clinical benefit in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical benefit. In addition, the Food and Drug Administration Safety and Innovation Act (“FDASIA”), which was enacted and signed into law in 2012, established the new breakthrough therapy designation. A sponsor may seek FDA designation of its product candidate as a breakthrough therapy if the product candidate is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Sponsors may request the FDA to designate a breakthrough therapy at the time of or any time after the submission of an IND, but ideally before an end-of-phase II meeting with FDA. If the FDA designates a breakthrough therapy, it may take actions appropriate to expedite the development and review of the application, which may include holding meetings with the sponsor and the review team throughout the development of the therapy; providing timely advice to, and interactive communication with, the sponsor regarding the development of the drug to ensure that the development program to gather the nonclinical and clinical data necessary for approval is as efficient as practicable; involving senior managers and experienced review staff, as appropriate, in a collaborative, cross-disciplinary review; assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development program and to serve as a scientific liaison between the review team and the sponsor; and considering alternative clinical trial designs when scientifically appropriate, which may result in smaller trials or more efficient trials that require less time to complete and may minimize the number of patients exposed to a potentially less efficacious treatment. Breakthrough therapy designation comes with all of the benefits of fast track designation, which means that the sponsor may file sections of the BLA for review on a rolling basis if certain conditions are satisfied, including an agreement with FDA on the proposed schedule for submission of portions of the application and the payment of applicable user fees before the FDA may initiate a review. We plan to seek designation as a breakthrough therapy for some or all of our CD19 product candidates, as qualification permits. Our collaborator MSK obtained breakthrough therapy designation for JCAR015 for r/r ALL, but we will have to seek such designation separately under our own IND.

Fast Track designation, priority review and breakthrough therapy designation do not change the standards for approval but may expedite the development or approval process.

Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.

If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does

 

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not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application user fee.

A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if the second applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. We plan to seek orphan drug designation for some or all of our CD19 product candidates in specific orphan indications in which there is a medically plausible basis for the use of these products. We have obtained orphan drug designation for each of JCAR015 and JCAR014 for the treatment of ALL.

Post-Approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data. Biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP regulations and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may, among other things, halt our clinical trials, require us to recall a product from distribution, or withdraw approval of the BLA.

We rely, and expect to continue to rely, on third parties for the production of clinical quantities of our product candidates, and expect to rely in the future on third parties for the production of commercial quantities. Future FDA and state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing.

The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

 

    restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

 

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    fines, warning letters or holds on post-approval clinical studies;

 

    refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;

 

    product seizure or detention, or refusal to permit the import or export of products; or

 

    injunctions or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

Other Healthcare Laws and Compliance Requirements

Our sales, promotion, medical education and other activities following product approval will be subject to regulation by numerous regulatory and law enforcement authorities in the United States in addition to FDA, including potentially the Federal Trade Commission, the Department of Justice, the Centers for Medicare and Medicaid Services, other divisions of the Department of Health and Human Services and state and local governments. Our promotional and scientific/educational programs must comply with the federal Anti-Kickback Statute, the Foreign Corrupt Practices Act, the False Claims Act, the Veterans Health Care Act, physician payment transparency laws, privacy laws, security laws, and additional state laws similar to the foregoing.

The federal Anti-Kickback Statute prohibits, among other things, the offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that would be paid for in whole or part by Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. The government has enforced the Anti-Kickback Statute to reach large settlements with healthcare companies based on sham research or consulting and other financial arrangements with physicians. Further, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. Many states have similar laws that apply to their state health care programs as well as private payors.

The False Claims Act (“FCA”), imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. Actions under the FCA may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the FCA can result in significant monetary penalties and treble damages. The federal government is using the FCA, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the country, for example, in connection with the promotion of products for unapproved uses and other sales and marketing practices. The government has obtained multi-million and multibillion dollar settlements under the FCA in addition to individual criminal convictions under applicable criminal statutes. In addition, companies have been forced to implement extensive corrective action plans, and have often become subject to consent decrees or corporate integrity agreements, restricting the manner in which

 

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they conduct their business. The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) also created federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Affordable Care Act”), among other things, imposed new reporting requirements on drug manufacturers for payments or other transfers of value made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers must submit reports by the 90th day of each calendar year. Certain states also mandate implementation of commercial compliance programs, impose restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians and other healthcare professionals.

We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology and Clinical Health Act (“HITECH”), and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect.

If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.

Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. We cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our employees, future distributors, partners, collaborators or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on our business, results of operations and reputation.

 

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Coverage and Reimbursement

Sales of pharmaceutical products depend significantly on the availability of third-party coverage and reimbursement. Third-party payors include government health administrative authorities, managed care providers, private health insurers, integrated delivery networks, and other organizations. Although we currently believe that third-party payors will provide coverage and reimbursement for our product candidates, if approved, these third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. We may need to conduct expensive clinical studies to demonstrate the comparative cost-effectiveness of our products. The product candidates that we develop may not be considered cost-effective. It is time consuming and expensive for us to seek coverage and reimbursement from third-party payors. Moreover, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.

Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

By way of example, in March 2010, the Affordable Care Act was signed into law, intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among the provisions of the Affordable Care Act of importance to our potential drug candidates are:

 

    an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;

 

    an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;

 

    a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

 

    a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;

 

    extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

 

    expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

 

    expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and

 

    a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

 

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In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013, and, due to subsequent legislative amendments, will remain in effect through 2025 unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for our product candidates, if approved, and, accordingly, our financial operations.

We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.

Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products to the extent we choose to develop or sell any products outside of the United States. The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

In the EU, member states require both regulatory clearances by the national competent authority and a favorable ethics committee opinion prior to the commencement of a clinical trial. Under the EU regulatory systems, marketing authorization applications may be submitted under either a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all EU member states. It is compulsory for medicines produced by certain biotechnological processes. Because our products are produced in that way, we would be subject to the centralized process. Under the centralized procedure, pharmaceutical companies submit a single marketing authorization application to the European Medicines Agency (“EMA”). Once granted by the European Commission, a centralized marketing authorization is valid in all EU member states, as well as the European Economic Area countries Iceland, Liechtenstein and Norway. By law, a company can only start to market a medicine once it has received a marketing authorization.

Employees

As of December 31, 2015, we had 306 employees globally. None of our employees are represented by a labor union or covered under a collective bargaining agreement. We consider our employee relations to be good.

Research and Development

Our research and development costs were $205.2 million, $204.5 million, and $46.2 million for the years ended December 31, 2015 and 2014 and for the period from August 5, 2013 to December 31, 2013, respectively. See Part II—Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report for additional detail regarding our research and development activities.

Geographic Information

Revenues generated outside of the United States and long-lived assets located outside of the United States were not material for the year ended and as of December 31, 2015, respectively.

 

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Financial Information about Segments

We operate in one business segment. See Note 2 to our audited consolidated financial statements included in this report. For financial information regarding our business, see Part II—Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and our audited consolidated financial statements and related notes included elsewhere in this report.

About Juno

Juno was incorporated in Delaware on August 5, 2013. Our principal executive offices are located at 307 Westlake Avenue North, Suite 300, Seattle, Washington 98109. Our telephone number is (206) 582-1600. Our website address is www.junotherapeutics.com. Information contained on the website is not incorporated by reference into this report, and should not be considered to be part of this report.

We use Juno Therapeutics®, the Juno Therapeutics logo, and other marks as trademarks in the United States and other countries. This report contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

Available Information

We file electronically with the Securities and Exchange Commission (“SEC”) our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We make available on our website at www.junotherapeutics.com, free of charge, copies of these reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov. The information in or accessible through the SEC and our website are not incorporated into, and are not considered part of, this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.

 

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ITEM 1A. RISK FACTORS

The following section includes the most significant factors that may adversely affect our business and operations. You should carefully consider the risks and uncertainties described below and all information contained in this report, including our consolidated financial statements and the related notes and Part II—Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Our Business and Industry

We are a clinical-stage company and have a very limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

We are a clinical-stage biopharmaceutical company that was formed in August 2013. We have no cell-therapy products approved for commercial sale and as of December 31, 2015 had not generated any revenue from such products. We are focused on developing products that use human cells as therapeutic entities and, although there have been significant advances in cell- based immunotherapy, our T cell technologies are new and largely unproven. Our limited operating history, particularly in light of the rapidly evolving cancer immunotherapy field, may make it difficult to evaluate our current business and predict our future performance. Our very short history as an operating company makes any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage companies in rapidly evolving fields. If we do not address these risks successfully, our business will suffer.

We have incurred net losses in each period since our inception and anticipate that we will continue to incur net losses in the future.

We are not profitable and have incurred losses in each period since our inception. For the years ended December 31, 2015 and 2014 and for the period from August 5, 2013 to December 31, 2013, we reported a net loss of $239.4 million, $243.4 million, and $51.8 million, respectively. As of December 31, 2015, we had an accumulated deficit of $585.7 million, which includes $51.1 million related to non-cash deemed dividends, $159.4 million in upfront fees to acquire technology, of which $85.5 million was paid in cash and $73.9 million was paid through the issuance of common stock, non-cash expense of $136.5 million associated with the change in the estimated fair value and elapsed service period for our potential and actual success payment liability to FHCRC and MSK, and $10.7 million of expense associated with our convertible preferred stock options. We expect these losses to increase as we continue to incur significant research and development and other expenses related to our ongoing operations, seek regulatory approvals for our product candidates, scale-up manufacturing capabilities and hire additional personnel to support the development of our product candidates and to enhance our operational, financial and information management systems.

A critical aspect of our strategy is to invest significantly in our technology platform to improve the efficacy and safety of our product candidates. Even if we succeed in commercializing one or more of these product candidates, we will continue to incur losses for the foreseeable future relating to our substantial research and development expenditures to develop our technologies. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period to period comparison of our results of operations may not be a good indication of our future performance.

 

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We expect to continue to incur significant losses for the foreseeable future. We expect these losses and our cash utilization to increase in the near term as we continue to conduct clinical trials, file additional IND filings for additional product candidates, and conduct research and development of our other product candidates.

We are collaborating with Celgene pursuant to a collaboration agreement, under which we and Celgene will research, develop and commercialize novel cellular therapy product candidates and other immuno-oncology and immunology therapeutics, including, in particular, CAR and TCR product candidates. Contingent upon the payment of certain upfront payments, Celgene may exercise options to acquire exclusive licenses to certain therapeutics we develop and each party may exercise certain options to co-develop and co-commercialize product candidates developed, or acquired or in-licensed, by the other party. If Celgene does not exercise its options, or if our collaboration with Celgene terminates, we will be responsible for funding further development of the relevant product candidates, which would cause our expenses to increase, unless we enter into another collaboration for such product candidates, which may not be possible within an acceptable timeframe, or on suitable terms. Similarly, our expenses would increase if we exercise an option to co-develop and co-commercialize any product candidate developed, or in-licensed or acquired, by Celgene. If any of these were to occur, our losses could increase.

We have never generated any revenue from sales of cell-therapy products and our ability to generate revenue from cell-therapy product sales and become profitable depends significantly on our success in a number of factors.

We have no cell-therapy products approved for commercial sale, have not generated any revenue from cell-therapy product sales, and do not anticipate generating any revenue from cell-therapy product sales until some time after we have received regulatory approval for the commercial sale of a product candidate. Our ability to generate revenue and achieve profitability depends significantly on our success in many factors, including:

 

    completing research regarding, and nonclinical and clinical development of, our product candidates;

 

    obtaining regulatory approvals and marketing authorizations for product candidates for which we complete clinical studies;

 

    developing a sustainable and scalable manufacturing process for our product candidates, including establishing and maintaining commercially viable supply relationships with third parties and establishing our own manufacturing capabilities and infrastructure;

 

    launching and commercializing product candidates for which we obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor;

 

    obtaining market acceptance of our product candidates as viable treatment options, and obtaining adequate coverage, reimbursement, and pricing by third-party payors, integrated delivery networks, and government authorities;

 

    addressing any competing technological and market developments;

 

    Celgene exercising any of its options under our collaboration agreement with Celgene, and Celgene’s efforts to further develop and commercialize the associated product candidates;

 

    identifying, assessing, acquiring and/or developing new product candidates;

 

    negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;

 

    maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how; and

 

    attracting, hiring, and retaining qualified personnel.

 

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Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, or other regulatory agencies, domestic or foreign, to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. If we are successful in obtaining regulatory approvals to market one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable disease patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. If we are not able to generate revenue from the sale of any approved products, we may never become profitable.

Our technology platform, including our CAR and high-affinity TCR technologies are new approaches to cancer treatment that present significant challenges.

We have concentrated our research and development efforts on T cell immunotherapy technology, and our future success is highly dependent on the successful development of T cell immunotherapies in general and our CAR and TCR technologies and product candidates in particular. Our approach to cancer treatment aims to alter T cells ex vivo through genetic modification using certain viruses designed to reengineer the T cells to recognize specific proteins on the surface or inside cancer cells. Because this is a new approach to cancer immunotherapy and cancer treatment generally, developing and commercializing our 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 T cell therapies for cancer;

 

    developing and deploying consistent and reliable processes for engineering a patient’s T cells ex vivo and infusing the engineered T cells back into the patient;

 

    conditioning patients with chemotherapy in conjunction with delivering each of our products, which may increase the risk of adverse side effects of our products;

 

    educating medical personnel regarding the potential side effect profile of each of our products, such as the potential adverse side effects related to cytokine release;

 

    developing processes for the safe administration of these products, including long-term follow-up for all patients who receive our product candidates;

 

    sourcing clinical and, if approved, commercial supplies for the materials used to manufacture and process our product candidates;

 

    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, and obtaining adequate coverage, reimbursement, and pricing by third-party payors and government authorities; and

 

    developing therapies for types of cancers beyond those addressed by our current product candidates.

We cannot be sure that our T cell immunotherapy technologies will yield satisfactory products that are safe and effective, scalable, or profitable.

 

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Additionally, because our technology involves the genetic modification of patient cells ex vivo using a virus, we are subject to many of the challenges and risks that gene therapies face, including:

 

    Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. To date, only one product that involves the genetic modification of patient cells has been approved in the United States and only one has been approved in the EU.

 

    Genetically modified products in the event of improper insertion of a gene sequence into a patient’s chromosome could lead to lymphoma, leukemia or other cancers, or other aberrantly functioning cells.

 

    Although our viral vectors are not able to replicate, there is a risk with the use of retroviral or lentiviral vectors that they could lead to new or reactivated pathogenic strains of virus or other infectious diseases.

 

    The FDA recommends a 15 year follow-up observation period for all patients who receive treatment using gene therapies, and we may need to adopt such an observation period for our product candidates.

 

    Clinical trials using genetically modified cells conducted at institutions that receive funding for recombinant DNA research from the NIH, are subject to review by the RAC. Although the FDA decides whether individual protocols may proceed, the RAC review process can impede the initiation of a clinical trial, even if the FDA has reviewed the study and approved its initiation.

Moreover, public perception of therapy safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence the willingness of subjects to participate in clinical trials, or if approved, of physicians to subscribe to the novel treatment mechanics. Physicians, hospitals and third-party payors often are slow to adopt new products, technologies and treatment practices that require additional upfront costs and training. Physicians may not be willing to undergo training to adopt this novel and personalized therapy, may decide the therapy is too complex to adopt without appropriate training and may choose not to administer the therapy. Based on these and other factors, hospitals and payors may decide that the benefits of this new therapy do not or will not outweigh its costs.

Our near term ability to generate product revenue is dependent on the success of one or more of our CD19 product candidates, each of which are in clinical development and will require significant additional clinical testing before we can seek regulatory approval and begin commercial sales.

Our near term ability to generate product revenue is highly dependent on our ability to obtain regulatory approval of and successfully commercialize one or more of our CD19 product candidates. Our most advanced product candidates, JCAR015, JCAR017, and JCAR014, are in clinical development, have been tested in a relatively small number of patients, and will require additional clinical and nonclinical development, regulatory review and approval in each jurisdiction in which we intend to market the products, substantial investment, access to sufficient commercial manufacturing capacity, and significant marketing efforts before we can generate any revenue from product sales. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety, purity, and potency of the product candidates in humans. We cannot be certain that any of our product candidates will be successful in clinical studies and they may not receive regulatory approval even if they are successful in clinical studies.

In addition, because JCAR015, JCAR017, and JCAR014 are our most advanced product candidates, and because our other product candidates are based on similar technology, if JCAR015, JCAR017, or JCAR014 encounter safety or efficacy problems, developmental delays, regulatory issues, reagent supply issues, or other problems, our development plans and business could be significantly harmed. Further, competitors who are developing products with similar technology may experience problems with their products that could identify problems that would potentially harm our business.

 

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Prior to the Juno-sponsored Phase I trial of JCAR017 and the Phase II clinical trial of JCAR015 that began in 2015, third parties had sponsored and conducted all clinical trials of our CD19 product candidates and other product candidates, and our ability to influence the design and conduct of such trials has been limited. We have assumed control over the future clinical and regulatory development of JCAR015 and, for NHL, JCAR017, and may do so for other product candidates, which will entail additional expenses and may be subject to delay. Any failure by a third party to meet its obligations with respect to the clinical and regulatory development of our product candidates may delay or impair our ability to obtain regulatory approval for our products and result in liability for our company.

Prior to the Juno-sponsored Phase I clinical trial of JCAR017 and the Phase II clinical trial of JCAR015, both of which began in 2015, we had not sponsored any clinical trials relating to our CD19 product candidates or other product candidates. Instead, faculty members at our third-party research institution collaborators, or those institutions themselves, sponsored all clinical trials relating to these product candidates, in each case under their own INDs. We have now assumed control of the overall clinical and regulatory development of JCAR015 and, for NHL, JCAR017 for future clinical trials. We may assume control over the clinical and regulatory development of other product candidates in the future, in which case we will need to obtain sponsorship of the INDs or file new Juno-sponsored INDs. Failure to obtain, or delays in obtaining, sponsorship of INDs or in filing new Juno-sponsored INDs for these or any other product candidates we determine to advance could negatively affect the timing of our potential future clinical trials. Additionally, although MSK received breakthrough therapy designation for JCAR015 from the FDA, we will separately need to request breakthrough therapy designation from the FDA under our own IND, which designation we may not be successful in obtaining, which could adversely affect the timing of future clinical trials and regulatory review and approval. Any such impacts on timing could increase research and development costs and could delay or prevent obtaining regulatory approval for our most advanced product candidates, either of which could have a material adverse effect on our business.

Further, even in the event that the IND sponsorship is or has been obtained for existing and new INDs, we did not control the design or conduct of the previous trials. It is possible that the FDA will not accept these previous trials as providing adequate support for future clinical trials, whether controlled by us or third parties, for any of one or more reasons, including the safety, purity, and potency of the product candidate, the degree of product characterization, elements of the design or execution of the previous trials or safety concerns, or other trial results. We may also be subject to liabilities arising from any treatment-related injuries or adverse effects in patients enrolled in these previous trials. As a result, we may be subject to unforeseen third-party claims and delays in our potential future clinical trials. We may also be required to repeat in whole or in part clinical trials previously conducted by our third-party research institution collaborators, which will be expensive and delay the submission and licensure or other regulatory approvals with respect to any of our product candidates. Any such delay or liability could have a material adverse effect on our business.

Although we have assumed control of the overall clinical and regulatory development of JCAR015 and, for NHL, JCAR017 going forward, we expect to be dependent on our contractual arrangements with third-party research institution collaborators for ongoing and planned trials for our other product candidates, and for JCAR017 other than in NHL, until we determine to assume control of the clinical and regulatory development of those candidates. Such arrangements provide us certain information rights with respect to certain previous, planned, or ongoing trials with respect to our product candidates, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from such trials. Even after we assume control of the overall clinical and regulatory development of a product candidate, including JCAR015 and JCAR017, we will still remain dependent on such contractual data rights for use in our clinical and regulatory development activities. If these obligations are breached by our third-party research institution collaborators, or if the data, or our data rights, prove to be inadequate compared to the first-hand knowledge we might have gained had the completed trials been Juno-sponsored trials, then our ability to design and conduct our corporate-sponsored clinical trials may be adversely affected. Additionally, the FDA may disagree with the sufficiency of our right to reference the preclinical, manufacturing, or clinical data generated by these prior investigator-sponsored trials, or our interpretation of preclinical, manufacturing, or clinical data from these clinical trials. If

 

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so, the FDA may require us to obtain and submit additional preclinical, manufacturing, or clinical data before we may begin our planned trials and/or may not accept such additional data as adequate to begin our planned trials.

Additionally, we may remain dependent on our third-party research institution collaborators for other support services in connection with our Juno-sponsored clinical trials. For instance, we will be dependent on SCRI for the manufacture of JCAR017 for our Juno-sponsored Phase I trial in r/r NHL until we transition the manufacturing of such product candidate to our Juno-operated manufacturing facility later in 2016. Transferring the process to our Juno-operated facility may also prove more difficult or take more time than we currently estimate, and it may not occur in 2016 or ever. This dependence on SCRI for the manufacture of JCAR017 will subject us to risks such as those described below under “—We expect to rely on third parties to manufacture our clinical product supplies, and we intend to rely on third parties for at least a portion of the manufacturing process of our product candidates, if approved. Our business could be harmed if those third parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices.

We may encounter substantial delays in our clinical trials, or may not be able to conduct our trials on the timelines we expect.

Clinical testing is expensive, time consuming, and subject to uncertainty. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. We expect that the early clinical work performed by our third-party research institution collaborators will help support the filing with the FDA of multiple INDs for product candidates in the next five years. However, we cannot be sure that we will be able to submit INDs at this rate, and we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin. Moreover, even if these trials begin, issues may arise that could suspend or terminate such clinical trials. A failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful or timely completion of clinical development include:

 

    inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation of clinical studies;

 

    delays in sufficiently developing, characterizing, or controlling a manufacturing process suitable for advanced clinical trials;

 

    delays in reaching a consensus with regulatory agencies on study design;

 

    the FDA may not allow us to use the clinical trial data from a research institution to support an IND if we cannot demonstrate the comparability of our product candidates with the product candidate used by the relevant research institution in its clinical studies;

 

    delays in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;

 

    delays in obtaining required IRB approval at each clinical study site;

 

    imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND application or amendment, or equivalent application or amendment; as a result of a new safety finding that presents unreasonable risk to clinical trial participants; a negative finding from an inspection of our clinical study operations or study sites; developments on trials conducted by competitors for related technology that raises FDA concerns about risk to patients of the technology broadly; or if FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;

 

    delays in recruiting suitable patients to participate in our clinical studies;

 

    difficulty collaborating with patient groups and investigators;

 

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    failure by our CROs, other third parties, or us to adhere to clinical study requirements;

 

    failure to perform in accordance with the FDA’s GCP requirements, or applicable regulatory guidelines in other countries;

 

    delays in having patients complete participation in a study or return for post-treatment follow-up;

 

    patients dropping out of a study;

 

    occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

 

    changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

 

    changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;

 

    the cost of clinical studies of our product candidates being greater than we anticipate;

 

    clinical studies of our product candidates producing negative or inconclusive results, which may result in our deciding, or regulators requiring us, to conduct additional clinical studies or abandon product development programs;

 

    transfer of manufacturing processes from our academic collaborators to larger-scale facilities operated by either a CMO or by us, and delays or failure by our CMOs or us to make any necessary changes to such manufacturing process;

 

    transfer of manufacturing processes to Celgene or any other commercialization partner for the manufacture of product candidates in trials outside of the United States;

 

    delays or failure to secure supply agreements with suitable reagent suppliers, or any failures by suppliers to meet our quantity or quality requirements for necessary reagents; and

 

    delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates for use in clinical studies or the inability to do any of the foregoing.

Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to or we may elect to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical study delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

We have entered into collaborations, including our Celgene collaboration, and may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.

We have entered into a number of research and development collaborations, including with Celgene, Fate Therapeutics, Editas Medicine, and MedImmune, and these collaborations are subject to numerous risks, which may include the following:

 

    collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration;

 

   

collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial

 

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results, changes in their strategic focus due to the acquisition of competitive products, availability of funding, or other external factors, such as a business combination that diverts resources or creates competing priorities;

 

    collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;

 

    collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;

 

    a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing and distribution;

 

    collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

 

    disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources;

 

    collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and

 

    collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we would not have the exclusive right to commercialize such intellectual property.

In particular, if Celgene opts to exercise its options to license any product candidates under the collaboration agreement with us, we may have limited influence or control over their approaches to development and commercialization in the territories in which they lead development and commercialization. Although we will still lead development and commercialization activities in North America for our product candidates arising from programs for which Celgene has exercised an option, Celgene’s development and commercialization activities in the territories where it is the lead party may adversely impact our own efforts in North America. Failure by Celgene to meet its obligations under the collaboration agreement and any co-development or co-commercialization agreement we enter into, or failure by Celgene to apply sufficient efforts at developing and commercializing collaboration products, may materially adversely affect our business and our results of operations. Celgene could independently develop, or develop with its other third party collaborators, products or product candidates that compete directly or indirectly with our products or product candidates, and that competition could adversely impact Celgene’s willingness to exercise an option under our collaboration or Celgene’s level of diligence for our collaboration products for which it has exercised an option. For instance, Celgene and bluebird bio are collaborating on an anti-BCMA CAR T product candidate. Additionally, Celgene’s exercise of an option for a program that includes a given product candidate may also lead to changes to clinical and regulatory development strategy for such product candidate that may impact previously announce development timelines for such product candidate, which may or may not adversely affect our stock price. Celgene will also require some level of assistance from us with respect to product candidates it opts into, and this assistance could be burdensome on our organization and resources and disrupt our own development and commercialization activities for product candidates for which we retain rights or in geographies where we are responsible for leading development and commercialization.

We may form or seek further strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may

 

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develop. Such alliances will be subject to many of the risks set forth above. Moreover, any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex.

As a result of these risks, we may not be able to realize the benefit of our existing collaborations or any future collaborations or licensing agreements we may enter into. Any delays in entering into new collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition, and results of operations.

The FDA or comparable foreign regulatory authorities may disagree with our regulatory plans, including our plans to seek accelerated approval, and we may fail to obtain regulatory approval of our product candidates.

We have begun a trial in adult relapsed/refractory ALL with JCAR015 that could support accelerated U.S. regulatory approval. We also have begun a Phase I trial in adult relapsed/refractory NHL with JCAR017, with the potential to move to a registration trial in 2016 or early 2017. We intend to conduct each of these clinical trials in the United States. If the results of these trials are sufficiently compelling, we intend to discuss with the FDA filing BLAs for accelerated approval of such CD19 product candidates as a treatment for patients who are refractory to currently approved treatments in these indications.

The FDA generally requires a BLA to be supported by two adequate and well-controlled Phase III studies or one large and robust, well-controlled Phase III study in the patient population being studied that provides substantial evidence that a biologic is safe, pure and potent. Phase III clinical studies typically involve hundreds of patients, have significant costs and take years to complete. However, product candidates studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA may require a sponsor of a drug or biologic receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug or biologic may be subject to withdrawal procedures by the FDA that are more accelerated than those available for regular approvals. We believe our accelerated approval strategy is warranted given the currently limited alternative therapies for patients with relapsed/refractory ALL and relapsed/refractory NHL, but the FDA may not agree or alternative therapies may enter the market that cause the FDA to determine that the accelerated approval framework is no longer appropriate in those indications. The FDA may ultimately require one or multiple Phase III clinical trials prior to approval, particularly because our product candidates are novel and personalized treatments.

As part of its marketing authorization process, the EMA may grant marketing authorizations on the basis of less complete data than is normally required, when, for certain categories of medicinal products, doing so may meet unmet medical needs of patients and serve the interest of public health. In such cases, it is possible for the Committee for Medicinal Products for Human Use (“CHMP”) to recommend the granting of a marketing authorization, subject to certain specific obligations to be reviewed annually, which is referred to as a conditional marketing authorization. This may apply to medicinal products for human use that fall under the jurisdiction of the EMA, including those that aim at the treatment, the prevention, or the medical diagnosis of seriously debilitating diseases or life-threatening diseases and those designated as orphan medicinal products.

 

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A conditional marketing authorization may be granted when the CHMP finds that, although comprehensive clinical data referring to the safety and efficacy of the medicinal product have not been supplied, all the following requirements are met:

 

    the risk-benefit balance of the medicinal product is positive;

 

    it is likely that the applicant will be in a position to provide the comprehensive clinical data;

 

    unmet medical needs will be fulfilled; and

 

    the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required.

The granting of a conditional marketing authorization is restricted to situations in which only the clinical part of the application is not yet fully complete. Incomplete nonclinical or quality data may only be accepted if duly justified and only in the case of a product intended to be used in emergency situations in response to public-health threats.

Conditional marketing authorizations are valid for one year, on a renewable basis. The holder will be required to complete ongoing studies or to conduct new studies with a view to confirming that the benefit-risk balance is positive. In addition, specific obligations may be imposed in relation to the collection of pharmacovigilance data.

The granting of a conditional marketing authorization will allow medicines to reach patients with unmet medical needs earlier than might otherwise be the case and will ensure that additional data on a product are generated, submitted, assessed and acted upon. Although we may seek a conditional marketing authorization for one or more of our product candidates by the EMA, the EMA or CHMP may ultimately not agree that the requirements for such conditional marketing authorization have been satisfied. Even if conditional marketing authorization is granted, we cannot guarantee that the EMA or CHMP will renew the authorization annually. We do intend, alone or with Celgene, to seek conditional marketing approval in the EU for our CD19-directed CAR T programs.

Our clinical trial results may also not support approval, whether accelerated approval, conditional marketing authorizations, or regular approval. The results of preclinical and clinical studies may not be predictive of the results of later-stage clinical trials, and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through preclinical studies and initial clinical trials. In addition, our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

    the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

 

    the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;

 

    we may be unable to demonstrate that our product candidates’ risk-benefit ratios for their proposed indications are acceptable;

 

    the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

    we may be unable to demonstrate that the clinical and other benefits of our product candidates outweigh their safety risks;

 

    the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

 

    the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;

 

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    the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, our own manufacturing facilities, or a third-party manufacturer’s facilities with which we contract for clinical and commercial supplies; and

 

    the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

Further, failure to obtain approval for any of the above reasons may be made more likely by the fact that the FDA and other regulatory authorities have very limited experience with commercial development of genetically engineered T cell therapies for cancer. Failure to obtain regulatory approval to market any of our product candidates would significantly harm our business, results of operations, and prospects.

Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay regulatory approval and commercialization.

The clinical trials of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. In particular, because our product candidates are subject to regulation as biological drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use. The risk/benefit profile required for product licensure will vary depending on these factors and may include not only the ability to show tumor shrinkage, but also adequate duration of response, a delay in the progression of the disease, and/or an improvement in survival. For example, response rates from the use of our product candidates may not be sufficient to obtain regulatory approval unless we can also show an adequate duration of response. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. The results of studies in one set of patients or line of treatment may not be predictive of those obtained in another. We expect there may be greater variability in results for products processed and administered on a patient-by-patient basis, as anticipated for our product candidates, than for “off-the-shelf” products, like many other drugs. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that begin clinical trials are never approved by regulatory authorities for commercialization.

Data from studies conducted by the third-party research institutions that are our collaboration partners, FHCRC, MSK, and SCRI, should not be relied upon as evidence that later or larger-scale clinical trials will succeed. Some future trials may have different patient populations than current studies and will test our product candidates in different indications, among other differences. In addition, our proposed manufacturing processes for our CD19 product candidates include what we believe will be process improvements that are not part of the production processes that are currently being used in the clinical trials being conducted by the research institutions. Accordingly, our results with our CD19 product candidates may not be consistent with the results of the clinical trials being conducted by our research institute collaborators.

In addition, even if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our

 

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product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences.

As with most biological drug products, use of our product candidates could be associated with side effects or adverse events which can vary in severity from minor reactions to death and in frequency from infrequent to prevalent. Undesirable side effects or unacceptable toxicities caused by our product candidates could cause us or regulatory authorities to interrupt, delay, or halt clinical trials. We have seen severe neurotoxicity or sCRS, in some cases leading to death, in a number of patients with ALL, NHL, or CLL using each of JCAR015, JCAR017, and JCAR014. Severe neurotoxicity is a condition that, by convention, is currently defined clinically by confusion or other central nervous system side effects, when such side effects are serious enough to lead to intensive care unit care. The exact cause of severe neurotoxicity in connection with treatment with CAR T cells is not fully understood at this time. sCRS is a condition that, by convention, is currently defined clinically by certain side effects, which can include fever, chills, and hypotension, or low blood pressure, related to the release of inflammatory proteins in the body as the CAR T cells rapidly multiply in the presence of the target tumor protein, when such side effects are serious enough to lead to intensive care unit care with mechanical ventilation or significant vasopressor support. In early 2014, two patient deaths in the JCAR015 trial, which we believe were either directly or indirectly related to sCRS, resulted in the FDA placing the trial on clinical hold. Several JCAR015 protocol changes were made after those deaths, the most important of which include using a lower dose in patients with morphologic relapsed/refractory ALL, excluding patients with Class III or IV congestive heart failure as defined by the New York Heart Association, excluding patients with active central nervous system leukemia or symptomatic central nervous system leukemia within 28 days, adding sCRS as a dose limiting toxicity, and restricting a patient from receiving a second treatment of JCAR015 if the patient experienced any non-hematologic grade 4 toxicities, including sCRS, with the prior JCAR015 treatment. The protocol changes resulted in the FDA removing the clinical hold. However, these protocol changes may reduce efficacy and may not result in a better tolerability profile. The FDA or comparable foreign regulatory authorities could delay or deny approval of our product candidates for any or all targeted indications and negative side effects could result in a more restrictive label for any product that is approved. Side effects such as toxicity or other safety issues associated with the use of our product candidates could also require us or our collaborators to perform additional studies or halt development or sale of these product candidates.

Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial, or could result in potential product liability claims. In addition, these side effects may not be appropriately or timely recognized or managed by the treating medical staff, particularly outside of the research institutions that collaborate with us, as toxicities resulting from personalized T cell therapy are not normally encountered in the general patient population and by medical personnel. We expect to have to train medical personnel using our product candidates to understand their side effect profiles, both for our planned clinical trials and upon any commercialization of any product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in adverse effects to patients, including death. Any of these occurrences may materially and adversely harm our business, financial condition and prospects.

Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, including during any long-term follow-up observation period recommended or required for patients who receive treatment using our products, a number of potentially significant negative consequences could result, including:

 

    regulatory authorities may withdraw approvals of such product;

 

    regulatory authorities may require additional warnings on the label;

 

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    we may be required to create a REMS plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;

 

    we could be sued and held liable for harm caused to patients; and

 

    our reputation may suffer.

Any of the foregoing could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations, and prospects.

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

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

 

    the size and nature of the patient population;

 

    the patient eligibility criteria defined in the protocol;

 

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

 

    the proximity of patients to trial sites;

 

    the design of the trial;

 

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

 

    competing clinical trials for similar therapies or other new therapeutics not involving T cell based immunotherapy;

 

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

 

    our ability to obtain and maintain patient consents; and

 

    the risk that patients enrolled in clinical trials will not complete a clinical trial.

In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and hematopoietic cell transplantation, rather than enroll patients in any future clinical trial.

Even if we are able to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.

 

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Clinical trials are expensive, time-consuming and difficult to design and implement, and our clinical trial costs may be higher than for more conventional therapeutic technologies or drug products.

Clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because our product candidates are based on new technologies and manufactured on a patient-by-patient basis, we expect that they will require extensive research and development and have substantial manufacturing costs. In addition, costs to treat patients with relapsed/refractory cancer and to treat potential side effects that may result from our product candidates can be significant. Some clinical trial sites may not bill, or obtain coverage from, Medicare, Medicaid, or other third-party payors for some or all of these costs for patients enrolled in our clinical trials, and we may be required by those trial sites to pay such costs. Accordingly, our clinical trial costs are likely to be significantly higher per patient than those of more conventional therapeutic technologies or drug products. In addition, our proposed personalized product candidates involve several complex and costly manufacturing and processing steps, the costs of which will be borne by us. Depending on the number of patients we ultimately enroll in our trials, and the number of trials we may need to conduct, our overall clinical trial costs may be higher than for more conventional treatments.

Research and development of biopharmaceutical products is inherently risky. We may not be successful in our efforts to use and enhance our technology platform and CAR and TCR technologies to create a pipeline of product candidates and develop commercially successful products, or we may expend our limited resources on programs that do not yield a successful product candidate and fail to capitalize on product candidates or diseases that may be more profitable or for which there is a greater likelihood of success. If we fail to develop additional product candidates, our commercial opportunity will be limited.

Although our most advanced product candidates are JCAR015, JCAR017, and JCAR014, we and our collaborators are simultaneously pursuing clinical development of additional product candidates developed employing our CAR and TCR technologies. We are at an early stage of development and our technology platform has not yet led, and may never lead, to approved or commercially successful products.

Even if we are successful in continuing to build our pipeline, obtaining regulatory approvals and commercializing additional product candidates may require substantial additional funding and are prone to the risks of failure inherent in medical product development.

Investment in biopharmaceutical product development involves significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, and become commercially viable. We cannot provide you any assurance that we will be able to successfully advance any of these additional product candidates through the development process. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development or commercialization for many reasons, including the following:

 

    our platform may not be successful in identifying additional product candidates;

 

    we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;

 

    our product candidates may not succeed in preclinical or clinical testing;

 

    a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

 

    competitors may develop alternatives that render our product candidates obsolete or less attractive;

 

    product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

 

    the market for a product candidate may change during our program so that the continued development of that product candidate is no longer reasonable;

 

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    a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

 

    a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors, if applicable.

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, discover, develop, or commercialize additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations.

Even if we receive FDA approval to market additional product candidates, whether for the treatment of cancers or other diseases, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. Further, because of our limited financial and managerial resources, we are required to focus our research programs on certain product candidates and on specific diseases. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases that may later prove to have greater commercial potential, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights. For additional information regarding the factors that will affect our ability to achieve revenue from product sales, see the risk factor above “—We have never generated any revenue from sales of cell-therapy products and our ability to generate revenue from cell-therapy product sales and become profitable depends significantly on our success in a number of factors.

Our product candidates are biologics and the manufacture of our product candidates is complex and we may encounter difficulties in production, particularly with respect to process development or scaling-out of our manufacturing capabilities. If we, Celgene, or any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.

Our product candidates are biologics and the process of manufacturing our products is complex, highly-regulated and subject to multiple risks. The manufacture of our product candidates involves complex processes, including harvesting T cells from patients, genetically modifying the T cells ex vivo, multiplying the T cells to obtain the desired dose, and ultimately infusing the T cells back into a patient’s body. As a result of the complexities, the cost to manufacture biologics in general, and our genetically modified cell product candidates in particular, is generally higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable and is more difficult to reproduce. Our manufacturing process will be susceptible to product loss or failure due to logistical issues associated with the collection of white blood cells, or starting material, from the patient, shipping such material to the manufacturing site, shipping the final product back to the patient, and infusing the patient with the product, manufacturing issues associated with the differences in patient starting materials, interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error, inconsistency in cell growth, and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects, and other supply disruptions. If for any reason we lose a patient’s starting material or later-developed product at any point in the process, the manufacturing process for that patient will need to be restarted and the resulting delay may adversely affect that patient’s outcome. If microbial, viral, or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Because our product candidates are manufactured for each particular patient, we will be required to maintain a chain of identity with respect to materials as they move from the patient to the manufacturing facility, through the manufacturing process, and back to the patient. Maintaining

 

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such a chain of identity is difficult and complex, and failure to do so could result in adverse patient outcomes, loss of product, or regulatory action including withdrawal of our products from the market. Further, as product candidates are developed through preclinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.

Historically, our product candidates have been manufactured using unoptimized processes by our third-party research institution collaborators that we do not intend to use for more advanced clinical trials or commercialization. Although we are working to develop commercially viable processes, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials. As a result of these challenges, we may experience delays in our clinical development and/or commercialization plans. We may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are commercialized.

In some circumstances, changes in the manufacturing process may require us to perform ex vivo comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials. For instance, changes we made to the manufacturing process, including changes in reagents and in the viral vector, in preparation for our Phase II trial for JCAR015 will require us to show the comparability of the Phase II product to Phase I product. We have provided the FDA with comparability evidence from ex vivo experimental studies comparing Phase I product to Phase II product, and plan to provide the FDA with clinical comparability data from our ongoing Phase II trial. We may also make further changes to our manufacturing process before or after commercialization, and such changes may require us to show the comparability of the resulting product to the product used in the clinical trials using the earlier process. We may be required to collect additional clinical data from any modified process prior to obtaining marketing approval for the product candidate produced with such modified process. If clinical data are not ultimately comparable to that seen in the earlier trials in terms of safety or efficacy, we may be required to make further changes to our process and/or undertake additional clinical testing, either of which could significantly delay the clinical development or commercialization of JCAR015.

We expect our manufacturing strategy will involve the use of one or more CMOs as well as establishing our own capabilities and infrastructure, including a manufacturing facility to manufacture our product candidates. We also plan to manufacture certain of the reagents used for making our product candidates ourselves. We expect that development of our own manufacturing facility, as well as manufacturing some of our own reagents, will provide us with enhanced control of material supply for both clinical trials and the commercial market, enable the more rapid implementation of process changes, and allow for better long-term margins. However, we have no experience as a company manufacturing product candidates for use in the clinic, and only limited experience (through our German subsidiary) manufacturing reagents, and may never be successful in operating our own manufacturing facility or in manufacturing reagents in sufficient quantities or with sufficient quality for clinical or commercial use. We may establish multiple manufacturing facilities as we expand our commercial footprint to multiple geographies, which may lead to regulatory delays or prove costly.

Even if we are successful in developing our manufacturing capabilities sufficient for clinical and commercial supply, our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, operator error, natural disasters, power failures, availability of qualified personnel, difficulties with logistics and shipping, problems regarding yields or stability of product, contamination or other quality control issues, and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business. Furthermore, if contaminants are discovered in our supply of our product candidates or in our manufacturing facilities or those of our CMOs, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the

 

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contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our product candidates will not occur in the future. Additionally, we and our CMOs may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If we or our CMOs were to encounter any of these difficulties, our ability to provide our product candidate to patients in clinical trials, or to provide product for treatment of patients once approved, would be jeopardized.

In addition, the manufacturing process for any products that we may develop is subject to FDA and foreign regulatory authority approval process, and we will need to meet, and our CMOs will need to meet, all applicable FDA and foreign regulatory authority requirements on an ongoing basis. If we or our CMOs are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects.

If and when Celgene opts into any of our product candidates, we also expect that we will need to assist Celgene with the transfer of our manufacturing processes to geographies outside of the United States. The transfer of process to Celgene would be subject to the same types of risk as set forth above and may not ultimately be successful or may take longer to succeed than expected, which could delay development and commercialization activities in those geographies, which would have an adverse effect on our business. Such transfer activities may also require a significant amount of attention from our personnel, which may disrupt our other development and commercialization activities, which may have an adverse effect on our business. Additionally, in the interim we may need to manufacture product candidates out of our existing facilities for use in clinical trials in the Celgene territories, which may disrupt our own clinical activities and, to the extent we are not able to produce product candidate in the volumes required by Celgene, may also lead to delays in development plans in such Celgene territories.

We expect to rely on third parties to manufacture our clinical product supplies, and we intend to rely on third parties for at least a portion of the manufacturing process of our product candidates, if approved. Our business could be harmed if those third parties fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices.

We currently rely on outside vendors to manufacture supplies and process our product candidates, which is and will need to be done on a patient-by-patient basis. We have not yet caused our product candidates to be manufactured or processed on a commercial scale and may not be able to do so for any of our product candidates. Although our manufacturing and processing approach is based upon the current approach undertaken by our third-party research institution collaborators, we have limited experience in managing the T cell engineering process, and our process may be more difficult or expensive than the approaches currently in use. We will make changes as we work to optimize the manufacturing process, and we cannot be sure that even minor changes in the process will not result in significantly different T cells that may not be as safe and effective as any T cell therapy deployed by our third-party research institution collaborators.

Although we are in the final stages of bringing our own manufacturing facility online, we also intend to continue to use third parties as part of our manufacturing process and for filling some or our product candidate manufacturing requirements. Our anticipated reliance on a limited number of third-party manufacturers exposes us to the following risks:

 

   

We may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA must approve any manufacturers. This approval would

 

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require new testing and good manufacturing practices compliance inspections by FDA. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products.

 

    Our manufacturers may have little or no experience with autologous cell products, which are products made from a patient’s own cells, and therefore may require a significant amount of support from us in order to implement and maintain the infrastructure and processes required to manufacture our product candidates.

 

    Our third-party manufacturers might be unable to timely manufacture our product or the custom materials or reagents used in the manufacture thereof, or produce the quantity and quality required to meet our clinical and commercial needs, if any.

 

    Contract manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements appropriately.

 

    Our future contract manufacturers may not perform as agreed, may not devote sufficient resources to us, or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store, and distribute our products or the custom materials or reagents used in the manufacture thereof.

 

    Manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMPs and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards.

 

    We may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the manufacturing process for our products, or in the manufacture of the custom materials or reagents used in the manufacture thereof.

 

    Our third-party manufacturers could breach or terminate their agreement with us.

 

    Raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier, may not be available or may not be suitable or acceptable for use due to material or component defects.

 

    Our contract manufacturers and critical reagent suppliers may be subject to inclement weather, as well as natural or man-made disasters.

 

    Our contract manufacturers may have unacceptable or inconsistent product quality success rates and yields.

Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of our product candidates by the FDA, result in higher costs or adversely impact commercialization of our product candidates.

In addition, we will rely on third parties to perform certain specification tests on our product candidates prior to delivery to patients. If these tests are not appropriately done and test data are not reliable, patients could be put at risk of serious harm and the FDA could require additional clinical trials or place significant restrictions on our company until deficiencies are remedied.

 

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Cell-based therapies rely on the availability of reagents, specialized equipment, and other specialty materials, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.

Manufacturing our product candidates will require many reagents, which are substances used in our manufacturing processes to bring about chemical or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies with limited resources and experience to support commercial biologics production. We currently depend on a limited number of vendors for certain materials and equipment used in the manufacture of our product candidates. Some of these suppliers may not have the capacity to support commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise be ill-equipped to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to obtain supply contracts with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials and equipment to support clinical or commercial manufacturing.

For some of these reagents, equipment, and materials, we rely and may in the future rely on sole source vendors or a limited number of vendors. An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands, or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could significantly harm our business.

As we continue to develop and scale our manufacturing process, we expect that we will need to obtain rights to and supplies of certain materials and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials or find a suitable substitute, it would have a material adverse effect on our business. Even if we are able to alter our process so as to use other materials or equipment, such a change may lead to a delay in our clinical development and/or commercialization plans. If such a change occurs for product candidate that is already in clinical testing, the change may require us to perform both ex vivo comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials.

We are and will continue to rely in significant part on outside scientists and their third-party research institutions for research and development and early clinical testing of our product candidates. These scientists and institutions may have other commitments or conflicts of interest, which could limit our access to their expertise and harm our ability to leverage our technology platform.

We rely to a large extent at present on our third-party research institution collaborators for research and development capabilities. Currently, MSK is conducting Phase I clinical trials using JCAR015 to address adult ALL and pediatric ALL and a Phase I trial with JCAR020 to address ovarian cancer; SCRI is conducting a Phase I/II clinical trial using JCAR017 to address pediatric ALL and a Phase I trial using JCAR023 to address refractory or recurrent pediatric neuroblastoma; and FHCRC is conducting a Phase I/II clinical trial using JCAR014 to address ALL, NHL, and CLL, a Phase I trial using JCAR024 to address ROR-1 expressing cancers, a Phase I/II trial using JTCR016 to address high risk or relapsed AML, myelodysplasic syndrome, and chronic myeloid leukemia, and a Phase I trial using JTCR016 to address advanced NSCLC. Each of these clinical trials addresses a limited number of patients. We expect to use the results of these trials, if favorable, to help support the filing with the FDA of INDs to conduct more advanced clinical trials with the corresponding product candidates. To date, we have filed, and the FDA has cleared, a Juno-sponsored IND for the Phase I clinical trial of JCAR017 in adult aggressive r/r NHL and a Juno-sponsored IND for the Phase II clinical trial of JCAR015 in adult r/r ALL, and these Juno-sponsored trials have begun.

 

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With respect to our CD22 product candidate, JCAR018, the NCI is conducting a clinical trial of the product candidate for the treatment of pediatric relapsed/refractory ALL and relapsed/refractory NHL. If the results of this trial are compelling, we expect to use the results of the NCI’s clinical trial to support the filing with the FDA of a Juno-sponsored IND to conduct more advanced clinical trials of JCAR018 or another CD22-directed product candidate.

We also fund research and development under agreements with FHCRC, MSK, and SCRI. However, the research we are funding constitutes only a small portion of the overall research of each research institution. Other research being conducted by these institutions may at times receive higher priority than research on the programs we are funding.

The outside scientists who conduct the clinical testing of our current product candidates, and who conduct the research and development upon which our product candidate pipeline depends, are not our employees; rather they serve as either independent contractors or the primary investigators under research collaboration agreements that we have with their sponsoring academic or research institution. Such scientists and collaborators may have other commitments that would limit their availability to us. Although our scientific advisors generally agree not to do competing work, if an actual or potential conflict of interest between their work for us and their work for another entity arises, we may lose their services. These factors could adversely affect the timing of the clinical trials, the timing of receipt and reporting of clinical data, the timing of Juno-sponsored IND filings, and our ability to conduct future planned clinical trials. It is also possible that some of our valuable proprietary knowledge may become publicly known through these scientific advisors if they breach their confidentiality agreements with us, which would cause competitive harm to, and have a material adverse effect on, our business.

Our existing agreements with our collaboration partners may be subject to termination by the counterparty upon the occurrence of certain circumstances as described in more detail under the caption “Licenses and Third-Party Collaborations” in Part I—Item 1—“Business” of this report. If any of our collaboration partners terminates their collaboration agreement, the research and development of the relevant product candidate would be suspended, and we may be unable to research, develop, and license future product candidates. We may be required to devote additional resources to the development of our product candidates or seek a new collaboration partner, and the terms of any additional collaborations or other arrangements that we establish may not be favorable to us. In addition, there is a natural transition period when a new third-party begins work. In addition, switching or adding third parties to conduct our clinical trials involves substantial cost and requires extensive management time and focus. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines.

We will be highly dependent on the NCI for early clinical testing of JCAR018.

In December 2014, we entered into an exclusive license agreement with Opus Bio pursuant to which Opus Bio has granted us an exclusive, worldwide, sublicenseable license under certain patent rights related to a CD22-directed CAR product candidate, JCAR018. In connection therewith, the NCI agreed to separate the activities that are exclusively related to CD22 under its agreement with Opus Bio and to enter into a separate agreement with us (the “Juno CRADA”), on the same terms as such agreement and incorporate such activities into its agreement with us.

The NCI has commenced a Phase I clinical trial of JCAR018 for the treatment of pediatric relapsed/refractory ALL and relapsed/refractory NHL. If the results of this trial are compelling, we expect to use the results of the NCI’s clinical trial to support the filing with the FDA of a Juno-sponsored IND to conduct more advanced clinical trials of JCAR018 or another CD22-directed product candidate. However, we will have limited control over the nature or timing of the NCI’s clinical trial and limited visibility into their day-to-day activities. For example, the clinical trial will constitute only a small portion of the NCI’s overall research and the research of the principal investigators. Other research being conducted by the principal investigators may at times receive

 

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higher priority than research on JCAR018. We will also be dependent on the NCI to provide us with data, include batch records, to support the filing of our IND. These factors could adversely affect the timing of our IND filing.

The NCI may unilaterally terminate our rights under the Juno CRADA at any time for any reason or for no reason upon at least 60 days prior written notice. If the NCI unilaterally terminates the Juno CRADA, the research and development under the Juno CRADA would be suspended and we may lose certain of our data rights, which may impair our ability to obtain regulatory approval of JCAR018.

Our results of operations and financial position could be negatively impacted if our tax positions are challenged by tax authorities.

We are a U.S.-based multinational company subject to tax in certain U.S. and foreign tax jurisdictions. United States federal, state and local, as well as international tax laws and regulations are extremely complex and subject to varying interpretations. Although we believe that our tax estimates and tax positions are reasonable, there can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge. If we are unsuccessful in such a challenge, the relevant tax authorities may assess additional taxes, which could result in adjustments to, or impact the timing or amount of, taxable income, deductions or other tax allocations, which may adversely affect our results of operations and financial position.

If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates.

Our operations have required substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the clinical development of our product candidates, including our ongoing and planned clinical trials for our CD19 product candidates. If approved, we will require significant additional amounts in order to launch and commercialize our product candidates.

As of December 31, 2015, we had $1.2 billion in cash, cash equivalents, and marketable securities. In August 2015, we received $1.0 billion from Celgene from the sale of common stock to Celgene and from the initial payment under our collaboration agreement. We believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next 12 months. However, changing circumstances or business opportunities, within or beyond our control, may lead us to use our capital faster than we currently anticipate. We may ultimately need to raise additional funds for the further development and commercialization of our product candidates or to pursue strategic transactions and other business opportunities that arise.

We cannot be certain that additional funding will be available on acceptable terms, or at all. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidates or other research and development initiatives. Our license and collaboration agreements may also be terminated if we are unable to meet the payment obligations under the agreements. We could be required to seek additional collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves.

If Celgene declines to exercise its option with respect to one or more product candidates covered by our collaboration agreement with Celgene, or terminates the collaboration agreement with us, we will need to secure funding to advance development of those programs on our own or secure relationships with collaborators that have the necessary capital and expertise. In addition, we may need additional funding to advance product candidates prior to Celgene’s decisions regarding option exercise with respect to such product candidate if development of that program is not discontinued. In addition, if we exercise our option to any of Celgene’s in-

 

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licensed programs to co-develop and co-commercialize products, then we may need to secure additional funding to support our obligations to pay one-half of the acquisition costs of any such in-licensed program.

If we are unable to obtain sufficient financing when needed, it could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

Any future revenue from the license agreement with Penn and Novartis is highly dependent upon milestone and contingent royalty payments generated from the efforts of Penn and Novartis, over which we have no control, and we may not realize the intended benefits of this agreement.

On April 4, 2015, the parties to Trustees of the University of Pennsylvania v. St. Jude Children’s Research Hospital, Civil Action No. 2:13-cv-01502-SD (E.D. Penn.), agreed to settle the case, which was dismissed on April 7, 2015. In connection with this settlement we entered into a sublicense agreement with Penn and an affiliate of Novartis pursuant to which we granted Novartis a non-exclusive, royalty-bearing sublicense under certain patent rights, including U.S. Patent No. 8,399,645, to develop, make and commercialize licensed products and licensed services for all therapeutic, diagnostic, preventative and palliative uses. In exchange for this sublicense, Novartis is obligated to pay us mid-single digit royalties on the U.S. net sales of products and services related to the disputed contract and patent claims, a low double digit percentage of the royalties Novartis pays to Penn for global net sales of those products, and milestone payments upon the achievement of specified clinical, regulatory and commercialization milestones for licensed products. The sublicense agreement with Novartis and Penn is terminable by Novartis at will without notice to us and without our consent.

Our receipt of royalty and milestone payments from Novartis is subject to many risks and uncertainties. In particular, these payments are dependent upon Novartis’ ability to make U.S. and global sales of its products and services, and its ability to achieve clinical, regulatory and commercialization milestones for the licensed products. We will have no control over the nature or timing of Novartis’ efforts towards making these sales or achieving these milestones. Furthermore, in the course of developing and commercializing its products, Novartis and Penn will likely be subject to many risks and uncertainties similar to those faced by our company and our product candidates as described in this section, and may be subject to other risks specific to Novartis and Penn. Additionally, if Novartis or Penn breaches our sublicense agreement, we may determine to terminate the agreement, or may be required to do so by St. Jude pursuant to the terms of our license agreement with St. Jude. To the extent Novartis fails, for any of the reasons outlined above or any other reason, to remit royalty payments or milestone payments under our sublicense agreement, or fails to remit these payments in the amount anticipated, or to the extent that our sublicense agreement with Novartis and Penn is terminated, we may not realize the potential benefits of the sublicense agreement with Penn and Novartis.

We may never formalize our agreement in principle with Celgene to license Celgene a subset of the acquired AbVitro technology or the final terms of the agreement may not be as favorable to us as expected.

We and Celgene have agreed in principle to enter into an agreement to license Celgene a subset of the acquired AbVitro technology and to grant Celgene options to certain related potential product rights emanating from the acquired technology. However, we may never come to agreement with Celgene on the formal terms of such an agreement, in which case we will not receive the financial benefits of such an agreement. Even if we do come to agreement with Celgene, it may not be on terms that are favorable to us as expected.

We will rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval of or commercialize our product candidates.

We will depend upon independent investigators to conduct our clinical trials under agreements with universities, medical institutions, CROs, strategic partners, and others. At present, we contract directly with all of our trial sites, and therefore have to negotiate budgets and contracts with each trial site, which may result in delays to our

 

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development timelines and increased costs. If we transition to a CRO to manage the conduct of our clinical trials, we will also have to negotiate budgets and contracts with such CRO, which may similarly lead to delays and increased costs.

We will rely heavily on third parties over the course of our clinical trials, and as a result will have limited control over the clinical investigators and limited visibility into their day-to-day activities, including with respect to how they are providing and administering T cell therapy. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory, and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with GCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional nonclinical or clinical trials before approving our marketing applications. We cannot be certain that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the GCP regulations. In addition, our clinical trials must be conducted with biologic product produced under cGMP regulations and will require a large number of test patients. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

Any third parties conducting our clinical trials are not and will not be our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical, clinical, and nonclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed, or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed. We have disclosed in this report and various corporate presentations certain third party investigator-reported interim data from some of our trials, including interim data for which we have not yet independently reviewed the source data. We also sometimes rely on such investigator-reported interim data in making business decisions. Independent review of the data could fail to confirm the investigator-reported interim data, which may lead to revisions in disclosed clinical trial results in the future. Any such revisions that reveal more negative data than previously disclosed investigator-reported interim data could have an adverse impact on our business prospects and the trading price of our common stock. Such revisions could also reduce investor confidence in investigator-reported interim data that we disclose in the future.

If any of our relationships with trial sites, or any CRO that we may use in the future, terminate, we may not be able to enter into arrangements with alternative trial sites or CROs or do so on commercially reasonable terms. Switching or adding additional trial sites or CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO begins work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines, and such delays could have a material adverse impact on our business, financial condition, and prospects.

 

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The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.

Cancer therapies are sometimes characterized as first line, second line, or third line, and the FDA often approves new therapies initially only for third line use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever first line therapy, usually chemotherapy, hormone therapy, surgery, or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor targeted small molecules, or a combination of these. Third line therapies can include bone marrow transplantation, antibody and small molecule targeted therapies, more invasive forms of surgery, and new technologies. We expect to initially seek approval of our product candidates as a third line therapy for patients who have failed other approved treatments. Subsequently, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval as a second line therapy and potentially as a first line therapy, but there is no guarantee that our product candidates, even if approved, would be approved for second line or first line therapy. In addition, we may have to conduct additional clinical trials prior to gaining approval for second line or first line therapy.

Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people with these cancers in a position to receive third line therapy and who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates. For instance, with our CD19 product candidates we expect to initially target a small patient population that suffers from ALL and certain types of aggressive NHL. Even if we obtain significant market share for our product candidates, because the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications, including use as a first or second line therapy.

Our market opportunities may also be limited by competitor treatments that may enter the market. See the risk factor below “—We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

We plan to seek orphan drug designation for some or all of our CD19 product candidates, but we may be unable to obtain such designations or to maintain the benefits associated with orphan drug designation, including market exclusivity, which may cause our revenue, if any, to be reduced.

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

If a product that has orphan drug designation subsequently receives the first FDA approval of that particular product for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a BLA, to market the same

 

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biologic (meaning, a product with the same principal molecular structural features) for the same indication for seven years, except in limited circumstances such as a showing of clinical superiority to the product with orphan drug exclusivity or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve other biologics that do not have the same principal molecular structural features for use in treating the same indication or disease. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product or if a subsequent applicant demonstrates clinical superiority over our product.

We plan to seek orphan drug designation for some or all of our CD19 product candidates in specific orphan indications in which there is a medically plausible basis for the use of these products, including relapsed/ refractory ALL and relapsed/refractory NHL indications. We have obtained orphan drug designation for each of JCAR015 and JCAR014 for the treatment of ALL. Even when we obtain orphan drug designation, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. In addition, although we intend to seek orphan drug designation for other product candidates, we may never receive such designations.

We plan to seek but may fail to obtain breakthrough therapy designation for some or all of our CD19 product candidates.

In 2012, the FDA established a breakthrough therapy designation which is intended to expedite the development and review of products that treat serious or life-threatening diseases when “preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.” The designation of a product candidate as a breakthrough therapy provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate and ensure collection of appropriate data needed to support approval; more frequent written correspondence from FDA about such things as the design of the proposed clinical trials and use of biomarkers; intensive guidance on an efficient drug development program, beginning as early as Phase I; organizational commitment involving senior managers; and eligibility for rolling review and priority review.

Breakthrough therapy designation does not change the standards for product approval. We intend to seek breakthrough therapy designation for some or all of our CD19 product candidates that may qualify for such designation. Our collaborator MSK obtained breakthrough therapy designation for JCAR015 for relapsed/refractory ALL, but we will have to seek such designation separately under our own IND, which designation we may not receive. In addition, although we intend to seek breakthrough therapy designation for other product candidates, we may never receive such designations.

We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establish marketing and sales capabilities on our own or through our collaboration with Celgene or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate product revenue.

We currently have no sales, marketing, or commercial product distribution capabilities and have no experience as a company in marketing products. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources, and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train, and retain marketing and sales personnel.

 

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Under our collaboration with Celgene, for Juno-developed programs that Celgene opts into, Celgene will lead development and commercialization activities outside of North America and, for cellular therapy product candidates, China, but we will still be responsible for leading such activities in North America and, for cellular therapy product candidates, China. If Celgene does not opt into a program for one of our product candidates that we move to commercialization, we will alone be responsible for commercialization activities worldwide, unless we find another collaborator to assist with the sales and marketing of our products.

If we are unable or decide not to establish internal sales, marketing and commercial distribution capabilities for any or all products we develop, we will likely pursue further collaborative arrangements regarding the sales and marketing of our products. However, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties, and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.

There can be no assurance that we will be able to develop in-house sales and commercial distribution capabilities or establish or maintain relationships with third-party collaborators to successfully commercialize any product in the United States or overseas, and as a result, we may not be able to generate product revenue.

A variety of risks associated with operating our business internationally could materially adversely affect our business.

As a result of the Stage acquisition, we acquired a German subsidiary with employees in Germany. We also plan to seek regulatory approval of our product candidates outside of the United States. Accordingly, we expect that we, and any potential collaborators that have operations in foreign jurisdictions, will be subject to additional risks related to operating in foreign countries, including:

 

    differing regulatory requirements in foreign countries;

 

    unexpected changes in tariffs, trade barriers, price and exchange controls, and other regulatory requirements;

 

    economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

    compliance with applicable tax, employment, immigration, data privacy, and labor laws for employees living or traveling abroad, including for our German employees;

 

    foreign taxes, including withholding of payroll taxes;

 

    foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

 

    difficulties staffing and managing foreign operations;

 

    workforce uncertainty in countries where labor unrest is more common than in the United States;

 

    potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign laws;

 

    challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;

 

    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

    business interruptions resulting from geo-political actions, including war and terrorism.

 

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These and other risks associated with our planned international operations may materially adversely affect our ability to attain or maintain profitable operations.

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

The biopharmaceutical industry, and the rapidly evolving market for developing genetically engineered T cells in particular, is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities, and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations as well as established sales forces. Smaller or early- stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized, or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products.

Specifically, genetically engineering T cells faces significant competition in both the CAR and TCR technology space from multiple companies and their collaborators, such as Novartis / Penn, Kite Pharma / Amgen / NCI, Cellectis / Pfizer / Servier, Johnson & Johnson / Transposagen Biopharmaceuticals, bluebird bio, Bellicum, Celyad, NantKwest, Intrexon / Ziopharm / MD Anderson Cancer Center, Unum Therapeutics, Adaptimmune / GlaxoSmithKline, ImmunoCellular Therapeutics, and Autolus. We also face competition from non-cell based treatments offered by companies such as Amgen, Pfizer, Abbvie, AstraZeneca, Bristol-Myers, Incyte, Merck, and Roche. For instance, in 2014 the FDA approved Amgen’s blinotumomab for the treatment of r/r ALL, and that product has achieved a CR rate of approximately 40% in clinical trials. We also anticipate Pfizer’s inotuzumab to be approved for the treatment of r/r ALL as early as 2016, which has shown a CR rate of approximately 80% in clinical trials.

Even if we obtain regulatory approval of our product candidates, we may not be the first to market and that may affect the price or demand for our product candidates. Additionally, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances. Additionally, a competitor could obtain orphan product exclusivity from the FDA with respect to such competitor’s product. If such competitor product is determined to be the same product as one of our product candidates, that may prevent us from obtaining approval from the FDA for such product candidate for the same indication for seven years, except in limited circumstances.

For additional information regarding our competition, see the section captioned “Competition” in Part I—Item 1—“Business” located elsewhere in this report.

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

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

 

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

We conduct most of our operations at our facility in Seattle, Washington, in a region that is headquarters to many other biopharmaceutical companies and many academic and research institutions. As a result of our acquisition of X-Body and Stage, we have also expanded our operations into Massachusetts and Germany and currently have employees in both geographies. Competition for skilled personnel is intense in all of these geographies and the turnover rate can be high, which may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. We expect that we will need to recruit talent from outside of the regions in which we currently operate, and doing so may be costly and difficult. Further expansion into additional states or countries could also increase our regulatory and legal risks.

To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided restricted stock and stock option grants that vest over time. The value to employees of these equity grants that vest over time may be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Although we have employment agreements with our key employees, these employment agreements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain “key man” insurance policies on the lives of all of these individuals or the lives of any of our other employees.

We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.

As of December 31, 2015, we had 306 employees worldwide, most of whom are full time. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we must add a significant number of additional research and development, managerial, operational, sales, marketing, financial, and other personnel. Future growth will impose significant added responsibilities on members of management, including:

 

    identifying, recruiting, integrating, maintaining, and motivating additional employees;

 

    managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and

 

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

Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. Our efforts to manage our growth are complicated by the fact that all of our executive officers other than our chief executive officer have joined us since January 2014. This lack of long-term experience working together may adversely impact our senior management team’s ability to effectively manage our business and growth.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any

 

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reason, our clinical trials may be extended, delayed, or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all.

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

We have engaged in and may in the future engage in acquisitions or strategic partnerships, which could divert management’s attention, increase our capital requirements, dilute our stockholders, be difficult to integrate, cause us to incur debt or assume contingent liabilities, and subject us to other risks.

We have made or entered into several acquisitions or strategic partnerships, and we may continue to evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies, or businesses. For instance, in May 2015, we acquired all the outstanding equity interests in Stage, in connection with which we paid €52.5 million in cash and issued 486,279 shares of common stock as an upfront payment, with potential earn out payments of up to €135.0 million in cash based on the achievement of certain technical, clinical, regulatory, and commercial milestones.

Any acquisition or strategic partnership may entail numerous risks, including:

 

    increased operating expenses and cash requirements;

 

    the assumption of additional indebtedness or contingent liabilities, including earn-out milestones;

 

    the issuance of our equity securities;

 

    assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;

 

    the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;

 

    retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;

 

    expense or diversion of efforts related to the development of acquired technology under any diligence obligation required of us with respect to earn out milestones for an acquisition transaction, where we may not undertake such expense or efforts absent such diligence obligations;

 

    risk that the other party or parties to an acquisition transaction may claim that we have not satisfied any earn out diligence obligation and seek damages or other legal or equitable relief;

 

    risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and regulatory approvals; and

 

    our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

In addition, if we undertake additional acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Moreover, we may not be able to locate suitable

 

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acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

Our success payment obligations to FHCRC and MSK may result in dilution to our stockholders, may be a drain on our cash resources, or may cause us to incur debt obligations to satisfy the payment obligations.

We have agreed to make success payments to each of FHCRC and MSK pursuant to the terms of our agreements with each of those entities. These success payments will be based on increases in the estimated fair value of our common stock, payable in cash or publicly-traded equity at our discretion. The term of these obligations may last up to 11 years. Success payments will be owed (if applicable) after measurement of the value of our common stock in connection with the following valuation measurement dates during the term of the success payment agreement: (1) December 19, 2014, which was the date our common stock first became publicly traded; (2) the date on which we sell, lease, transfer or exclusively license all or substantially all of our assets to another company; (3) the date on which we merge or consolidate with or into another entity (other than a merger in which our pre-merger stockholders own a majority of the shares of the surviving entity); (4) any date on which ARCH Venture Fund VII, L.P. or C.L. Alaska L.P. transfers a majority of its shares of company capital stock held by it on such date to a third party; (5) every second anniversary of any event described in the preceding clauses (1), (2), (3) or (4), but, in the case of FHCRC, only upon a request by FHCRC made within 20 calendar days after receiving written notice from us of such event; and (6) the last day of the 11 year period. The amount of a success payment is determined based on whether the value of our common stock meets or exceeds certain specified threshold values ascending, in the case of FHCRC, from $20.00 per share to $160.00 per share and, in the case of MSK, from $40.00 per share to $120.00 per share, in each case subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. Each threshold is associated with a success payment, ascending, in the case of FHCRC, from $10 million at $20.00 per share to $375 million at $160.00 per share and, in the case of MSK, from $10 million at $40.00 per share to $150 million at $120.00 per share, payable if such threshold is reached. The maximum aggregate amount of success payments to FHCRC is $375 million and to MSK is $150 million, in each case subject to certain indirect cost offsets related to our cash payments for collaboration activities. In December 2015, success payments to FHCRC were triggered in the aggregate amount of $75.0 million, less indirect cost offsets of $3.3 million, and a success payment to MSK was triggered in the amount of $10.0 million, less indirect cost offsets that will be determined at the time of payment in March 2016. We elected to make the payment to FHCRC in shares of our common stock, and thereby issued 1,601,085 shares of our common stock to FHCRC in December 2015. The MSK success payment is required to be made, in cash or shares of our common stock at our election, on March 18, 2016. See the section captioned “Licenses and Third-Party Collaborations” in Part I—Item 1—“Business” in this report for further discussion of these success payments.

The next anticipated valuation measurement date at which success payments may be triggered is December 19, 2016. Success payments will only be triggered on that date to the extent the average closing price of a share of our common stock over the consecutive 90 calendar day period preceding December 19, 2016 meets or exceeds $60.00, subject to adjustment for any stock dividend, stock split, combination of shares, and other similar events.

In order to satisfy our obligations to make these success payments, if and when they are triggered, we may issue equity securities that may cause dilution to our stockholders, or we may use our existing cash or incur debt obligations to satisfy the success payment obligation in cash, which may adversely affect our financial position.

The success payment obligations to FHCRC and MSK may cause GAAP operating results to fluctuate significantly from quarter to quarter, which may reduce the usefulness of our GAAP financial statements.

Our success payment obligations to FHCRC and MSK are recorded as a liability on our balance sheet. Under generally accepted accounting principles in the United States (“GAAP”), we are required to estimate the fair value of this liability as of each quarter end and changes in estimated fair value are amortized to expense using the accelerated attribution method over the remaining term of the collaboration agreement. Factors that may lead

 

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to increases or decreases in the estimated fair value of this liability include, among others, changes in the value of the common stock, change in volatility, changes in the applicable term of the success payments, changes in the risk free rate, and changes in the estimated indirect costs that are creditable against FHCRC and MSK success payments. As a result, our operating results and financial condition as reported by GAAP may fluctuate significantly from quarter to quarter and from year to year and may reduce the usefulness of our GAAP financial statements. In December 2015, success payments to FHCRC were triggered in the aggregate amount of $75.0 million, less indirect cost offsets of $3.3 million. We elected to make the payment in shares of our common stock, and thereby issued 1,601,085 shares of our common stock to FHCRC in December 2015. In December 2015, a success payment to MSK was triggered in the amount of $10.0 million, less indirect cost offsets that will be determined at the time of payment in March 2016. The success payment obligation to MSK is required to be paid, in cash or shares of our common stock at our election, on March 18, 2016. As of December 31, 2015 the estimated fair values of the success payment liabilities on the consolidated balance sheets after giving effect to the success payments achieved by FHCRC and MSK were $33.8 million and $31.0 million related to FHCRC and MSK, respectively.

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

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

If we, our CROs or our CMOs use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by us or third parties, such as CROs and CMOs. We and such third parties are subject to federal, state, and local laws and regulations in the United States governing the use, manufacture, storage, handling, and disposal of medical and hazardous materials. Although we believe that our and such third parties’ procedures for using, handling, storing, and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state, or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition, or results of operations.

Our internal computer systems, or those used by our third-party research institution collaborators, CROs or other contractors or consultants, may fail or suffer security breaches.

Despite the implementation of security measures, our internal computer systems and those of our future CROs and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. Although to our knowledge we have not experienced any such material system failure or security breach to date,

 

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if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on our third-party research institution collaborators for research and development of our product candidates and other third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed.

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations, and those of our third-party research institution collaborators, CROs, CMOs, suppliers, and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. Our headquarters and our Juno-operated manufacturing facility are both located in King County, Washington, and therefore could both be similarly affected by the same event. In addition, we rely on our third-party research institution collaborators for conducting research and development of our product candidates, and they may be affected by government shutdowns or withdrawn funding. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers in part to produce and process our product candidates or to supply us with certain reagents or specialized equipment or materials used our manufacturing process. Our ability to obtain clinical or commercial supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. Damage or extended periods of interruption to our corporate, development, research, or manufacturing facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry or other events could cause us to cease or delay development of some or all of our product candidates. Although we maintain property damage and business interruption insurance coverage, our insurance might not cover all losses under such circumstances and our business may be seriously harmed by such delays and interruption.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

    decreased demand for our products;

 

    injury to our reputation;

 

    withdrawal of clinical trial participants and inability to continue clinical trials;

 

    initiation of investigations by regulators;

 

    costs to defend the related litigation;

 

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    a diversion of management’s time and our resources;

 

    substantial monetary awards to trial participants or patients;

 

    product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

    loss of revenue;

 

    exhaustion of any available insurance and our capital resources;

 

    the inability to commercialize any product candidate; and

 

    a decline in our share price.

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with collaborators. Although we currently carry $10.0 million of clinical trial insurance, the amount of such insurance coverage may not be adequate, we may be unable to maintain such insurance, or we may not be able to obtain additional or replacement insurance at a reasonable cost, if at all. Our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2015, we had U.S. federal net operating loss carryforwards of approximately $167.3 million, which will begin to expire in 2033. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50-percentage- point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change taxable income or taxes may be limited. As a result of our transactions that have occurred since our incorporation in August 2013, including our initial public offering, we may have experienced such an “ownership change.” We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which changes are outside our control. As a result, our ability to use our pre-change net operating loss carryforwards and other pre-change tax attributes to offset post-change taxable income or taxes may be subject to limitation.

Risks Related to Government Regulation

The FDA regulatory approval process is lengthy, time-consuming, and inherently unpredictable, and we may experience significant delays in the clinical development and regulatory approval, if any, of our product candidates.

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing, and distribution of drug products, including biologics, are subject to extensive regulation by the FDA and other regulatory authorities in the United States. We are not permitted to market any biological drug product in the United States until we receive a Biologics License from the FDA. We have not previously submitted a BLA to the FDA, or similar approval filings to comparable foreign authorities. A BLA must include extensive preclinical and clinical data and supporting information to establish that the product candidate is safe, pure, and potent for each desired indication. The BLA must also include significant information regarding the chemistry, manufacturing, and controls for the product, and the manufacturing facilities must complete a successful pre-license inspection. We expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. For example, the FDA has limited experience with commercial development of genetically-modified T cell

 

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therapies for cancer. The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support licensure. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain licensure of the product candidates based on the completed clinical trials. Accordingly, the regulatory approval pathway for our product candidates may be uncertain, complex, expensive, and lengthy, and approval may not be obtained.

In addition, clinical trials can be delayed or terminated for a variety of reasons, including delays or failures related to:

 

    obtaining regulatory approval to begin a trial, if applicable;

 

    the availability of financial resources to begin and complete the trials;

 

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

 

    obtaining approval at each clinical trial site by an independent IRB;

 

    recruiting suitable patients to participate in a trial in a timely manner;

 

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

 

    clinical trial sites deviating from trial protocol, not complying with GCPs, or dropping out of a trial;

 

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

 

    addressing any conflicts with new or existing laws or regulations;

 

    adding new clinical trial sites; or

 

    manufacturing qualified materials under cGMPs for use in clinical trials.

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors. See the risk factor above “—If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected” for additional information on risks related to patient enrollment. Further, a clinical trial may be suspended or terminated by us, the IRBs for the institutions in which such trials are being conducted, the data safety monitoring board for such trial, or the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Some studies, including our Phase II trial for JCAR015, also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue.

Our third-party research institution collaborators may also experience similar difficulties in completing ongoing clinical trials and conducting future clinical trials of product candidates. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

 

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Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials as clinical studies conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

If our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post- marketing studies, and submission of safety, efficacy, and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements, including ensuring that quality control and manufacturing procedures conform to cGMP, and in certain cases Good Tissue Practices regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any BLA, other marketing application, and previous responses to inspectional observations. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control.

Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a REMS program as a condition of approval of our product candidates, which could entail requirements for long-term patient follow-up, a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, we will have to comply with requirements including submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval.

The FDA may impose consent decrees or withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of

 

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previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

 

    restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

    fines, warning letters, or holds on clinical trials;

 

    refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;

 

    product seizure or detention, or refusal to permit the import or export of our product candidates; and

 

    injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. The policies of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

In addition, if we were able to obtain accelerated approval of any of our CD19 product candidates, the FDA would require us to conduct a confirmatory study to verify the predicted clinical benefit and additional safety studies. The results from the confirmatory study may not support the clinical benefit, which would result in the approval being withdrawn. While operating under accelerated approval, we will be subject to certain restrictions that we would not be subject to upon receiving regular approval.

Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance among physicians, patients, hospitals, cancer treatment centers, and others in the medical community.

The use of engineered T cells as a potential cancer treatment is a recent development and may not become broadly accepted by physicians, patients, hospitals, cancer treatment centers, and others in the medical community. We expect physicians in the large bone marrow transplant centers to be particularly influential, and we may not be able to convince them to use our product candidates for many reasons. For example, certain of the product candidates that we will be developing target a cell surface marker that may be present on cancer cells as well as non-cancerous cells. It is possible that our product candidates may kill these non-cancerous cells, which may result in unacceptable side effects, including death. Additional factors will influence whether our product candidates are accepted in the market, including:

 

    the clinical indications for which our product candidates are approved;

 

    physicians, hospitals, cancer treatment centers, and patients considering our product candidates as a safe and effective treatment;

 

    the potential and perceived advantages of our product candidates over alternative treatments;

 

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    the prevalence and severity of any side effects;

 

    product labeling or product insert requirements of the FDA or other regulatory authorities;

 

    limitations or warnings contained in the labeling approved by the FDA;

 

    the timing of market introduction of our product candidates as well as competitive products;

 

    the cost of treatment in relation to alternative treatments;

 

    the amount of upfront costs or training required for physicians to administer our product candidates;

 

    the availability of adequate coverage, reimbursement, and pricing by third-party payors and government authorities;

 

    the willingness of patients to pay out-of-pocket in the absence of coverage and reimbursement by third-party payors and government authorities;

 

    relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and

 

    the effectiveness of our sales and marketing efforts.

In addition, although we are not utilizing embryonic stem cells or replication competent vectors, adverse publicity due to the ethical and social controversies surrounding the therapeutic use of such technologies, and reported side effects from any clinical trials using these technologies or the failure of such trials to demonstrate that these therapies are safe and effective may limit market acceptance our product candidates. If our product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals, cancer treatment centers or others in the medical community, we will not be able to generate significant revenue.

Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.

Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.

Successful sales of our product candidates, if approved, depend on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our product candidates represent new approaches to the treatment of cancer, we cannot accurately estimate the potential revenue from our product candidates.

Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, commercial payors, and integrated delivery networks are critical to new product acceptance.

Government authorities and third-party payors, such as private health insurers, health maintenance organizations, and integrated delivery networks decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

 

    a covered benefit under its health plan;

 

    safe, effective and medically necessary;

 

    appropriate for the specific patient;

 

    cost-effective; and

 

    neither experimental nor investigational.

 

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In the United States, no uniform policy of coverage and reimbursement for products exists among third- party payors. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of our genetically modified products. Patients are unlikely to use our product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates. Because our product candidates have a higher cost of goods than conventional therapies, and may require long- term follow up evaluations, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater.

We intend to seek approval to market our product candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the EU, the pricing of biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our product candidates and may be affected by existing and future health care reform measures.

Healthcare legislative reform measures, or public focus on product pricing, may have a material adverse effect on our business and results of operations.

Third-party payors, whether domestic or foreign, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, in 2010, the Affordable Care Act was enacted, which, among other things, subjected biologic products to potential competition by lower-cost biosimilars, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription drugs, and provided incentives to programs that increase the federal government’s comparative effectiveness research.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013, and, due to subsequent legislative amendments, will remain in effect through 2025 unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012, was signed into law, which, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.

 

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For instance, there have recently been public hearings in the U.S. Congress concerning pharmaceutical product pricing. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

 

    the demand for our product candidates, if we obtain regulatory approval;

 

    our ability to set a price that we believe is fair for our products;

 

    our ability to generate revenue and achieve or maintain profitability;

 

    the level of taxes that we are required to pay; and

 

    the availability of capital.

Any denial in coverage or reduction in reimbursement from Medicare or other government programs may result in a similar denial or reduction in payments from private payors, which may adversely affect our future profitability.

There has also been, and may in the future be, public attention on product pricing, and that may result in political, interest group, or media criticism of companies whose pricing or potential pricing is perceived by the public as high. If we were to become subject to such criticism, it could harm our reputation, create adverse publicity, and impact our relationships with our suppliers, collaborators, medical providers, and patients, each which could adversely affect our business and results of operations.

Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of fraud, misconduct or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the laws of the FDA and other similar foreign regulatory bodies; provide true, complete and accurate information to the FDA and other similar foreign regulatory bodies; comply with manufacturing standards we have established; comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval of any of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices.

These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

 

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We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, physician payment transparency laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

 

    the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

 

    federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other third-party payors that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of these statutes or specific intent to violate them in order to have committed a violation;

 

    the federal Health Insurance Portability and Accountability Act of 1996, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;

 

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization;

 

    the federal Physician Payment Sunshine Act, created under the Affordable Care Act, and its implementing regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to the U.S. Department of Health and Human Services, information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and

 

    federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.

 

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Additionally, we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may be broader in scope and may apply regardless of the payor.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

Risks Related to Intellectual Property

We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

We are dependent on patents, know-how, and proprietary technology, both our own and licensed from others. Any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our product candidates. See the section captioned “Licenses and Third-Party Collaborations” in Part I—Item 1—“Business” of this report for additional information regarding our license agreements.

Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including those relating to:

 

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

 

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

 

    our right to sublicense patent and other rights to third parties under collaborative development relationships;

 

    whether we are complying with our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates; and

 

    the allocation of ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and by us and our partners.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. We are generally also subject to all of the same risks with respect to protection of intellectual property that we license as we are for intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize our products could suffer.

 

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We depend, in part, on our licensors to file, prosecute, maintain, defend, and enforce patents and patent applications that are material to our business.

Patents relating to our product candidates are controlled by certain of our licensors. Each of our licensors generally has rights to file, prosecute, maintain, and defend the patents we have licensed from such licensor. We generally have the first right to enforce our patent rights, although our ability to settle such claims often requires the consent of the licensor. If our licensors or any future licensees having rights to file, prosecute, maintain, and defend our patent rights fail to conduct these activities for patents or patent applications covering any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using, or selling competing products. We cannot be certain that such activities by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. Pursuant to the terms of the license agreements with some of our licensors, the licensors may have the right to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents and, even if we are permitted to pursue such enforcement or defense, we cannot ensure the cooperation of our licensors. We cannot be certain that our licensors will allocate sufficient resources or prioritize their or our enforcement of such patents or defense of such claims to protect our interests in the licensed patents. Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent us from continuing to license intellectual property that we may need to operate our business. In addition, even when we have the right to control patent prosecution of licensed patents and patent applications, enforcement of licensed patents, or defense of claims asserting the invalidity of those patents, we may still be adversely affected or prejudiced by actions or inactions of our licensors and their counsel that took place prior to or after our assuming control.

We may not be successful in obtaining or maintaining necessary rights to product components and processes for our product development pipeline.

We own or license from third parties certain intellectual property rights necessary to develop our product candidates. The growth of our business will likely depend in part on our ability to acquire or in-license additional proprietary rights. For example, our programs may involve additional product candidates that may require the use of additional proprietary rights held by third parties. Our product candidates may also require specific formulations to work effectively and efficiently. These formulations may be covered by intellectual property rights held by others. We may be unable to acquire or in-license any relevant third-party intellectual property rights that we identify as necessary or important to our business operations. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all, which would harm our business. We may need to cease use of the compositions or methods covered by such third-party intellectual property rights, and may need to seek to develop alternative approaches that do not infringe on such intellectual property rights which may entail additional costs and development delays, even if we were able to develop such alternatives, which may not be feasible. Even if we are able to obtain a license under such intellectual property rights, any such license may be non-exclusive, which may allow our competitors access to the same technologies licensed to us.

Additionally, we sometimes collaborate with academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our program. If we are unable to successfully obtain rights to required third-party intellectual property or to maintain the existing intellectual property rights we have, we may have to abandon development of such program and our business and financial condition could suffer.

The licensing and acquisition of third-party intellectual property rights is a competitive practice, and companies that may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to

 

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commercialize our product candidates. More established companies may have a competitive advantage over us due to their larger size and cash resources or greater clinical development and commercialization capabilities. There can be no assurance that we will be able to successfully complete such negotiations and ultimately acquire the rights to the intellectual property surrounding the additional product candidates that we may seek to acquire.

We are dependent on intellectual property sublicensed to us by Opus Bio from the NIH for development of JCAR018. Failure to meet our own obligations to Opus Bio and the NIH may result in the loss of our rights to such intellectual property, which could harm our business.

Under our license agreement with Opus Bio, we are obligated to make certain pass-through payments to the NIH as well as to meet certain development benchmarks within certain time periods. We may be unable to make these payments or meet these benchmarks or may breach our other obligations under this license agreement, which could lead to the termination of the license agreement.

In addition, the NIH has the right to require us to grant mandatory sublicenses to the intellectual property licensed from the NIH under certain specified circumstances, including if it is necessary to meet health and safety needs that we are not reasonably satisfying or if it is necessary to meet requirements for public use specified by federal regulations. Any required sublicense of these licenses could result in the loss of significant rights and could harm our ability to commercialize licensed products.

We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our products or product candidates.

We anticipate that we will file additional patent applications both in the United States and in other countries, as appropriate. However, we cannot predict:

 

    if and when any patents will issue;

 

    the degree and range of protection any issued patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents;

 

    whether others will apply for or obtain patents claiming aspects similar to those covered by our patents and patent applications; or

 

    whether we will need to initiate litigation or administrative proceedings to defend our patent rights, which may be costly whether we win or lose.

Composition of matter patents for biological and pharmaceutical products such as CAR or TCR product candidates are generally considered to be the strongest form of intellectual property protection for those types of products, as such patents provide protection without regard to any method of use. We cannot be certain, however, that the claims in our pending patent applications covering the composition of matter of our product candidates will be considered patentable by the United States Patent and Trademark Office (“USPTO”), or by patent offices in foreign countries, or that the claims in any of our issued patents will be considered valid and enforceable by courts in the United States or foreign countries. Method of use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label” for those uses that are covered by our method of use patents. Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or prosecute.

The strength of patents in the biotechnology and pharmaceutical field can be uncertain, and evaluating the scope of such patents involves complex legal and scientific analyses. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the

 

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validity, enforceability, or scope thereof, which may result in such patents being narrowed, invalidated, or held unenforceable. For example, on August 13, 2015, Kite Pharma filed a petition with the USPTO for inter partes review of U.S. Patent No. 7,446,190, a patent that we have exclusively licensed from MSK. If Kite Pharma is successful in the resulting proceedings at the USPTO, the patent could be narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing their products to avoid being covered by our claims. If the breadth or strength of protection provided by the patent applications we hold with respect to our product candidates is threatened, this could dissuade companies from collaborating with us to develop, and could threaten our ability to commercialize, our product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. Because patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates. Furthermore, for U.S. applications in which all claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third party or instituted by the USPTO to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. For U.S. applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law in view of the passage of the America Invents Act, which brought into effect significant changes to the U.S. patent laws, including new procedures for challenging pending patent applications and issued patents.

Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information.

In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce, and any other elements of our product discovery and development processes that involve proprietary know-how, information, or technology that is not covered by patents. Trade secrets, however, may be difficult to protect. We seek to protect our proprietary processes, in part, by entering into confidentiality agreements with our employees, consultants, outside scientific advisors, contractors, and collaborators. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, outside scientific advisors, contractors, and collaborators might intentionally or inadvertently disclose our trade secret information to competitors. In addition, competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, or misappropriation of our intellectual property by third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results, and financial condition.

Third-party claims of intellectual property infringement against us or our collaborators may prevent or delay our product discovery and development efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented. As stated above, this reform adds uncertainty to the possibility of challenge to our patents in the future.

Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries

 

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expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others.

Although we have conducted analyses of the patent landscape with respect to our CD19 product candidates, and based on these analyses, we believe that we will be able to commercialize our CD19 product candidates, third parties may nonetheless assert that we infringe their patents, or that we are otherwise employing their proprietary technology without authorization, and may sue us. For instance, Novartis Pharmaceutical Corporation has asserted in writing its belief that we infringe the following patents controlled by Novartis Pharmaceutical Corporation: U.S. Patent Nos. 7,408,053, 7,205,101, 7,527,925, and 7,442,525. There may be third-party patents of which we are currently unaware with claims to compositions, formulations, methods of manufacture, or methods of use or treatment that cover our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies or the manufacture, use, or sale of our product candidates infringes upon these patents. If any such third-party patents were held by a court of competent jurisdiction to cover our technologies or product candidates, the holders of any such patents may be able to block our ability to commercialize the applicable product candidate unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.

Third parties asserting their patent rights against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and may impact our reputation. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties, or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business significantly.

We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the world.

We have limited intellectual property rights outside the United States, and, in particular, some of our patents directed to CAR constructs do not extend outside of the United States. Filing, prosecuting, maintaining and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can have a different scope and strength than do those in the United States. In addition, the laws of some foreign countries, such as China, Brazil, Russia, India, and South Africa, do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement rights are not as strong as those in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or adequate to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, such as China, Brazil, Russia, India, and South Africa, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those

 

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relating to biopharmaceutical products, which could make it difficult in those jurisdictions for us to stop the infringement or misappropriation of our patents or other intellectual property rights, or the marketing of competing products in violation of our proprietary rights. Proceedings to enforce our patent and other intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Furthermore such proceedings could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly, could put our patent applications at risk of not issuing, and could provoke third parties to assert claims of infringement or misappropriation against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming, and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To cease such infringement or unauthorized use, we may be required to file patent infringement claims, which can be expensive and time- consuming. In addition, in an infringement proceeding or a declaratory judgment action against us, a court may decide that one or more of our patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceeding could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.

Interference or derivation proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of inventions with respect to, or the correct inventorship of, our patents or patent applications or those of our licensors. An unfavorable outcome could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation, interference, or derivation proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court or before the USPTO or comparable foreign authority.

If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re- examination, inter partes review, post-grant review, and equivalent proceedings in foreign jurisdictions, such as opposition or derivation proceedings. Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover and protect our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity of our patents, for example, we

 

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cannot be certain that there is no invalidating prior art of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves, both technological and legal complexity, and is therefore costly, time-consuming, and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. For example, in Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to naturally-occurring substances are not patentable. Although we do not believe that any of the patents owned or licensed by us will be found invalid based on this decision, we cannot predict how future decisions by the courts, the U.S. Congress, or the USPTO may impact the value of our patents.

We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.

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

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. Although an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. In any such event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

The lives of our patents may not be sufficient to effectively protect our products and business.

Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its first effective filing date. Although various extensions may be available, the life of a patent, and the protection

 

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it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from biosimilar or generic medications. Our issued patents will expire on dates ranging from 2019 to 2031, subject to any patent extensions that may be available for such patents. If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates ranging from 2021 to 2037. In addition, although upon issuance in the United States a patent’s life can be increased based on certain delays caused by the USPTO, this increase can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. If we do not have sufficient patent life to protect our products, our business and results of operations will be adversely affected.

We may face competition from biosimilars, which may have a material adverse impact on the future commercial prospects of our product candidates.

Even if we are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors, we may face competition from biosimilars. In the United States, the Biologics Price Competition and Innovation Act of 2009 created an abbreviated approval pathway for biological products that are demonstrated to be “highly similar,” or biosimilar, to or “interchangeable” with an FDA-approved biological product. This new pathway could allow competitors to reference data from innovative biological products 12 years after the time of approval of the innovative biological product. This data exclusivity does not prevent another company from developing a product that is highly similar to the innovative product, generating its own data, and seeking approval. Data exclusivity only assures that another company cannot rely upon the data within the innovator’s application to support the biosimilar product’s approval. In his proposed budget for fiscal year 2014, President Obama proposed to cut this 12-year period of exclusivity down to seven years. He also proposed to prohibit additional periods of exclusivity due to minor changes in product formulations, a practice often referred to as “evergreening.” It is possible that Congress may take these or other measures to reduce or eliminate periods of exclusivity. The Biologics Price Competition and Innovation Act of 2009 is complex and only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning is subject to uncertainty. Although it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our product candidates.

In Europe, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In Europe, a competitor may reference data supporting approval of an innovative biological product, but will not be able to get it on the market until 10 years after the time of approval of the innovative product. This 10-year marketing exclusivity period will be extended to 11 years if, during the first eight of those 10 years, the marketing authorization holder obtains an approval for one or more new therapeutic indications that bring significant clinical benefits compared with existing therapies. In addition, companies may be developing biosimilars in other countries that could compete with our products.

If competitors are able to obtain marketing approval for biosimilars referencing our products, our products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences.

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

Although we are not currently experiencing any claims challenging the inventorship of our patents or ownership of our intellectual property, we may in the future be subject to claims that former employees, collaborators, or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

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Risks Related to Our Common Stock

We expect that our stock price will fluctuate significantly.

The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this report, these factors include:

 

    adverse results or delays in the clinical trials of our product candidates or any future clinical trials we may conduct, or changes in the development status of our product candidates;

 

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

 

    regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products, including clinical trial requirements for approvals;

 

    our inability to obtain or delays in obtaining adequate product supply for any approved product or inability to do so at acceptable prices;

 

    any failure to commercialize our product candidates or if the size and growth of the markets we intend to target fail to meet expectations;

 

    additions or departures of key scientific or management personnel;

 

    unanticipated serious safety concerns related to cancer immunology or the use of our product candidates;

 

    introductions or announcements of new products offered by us or significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our collaborators or our competitors and the timing of such introductions or announcements;

 

    announcements relating to future collaborations or our existing collaboration with Celgene, including decisions regarding the exercise by Celgene or us of any of our or their options thereunder, or any exercise or non-exercise by Celgene of a right to purchase shares of our common stock;

 

    our ability to effectively manage our growth;

 

    our ability to successfully treat additional types of cancers or at different stages;

 

    changes in the structure of healthcare payment systems;

 

    our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;

 

    publication of research reports about us or our industry, or immunotherapy in particular, or positive or negative recommendations or withdrawal of research coverage by securities analysts;

 

    market conditions in the pharmaceutical and biotechnology sectors or the economy generally;

 

    our ability or inability to raise additional capital through the issuance of equity or debt or collaboration arrangements and the terms on which we raise it;

 

    trading volume of our common stock;

 

    disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; and

 

    significant lawsuits, including patent or stockholder litigation.

 

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The stock market in general, and market prices for the securities of biopharmaceutical companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In several recent situations when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

An active trading market for our common stock may not be sustained.

Prior to our initial public offering in December 2014, there was no public market for our common stock. Although our common stock is listed on The NASDAQ Global Select Market, the market for our shares has demonstrated varying levels of trading activity. Furthermore, an active trading market may not be sustained in the future. The lack of an active market may impair investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the market value of their shares and may impair our ability to raise capital.

If securities or industry analysts do not publish research reports about our business, or if they issue an adverse opinion about our business, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us issues an adverse opinion about our company, our stock price would likely decline. If one or more of these analysts ceases research coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Future sales of our common stock in the public market could cause our stock price to fall.

Our stock price could decline as a result of sales of a large number of shares of our common stock or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

As of December 31, 2015, we had 102,400,503 shares of common stock outstanding, including 5,153,445 shares of restricted stock that remained subject to vesting requirements. In connection with the sale of shares to Celgene, all 9,137,672 shares acquired by Celgene on August 4, 2015, representing 9.1% of our common stock outstanding as of the date of issuance (after giving effect to such issuance), are subject to a market standoff agreement for 364 days from the date of acquisition. Any subsequent acquisitions of shares of our common stock by Celgene will commence another 364 day market standoff period, subject to certain exceptions.

We have also registered the offer and sale of all shares of common stock that we may issue under our equity compensation plans, including upon the exercise of stock options. These shares can be freely sold in the public market upon issuance.

As of December 31, 2015, the holders of as many as 37.3 million shares, or 36.4% of our common stock outstanding as of December 31, 2015, have rights, subject to some conditions, under the investor rights agreement with such holders to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Once we register the offer and sale of shares for the holders of registration rights, they can be freely sold in the public market. In connection with the collaboration agreement with Celgene, we have also entered into a registration rights agreement, pursuant to which upon the written request of Celgene at certain times and subject to the

 

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satisfaction of certain conditions, we have agreed to prepare and file with the SEC a registration statement on Form S-3 for purposes of registering the resale of the shares specified in Celgene’s written request or, if we are not at such time eligible for the use of Form S-3, use commercially reasonable efforts to prepare and file a registration statement on a Form S-1 or alternative form that permits the resale of the shares.

In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise, including up to 30% of shares of our outstanding common stock to Celgene. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline.

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

Our executive officers, directors and our 10% or greater stockholders, together with their respective affiliates, beneficially owned approximately 51.4% of our capital stock as of December 31, 2015, excluding shares underlying outstanding options. Accordingly, such persons and entities, if they acted together, would be able to determine the composition of the board of directors, retain the voting power to approve many matters requiring stockholder approval, including mergers and other business combinations, and continue to have significant influence over our operations. In addition, other than in connection with a change of control, in any vote or action by written consent of our stockholders, including, without limitation, with respect to the election of directors, Celgene has agreed to vote or execute a written consent with respect to all of our voting securities held by Celgene in accordance with the recommendation of our board of directors, limiting the ability of Celgene to contrary to our board of directors that you otherwise may believe is in your best interest as our stockholder. This concentration of ownership amongst our significant holders, including Celgene, could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us that you may believe are in your best interests as one of our stockholders. This in turn could have a material adverse effect on our stock price and may prevent attempts by our stockholders to replace or remove the board of directors or management.

In connection with the entry into the Celgene collaboration agreement, Celgene acquired 9.1% of our outstanding shares of common stock and subject to certain conditions, may purchase additional shares annually to obtain and maintain a 10% ownership percentage through June 29, 2020. Furthermore, between June 29, 2019 and June 29, 2025 and between June 29, 2024 and the expiration of the collaboration agreement, subject to certain conditions, Celgene has the option to acquire and maintain an ownership of up to 19.99% and up to 30%, respectively, of our then outstanding shares of common stock. We have also entered into a voting and standstill agreement with Celgene, pursuant to which we have agreed to give Celgene certain board designation rights until at least June 29, 2020, and thereafter for as long as Celgene and its affiliates beneficially own at least 7.5% of the voting power of our outstanding shares. As a result of the concentration of ownership, Celgene could have the ability to delay or prevent a change in our control or otherwise discourage a potential acquirer from attempting to obtain control of us that you may believe are in your best interests as our stockholder.

Anti-takeover provisions in our charter documents and under Delaware or Washington law could make an acquisition of us difficult, limit attempts by our stockholders to replace or remove our current management and adversely affect our stock price.

Provisions of our certificate of incorporation and bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our stock. Among other things, the certificate of incorporation and bylaws will:

 

    permit the board of directors to issue up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate;

 

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    provide that the authorized number of directors may be changed only by resolution of the board of directors;

 

    provide that all vacancies, including newly-created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

 

    divide the board of directors into three classes;

 

    provide that a director may only be removed from the board of directors by the stockholders for cause;

 

    require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be taken by written consent;

 

    provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and meet specific requirements as to the form and content of a stockholder’s notice;

 

    prevent cumulative voting rights (therefore allowing the holders of a plurality of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose);

 

    require that, to the fullest extent permitted by law, a stockholder reimburse us for all fees, costs and expenses incurred by us in connection with a proceeding initiated by such stockholder in which such stockholder does not obtain a judgment on the merits that substantially achieves the full remedy sought;

 

    provide that special meetings of our stockholders may be called only by the chairman of the board, our chief executive officer (or president, in the absence of a chief executive officer) or by the board of directors; and

 

    provide that stockholders will be permitted to amend the bylaws only upon receiving at least two- thirds of the total votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.

Furthermore, pursuant to the voting and standstill agreement with Celgene, until the later of the fifth anniversary of the date of such agreement and the expiration or earlier termination of our collaboration agreement with Celgene, it will be bound by certain “standstill” provisions which generally will prevent it from purchasing outstanding shares of our common stock, making a tender offer or encouraging or supporting a third party tender offer, nominating a director whose nomination has not been approved by our board of directors, soliciting proxies in opposition to the recommendation of our board of directors or assisting a third party in taking such actions, entering into discussions with a third party as to such actions, or requesting or proposing in writing to our board of directors or any member thereof that we amend or waive any of these limitations. As a result, the ability of Celgene to act in contrary to our board of directors is severely limited and any attempts by Celgene to acquire us or encourage a third party to acquire us are prohibited by this voting and standstill agreement. In addition, subject to certain exceptions—including a vote in connection with a change in control of our company—Celgene has agreed to vote or execute a written consent with respect to all of our voting securities held by Celgene in accordance with the recommendation of our board of directors, limiting the ability of Celgene to contrary to our board of directors that you otherwise may believe is in your best interest as our stockholder.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Likewise, because our principal executive offices are located in Washington, the anti-takeover provisions of the Washington Business Corporation Act may apply to us under certain circumstances now or in the future. These provisions prohibit a “target corporation”

 

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from engaging in any of a broad range of business combinations with any stockholder constituting an “acquiring person” for a period of five years following the date on which the stockholder became an “acquiring person.”

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

Complying with the laws and regulations affecting public companies has increased and will increase our costs and the demands on management and could harm our operating results.

As a public company, we will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We also anticipate that we will incur costs associated with relatively recently adopted corporate governance requirements, including requirements of the SEC and NASDAQ. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

Starting January 1, 2016, we are no longer an “emerging growth company” and we will no longer be able to avail ourselves of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” For example, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. Section 404 of the Sarbanes-Oxley Act (“Section 404”) requires us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. We previously availed ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, beginning on January 1, 2016, we are no longer avail ourselves of this exemption. Our independent registered public accounting firm is now required to undertake an assessment of our internal control over financial reporting, and as a result the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in

 

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our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an adverse opinion on our internal control over financial reporting from our independent registered public accounting firm.

Our management team has broad discretion to use the net proceeds from the initial payments to us under our collaboration agreement with Celgene and from the sale of our shares to Celgene and its investment of these proceeds may not yield a favorable return. We may invest the proceeds of the Celgene transaction and any remaining proceeds from our initial public offering in December 2014 in ways with which investors disagree.

Our management has broad discretion over the use of proceeds from the initial payments to us under our collaboration agreement with Celgene and from the sale of our shares to Celgene, as well as any remaining proceeds from our December 2014 initial public offering, and we could spend the proceeds from these transactions in ways our stockholders may not agree with or that do not yield a favorable return, if at all. In addition, until the proceeds are used, they may be placed in investments that do not produce significant income or that may lose value. If we do not invest or apply the proceeds in ways that improve our operating results, we may fail to achieve expected financial results, which could cause our stock price to decline.

 

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2. PROPERTIES

The following table summarizes the facilities we lease as of December 31, 2015, including the location and size of the facilities, and their designated use.

 

Location

   Approximate Square Feet   

Operation

  

Lease Expiration Dates

Seattle, Washington    70,800    Administrative, Clinical, Commercial, Process Development, Quality, Regulatory, Research    April 2017 – July 2017
Bothell, Washington    67,800    Manufacturing    March 2025
Waltham, Massachusetts    3,500    Research    September 2016
Munich, Germany    17,600    Manufacturing, Process Development, Research    September 2025
Göttingen, Germany    700    Administrative, Research    December 2017

The foregoing table does not reflect two additional leases that we have entered into, but for which the lease term has not yet commenced. The first is a lease for approximately 161,400 square feet of office and laboratory space in a to-be-constructed building located in Seattle, Washington. The anticipated commencement date of the lease is in or about April 2017 with an initial term of 84 months. We intend for this space to serve as our corporate headquarters. The second is a lease for approximately 20,100 square feet of office and laboratory space located in Waltham, Massachusetts with a commencement date of June 2016 and an initial term of 120 months.

We believe that our existing facilities are adequate for our near-term needs, but expect to need additional space as we grow and expand our operations. We believe that suitable additional or alternative office, laboratory, and manufacturing space would be available as required in the future on commercially reasonable terms.

 

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in litigation or proceedings relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.

In August 2015, Kite Pharma filed a petition with the USPTO for inter partes review of U.S. Patent No. 7,446,190, a patent that we have exclusively licensed from MSK. In February 2016, the USPTO determined to initiate the inter partes review proceedings, in Kite Pharma, Inc. v. Sloan Kettering Institute for Cancer Research, Case IPR2015-01719. As the exclusive licensor, we have opted to exercise our right to control the defense of the patent in the proceedings. We will incur expenses associated with this defense, which expenses may be substantial. If we are unsuccessful, the patent could be narrowed or invalidated, but we do not expect that this would have a material adverse effect on our business.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock has been listed on The NASDAQ Global Select Market under the symbol “JUNO” since December 19, 2014. Prior to that date, there was no public trading market for our common stock. The following table sets forth the high and low intraday sales price per share of our common stock as reported on The NASDAQ Global Select Market for the period indicated:

 

     High      Low  

Year Ended December 31, 2015

     

First Quarter 2015

   $ 64.55       $ 38.00   

Second Quarter 2015

   $ 69.28       $ 40.60   

Third Quarter 2015

   $ 56.29       $ 33.00   

Fourth Quarter 2015

   $ 57.82       $ 39.36   

Year Ended December 31, 2014

     

Fourth Quarter (from December 19, 2014)

   $ 56.50       $ 34.71   

Holders of Common Stock

As of February 18, 2016, there were 139 holders of record of our common stock.

Dividend Policy

We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will retain all available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future. In addition, future debt instruments may materially restrict our ability to pay dividends on our common stock. Payment of future cash dividends, if any, will be at the discretion of the board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, the requirements of current or then-existing debt instruments and other factors the board of directors deems relevant.

Performance Graph

This graph is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of Juno Therapeutics, Inc. under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

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The following graph shows the total stockholder return of an investment of $100 in cash at market close on December 19, 2014 (the first day of trading of our common stock) through December 31, 2015 for (1) our common stock, (2) the NASDAQ Composite Index (U.S.) and (3) the NASDAQ Biotechnology Index. Pursuant to applicable Securities and Exchange Commission rules, all values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our common stock to date. The stockholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.

 

LOGO

 

     12/19/2014      12/31/2014      12/31/2015  

Juno Therapeutics, Inc

     100.00         149.20         125.63   

NASDAQ Composite

     100.00         98.81         104.66   

NASDAQ Biotechnology

     100.00         99.34         105.20   

Recent Sales of Unregistered Securities

We did not sell any unregistered securities during the year ended December 31, 2015 other than those sales that have previously been disclosed in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

Use of Proceeds from Registered Securities

On December 23, 2014, we closed our initial public offering, in which we sold an aggregate of 12,676,354 shares of common stock at a price to the public of $24.00 per share. The offer and sale of all of the shares in the initial

 

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public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-200293), which was declared effective by the SEC on December 18, 2014 (the “Registration Statement”), and a registration statement on Form S-1 (File No. 333-201062), which became effective immediately upon filing with the SEC on December 18, 2014.

There has been no material change in the planned use of proceeds from our initial public offering as described in the Registration Statement. We invested the funds received in short-term, interest-bearing investment-grade securities and government securities. As of December 31, 2015, we have used approximately $217.9 million of the net proceeds from the IPO primarily to fund the costs to advance JCAR015 through a Phase II clinical trial, to advance JCAR017 through a Phase I clinical trial and into a potential registration trial in relapsed/refractory NHL, to further develop additional product candidates, to expand our internal research and development capabilities, to establish manufacturing capabilities, to acquire, license and invest in complementary products, technologies and businesses, and other general corporate purposes. None of the offering proceeds were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10.0% or more of any class of our equity securities or to any other affiliates.

Issuer Purchases of Equity Securities

We did not repurchase any shares of our common stock during the fiscal quarter ended December 31, 2015.

 

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ITEM 6. SELECTED FINANCIAL DATA.

The selected statement of operations data for the years ended December 31, 2015 and 2014 and for the period from August 5, 2013 to December 31, 2013, and the selected balance sheet data as of December 31, 2015, 2014, and 2013 are derived from our audited consolidated financial statements included elsewhere in this report. Our cash provided by operations during the year ended December 31, 2015 was $7.3 million and we ended 2015 with $1.2 billion in cash, cash equivalents, and marketable securities. Cash used in operations during the year ended December 31, 2014 and during the period from August 5, 2013 to December 31, 2013 was $82.5 million and $30.5 million, respectively.

Included in net loss attributable to common stockholders in the year ended December 31, 2015 are non-cash expenses of an aggregate of $57.8 million related to the change in the estimated value and elapsed service period for our potential and actual success payment liabilities to FHCRC and MSK ($51.6 million) and stock-based compensation expense related to a former co-founding director who became a consultant upon his departure from the board of directors ($6.2 million). Included in net loss attributable to common stockholders in the year ended December 31, 2014 are non-cash expenses of an aggregate of $229.7 million related to the change in the estimated value and elapsed service period for our success payment liabilities to FHCRC and MSK ($84.9 million), non-cash deemed dividends recorded upon issuance of our convertible preferred stock ($67.5 million), the non-cash portion of an upfront fee to acquire technology from Opus Bio related to our CD22-directed product candidate JCAR018 ($64.1 million), changes in the fair value of our Series A and Series A-2 convertible preferred stock options ($10.7 million), and stock-based compensation expense related to a former co-founding director who became a consultant upon his departure from the board of directors ($2.5 million).

 

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Our historical results are not necessarily indicative of the results that may be expected in the future. Refer to the selected historical financial data below in conjunction with Part II—Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report and the audited consolidated financial statements and related notes included elsewhere in this report.

 

                 Period from
August 5, 2013 to
December 31, 2013
 
     Year Ended December 31,    
     2015     2014    
     (in thousands, except share and per share amounts)  

Consolidated statements of operations data:

      

Revenue

   $ 18,215      $ —        $ —     

Operating expenses:

      

Research and development (1)

     205,160        204,511        46,245   

General and administrative (2)

     51,130        19,529        4,238   

Litigation

     6,025        8,718        1,195   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     262,315        232,758        51,678   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (244,100     (232,758     (51,678

Interest income, net

     1,730        69        —     

Other income (expenses), net

     234        (10,718     (142
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (242,136     (243,407     (51,820

Benefit for income taxes

     2,760        —          —     
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (239,376   $ (243,407   $ (51,820
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders:

      

Net loss

   $ (239,376   $ (243,407   $ (51,820

Deemed dividends upon issuance of convertible preferred stock, non-cash

     —          (67,464     —     
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (239,376   $ (310,871   $ (51,820
  

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

   $ (2.72   $ (36.82   $ (14.16
  

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding, basic and diluted

     88,145,424        8,442,947        3,658,687   
  

 

 

   

 

 

   

 

 

 

 

(1) Research and development expense for the year ended December 31, 2015 includes non-cash expense of $51.6 million associated with our actual and potential success payment liability to FHCRC and MSK attributable to the change in the estimated value and elapsed service period, and $30.8 million associated with the acquisition of new technology. In December 2015, success payment obligations to FHCRC were triggered in the amount of $75.0 million less indirect cost offsets of $3.3 million and to MSK of $10.0 million less indirect cost offsets that will be determined at the time of payment in March 2016. We elected to make the payment to FHCRC in shares of our common stock, and thereby issued 1,601,085 shares of our common stock to FHCRC in December 2015. The success payment obligation to MSK is required to be paid on March 18, 2016, in cash or shares of our common stock at our election.

Research and development expense for the year ended December 31, 2014 includes non-cash expense of $84.9 million associated with the portion of the success payment liability to FHCRC and MSK attributable to the elapsed service period, $64.1 million for the non-cash portion of the upfront fee to acquire technology related to JCAR018, and $20.0 million for the cash portion of the upfront fee to acquire technology related to JCAR018.

 

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(2) General and administrative expense for the year ended December 31, 2015 includes $9.7 million of expenses related to the Celgene, Stage, X-Body and other business development transactions.

 

     As of December 31,  
     2015      2014      2013  
     (in thousands)  

Consolidated balance sheets data:

        

Cash, cash equivalents, and marketable securities

   $ 1,216,299       $ 474,051       $ 35,966   

Working capital

     832,111         338,642         25,007   

Total assets

     1,445,128         489,163         40,094   

Total liabilities

     303,595         100,631         11,193   

Common stock and additional paid-in capital

     1,733,273         734,903         8,138   

Accumulated deficit (1)

     (585,657      (346,281      (51,820

Total stockholders’ equity

   $ 1,141,533       $ 388,532       $ (43,682

 

(1) Accumulated deficit as of December 31, 2015 includes $51.1 million related to non-cash deemed dividends, $159.4 million in upfront fees to acquire technology, of which $85.5 million was paid in cash and $73.9 million was paid through the issuance of common stock, and non-cash expense of $136.5 million associated with the change in the estimated fair value and elapsed service period for our potential and actual success payment liability to FHCRC and MSK.

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties, as described in the section of this report captioned “Forward-Looking Statements and Market Data.” As a result of many factors, such as those set forth in Part I—Item 1A—“Risk Factors” of this report and elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are building a fully-integrated biopharmaceutical company focused on re-engaging the body’s immune system to revolutionize the treatment of cancer. Founded on the vision that the use of human cells as therapeutic entities will drive one of the next important phases in medicine, we are developing cell-based cancer immunotherapies based on our CAR and high-affinity TCR technologies to genetically engineer T cells to recognize and kill cancer cells. We have shown compelling clinical responses in clinical trials using multiple cell-based product candidates to address refractory B cell lymphomas and leukemias, and we also have a number of ongoing trials exploring our platform in solid-organ cancers and in combination with various strategies to overcome the immune-suppressive effects of cancer. Longer term, we aim to improve and leverage our cell-based platform to develop additional product candidates to address a broad range of cancers and human diseases, including moving forward our pre-clinical product candidates that target additional hematologic and solid-organ cancers.

In the third quarter of 2015, we began a Phase II trial of JCAR015 that could support accelerated U.S. regulatory approval in adult r/r B cell ALL as early as 2017. We also began a Phase I trial with JCAR017 in adult r/r aggressive B cell NHL, with the potential to move to a registration trial for that product candidate in 2016 or early 2017. We are continuing to enroll patients in an ongoing Phase I/II trial for JCAR014 in B cell malignancies, and although we do not plan to move JCAR014 into registration trials, we plan to use this trial to explore important questions that may improve our platform overall. To date, data from the JCAR014 trial have provided encouraging early insights on how to improve our efficacy and safety in patients with ALL, NHL, and CLL. The IND has cleared for and we plan to enroll patients through 2016 in a Phase Ib clinical trial combining JCAR014 with MedImmune’s investigational PD-L1 immune checkpoint inhibitor, durvalumab, for the treatment of adult r/r B cell NHL. We have also begun Phase I trials for five additional product candidates that target different cancer-associated proteins in hematological and solid organ cancers. We also expect to commence a Phase I trial through our collaborator MSK of a CD19/4-1BBL “armored” CAR in 2016 and a Phase I trial for one or both of CD19/CD40L and CD19/IL-12 “armored” CARs in 2016 or 2017.

We believe that the quality of our people will have a strong and positive impact on our ability to develop and capitalize on our technology. In that vein we have assembled a talented group of scientists, engineers, clinicians, directors, and other advisors who develop and consolidate technologies and intellectual property from some of the world’s leading research institutions, including FHCRC, MSK, SCRI, and the NCI. Our scientific founders and their institutions include world leaders in oncology, immunology, and cell therapy, and they actively contribute towards developing our product candidates and technologies. Collectively, these stakeholders share our commitment to bringing our product candidates to market and our vision of revolutionizing medicine through developing a broadly applicable cell-based platform. We have also entered into a number of strategic collaborations with commercial companies that we believe will help us manufacture and commercialize our product candidates around the world or develop additional or improved product candidates, including Celgene, Editas, Fate Therapeutics, and MedImmune.

We are devoting significant resources to optimizing process development and manufacturing. We believe that these efforts will lead to better product characterization, a more efficient production cycle, and greater flexibility

 

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in implementing enhancements to product candidates. In turn, these improvements may lead to a lower cost of manufacturing, streamlined regulatory reviews, greater convenience for patients and physicians, and better patient outcomes. We have used CMOs to provide speed, flexibility and limit upfront capital investment in manufacturing, and successfully brought a CMO on-line to manufacture JCAR015. We have also established a Juno-run manufacturing facility in Bothell, Washington. We plan to manufacture clinical trial material from this facility beginning in the first quarter of 2016, and commercial products, subject to the required regulatory approvals, beginning in 2017, with the goal of improving long-term margins and enabling more rapid implementation of innovative changes.

In June 2015 we entered into a ten-year, global collaboration agreement with Celgene Corporation for the development and commercialization of immunotherapies. In connection with this collaboration agreement, Celgene paid us a $150 million upfront payment, and under a Share Purchase Agreement, we sold Celgene 9,137,672 shares of our common stock for an aggregate cash price of approximately $850 million, or $93.00 per share.

We completed three business acquisitions in 2015 and early 2016 to augment our research and development capabilities and to improve our supply chain and long-term cost of goods.

In May 2015, we acquired Stage, a company focused on developing technology platforms, including novel reagents and automation technologies, that enable the development and production of cell therapeutics. The acquisition of Stage is intended to provide us access to transformative cell selection and activation capabilities, next generation manufacturing automation technologies, enhanced control of our supply chain, and lower expected long-term cost of goods.

In June 2015, we acquired X-Body, a company focused on the discovery of human monoclonal antibodies and discovery of TCR binding domains. The X-Body acquisition is intended to augment our capabilities to create best-in-class engineered T cells against a broad array of cancer targets.

In January 2016, we acquired AbVitro, a company with a leading next-generation single cell sequencing platform. The AbVitro acquisition is intended to augment our capabilities to create best-in-class engineered T cells against a broad array of cancer targets. We and Celgene have agreed in principle to enter into an agreement to license Celgene a subset of the acquired technology and to grant Celgene options to certain related potential product rights emanating from the acquired technology.

As of December 31, 2015, we generated revenue of $5.1 million from the Celgene Collaboration Agreement. In addition, we generated revenue of $12.3 million in 2015 from an upfront license payment in connection with the Penn/Novartis Sublicense Agreement entered into in April 2015. In the future, we may generate revenue from product sales, collaboration agreements, strategic alliances and licensing arrangements, or a combination of these. We expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of license fees, milestones, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

We have agreed to make success payments to each of FHCRC and MSK pursuant to the terms of our collaboration agreements with each of those entities. In December 2015, success payment obligations to FHCRC were triggered in the amount of $75.0 million less indirect cost offsets of $3.3 million and to MSK of $10.0 million less indirect cost offsets that will be determined at the time of payment in March 2016. We elected to make the payment to FHCRC in shares of our common stock, and thereby issued 1,601,085 shares of our common stock to FHCRC in December 2015. The success payment obligation to MSK is required to be paid, in cash or shares of our common stock at our election, on March 18, 2016. For additional information regarding these success payments, see the section captioned “Licenses and Third-Party Collaborations” in Part I—Item 1—“Business” located elsewhere in this report.

 

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As of December 31, 2015, we had cash, cash equivalents, and marketable securities of $1.2 billion compared with $474 million as of December 31, 2014. Cash provided by operations for the year ended December 31, 2015 was $7.3 million and includes a $150.2 million upfront payment from the Celgene Collaboration Agreement, offset by $30.8 million in costs to acquire technology in the Editas and Fate Therapeutics collaborations, and cash used to grow our business, including the hiring of key talent. Included in net cash used in investing activities in 2015 is $77.7 million of net cash used to acquire Stage and X-Body and $7.2 million used to acquire the investment in Fate Therapeutics. Cash provided by financing activities in 2015 includes $849.8 million from Celgene for the purchase of 9,137,672 shares of our common stock.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us 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 consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue

We recognize revenue for each unit of accounting when all of the following criteria are met:

 

    persuasive evidence of an arrangement exists;

 

    delivery has occurred or services have been rendered;

 

    the seller’s price to the buyer is fixed or determinable; and

 

    collectability is reasonably assured.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in our consolidated balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue in current liabilities. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, less current portion.

We analyze agreements with more than one element, or deliverable, based on the guidance in Accounting Standards Codification (“ASC 605-25”). We identify the deliverables within the agreement and evaluate which deliverables represent separate units of accounting. Analyzing the agreement to identify deliverables requires the use of judgment. A deliverable is considered a separate unit of accounting when the deliverable has value to the collaborator or licensee on a standalone basis based on the consideration of the relevant facts and circumstances for each agreement. In assessing whether an item has standalone value, we consider factors such as the research, manufacturing, and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, we consider whether the other deliverable(s) can be used for their intended purpose without the receipt of the remaining element(s), whether the value of the deliverable is dependent on the undelivered item(s) and whether there are other vendors that can provide the undelivered element(s).

Consideration received is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The relative selling price for each deliverable is estimated using objective evidence if

 

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it is available. If objective evidence is not available, we use our best estimate of the selling price for the deliverable. Management may be required to exercise considerable judgment in estimating the selling prices of identified units of accounting under its agreements.

Options for future deliverables are considered substantive if, at the inception of the arrangement, we are at risk as to whether the collaboration partner will choose to exercise the option. Factors that we consider in evaluating whether an option is substantive include the overall objective of the arrangement, the benefit the collaborator might obtain from the arrangement without exercising the option, the cost to exercise the option and the likelihood that the option will be exercised. For arrangements under which an option is considered substantive, we do not consider the item underlying the option to be a deliverable at the inception of the arrangement and the associated option fees are not included in the initial consideration, assuming the option is not priced at a significant and incremental discount. Conversely, for arrangements under which an option is not considered substantive or if an option is priced at a significant and incremental discount, we would consider the item underlying the option to be a deliverable at the inception of the arrangement and a corresponding amount would be included in the initial consideration.

The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units. We recognize the revenue allocated to each unit of accounting over the period of performance. Revenue is recognized using either a proportional performance or straight-line method, depending on whether we can reasonably estimate the level of effort required to complete our performance obligations under an arrangement.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business combination measured at fair value. We evaluate goodwill for impairment annually during the fourth quarter and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that the fair value of net asset are below their carrying amounts. There was no impairment of goodwill recognized for the year ended December 31, 2015.

Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Intangible assets related to in-process research and development (“IPR&D”) are treated as indefinite-lived intangible assets and not amortized until they become definite lived assets upon certain regulatory approval in specified markets in the case of X-Body, and in the case of Stage, when the acquired reagents or automation technology is accepted by the FDA as part of an IND, subject to management judgment. At that time, we will determine the useful life of the asset, reclassify the asset out of IPR&D and begin amortization. Intangible assets are reviewed for impairment at least annually or if indicators of potential impairment exist. There were no impairments of intangible assets recognized for the year ended December 31, 2015.

Build-to-Suit Lease Accounting

In February 2015, we entered into a lease for a manufacturing facility, which commenced in March 2015. We were responsible for the leasehold improvements required to remodel the facility and we bore the majority of the construction risk. ASC 840-40, Leases – Sale-Leaseback Transactions (Subsection 05-5), required us to be considered the owner of the building solely for accounting purposes, even though we were not the legal owner. As a result, we recorded an asset and build-to-suit lease obligation on our balance sheet as of December 31, 2015 equal to the fair value of the building at the inception of the lease.

Construction was completed in the first quarter of 2016 and we considered the requirements for sale-leaseback accounting treatment, including evaluating whether all risks of ownership have transferred back to the landlord,

 

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as evidenced by a lack of continuing involvement in the leased property. We determined that the arrangement does not qualify for sale-leaseback accounting treatment, and the building asset will remain on our balance sheet at its historical cost, and such asset will be depreciated over its estimated useful life. We bifurcate our lease payments into a portion allocated to the building and a portion allocated to the parcel of land on which the building has been built. The portion of the lease payments allocated to the land is treated for accounting purposes as operating lease payments, and therefore is recorded as rent expense in the statements of operations. The portion of the lease payments allocated to the building is further bifurcated into a portion allocated to interest expense and a portion allocated to reduce the build-to-suit lease obligation.

The interest rate used for the build-to-suit lease obligation represents our estimated incremental borrowing rate, adjusted to reduce any built in loss.

Accrued Research and Development Expenses

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

Examples of estimated research and development expenses that we accrue include:

 

    clinical trial costs;

 

    external research and development expenses incurred under arrangements with third parties, such as CROs, CMOs, academic and non-profit institutions and consultants; and

 

    costs incurred in connection with preclinical development activities.

We base our expense accruals related to clinical trials on patient enrollment and our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions that conduct and manage clinical trials on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on several factors, such as the successful enrollment of patients and the manufacturing of the associated product candidates, and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. For service contracts entered into that include a nonrefundable prepayment for service the upfront payment is deferred and recognized in the statement of operations as the services are rendered.

To date, we have not experienced significant changes in our estimates of accrued research and development expenses after a reporting period. However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities.

Stock-Based Compensation

Under the Financial Accounting Standards Board’s (“FASB”) ASC 718, Compensation—Stock Compensation, we measure and recognize compensation expense for restricted stock, restricted stock units (“RSUs”), and stock options granted to our employees and directors based on the fair value of the awards on the date of grant. The fair

 

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value of stock options is estimated at the date of grant using the Black-Scholes option pricing model that requires management to apply judgment and make estimates, including:

 

    the expected term of the stock option award, which we calculate using the simplified method, as permitted by the SEC Staff Accounting Bulletin No. 110, Share-Based Payment, as we have insufficient historical information regarding our stock options to provide a basis for an estimate;

 

    the expected volatility of our underlying common stock, which we estimate based on the historical volatility of a representative group of publicly traded biopharmaceutical companies with similar characteristics to us, and our own historical and implied future volatility;

 

    the risk-free interest rate, which we based on the yield curve of U.S. Treasury securities with periods commensurate with the expected term of the options being valued;

 

    the expected dividend yield, which we estimate to be zero based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends; and

 

    the fair value of our common stock on the date of grant.

Stock-based compensation expense for restricted stock, RSUs, and stock options is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. We are required to estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures since the adoption of our equity award plan. Since inception our estimated forfeiture rate has been de minimis. We routinely evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and expectations of future option exercise behavior.

We have also granted restricted stock awards that vest in conjunction with certain performance conditions to certain key employees, scientific founders, and directors. At each reporting date, we are required to evaluate whether the achievement of the performance condition is probable. Compensation expense is recorded over the appropriate service period based on our assessment of the probability of achieving each performance provision or the occurrence of other events that may cause the awards to accelerate and vest.

We periodically grant stock-based awards to certain service providers who are not employees, scientific founders, or directors. We account for these stock-based awards to non-employees in accordance with FASB ASC 505-50, Equity-Based Payments to Non-Employees, which requires the fair value of such awards to be re measured at each reporting period until services required under the arrangement are completed, which is the vesting date. We have made a few stock-based awards to consultants that are accounted for in this manner, but the most significant such award is a 2013 restricted stock award made to a former co-founding director who became a consultant upon his departure from the board of directors in 2014.

Determination of the fair value of our common stock on grant dates prior to our initial public offering (“IPO”)

Prior to becoming a public company, the fair value of the common stock underlying our stock-based awards was determined on each grant date by our board of directors, taking into account input from management and independent third-party valuation analyses. Our board of directors is comprised of a majority of non-employee directors with significant experience investing in and operating companies in the biotechnology industry. All stock-based awards were intended to be granted at a price no less than the fair value per share of our common stock based on information known to us on the date of grant. In the absence of a public trading market for our common stock on each grant date we determined the fair value of our common stock using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “AICPA Guide”).

 

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Because our common stock was not publicly traded, the board of directors exercised significant judgment in determining the fair value of our common stock. Changes in judgments could have had a material impact on our results of operations.

For stock-based awards made prior to September 2014, our board of directors considered various objective and subjective factors, with input from management, to determine the value of our common stock, including:

 

    the hiring of key personnel;

 

    our financial condition as of such date;

 

    the status of our research and development efforts;

 

    the status of strategic transactions, including the acquisition of intellectual property and technology;

 

    the public trading price or private sale price of comparable companies;

 

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

 

    risk factors relevant to our business;

 

    capital market conditions generally; and

 

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

For financial reporting purposes for the periods ending December 31, 2013 and December 31, 2014 on a retrospective basis, our management also considered estimated fair values determined on a retrospective basis by an independent third party valuation firm in accordance with the guidance provided by the AICPA Guide. For stock-based grants beginning in September 2014 until the date we became a public company, the fair value of our common stock was determined in connection with such grants by our board of directors based upon the factors described above and with consideration given to contemporaneous valuations of our common stock prepared by the same independent third party valuation firm in accordance with the guidance provided by the AICPA Guide.

The methods used by the independent third party valuation firm were:

 

    Option Pricing Method (“OPM”). The OPM treats the rights of the holders of preferred and common stock as equivalent to call options on the value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of preferred stock, as well as their rights to participation and conversion. Under this method, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference(s) at the time of the liquidity event. The OPM uses the Black-Scholes option pricing model. This model defines securities’ fair values as functions of the current fair value of a company and uses assumptions, such as the anticipated timing of a potential liquidity event, the estimated applicable risk-free rate, and the estimated volatility of the equity securities.

 

    Probability-weighted Expected Return Method (“PWERM”). The PWERM considers various potential liquidity outcomes, including in our case an initial public offering, the sale of our company, dissolution and staying private, and assigns probabilities to each outcome to arrive at a weighted equity value.

The valuation of our common stock in 2013 was based on the OPM and subsequent valuations were based on the hybrid method of the OPM and the PWERM consistent with how such hybrid method is described in the AICPA Guide.

We recorded stock-based compensation expense of $31.9 million, $6.5 million and $0.1 million for the years ended December 31, 2015 and 2014 and for the period from August 5, 2013 to December 31, 2013, respectively. As of December 31, 2015, there was $107.2 million of unrecognized stock-based compensation expense, of

 

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which $20.3 million is related to restricted stock grants and RSUs and $86.9 million is related to stock options. We expect to recognize these costs over a remaining weighted average period of 2.39 and 3.06 years, respectively. In future periods, we expect stock-based compensation expense related to employees, scientific founders, and director grants to increase, due in part to our existing unrecognized stock-based compensation expense, and as we grant additional stock-based awards to continue to attract and retain our employees and directors. We expect stock-based compensation expense related to grants to non-employee service providers to fluctuate, sometimes significantly, based on the fair value of our common stock at each reporting period. We expect the most significant such fluctuation through the third quarter of 2017 will be related to the grant to the former co-founding director who became a consultant upon his departure from the board of directors in 2014, due to the size of such grant, which was made at the founding of the company in 2013.

Success Payments

Fred Hutchinson Cancer Research Center

Under the terms of our collaboration agreement with FHCRC, we granted FHCRC the right to receive certain share-based success payments, payable in cash or publicly-traded equity at our discretion. These success payments are based on increases in the estimated fair value of our common stock, with such payments determined upon, and payable following, certain events (valuation measurement dates) during the term of the success payment agreement, in each case as described in more detail in the section captioned “Licenses and Third-Party Collaborations” in Part I—Item 1—“Business” of this report. The amount of a success payment is determined based on whether the value of our common stock meets or exceeds certain specified threshold values ascending from $20.00 per share to $160.00 per share, in each case subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. Each threshold is associated with a success payment, ascending from $10 million at $20.00 per share to $375 million at $160.00 per share, payable if such threshold is reached. Any previous success payments made to FHCRC are credited against the success payment owed as of any valuation measurement date, so that FHCRC does not receive multiple success payments in connection with the same threshold. The success payments to FHCRC are not to exceed, in aggregate, $375 million, which would only be owed when the value of the common stock reaches $160.00 per share. In June 2014, we entered into an agreement with FHCRC in which certain indirect costs related to the collaboration projects conducted by FHCRC are creditable against any success payments, and we amended this agreement in December 2015. See Note 4 to our audited consolidated financial statements included in this report for a summary of the value of success payments required to be made at different price levels.

The success payment liability is initially accounted for under ASC 505-50, Equity-Based Payments to Non-Employees. The success payment liability is estimated at fair value at inception and at each subsequent balance sheet date and the expense is amortized using the accelerated attribution method over the term of the related collaboration agreement, which is initially six years. The success payment expense is classified as research and development because it is directly associated with our collaboration agreement with FHCRC. To determine the estimated fair value of the success payments we use a Monte Carlo simulation methodology which models the future movement of stock prices based on several key parameters combined with empirical knowledge of the process governing the behavior of the stock price. The following variables were incorporated in the calculation of the estimated fair value of the success payment liability as of December 31, 2015: estimated term of the success payments, stock price, expected volatility, risk-free interest rate, estimated number and timing of valuation measurement dates, and estimated indirect costs related to the collaboration projects conducted by FHCRC that are creditable against the success payments. Once the service period ends, which we expect will occur in 2019, the success payment liability will be accounted for under ASC 815, Derivatives and Hedging.

In December 2015, success payments to FHCRC were triggered in the aggregate amount of $75.0 million, less indirect cost offsets of $3.3 million. We elected to make the payment in shares of our common stock, and thereby issued 1,601,085 shares of our common stock to FHCRC in December 2015.

 

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The estimated fair value of the total success payment obligation to FHCRC after giving effect to the success payments achieved in December 2015 was approximately $67.3 million as of December 31, 2015. With respect to the FHCRC success payment obligations, we recognized research and development expense of $44.3 million and $61.2 million in the years ended December 31, 2015 and 2014, respectively. The expense recorded in both periods represents the change in the estimated FHCRC success payment liability during such periods, twelve months of accrued expense, and the success payments achieved in 2015. The FHCRC success payment liabilities on the consolidated balance sheets as of December 31, 2015 and 2014 were $33.8 million and $61.2 million, respectively.

The assumptions used to calculate the fair value of the success payments are subject to a significant amount of judgment including the expected volatility, estimated term, and estimated number and timing of valuation measurement dates. A small change in the assumptions may have a relatively large change in the estimated valuation and associated liability and expense. For example, keeping all other variables constant, a hypothetical 10% increase in the stock price at December 31, 2015 from $43.97 per share to $48.37 per share would have increased the expense recorded in 2015 associated with the success payment liability by $4.9 million. A hypothetical 10% decrease in the stock price from $43.97 per share to $39.57 per share would have decreased the expense recorded in 2015 associated with the success payment liability by $4.8 million. Further, keeping all other variables constant, a hypothetical 35% increase in the stock price at December 31, 2015 from $43.97 per share to $59.36 per share would have increased the expense recorded in 2015 associated with the success payment liability by $17.5 million. A hypothetical 35% decrease in the stock price from $43.97 per share to $28.58 per share would have decreased the expense recorded in 2015 associated with the success payment liability by $16.0 million.

Memorial Sloan Kettering Cancer Center

Under the terms of our collaboration agreement with MSK we granted MSK the right to receive certain share-based success payments, payable in cash or publicly-traded equity at our discretion. These success payments are based on increases in the per share fair market value of our common stock, with such payments determined upon, and payable following, certain events (valuation measurement dates) during the term of the success payment agreement, in each case as described in more detail in the section captioned “Licenses and Third-Party Collaborations” in Part I—Item 1—“Business” of this report. The amount of a success payment is determined based on whether the value of our common stock meets or exceeds certain specified threshold values ascending from $40.00 per share to $120.00 per share, in each case subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. Each threshold is associated with a success payment, ascending from $10 million at $40.00 per share to $150 million at $120.00 per share, payable if such threshold is reached. Any previous success payments made to MSK are credited against the success payment owed as of any valuation measurement date, so that MSK does not receive multiple success payments in connection with the same threshold. The success payments paid to MSK will not exceed, in aggregate, $150 million, which would only be owed when the value of the common stock reaches $120.00 per share. In October 2015, we entered into an agreement with MSK in which certain indirect costs related to certain clinical studies and research projects conducted by MSK are creditable against any success payments, and we amended this agreement in December 2015. See Note 4 to our audited consolidated financial statements included in this report for a summary of the value of success payments required to be made at different price levels.

The success payment liability is initially accounted for under ASC 505-50, Equity-Based Payments to Non-Employees. The success payment liability is estimated at fair value at inception and at each subsequent balance sheet date and the expense is amortized using the accelerated attribution method over the term of the related collaboration agreement, which is initially five years. The success payment expense is classified as research and development because it is directly associated with our collaboration agreement with MSK. To determine the estimated fair value of the success payments we use a Monte Carlo simulation methodology which models the future movement of stock prices based on several key parameters combined with empirical knowledge of the process governing the behavior of the stock price. The following variables were incorporated in the calculation of

 

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the estimated fair value of the success payment liability as of December 31, 2015: estimated term of the success payments, stock price, expected volatility, risk-free interest rate, estimated number and timing of valuation measurement dates, and estimated indirect costs related to certain clinical studies conducted by MSK that are creditable against the success payments. Once the service period ends, which we expect will occur in 2018, the success payment liability will be accounted for under ASC 815, Derivatives and Hedging.

In December 2015, a success payments to MSK was triggered in the amount of $10.0 million, less indirect cost offsets that will be determined at the time of payment in March 2016. The success payment obligation to MSK is required to be paid, in cash or shares of our common stock at our election, on March 18, 2016.

As of December 31, 2015 and 2014, the estimated fair value of the total success payment obligation to MSK after giving effect to the success payment achieved in December 2015, was approximately $48.9 million and $56.8 million, respectively. With respect to the MSK success payment obligations, we recognized research and development expense of $7.3 million and $23.7 million in the years ended December 31, 2015 and 2014, respectively. The expense recorded in both periods represents the change in the estimated MSK success payment liability during such periods, twelve months of accrued expense, and the success payment achieved in 2015. The MSK success payment liabilities on the consolidated balance sheets as of December 31, 2015 and 2014 were $31.0 million and $23.7 million, respectively.

The assumptions used to estimate the fair value of the success payment liability are subject to a significant amount of judgment including the expected volatility of our common stock, estimated term, and estimated number and timing of valuation measurement dates. A small change in our stock price or other assumptions may have a relatively large change in the estimated fair value of the success payment liability and associated expense. For example, keeping all other variables constant, a hypothetical 10% increase in our stock price at December 31, 2015 from $43.97 per share to $48.37 per share, would have increased the expense recorded in 2015 associated with the success payment liability by $2.8 million. A hypothetical 10% decrease in our stock price from $43.97 per share to $39.57 per share would have decreased the expense recorded in 2015 associated with the success payment liability by $2.8 million. Further, keeping all other variables constant, a hypothetical 35% increase in our stock price at December 31, 2015 from $43.97 per share to $59.36 per share would have increased the expense recorded in 2015 associated with the success payment liability by $9.8 million. A hypothetical 35% decrease in our stock price from $43.97 per share to $28.58 per share would have decreased the expense recorded in 2015 associated with the success payment liability to zero resulting in a gain of $2.4 million.

Convertible Preferred Stock Option

We have raised capital through several rounds of private preferred stock financings, each of which included multiple closings. The Series A and Series A-2 convertible preferred stock purchase agreements each included subsequent closings under our control, as well as potential obligations to sell such shares upon the occurrence of certain events. We assessed our rights to control subsequent closings and our potential obligations under each agreement and determined that the financial instruments should be treated as a single unit of accounting under each of the Series A and Series A-2 agreements. These financial instruments were recognized at inception at fair value and classified outside of equity in accordance with ASC 480, Distinguishing Liabilities from Equity. The preferred stock options were revalued at each subsequent balance sheet date, with fair value changes recognized as increases or reductions to other income (expense), net in the statements of operations. We estimated the fair value of these instruments based on commonly used methods recommended by the AICPA and other accounting guidance. As of each valuation date, the fair value was estimated using the Black-Scholes option pricing model and assumptions that were based on the individual characteristics of the option on the valuation date, as well as assumptions for expected volatility, expected term, and risk-free interest rate. Determining the appropriate fair value model and calculating the fair value of the convertible preferred stock options required considerable judgment, and a small change in certain estimates used may lead to a relatively large change in the estimated fair value. Other expense of $10.7 million was recorded in the year ended December 31, 2014 related to changes in the fair value of the convertible preferred stock options. All of the Series A and Series A-2 convertible preferred stock converted to common stock in connection with our initial public offering.

 

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Deemed Dividends Upon Issuance of Convertible Preferred Stock, Non-Cash

We have raised capital through several rounds of private preferred stock financings, each of which included multiple closings. As of the dates of certain of the subsequent closings of the Series A and Series A-2 convertible preferred stock financings, the estimated fair value of the Series A and A-2 convertible preferred stock was greater than the issuance price per share of $4.00. For financial reporting purposes, the estimated fair value of the Series A and Series A-2 convertible preferred stock at these closing dates was derived taking into account numerous valuation factors, including, but not limited to, retrospective valuations performed by independent third party valuation firms, our stage of development, capital resources, current business plans, likelihood of achieving a liquidity event, and the rights, preferences, and privileges of our Series A and Series A-2 convertible preferred stock compared to the rights, preferences and privileges of our other outstanding equity securities. The differences between the estimated fair value of the Series A and Series A-2 convertible preferred stock shares as of the respective closing dates and the issuance prices of the shares were deemed to be equivalent to preferred stock dividends. As a result, we recorded deemed dividends of $67.5 million in the year ended December 31, 2014. The deemed dividends were recorded as an increase in convertible preferred stock of $67.5 million, a decrease in additional paid-in capital of $16.4 million, and an increase in accumulated deficit of $51.1 million. The deemed dividends increased the net loss attributable to common stockholders by $67.5 million in the calculation of basic and diluted net loss per common share for the year ended December 31, 2014. All of the Series A and Series A-2 convertible preferred stock converted to common stock in connection with our initial public offering.

Components of Operating Results

Revenue

Our revenues have been primarily derived from collaboration and license agreements.

Ongoing collaboration revenue is generated from our collaboration with Celgene. The terms of this arrangement contain multiple deliverables, which include (1) access to certain of our technology through a non-exclusive, worldwide, royalty-free right and license to conduct certain activities under the collaboration and (2) participation on various collaboration committees. We recognize revenue from upfront payments ratably over the term of our estimated period of performance under the arrangement. In addition to receiving upfront payments, we may also be entitled to option exercise fees.

We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of opt-in payments and other payments from our collaboration and license agreements.

Research and Development Expenses

Research and development expenses represent costs incurred by us for the discovery, development, and manufacture of our product candidates and include costs to acquire technology complimentary to our own, external research and development expenses incurred under arrangements with third parties, such as contract research organizations, CMOs, academic and non- profit institutions and consultants, salaries and personnel-related costs, including non-cash stock-based compensation, the estimated fair value of the liability attributable to the elapsed service period as of the balance sheet date associated with our success payments to FHCRC and MSK, changes in the estimated fair value of our contingent consideration liabilities, and other expenses, which include direct and allocated expenses for laboratory, facilities, and other costs.

We use our employee and infrastructure resources across multiple research and development programs directed toward developing our cell-based platform and for identifying and developing product candidates. We manage certain activities such as contract research, clinical trial operations, and manufacture of product candidates through our partner institutions or other third-party vendors. We track our significant external costs by product

 

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candidate. Due to the number of ongoing projects and our ability to use resources across several projects, we do not record or maintain information regarding the indirect operating costs incurred for our research and development programs on a program-specific basis.

Our research and development expenses by project were as follows for the years ended December 31, 2015 and 2014 and for the period from August 5, 2013 to December 31, 2013 (in thousands):

 

     Year Ended
December 31,
     Period from
August 5, 2013
to December 31,

2013
 
     2015      2014     

Project-specific external costs:

        

JCAR015

   $ 11,271       $ 4,237       $ 7,706   

JCAR014

     5,343         4,364         3,857   

JCAR017

     4,485         225         —     

Platform development

     6,088         3,310         —     

CD19 general

     1,799         1,131         —     

Early development

     12,955         5,546         —     

Success payment expense related to FHCRC collaboration agreement

     44,262         61,362      

Success payment expense related to MSK collaboration agreement

     7,296         23,702      

Upfront costs to acquire technology

     30,810         84,087         33,400   

Unallocated internal and external research and development costs (1)

     80,851         16,547         1,282   
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 205,160       $ 204,511       $ 46,245   
  

 

 

    

 

 

    

 

 

 

 

(1) Unallocated internal and external research and development costs include salaries and personnel-related costs, including non-cash stock-based compensation, for our personnel in research, clinical development, process development and manufacturing, regulatory and other research and development functions, allocated facilities and other overhead costs, lab supplies and other research and development costs not specific to a project.

Research and development activities account for a significant portion of our operating expenses. Excluding amounts attributable to changes in the estimated fair value of the success payment and contingent consideration liabilities and upfront fees to acquire technology, we expect our research and development expenses to increase over the next several years as we implement our business strategy which includes conducting existing and new clinical trials, manufacturing clinical trial and preclinical study materials, expanding our research and development and process development efforts, seeking regulatory approvals for our product candidates that successfully complete clinical trials, and costs associated with hiring additional personnel to support our research and development efforts. Research and development expense related to our success payments is unpredictable and may vary significantly from quarter to quarter and year to year due to changes in our stock price or other assumptions used in the calculation. A significant decline in the estimated value of the success payment liability may result in a gain and possibly net income during the period. Amounts associated with the change in the estimated fair value of the contingent consideration liabilities also may vary significantly from quarter to quarter and year to year due to changes in our assumptions used in the calculation. In addition, we expect to incur research and development expense for acquisition of technology in the future, but the timing and amount of those expenses cannot be estimated with reliability and may also fluctuate from quarter to quarter and year to year.

General and Administrative Expenses

General and administrative expenses consist of salaries and personnel-related costs, including non-cash stock-based compensation, for our personnel in executive, legal, finance and accounting, and other administrative functions, legal costs other than litigation costs associated with the Penn litigation, transaction costs associated

 

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with acquisitions and collaboration and licensing agreements, as well as fees paid for accounting and tax services, consulting fees and facility costs not otherwise included in research and development expenses. Legal costs include general corporate legal fees and patent costs, and legal expense associated with inter partes review proceedings at the USPTO.

We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities, potential commercialization of our product candidates, future business development opportunities, and the increased costs of operating as a public company. These increases will likely include costs related to outside consultants, attorneys, and accountants, among other expenses.

Litigation Expense

Litigation expense includes legal expense we have directly incurred with respect to the Penn litigation, as well as expenses we were required to reimburse to St. Jude with respect to such litigation. In April 2015 the Penn litigation was settled, in connection with which Novartis paid us an initial license fee of $12.3 million. Under a separate agreement with St. Jude, we incurred litigation expense of $5.3 million associated with the reimbursement of litigation expenses to St. Jude. See Note 4, Collaboration and License Agreements, in the notes to the consolidated financial statements included elsewhere in this report.

Results of Operations

Comparison of the years ended December 31, 2015 and 2014

The following table summarizes our results of operations for the years ended December 31, 2015 and 2014 (in thousands):

 

     Year Ended December 31,  
     2015     2014  

Revenue

   $ 18,215      $ —     

Operating expenses:

    

Research and development

     205,160        204,511   

General and administrative

     51,130        19,529   

Litigation

     6,025        8,718   
  

 

 

   

 

 

 

Total operating expenses

     262,315        232,758   
  

 

 

   

 

 

 

Loss from operations

     (244,100     (232,758

Interest income, net

     1,730        69   

Other income (expenses), net

     234        (10,718
  

 

 

   

 

 

 

Loss before income taxes

     (242,136     (243,407

Benefit for income taxes

     2,760        —     
  

 

 

   

 

 

 

Net loss

   $ (239,376   $ (243,407
  

 

 

   

 

 

 

Net loss attributable to common stockholders:

    

Net loss

     (239,376     (243,407

Deemed dividends upon issuance of convertible preferred stock, non-cash

     —          (67,464
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (239,376   $ (310,871
  

 

 

   

 

 

 

Revenue

Revenue was $18.2 million in the year ended December 31, 2015, which includes $5.1 million in revenue related to the Celgene collaboration. Also included in revenue in the year ended December 31, 2015 is $12.3 million received in connection with the Novartis sublicense agreement.

 

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Operating Expenses

Research and Development Expenses. Research and development expenses were $205.2 million for the year ended December 31, 2015, compared to $204.5 million for the year ended December 31, 2014. Excluding expense related to our success payment liability, research and development expenses were $153.6 million and $119.6 million for the years ended December 31, 2015 and 2014, respectively. The increase of $34.0 million was primarily due to an increase of $71.9 million in expenses attributable to efforts to expand the company’s overall research and development capabilities and advance programs at our founding institutions, which expenses include personnel costs, manufacturing costs in support of our clinical trials, lab supplies, clinical and research costs under our collaboration agreements and in support of our company-sponsored clinical trials, costs incurred by our German subsidiary, consulting, and facilities and allocated overhead costs and an increase of $14.2 million in non-cash stock-based compensation, of which $4.6 million is related to a former co-founding director who became a consultant upon his departure from the board of directors. These increases were partially offset by lower costs to acquire technology of $51.0 million. In 2015 we incurred upfront fees of $30.8 million in connection with technology acquired from the Editas and Fate Therapeutics transactions, and in 2014 we incurred a non-cash upfront fee of $64.1 million and a cash upfront fee of $20.0 million to acquire technology related to JCAR018.

Expense related to our success payment liability for the years ended December 31, 2015 and 2014 was $51.6 million and $84.9 million, respectively. The decline was primarily due to a decrease in our stock price at December 31, 2015 compared to December 31, 2014.

General and Administrative Expenses. General and administrative expenses were $51.1 million for the year ended December 31, 2015, compared to $19.5 million for the year ended December 31, 2014. The increase of $31.6 million was primarily due to an increase of $11.3 million in non-cash stock-based compensation expense, expenses related to the Celgene, Stage, X-Body, and other business development transactions of $9.7 million, increased costs of $4.9 million incurred to support the business including patent and corporate legal fees, a $3.6 million increase in personnel expenses primarily related to increased headcount, and an increase of $2.1 million associated with expenses incurred related to being a public company.

Litigation Expense. Litigation expense was $6.0 million for the year ended December 31, 2015, compared to $8.7 million for the year ended December 31, 2014. Litigation costs in both periods consisted of costs we incurred directly in connection with the Penn litigation and costs we were required to reimburse to St. Jude in connection with such litigation. In April 2015 the Penn litigation was settled. See Note 4, Collaboration and License Agreements, to the consolidated financial statements included elsewhere in this report.

Interest Income, Net. Interest income, net for the year ended December 31, 2015 was $1.7 million compared to $0.1 million for the year ended December 31, 2014. The increase of $1.6 million was due to our increased marketable securities balance and the associated interest earned, that was offset by interest expense associated with the accounting for the build-to-suit lease of our manufacturing facility.

Other Income (Expense). Other income was $0.2 million for the year ended December 31, 2015 and consisted of the gain on our original investment in Stage recorded in connection with the acquisition of Stage in May 2015. Other expense was $10.7 million for the year ended December 31, 2014 and consisted of changes in the fair value of our Series A and Series A-2 convertible preferred stock option, which were exercised during 2014.

Benefit for Income Taxes. The benefit for income taxes was $2.8 million for the year ended December 31, 2015 compared to zero for the year ended December 31, 2014. Of the $2.8 million income tax benefit recognized for the year ended December 31, 2015, $1.7 million relates to our Germany subsidiary’s net loss incurred in the period from May 11, 2015 to December 31, 2015. The remaining $1.1 million of income tax benefit relates to the release of valuation allowance on the U.S. deferred tax assets as a result of the acquisition of X-Body.

 

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Deemed Dividends Upon Issuance of Convertible Preferred Stock, Non-Cash. We recorded deemed dividends of $67.5 million in the year ended December 31, 2014 related to the amount by which the fair value of the convertible preferred stock we issued during the period exceeded the actual cash proceeds from the sale and issuance of such convertible preferred stock. The deemed dividends increased convertible preferred stock by $67.5 million, reduced additional paid-in capital by $16.4 million, and increased accumulated deficit by $51.1 million. The deemed dividends increased the net loss attributable to common stockholders by $67.5 million in the calculation of basic and diluted net loss per common share for the year ended December 31, 2014.

Comparison of the year ended December 31, 2014 to the period from August 5, 2013 to December 31, 2013

The following table summarizes our results of operations for the year ended December 31, 2014 and the period from August 5, 2013 to December 31, 2013 (in thousands):

 

     Year Ended
December 31,
2014
    Period From
August 5, 2013
to December 31,
2013
 

Revenue

   $ —        $ —     

Operating expenses:

    

Research and development

     204,511        46,245   

General and administrative

     19,529        4,238   

Litigation

     8,718        1,195   
  

 

 

   

 

 

 

Total operating expenses

     232,758        51,678   
  

 

 

   

 

 

 

Loss from operations

     (232,758     (51,678

Interest income, net

     69        —     

Other (expense)

     (10,718     (142
  

 

 

   

 

 

 

Net loss

   $ (243,407   $ (51,820
  

 

 

   

 

 

 

Net loss attributable to common stockholders:

    

Net loss

     (243,407     (51,820

Deemed dividends upon issuance of convertible preferred stock, non-cash

     (67,464     —     
  

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (310,871   $ (51,820
  

 

 

   

 

 

 

Operating Expenses

Research and Development Expenses. Research and development expenses in the year ended December 31, 2014 were $204.5 million consisting primarily of:

 

    $84.9 million associated with the portion of the estimated success payment liability to FHCRC and MSK attributable to the elapsed service period;

 

    $84.1 million in upfront fees to acquire technology related to JCAR018, a CD22-directed product candidate, $64.1 million of which was paid through the issuance of stock (calculated by multiplying the number of shares issued, or 1,602,564 shares, by the fair value of our common stock on the date of issuance of December 24, 2014), and $20 million was paid in cash;

 

    $30.1 million of costs to expand the company’s overall research and development capabilities and advance programs at our founding institutions including clinical and research costs under our collaboration agreements, personnel costs, contract research, manufacturing costs in support of our clinical trials, initial fees under a development agreement with a third party, facilities and allocated overhead costs, consulting costs, and lab supplies; and

 

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    $2.9 million of non-cash stock-based compensation, of which $2.5 million is related to a former co-founding director who became a consultant upon his departure from the board of directors.

Research and development expenses in the period from August 5, 2013 to December 31, 2013 were $46.2 million consisting primarily of $44.5 million in upfront fees to acquire technology, $0.5 million in clinical development costs, and $0.5 million in personnel-related costs. Included in the $44.5 million in upfront fees to acquire technology is $25.0 million, $0.3 million and $6.9 million in cash payments to St. Jude, FHCRC, and MSK, respectively, $9.8 million of non-cash stock-based expense associated with stock issuances to ZetaRx, FHCRC, and MSK, and $2.5 million in other expenses in connection with the ZetaRx transaction. The cash payment to St. Jude and the cash payment and non-cash stock-based expense associated with the stock issuance to FHCRC were made in connection with our JCAR014 program and the cash payments and non-cash stock-based expense associated with the stock issuance to MSK were related to our JCAR015 program.

General and Administrative Expenses. General and administrative expenses in the year ended December 31, 2014 were $19.5 million consisting primarily of personnel related costs of $10.2 million, including $3.5 million of non-cash stock-based compensation, $4.3 million of general corporate legal fees and patent costs, $2.8 million of consulting fees to support our operations, and $0.9 million of facilities and allocated overhead costs.

General and administrative expense for the period from August 5, 2013 to December 31, 2013 consisted primarily of $2.8 million in patent and corporate legal costs, $0.4 million of personnel-related costs, and $0.4 million of non-cash stock-based compensation expense.

Litigation Expense. Litigation expense was $8.7 million for the year ended December 31, 2014, compared to $1.2 million for the period from August 5, 2013 to December 31, 2013. Litigation costs in both periods consisted of costs we incurred directly in connection with the Penn litigation and costs we were required to reimburse to St. Jude in connection with such litigation. In April 2015 the Penn litigation was settled. See Note 4, Collaboration and License Agreements, to the consolidated financial statements included elsewhere in this report.

Other Income (Expense). Other expense was $10.7 million for the year ended December 31, 2014 and consists of changes in the fair value of our Series A and Series A-2 convertible preferred stock options.

Deemed Dividends Upon Issuance of Convertible Preferred Stock, Non-Cash. We recorded deemed dividends of $67.5 million in the year ended December 31, 2014 related to the amount by which the fair value of the convertible preferred stock we issued during the period exceeded the actual cash proceeds from the sale and issuance of such convertible preferred stock. The deemed dividends increased convertible preferred stock by $67.5 million, reduced additional paid-in capital by $16.4 million, and increased accumulated deficit by $51.1 million. The deemed dividends increased the net loss attributable to common stockholders by $67.5 million in the calculation of basic and diluted net loss per common share for the year ended December 31, 2014.

Liquidity and Capital Resources

Sources and Uses of Liquidity

As of December 31, 2015, we had $1.2 billion in cash, cash equivalents, and marketable securities. Prior to our entry into the Celgene collaboration, we raised an aggregate of approximately $618.0 million in gross proceeds, through our IPO and private placements of our convertible preferred stock which we have used to fund our operations. As a result of our entry into the collaboration with Celgene and our initial sale of stock to Celgene, we received $1.0 billion in cash from Celgene in August 2015. Celgene also has the right to purchase additional shares of our common stock, including annual “top-up” rights as described under “Licenses and Third-Party Collaborations” in Part I—Item 1—“Business” elsewhere in this report. If exercised, these purchases will provide us with additional funding for our operations. This funding decreases our need for additional near term funding, although we may still need to raise additional capital in the future. We believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next 12 months.

 

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We expect to continue to incur substantial additional losses in the future as we expand our research and development activities and build our commercial infrastructure. Until such time, if ever, as we can generate substantial product revenue, and if funding from Celgene is not sufficient for our operations, we may be required to finance our cash needs through a combination of equity or debt financings. We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all. If we raise additional funds through additional collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

The following table summarizes our cash flows for the periods set forth below (in thousands):

 

     Year Ended
December 31,
    Period from
August 5, 2013
to December 31,
2013
 
     2015     2014    

Net cash provided by (used in):

      

Operating activities

   $ 7,325      $ (82,545   $ (30,510

Investing activities

     (962,066     (124,785     (42

Financing activities

     851,238        527,332        66,518   

Effect of exchange rate changes on cash and cash equivalents

     (67     —          —     
  

 

 

   

 

 

   

 

 

 

Net (decrease) increae in cash and cash equivalents

   $ (103,570   $ 320,002      $ 35,966   
  

 

 

   

 

 

   

 

 

 

Operating Activities

The increase in cash provided by operating activities for the year ended December 31, 2015 of $89.9 million compared to the year ended December 31, 2014 was primarily due to cash received from Celgene in connection with the Celgene collaboration agreement of $150.2 million, offset by an increase in cash payments to expand our overall research and development capabilities and acquire technology.

Net cash used in operating activities for the years ended December 31, 2015 and 2014 included payments of $30.8 million and $26.9 million, respectively, to acquire technology. Net cash used in operating activities for the period from August 5, 2013 to December 31, 2013 included a $25.0 million payment to acquire technology.

Investing Activities

The increase in cash used in investing activities for the year ended December 31, 2015 of $837.3 million compared to the year ended December 31, 2014 was primarily due to the purchase of marketable securities of $730.6 million; cash paid, net of cash acquired, to acquire Stage and X-Body of $77.7 million; an investment in Fate Therapeutics of $7.2 million; and an increase in property and equipment purchases primarily related to the build out of our manufacturing facility and purchase of lab equipment of $25.2 million. The increase in cash used in investing activities for the year ended December 31, 2015 was offset by the investment in Stage of $3.5 million in 2014.

 

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Financing Activities

The increase in net cash provided by financing activities in the year ended December 31, 2015 of $323.9 million compared to the year ended December 31, 2014 was primarily due to cash received in connection with the sale of 9,137,672 shares of our common stock to Celgene, resulting in proceeds of $849.8 million, and proceeds from the exercise of stock options, offset by net proceeds of $527.3 million in 2014 from our IPO and from the issuance of our convertible preferred stock.

Net cash provided by financing activities in the period from August 5, 2013 to December 31, 2013 of $66.5 million was the result of net proceeds from the issuance of our convertible preferred stock.

Off-Balance Sheet Arrangements

As of December 31, 2015, we did not have any off-balance sheet arrangements or any holdings in variable interest entities.

Contractual Obligations

Our contractual obligations as of December 31, 2015 were as follows:

 

     Total      Less Than
1 Year
     1-3 Years      4-5 Years      More Than
5 Years
 

Operating lease obligations (1)

   $ 83,613       $ 3,890       $ 26,536       $ 22,571       $ 30,616   

Collaboration funding (2)

     26,479         12,838         12,328         1,313         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 110,092       $ 16,728       $ 38,864       $ 23,884       $ 30,616   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Represents future minimum lease payments under our operating leases as of December 31, 2015. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.
(2) Represents non-cancellable fees due in connection with our collaboration agreements as of December 31, 2015.

Other than as disclosed in the table above, the payment obligations under our license and collaboration agreements as of December 31, 2015 are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones, or royalties on net product sales. See the section captioned “Licenses and Third-Party Collaborations” in Part I—Item 1—“Business” of this report for more information about these payment obligations. As described above under the caption “Critical Accounting Policies and Significant Judgments and Estimates—Success Payments,” we are also obligated to make up to $300.0 million in success payments to FHCRC and up to $140.0 million in success payments to MSK based on increases in the estimated fair value of our common stock. Both of these obligations are payable in cash or stock, at our election. In December 2015, success payment obligations to FHCRC were triggered in the amount of $75.0 million less indirect cost offsets of $3.3 million and to MSK of $10.0 million less indirect cost offsets that will be determined at the time of payment in March 2016. We elected to make the payment to FHCRC in shares of our common stock, and thereby issued 1,601,085 shares of our common stock to FHCRC in December 2015. The success payment obligation to MSK is required to be paid, in cash or shares of our common stock at our election, on March 18, 2016. As of December 31, 2015, we were unable to estimate the timing or likelihood of achieving the milestones or generating future product sales and therefore, any related payments are not included in the table above.

Recent Accounting Pronouncements

In November 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740), intended to improve how deferred taxes are classified on

 

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organizations’ balance sheets. The new guidance eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Under the new guidance, companies are required to classify all deferred tax assets and liabilities as noncurrent. ASU No. 2015-17 is effective for periods beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. We early adopted this standard for the year ended December 31, 2015. The adoption of this standard did not have a material impact on our financial position, results of operation or related financial statement disclosures.

In 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption permitted beginning January 1, 2017. We are evaluating the method we will use to adopt the new standard and the impact on our consolidated financial statements.

 

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of our business, primarily related to interest rate sensitivities and the volatility of our stock price.

Interest Rate Sensitivity

As of December 31, 2015, we had $963.9 million in marketable securities, largely composed of investment grade short- to intermediate-term fixed income securities. The primary objective of our investment activities is to preserve capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in a variety of securities of high credit quality.

Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase. The magnitude of this risk has increased over 2015 due to the increase in our marketable securities balance following our receipt of $1.0 billion in funding from Celgene in August 2015. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

Stock Price Sensitivity

We agreed to make success payments to FHCRC and MSK based on increases in the per share fair market value of our common stock during the term of the agreements payable in cash or publicly-traded equity at our discretion.

As of December 31, 2015, the estimated fair value of the success payment obligations was approximately $116.2 million. The Company recognized research and development expense of $51.6 million in the year ended December 31, 2015, with respect to the success payment obligations. The success payment liabilities on the consolidated balance sheet as of December 31, 2015 were $64.8 million.

The assumptions used to calculate the fair value of the success payments are subject to a significant amount of judgment including the expected volatility, estimated term, and estimated number and timing of valuation measurement dates. A small change in the assumptions may have a relatively large change in the estimated valuation and associated liability and expense. For example, keeping all other variables constant, a hypothetical 10% increase in the stock price at December 31, 2015 from $43.97 per share to $48.37 per share would have increased the expense recorded in 2015 associated with the success payment liability by $7.7 million. A hypothetical 10% decrease in the stock price from $43.97 per share to $39.57 per share would have decreased the expense recorded in 2015 associated with the success payment liability by $7.6 million. Further, keeping all other variables constant, a hypothetical 35% increase in the stock price at December 31, 2015 from $43.97 per share to $59.36 per share would have increased the expense recorded in 2015 associated with the success payment liability by $27.3 million. A hypothetical 35% decrease in the stock price from $43.97 per share to $28.58 per share would have decreased the expense recorded in 2015 associated with the success payment liability by $25.7 million.

Foreign Currency Sensitivity

The majority of our transactions occur in U.S. dollars. However, we do have certain transactions and future potential milestones, including potential contingent consideration payments pursuant to the terms of our Stage acquisition, that are denominated in currencies other than the U.S. dollar, primarily the Euro, and we therefore are subject to foreign exchange risk. Additionally, our subsidiary Juno Therapeutics GmbH, which we acquired in May 2015, operates with the Euro as its functional currency. The fluctuation in the value of the U.S. dollar against the Euro affects the reported amounts of revenues, expenses, assets and liabilities. As we expand our international operations, our exposure to exchange rate fluctuations will increase. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

 

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Table of Contents

Index to Consolidated Financial Statements

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

JUNO THERAPEUTICS, INC.

Index to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm

     143   

Financial Statements

  

Consolidated Balance Sheets

     144   

Consolidated Statements of Operations

     145   

Consolidated Statements of Comprehensive Loss

     146   

Consolidated Statements of Cash Flows

     147   

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

     148   

Notes to Consolidated Financial Statements

     149   

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Juno Therapeutics, Inc.

We have audited the accompanying consolidated balance sheets of Juno Therapeutics, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for the years ended December 31, 2015 and 2014 and the period from August 5, 2013 to December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Juno Therapeutics, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for the years ended December 31, 2015 and 2014 and the period from August 5, 2013 to December 31, 2013, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Juno Therapeutics, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 29, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Seattle Washington

February 29, 2016

 

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