S-1 1 d781613ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on September 30, 2019.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

4D Molecular Therapeutics, Inc.

(Exact name of Registrant as specified in its charter)

 

Delaware   2836   47-3506994

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

5858 Horton Street #455

Emeryville, California 94608

(510) 505-2680

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

 

 

David Kirn, M.D.

Chairman and Chief Executive Officer

5858 Horton Street #455

Emeryville, California 94608

(510) 505-2680

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

 

 

Copies to:

 

Alan C. Mendelson

Benjamin A. Potter

Phillip S. Stoup

Latham & Watkins LLP

140 Scott Drive

Menlo Park, California 94025

Telephone: (650) 328-4600

 

August J. Moretti

Chief Financial Officer

4D Molecular Therapeutics, Inc.

5858 Horton Street #455

Emeryville, California 94608

Telephone: (510) 505-2680

 

David Peinsipp

Charles S. Kim

Kristin VanderPas

Will H. Cai

Cooley LLP

101 California Street, 5th Floor

San Francisco, California 94111

Telephone: (415) 693-2000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

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

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

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

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

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

 

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

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

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum

aggregate

offering price(1)

 

Amount of

registration fee(2)

Common Stock, $0.0001 par value per share

  $100,000,000   $12,120.00

 

 

 

(1)

Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes shares that the underwriters have the option to purchase solely to cover over-allotments, if any.

(2)

Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum offering price.

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

 

 

 


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

 

Subject to Completion, Dated September 30, 2019

                        Shares

 

LOGO

Common Stock

 

 

This is the initial public offering of shares of common stock of 4D Molecular Therapeutics, Inc. We are offering             shares of our common stock.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price will be between $                and $                per share.

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

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

 

 

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

 

 

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

 

 

 

     Per Share      Total  

Initial public offering price

   $                        $                    

Underwriting discounts and commissions(1)

   $        $    

Proceeds, before expenses, to 4D Molecular Therapeutics, Inc.

   $        $    

 

(1)

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

To the extent that the underwriters sell more than                 shares of common stock, the underwriters have an over-allotment option to purchase up to an additional                 shares from us at the initial public offering price, less the underwriting discounts and commissions.

The underwriters expect to deliver the shares against payment in New York, New York on                 , 2019.

 

 

 

Goldman Sachs & Co. LLC     Evercore ISI    William Blair
          Chardan   

 

 

Prospectus dated                 , 2019.


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

The Offering

     8  

Risk Factors

     13  

Special Note Regarding Forward-Looking Statements

     78  

Industry and Market Data

     80  

Use of Proceeds

     81  

Dividend Policy

     83  

Capitalization

     84  

Dilution

     86  

Selected Financial Data

     89  

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

     91  

Business

     108  

Management

     171  

Executive Compensation

     182  

Certain Relationships and Related Party Transactions

     197  

Principal Stockholders

     200  

Description of Capital Stock

     202  

Shares Eligible for Future Sale

     208  

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

     211  

Underwriting

     215  

Legal Matters

     222  

Experts

     222  

Where You Can Find More Information

     222  

Index to Financial Statements

     F-1  

 

 

We and the underwriters have not authorized anyone to provide you any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside of the United States: we have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

4D Molecular Therapeutics™, Therapeutic Vector Evolution™, and our logo are some of our trademarks and tradenames used in this prospectus. This prospectus also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this prospectus may appear without the ® and ™ symbol, but those 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 right of the applicable licensor to these trademarks and tradenames.


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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before deciding to invest in our common stock, you should read this entire prospectus carefully, including the sections of this prospectus titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. Unless the context otherwise requires or as otherwise noted, references in this prospectus to the “company,” “4D Molecular Therapeutics,” “4DMT,” “we,” “us” and “our” refer to 4D Molecular Therapeutics, Inc.

4D Molecular Therapeutics, Inc.

Overview

We are a development stage precision gene therapy company dedicated to pioneering the development of targeted therapies based on our next-generation AAV vectors. Our proprietary Therapeutic Vector Evolution platform enables our “disease first” approach to product discovery and development, thereby allowing us to customize our AAV vectors to target specific tissue types associated with the underlying disease. Our proprietary AAV vectors are designed to provide targeted delivery by routine clinical routes, efficient transduction, reduced immunogenicity and resistance to pre-existing antibodies, which we believe will enable us to develop gene therapies that could overcome known limitations of conventional AAVs. As a result, we believe these key attributes will enable us to develop gene therapies with improved therapeutic profiles, pursue previously untreatable diseases and address a broad range of rare and large market diseases.

Our product candidates that are in or have completed Investigational New Drug (IND)-enabling studies include a wholly-owned asset in development for the treatment of Fabry disease, as well as two assets in ophthalmology. In ophthalmology, our product candidate for the treatment of X-linked Retinitis Pigmentosa (XLRP) is wholly-owned subject to an exclusive option for Roche to develop and commercialize the asset, and our product candidate for the treatment of Choroideremia is licensed to Roche. In addition, our wholly-owned product candidate for the treatment of Cystic Fibrosis has completed lead optimization and we expect to initiate IND-enabling studies in the first half of 2020. We expect to initiate our first clinical trials for these three product candidates in 2020. We also have a pipeline of product candidates in the lead optimization stage, including for the treatment of Duchenne Muscular Dystrophy (DMD) and Wet Age-Related Macular Degeneration (Wet AMD).

Our Therapeutic Vector Evolution Platform

While gene therapy holds tremendous promise as a transformative therapeutic class, the majority of gene therapeutic approaches utilize naturally-occurring or conventional AAV vectors that have encountered limitations such as high dose requirements, limited efficacy, inflammation and toxicity, and neutralization by pre-existing antibodies. As a result of these shortcomings, current efforts with conventional AAV vectors have focused on diseases in which a surgical technique is used for direct cell access such as subretinal injection for the retina, or a low level of gene expression may be sufficient for patient benefit, such as Hemophilia A or B treatment. Rather than using conventional AAV vectors for our products, we instead take a “disease first” approach by creating proprietary customized AAV vectors for each disease through our Therapeutic Vector Evolution platform. Our Therapeutic Vector Evolution platform is based on directed evolution, a high-throughput biological engineering and screening approach harnessing the power of natural selection to identify novel AAVs with desirable characteristics.



 

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As of September 1, 2019, we have a total of 37 distinct libraries with an estimated over one billion AAV vector sequences. We select customized AAVs based on the Target Vector Profile (TVP) for the disease, and we subsequently characterize each lead vector through extensive studies in non-human primates (NHPs) and proprietary human cell and organotypic tissue assays. Based on our preclinical data to date from NHPs and human cell models, including preclinical head-to-head comparisons with conventional AAVs, we observed that our precision gene therapy AAVs were well-tolerated and achieved enhanced delivery, increased transgene expression, reduced immunogenicity and/or improved antibody resistance when compared to conventional AAVs. Our preclinical data comparing vectors carrying and expressing a marker GFP transgene is summarized in the table below.

 

LOGO



 

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Our Pipeline

Our initial focus is on developing a broad pipeline of transformative gene therapy product candidates designed to treat patients suffering from lysosomal storage diseases, lung diseases, muscular dystrophies and ophthalmological diseases. We are developing a diverse pipeline of wholly-owned and partnered programs for both rare and large market diseases. We have not conducted any clinical trials but we expect to initiate our first clinical trials for these three product candidates in 2020. We believe our AAV products are modular, in that a single vector can be armed with different transgene payloads in order to treat multiple diseases within the same tissue types or therapeutic areas. Our pipeline is represented in the diagram below.

 

LOGO

 

*

Expected timing of milestone. FIH refers to first-in-human, Phase 1 or Phase 1/2, clinical studies.

**

We are responsible for development of this product candidate and Roche has an exclusive option to assume development and commercialization at its sole cost and expense. Such option may be exercised prior to pivotal trial initiation.

We are independently optimizing lead assets in this field. If we elect to declare product candidates in the field specified in our collaboration and license agreement with Roche, Roche could exercise the option to license, further develop and commercialize this product candidate at any time prior to pivotal trial initiation. See the section titled “Business—Strategic Collaborations—Collaboration and License Agreement with F. Hoffman Ltd. and Hoffman-La Roche Inc.” for further information.

Proof of concept studies for 4D-710 were conducted in a pig model of Cystic Fibrosis and utilized a species-specific (i.e., pig-specific) vector rather than the primate-specific 4D-A101 vector, which is the vector for Cystic Fibrosis product candidate 4D-710.

Lysosomal Storage Diseases

Our lead product candidate in lysosomal storage diseases, 4D-310, is wholly-owned and under development for the treatment of Fabry disease, a progressive and fatal condition with cardiac complications cited as the leading cause of death. Classic Fabry disease is known to affect at least 5,000 males in the United States. However, we estimate the incidence rate may be higher as recent newborn screening suggests the total number of individuals with Fabry-related genetic mutations in the United States, as well as France, Germany, Italy, Spain and the United Kingdom (the EU-5) could fall between 50,000 and 70,000. Moreover, a recent multicenter study estimated that 57% of patients seen



 

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in the clinic are of the classic phenotype. Thus, we estimate the total addressable male Fabry patient population in the United States to be approximately 10,000 individuals, and including the EU-5, we estimate the total addressable male population to be approximately 18,800 individuals. 4D-310 uses a proprietary vector designed for efficient, low dose intravenous delivery to cardiac and other relevant tissues and to have minimal toxicities, and potential resistance to pre-existing antibodies in the patient population. The approved enzyme replacement therapies (ERT) reportedly do not adequately address Fabry cardiomyopathy, a leading cause of death in this disease. In 2019, we initiated IND-enabling pharmacology and Good Laboratory Practices (GLP) toxicology and biodistribution studies with 4D-310, and in April 2019, we held a pre-IND meeting with the U.S. Food and Drug Administration (FDA). 4D-310 Phase 1/2 clinical trial initiation is planned for the second half of 2020. We expect initial human safety and biomarker data by                         .

Lung Diseases

Our lead product candidate in the lung therapeutic area, 4D-710, is wholly-owned and under development for the aerosol treatment of Cystic Fibrosis lung disease. Cystic Fibrosis is the most fatal inherited disease, affecting more than 70,000 patients worldwide. Cystic Fibrosis causes impaired lung function, inflammation and bronchiectasis and is commonly associated with repeat and persistent lung infections due to the inability to clear thickened mucus from the lung, often resulting in frequent exacerbations, hospitalizations and eventual end stage respiratory failure. We produced 4D-710 using a proprietary vector designed for efficient aerosol delivery to the lung airway, with enhanced penetration through mucus, efficient airway cell transduction and transgene expression, and resistance to pre-existing antibodies in the patient population. While several products have been approved for Cystic Fibrosis, they fall short of restoring normal lung function in most patients, and these chronic therapies require daily dosing for the patient’s lifetime. Additionally, approximately 10% of patients remain without a corrective treatment option. We expect to initiate IND-enabling study activities with 4D-710 in the first half of 2020.

Muscular Dystrophies

We are currently in the lead optimization phase for our wholly-owned research candidates for the treatment of certain muscular dystrophies, including DMD. DMD, a progressive and fatal muscular-wasting disease, is one of the most prevalent rare genetic diseases, with an estimated prevalence between 10,000 to 15,000 cases in the United States. Our product candidates are engineered from proprietary vectors designed for efficient, low dose intravenous delivery to cardiac and skeletal muscle tissues with minimal toxicities, and potential resistance to pre-existing antibodies in the human patient population. Several companies are developing gene therapies for DMD using conventional AAVs. While early clinical data in some programs have been encouraging, AAV gene therapies using conventional AAV vectors have been subject to inflammation-related toxicity issues and manufacturing challenges due to the relatively high doses required. In addition to requiring high doses, patients have been excluded from clinical trials due to pre-existing antibodies to the conventional vector used. We expect to complete lead optimization in 2020.

Ophthalmological Diseases

We have two ophthalmology product candidates that utilize our proprietary intravitreal vector for rare monogenic blinding diseases: 4D-125 in development for the treatment of XLRP and 4D-110 in development for the treatment of Choroideremia. Our proprietary vector for these ophthalmological diseases is designed for intravitreal injection, potentially leading to transgene expression across the surface area of the retina, and major cell layers of the retina. We have a broad partnership in



 

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ophthalmology with Roche, excluding DNA-directed RNA interference (ddRNAi) delivery. The partnership includes an option for Roche to license 4D-125 in XLRP, as well as other ophthalmology product candidates we may declare, prior to pivotal trial initiation. 4D-125 is expected to enter clinical trials in mid-2020. In addition, Roche currently holds a license to 4D-110 in Choroideremia. We expect to initiate 4D-110 clinical trials in the second half of 2020. We expect initial human safety and biomarker data for 4D-125 by                     .

We are currently in lead optimization for multiple product candidates that utilize our proprietary intravitreal vector, the same as for 4D-125 and 4D-110 described above, for the treatment of Wet AMD, each of which is engineered to express a different protein to neutralize vascular endothelial growth factor (VEGF). We expect to complete lead optimization in the first half of 2020.

Manufacturing

Our team has extensive experience with the manufacturing and analytical testing of numerous unique AAV capsids. To date, our team has internally manufactured approximately 50 unique AAV vector capsids, including both proprietary evolved 4DMT capsid variants and naturally-occurring capsids. Our team has manufactured over 100 total lots of AAV vectors. This total includes 9 lots of material for GLP toxicology and biodistribution studies. We initiated our first in-house manufacturing run for clinical trial material for use in patients, according to current Good Manufacturing Practices (cGMP), in 2019.

Our Team

We have an experienced team of biotherapeutics developers, innovative gene therapy scientists and clinicians to execute our product design and development strategy. Led by our Chief Executive Officer and co-founder, David Kirn, M.D., our team has more than 100 years of combined experience in the field of viral vector gene therapy, including leadership of over 30 clinical trials from Phase 1 through Phase 3. Our Chief Technical Officer and Head of Regulatory and Quality, Fred Kamal, Ph.D., has over 20 years of industry experience in product manufacturing and quality, including most recently with AveXis where he was a key contributor to the development and writing of the quality and manufacturing sections of the biologics license application (BLA) for the AAV product Zolgensma. Our Chief Scientific Advisor and co-founder, David Schaffer, Ph.D., pioneered the application of directed evolution to the capsid of AAV vectors over 15 years ago.

Our Investors

We have raised $108.6 million from the sale and issuance of our preferred stock to leading investors including Viking Global Investors, Janus Henderson Investors, The Biotechnology Value Fund, Arrowmark Partners, Pfizer Ventures, Mirae Asset Financial Group, Perceptive Advisors, Ridgeback Capital Investments, Pappas Capital and Chiesi Ventures.

Our Strategy

To achieve our goal of unlocking the full potential of gene therapy for many patient populations, we strive to achieve the following:

 

   

Develop transformative precision gene therapies using the power of directed evolution and our “disease first” approach.

 

   

Design, develop and commercialize a diverse portfolio of product candidates in a broad range of therapeutic areas for both rare and large market diseases.



 

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Continue to expand our cGMP manufacturing capabilities.

 

   

Protect, defend and expand our intellectual property portfolio of proprietary AAV vectors discovered through directed evolution or Therapeutic Vector Evolution.

 

   

Selectively partner with leading pharmaceutical companies to harness the full potential of our platform while retaining product rights in key markets, and work closely with patient advocacy groups to inform our programs.

Risks Associated with Our Business

Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more fully in the section titled “Risk Factors,” immediately following this prospectus summary. These risks include the following, among others:

 

   

We are in the early stages of drug development, and we have a very limited operating history and no products approved for commercial sale, which may make it difficult to evaluate our current business and predict our future success and viability.

 

   

We have incurred significant net losses since inception and we expect to continue to incur significant net losses for the foreseeable future.

 

   

Even if this offering is successful, we will require substantial additional capital to finance our operations. If we fail or are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce and/or eliminate one or more of our research and drug development programs, future commercialization efforts or other operations.

 

   

All of our product candidates are based on a novel AAV gene therapy technology with which there is limited regulatory and no clinical experience to date, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval.

 

   

Gene therapies are novel, complex and difficult to manufacture. We could experience production problems that result in delays in our development or commercialization programs, limit the supply of our products or otherwise seriously harm our business.

 

   

Adverse public perception or regulatory scrutiny of gene therapy technology may negatively impact the developmental progress or commercial success of products that we develop alone or with collaborators.

 

   

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

 

   

The regulatory approval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, expensive, time consuming, and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, we will be unable to generate product revenue and our business will be substantially harmed.

 

   

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

 

   

Our success depends on our ability to protect our intellectual property and our proprietary technologies.



 

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Our rights to develop and commercialize our product candidates are subject in part to the terms and conditions of licenses granted to us by others, and the patent protection, prosecution and enforcement for some of our product candidates may be dependent on our licensors.

Corporate Information

We were formed on September 12, 2013 as a Delaware limited liability corporation under the name 4D Molecular Therapeutics, LLC. On March 11, 2015, 4D Molecular Therapeutics, Inc. was incorporated as a Delaware corporation. On March 20, 2015, 4D Molecular Therapeutics, LLC merged with 4D Molecular Therapeutics, Inc. with 4D Molecular Therapeutics, Inc. being the surviving entity. Our principal executive offices are located at 5858 Horton Street #455, Emeryville, California 94608, and our telephone number is (510) 505-2680. Our website address is www.4dmoleculartherapeutics.com. The information on, or that can be accessed through, our website is not part of this prospectus. We have included our website address as an inactive textual reference only.

Implications of Being an Emerging Growth Company

We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We will remain an emerging growth company until the earlier of (i) the last day of the year following the fifth anniversary of the completion of this offering, (ii) the last day of the year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the Exchange Act), which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

 

   

we will present only two years of audited financial statements, plus unaudited financial statements for any interim period, and related management’s discussion and analysis of financial condition and results of operations;

 

   

we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act);

 

   

we will provide less extensive disclosure about our executive compensation arrangements;

 

   

we will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements; and

 

   

we will take advantage of extended transition periods to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies.

As a result, the information in this prospectus and that we provide to our investors in the future may be different than what you might receive from other public reporting companies.



 

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THE OFFERING

 

Common stock offered by us

            shares.

 

Underwriters’ over-allotment option

We have granted the underwriters a 30-day over-allotment option to purchase up to             additional shares of our common stock.

 

Common stock to be immediately outstanding after the offering

            shares (or             shares if the underwriters exercise their over-allotment option in full).

 

Use of proceeds

We estimate that the net proceeds from this offering will be approximately $         million, or approximately $         million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We currently expect to use the net proceeds from this offering to fund the ongoing and planned preclinical and clinical development of our product candidates, further the development and expansion of our pipeline, the continued expansion of our manufacturing and research and development capabilities and the remainder for working capital and general corporate purposes. See the section titled “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

 

Risk factors

See the section titled “Risk Factors” and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest in our common stock.

 

Proposed Nasdaq Global Market trading symbol

“DDDD.”

The number of shares of our common stock to be outstanding after this offering is based on 12,516,975 shares of our common stock (including our redeemable convertible preferred stock on an as-converted basis) outstanding as of June 30, 2019, and excludes:

 

   

2,192,230 shares of our common stock issuable upon the exercise of stock options to purchase common stock that were outstanding as of June 30, 2019, with a weighted-average exercise price of $6.10 per share;

 

   

68,669 shares of our common stock issuable upon the exercise of outstanding warrants with weighted-average exercise price of $1.85 per share;



 

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399,886 shares of our common stock reserved for issuance pursuant to future awards under our 2015 Equity Incentive Plan (the Plan) and associated amendments as of June 30, 2019;

 

   

            shares of our common stock reserved for issuance pursuant to future awards under our 2019 Equity Incentive Award Plan (the 2019 Plan), as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the completion of this offering; and

 

   

            shares of our common stock reserved for issuance pursuant to future awards under our 2019 Employee Stock Purchase Plan (the ESPP), as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the completion of this offering.

In addition, unless we specifically state otherwise, all information in this prospectus reflects and assumes the following:

 

   

a         -for-         forward stock split of our capital stock to be effected prior to the effectiveness of the registration statement of which this prospectus is a part;

 

   

the conversion of 7,375,631 shares of our outstanding redeemable convertible preferred stock as of June 30, 2019 into an equivalent number of shares of our common stock immediately prior to the completion of this offering;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering;

 

   

no exercise of outstanding stock options or warrants described above; and

 

   

no exercise of the underwriters’ over-allotment option.

Unless otherwise specified and unless the context otherwise requires, we refer to our Series A, Series A-1 and Series B redeemable convertible preferred stock collectively as, redeemable convertible preferred stock in this prospectus, as well as for financial reporting purposes and in the financial tables included elsewhere in this prospectus, as more fully explained in Note 10 to our financial statements included elsewhere in this prospectus.



 

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Summary Financial Data

The following tables summarize our financial data for the periods and as of the dates indicated. We derived the summary statements of operations and comprehensive loss data for the years ended December 31, 2017 and 2018 and the summary balance sheet data as of December 31, 2018 from our audited financial statements included elsewhere in this prospectus. We derived the summary statements of operations and comprehensive loss data for the six months ended June 30, 2018 and 2019 and the summary balance sheet data as of June 30, 2019 from our unaudited interim financial statements that are included elsewhere in this prospectus. Our unaudited interim financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) on the same basis as our audited financial statements and include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, that are necessary for the fair statement of the financial information set forth in those financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future and our historical results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the remainder of 2019.



 

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You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the information under the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

    Year Ended December 31,     Six Months Ended
June 30, 
 
    2017     2018     2018     2019  
    (in thousands, except share and per share data)  

Revenue:

       

Collaboration and research revenue, related parties

  $ 3,176     $ 5,143     $ 143     $ 26  

Collaboration and research revenue

    2,614       8,987       4,926       4,390  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    5,790       14,130       5,069       4,416  

Operating expenses:

       

Research and development

    13,573       18,362       8,208       16,985  

General and administrative

    3,489       6,167       2,198       4,884  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    17,062       24,529       10,406       21,869  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (11,272     (10,399     (5,337     (17,453

Other income (expense):

       

Interest income

    89       850       147       945  

Other income (expense), net

    (40     (2     4       (8
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    49       848       151       937  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

  $ (11,223   $ (9,551   $ (5,186   $ (16,516
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    (2.27     (1.89     (1.03     (3.22
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted(1)

    4,953,419       5,049,203       5,021,003       5,132,714  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted(1)

       
   

 

 

     

 

 

 

Weighted-average shares outstanding used in computing pro forma net loss per share, basic and diluted(1)

       
   

 

 

     

 

 

 

 

(1)

See Notes 2 and 14 to our financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share attributable to common stockholders, pro forma net loss per share, and the weighted-average number of shares of our common stock used in the computation of the per share amounts.



 

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     As of
June 30, 2019
 
     Actual     Pro Forma(1)      Pro Forma
As  Adjusted(2)(3)
 
     (in thousands)  

Balance Sheet Data:

       

Cash and cash equivalents

   $             72,869     $                            $                        

Working capital(4)

     66,842       

Total assets

     80,500       

Redeemable convertible preferred stock

     102,980       

Accumulated deficit

     (46,235     

Total stockholders’ (deficit) equity

     (42,304     

 

(1)

The pro forma column in the balance sheet data table above gives effect to (i) the conversion of 7,375,631 shares of our outstanding redeemable convertible preferred stock as of June 30, 2019 into an equivalent number of shares of our common stock immediately prior to the completion of this offering; and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur, in each case, immediately prior to the completion of this offering.

(2)

The pro forma as adjusted column in the balance sheet data table above gives effect to (i) the pro forma adjustments set forth in footnote (i) above and (ii) the sale and issuance of shares of our common stock in this offering, assuming an initial public offering price of $                 per share, the midpoint of the estimated price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

Each $1.00 increase or decrease in the assumed initial public offering price of $                 per share, the midpoint of the estimated price range set forth on the cover of this prospectus, would increase or decrease, as applicable, each of the amount of our cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by $                 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discount and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase or decrease of 1.0 million in the number of shares we are offering would increase or decrease, as applicable, each of the amount of our cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $                 million, assuming the assumed initial public offering price per share, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

(4)

We define working capital as current assets less current liabilities. See our financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. If any of the following risks actually occurs, our business, reputation, financial condition, results of operations, revenue and future prospects could be seriously harmed. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. Unless otherwise indicated, references to our business being seriously harmed in these risk factors and elsewhere will include harm to our business, reputation, financial condition, results of operations, future prospects and stock price. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

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

We are in the early stages of drug development and have a very limited operating history and no products approved for commercial sale, which may make it difficult to evaluate our current business and predict our future success and viability.

We are a development-stage biopharmaceutical company specializing in the development of novel, precision AAV vectors, for gene therapies that are generated through our proprietary directed evolution platform. We commenced operations in September 2013, have no products approved for commercial sale and have not generated any product revenue. Drug development is a highly uncertain undertaking and involves a substantial degree of risk. We expect to begin our first clinical trial in the middle of 2020. If our product candidates are not successfully developed and approved, we may never generate any revenue. To date, we have not initiated or completed any clinical trials (including any pivotal clinical trial), obtained marketing approval for any product candidates, manufactured commercial scale quantities of any of our product candidates or arranged for a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful product commercialization. Our limited operating history as a company and early stage of drug development make any assessment of our future success and viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage biopharmaceutical companies in rapidly evolving fields, and we have not yet demonstrated an ability to successfully overcome such risks and difficulties. If we do not address these risks and difficulties successfully, our business will be seriously harmed.

We have incurred significant net losses since inception and we expect to continue to incur significant net losses for the foreseeable future.

We have incurred net losses in each reporting period since our inception, including net losses of $11.2 million and $9.6 million for the years ended December 31, 2017 and 2018, respectively. As of June 30, 2019, we had an accumulated deficit of $46.2 million.

We have devoted substantially all of our financial resources and efforts in research and development activities, including for our product candidates and our Therapeutic Vector Evolution platform. We do not expect to generate revenue from product sales for several years, if at all. We continue to incur significant research and development and other expenses related to our ongoing operations. The amount of our future net losses will depend, in part, on the level of our future expenditures and our ability to generate revenue. Moreover, our net losses 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 and increasingly higher expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

 

   

progress our current and any future product candidates through preclinical and clinical development;

 

   

expand our manufacturing facilities and work with our contract manufacturers to scale up the manufacturing processes for our product candidates;

 

   

continue our research and discovery activities;

 

   

continue the development of our Therapeutic Vector Evolution platform;

 

   

initiate and conduct additional preclinical, clinical or other studies for our product candidates;

 

   

change or add additional contract manufacturers or suppliers;

 

   

seek regulatory approvals and marketing authorizations for our product candidates;

 

   

establish sales, marketing and distribution infrastructure to commercialize any products for which we obtain approval;

 

   

acquire or in-license product candidates, intellectual property and technologies;

 

   

make milestone, royalty or other payments due under any current or future collaboration or license agreements;

 

   

obtain, maintain, expand, protect and enforce our intellectual property portfolio;

 

   

attract, hire and retain qualified personnel;

 

   

experience any delays or encounter other issues related to our operations;

 

   

meet the requirements and demands of being a public company; and

 

   

defend against any product liability claims or other lawsuits related to our products.

Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ deficit and working capital. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.

Even if this offering is successful, we will require substantial additional capital to finance our operations. If we fail or are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce and/or eliminate one or more of our research and drug development programs, future commercialization efforts or other operations.

Developing biopharmaceutical products, including conducting preclinical studies and clinical trials, is a very time consuming, expensive and uncertain process that takes years to complete. Our operations have required substantial amounts of cash since inception. To date, we have financed our operations primarily through the sale of equity securities, and to a lesser extent, payments pursuant to our collaboration agreements. We expect to initiate clinical trials in the middle of 2020 and have several other product candidates in preclinical development that may enter clinical development shortly thereafter. Developing our product candidates is expensive, and we expect to continue to spend substantial amounts as we fund our early-stage research projects, continue preclinical development of our product candidates and, in particular, advance our product candidates through clinical trials. Even if we are successful in developing our product candidates, obtaining regulatory approvals and launching and commercializing any product candidate will require substantial additional funding beyond the net proceeds of this offering.

 

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As of June 30, 2019, we had $72.9 million in cash and cash equivalents. Based on our current operating plan, we estimate that our existing cash and cash equivalents, together with the anticipated net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next              months. Our estimate as to how long we expect our existing cash and cash equivalents to be available to fund our operations is based on assumptions that may prove inaccurate, and we could use our available capital resources sooner than we currently expect. In addition, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may need to raise additional funds sooner than we anticipate if we choose to expand more rapidly than we presently anticipate.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:

 

   

delay, limit, reduce or terminate preclinical studies, clinical trials or other research and development activities or eliminate one or more of our development programs altogether; or

 

   

delay, limit, reduce or terminate our efforts to establish manufacturing and sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates, or reduce our flexibility in developing or maintaining our sales and marketing strategy.

We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to, or jointly own some aspects of, our product candidates or technologies that we would otherwise pursue on our own. We do not expect to realize revenue from sales of products or royalties from licensed products in the foreseeable future, if at all, and unless and until a product candidate is clinically tested, approved for commercialization and successfully marketed.

We will be required to seek additional funding in the future and currently intend to do so through collaborations, public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these funding sources. Our ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond our control. Additional funds may not be available to us on acceptable terms or at all. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets.

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 one or more of our product candidates or one or more of our other research and development initiatives. Any of the above events could significantly harm our business and cause the price of our common stock to decline.

Due to the significant resources required for the development of our product candidates, and depending on our ability to access capital, we must prioritize development of certain product candidates. Moreover, we may expend our limited resources on product candidates that do not yield a successful product and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Due to the significant resources required for the development of our product candidates, in particular our product candidates in IND-enabling studies or those in clinical trials, we must decide

 

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which product candidates and indications to pursue and advance and the amount of resources to allocate to each. Our decisions concerning the allocation of research, development, collaboration, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of any viable commercial product and may divert resources away from better opportunities. Similarly, our potential decisions to delay, terminate or collaborate with third parties in respect of certain product candidates may subsequently also prove to be less than optimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the viability or market potential of any of our product candidates or misread trends in the biopharmaceutical industry, in particular for lysosomal storage diseases, lung diseases, muscular dystrophies and ophthalmological diseases, our business could be seriously harmed. 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 than those we choose to pursue, 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 invest additional resources to retain sole development and commercialization rights.

The amount of our future losses is uncertain and our quarterly operating results may fluctuate significantly or may all below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.

Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control and may be difficult to predict, including:

 

   

the timing and success or failure of preclinical studies and clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or collaboration partners;

 

   

the timing and cost of, and level of investment in research, development and commercialization activities, which may change from time to time;

 

   

the timing of receipt of approvals from regulatory authorities in the United States and internationally;

 

   

the timing and status of enrollment and safety and efficacy readouts for our clinical trials;

 

   

the cost of manufacturing, as well as building out our supply chain, which may vary depending on the quantity of production, the cost of continuing to establish and scale up our internal manufacturing capabilities, and the terms of any agreements we enter into with third-party suppliers;

 

   

timing and amount of any option, milestone, royalty or other payments due under any current or future collaboration or license agreement;

 

   

coverage and reimbursement policies with respect to our gene therapy product candidates and potential future drugs that compete with our products, if approved;

 

   

expenditures that we may incur to acquire, develop or commercialize additional products and technologies;

 

   

the level of demand for our gene therapy products, if approved, which may vary significantly over time; and

 

   

future accounting pronouncements or changes in our accounting policies.

The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-

 

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period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance.

This variability and unpredictability could also result in our failing to meet the expectations of financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings guidance we may provide.

Risks Related to the Research, Discovery, Development and Commercialization of Our Product Candidates

All of our product candidates are based on a novel AAV gene therapy technology with which there is limited regulatory and no clinical experience to date, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval.

All of our product candidates are based on gene therapy technology and our future success depends on the successful development of this novel therapeutic approach. We cannot assure you that any development problems we or other gene therapy companies experience in the future related to gene therapy technology will not cause significant delays or unanticipated costs in the development of our product candidates, or that such development problems can be solved. In addition, the clinical study requirements of the U.S. Food and Drug Administration (FDA) and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively studied therapeutic modalities. Further, as we are developing novel treatments for diseases in which there is limited clinical experience with new endpoints and methodologies, there is heightened risk that the FDA, European Medicines Agency (EMA) or comparable foreign regulatory bodies may not consider the clinical trial endpoints to provide clinically meaningful results, and the resulting clinical data and results may be more difficult to analyze. To date, few gene therapy products have been approved by the FDA or comparable foreign regulatory authorities, which makes it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in the United States, the European Union or other jurisdictions. Further, approvals by one regulatory agency may not be indicative of what other regulatory agencies may require for approval.

Regulatory requirements governing gene therapy products have evolved and may continue to change in the future. For example, the FDA established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research (CBER) to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. These and other regulatory review agencies, committees and advisory groups and the requirements and guidelines they promulgate may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions.

Under the National Institutes of Health (NIH) Guidelines for Research Involving Recombinant DNA Molecules (NIH Guidelines), supervision of human gene transfer trials, including evaluation and assessment by an Institutional Biosafety Committee (IBC) a local institutional committee that reviews

 

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and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution, is required. The IBC assesses the safety of the research and identifies any potential risk to the public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them.

We are subject to significant regulatory oversight by the FDA, and in addition to the government regulators, the applicable IBC and Institutional Review Board (IRB), of each institution at which we or our collaborators conduct clinical trials of our product candidates, or a central IRB if appropriate, would need to review and approve the proposed clinical trial.

Similarly, the EMA governs the development of gene therapies in the European Union and may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines.

Changes in applicable regulatory guidelines may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions.

As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and could negatively impact our ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all.

Adverse public perception or regulatory scrutiny of gene therapy technology may negatively impact the developmental progress or commercial success of products that we develop alone or with collaborators.

The developmental and commercial success of our current product candidates, or any that we develop alone or with collaborators in the future, will depend in part on public acceptance of the use of gene therapy technology, including the use of AAVs, for the prevention or treatment of human diseases. Adverse public perception of gene therapies may negatively impact our ability to raise capital or enter into strategic agreements for the development of product candidates.

Gene therapy remains a novel technology. The commercial success of our gene therapy products, if successfully developed and approved, may be adversely affected by claims that gene therapy is unsafe, unethical or immoral. This may lead to unfavorable public perception and the inability of any of our product candidates to gain the acceptance of the public or the medical community. Unfavorable public perceptions may also adversely impact our or our collaborators’ ability to enroll clinical trials for our product candidates. Moreover, success in commercializing any product candidates that receive regulatory approval will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of such product candidates in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available.

Publicity of any adverse events in, or unfavorable results of, preclinical studies or clinical trials for any current or future product candidates, or with respect to the studies or trials of our competitors or of

 

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academic researchers utilizing similar technologies, even if not ultimately attributable to our technology or product candidates, could negatively influence public opinion. Negative public perception about the use of AAV technology in human therapeutics, whether related to our technology or a competitor’s technology, could result in increased governmental regulation, delays in the development and commercialization of product candidates or decreased demand for the resulting products, any of which may have a negative impact on our business and financial condition.

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.

Adverse events or other undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities.

During the conduct of clinical trials, patients report changes in their health, including illnesses, injuries, and discomforts, to their study doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these conditions. It is possible that as we test our product candidates in larger, longer and more extensive clinical trials, or as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in previous trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by patients. Many times, side effects are only detectable after investigational products are tested in large-scale, Phase 3 clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval.

If any serious adverse events occur, clinical trials or commercial distribution of any product candidates or products we develop alone or with collaborators could be suspended or terminated, and our business could be seriously harmed. Treatment-related side effects could also affect patient recruitment and the ability of enrolled patients to complete the trial or result in potential liability claims. Regulatory authorities could order us or our collaborators to cease further development of, deny approval of, or require us to cease selling any product candidates or products for any or all targeted indications. If we or our collaborators elect, or are required, to delay, suspend or terminate any clinical trial or commercialization efforts, the commercial prospects of such product candidates or products may be harmed, and our ability to generate product revenues from them or other product candidates that we develop may be delayed or eliminated. Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects or adverse events caused by such products, a number of potentially significant negative consequences could result, including but not limited to:

 

   

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

 

   

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

 

   

we may be required to change the way the product is administered or conduct additional clinical trials or post-approval studies;

 

   

we may be required to create a Risk Evaluation and Mitigation Strategy (REMS), 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;

 

   

the product may become less competitive;

 

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

 

   

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

 

   

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could seriously harm our business.

Drug development is a highly uncertain undertaking and involves a substantial degree of risk. We have no products approved for commercial sale, and we have never generated any revenue from product sales, and we may never generate revenue or be profitable.

We have no products approved for commercial sale and have not generated any revenue from product sales. We do not anticipate generating any revenue from product sales until after we have successfully completed clinical development and received regulatory approval for the commercial sale of a product candidate, which will not occur for several years if ever.

Our ability to generate revenue and achieve profitability depends significantly on many factors, including:

 

   

successfully completing research and preclinical and clinical development of our product candidates;

 

   

obtaining regulatory approvals and marketing authorizations for product candidates for which we successfully complete clinical development and clinical trials;

 

   

developing a sustainable and scalable manufacturing process for our product candidates, as well as establishing and maintaining commercially viable supply relationships with third parties that can provide adequate products and services to support clinical activities and any commercial demand for our 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;

 

   

the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates or future approved products, if any;

 

   

launching and successfully commercializing product candidates for which we obtain marketing approval, either by collaborating with a partner or, if launched independently, by establishing a sales, marketing and distribution infrastructure;

 

   

obtaining and maintaining an adequate price for our product candidates, both in the United States and in foreign countries where our products are commercialized;

 

   

obtaining adequate reimbursement for our product candidates or procedures using our product candidates from payors;

 

   

the convenience and durability of our treatment or dosing regimen;

 

   

acceptance by physicians, payors and patients of the benefits, safety and efficacy of our product candidate or any future product candidates, if approved, including relative to alternative and competing treatments;

 

   

patient demand for any of our product candidates that may be approved;

 

   

addressing any competing technological and market developments;

 

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

 

   

attracting, hiring and retaining qualified personnel.

Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of our expenses, or when we will be able to generate any meaningful revenue or achieve or maintain profitability, if ever. In addition, our expenses could increase beyond our current expectations if we are required by the FDA or foreign regulatory agencies, to perform studies in addition to those that we currently anticipate, or if there are any delays in any of our or our future collaborators’ clinical trials or the development of any of our product candidates. Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate and ongoing compliance efforts.

Even if we are able to generate revenue from the sale of any approved products, we may not become profitable, and we will need to obtain additional funding through one or more equity or debt financings in order to continue operations. Revenue from the sale of any product candidate for which regulatory approval is obtained 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 addressable patients is not as significant as we anticipate, the indication approved by regulatory authorities is narrower than we expect, the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines or the price and available third party reimbursement are lower than anticipated, we may not generate significant revenue from sales of such products, even if approved. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product candidates or continue our operations and cause a decline in the value of our common stock, all or any of which may seriously harm our business.

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

Clinical testing is expensive, time consuming, and subject to uncertainty. To date, neither we nor our collaborators have initiated any clinical trials for any product candidates. We cannot guarantee that any clinical trials will be initiated or conducted as planned or completed on schedule, if at all. For example, recently a manufacturing batch of our product candidate 4D-110 produced at a CMO failed to meet the specifications required for use in our planned clinical trial due to an issue identified with one of the plasmids used in the manufacturing process. As a result, we delayed the initiation of our planned first-in-human trial of 4D-110 until the second half of 2020, so that we could produce the clinical-grade material required for the trial using our in-house manufacturing facility. We also cannot be sure that submission of an IND or a clinical trial application (CTA) will result in the FDA or other regulatory authority, as applicable, allowing clinical trials to begin in a timely manner, if at all. Moreover, even if these trials begin, issues may arise that could suspend or terminate such clinical trials. A failure of one or more clinical trials can occur at any stage of testing, and our future clinical trials may not be successful. Events that may prevent successful or timely initiation or completion of clinical trials include:

 

   

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

 

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delays in reaching a consensus with regulatory agencies on study design or implementation of the clinical trials;

 

   

delays or failure in obtaining regulatory authorization to commence a trial;

 

   

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

 

   

delays in identifying, recruiting and training suitable clinical investigators;

 

   

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

 

   

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

 

   

insufficient or inadequate supply or quality of product candidates or other materials necessary for use in clinical trials, or delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for clinical trials;

 

   

imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND or amendment, CTA or amendment, or equivalent foreign application or amendment; as a result of a new safety finding that presents unreasonable risk to clinical trial participants; or a negative finding from an inspection of our clinical trial operations or study sites;

 

   

developments on trials conducted by competitors for related technology that raises FDA or foreign regulatory authority concerns about risk to patients of the technology broadly; or if the FDA or a foreign regulatory authority finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;

 

   

delays caused by patients withdrawing from clinical trials or failing to return for post-treatment follow-up;

 

   

difficulty collaborating with patient groups and investigators;

 

   

failure by our CROs, other third parties, or us to adhere to clinical trial protocols;

 

   

failure to perform in accordance with the FDA’s or any other regulatory authority’s good clinical practice requirements (GCPs) or applicable regulatory guidelines in other countries;

 

   

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 trials of our product candidates being greater than we anticipate;

 

   

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

 

   

transfer of manufacturing processes to larger-scale facilities operated by a contract manufacturing organization (CMO) or by us, and delays or failure by our CMOs or us to make any necessary changes to such manufacturing process; and

 

   

third parties being unwilling or unable to satisfy their contractual obligations to us.

 

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Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the severity and difficulty of diagnosing the disease under investigation, size of the patient population and process for identifying subjects, eligibility and exclusion criteria for the trial in question, design of the trial protocol, availability and efficacy of approved therapies or other clinical trials for the disease or condition under investigation, perceived risks and benefits of the product candidate under trial or testing, availability of genetic testing for potential patients, efforts to facilitate timely enrollment in clinical trials, patient referral practices of physicians, ability to obtain and maintain subject consent, the risk that enrolled subjects will drop out before completion of the trial, the ability to monitor patients adequately during and after treatment, and the proximity and availability of clinical trial sites for prospective patients. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and while we have agreements governing their committed activities, we have limited influence over their actual performance.

Any inability to successfully initiate or complete clinical trials 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 trial 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 seriously harm our business.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the data safety monitoring board for such trial or by the FDA or any other regulatory authority, or if the IRBs of the institutions in which such trials are being conducted suspend or terminate the participation of their clinical investigators and sites subject to their review. Such authorities may suspend or terminate a clinical trial 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.

Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

The limited number of patients who have the diseases for which our product candidates are being studied may make it more difficult for us to enroll or complete clinical studies, or may result in findings in our clinical studies that do not reach levels of statistical significance sufficient for marketing approval.

Each of the conditions for which we plan to evaluate our current product candidates is a rare genetic disease. Accordingly, there are limited patient pools from which to draw for clinical studies. In addition to the rarity of these diseases, the eligibility criteria of our clinical studies will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe enough or not too advanced to include them in a study. We or our collaborators may not be able to initiate or continue clinical trials on a timely basis or at all for any of our product candidates if we or our collaborators are unable to locate and enroll a sufficient number of eligible patients to participate in the trials as required by applicable regulations or as needed to provide appropriate statistical power for a given trial. Similarly, because most of the

 

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conditions we intend to treat are rare in nature, we plan to design and conduct clinical trials utilizing a small number of patients in order to evaluate the safety and therapeutic activity of our product candidates. Conducting trials in smaller subject populations increases the risk that any safety or efficacy issues observed in only a few patients could prevent such studies from reaching statistical significance or otherwise meeting their specified endpoints, which could require us to conduct additional clinical studies, or delay or prevent our product candidates from receiving regulatory approval, which would seriously harm our business.

Research and development of biopharmaceutical products is inherently risky. We cannot give any assurance that any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized.

We are at an early stage of development of our product candidates. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize our product candidates, and we may fail to do so for many reasons, including the following:

 

   

our product candidates may not successfully complete preclinical studies or clinical trials;

 

   

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

 

   

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

 

   

our competitors may develop platform technologies that render our Therapeutic Vector Evolution platform technology obsolete or less attractive;

 

   

the product candidates and Therapeutic Vector Evolution platform technology that we develop may not be sufficiently covered by intellectual property for which we hold exclusive rights or may be covered by third party patents or other intellectual property or exclusive rights;

 

   

the market for a product candidate may change so that the continued development of that product candidate is no longer reasonable or commercially attractive;

 

   

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

 

   

if a product candidate obtains regulatory approval, we may be unable to establish sales and marketing capabilities, or successfully market such approved product candidate; and

 

   

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

If any of these events occur, we or our collaborators may be forced to abandon our development efforts for a product candidate or candidates, which would seriously harm our business. Failure of a product candidate may occur at any stage of preclinical or clinical development, and, because our product candidates and our Therapeutic Vector Evolution platform technology are in an early stage of development, there is a relatively higher risk of failure and we may never succeed in developing marketable products or generating product revenue.

We may not be successful in our efforts to further develop our Therapeutic Vector Evolution platform technology and current product candidates. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. Each of our product candidates is in the early stages of development and will require

 

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significant additional clinical development, management of preclinical, clinical, and manufacturing activities, regulatory approval, adequate manufacturing supply, a commercial organization, and significant marketing efforts before we generate any revenue from product sales, if at all. Any clinical studies that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidates. If the results of our ongoing or future clinical studies are inconclusive with respect to the efficacy of our product candidates or if we do not meet the clinical endpoints with statistical significance or if there are safety concerns or adverse events associated with our product candidates, we may be prevented or delayed in obtaining marketing approval for our product candidates.

If any of our product candidates successfully completes clinical trials, we generally plan to seek regulatory approval to market our product candidates in the United States, the European Union, and in additional foreign countries where we believe there is a viable commercial opportunity. We have never commenced, compiled or submitted an application seeking regulatory approval to market any product candidate. We may never receive regulatory approval to market any product candidates even if such product candidates successfully complete clinical trials, which would adversely affect our viability. To obtain regulatory approval in countries outside the United States, we must comply with numerous and varying regulatory requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing and distribution of our product candidates. We may also rely on our collaborators or collaboration partners to conduct the required activities to support an application for regulatory approval, and to seek approval, for one or more of our product candidates. We cannot be sure that our collaborators or collaboration partners will conduct these activities successfully or do so within the timeframe we desire. Even if we (or our collaborators or collaboration partners) are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdictions. Failure to obtain approval for our product candidates in multiple jurisdictions, will seriously harm our business.

Even if we receive regulatory approval to market any of our product candidates, we cannot assure you that any such product candidate will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. Any approval we may obtain could be for indications or patient populations that are not as broad as intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We may also be required to perform additional or unanticipated clinical studies to obtain approval or be subject to additional post-marketing testing requirements to maintain approval. In addition, regulatory authorities may withdraw their approval of a product or impose restrictions on its distribution, such as in the form of a REMS. The failure to obtain timely regulatory approval of product candidates, any product marketing limitations or a product withdrawal would seriously harm our business.

Investment in biopharmaceutical product development involves significant risk that any product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, and become commercially viable. We cannot provide any assurance that we will be able to successfully advance any of our product candidates through the development process or, if approved, successfully commercialize any of our product candidates.

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

Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we or our collaborators must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication. Further, because our product candidates are subject to regulation as biological drug

 

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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.

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 of our product candidates may not be predictive of the results of early-stage or later-stage clinical trials, and results of early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. The results of clinical trials in one set of patients or disease indications may not be predictive of those obtained in another. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. 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.

We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. We cannot be certain that our planned clinical trials or any other future clinical trials will be successful. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory approval of our product candidates in those and other indications, which could seriously harm our business.

In addition, even if such clinical 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 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. Even if regulatory approval is secured for any of our product candidates, the terms of such approval may limit the scope and use of our product candidate, which may also limit its commercial potential.

Interim “top-line” and preliminary data from studies or trials that we announce or publish from time to time may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim “top-line” or preliminary data from preclinical studies or clinical trials. Interim data are subject to the risk that one or more of the outcomes may materially change as more data become available. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Additionally, interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could seriously harm our business.

 

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

We may not be successful in our efforts to continue to create a pipeline of product candidates or to develop commercially successful products. If we fail to successfully identify and develop additional product candidates, our commercial opportunity may be limited.

One of our strategies is to identify and pursue clinical development of additional product candidates through our Therapeutic Vector Evolution platform technology. Our Therapeutic Vector Evolution platform technology may not produce a pipeline of viable product candidates, or our competitors may develop platform technologies that render our Therapeutic Vector Evolution platform technology obsolete or less attractive. Our research methodology may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make them unmarketable or unlikely to receive marketing approval. Identifying, developing and obtaining regulatory approval and commercializing additional product candidates will require substantial additional funding beyond the net proceeds of this offering and is prone to the risks of failure inherent in drug development. If we are unable to successfully identify, acquire, develop and commercialize additional product candidates, our commercial opportunity may be limited.

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

The development and commercialization of new drug products is highly competitive. We may face competition with respect to any product candidates that we seek to develop or commercialize in the future from major pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.

There are a number of large pharmaceutical and biotechnology companies that are currently pursuing the development of products for the treatment of the indications for which we have product candidates, including Fabry disease, Cystic Fibrosis, XLRP and Choroideremia. Certain of our competitors have commercially approved products for the treatment of the diseases that we are pursuing or may pursue in the future, including Roche, Sanofi, Takeda and Vertex. These drugs are well established therapies and are widely accepted by physicians, patients and third-party payors, which may make it difficult to convince these parties to switch to our product candidates. Companies that we are aware are developing therapeutics in the lysosomal storage diseases, lung diseases, muscular dystrophies and ophthalmological diseases areas include large companies with significant financial resources, such as Allergan, Novartis, Pfizer, Regeneron, Roche, Sanofi, Takeda and Vertex, and biopharmaceutical companies such as Avrobio, Freeline, Sangamo and Sarepta. In addition to competition from other companies targeting lysosomal storage, lung, muscular dystrophy and

 

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ophthalmologic indications, any products we may develop may also face competition from other types of therapies, such as gene-editing therapies and drug delivery devices.

Many of our current or potential competitors, either alone or with their strategic partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our product candidates. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Furthermore, currently approved products could be discovered to have application for treatment of lysosomal storage, lung, muscular dystrophy and ophthalmologic indications, which could give such products significant regulatory and market timing advantages over any of our product candidates. Our competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly than we may obtain approval for ours. Additionally, products or technologies developed by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing any product candidates we may develop against competitors.

If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any product candidates we may develop, we may not be successful in commercializing those product candidates if and when they are approved.

We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing and commercial support infrastructure to sell, or participate in sales activities with our collaborators for, some of our product candidates if and when they are approved.

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

Factors that may inhibit our efforts to commercialize any approved product on our own include:

 

   

our inability to recruit and retain adequate numbers of effective sales, marketing, reimbursement, compliance, customer service, medical affairs and other support personnel;

 

   

the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future approved products;

 

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the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement, and other acceptance by payors;

 

   

the inability to price our products at a sufficient price point to ensure an adequate and attractive level of profitability;

 

   

restricted or closed distribution channels that make it difficult to distribute our products to segments of the patient population;

 

   

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

 

   

unforeseen costs and expenses associated with creating an independent commercialization organization.

If we enter into arrangements with third parties to perform sales, marketing, commercial support and distribution services, our product revenue or the profitability of product revenue may be lower than if we were to market and sell any products we may develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to commercialize our product candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish commercialization capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates if approved and our business would be seriously harmed.

Even if any product candidates we develop receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.

The commercial success of any of our product candidates will depend upon its degree of market acceptance by physicians, patients, third-party payors and others in the medical community. Even if any product candidates we may develop receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. The degree of market acceptance of any product candidates we may develop, if approved for commercial sale, will depend on a number of factors, including:

 

   

the efficacy and safety of such product candidates as demonstrated in pivotal clinical trials and published in peer-reviewed journals;

 

   

the potential and perceived advantages compared to alternative treatments;

 

   

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

 

   

the ability to offer appropriate patient access programs, such as co-pay assistance;

 

   

sufficient third-party coverage or reimbursement;

 

   

the extent to which physicians recommend our products to their patients;

 

   

convenience and ease of dosing and administration compared to alternative treatments;

 

   

the clinical indications for which the product candidate is approved by FDA, EMA or other regulatory agencies;

 

   

product labeling or product insert requirements of the FDA, EMA or other comparable foreign regulatory authorities, including any limitations, contraindications or warnings contained in a product’s approved labeling;

 

   

restrictions on how the product is distributed;

 

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the timing of market introduction of competitive products;

 

   

publicity concerning our products or competing products and treatments;

 

   

the strength of marketing and distribution support; and

 

   

the prevalence and severity of any side effects.

If any product candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenue, and we may not become profitable.

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 when and 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 cease 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 or interrupted demand for our products;

 

   

substantial monetary awards to trial participants or patients;

 

   

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

 

   

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;

 

   

a diversion of management’s time and our resources;

 

   

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. Our insurance policies may 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.

 

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Risks Related to Manufacturing

Gene therapies are novel, complex and difficult to manufacture. We could experience production problems that result in delays in our development or commercialization programs, limit the supply of our products or otherwise seriously harm our business.

We currently have a development, manufacturing and testing agreement and cooperation agreement with Paragon and Wuxi, to manufacture supplies of our product candidates in the future. Our product candidates require processing steps that are more complex than those required for most chemical and protein pharmaceuticals. Moreover, unlike chemical pharmaceuticals, the physical and chemical properties of a biologic such as ours generally cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that the product will perform in the intended manner. Accordingly, we employ multiple steps to control our manufacturing process to assure that the process works and the product candidate is made strictly and consistently in compliance with the process. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims or insufficient inventory, which could delay or prevent the initiation of clinical trials or receipt of regulatory approvals. We may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet FDA, or other comparable applicable foreign standards or specifications with consistent and acceptable production yields and costs. For example, recently a manufacturing batch of our product candidate 4D-110 produced at a CMO failed to meet the specifications required for use in our planned clinical trial due to an issue identified with one of the plasmids used in the manufacturing process. As a result, we delayed the initiation of our planned first-in-human trial of 4D-110 until the second half of 2020, so that we could produce the clinical-grade material required for the trial using our in-house manufacturing facility.

In addition, FDA and other comparable foreign regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA or other comparable foreign regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay clinical trials or product launches which could be costly to us and otherwise seriously harm our business.

We also may encounter problems hiring and retaining the experienced scientific, quality control and manufacturing personnel needed to operate our manufacturing process which could result in delays in our production or difficulties in maintaining compliance with applicable regulatory requirements.

Any problems in our manufacturing process or the facilities with which we contract could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies, which could limit our access to additional attractive development programs. Problems in third-party manufacturing process or facilities also could restrict our ability to meet market demand for our products. Additionally, should our agreements with Paragon or WuXi or agreements with other parties with whom we have manufacturing agreements be terminated for any reason, there are a limited number of manufacturers who would be suitable replacements, and it would take a significant amount of time to transition the manufacturing to a replacement.

Delays in obtaining regulatory approval of our manufacturing process or disruptions in our manufacturing process may delay or disrupt our commercialization efforts.

Before we can begin to commercially manufacture our product candidates in third-party or our own facilities, we must obtain regulatory approval from the FDA to market our product using the

 

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manufacturing process and facility we proposed in our marketing application. In addition, we must pass a pre-approval inspection of our manufacturing facility by the FDA before any of our product candidates can obtain marketing approval, if ever. In order to obtain approval of a BLA for our product candidates, we will need to ensure that all of our manufacturing processes, methods and equipment are compliant with current cGMP, and perform extensive audits of vendors, contract laboratories and suppliers. If any of our vendors, contract laboratories or suppliers is found to be out of compliance with cGMP, we may experience delays or disruptions in manufacturing while we work with these third parties to remedy the violation or while we work to identify suitable replacement vendors. The cGMP requirements govern quality control of the manufacturing process and documentation policies and procedures. In complying with cGMP, we will be obligated to expend time, money and effort in production, record keeping and quality control to assure that the product meets applicable specifications and other requirements. If we fail to comply with these requirements, we would be subject to possible regulatory action and may not be permitted to sell any products that we may develop.

Delays in developing our manufacturing capabilities or failure to achieve operating efficiencies from it may require us to devote additional resources and management time to manufacturing operations and may delay our product development timelines.

We have a small operational manufacturing facility that we are using to manufacture clinical trial material. In addition, we have leased approximately 17,000 square feet of space for our second manufacturing facility in Emeryville, California, at which we plan to devote manufacturing activities for our clinical studies. We may face delays in the production of clinical supply at our manufacturing facility. and cannot guarantee when our facility will be able to produce sufficient quantities of product candidates needed to initiate our planned clinical studies. Any delays in developing our internal manufacturing capabilities may disrupt or delay the supply of our product candidates if we have not maintained a sufficient back-up supply of such product candidates through third-party manufacturers. Moreover, changing manufacturing facilities during the clinical development process may also require that we or our collaborators conduct additional studies, make notifications to regulatory authorities, make additional filings to regulatory authorities, and obtain regulatory authority approval for the new facilities, which may be delayed or which we may never receive. We will further need to comply with the FDA’s and applicable foreign regulatory authorities’ cGMP requirements for the production of product candidates for clinical trials and, if approved, commercial supply, and will be subject to FDA and comparable foreign regulatory authority inspection. These requirements include the qualification and validation of our manufacturing equipment and processes. We may not be able to develop or acquire the internal expertise and resources necessary for compliance with these requirements.

In order to develop internal manufacturing expertise, we may be forced to devote greater resources and management time than anticipated, particularly in areas relating to operations, quality, regulatory, facilities and information technology. We also may encounter problems hiring and retaining the experienced scientific, quality control and manufacturing personnel needed to operate our manufacturing processes. If we experience unanticipated employee shortage or turnover in any of these areas, we may not be able to effectively manage our ongoing manufacturing operations and we may not achieve the operating efficiencies that we anticipate from developing these capabilities, which may negatively affect our product development timeline or result in difficulties in maintaining compliance with applicable regulatory requirements. Any such problems could result in the delay, prevention or impairment of clinical development and commercialization of our product candidates and would seriously harm our business.

 

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We currently rely and expect to continue to rely on third parties to conduct product manufacturing for certain of our product candidates, and these third parties may not perform satisfactorily.

Although we are in process of expanding internal manufacturing capabilities, we currently rely, and expect to continue to rely, on third parties for the production of some of our preclinical study and planned clinical trial materials and, therefore, we can control only certain aspects of their activities. The facilities used by us and our contract manufacturers to manufacture certain of our product candidates must be reviewed by the FDA pursuant to inspections that will be conducted after we submit our BLA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the cGMPs for manufacture of our products. If we or our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to obtain and/or maintain regulatory approval for our products as manufactured at their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

In addition, we rely on additional third parties to manufacture plasmids used in the manufacture of our product candidates and to perform quality testing, and reliance on these third parties entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:

 

   

reduced control for certain aspects of manufacturing activities;

 

   

termination or nonrenewal of manufacturing and service agreements with third parties in a manner or at a time that is costly or damaging to us; and

 

   

disruptions to the operations of our third-party manufacturers and service providers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or service provider.

Any of these events could lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize future product candidates. Some of these events could be the basis for FDA or European Union Member State regulatory authority action, including injunction, recall, seizure or total or partial suspension of product manufacture.

Any contamination in our manufacturing process, shortages of raw materials or failure of any of our key suppliers to deliver necessary components could result in delays in our research studies, preclinical, clinical development or marketing schedules.

Given the nature of biologics manufacturing, there is a risk of contamination during manufacturing. Any contamination could materially harm our ability to produce product candidates on schedule and could harm our results of operations and cause reputational damage.

Some of the raw materials required in our manufacturing process, such as plasmids, are derived from biologic sources. Such raw materials are difficult to procure and may be subject to contamination or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture of our product candidates could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could seriously harm our business.

 

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We depend on third-party suppliers for key raw materials used in our manufacturing processes, and the loss of these third-party suppliers or their inability to supply us with adequate raw materials could harm our business.

We rely on third-party suppliers for the raw materials required for the production of our product candidates. Our dependence on these third-party suppliers and the challenges we may face in obtaining adequate supplies of raw materials involve several risks, including limited control over pricing, availability, quality and delivery schedules. As a small company, our negotiation leverage is limited and we are likely to get lower priority than our competitors who are larger than we are. We cannot be certain that our suppliers will continue to provide us with the quantities of these raw materials that we require or satisfy our anticipated specifications and quality requirements. Any interruption in supply of raw materials could materially harm our ability to manufacture our product candidates until a new source of supply, if any, could be identified and qualified. We may be unable to find a sufficient alternative supplier in a reasonable time or on commercially reasonable terms. Any performance failure on the part of our suppliers could delay the development and potential commercialization of our product candidates, including limiting supplies necessary for clinical trials and regulatory approvals, which would seriously harm our business.

Risks Related to Regulatory Approval and Other Legal Compliance Matters

The regulatory approval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, expensive, time consuming, and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, we will be unable to generate product revenue and our business will be seriously harmed.

We and any collaborators are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Foreign regulatory authorities impose similar requirements. The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the type, complexity and novelty of the product candidates involved. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. We have not submitted for or obtained regulatory approval for any product candidate. We and any collaborators must complete additional preclinical or nonclinical studies and clinical trials to demonstrate the safety and efficacy of our product candidates in humans to the satisfaction of the regulatory authorities before we will be able to obtain these approvals, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:

 

   

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

 

   

the FDA or comparable foreign regulatory authorities may determine that our product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use of our products;

 

   

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

 

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we or our collaborators may be unable to demonstrate to the FDA, or comparable foreign regulatory authorities that a product candidate’s clinical and other benefits outweigh its safety risks;

 

   

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

 

   

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

 

   

the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers 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 or our collaborators’ clinical data insufficient for approval.

This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market any of our product candidates, which would seriously harm our business.

In addition, even if we or our collaborators were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may impose significant limitations in the form of narrow indications, warnings, or a REMS. Regulatory authorities may not approve the price we or our collaborators intend to charge for products we may develop, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could seriously harm our business.

Even if we or our collaborators obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.

If one of our product candidates is approved, it 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 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 approved marketing application. 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.

We will have to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs and biologics are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we may not promote our products “off-label” for indications or uses for which they do not have approval, though we may share truthful and not misleading information that is otherwise

 

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consistent with our product’s FDA approved labeling. The holder of an approved application must submit new or supplemental applications and obtain approval for certain changes to the approved product, product labeling, or manufacturing process. We could also be asked to conduct post-marketing clinical studies to verify the safety and efficacy of our products in general or in specific patient subsets. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval or label restrictions.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

 

   

issue warning letters;

 

   

impose civil or criminal penalties;

 

   

suspend or withdraw regulatory approval;

 

   

suspend any of our clinical studies;

 

   

refuse to approve pending applications or supplements to approved applications submitted by us;

 

   

impose restrictions on our operations, including closing our contract manufacturers’ facilities; or

 

   

seize or detain products, or require a product recall.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, our business will be seriously harmed.

Moreover, 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 or executive 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.

Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also increase the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would seriously harm our

 

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business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could seriously harm our business.

We have received orphan drug designation for 4D-110 for the treatment of Choroideremia, and we may seek orphan drug designation for certain future 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.

We have received orphan drug designation in the United States for 4D-110 for the treatment of choroideremia. Although we may seek orphan product designation for some or all of our other product candidates, we may never receive such designations. Under the Orphan Drug Act, the FDA may designate a drug or biologic product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. Orphan drug designation must be requested before submitting a BLA. In the European Union, the EMA’s Committee for Orphan Medicinal Products (COMP), grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention, or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product or where there is no satisfactory method of diagnosis, prevention, or treatment, or, if such a method exists, the medicine must be of significant benefit to those affected by the condition.

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 application 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.

In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity for the orphan patient population. Exclusive marketing rights in the United States may also be unavailable if we or our collaborators 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. In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

Even if we obtain orphan drug designation, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. Further, even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product from competition because different drugs with different active

 

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moieties can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior in that it is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug or biologic nor gives the drug or biologic any advantage in the regulatory review or approval process.

If the product candidates that we or our collaborators may develop receive regulatory approval in the United States or another jurisdiction, they may never receive approval in other jurisdictions, which would limit market opportunities for such product candidate and seriously harm our business.

Approval of a product candidate in the United States by the FDA or by the requisite regulatory agencies in any other jurisdiction does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions. The approval process varies among countries and may limit our or our collaborators’ ability to develop, manufacture, promote and sell product candidates internationally. Failure to obtain marketing approval in international jurisdictions would prevent the product candidates from being marketed outside of the jurisdictions in which regulatory approvals have been received. In order to market and sell product candidates in the European Union and many other jurisdictions, we and our collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and may involve additional preclinical studies or clinical trials both before and after approval. In many countries, any product candidate for human use must be approved for reimbursement before it can be approved for sale in that country. In some cases, the intended price for such product is also subject to approval. Further, while regulatory approval of a product candidate in one country does not ensure approval in any other country, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. If we or our collaborators fail to comply with the regulatory requirements in international markets or to obtain all required marketing approvals, the target market for a particular potential product will be reduced, which would limit our ability to realize the full market potential for the product and seriously harm our business.

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

In the United States, the European Union and other jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively the ACA) was enacted, which substantially changed the way healthcare is financed by both governmental and private payors. Among the provisions of the ACA, those of greatest importance to the pharmaceutical and biotechnology industries include the following:

 

   

an annual, non-deductible fee payable by any entity that manufactures or imports certain branded prescription drugs and biologic agents (other than those designated as orphan drugs), which is apportioned among these entities according to their market share in certain government healthcare programs;

 

   

new requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting “transfers of value” made or distributed to prescribers and other healthcare providers and reporting investment interests held by physicians and their immediate family members;

 

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an increase to the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and an extension the rebate program to individuals enrolled in Medicaid managed care organizations;

 

   

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;

 

   

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

 

   

a licensure framework for follow-on biologic products;

 

   

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

 

   

establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services (CMS) to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

Since its enactment, there have been judicial, U.S. Congressional and executive branch challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, the Tax Cuts and Jobs Act of 2017 was enacted, which includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas (Texas District Court Judge) ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. While the Texas District Court Judge, as well as the Trump Administration and CMS, have stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA and our business.

Since the enactment of the Tax Cuts and Jobs Act of 2017, there have been additional amendments to certain provisions of the ACA, and we expect the current Trump administration and Congress will likely continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the ACA. It is uncertain the extent to which any such changes may harm our business.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, led to aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2027 unless additional action is taken by Congress. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers 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 or any other similar laws introduced in the future may result in additional reductions in Medicare and other health care funding, which could negatively affect our customers and accordingly, our financial operations.

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in

 

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several U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under government payor programs, and review the relationship between pricing and manufacturer patient programs. The Trump administration’s budget proposals for fiscal years 2019 and 2020 contains further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Further, the Trump administration released a “Blueprint”, or plan, to lower drug prices and reduce out of pocket costs of prescription drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Department of Health and Human Services (HHS) has started soliciting feedback on some of these measures and, at the same time, is implementing others under its existing authority. While some measures will require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could seriously harm our business. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our product candidates or put pressure on our product pricing. Furthermore, there has been increased interest by third party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. Prescription drugs and biological products that are in violation of these requirements will be included on a public list. These reforms could reduce the ultimate demand for our product candidates or put pressure on our product pricing.

In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most European Union member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing European Union and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize our product candidates, if approved. In markets outside of the United States and European Union, reimbursement and healthcare payment

 

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systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or judicial action in the United States, the European Union or any other jurisdiction. If we or any third parties we may engage are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability.

Even if we are able to commercialize any product candidates, due to unfavorable pricing regulations and/or third-party coverage and reimbursement policies, we may not be able to offer such products at competitive prices which would seriously harm our business.

The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if any product candidates we may develop obtain marketing approval.

Our ability to successfully commercialize any products that we may develop also will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Government authorities currently impose mandatory discounts for certain patient groups, such as Medicare, Medicaid and Veterans Affairs (VA), hospitals, and may seek to increase such discounts at any time. Future regulation may negatively impact the price of our products, if approved. Increasingly, other third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. For gene therapy and other products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, that the level of reimbursement will be sufficient.

Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. In order to get reimbursement, physicians may need to show that patients have superior treatment outcomes with our products compared to standard of care drugs, including lower-priced generic versions of standard of care drugs. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement levels for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and costly process that may require us to provide scientific and

 

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clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the medicine is approved by the FDA, EMA or other comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products we may develop could seriously harm our business.

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

In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our ability to realize the full market potential of our products will be harmed.

We currently have no sales organization. If we are unable to establish sales capabilities on our own or through third parties, we may not be able to market and sell any products effectively, if approved, or generate product revenue.

We currently do not have a marketing or sales organization. In order to commercialize any product, if approved, in the United States and foreign jurisdictions, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. In advance of any of our product candidates receiving regulatory approval, we expect to establish a sales organization with technical expertise and supporting distribution capabilities to commercialize each such product candidate, which will be expensive and time-consuming. We have no prior experience in the marketing, sale and distribution of pharmaceutical products, and there are significant risks involved in building and

 

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managing a sales organization, including our ability to hire, retain, and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our product candidates. If we are not successful in commercializing products, either on our own or through arrangements with one or more third parties, we may not be able to generate any future product revenue and we would incur significant additional losses.

Our business operations and current and future relationships with investigators, healthcare professionals, consultants, third-party payors, patient organizations and customers will be subject to applicable healthcare regulatory laws, which could expose us to penalties.

Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, patient organizations and customers, may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute our product candidates, if approved. Such laws include:

 

   

the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under any U.S. federal healthcare program, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the U.S. federal civil and criminal false claims and civil monetary penalties laws, including the civil federal False Claims Act, which can be enforced through civil whistleblower or qui tam actions, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. Pharmaceutical manufacturers can cause false claims to be presented to the U.S. federal government by engaging in impermissible marketing practices, such as the off-label promotion of a product for an indication for which it has not received FDA approval. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

 

   

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

 

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), and its implementing regulations, which also imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy and security of individually identifiable health information of covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers as well as their business associates, independent contractors of a covered entity that perform certain services involving the use or disclosure of individually identifiable health information on their behalf;

 

   

the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;

 

   

the U.S. Public Health Service Act, which prohibits, among other things, the introduction into interstate commerce of a biological product unless a biologics license is in effect for that product;

 

   

the U.S. Physician Payments Sunshine Act and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report annually to CMS information related to certain payments and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

 

   

analogous U.S. state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; state and local laws requiring the registration of pharmaceutical sales representatives; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

 

   

similar healthcare laws and data protection laws in the European Union and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and laws governing the privacy and security of certain protected information, such as the General Data Protection Regulation (GDPR), which imposes obligations and restrictions on the collection and use of personal data relating to individuals located in the European Economic Area (the EEA) and the United Kingdom (including health data).

We may also be subject to additional federal laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, which prohibits, among other things, U.S. companies and their employees and agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper payments or anything else of value to foreign government officials, employees of public international organizations and foreign government owned or affiliated entities, candidates for foreign political office, and foreign political parties or officials thereof, and federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.

Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that

 

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governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment, which could affect our ability to operate our business. Further, defending against any such actions can be costly, time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.

Our employees, independent contractors, consultants, research or commercial partners or collaborators 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, research or commercial partners or other collaborators, including the foundations we work with, and vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the laws of the FDA, EMA and other comparable foreign regulatory authorities; provide true, complete and accurate information to the FDA, EMA and other comparable foreign regulatory authorities; 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. In particular, research, sales, marketing, education and other 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, educating, marketing and promotion, sales and commission, 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 third 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 be in compliance with such laws. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. 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.

If we or any contract manufacturers and suppliers we engage fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could seriously harm our business.

We and any contract manufacturers and suppliers we engage are subject to numerous federal, state and local environmental, health, and safety laws, regulations, and permitting requirements,

 

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including those governing laboratory procedures; the generation, handling, use, storage, treatment and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air and water; and employee health and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. Under certain environmental laws, we could be held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties.

Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our research, product development and manufacturing efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended, which could seriously harm our business.

We use and generate materials that may expose us to material liability.

Our research programs involve the use of hazardous materials and chemicals, which are currently only handled by third parties. We are subject to foreign, federal, state and local environmental and health and safety laws and regulations governing, among other matters, the use, manufacture, handling, storage and disposal of hazardous materials and waste products such as human tissue samples that may have the potential to transmit diseases. We may incur significant costs to comply with these current or future environmental and health and safety laws and regulations. In addition, we cannot completely eliminate the risk of contamination or injury from hazardous materials and may incur material liability as a result of such contamination or injury. In the event of an accident, an injured party may seek to hold us liable for any damages that result. Any liability could exceed the limits or fall outside the coverage of our workers’ compensation, property and business interruption insurance and we may not be able to maintain insurance on acceptable terms, if at all. We currently carry no insurance specifically covering environmental claims.

Compliance with governmental regulations regarding the treatment of animals used in research could increase our operating costs, which would adversely affect the commercialization of our products.

The Animal Welfare Act (AWA) is the federal law that covers the treatment of certain animals used in research. Currently, the AWA imposes a wide variety of specific regulations that govern the humane handling, care, treatment and transportation of certain animals by producers and users of research animals, most notably relating to personnel, facilities, sanitation, cage size, and feeding, watering and shipping conditions. Third parties with whom we contract are subject to registration, inspections and reporting requirements under the AWA. Furthermore, some states have their own regulations, including general anti-cruelty legislation, which establish certain standards in handling animals. Comparable rules, regulations, and or obligations exist in many foreign jurisdictions. If we or

 

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our contractors fail to comply with regulations concerning the treatment of animals used in research, we may be subject to fines and penalties and adverse publicity, and our operations could be adversely affected.

Risks Related to Our Reliance on Third Parties

We expect to rely on third parties to conduct our clinical trials and some aspects of our research and preclinical testing, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing.

We currently rely and expect to continue to rely on third parties, such as CROs, clinical data management organizations, clinical data assessments and analysis organizations, medical institutions and clinical investigators, to conduct some aspects of our research, preclinical testing and clinical trials. Any of these third parties may terminate their engagements with us or be unable to fulfill their contractual obligations. If we need to enter into alternative arrangements, it would delay our product development activities.

Our reliance on these third parties for research and development activities reduces our control over these activities, but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with GCPs for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible, reproducible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We are also required to register ongoing clinical trials and to post the results of completed clinical trials on a government-sponsored database within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for any product candidates we may develop and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines.

We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of any product candidates we may develop or commercialization of our product candidates, producing additional losses and depriving us of potential product revenue.

Reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Reliance on third parties to conduct clinical trials, assist in research and development and to manufacture our product candidates, will at times require us to share trade secrets with them. We seek to protect our proprietary technology by in part entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements.

 

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Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s independent discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may seriously harm our business.

We may depend on collaborations with third parties for the research, development and commercialization of certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to realize the market potential of those product candidates.

We have sought, and may in the future seek third-party collaborators for the research, development and commercialization of certain of the product candidates we may develop. Our likely collaborators for any other collaboration arrangements include large and mid-size pharmaceutical companies, regional, national and international pharmaceutical companies, biotechnology companies and academic institutions. If we enter into any such arrangements with any third parties, we will likely have shared or limited control over the amount and timing of resources that our collaborators dedicate to the development or potential commercialization of any product candidates we may seek to develop with them. Our ability to generate revenue from these arrangements with commercial entities will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter into.

Collaborations involving our product candidates we may develop, pose the following risks to us:

 

   

collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

   

collaborators may not properly obtain, maintain, enforce or defend intellectual property or proprietary rights relating to our product candidates or may use our proprietary information in such a way as to expose us to potential litigation or other intellectual property related proceedings, including proceedings challenging the scope, ownership, validity and enforceability of our intellectual property;

 

   

collaborators may own or co-own intellectual property covering our product candidates that result from our collaboration with them, and in such cases, we may not have the exclusive right to commercialize such intellectual property or such product candidates;

 

   

disputes may arise with respect to the ownership of intellectual property developed pursuant to collaborations;

 

   

we may need the cooperation of our collaborators to enforce or defend any intellectual property we contribute to or that arises out of our collaborations, which may not be provided to us;

 

   

collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;

 

   

disputes may arise between the collaborators and us that result in 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;

 

   

collaborators may decide not to pursue development and commercialization of any product candidates we develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

 

   

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

 

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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

 

   

collaborators with marketing and distribution rights to one or more product candidates may not commit sufficient resources to the marketing and distribution of such product candidates;

 

   

we may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of control;

 

   

collaborators may undergo a change of control and the new owners may decide to take the collaboration in a direction which is not in our best interest;

 

   

collaborators may become party to a business combination transaction and the continued pursuit and emphasis on our development or commercialization program by the resulting entity under our existing collaboration could be delayed, diminished or terminated;

 

   

collaborators may become bankrupt, which may significantly delay our research or development programs, or may cause us to lose access to valuable technology, devices, materials, know-how or intellectual property of the collaborator relating to our products, product candidates;

 

   

key personnel at our collaborators may leave, which could negatively impact our ability to productively work with our collaborators;

 

   

collaborations may require us to incur short and long-term expenditures, issue securities that dilute our stockholders, or disrupt our management and business;

 

   

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 or our Therapeutic Vector Evolution platform technology; and

 

   

collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all.

We may face significant competition in seeking appropriate collaborations. Recent business combinations among biotechnology and pharmaceutical companies have resulted in a reduced number of potential collaborators. In addition, the negotiation process is time-consuming and complex, and we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate or delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop product candidates or bring them to market and generate product revenue.

If we enter into collaborations to develop and potentially commercialize any product candidates, we may not be able to realize the benefit of such transactions if we or our collaborator elect not to exercise the rights granted under the agreement or if we or our collaborator are unable to successfully integrate a product candidate into existing operations and company culture. In addition, if our agreement with any of our collaborators terminates, our access to technology and intellectual property licensed to us by that collaborator may be restricted or terminate entirely, which may delay our continued development of our product candidates utilizing the collaborator’s technology or intellectual property or require us to stop development of those product candidates completely. We may also find it

 

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more difficult to find a suitable replacement collaborator or attract new collaborators, and our development programs may be delayed or the perception of us in the business and financial communities could be adversely affected. Any collaborator may also be subject to many of the risks relating to product development, regulatory approval, and commercialization described in this “Risk Factors” section, and any negative impact on our collaborators may adversely affect us.

Risks Related to Our Intellectual Property

Our success depends on our ability to protect our intellectual property and our proprietary technologies.

Our commercial success depends in part on our ability to obtain and maintain patent protection and trade secret protection for our product candidates, proprietary technologies and their uses as well as our ability to operate without infringing upon the proprietary rights of others. We generally seek to protect our proprietary position by filing patent applications in the United States and abroad related to our product candidates, proprietary technologies and their uses that are important to our business. Our patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, patents issues from such applications, and then only to the extent the issued claims cover the technology. There can be no assurance that our patent applications or those of our licensors will result in additional patents being issued or that issued patents will afford sufficient protection against competitors with similar technology, nor can there be any assurance that the patents issued will not be infringed, designed around or invalidated by third parties. Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for our proprietary rights is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. If we do not adequately protect our intellectual property and proprietary technology, competitors may be able to use our product candidates and proprietary technologies and erode or negate any competitive advantage we may have, which could seriously harm our business.

We and our licensors have applied, and we intend to continue applying, for patents covering aspects of our product candidates, proprietary technologies and their uses that we deem appropriate. However, we may not be able to apply for patents on certain aspects of our current or future product candidates, proprietary technologies and their uses in a timely fashion, at a reasonable cost, in all jurisdictions, or at all, and any potential patent coverage we obtain may not be sufficient to prevent substantial competition.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our actual or potential future collaborators or licensors will be successful in protecting our product candidates, proprietary technologies and their uses by obtaining and defending patents. These risks and uncertainties include the following:

 

   

the U.S. Patent and Trademark Office (USPTO) and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process, the noncompliance with which can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;

 

   

patent applications may not result in any patents being issued;

 

   

patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;

 

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our competitors, many of whom have substantially greater resources than we do and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate our ability to make, use and sell our potential product candidates;

 

   

other parties may have designed around our claims or developed technologies that may be related or competitive to our platform, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position;

 

   

any successful opposition to any patents owned by or licensed to us could deprive us of rights necessary for the practice of our technologies or the successful commercialization of any products or product candidates that we may develop;

 

   

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 or our licensors were the first to file any patent application related to our product candidates, proprietary technologies and their uses;

 

   

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 any application with an effective filing date before March 16, 2013;

 

   

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

 

   

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

The patent prosecution process is also expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants and other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection.

The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. Moreover, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents, if issued, or the patent rights that we license from others, may be challenged in the courts or patent offices in the United States and abroad. Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such initial grant. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical products or product candidates, or limit the duration of the patent protection of our product candidates. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such

 

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candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

Our ability to enforce our patent rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components or methods that are used in connection with their products and services. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product or service. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.

In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents covering our product candidates are invalidated or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our product candidates, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights. If we initiate lawsuits to protect or enforce our patents, or litigate against third party claims, such proceedings would be expensive and would divert the attention of our management and technical personnel.

The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

 

   

any of our patents, or any of our pending patent applications, if issued, or those of our licensors, will include claims having a scope sufficient to protect our product candidates;

 

   

any of our pending patent applications or those of our licensors may issue as patents;

 

   

others will not or may not be able to make, use, offer to sell, or sell products that are the same as or similar to our own but that are not covered by the claims of the patents that we own or license;

 

   

we will be able to successfully commercialize our product candidates on a substantial scale, if approved, before the relevant patents that we own or license expire;

 

   

we were the first to make the inventions covered by each of the patents and pending patent applications that we own or license;

 

   

we or our licensors were the first to file patent applications for these inventions;

 

   

others will not develop similar or alternative technologies that do not infringe the patents we own or license;

 

   

any of the patents we own or license will be found to ultimately be valid and enforceable;

 

   

any patents issued to us or our licensors will provide a basis for an exclusive market for our commercially viable products or will provide us with any competitive advantages;

 

   

a third party may not challenge the patents we own or license and, if challenged, a court would hold that such patents are valid, enforceable and infringed;

 

   

we may develop or in-license additional proprietary technologies that are patentable;

 

   

the patents of others will not have an adverse effect on our business;

 

   

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

 

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we will develop additional proprietary technologies or product candidates that are separately patentable; or

 

   

our commercial activities or products will not infringe upon the patents of others.

Where we obtain licenses from or collaborate with third parties, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties, or such activities, if controlled by us, may require the input of such third parties. We may also require the cooperation of our licensors and collaborators to enforce any licensed patent rights, and such cooperation may not be provided. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Moreover, if we do obtain necessary licenses, we will likely have obligations under those licenses, and any failure to satisfy those obligations could give our licensor the right to terminate the license. Termination of a necessary license, or expiration of licensed patents or patent applications, could seriously harm our business.

Furthermore, our owned and in-licensed intellectual property rights may be subject to a reservation of rights by one or more third parties. For example, the research resulting in certain of our in-licensed patent rights and technology was funded in part by the U.S. government. As a result, the government may have certain rights, or march-in rights, to such patent rights and technology. When new technologies are developed with government funding, the government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government to use the invention for non-commercial purposes. These rights may permit the government to disclose our confidential information to third parties and to exercise march-in rights to use or allow third parties to use our licensed technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any exercise by the government of such rights could harm our business.

The lives of our patents may not be sufficient to effectively protect our product candidates 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 non-provisional filing date. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates, proprietary technologies and their uses are obtained, once the patent life has expired, we may be open to competition. In addition, although upon issuance in the United States a patent’s life can be extended based on certain delays caused by the USPTO and clinical development, this extension can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. If we do not have sufficient patent life to protect our product candidates, proprietary technologies and their uses, our business and results of operations will be adversely affected.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

We rely on the protection of our trade secrets, including unpatented know-how, technology and other proprietary information to maintain our competitive position. We have taken steps to protect our

 

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trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees and consultants. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using commonly accepted physical and technological security measures. Despite these efforts, we cannot provide any assurances that all such agreements have been duly executed, and any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. In addition, such security measures may not provide adequate protection for our proprietary information, for example, in the case of misappropriation of a trade secret by an employee, consultant, customer or third party with authorized access. Our security measures may not prevent an employee, consultant, collaborator or customer from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our product candidates that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. Even though we use commonly accepted security measures, the criteria for protection of trade secrets can vary among different jurisdictions.

In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. Moreover, third parties may still obtain this information or may come upon this or similar information independently, and we would have no right to prevent them from using that technology or information to compete with us. Trade secrets will over time be disseminated within the industry through independent development, the publication of journal articles and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. Though our agreements with third parties typically restrict the ability of our employees, collaborators, licensors, third-party contractors and consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Because from time to time we have relied on, and in future expect to rely on third parties in the development, manufacture, and distribution of our product candidates and provision of our services, we must, at times, share trade secrets with them. Despite employing the contractual and other security precautions described above, the need to share trade secrets increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. If any of these events occurs or if we otherwise lose protection for our trade secrets, the value of this information may be greatly reduced and our competitive position would be harmed. If we do not apply for patent protection prior to such publication or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized.

Our rights to develop and commercialize our product candidates are subject in part to the terms and conditions of licenses granted to us by others, and the patent protection, prosecution and enforcement for some of our product candidates may be dependent on our licensors.

We currently are reliant upon licenses of certain patent rights and proprietary technology from third parties that is important or necessary to the development of our technology, including technology related to our product candidates. For example, we rely on our exclusive license agreements with The Regents of the University of California (the UC Regents) for all of our rights with respect to the

 

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intellectual property covering certain compositions of matter and methods of use of certain AAV variants related to our research candidates in lead optimization stage. These and other licenses we may enter into in the future may not provide adequate rights to use such intellectual property and technology in all relevant fields of use or in all territories in which we may wish to develop or commercialize our technology and product candidates in the future. As a result, we may not be able to develop and commercialize our technology and product candidates in fields of use and territories for which we are not granted rights pursuant to such licenses.

Licenses to additional third party technology that may be required for our development programs may not be available in the future or may not be available on commercially reasonable terms, which could seriously harm our business.

In some circumstances, we may not have the right to control the preparation, filing, prosecution and enforcement of patent applications, or to maintain the patents, covering technology that we license from third parties. In addition, some of our agreements with our licensors require us to obtain consent from the licensor before we can enforce patent rights, and our licensor may withhold such consent or may not provide it on a timely basis. Therefore, we cannot be certain that our licensors or collaborators will prosecute, maintain, enforce and defend such intellectual property rights in a manner consistent with the best interests of our business, including by taking reasonable measures to protect the confidentiality of know-how and trade secrets, or by paying all applicable prosecution and maintenance fees related to intellectual property registrations for any of our product candidates. We also cannot be certain that our licensors have drafted or prosecuted the patents and patent applications licensed to us in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. If they fail to do so, this could cause us to lose rights in any applicable intellectual property that we in-license, and as a result our ability to develop and commercialize products or product candidates may be adversely affected and we may be unable to prevent competitors from making, using and selling competing products.

Our current licenses, and our future licenses likely will, impose various royalty payments, milestones, and other obligations on us. If we fail to comply with any of these obligations, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by the licensor would cause us to lose valuable rights, and could prevent us from developing and commercializing our product candidates and proprietary technologies. Our business would suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. Furthermore, if any current or future licenses terminate, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties may gain the freedom to seek regulatory approval of, and to market, products identical to ours. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, while we cannot currently determine the amount of royalty obligations we would be required to pay on the sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in product candidates that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize any product candidates, we may be unable to achieve or maintain profitability.

We may fail to comply with any of our obligations under existing or future agreements pursuant to which we license or have otherwise acquired intellectual property rights or technology, which could result in the loss of rights or technology that are material to our business.

We are party to various agreements that we depend on to operate our business. Our rights to use currently licensed intellectual property, or intellectual property to be licensed in the future, are or will be

 

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subject to the continuation of and our compliance with the terms of these agreements. These agreements are complex, and certain provisions in such agreements may be susceptible to multiple interpretations which could lead to disputes, including but not limited to those regarding:

 

   

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

 

   

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

 

   

the sublicensing of patent and other rights;

 

   

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

 

   

the ownership of inventions and know-how resulting from the creation or use of intellectual property by us or our counterparties, alone or jointly;

 

   

the scope and duration of our payment obligations;

 

   

rights upon termination of such agreement; and

 

   

the scope and duration of exclusivity obligations of each party to the agreement.

The resolution of any contractual interpretation dispute that may arise, if unfavorable to us, could seriously harm our business. Such resolution could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, increase what we believe to be our financial or other obligations under the relevant agreement, or decrease the third party’s financial or other obligations under the relevant agreement.

If disputes over intellectual property rights that we have licensed or acquired from third parties prevent or impair our ability to maintain our current license agreements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. If we fail to comply with our obligations under current or future license agreements, these agreements may be terminated or the scope of our rights under them may be reduced and we might be unable to develop, manufacture or market any product that is licensed under these agreements.

Litigation or other proceedings or third party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products.

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. Claims by third parties that we infringe their proprietary rights may result in liability for damages or prevent or delay our developmental and commercialization efforts. We cannot assure you that our operations do not, or will not in the future, infringe existing or future patents or other proprietary rights of third parties.

Third parties may have or obtain patents or other proprietary rights that could limit our ability to make, use, sell, offer for sale or import our product candidates and future approved products, if any, or impair our competitive position. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, reexaminations, inter partes review proceedings and post-grant review proceedings before the USPTO and/or corresponding foreign patent offices. Numerous third party U.S. and foreign issued patents and pending patent applications exist in the fields in which we are developing product candidates. There may be third party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates.

 

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Furthermore, the scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history and can involve other factors such as expert opinion. Our interpretation of the relevance or the scope of claims in a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. Further, we may incorrectly determine that our technologies or product candidates are not covered by a third party patent or may incorrectly predict whether a third party’s pending patent application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates.

As the biotechnology industry expands and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our product candidates. We do not always conduct independent reviews of pending patent applications of and patents issued to third parties. Patent applications in the United States and elsewhere are typically published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Certain U.S. applications that will not be filed outside the United States can remain confidential until patents issue. In addition, patent applications in the United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned patents or applications can be revived. Furthermore, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our product candidates or the use of our product candidates. As such, there may be applications of others now pending or recently revived patents of which we are unaware. These applications may later result in issued patents, or the revival of previously abandoned patents, that will prevent, limit or otherwise interfere with our ability to make, use or sell our product candidates. As a result, we may be unaware of third party patents that may be infringed by commercialization of our product candidates, and cannot be certain that we were the first to file a patent application related to a product candidate or technology. Moreover, 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, identification of third party patent rights that may be relevant to our technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Any claims of patent infringement asserted by third parties would be time consuming and could:

 

   

result in costly litigation;

 

   

divert the time and attention of our technical personnel and management;

 

   

cause development delays;

 

   

prevent us from commercializing our product candidates until the asserted patent expires or is held finally invalid or not infringed in a court of law;

 

   

require us to develop non-infringing technology, which may not be possible on a cost-effective basis;

 

   

require us to pay damages to the party whose intellectual property rights we may be found to be infringing, which may include treble damages if we are found to have been willfully infringing such intellectual property;

 

   

require us to pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; and/or

 

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require us to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at all.

Although no third party has asserted a claim of patent infringement against us as of the date of this prospectus, others may hold proprietary rights that could prevent our product candidates or any future products from being marketed. Any patent-related legal action against us claiming damages and seeking to enjoin commercial activities relating to our product candidates or proprietary technologies could subject us to potential liability for damages, including treble damages if we were determined to willfully infringe, and require us to obtain a license to manufacture or market our product candidates or any future products. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be time-consuming and a substantial diversion of management and employee resources from our business. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. Even if such licenses are available, we could incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins, and the rights may be non-exclusive, which could give our competitors access to the same technology or intellectual property rights licensed to us. In addition, we cannot be certain that we could redesign our product candidates or proprietary technologies to avoid infringement, if necessary, or on a cost-effective basis. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing our product candidates or any future products which could seriously harm our business. In addition, intellectual property litigation, regardless of its outcome, may cause negative publicity and could prohibit us from marketing or otherwise commercializing our product candidates and technology.

If we collaborate with third parties in the development of technology in the future, our collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation or potential liability. Further, collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability. Also, we may be obligated under our agreements with our collaborators, licensors, suppliers and others to indemnify and hold them harmless for damages arising from intellectual property infringement by us.

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. Further, our issued patents could be found invalid or unenforceable if challenged.

Competitors may infringe our intellectual property rights or those of our licensors. To prevent infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in a patent infringement proceeding, a court or administrative tribunal may decide that a patent we own or license is not valid, is unenforceable and/or is not infringed. If we or any of our potential future collaborators were to initiate legal proceedings against a third party to enforce a patent directed at one of our product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable in whole or in part. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. Similar mechanisms for challenging the validity and enforceability of a patent exist in foreign

 

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patent offices and may result in the revocation, cancellation, or amendment of any foreign patents we hold in the future. The outcome following legal assertions of invalidity and unenforceability is unpredictable, and prior art could render our patents or those of our licensors invalid. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we could lose at least part, and perhaps all, of the patent protection on an affected product candidate. Such a loss of patent protection would seriously harm our business.

Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO, or equivalent actions brought in foreign jurisdictions, may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome 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 seriously harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties or enter into development or manufacturing partnerships that would help us bring our product candidates to market.

Even if resolved in our favor, litigation or other legal proceedings relating to our intellectual property rights may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.

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. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.

We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and licenses.

We currently have rights to the intellectual property, through licenses from third parties and under patents that we own, to develop our product candidates. Because our programs may require the use of proprietary rights held by third parties, the growth of our business will depend in part on our ability to acquire, license or use these proprietary rights. We may be unable to acquire or license any compositions, methods of use, processes or other third party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to

 

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their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on our investment.

We have collaborated with, and are currently collaborating with, U.S. academic institutions and may in the future collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development under written agreements with these institutions. These institutions may 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 rights or maintain the existing intellectual property rights we have, we may have to abandon development of that program and our business could be seriously harmed.

We may be subject to claims that we have wrongfully hired an employee from a competitor or that we, our employees or consultants have wrongfully used or disclosed alleged confidential information or trade secrets of their former or concurrent employers or former or current clients.

As is common in the biotechnology and biopharmaceutical industries, in addition to our employees, we engage the services of consultants to assist us in the development of our product candidates. Many of these consultants, and many of our employees, were previously employed at, or may have previously provided or may be currently providing consulting services to, other biotechnology or biopharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may become subject to claims that we, our employees or a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients. We may also be subject to claims that patents and applications we have filed to protect inventions of our employees or consultants, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer or former or current client. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, which could seriously harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management and other employees.

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

Our agreements with employees and consultants provide that any inventions conceived by an individual in the course of rendering services to us shall be our exclusive property. Although our policy is to have all such individuals complete these agreements, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. The assignment of intellectual property may not be self-executing and despite such agreement, such inventions may become assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. We may also be subject to claims that former employees, consultants, or other third parties have an ownership

 

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interest in our patents or other intellectual property. In addition, we may face claims by third parties that our agreements with employees or consultants obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such intellectual property. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Such an outcome could seriously harm our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and distraction to our management and other employees.

If we do not obtain patent term extension for our product candidates, our business may be seriously harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of any of our product candidates, one or more of our U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended. Patent term extension may also be available in certain foreign countries upon regulatory approval of our product candidates. However, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration of the applicable product, and our business may be seriously harmed.

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

Any trademarks we may register in the future or any current unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We may license our trademarks and trade names, to the extent any are registered, to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, trade secrets, domain names, copyrights or other intellectual property may

 

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be ineffective and could result in substantial costs and diversion of resources and could seriously harm our business.

Changes in patent law in the United States or in other countries could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

Our patent rights may be affected by developments or uncertainty in the U.S. or foreign patent statutes, patent case laws, USPTO rules and regulations or in the rules and regulations of foreign patent offices.

There are a number of recent changes to the U.S. patent laws that may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, on September 16, 2011, the Leahy-Smith America Invents Act (Leahy-Smith Act) was signed into law. The Leahy-Smith Act includes a number of significant changes to the U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first to file” system in which the first inventor to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO, and may become involved in post-grant proceedings including opposition, derivation, reexamination, inter partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope or enforceability of, or invalidate, our patent rights, which could adversely affect our competitive position. This could have a negative impact on some of our intellectual property and could increase uncertainties surrounding obtaining and enforcement or defense of our issued patents. In addition, Congress may pass patent reform legislation that is unfavorable to us. The Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. 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 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 we might obtain in the future. Similarly, statutory or judicial changes to the patent laws of other countries may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Complying with these laws and regulations could limit our ability to obtain new patents in the future that may be important for our business.

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

Filing, prosecuting and defending all current and future patents in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. 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 is not as strong as that in the United States. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

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The legal systems of many foreign countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any 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. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our business may be seriously harmed.

Obtaining and maintaining 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.

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the US in several stages over the lifetime of the patents and/or applications. We employ reputable professionals and rely on such third parties to help us comply with these requirements and effect payment of these fees with respect to the patents and patent applications that we own, and if we license intellectual property we may have to rely upon our licensors to comply with these requirements and effect payment of these fees with respect to any patents and patent applications that we license. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

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

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

 

   

others may be able to make gene therapy products that are similar to our product candidates or utilize similar gene therapy technology but that are not covered by the claims of the patents that we own or have exclusively licensed;

 

   

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

 

   

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

 

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

 

   

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

 

   

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

 

   

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

 

   

we may not develop additional proprietary technologies that are patentable; and

 

   

the patents of others may have an adverse effect on our business.

Should any of these events occur, they could seriously harm our business.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our products.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include that:

 

   

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

 

   

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

 

   

a collaborator with marketing, manufacturing and distribution rights to one or more products and product candidates may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;

 

   

we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;

 

   

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 causes the delay or termination of the research, development or commercialization of our current or future product candidates or that results 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 current or future product candidates;

 

   

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

 

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a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings.

Risks Related to Our Operations

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. The loss of the services provided by 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 the development of our product candidates and harm our business.

We conduct our operations at our facilities in Emeryville, California, in a region that is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel is intense 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 may need to recruit talent from outside of our region, and doing so may be costly and difficult.

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. 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. In addition, our employees are employed at-will, which means that any of our employees could leave our employment at any time, with or without notice. If we are unable to attract, incentivize and retain quality personnel on acceptable terms, or at all, it may seriously harm our business.

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

As of June 30, 2019, we had 57 full-time employees. As our development plans and strategies develop, and as we transition into operating as a public company, we must add a significant number of additional managerial, operational, financial and other personnel. Future growth will impose significant added responsibilities on members of management, including:

 

   

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

 

   

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

 

   

expanding our operational, financial and management controls, reporting systems and procedures; and

 

   

managing increasing operational and managerial complexity.

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

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

 

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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 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 our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Portions of our future clinical trials may be conducted outside of the United States and unfavorable economic conditions resulting in the weakening of the U.S. dollar would make those clinical trials more costly to operate. Furthermore, the most recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including a reduced ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy or international trade disputes could also strain our suppliers, some of which are located outside of the United States, possibly resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not grow at similar rates, or at all.

Market opportunity estimates and growth forecasts included in this prospectus are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate. The estimates and forecasts included in this prospectus relating to size and expected growth of our target market may prove to be inaccurate. Even if the markets in which we compete meet the size estimates and growth forecasts included in this prospectus, our business may not grow at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.

If we engage in acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.

We may engage in various acquisitions and strategic partnerships in the future, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any acquisition or strategic partnership may entail numerous risks, including:

 

   

increased operating expenses and cash requirements;

 

   

the assumption of indebtedness or contingent liabilities;

 

   

the issuance of our equity securities which would result in dilution to our stockholders;

 

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

 

   

the diversion of our management’s attention from our existing product candidates and initiatives in pursuing such an acquisition or strategic partnership;

 

   

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

 

   

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 intellectual property, technology and/or products sufficient to meet our objectives or even to offset the associated transaction and maintenance costs.

In addition, if we undertake such a transaction, we may incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense.

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

In September 2019, we experienced a phishing attack in which the email account of a single non-officer employee was compromised. Our security controls detected the compromise, and we were able to block the unauthorized access, but not before the attacker was able to use the account to send out additional phishing emails. We do not believe the phishing attack was a material incursion because, among other reasons, none of our data was accessed or compromised, and we have not incurred any related material remediation costs. Despite the implementation of security measures like those that detected the phishing attack, our internal information technology systems and those of our collaborators, future CROs and other contractors and consultants may be vulnerable to damage from computer viruses , natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyberattacks, phishing attacks and other social engineering schemes, denial or degradation of service attacks, unauthorized access or use, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. The costs to us to investigate and mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service, negative publicity and other harm to our business and our competitive position. Although to our knowledge we have not experienced any such material system failure or security breach to date, 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, whether due to a loss, corruption or unauthorized disclosure of our trade secrets, personal data or other proprietary or sensitive information or other similar disruptions.

For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. If a security breach or other incident were to result in the unauthorized access to or unauthorized use, disclosure, release or other processing of clinical trial data or personal data, it may necessary to notify individuals, governmental authorities, supervisory bodies, the media, and other parties pursuant to privacy and security laws. Likewise, we rely on our third-party research institution

 

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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 information technology systems could also seriously harm our business. Any security compromise affecting us, our partners or our industry, whether real or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures, and lead to regulatory scrutiny. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary or personal information, we could incur liability, our competitive position could be harmed, and the further development and commercialization of our product candidates could be delayed.

Business disruptions could seriously harm our business.

Our operations, and those of our 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 partly uninsured. 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 business.

All of our operations including our corporate headquarters are located in multiple facilities in Emeryville, California. Damage or extended periods of interruption to our corporate, development or research facilities due to fire, earthquake and other 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 on these facilities, our insurance might not cover all losses under such circumstances and our business may be seriously harmed by such delays and interruption.

Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, results of operations, and financial condition.

The global data protection landscape is rapidly evolving, and we are or may become subject to numerous state, federal and foreign laws, requirements and regulations governing the collection, use, disclosure, retention, and security of personal data, such as information that we may collect in connection with clinical trials in the United States and abroad. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our business. This evolution may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer use and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.

As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. In the United States, HIPAA imposes, among other things, certain standards relating to the privacy, security, transmission and breach reporting of individually identifiable health information.

 

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Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. In addition, California enacted the California Consumer Privacy Act (CCPA) on June 28, 2018, which takes effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal level and in other states. In the event that we are subject to or affected by HIPAA, the CCPA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition. In Europe, the GDPR went into effect in May 2018 and introduces strict requirements for processing the personal data of EU data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to 20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.

Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, CROs, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.

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

Under Sections 382 and 383 of the United States Internal Revenue Code of 1986, as amended (the Code), 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. We have experienced ownership changes in the past. We may also experience ownership changes as a result of this offering or as a result of subsequent shifts in our stock ownership, some of which 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. We will be unable to use our NOLs if we do not attain profitability sufficient to offset our available NOLs prior to their expiration.

Changes in tax laws or regulations that are applied adversely to us or our customers may seriously harm our business.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of any of our future domestic and foreign earnings. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us.

 

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Risks Related to This Offering and Ownership of Our Common Stock

We do not know whether an active market will develop for our common stock or what the market price of our common stock will be, and, as a result, it may be difficult for you to sell your shares of our common stock.

Before this offering, there was no public trading market for our common stock. If an active market for our common stock does not develop or is not sustained, it may be difficult for you to sell your shares of our common stock at an attractive price, or at all. We cannot predict the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations and progression of our product pipeline may not meet the expectations of public market analysts and investors, and, as a result of these and other factors including those identified in this “Risk Factors” section, the price of our common stock may fall.

The market price of our common stock may be volatile, which could result in substantial losses for investors purchasing shares in this offering.

The initial public offering price for our common stock was determined through negotiations with the underwriters. This initial public offering price may differ from the market price of our common stock after the offering. As a result, you may not be able to sell your common stock at or above the initial public offering price. Some of the factors that may cause the market price of our common stock to fluctuate include:

 

   

the success of existing or new competitive products or technologies;

 

   

the timing and results of clinical trials for our current product candidates and any future product candidates that we may develop;

 

   

commencement or termination of collaborations for our product candidates;

 

   

failure or discontinuation of any of our product candidates;

 

   

failure to develop our Therapeutic Vector Evolution platform technology;

 

   

results of preclinical studies, clinical trials or regulatory approvals of product candidates of our competitors, or announcements about new research programs or product candidates of our competitors;

 

   

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

 

   

developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

the commencement of litigation;

 

   

the level of expenses related to any of the research programs or product candidates that we may develop;

 

   

the results of our efforts to develop additional product candidates or products;

 

   

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

   

announcement or expectation of additional financing efforts;

 

   

sales of our common stock by us, our insiders, or other stockholders;

 

   

expiration of market standoff or lock-up agreements;

 

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variations in our financial results or those of companies that are perceived to be similar to us;

 

   

changes in estimates or recommendations by securities analysts, if any, that cover our stock;

 

   

changes in the structure of healthcare payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

general economic, industry, and market conditions; and

 

   

the other factors described in this “Risk Factors” section.

In recent years, the stock market in general, and the market for pharmaceutical and biotechnology companies in particular, has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock shortly following this offering. Following periods of such volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock could decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

A significant portion of our total outstanding shares is restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to decline significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, upon the expiration of the market standoff and lock-up agreements, the early release of these agreements or the perception in the market that the holders of a large number of shares of our common stock intend to sell shares, could reduce the market price of our common stock. After this offering and after giving effect to the conversion of 7,375,631 outstanding shares of our redeemable convertible preferred stock into an equivalent number of                 shares of our common stock immediately prior to the completion of this offering, we will have                 shares of our common stock outstanding based on                 shares of our common stock outstanding as of June 30, 2019. Of these shares, the                 shares we are selling in this offering may be resold in the public market immediately, unless purchased by our affiliates. The remaining                 shares, or         % of our outstanding shares after this offering, are currently prohibited or otherwise restricted under securities laws, market standoff agreements entered into by our stockholders with us, or lock-up agreements entered into by our stockholders with the underwriters. However, subject to applicable securities law restrictions and excluding shares of restricted stock that will remain unvested, prohibitions and restrictions on the sale of these shares in the public market will be lifted beginning 180 days after the

 

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date of this prospectus. Goldman Sachs & Co. LLC and Evercore Group L.L.C may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason. Shares issued upon the exercise of stock options outstanding under our equity incentive plans, or pursuant to future awards granted under those plans, will become available for sale in the public market to the extent permitted by the provisions of applicable vesting schedules, any applicable market standoff and lock-up agreements, and Rule 144 and Rule 701 under the Securities Act of 1933, as amended (the Securities Act). See the section of this prospectus titled “Shares Eligible for Future Sale” for additional information.

Moreover, after this offering, holders of an aggregate of                 shares of our common stock will have rights, subject to conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also plan to register all shares of our common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates and the lock-up agreements described in the section of this prospectus titled “Underwriters.” If any of these additional shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

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

We will seek additional capital through one or a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. We, and indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings. To the extent that we raise additional capital through the sale of equity 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, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term but limit our potential cash flow and revenue in the future. 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.

Insiders will continue to have substantial influence over us after this offering, which could limit your ability to affect the outcome of key transactions, including a change of control.

After this offering, our directors, executive officers, holders of more than 5% of our outstanding stock and their respective affiliates will beneficially own shares representing approximately     % of our outstanding common stock. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock.

 

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We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, as an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the year following the fifth anniversary of the consummation of this offering, (2) the last day of the year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We will incur significant costs as a result of operating as a public company, and our management will devote substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would seriously harm our business.

We will incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Exchange Act and regulations regarding corporate governance practices. The listing requirements of The Nasdaq Global Market and the rules of the Securities and Exchange Commission (SEC) require that we satisfy certain corporate governance requirements relating to director independence, filing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.

 

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After this offering, we will be subject to Section 404 of The Sarbanes-Oxley Act of 2002 (Section 404) and the related rules of the SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Beginning with the second annual report that we will be required to file with the SEC, Section 404 requires an annual management assessment of the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting.

To date, we have never conducted a review of our internal control for the purpose of providing the reports required by these rules. During the course of our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we will be required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. In order to report our results of operations and financial statements on an accurate and timely basis, we will depend in part on CROs to provide timely and accurate notice of their costs to us. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The Nasdaq Global Market or other adverse consequences that would seriously harm our business.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock before giving effect to this offering. Accordingly, if you purchase our common stock in this offering, you will incur immediate substantial dilution of approximately $             per share, based on an assumed initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover of this prospectus, and our pro forma net tangible book value as of June 30, 2019. In addition, following this offering, purchasers in this offering will have contributed approximately     % of the total gross consideration paid by stockholders to us to purchase shares of our common stock, through June 30, 2019, but will own only approximately     % of the shares of our common stock outstanding immediately after this offering. Furthermore, if the underwriters exercise their over-allotment option, or outstanding options and warrants are exercised, you could experience further dilution. For a further description of the dilution that you will experience immediately after this offering, see the section titled “Dilution.”

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

We cannot specify with certainty the uses of the majority of the net proceeds we will receive from this offering. Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section of this prospectus titled “Use of Proceeds.” Our management may spend a portion or all of the net proceeds from this offering in ways that our

 

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stockholders may not desire or that may not yield a favorable return. The failure by our management to apply these funds effectively could seriously harm our business. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Delaware law and provisions in our certificate of incorporation and bylaws that will become effective upon the closing of this offering might discourage, delay, or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Provisions in our certificate of incorporation and bylaws that will become effective upon the closing of this offering may discourage, delay, or prevent a merger, acquisition, or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our charter documents will:

 

   

provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

   

eliminate cumulative voting in the election of directors;

 

   

authorize our board of directors to issue shares of preferred stock and determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval;

 

   

provide our board of directors with the exclusive right to elect a director to fill a vacancy or newly created directorship;

 

   

provide that our directors may be removed only for cause;

 

   

permit stockholders to only take actions at a duly called annual or special meeting and not by written consent;

 

   

prohibit stockholders from calling a special meeting of stockholders;

 

   

provide for a staggered board, which will result in only a couple directors being up for re-election in each calendar year;

 

   

require that stockholders give advance notice to nominate directors or submit proposals for consideration at stockholder meetings;

 

   

authorize our board of directors, by a majority vote, to amend the bylaws;

 

   

require the affirmative vote of at least 66 2/3% or more of the outstanding shares of our common stock to amend many of the provisions described above; and

 

   

limit the liability of, and provide indemnification to, our directors and officers.

In addition, Section 203 of the General Corporation Law of the State of Delaware (DGCL) prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

Any provision of our certificate of incorporation, bylaws, or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our common stock.

 

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Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and amended and restated bylaws will provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws to be effective immediately prior to the completion of this offering and our indemnification agreements that we have entered into with our directors and officers will provide that:

 

   

We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

 

   

We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

 

   

We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

 

   

We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.

 

   

The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

 

   

We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

Our amended and restated certificate of incorporation and our amended and restated bylaws will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation and our amended and restated bylaws will provide 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 amended and restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. Nothing in our amended and restated bylaws precludes stockholders that assert claims under the Securities Act or the Exchange Act from bringing such claims in state or federal court, subject to applicable law.

 

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We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. This 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 any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. If a court were to find the choice of forum provision that will be contained in our amended and restated 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 seriously harm our business.

We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.

We could be subject to securities class action litigation.

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

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

   

the success, cost and timing of our development activities, preclinical studies and clinical trials, including our planned clinical trials for 4D-310, 4D-125 and 4D-110;

 

   

the timing of IND-enabling studies and results from such studies, including our IND-enabling studies in 4D-710;

 

   

the timing and success of lead optimization for our product candidates in lead optimization, including our product candidates for the treatment of DMD;

 

   

the translation of our preclinical results and data into future clinical trials in humans;

 

   

the timing of any manufacturing runs for materials to be used in patient trials;

 

   

the number, size and design of our planned clinical trials, and what regulatory authorities may require to obtain marketing approval

 

   

the timing or likelihood of regulatory filings and approvals;

 

   

our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;

 

   

our ability to obtain funding for our operations, including funding necessary to develop and commercialize our product candidates;

 

   

the rate and degree of market acceptance of our product candidates;

 

   

the success of competing products or platform technologies that are or may become available;

 

   

our plans and ability to establish sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain approval;

 

   

future agreements with third parties in connection with the commercialization of our product candidates;

 

   

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

 

   

existing regulations and regulatory developments in the United States and foreign countries;

 

   

the expected potential benefits of strategic collaboration agreements, including our relationships with Roche, AstraZeneca and uniQure, and our ability to attract collaborators with development, regulatory and commercialization expertise;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

   

potential claims relating to our intellectual property and third-party intellectual property;

 

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

 

   

the pricing and reimbursement of our product candidates, if approved;

 

   

our ability to attract and retain key managerial, scientific and medical personnel;

 

   

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

 

   

our financial performance;

 

   

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

 

   

our anticipated use of the proceeds from this offering; and

 

   

other risks and uncertainties, including those listed under the section titled “Risk Factors.”

These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this prospectus. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this prospectus. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this prospectus. See the section titled “Where You Can Find More Information.”

 

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INDUSTRY AND MARKET DATA

This prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our product candidates, including data regarding the estimated patient population and market size for our product candidates, as well as data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

 

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USE OF PROCEEDS

We estimate that the net proceeds from the issuance and sale of                 shares of our common stock in this offering will be approximately $         million, or approximately $         million if the underwriters exercise their over-allotment option in full, based on the assumed initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover of this prospectus, would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $         million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. Each increase or decrease of 1.0 million shares in the number of shares we are offering would increase or decrease, as applicable, the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $         million, assuming the assumed initial public offering price stays the same. We do not expect that a change in the initial price to the public or the number of shares by these amounts would have a material effect on the uses of the proceeds from this offering, although it may accelerate the time at which we will need to seek additional capital. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

The principal purposes of this offering are to obtain additional capital to support our operations, to create a public market for our common stock and to facilitate our future access to the public equity markets. We intend to use the net proceeds from this offering, together with our cash and cash equivalents, as follows:

 

   

approximately $         million to fund the ongoing and planned preclinical and clinical development of our product candidates, including the initiation of our planned Phase 1/2 clinical trial for 4D-310 and IND-enabling study activities for 4D-710, as well as the initiation of Phase 1 clinical trials for 4D-125 and 4D-110;

 

   

approximately $         million to fund the further development and expansion of our pipeline including to complete lead optimization for our research candidates for the treatment of DMD and to complete toxicology studies for our research candidates for the treatment of Wet AMD;

 

   

approximately $         million to fund the continued expansion of our manufacturing and research and development capabilities; and

 

   

any remaining amounts for working capital and general corporate purposes.

Based on our current operating plan, we estimate that our current cash and cash equivalents, together with the anticipated net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next     months.

The amounts and timing of our actual expenditures and the extent of our research and development activities may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from any preclinical or clinical trials we may commence in the future, our ability to take advantage of expedited programs or to obtain regulatory approval for any other product candidates we may identify and pursue, the timing and costs associated with the manufacture and supply of any other product candidates we may identify and pursue for

 

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clinical development or commercialization, and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

We may also use a portion of the remaining net proceeds and our existing cash and cash equivalents to in-license, acquire, or invest in complementary businesses, technologies, products or assets. However, we have no current commitments or obligations to do so.

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above.

Pending their use, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short and intermediate-term, interest-bearing, investment-grade securities, and government securities.

 

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DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2019:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to: (i) the conversion of 7,375,631 shares of our outstanding redeemable convertible preferred stock as of June 30, 2019 into an equivalent number of shares of our common stock immediately prior to the completion of this offering, and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur, in each case, immediately prior to the completion of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to sale and issuance of                 shares of our common stock in this offering, assuming an initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information together with our financial statements and related notes included elsewhere in this prospectus and the information set forth in the sections titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of June 30, 2019  
     Actual     Pro Forma      Pro Forma
As Adjusted(1)
 
     (in thousands, except share and per share
amounts)
 

Cash and cash equivalents

   $ 72,869     $                       $                   
  

 

 

   

 

 

    

 

 

 

Redeemable convertible preferred stock, $0.0001 par value: 7,375,638 shares authorized; 7,375,631 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted

   $ 102,980     $                    $                

Stockholders’ (deficit) equity:

       

Common stock, $0.0001 par value: 50,000,000 shares authorized; 5,141,344 shares issued and outstanding, actual;                 shares authorized, pro forma and pro forma as adjusted;                 shares issued and outstanding, pro forma;                 shares issued and outstanding, pro forma as adjusted

     1       

Additional paid-in capital

     3,930       

Accumulated deficit

     (46,235     
  

 

 

   

 

 

    

 

 

 

Total stockholders’ (deficit) equity

     (42,304     
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 60,676     $                    $                
  

 

 

   

 

 

    

 

 

 

 

(1)

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover of this prospectus, would increase or decrease, as applicable, each of the amount of our cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $            , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase or decrease of 1.0 million in the number of shares offered by us would increase or decrease, as applicable, each of the amount of our cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $            , assuming the assumed initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover of this prospectus, remains the same, and after deducting the estimated

 

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  underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

If the underwriters’ exercise their over-allotment option in full, our pro forma as adjusted cash and cash equivalents, and total capitalization as of June 30, 2019, would be $             million and $             million, respectively.

The number of shares of our common stock issued and outstanding, pro forma and pro forma as adjusted in the table above is based on 12,516,975 shares of our common stock (including our redeemable convertible preferred stock on an as-converted basis) outstanding as of June 30, 2019, which excludes:

 

   

2,192,230 shares of our common stock issuable upon the exercise of stock options to purchase common stock that were outstanding as of June 30, 2019, with a weighted-average exercise price of $6.10 per share;

 

   

68,669 shares of our common stock issuable upon the exercise of outstanding warrants with a weighted-average exercise price of $1.85 per share;

 

   

399,886 shares of our common stock reserved for issuance pursuant to future awards under our the Plan and associated amendments as of June 30, 2019;

 

   

                shares of our common stock reserved for issuance pursuant to future awards under our 2019 Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the completion of this offering; and

 

   

                shares of common stock reserved for issuance pursuant to future awards under our ESPP, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the completion of this offering.

 

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DILUTION

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

As of June 30, 2019, our historical net tangible book value (deficit) was $(42.7) million, or $(8.30) per share of our common stock. Our historical net tangible book value (deficit) per share represents total tangible assets less total liabilities and redeemable convertible preferred stock divided by the number of shares of our common stock outstanding on June 30, 2019.

Our pro forma net tangible book value as of June 30, 2019, before giving effect to this offering, was $             million, or $             per share of our common stock. Pro forma net tangible book value represents our historical net tangible book value (deficit), before the issuance and sale of shares in this offering, and gives effect to the conversion of 7,375,631 shares of our outstanding redeemable convertible preferred stock as of June 30, 2019 into an equivalent number of shares of our common stock immediately prior to the completion of this offering.

Our pro forma as adjusted net tangible book value represents our pro forma net tangible book value, plus the effect of the sale of                  shares of our common stock in this offering at an assumed initial public offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We determine dilution per share to investors participating in this offering by subtracting pro forma as adjusted net tangible book value per share after this offering from the assumed initial public offering price per share paid by investors participating in this offering.

The following table illustrates this per share dilution:

 

Assumed initial public offering price per share

     $                

Historical net tangible book value (deficit) per share as of June 30, 2019

   $ (8.30  

Pro forma increase in historical net tangible book value (deficit) per share

    

Pro forma net tangible book value per share as of June 30, 2019

    

Increase in pro forma net tangible book value per share attributable to new investors

    
  

 

 

   

Pro forma as adjusted net tangible book value per share

    
    

 

 

 

Dilution per share to new investors participating in this offering

     $    
    

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, the midpoint of the estimated price range set forth on the cover of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value as of June 30, 2019 after this offering by approximately $            million, or approximately $            per share, and would decrease or increase dilution to investors in this offering by approximately $            per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase or decrease of 1.0 million shares in the number of shares we are offering would increase or decrease, as applicable, our pro forma as adjusted net tangible book value as of June 30, 2019 after this offering by approximately $            million, or approximately $            per share, and would

 

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decrease or increase, as applicable, dilution to investors in this offering by approximately $            per share, assuming the assumed initial public offering price per share remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

If the underwriters fully exercise their over-allotment option, pro forma as adjusted net tangible book value after this offering would increase to approximately $            per share, the increase in pro forma as adjusted net tangible book value per share to existing stockholders would be $            per share and the dilution to new investors purchasing shares in this offering would be $            per share.

To the extent that outstanding options with an exercise price per share that is less than the pro forma as adjusted net tangible book value per share are exercised, new investors will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

The following table shows, as of June 30, 2019, on a pro forma as adjusted basis, the number of shares of our common stock purchased from us, the total consideration paid to us and the average price paid per share by existing stockholders and by new investors purchasing common stock in this offering, assuming an initial public offering price of $            per share, the midpoint of the estimated price range set forth on the cover of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (in thousands, except share and per share amounts and percentages):

 

     Shares Purchased     Total Consideration     Weighted-
Average
Price Per

Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

                         %   $                      %   $                

New investors participating in this offering

             $    
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100 %   $                      100 %  
  

 

 

    

 

 

   

 

 

    

 

 

   

If the underwriters were to fully exercise their over-allotment option, the percentage of shares of our common stock held by existing investors would be     %, and the percentage of shares of our common stock held by new investors would be     %.

The foregoing tables and calculations (other than the historical net tangible book value calculations) are based on 12,516,975 shares of our common stock (including our redeemable convertible preferred stock on an as-converted basis) outstanding as of June 30, 2019, which excludes:

 

   

2,192,230 shares of our common stock issuable upon the exercise of stock options to purchase common stock that were outstanding as of June 30, 2019, with a weighted-average exercise price of $6.10 per share;

 

   

68,669 shares of our common stock issuable upon the exercise of outstanding warrants with a weighted-average exercise price of $1.85 per share;

 

   

399,886 shares of our common stock reserved for issuance pursuant to future awards under our the Plan and associated amendments as of June 30, 2019;

 

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                shares of our common stock reserved for issuance pursuant to future awards under our 2019 Plan, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the completion of this offering; and

 

   

                shares of common stock reserved for issuance pursuant to future awards under our ESPP, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan, which will become effective immediately prior to the completion of this offering.

To the extent that outstanding options or warrants are exercised, new options or other securities are issued under our equity incentive plans, or we issue additional shares of our common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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SELECTED FINANCIAL DATA

The following tables present our selected financial data for the periods and as of the dates indicated. We derived the selected statements of operations and comprehensive loss data for the years ended December 31, 2017 and 2018 and the selected balance sheet data as of December 31, 2018 from our audited financial statements included elsewhere in this prospectus. We derived the selected statements of operations and comprehensive loss data for the six months ended June 30, 2018 and 2019 and the selected balance sheet data as of June 30, 2019 from our unaudited interim financial statements that are included elsewhere in this prospectus. Our unaudited interim financial statements are prepared on the same basis as our audited financial statements and include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, that are necessary for the fair statement of the financial information set forth in those financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future and our historical results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the remainder of 2019. You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the information under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Year Ended December 31,     Six Months Ended
June 30,
 
     2017     2018     2018     2019  
     (in thousands, except share and per share data)  

Revenue:

        

Collaboration and research revenue, related parties

   $ 3,176     $ 5,143     $ 143     $ 26  

Collaboration and research revenue

     2,614       8,987       4,926       4,390  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     5,790       14,130       5,069       4,416  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     13,573       18,362       8,208       16,985  

General and administrative

     3,489       6,167       2,198       4,884  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     17,062       24,529       10,406       21,869  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (11,272     (10,399     (5,337     (17,453

Other income (expense):

        

Interest income

     89       850       147       945  

Other income (expense), net

     (40     (2     4       (8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     49       848       151       937  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (11,223   $ (9,551   $ (5,186   $ (16,516
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (2.27     (1.89     (1.03     (3.22
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted(1)

     4,953,419       5,049,203       5,021,003       5,132,714  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share, basic and diluted(1)

                                                          
    

 

 

     

 

 

 

Weighted-average shares outstanding used in computing pro forma net loss per share, basic and diluted(1)

                                                          
    

 

 

     

 

 

 

 

(1)

See Notes 2 and 14 to our financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted net loss per share attributable to common stockholders, pro forma net loss per share, and the weighted-average number of common shares used in the computation of the per share amounts.

 

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     December 31,
2018
    June 30,
2019
 
     (in thousands)  

Balance Sheet Data:

    

Cash and cash equivalents

   $ 91,761     $ 72,869  

Working capital(1)

     86,014       66,842  

Total assets

     96,969       80,500  

Accumulated deficit

     (30,026     (46,235

Total stockholders’ deficit

     (27,587     (42,304

 

(1)

We define working capital as current assets less current liabilities. See our financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section titled “Risk Factors”, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. All amounts are expressed in thousands other than share and per share amounts. Please also see the section of this prospectus titled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a development stage precision gene therapy company dedicated to pioneering the development of targeted therapies based on our next-generation AAV vectors. Our proprietary Therapeutic Vector Evolution platform enables our “disease first” approach to product discovery and development, thereby allowing us to customize our AAV vectors to target specific tissue types associated with the underlying disease. Our proprietary AAV vectors are designed to provide targeted delivery by routine clinical routes, efficient transduction, reduced immunogenicity and resistance to pre-existing antibodies, which we believe will enable us to develop gene therapies that could overcome known limitations of conventional AAVs. As a result, we believe these key attributes will enable us to develop gene therapies with improved therapeutic profiles, pursue previously untreatable diseases and address a broad range of rare and large market diseases.

Our product candidates that are in or have completed IND-enabling studies include a wholly-owned asset in development for the treatment of Fabry disease, as well as two assets in ophthalmology. In ophthalmology our product candidate for the treatment of XLRP is wholly-owned, subject to an exclusive option for Roche to develop and commercialize the asset, and our product candidate for the treatment of Choroideremia is licensed to Roche. In addition, our wholly-owned product candidate for the treatment of Cystic Fibrosis has completed lead optimization and we expect to initiate IND-enabling studies in the first half of 2020. We have not conducted any clinical trials to date but we expect to initiate the clinical trials for these three product candidates in 2020. We also have a pipeline of product candidates in the lead optimization stage, including for the treatment of DMD and Wet AMD.

We do not have any products approved for sale and have not generated any revenue from product sales since our inception. From inception through June 30, 2019, we funded our operations primarily with an aggregate of $108.6 million in gross cash proceeds primarily from the sale and issuance of redeemable convertible preferred stock and to a lesser extent from cash received from our collaboration and license agreements. As of June 30, 2019, we had cash and cash equivalents of $72.9 million. Based on our current operating plan, we estimate that our cash and cash equivalents, together with the anticipated net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next                  months.

Since our inception in September 2013, we have devoted substantially all of our resources to discovering and developing product candidates and manufacturing processes, building our Therapeutic Vector Evolution platform and assembling our core capabilities in drug development for genetic therapies.

Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates. Until such time as we can generate

 

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significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our current product candidates or delay our efforts to advance and expand our product pipeline.

We have incurred significant operating losses to date and expect that our operating losses will increase significantly as we advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for, and, if approved, proceed to commercialization; broaden and improve our platform; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, upon the completion of this offering we expect to incur additional costs associated with operating as a public company.

Our net losses were $11.2 million, $9.6 million, $5.2 million and $16.5 million for the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019, respectively. As of June 30, 2019, we had an accumulated deficit of $46.2 million. We do not expect positive cash flows from operations in the foreseeable future. We expect to continue to incur net operating losses for at least the next several years as we advance our product candidates through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization, continue our research and development efforts and invest in our manufacturing facility.

Components of Results of Operations

Revenue

Our revenue to date has been generated through payments from our collaboration and license agreements, primarily from upfront payments and expense reimbursement. We have not generated any revenue from the sale of approved products and do not expect to do so in the near future.

In 2018, we recognized $14.1 million of revenue from our collaboration and license agreements, principally from our agreements with Roche, Pfizer and AstraZeneca (previously MedImmune). For the six months ended June 30, 2019, we recognized $4.4 million of revenue, principally from our agreements with Roche and AstraZeneca (previously MedImmune).

 

   

We expect payments from Roche for reimbursement of our internal and third-party costs as well as the recognition of a $21.0 million upfront payment received in 2017 to be our principal source of revenue in the second half of 2019. Upon initiation of our Phase 1/2 clinical trial for 4D-110 to treat Choroideremia, we expect to receive certain milestone payments. We expect this trial to initiate in the second half of 2020. If Roche continues the development of 4D-110, we will be entitled to further development and approval milestones, and, if the product candidate is approved, royalties on net sales and sales based milestones. Roche also has the option to assume the development and commercialization of 4D-125 to treat XLRP prior to pivotal trial initiation in return for an option payment and assumption of all future expenses. If Roche exercises such option, we would be entitled to future milestones upon development of the product candidate and, if approved, royalties on future net sales and sales-based milestones.

 

   

Pfizer terminated our agreement in 2018, and as a result we recognized $5.0 million of revenue in 2018 that we had previously deferred. We do not expect to recognize any revenue from Pfizer in 2019.

 

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AstraZeneca (previously MedImmune) is evaluating the results of the development work we performed. If AstraZeneca (previously MedImmune) decides to continue the program, we will be entitled to an option fee, development milestones, and if the product candidate is approved, we will be entitled to royalties on net sales.

Future collaboration and license revenue is highly dependent on the successful development and commercialization of products by our collaboration partners, which is uncertain, and revenue may fluctuate significantly from period to period. Additionally, we may never receive the consideration from our license agreements that is contemplated for option fees, development and sales-based milestone payments or royalties on sales of licensed products, given the contingent nature of these payments. We expect that our license revenue in the second half of 2019 will be primarily from Roche. If our agreement with Roche was terminated, it may materially impact the amount of license revenue we recognize in future periods.

Operating Expenses

Our operating expenses consist of research and development and general and administrative expenses. Personnel costs including salaries, benefits, bonuses and stock-based compensation expense, comprise a significant component of research and development and general and administrative expenses. We allocate indirect expenses associated with our facilities, information technology costs, depreciation and other overhead costs between research and development and general and administrative categories based on employee headcount and the nature of work performed by each employee.

Research and Development

Our research and development expenses primarily consist of costs incurred for the discovery and development of our product candidates, which include:

 

   

salaries and personnel-related costs, including benefits, stock-based compensation and travel, for our scientific personnel performing research and development activities;

 

   

costs related to executing preclinical studies and clinical trials, including payments to CROs;

 

   

costs related to acquiring, developing and manufacturing materials for preclinical studies and clinical trials including payments to CMOs;

 

   

costs related to laboratory supplies, research materials and other costs related to development and characterization of new AAV vectors;

 

   

fees paid to consultants and other third-parties who support our product candidate development, including CROs, CMOs, and other service providers;

 

   

other costs in seeking regulatory approval of our product candidates; and

 

   

allocated facility-related costs, depreciation expense and other overhead.

We expense all research and development costs in the periods in which they are incurred. We have entered into various agreements with CROs and CMOs. Costs of certain activities are recognized based on an evaluation of the progress to completion of specific tasks. Payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses and other current assets on our balance sheet. The capitalized amounts are recognized as expense as the goods are delivered or the related services are performed.

 

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We do not allocate our costs by product candidate, as a significant amount of research and development expenses includes internal costs, such as payroll and other personnel expenses, laboratory supplies and allocated overhead, and external costs, such as fees paid to third parties to conduct research and development activities on our behalf, none of which are tracked by product candidate. In particular, with respect to internal costs, several of our departments support multiple product candidate research and development programs, and therefore the costs cannot be allocated to a particular product candidate or development program.

At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for any product candidates that successfully complete clinical trials, and incur expenses associated with hiring additional personnel to support our research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.

General and Administrative

Our general and administrative expenses consist primarily of personnel-related expenses, including salaries, employee benefit costs and stock-based compensation expense, for our personnel in executive, finance and accounting and other administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses.

We expect our general and administrative expenses to increase in the future as we increase our headcount to support our continued research activities and development of our programs. We also expect increased personnel-related costs, patent costs for our product candidates, consulting, legal and accounting services associated with maintaining compliance with stock exchange listing and requirements of the SEC, investor relations costs, director and officer insurance premiums and other costs associated with being a public company.

Other Income (Expense)

Our other income (expense) primarily consists of interest income earned on our cash equivalents and adjustments for the change in the fair value of our derivative liability which must be remeasured at each reporting period.

 

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Results of Operations

Comparison of the Six Months Ended June 30, 2018 and 2019

The following table summarizes our results of operations for the periods indicated (dollars in thousands):

 

     Six Months Ended
June 30,
             
     2018     2019     $ Change     % Change  

Revenue:

        

Collaboration and license revenue, related party

   $ 143     $ 26     $ (117     (82 %)

Collaboration and license revenue

     4,926       4,390       (536     (11 %)
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     5,069       4,416       (653     (13 %)
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

        

Research and development

     8,208       16,985       8,777       107 %

General and administrative

     2,198       4,884       2,686       122 %
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,406       21,869       11,463       110 %
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (5,337     (17,453     (12,116     227 %

Other Income (Expense)

     151       937       786       521 %
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (5,186   $ (16,516   $ (11,330     218 %
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

Revenue decreased from $5.1 million for the six months ended June 30, 2018 to $4.4 million for the six months ended June 30, 2019. The decrease of $0.7 million, or 13%, was primarily due to the following:

 

   

a $0.3 million decrease in revenue recognized under our Collaboration and License Agreement with Applied Genetic Technologies Corporation;

 

   

a $0.2 million decrease in revenue recognized under our Collaboration and License Agreement with Roche for the development and treatment of various ophthalmology diseases;

 

   

a $0.1 million decrease in revenue recognized under our Collaboration and License Agreement with uniQure; and

 

   

a $0.1 million decrease in revenue recognized under our Collaboration and License Agreement with Benitec Biopharma Limited.

Research and Development Expenses

The following table provides a breakout of research and development expenses for the periods indicated (dollars in thousands):

 

     Six Months Ended
June 30,
               
     2018      2019      $ Change      % Change  

External expenses

   $ 4,415      $ 9,599      $ 5,184        117 %

Payroll and personnel expenses

     2,177        5,236        3,059        141 %

Other research and development expenses

     1,616        2,150        534        33 %
  

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 8,208      $ 16,985      $ 8,777        107
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Research and development expenses increased from $8.2 million for the six months ended June 30, 2018 to $17.0 million for the six months ended June 30, 2019. The increase of $8.8 million, or 107%, was primarily due to the following:

 

   

a $5.2 million increase in external costs as we continue to develop novel vectors and identify potential product candidates and progress our preclinical studies; and

 

   

a $3.1 million increase in payroll and personnel expenses due to increased headcount to support the development of our and our partners’ product candidates.

General and Administrative Expenses

General and administrative expenses increased from $2.2 million for the six months ended June 30, 2018 to $4.9 million for the six months ended June 30, 2019. The increase of $2.7 million, or 122%, was primarily due to the following:

 

   

a $1.3 million increase for personnel costs as a result of increased headcount of general and administrative personnel, including a $0.2 million increase in employee stock-based compensation expense; and

 

   

a $0.9 million increase for professional services, including legal, accounting and other advisory services.

Other Income (Expense)

Other income (expense) increased from $0.2 million for the six months ended June 30, 2018 to $0.9 million for the six months ended June 30, 2019. The increase was due to increased interest income in 2019 as a result of investing the $84.5 million net proceeds from our Series B redeemable convertible preferred stock financing in August 2018.

Comparison of the Years Ended December 31, 2017 and 2018

The following table summarizes our results of operations for the periods indicated (dollars in thousands):

 

     Year Ended
December 31,
              
     2017     2018     $ Change      % Change  

Revenue:

         

Collaboration and license revenue, related party

   $ 3,176     $ 5,143     $ 1,967        62

Collaboration and license revenue

     2,614       8,987       6,373        244
  

 

 

   

 

 

   

 

 

    

 

 

 

Total revenue

     5,790       14,130       8,340        144
  

 

 

   

 

 

   

 

 

    

 

 

 

Operating Expenses:

         

Research and development

     13,573       18,362       4,789        35

General and administrative

     3,489       6,167       2,678        77
  

 

 

   

 

 

   

 

 

    

 

 

 

Total operating expenses

     17,062       24,529       7,467        44
  

 

 

   

 

 

   

 

 

    

 

 

 

Loss from operations

     (11,272     (10,399     873        (8 %) 

Other Income (Expense)

     49       848       799        1,631
  

 

 

   

 

 

   

 

 

    

 

 

 

Net loss and comprehensive loss

   $ (11,223   $ (9,551   $ 1,672        (15 %) 
  

 

 

   

 

 

   

 

 

    

 

 

 

 

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Revenue

Revenue increased from $5.8 million for the year ended December 31, 2017 to $14.1 million for the year ended December 31, 2018. The increase of $8.3 million, or 144%, was primarily due to the following:

 

   

a $6.6 million increase in revenue recognized under our Collaboration and License Agreement with Roche for the development and treatment of various ophthalmology diseases;

 

   

a $5.0 million increase in revenue recognized upon termination of our Collaboration and License Agreement with Pfizer. This amount represented recognition of the upfront payment previously made by Pfizer that we had deferred; and

 

   

which were both partially offset by a $3.0 million decrease in revenue relating to our Collaboration and License Agreement with uniQure.

We do not expect to recognize any revenue from Pfizer in 2019.

Research and Development Expenses

The following table provides a breakout of research and development expenses for the periods indicated (dollars in thousands):

 

     Year Ended
December 31,
              
     2017      2018      $ Change     % Change  

External expenses

   $ 4,009      $ 9,740      $ 5,731       143

Payroll and personnel expenses

     4,302        4,960        658       15

Other research and development expenses

     5,262        3,662        (1,600     (30 %) 
  

 

 

    

 

 

    

 

 

   

 

 

 

Total research and development expenses

   $ 13,573      $ 18,362      $ 4,789       35 %
  

 

 

    

 

 

    

 

 

   

 

 

 

Research and development expenses increased from $13.6 million for the year ended December 31, 2017 to $18.4 million for the year ended December 31, 2018. The increase of $4.8 million, or 35%, was primarily due to the following:

 

   

a $5.7 million increase in external costs as we continue to develop novel vectors and identify potential product candidates and progress our preclinical studies;

 

   

a $0.7 million increase in payroll and personnel expenses due to increased headcount to support the development of our and our partners’ product candidates; and

 

   

which were both partially offset by a $1.6 million decrease for other research and development expenses, primarily due to a $2.5 million decrease in stock-based compensation for uniQure, which was fully expensed in the first quarter of 2018. See Note 6 to our financial statements included elsewhere in this prospectus for further discussion of the stock options received from uniQure.

General and Administrative Expenses

General and administrative expenses increased from $3.5 million for the year ended December 31, 2017 to $6.2 million for the year ended December 31, 2018. The increase of $2.7 million, or 77%, was primarily due to the following:

 

   

a $1.0 million increase for personnel costs as a result of increased headcount of general and administrative personnel, including a $0.2 million increase in employee stock-based compensation expense;

 

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a $0.9 million increase for professional services, including legal, accounting and other advisory services; and

 

   

a $0.2 million increase for allocated overhead, including rent, equipment, depreciation, information technology costs and utilities.

Other Income (Expense)

Other income (expense) increased from less than $0.1 million for the year ended December 31, 2017 to $0.8 million for the year ended December 31, 2018. The increase was due to increased interest income in 2018 as a result of investing the $84.5 million net proceeds from our Series B redeemable convertible preferred stock financing in August 2018.

Liquidity and Capital Resources

Sources of Liquidity

As of December 31, 2018 and June 30, 2019, we had cash and cash equivalents of $91.8 million and $72.9 million, respectively. We primarily generate cash and cash equivalents from the sale of our equity securities, including from the sale of our Series B redeemable convertible preferred stock, and to a lesser extent from cash received from our collaboration and license agreements.

In August 2018, we completed the private offering of 5,154,632 shares of our Series B redeemable convertible preferred stock at a price of $17.46 per share. The net proceeds from the offering were $84.5 million.

Future Funding Requirements

We have incurred net losses since our inception and had an accumulated deficit of $46.2 million as of June 30, 2019. Our transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and those of our collaboration partners and achieving a level of revenue adequate to support our cost structure. We do not expect to achieve such revenue and expect to continue to incur losses for the foreseeable future.

We expect that our current cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the date of this prospectus.

We expect that our research and development and general and administrative expenses will continue to increase for the foreseeable future. Additionally, we expect our capital expenditures will increase significantly in the future for costs associated with building additional manufacturing capacity. As a result, we will need significant additional capital to fund our operations, which we may obtain through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements.

Because of the numerous risks and uncertainties associated with the development and commercialization of gene therapy product candidates, we are unable to estimate the amount of increased capital we will need to raise to support our operations and the outlays and operating expenditures necessary to complete the development of our product candidates and build additional manufacturing capacity, and we may use our available capital resources sooner than we currently expect.

 

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

 

   

the scope, progress, results and costs of vector discovery, laboratory testing, preclinical development and clinical trials for our and our collaboration partner’s product candidates;

 

   

the timing of enrollment, commencement and completion of our clinical trials;

 

   

the costs associated with building additional laboratory and manufacturing capacity;

 

   

the costs, timing and outcome of regulatory review of our product candidates;

 

   

the cost of manufacturing our product candidates or any future product candidates and any products we successfully commercialize, including costs associated with building-out our manufacturing capabilities

 

   

the costs of future product sales, medical affairs, marketing, manufacturing and distribution activities for any of our product candidates for which we receive marketing approval;

 

   

revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;

 

   

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

 

   

any product liability or other lawsuits related to our product candidates;

 

   

our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;

 

   

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

 

   

the payment of milestone or royalty payments owed under our existing collaboration and licensing agreements;

 

   

our current collaboration and licensing agreements remaining in effect and our collaboration partners adhering to the terms of such collaboration and licensing agreements;

 

   

our ability to establish and maintain additional licensing agreements or collaborations on favorable terms, if at all; and

 

   

the costs associated with being a public company.

Many of these factors are outside of our control. Developing novel vectors and identifying potential product candidates and conducting preclinical testing and clinical trials are time-consuming, expensive and uncertain processes that take years to complete, and we and our collaboration partners may never generate the necessary data or results required to obtain regulatory and marketing approval and achieve product sales. In addition, our and our collaboration partner’s product candidates, if approved, may not achieve commercial success. Our product revenue, if any, and any commercial milestones or royalty payments under our collaboration agreements, will be derived from or based on sales of products that may not be commercially available for many years, if at all.

Our issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our common stock to decline. Adequate additional financing may not be available to us on acceptable terms, or at all. We also could be required to seek funds through arrangements with collaboration partners or otherwise that may require us to relinquish rights to our intellectual property or our product candidates or otherwise agree to terms unfavorable to us. See the section titled “Risk Factors” for additional risks associated with our substantial capital requirements.

 

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Summary Statement of Cash Flows

The following is a summary of cash flows for the periods indicated below (in thousands):

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2017      2018     2018     2019  

Net cash provided by (used in) operating activities

   $ 8,237      $ (16,252   $ (6,422   $ (17,168

Net cash provided by (used in) in investing activities

     7,675        (414     (33     (1,662

Net cash provided by (used in) financing activities

     16        84,577       20       (62
  

 

 

    

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ 15,928      $ 67,911     $ (6,435   $ (18,892
  

 

 

    

 

 

   

 

 

   

 

 

 

Net Cash Provided by (Used in) Operating Activities

Net cash used in operating activities was $17.2 million for the six months ended June 30, 2019. This was primarily due to net loss of $16.5 million and a decrease in deferred revenue of $2.7 million, which were partially offset by stock-based compensation expense of $1.5 million and depreciation and amortization expense of $0.4 million.

Net cash used in operating activities was $6.4 million for the six months ended June 30, 2018. This was primarily due to net loss of $5.2 million and a decrease in deferred revenue of $1.4 million.

Net cash used in operating activities was $16.3 million for the year ended December 31, 2018. This was primarily due to net loss of $9.6 million and a decrease in deferred revenue of $8.6 million, which were partially offset by stock-based compensation expense of $1.4 million and depreciation and amortization expense of $0.7 million.

Net cash provided by operating activities was $8.2 million for the year ended December 31, 2017. This was due to an increase in deferred revenue of $19.0 million, primarily due to a $21.0 million upfront payment from Roche in December 2017, which was partially offset by net loss of $11.2 million.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities was $1.7 million for the six months ended June 30, 2019, all of which was used to purchase property and equipment.

Net cash used in investing activities was less than $0.1 million for the six months ended June 30, 2018, all of which was used to purchase property and equipment.

Net cash used in investing activities was $0.4 million for the year ended December 31, 2018, all of which was used to purchase property and equipment.

Net cash provided by investing activities was $7.7 million for the year ended December 31, 2017, which was due to the maturity of $8.2 million of marketable securities, which was partially offset by $0.6 million used to purchase property and equipment.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities was $0.1 million for the six months ended June 30, 2019, which was primarily due to deferred financing costs.

Net cash provided by financing activities was less than $0.1 million for the six months ended June 30, 2018, all of which was due to the issuance of our common stock.

 

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Net cash provided by financing activities was $84.6 million for the year ended December 31, 2018, which was primarily due to $84.5 million of net proceeds received from the issuance of our Series B redeemable convertible preferred stock in August 2018.

Net cash provided by financing activities was less than $0.1 million for the year ended December 31, 2017, which was primarily due to the issuance of our common stock.

Contractual Obligations, Commitments and Contingencies

Our commitments include obligations under vendor contracts to provide research services and other purchase commitments with our vendors. In the normal course of business, we enter into services agreements with contract research organizations, contract manufacturing organizations and other third-parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The actual amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of the services to be provided. These amounts are not fixed and determinable and therefore are not included in the table below.

The following table summarizes our contractual obligations, commitments and contingencies as of December 31, 2018 (in thousands):

 

            Payments Due by Period  
     Total      Less Than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 

Operating lease payments

   $ 13,527      $     850      $ 3,532      $ 3,766      $ 5,379  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 13,527      $ 850      $ 3,532      $ 3,766      $ 5,379  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

In October 2018, we entered into a long-term lease for additional office and laboratory space in Emeryville, California, at a cost of $9.3 million over an 87-month term (the Second Lease). We concurrently amended our existing lease to extend the lease term to end at the same time as the new lease, which has a remaining cost of $4.2 million.

In May 2019, we amended the Second Lease (the Second Lease Amendment) to add 17,497 square feet to the space being leased pursuant to the Second Lease. The Second Lease Amendment extended the term of the lease to December 31, 2029. We do not have to pay rent until December 2019. The annual rent for the additional space is approximately $1.0 million per annum and escalates at 3% annually. The incremental increase in the Second Lease cost per annum due to the Second Lease Amendment is not reflected in the above table.

Critical Accounting Policies and Significant Judgments and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of our 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 our financial statements, as well as the reported revenue and expenses during the reported periods. We evaluate these estimates and assumptions on an ongoing basis. We base our estimates on 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.

 

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Our significant accounting policies and recently announced accounting pronouncements, including the expected impact of such pronouncements, are described in Note 2 to our financial statements included elsewhere in this prospectus. We believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results.

Revenue Recognition

Effective January 1, 2019, we adopted ASC 606, using the modified retrospective transition method. As a result, we changed our accounting policies for revenue recognition as detailed below.

We determine revenue recognition for arrangements within the scope of ASC 606 by performing the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation.

Our revenue is primarily derived through our license, research, development and commercialization agreements. The terms of these types of agreements may include (i) licenses to our technology, (ii) research and development services, and (iii) services or obligations in connection with participation in research or steering committees. Payments to us under these arrangements typically include one or more of the following: nonrefundable upfront and license fees, research funding, milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products. Arrangements that include upfront payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until performance obligations are met. The event-based milestone payments, royalties and cost reimbursements represent variable consideration, and we use the most likely amount method to estimate this variable consideration. Royalty payments are recognized when earned or as the sales occur. We record cost reimbursements as accounts receivable when right to consideration is unconditional.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. We allocate the total transaction price to each performance obligation based on the estimated relative to standalone selling price and recognize revenue when, or as, the performance obligation is satisfied. We include the unconstrained amount of estimated variable consideration in the transaction price. At the end of each reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate of the overall transaction price.

Prior to the adoption of ASC 606 on January 1, 2019, we recognized revenue when all of the following criteria were met: persuasive evidence of an arrangement exists; transfer of technology has been completed or services have been rendered; the price to the customer is fixed or determinable and collectability is reasonably assured.

In arrangements involving the delivery of more than one element, each required deliverable was evaluated to determine whether it qualified as a separate unit of accounting. The determination was based on whether the deliverable had “standalone value” to the customer. If a deliverable did not qualify as a separate unit of accounting, it was combined with the other applicable undelivered item(s) within the arrangement and these combined deliverables were treated as a single unit of accounting.

 

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The arrangement’s consideration that was fixed or determinable was allocated to each separate unit of accounting based on the relative selling price methodology in accordance with the selling price hierarchy, which included vendor-specific objective evidence (VSOE) of selling price, if available, or third-party evidence of selling price if VSOE was not available, or the best estimate of selling price, if neither VSOE nor third-party evidence was available.

Payments or reimbursements for our research and development efforts for the arrangements where such efforts were considered as deliverables were recognized as the services were performed and were presented on a gross basis. When upfront payments were received and if there was no discernible pattern of performance, we recognized revenue ratably over the associated period of performance.

Accrued Research and Development Expenses

We estimate our accrued research and development expenses as of each balance sheet date. This process involves reviewing contracts and purchase orders with service providers, identifying services that have been performed on our behalf and estimating the level of service performed, the expected remaining period of performance and the associated expenses incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. Depending on the timing of payments to the service providers and the estimated expenses incurred, we may record net prepaid or accrued research and development expenses relating to these costs.

Examples of estimated accrued research and development expenses include fees paid to:

 

   

CROs in connection with preclinical development and clinical studies; and

 

   

CMOs and other vendors related to process development and manufacturing of materials for use in preclinical development and clinical studies.

Our understanding of the status and timing of services performed relative to the actual status and timing may vary and may result in us reporting changes in estimates in any particular period. To date, there have been no material differences from our estimates to the amounts actually incurred.

Stock-Based Compensation

We use a fair value-based method to account for all stock-based compensation arrangements with employees including stock options and stock awards. Our determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option pricing model.

The fair value of the option granted is recognized on a straight-line basis over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period, which usually is the vesting period.

We use a fair value-based method to account for stock-based compensation arrangements with non-employees. Our determination of fair value of stock options utilizes the Black-Scholes option pricing model. The compensation expense for these arrangements is subject to remeasurement until the related vesting conditions are met. We account for forfeitures as they occur for both employees and non-employees.

Estimates of the fair value of equity awards as of the grant date using valuation models such as the Black-Scholes option pricing model are affected by assumptions with a number of complex variables.

 

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Changes in the following assumptions can materially affect the estimate of fair value and ultimately how much stock-based compensation expense is recognized; and the resulting change in fair value, if any, is recognized in our statement of operations and comprehensive loss during the period the related services are rendered. These inputs are subjective and generally require significant analysis and judgment to develop:

 

   

Expected Term—The expected term for employee options is calculated using the simplified method as we do not have sufficient historical information to provide a basis for estimate. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. The expected term for nonemployee options is the contractual term of the options.

 

   

Expected Volatility—For all stock options granted to date, the expected volatility was estimated based on a study of publicly traded industry peer companies as we did not have any trading history for our common stock. We selected the peer group based on similarities in industry, stage of development, size and financial leverage with our principal business operations. For each grant, we measured historical volatility over a period equivalent to the expected term.

 

   

Risk-Free Interest Rate—The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues whose term is similar in duration to the expected term of the respective stock option.

 

   

Expected Dividend Yield—We have not paid and do not currently anticipate paying any dividends on our common stock. Accordingly, we have estimated the dividend yield to be zero.

As of June 30, 2019, the unrecognized stock-based compensation expense related to stock options was $9.4 million and is expected to be recognized as expense over a weighted-average period of approximately 3.2 years. The intrinsic value of all outstanding stock options as of June 30, 2019 was approximately $         million, based on the assumed initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover of this prospectus, of which approximately $         million related to vested options and approximately $         million relate to invested options.

Common Stock Valuations

The estimated fair value of the common stock underlying our stock options and stock awards was determined at each grant date by our board of directors, with input from management. All options to purchase shares of our common stock are intended to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant.

In the absence of a public trading market for our common stock, on each grant date, we develop an estimate of the fair value of our common stock based on the information known to us on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of our common stock, and in part on input from an independent third-party valuation firm.

Our valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the Practice Aid).

The assumptions used to determine the estimated fair value of our common stock are based on numerous objective and subjective factors, combined with management’s judgment, including:

 

   

external market conditions affecting the pharmaceutical and biotechnology industry and trends within the industry;

 

   

our stage of development and business strategy;

 

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the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock;

 

   

the prices at which we sold shares of our redeemable convertible preferred stock;

 

   

our financial condition and operating results, including our levels of available capital resources;

 

   

the progress of our research and development efforts;

 

   

equity market conditions affecting comparable public companies;

 

   

general U.S. market conditions; and

 

   

the lack of marketability of our common stock.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of our common stock at each valuation date. In accordance with the Practice Aid, we considered the following methods:

 

   

Option Pricing Method. Under the option pricing method (OPM) shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these options.

 

   

Probability-Weighted Expected Return Method. The probability-weighted expected return method (PWERM) is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

Based on our early stage of development and other relevant factors, we determined that a hybrid approach of the OPM and the PWERM methods was the most appropriate method for allocating our enterprise value to determine the estimated fair value of our common stock. In determining the estimated fair value of our common stock, our board of directors also considered the fact that our stockholders could not freely trade our common stock in the public markets. Accordingly, we applied discounts to reflect the lack of marketability of our common stock based on the weighted-average expected time to liquidity. The estimated fair value of our common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.

Following the completion of this offering, our board of directors intends to determine the fair value of our common stock based on the closing quoted market price of our common stock on the date of grant.

Redeemable Convertible Preferred Stock

We record all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The redeemable convertible preferred stock is recorded outside of permanent equity because while it is not mandatorily redeemable, in certain events considered not solely within our control, such as a merger, acquisition, or sale of all or substantially all of our assets, each of which we refer to as a deemed liquidation event, the convertible preferred stock will become redeemable at the option of the holders of at least a majority of the then outstanding such shares. We have not adjusted the carrying values of the redeemable convertible preferred stock to its liquidation preference because a deemed liquidation event obligating us to pay the liquidation preferences to holders of shares of redeemable convertible preferred stock is not probable of occurring. Subsequent adjustments to the carrying values to the liquidation preferences will be made only when it becomes probable that such a deemed liquidation event will occur.

 

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Income Taxes

We account for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the financial statement reporting and tax basis of our assets and liabilities. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized.

We account for uncertain tax positions by assessing all material positions taken in any assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (IRS) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on our value immediately prior to the ownership change. We have experienced ownership changes in the past. As a result of the ownership changes, we determined that approximately $0.9 million of our NOLs will expire unutilized for federal income tax purposes and such amounts are excluded from our NOLs as of December 31, 2018. Subsequent ownership changes may result in additional limitations.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of June 30, 2019, we had cash and cash equivalents of $72.9 million, consisting of bank deposits and interest-bearing money market funds, for which the fair value would be affected by changes in the general level of U.S. interest rates. However, due to the short-term maturities of our cash equivalents, an immediate 10% change in interest rates would not have a material effect on the fair value of our cash equivalents.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and development costs. We do not believe that inflation has had a significant impact on our results of operations for any periods presented herein.

JOBS Act

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards issued

 

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subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, while we are an emerging growth company, we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We will remain an emerging growth company until the earlier of (i) the last day of the year following the fifth anniversary of the completion of this offering, (ii) the last day of the year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the Exchange Act), which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

 

   

we will present only two years of audited financial statements, plus unaudited financial statements for any interim period, and related management’s discussion and analysis of financial condition and results of operations;

 

   

we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act);

 

   

we will provide less extensive disclosure about our executive compensation arrangements;

 

   

we will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements; and

 

   

we will take advantage of extended transition periods to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies.

As a result, the information in this prospectus and that we provide to our investors in the future may be different than what you might receive from other public reporting companies.

Recent Accounting Pronouncements

See Note 2 to our financial statements included elsewhere in this prospectus for information.

 

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BUSINESS

Overview

We are a development stage precision gene therapy company dedicated to pioneering the development of targeted therapies based on our next-generation AAV vectors. Our proprietary Therapeutic Vector Evolution platform enables our “disease first” approach to product discovery and development, thereby allowing us to customize our AAV vectors to target specific tissue types associated with the underlying disease.

Our proprietary AAV vectors are designed to provide targeted delivery by routine clinical routes, efficient transduction, reduced immunogenicity and resistance to pre-existing antibodies, which we believe will enable us to develop gene therapies that could overcome known limitations of conventional AAVs. As a result, we believe these key attributes will enable us to develop gene therapies with improved therapeutic profiles, pursue previously untreatable diseases and address a broad range of rare and large market diseases. Our product candidates that are in or have completed Investigational New Drug (IND)-enabling studies include a wholly-owned asset in development for the treatment of Fabry disease, as well as two assets in ophthalmology. In ophthalmology our product candidate for the treatment of X-linked Retinitis Pigmentosa (XLRP), is wholly-owned subject to an exclusive option for Roche to develop and commercialize the asset, and our product candidate for the treatment of Choroideremia is licensed to Roche. In addition our wholly-owned product candidate for the treatment of Cystic Fibrosis has completed lead optimization and we expect to initiate IND-enabling studies in the first half of 2020. We expect to initiate our first clinical trials for these product candidates in 2020. We also have a pipeline of product candidates in the lead optimization stage, including for the treatment of Duchenne Muscular Dystrophy (DMD) and Wet Age-Related Macular Degeneration (Wet AMD).

While gene therapy holds tremendous promise as a transformative therapeutic class, the majority of gene therapeutic approaches utilize naturally-occurring or conventional AAV vectors that have encountered limitations such as high dose requirements, limited efficacy, inflammation and toxicity, and neutralization by pre-existing antibodies. As a result of these shortcomings, current efforts with conventional AAV vectors have focused on diseases in which a surgical technique is used for direct cell access, such as subretinal injection for the retina, or a low level of gene expression may be sufficient for patient benefit, such as Hemophilia A or B treatment. Rather than using conventional AAV vectors for our products, we instead take a “disease first” approach creating proprietary customized AAV vectors for each disease indication through our Therapeutic Vector Evolution platform. Our Therapeutic Vector Evolution platform is based on directed evolution, a high-throughput biological engineering and screening approach harnessing the power of natural selection to identify novel AAVs with desirable characteristics. As of September 1, 2019 we have a total of 37 distinct libraries, with an estimated over one billion vector sequences. We select customized AAVs based on the Target Vector Profile (TVP) for the disease and we subsequently characterize each lead vector through extensive studies in non-human primates (NHPs) and proprietary human cell and organotypic tissue assays. Based on our preclinical data to date from NHPs and human cell models, including preclinical head to head comparisons with conventional AAVs, we observed that our precision AAVs were well-tolerated and achieved enhanced delivery, increased transgene expression, reduced immunogenicity and/or improved antibody resistance when compared to therapies using conventional AAVs.

Our initial focus is on developing a broad pipeline of transformative gene therapy product candidates designed to treat patients suffering from lysosomal storage diseases, lung diseases, muscular dystrophies and ophthalmological diseases. We are developing a diverse pipeline of wholly-owned and partnered programs for both rare and large market diseases. We have not conducted any clinical trials but expect to initiate our first clinical trials for these three product candidates in 2020. Our pipeline is represented in the diagram below.

 

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LOGO

 

*

Expected timing of milestone. FIH refers to first-in-human, Phase 1 or Phase 1/2, clinical studies.

**

We are responsible for development of this product candidate and Roche has an exclusive option to assume development and commercialization at its sole cost and expense. Such option may be exercised prior to pivotal trial initiation.

We are independently optimizing lead assets in this field. If we elect to declare product candidate(s) in the field specified in our collaboration and license agreement with Roche, Roche could exercise the option to license, further develop and commercialize this product candidate at any time prior to pivotal trial initiation. See the section titled “Business—Strategic Collaborations—Collaboration and License Agreement with F. Hoffman Ltd. and Hoffman—La Roche Inc.” for further information.

Proof of concept studies for 4D-710 were conducted in a pig model of Cystic Fibrosis and utilized a species-specific (i.e., pig-specific) vector rather than the primate-specific 4D-A101 vector, which is the vector for Cystic Fibrosis product candidate 4D-710.

Lysosomal Storage Diseases

Our lead product candidate in lysosomal storage diseases, 4D-310, is wholly-owned and under development for the treatment of Fabry disease, a progressive and fatal condition with cardiac complications cited as the leading cause of death. Classic Fabry disease is known to affect at least 5,000 males in the United States. However, we estimate the incidence rate may be higher as recent newborn screening suggests the total number of individuals with Fabry-related genetic mutations in the United States, as well as France, Germany, Italy, Spain and the United Kingdom (the EU-5) could fall between 50,000 and 70,000. Moreover, a recent multicenter study estimated that 57% of patients seen in the clinic are of the classic phenotype. Thus, we estimate the total addressable male Fabry patient population in the United States to be approximately 10,000 individuals, and including the EU-5, we estimate the total addressable male population to be approximately 18,800 individuals. 4D-310 uses a proprietary vector designed for efficient, low dose intravenous delivery to cardiac and other relevant tissues and to have minimal toxicities, and potential resistance to pre-existing antibodies in the Fabry disease population. The approved enzyme replacement therapies (ERT) reportedly do not adequately address Fabry cardiomyopathy, a leading cause of death in this disease. In 2019 we advanced 4D-310 to IND-enabling pharmacology and Good Laboratory Practices (GLP) toxicology and biodistribution studies with 4D-310 and in April 2019, we held a pre-IND meeting with the U.S. Food and Drug Administration (FDA). 4D-310 Phase 1/2 clinical trial initiation is planned for the second half of 2020. We expect initial human safety and biomarker data by                     .

 

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Lung Diseases

Our lead product candidate in the lung therapeutic area, 4D-710, is wholly-owned and under development for the aerosol treatment of Cystic Fibrosis lung disease. Cystic Fibrosis is the most fatal inherited disease affecting more than 70,000 patients worldwide. Cystic Fibrosis causes impaired lung function, inflammation and bronchiectasis and is commonly associated with repeat and persistent lung infections due to the inability to clear thickened mucus from the lung, often resulting in frequent exacerbations, hospitalizations and eventual end-stage respiratory failure. We produced 4D-710 using a proprietary vector designed for efficient aerosol delivery to the lung airway, enhanced penetration through mucus, efficient airway cell transduction and transgene expression, and resistance to pre-existing antibodies in the patient population. While several products have been approved for the treatment of Cystic Fibrosis, they fall short of restoring normal lung function in most patients, and these chronic therapies require daily dosing for the patient’s lifetime. Additionally, approximately 10% of patients remain without a corrective treatment option. We expect to initiate IND-enabling study activities with 4D-710 in the first half of 2020.

Muscular Dystrophies

We are currently in the lead optimization phase for our wholly-owned research candidates for the treatment of certain muscular dystrophies, including DMD. DMD, a progressive and fatal muscular-wasting disease, is one of the most prevalent rare genetic diseases, with an estimated prevalence between 10,000 to 15,000 cases in the United States. Our product candidates are engineered from proprietary vectors designed for efficient, low dose intravenous delivery to cardiac and skeletal muscle tissues with minimal toxicities, and potential resistance to pre-existing antibodies in the human patient population. Several companies are developing gene therapies for DMD using conventional AAVs. While early clinical data in some programs have been encouraging, AAV gene therapies using conventional AAV vectors have been subject to inflammation-related toxicity issues and manufacturing challenges due to the relatively high doses required. In addition to requiring high doses, patients have been excluded from clinical trials due to pre-existing antibodies to the conventional vector used. We expect to complete lead optimization in 2020.

Ophthalmological Disorders

We have two ophthalmology product candidates that utilize our proprietary intravitreal vector for rare monogenic binding diseases: 4D-125 in development for the treatment of XLRP and 4D-110 in development for the treatment of Choroideremia. Our proprietary vector for these ophthalmological diseases is designed for intravitreal injection, potentially leading to transgene expression across the surface area of the retina, and major cell layers of the retina. We have an exclusive partnership in ophthalmology with Roche that includes an option for Roche to license 4D-125 in XLRP, as well as other ophthalmology product candidates we may declare, prior to pivotal trial initiation. 4D-125 is expected to begin clinical trials in mid-2020. In addition, Roche currently holds a license to 4D-110 in Choroideremia. We expect to initiate 4D-110 clinical trials in the second half of 2020. We expect initial human safety and biomarker data for 4D-125 by             .

We are currently in lead optimization for multiple product candidates that utilize our proprietary intravitreal vector, the same as for 4D-125 and 4D-110 described above, for the treatment of Wet AMD, each of which is engineered to express a different protein to neutralize vascular endothelial growth factor (VEGF). We expect to complete lead optimization in the first half of 2020.

Our Team

We have an experienced team of biotherapeutics developers, innovative gene therapy scientists and clinicians to execute our product design and development strategy. Led by our Chief Executive Officer and co-founder, David Kirn, M.D., our team has more than 100 years of combined experience in

 

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the field of viral vector gene therapy, including leadership of over 30 clinical trials from Phase 1 through Phase 3. Our Chief Technical Officer and Head of Regulatory and Quality, Fred Kamal, Ph.D., has over 20 years of industry experience in product manufacturing and quality, including most recently with AveXis where he was a key contributor to the development and writing of the quality and manufacturing sections of the biologics license application (BLA) for the AAV product Zolgensma. Our Chief Scientific Advisor and co-founder, Dr. David Schaffer, Ph.D., pioneered the application of directed evolution to the capsid of AAV vectors over 15 years ago.

Our Investors

We have raised $108.6 million from the sale and issuance of our preferred stock to leading investors including Viking Global Investors, Janus Henderson Investors, The Biotechnology Value Fund, Arrowmark Partners, Pfizer Ventures, Mirae Asset Financial Group, Perceptive Advisors, Ridgeback Capital Investments, Pappas Capital, and Chiesi Ventures.

Our Strategy

To achieve our goal of unlocking the full potential of gene therapy for many patient populations, we strive to achieve the following:

Develop transformative precision gene therapies using the power of directed evolution and our “disease first” approach.

Our Therapeutic Vector Evolution platform allows us to move beyond naturally-occurring conventional AAV vectors and select proprietary, customized AAV vectors based on a disease-specific Target Vector Profile (TVP). As a result, we believe we will be able to unlock the full potential of gene therapy by creating precision gene therapies with improved characteristics that enable us to treat broader patient populations and previously untreatable diseases, if approved.

We believe our AAV products are modular, in that a single vector can be armed with different transgene payloads in order to treat multiple diseases within the same tissue types or therapeutic areas. As a result, if clinical studies provide us with clinical proof-of-concept for a specific vector, we believe our likelihood of technical success may increase with each subsequent product leveraging the same vector to deliver a different transgene payload.

Design, develop and commercialize a diverse portfolio of product candidates in a broad range of therapeutic areas for both rare and large market diseases.

We are developing product candidates in diseases and therapeutic areas in which we believe our proprietary AAV vectors may provide differentiating advantages to conventional approaches. Our initial focus is to develop a broad pipeline of potentially transformative gene therapy product candidates designed for patients suffering from lysosomal storage diseases, lung diseases, muscular dystrophies and ophthalmological diseases. Additionally, we believe our customized vectors will allow us to create and, if approved, commercialize transformative therapies for rare and large market diseases that cannot be addressed with conventional AAV vectors.

Continue to expand our Good Manufacturing Practice manufacturing capabilities.

We believe a critical component to our success will be to leverage and expand our proprietary manufacturing know-how, expertise, and capacity. We currently operate an internal manufacturing facility in which we intend to produce clinical trial material according to current Good Manufacturing Practices (cGMP) requirements, along with material we have used for Good Laboratory Practices (GLP) toxicology studies, and vectors for characterization studies in non-human primates and other

 

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animal models. We plan to continue expanding our internal manufacturing capabilities, while leveraging the experience of our chemistry, manufacturing and controls (CMC) team to support the development and, if approved, commercialization of our product candidates. We believe that focusing on internal manufacturing activities and control, supplemented by outside activities at CMOs, can mitigate CMC development and commercialization risks, limit reliance on CMOs and increase product development speed. We are dedicated to using the scalable unit operations we have designed for our product and vector manufacturing, which we believe have advantages for large-scale manufacturing versus those developed in academic laboratory settings.

Protect, defend, and expand our intellectual property portfolio of proprietary AAV vectors discovered through Therapeutic Vector Evolution platform.

We have issued patents and patent application filings on the composition-of-matter for over 300 unique AAV capsid sequences that were identified through our discovery efforts. In addition, we have product-specific patent application claims that include our capsids carrying codon-optimized transgenes. We also hold trade secrets covering vector discovery and manufacturing methodologies. Finally, our intellectual property portfolio includes our vector libraries, consisting of an estimated one billion unique AAV capsid sequences. In addition, we intend to further expand our intellectual property portfolio by pursuing new opportunities, such as potentially developing new promoter and manufacturing-related technologies through our sponsored research agreements (the SRAs) with the UC Regents.

Selectively partner with leading biopharmaceutical companies to harness the full potential of our platform while retaining product rights in key markets and work closely with patient advocacy groups to inform our programs.

We have retained rights to the majority of therapeutic areas and product opportunities within our proprietary platforms. We have entered into strategic partnerships with biopharmaceutical companies Roche, AstraZeneca (previously MedImmune) and uniQure in order to maximize the potential of the platform and broaden our therapeutic reach through their expertise and commercial capabilities. In addition, we have relationships with the Cystic Fibrosis Foundation, Foundation Fighting Blindness, Choroideremia Research Foundation and CureDuchenne. We will continue to evaluate new opportunities to partner with leading pharmaceutical and biotechnology companies, and with patient disease foundations and advocacy groups, that we believe maximize value and benefits for us and patients.

Gene Therapy and Limitations of Current Approaches

Gene therapy aims to address diseases caused by gene mutations and gene dysregulation, and it holds the promise of delivering transformative and durable benefit to the patient after a single administration. Genetic therapies are designed to address the underlying molecular root cause of genetic diseases, in many cases, by introducing a functional version of the patient’s defective gene into their own cells. Gene therapy has shown the potential to halt the progression of rare diseases, as well as to enable or restore critical human functions. These genetic therapies may be delivered to their target cells either in vivo or ex vivo, and can be paired with other therapeutic approaches including cell therapy and gene editing.

The transformative potential of gene therapy has demonstrated therapeutic utility across multiple disease areas, with a focus on rare diseases. There has been significant progress in the area of gene and cell therapy, including with AAV based gene therapy, as well as chimeric antigen receptor T-cell therapies. Further, the number of companies developing gene and cell therapy products has increased significantly over the last five years. There are currently a number of approved viral vector gene therapy products, including Zynteglo, Zolgensma, Luxturna, Imlygic and Strimvelis.

 

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The physical construct of gene therapies are comprised of two essential components:

 

   

Vector:    A vehicle that packages and delivers the promoter and transgene into the body, and transports them through the protective cell membrane and ultimately into the cell nucleus. As a result, it plays an essential role in delivery and transduction, the process of guiding the transgene into the cell with subsequent expression of the transgene product. The vector is foundational to the efficacy of gene therapy, as the vector must deliver the promoter and transgene to the diseased cells in sufficient quantities to result in clinical benefit. The majority of AAV gene therapy companies use conventional AAV vectors that are comprised of naturally-occurring AAV viruses of a few specific subtypes, including AAV2, AAV5, AAV8, AAV9, AAVrh10, and AAVrh74.

 

   

Promoter and Transgene:    The promoter is the DNA region that controls and initiates transcription of the transgene, while the transgene is the functional gene intended to be delivered into the cell and expressed at the RNA and protein levels.

Key Challenges With Conventional AAV Vectors

The fundamental gene therapy components used in current gene therapy candidates originated largely from academia, some as early as the 1960s, with limited improvements since their discovery. While gene therapy holds tremendous promise as a transformative therapeutic class, the demonstrated hurdles with conventional vectors may limit the diseases and patient populations that can be effectively addressed. There are four fundamental challenges that hinder gene therapies that utilize conventional AAV vectors:

 

  1.

Lack of efficient delivery to specific tissues and/or cell types due to physical barriers. Conventional naturally-occurring AAVs have not been designed or engineered to circumvent natural barriers to viral vector delivery, such as clearance by the liver or the inner-limiting membrane of the retina, and they are not targeted to specific tissues or cells. As a result, products using these vectors may require suboptimal delivery mechanisms (such as subretinal injection compared with intravitreal dosing) or high doses (such as with intravenous administration for the treatment of skeletal muscle diseases) to achieve therapeutic benefit.

 

  2.

Lack of efficient transduction of specific target cell types.    To yield therapeutic benefit, the vector must efficiently deliver its transgene from the cell surface into the target cell nucleus, resulting in subsequent therapeutic transgene expression within the cell. Conventional AAVs are not designed or engineered for efficient transduction of specific target cells. As a consequence, conventional vectors may be associated with inefficient transduction and transgene expression which would limit efficacy.

 

  3.

Potential to cause toxicity due to inflammation.    Conventional AAV vector based products have been associated with inflammation-related toxicities in some patients. Potential contributing factors may include the lack of specificity with current conventional AAV vectors, the high intravenous doses required for delivery to target tissues, and the ability of these AAVs to transduce immune cells. For example, intravenous gene therapy programs in patients with DMD have been associated with acute inflammation and transient kidney dysfunction.

 

  4.

Neutralization by pre-existing antibodies.    The human immune system has evolved to fight viruses, including conventional AAVs that are present in nature. Widespread exposure to these conventional AAVs has resulted in neutralizing antibodies in a large portion of the population (approximately 30% to 70% depending on the vector serotype and patient population); these antibodies can limit gene delivery and the addressable patient population with conventional vectors. In addition, re-dosing with the same vector is generally not feasible given the induction of neutralizing antibodies to the vector.

 

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Attempts have been made to address some of these limitations by incorporating incremental modifications in naturally-occurring vectors, including through the following methods:

 

   

engineered mutations to naturally occurring AAVs of a few specific subtypes to create new vectors; and

 

   

acquisition of pools of novel AAV capsids generated using a single methodology, followed by screening and identification of capsids in small animal models (typically in mouse models) or in vitro.

While these latter conventional vectors are different from naturally-occurring AAV vectors, we do not believe these attempts at improvements to the naturally-occurring AAV have overcome each of the challenges encountered to date.

Our Solution: Customized Vectors and “Disease First” Approach

We are pioneering the development of precision gene therapies based on our proprietary AAV vectors. We believe our customized AAV vectors have the potential to enable targeted delivery, efficient transduction, reduced inflammation and resistance to pre-existing antibodies. As a result, we believe we will be able to develop gene therapies with improved therapeutic profiles and also address previously untreatable diseases and patient populations.

Our Therapeutic Vector Evolution platform enables our “disease first” approach to product discovery, design and development. We use our platform to discover custom and proprietary AAVs designed for specific tissues and diseases, which we believe will allow us to overcome known limitations of conventional AAV vectors and potentially address a broad range of both rare and large market diseases. Based on our Target Vector Profile for a disease, we select customized capsids in non-human primates from an estimated over one billion vector capsid sequences in our 37 proprietary and diverse AAV vector libraries as of September 1, 2019. We subsequently characterize each vector through extensive studies in non-human primates and human cell and organotypic tissue assays.

Key Attributes of Our Proprietary and Customized AAVs

Through our proprietary Therapeutic Vector Evolution platform, we rigorously screen our vectors to select for the optimal AAV for a specific disease, or class of diseases. We focus on discovering and selecting vectors that we believe have the potential to display superiority to conventional vectors with four key attributes:

 

   

Targeted delivery to specific tissues by routine clinical routes of administration;

 

   

Improved transduction of target cell types and tissues;

 

   

Lower toxicity with reduced inflammation; and

 

   

Ability to avoid neutralization by pre-existing antibodies in humans.

As shown below, while we have not initiated any clinical trials to date, we continue to generate animal proof-of-concept data in both primates in vivo and in human cells in vitro that we believe provide evidence regarding the potential for our precision AAVs to show superiority over conventional AAVs. As a result, we believe we have the potential to create products that are safer, more efficacious, more efficiently manufactured, and, if approved, more effectively commercialized.

Targeted Delivery to, and Transduction of, Specific Tissues by Routine Clinical Routes of Administration

We select AAVs that are designed to be administered through what we believe to be the optimal method of delivery for a particular disease, with the goal of circumventing physical barriers en route to specific tissues or cell types in the body.

 

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In a first example of targeted delivery in NHP in vivo, our investigational, novel and proprietary AAV vector for cardiac and muscle tissues, 4D-C102, was designed for IV administration, which we believe represents the optimal route of administration for systemic delivery. There are diverse barriers to IV delivery to muscle tissues, which include the liver, blood components, immune cells and antibodies. In NHPs we have observed that intravenous delivery of 4D-C102 at relatively low doses (1E13 vg/kg) resulted in genome delivery to 100% of heart and skeletal muscle tissues evaluated in NHPs; 30 of 30 heart biopsies were positive, and 81 of 81 skeletal muscle biopsies were positive for genomes delivery. In addition, 4D-C102 was more efficiently delivered through IV administration to cardiac and skeletal muscle tissues than conventional AAV8 and AAV9. As shown below, 4D-C102 targeted the heart and skeletal muscle tissues (upper and lower extremities plus diaphragm) more efficiently than conventional IV vectors like AAV8 and AAV9, and showed up to 35-fold improvements, on average, in the ratio of vector reaching heart and skeletal muscle tissues versus the liver.

4D-C102 Intravenous Targeting to NHP

Skeletal Muscle and Cardiac Tissue Was Superior to AAV8 and AAV9

 

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SEM = standard error of the mean, which denotes the standard deviation of the sampling distribution

 

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In a second example of targeted delivery and transgene expression in NHP in vivo, 4D-C102 delivered a marker gene (EGFP) that resulted in EGFP protein production in NHP cardiomyocytes in vivo. For example, 30 of 30 heart biopsy samples from three NHPs were positive for genomes, and 29 of 30 samples were positive for EGFP protein expression.

Cardiac Muscle Tissue Transduction and Protein Expression Patterns Observed After Intravenous Injection of 4D-C102 in NHP

Cardiomyocytes (EGFP Expression as Detected by Immunohistochemistry).

Five Panels Illustrate Gene Expression Patterns Observed in NHP Cardiac Muscle Tissue After Treatment with 4D-C102. Cardiomyocyte Cell Staining was Visible 8 Weeks Post-Injection.

The Lower-Right Panel Illustrates a Lack of Visible EGFP Staining in an Untransduced Control NHP.

 

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Further to this second example, 4D-C102 selectively induced protein expression in cardiac tissue. Specifically, in NHPs treated with 4D-C102, the ratio of cardiac protein expression to liver protein expression was estimated to be 190 fold higher than that ratio in NHPs treated with AAV8 (420:1 vs 2.2:1 for 4D-C102 vs AAV8, respectively).

Selective 4D-C102 Protein Expression in NHP (IV Administration):

Cardiac Tissue Protein Expression Versus Liver Was Superior to AAV8

 

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In a third example of targeted delivery in NHP in vivo, our investigational, novel, proprietary AAV for lung tissues, 4D-A101, was designed for aerosol delivery to lung airway cells; this vector was also selected for potential antibody-resistance in humans. In NHPs, we observed that aerosol delivery of 4D-A101 via a standard nebulization device, approved for use in humans, resulted in genome delivery to, and GFP marker gene expression and transduction of, all 48 lung sites evaluated; lung tissue sites evaluated included proximal, medial and distal airways. In addition to efficient lung airway transduction, migration to organs outside the lung was either undetectable (91% of samples tested) or extremely low concentrations (less than 0.1% of the average genomes per microgram of DNA in the lung airway tissues) as shown below.

Aerosol Delivery with 4D-A101 in NHP Resulted in Genome Localization and

Protein Expression in All Lung Samples. 4D-A101 Genome Localization Was Limited or Not Present in Other Tissues

 

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The Y axis is “viral genome copies per ug of DNA”—this refers to the number of viral genomes (a direct measurement of the number of virus particles) that can be quantified per quantity of DNA isolated from each tissue sample. The X axis is the tissue (e.g., lung, heart, liver) from which the samples were obtained.

 

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In a fourth example of targeted delivery in NHP in vivo, our investigational, proprietary AAV for the retina, 4D-R100, was designed for intravitreal administration; we believe intravitreal injection is the optimal route of administration for the retina, as evidenced by approved biologics for the treatment of Wet AMD. Conventional AAVs such as AAV2 are not able to reach retinal cells effectively following intravitreal injection due to the inner-limiting membrane barrier between the vitreous and target retinal cells. In NHPs, whose ocular anatomy and physiology closely mirrors that of humans, we have observed that 4D-R100 administered by intravitreal injection covered the area of the retinal surface, and it transduced a high percentage of cells in all layers of the retina, including photoreceptors and retinal pigment epithelial (RPE) cells.

The Images Below Show Retinal Transduction and Protein Expression Patterns following Intravitreal Injection of 4D-R100 and Conventional 1st Generation AAV in NHP (in-life EGFP Expression Captured by Heidelberg Spectralis Camera). The Left Panel Illustrates that Typical Transduction and Protein Expression with Conventional AAV2 was Limited to a Ring of Cells Around the Fovea.

The Right Panel Illustrates Transduction and Protein Expression Pattern Following Intravitreal Dosing with 4D-R100 4D-R100 Exhibited Widespread Transgene Expression Across the Retinal Surface Area in NHP (in Life Images at 6-month Post-Injection)

 

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EGFP = enhanced green fluorescent protein

 

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Improved Transduction of Target Human Cell Types and Tissues

We select AAVs for specific diseases that are designed to generate higher levels of gene expression than conventional AAV vectors in an effort to improve long-term efficacy and reduce vector doses required.

For example, our investigational novel AAV, 4D-C102, is designed to efficiently target human muscle cells, including cardiomyocytes. Targeting is especially important when addressing diseases that impact cardiac cells, such as Fabry disease. Conventional AAVs 1, 8 and 9 have been used by competitors to target these cells; however, we believe the limited transduction with these AAVs may limit efficacy and lead to high dose requirements that present safety challenges. In preclinical studies, 4D-C102 exhibited significantly improved transduction of human cardiomyocytes (ventricular phenotype) compared to conventional AAVs across a wide range of concentrations, as shown below.

4D-C102 Exhibited Significantly Higher Transduction in Vitro Relative to Conventional AAV1, 8 and 9, in Human Cardiomyocytes of Ventricular Phenotype

 

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cTnT = cardiac troponin T, a marker of cardiomyocyte cell identity

DAPI = a marker of cell nuclei

MOI = multiplicity of infection, a description of dose (vg per cell) for in vitro experiments

vg = viral genome, a quantification of the viral particles present

%EGFP+/cTnT+ Cells = the percentage of EGFP-expressing cells within the cTnT-expressing cardiomyocyte population, a quantification of the transduction efficiency of the capsid for the

target cell type

 

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In a second example, we have observed that our intravitreal retina vector, 4D-R100, was significantly more efficient at transducing human retina cells in vitro, such as RPE cells below, than conventional AAV2, which is commonly used for retina treatment.

4D-R100 Exhibited Greater Transduction of Human Retinal Cells in Vitro

Compared to Conventional AAV2

 

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CAG = ubiquitous promoter comprised of CMV enhancer, chicken beta actin promoter and intron, and rabbit beta globin intron element

iPSC = induced pluripotent stem cell

ESC = embryonic stem cell

PMEL17 = premelanosome protein, a marker of retinal pigmented epithelial cell identity

%EGFP+/PMEL17+ Cells = the percentage of EGFP-expressing cells within the PMEL17-expressing retinal pigmented epithelia population, a quantification of the transduction efficiency of the capsid for the target cell type

 

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Lower Toxicity With Reduced Inflammation

We select AAVs that are designed to target specific diseased cells while avoiding non-target cells. We believe that vectors selected in this way have the potential to result in less inflammation, require lower doses and lead to a lower toxicity versus conventional AAVs such as AAV9.

As illustrated below, relative to conventional AAV9, our 4D-C102 vector was associated with lower inflammation and toxicities in NHP heart tissues after IV administration. The two vectors carried the same CAG promoter and EGFP transgene.

NHP Cardiac Muscle Exhibited Reduced Inflammation After Treatment with 4D-C102 Versus AAV9 (IV Administration of Vectors Carrying the EGFP Transgene)

 

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Ability to Avoid Neutralization by Pre-Existing Antibodies in Humans

We can select AAVs designed for resistance to neutralization by pre-existing antibodies in the human population, which we believe may broaden our potential target patient population compared to conventional AAVs. We believe resistance to antibodies may result in less neutralization, and therefore potentially better efficacy, after patient treatment. Finally, we believe we have the potential to re-dose patients when desirable by developing product candidates with different proprietary vectors that target the same tissues; this approach would utilize a proprietary AAV whose antibodies do not cross-react with the second proprietary vector.

For example, our proprietary AAV 4D-A101, which was designed for aerosol delivery, has shown improved antibody resistance when compared to conventional AAV1, 2, 5, 8 and 9 as demonstrated below.

4D-A101 Showed Improved Transduction In Vitro in the Presence of Human Antibodies (IVIG) Compared with Conventional AAV Vectors

 

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IVIG = intravenous immune globulin, a human blood-derived product that contains antibodies (including antibodies against AAV)

Our Proprietary Therapeutic Vector Evolution Platform

Our proprietary Therapeutic Vector Evolution platform is based on directed evolution. Directed evolution is a high-throughput discovery and optimization approach harnessing the power of evolution in an effort to create biologics with new and desirable characteristics. The first step involves the generation of diverse libraries of biological variants. In the second step, these libraries can be screened to identify improved variants with the desired characteristics. This method has been successfully utilized by other researchers to generate protein therapeutics with enhanced biological activities, antibodies with enhanced binding affinity and enzymes with new specificities. The importance of this biotechnology was demonstrated when the Nobel Prize for Chemistry was awarded in 2018 for work on directed evolution performed by academic investigators; these investigators have no relationship to us.

 

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Our co-founder, Dr. Schaffer, pioneered the use of directed evolution to create improved AAV capsids for use as gene therapy vectors at U.C. Berkeley over 15 years ago. Over the past five years, we have developed our Therapeutic Vector Evolution platform, inspired by Dr. Schaffer’s work on AAV directed evolution, to produce improved AAV capsid vectors designed for use in human therapeutic products. Since in-licensing six libraries from the UC Regents, we have created 31 new AAV capsid libraries as of September 1, 2019. In addition, we have developed significant experience in performing discovery in NHPs, with over 10 different discovery efforts completed to date. We believe the investment in our proprietary platform provides us with the largest and most diverse AAV vector library and vector sequences in the field of gene therapy.

Proprietary AAV Vector Libraries

We have 37 distinct libraries as of September 1, 2019, with an estimated over one billion vector sequences. Each library is defined by its starting material (AAV capsid gene sequences) and genetic diversification methodologies, such as mutagenesis, random peptide sequence insertions and shuffling technologies. We apply bioinformatics, emerging technologies, and experience and know-how resulting from previous discovery programs to continually improve and expand our libraries and improve our ability to select optimized vectors from those libraries.

We believe the size and diversity of our vector libraries represent a differentiating competitive advantage for us in the field of gene therapy.

Disease First Approach—Target Vector Profile

We employ a rigorous approach to AAV vector selection based on what we consider an optimal product profile, which we term target vector profile (TVP). For any target disease, or set of diseases that affect the same tissues, this profile includes the following: the optimal route of administration for targeting the specific tissue(s) in humans, the optimal dose range, the desired distribution of vector transduction within the target organs, overall biodistribution and antibody resistance.

We use our Therapeutic Vector Evolution platform to identify the unique vector variant in our libraries that best matches our TVP. We achieve this through serial rounds of “selection”, or discovery, with each round of selection filtering down to fewer and fewer capsids from the original library. This funneling process is achieved by applying selective pressures—forcing competition—among all capsid variants in the library to achieve delivery to the target cells as defined in the TVP. Each round is performed in a primate in vivo, sometimes in the presence of human IVIG (pooled human antibody preparation). While none of our product candidates have begun clinical trials, we believe this deliberate approach to selection in NHPs and human tissues should lead to identification of vectors with a higher likelihood of success in humans.

By the end of a typical discovery process, we will have identified approximately two to four lead capsids, or hits, based on their frequency in the final pool of capsid sequences, in addition to numerous sequences present at lower frequencies. We then file patent applications disclosing all identified gene sequences from the discovery program.

Discovery Results to Date

To date, we have completed more than 10 unique vector discovery programs or “selection processes” for specific AAV capsids with specific TVPs. We have utilized four different routes of administration, including intravitreal, intrathecal, aerosol, and intravenous administrations. We have completed discovery programs targeting a diverse array of tissue types including various retinal cell types, heart and skeletal muscle tissues, brain, dorsal root ganglia, different lung cell types, liver, and synovial joints. We have identified and filed patent applications on over 300 unique capsid sequences.

 

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Characterization of Novel Vector Variant “Hits”

Vector hits are typically characterized in three major areas: manufacturing, human cell and organotypic model transduction, and delivery to tissues in NHPs by the designated route of administration. Vector hits may also be evaluated for transduction in the presence of human antibodies. In order to perform characterization studies, vectors are armed with marker gene payloads such as EGFPs.

Development Platform: Human Cell and Disease Modeling

With the goal of optimizing our product development programs prior to entering the clinic, we have developed a robust human cell and disease modeling platform. We evaluate vector transduction, transgene expression and function in target cells of interest in these human models. These cells can be derived from both normal donors or from patients with specific genetic diseases of interest. This approach allows us to perform head-to-head comparisons between different AAV capsids, promoter elements, and transgene payloads. We believe this approach better characterizes and informs the behavior of our vector products in the human body and their potential for clinical success.

Therapeutic Areas, Lead Vectors and Product Candidates

Our proprietary platform has enabled broad and diverse AAV programs that we are translating into product candidates with the goal of transformative patient benefit. We currently have a product pipeline that includes product candidates in four therapeutic areas: lysosomal storage diseases, lung diseases, muscular dystrophies and ophthalmological diseases.

For each of these therapeutic areas we have customized proprietary targeted lead vectors that were discovered using our proprietary technology platform. These lead vectors are designed for delivery by optimal clinical routes. We believe that these proprietary vectors will allow us to develop product candidate portfolios within each of these therapeutic areas.

 

    

Cardiac and Skeletal Muscle

  

Lung

  

Retina

Lead Vector    4D-C102    4D-STAR100    4D-A101    4D-R100
Tissue and Cell Types Targeted    Diffuse Regions throughout Heart and Skeletal Muscle    Diffuse Regions throughout Heart and Skeletal Muscle    Diffuse Regions throughout Lung    Multiple Layers and Widespread Distribution in Retina
4DMT Product Candidate    4D-310    Lead Optimization    4D-710    4D-125 / 4D-110
Route of Administration    Intravenous    Intravenous    Aerosolized    Intravitreal
Selected for Resistance to Pre-existing Antibodies in Human Serum    Yes    Yes    Yes    N/A (eye is generally immune-privileged)
Conventional AAV Typically Used for Tissue Target in Humans    AAV1, AAV8, AAVrh74, AAV9    AAV1, AAV8, AAVrh74, AAV9    AAV2    AAV2

 

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Our initial focus is on developing a broad pipeline of transformative gene therapy product candidates designed to treat patients suffering from lysosomal storage diseases, lung diseases, muscular dystrophies and ophthalmological diseases. We are developing a diverse pipeline of wholly-owned and partnered programs for both rare and large market diseases. We believe our AAV products are modular, in that a single vector can be armed with different transgene payloads in order to treat multiple diseases within the same tissue types or therapeutic areas. Our pipeline is represented in the diagram below.

 

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*

Expected timing of milestone. FIH refers to first-in-human, Phase 1 or Phase 1/2, clinical studies.

**

We are responsible for development of this product candidate and Roche has an exclusive option to assume development and commercialization at its sole cost and expense. Such option may be exercised at any time prior to pivotal trial initiation.

We are independently optimizing lead assets in this field. If we elect to declare product candidates in the field specified in our collaboration and license agreement with Roche, Roche could exercise the option to license, further develop and commercialize this product candidate at any time prior to pivotal trial initiation. See the section title “Business—Strategic Collaborations—Collaboration and License Agreement with F. Hoffman Ltd. and Hoffman-La Roche Inc.” for further information.

Proof of concept studies for 4D-710 were conducted in a pig model of Cystic Fibrosis and utilized a species-specific (i.e., pig-specific) vector rather than the primate-specific 4D-A101 vector, which is the vector for Cystic Fibrosis product candidate 4D-710.

4D-310 for the Treatment of Fabry Disease

Target Product Profile

4D-310 is our wholly-owned product candidate for the treatment of Fabry disease. 4D-310 is comprised of our proprietary vector 4D-C102, carrying a codon-optimized GLA transgene. The product candidate is designed for efficient, single low dose intravenous delivery to cardiac tissue, kidney, liver and skeletal muscle tissues. The intended result is for alpha-galactosidase A (AGA) enzyme expression within cardiac tissues for cardiac disease correction, in addition to expression and secretion from other tissues within the body, such as skeletal muscle and kidney. We believe 4D-310 has the potential to treat “classic” (early onset) Fabry disease, as well as late onset Fabry disease, both of which are often associated with cardiomyopathy. To that end, we believe reducing substrate in cardiomyocytes would represent a strategic advantage and significant opportunity in the treatment of Fabry-associated cardiomyopathy, which we believe remains a significant unmet medical need.

 

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We anticipate completing IND-enabling toxicology and biodistribution studies with 4D-310 in early 2020, and we expect 4D-310 to enter clinical trials in the second half of 2020. We expect initial human data by                     .

Disease Background, Unmet Medical Need and Target Patient Population

Fabry disease is a rare genetic disorder that results in the body’s inability to produce an enzyme called AGA, causing the accumulation of globotriaosylceramide-3 (Gb3) in critical organs, including the heart and kidney. Such substrate accumulation can lead to life-threatening heart failure, arrhythmias, vascular blockages, and various degrees of kidney dysfunction. Fabry disease is progressive and fatal, with an average life expectancy of approximately 50 years and cardiac complications being the leading cause of death. Progression of the disease causes significant reduction in the quality of life and significant economic burden associated with greater patient needs for supportive care. Classic Fabry disease is known to affect at least 5,000 males in the United States. However, we estimate the incidence rate may be higher as recent newborn screening suggests the total number of individuals with Fabry-related genetic mutations in the United States and EU-5 could fall between 50,000 and 70,000. Moreover, a recent multicenter study estimated that 57% of patients seen in the clinic are of the classic phenotype. Thus, we estimate the total addressable male Fabry patient population in the United States to be approximately 10,000 individuals, and including the EU-5, we estimate the total addressable male population to be approximately 18,800 individuals.

Fabry disease is currently treated by regular infusions, approximately every two weeks, of replacement AGA enzyme, a class of therapies broadly referred to as ERTs. Two of these approved ERT products are Fabrazyme from Sanofi and Replagal from Takeda, both of which are administered to patients every two weeks. In addition to high burdens of therapy, patients on these ERTs may be exposed to sub-therapeutic levels of AGA for a period of time between infusions, potentially leading to recurrences of disease symptoms and complications. Furthermore, ERTs reportedly lack efficient uptake by cardiac muscle cells; hence the patients remain at risk of cardiac complications, including death. Specifically, a medical officer’s review of Fabrazyme which was conducted during the U.S. Food and Drug Administration (FDA)’s evaluation of this drug candidate indicates that consistent increases in Gb3 levels were measured in cardiomyocytes (as opposed to decreases measured in vascular endothelium). Therefore, we believe cardiac-specific treatment of Fabry disease is still an unmet medical need. Despite these shortcomings, ERT for Fabry disease does provide significant benefit for patients.

Competition and Differentiation—Viral Vector Gene Therapy including AAV for Fabry Disease

A number of biotechnology companies are pursuing gene therapy solutions, including with conventional AAV vectors, to treat Fabry disease. In addition to being in early stages of development, these developmental AAV gene therapies are specifically designed to target transduction to the liver only, with liver-specific promoters, which therefore would prevent expression in cardiac muscle cells. When administered as ERT, the AGA protein does not efficiently enter cardiomyocytes; it is therefore unclear whether production of AGA from the liver would result in effective cardiac muscle cell treatment. As a result, we believe 4D-310 is the only gene therapy candidate designed specifically to express the AGA enzyme in cardiac tissues, as well as in other affected tissues in these patients, potentially addressing a major unmet medical need.

We believe that a gene therapy that is specifically targeted to transduce cardiac muscles with high efficiency has the potential to significantly improve patient outcome through the synthesis of AGA directly within the heart tissues, including cardiomyocytes. Our 4D-310 program, for which we expect to initiate clinical trials in the second half of 2020, is designed to take advantage of our proprietary 4D-C102 vector for delivery of transgenes to cardiac muscle cells and other relevant tissues within the body.

 

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Finally, to our knowledge, conventional AAV gene therapy programs in development are limited to treatment of the “classic” (early onset) patient population at this time. In contrast, 4D-310 is designed for the treatment of all patient subpopulations with Fabry disease, including “late onset” and classic population patients with cardiomyopathy. The late onset sub-population is substantially larger than the early onset population.

As we achieve proof-of-concept with the 4D-C102 vector, we intend to advance additional programs for lysosomal storage diseases using the same vector.

Pharmacology and Toxicology Program

In the second quarter of 2019 we initiated a GLP toxicology and biodistribution study of 4D-310 in normal mice. We previously received feedback from the FDA on our preclinical study plans in connection with a pre-IND interaction. Pharmacology studies have been performed in both Fabry disease knock-out mice and Fabry patient-derived cells, including cardiomyocytes differentiated from patient-derived stem cells. We plan to complete IND-enabling preclinical pharmacology and toxicology studies by the first quarter of 2020, and to file an IND for 4D-310 in the second half of 2020.

In in vitro studies with 4D-310 in Fabry patient-derived fibroblasts and cardiomyocytes we observed dose-related AGA expression and function as shown below.

4D-310 Transduced Fibroblasts Derived from Fabry Patients. These 4D-310-Transduced Fibroblasts Expressed AGA in a Dose-Dependent Manner

Panel A: Fabry-derived fibroblasts expressed AGA

after treatment with 4D-310 as measured by western blot.

 

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Panel B: Fabry Patient-Derived fibroblasts expressed AGA after treatment with 4D-310 as measured by IHC. AGA is visible in red, cell nuclei are shown in blue.A) vehicle control, B) 4D-310 low dose

(MOI 1000), C) 4D-310 medium dose (MOI 5000), and D)4D-310 high dose (MOI 10,000)

 

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AGA Enzyme Expressed in Fabry Patient-Derived Cardiomyocytes After Treatment with 4D-310 Exhibited Enzymatic Activity.

Panel A: Cardiomyocytes that were differentiated from Fabry patient-derived fibroblasts expressed functional AGA after treatment with 4D-310, as measured by western blot and flow cytometry.

 

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%/cTnT+/AGA+ Cells = the percentage of AGA-expressing cells within the cTnT-expressing cardiomyocyte population

nmol = nanomoles

GAPDH = Glyceraldehyde 3-phosphate dehydrogenase, used as a control to show equal amounts of sample are analyzed across conditions

AGA/GAPDH Density = a quantification of the amount of AGA protein expression normalized to the amount of control protein expressed by the same cells

IHC = immunohistochemistry

Panel B: Cardiomyocytes that were differentiated from Fabry patient-derived fibroblasts expressed AGA after treatment with 4D-310, as measured by IHC.

 

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In vivo studies with 4D-310 are currently ongoing in both normal and Fabry disease knock-out mouse models. Plasma AGA data have shown that intravenous administration of 4D-310 to normal mice resulted in consistent and stable AGA expression and function as shown in the figure below.

Plasma AGA Function in Normal Mice After Treatment with 4D-310 Was Measured to Be Approximately 1,200-Fold Higher Than in Control Vehicle-Treated Mice on Day 15, 29 and 43 After Treatment with 4D-310. Plasma AGA Function Was Consistently Measured at Similar Levels on Days 15, 29 and 43.

 

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Additionally, IHC data have shown that administration of 4D-310 to a knockout mouse model of Fabry disease resulted in AGA expression in both cardiac and kidney tissue as shown in the illustrative images below.

AGA Expression After Intravenous Treatment with 4D-310 Was Dose-Dependent and Widespread in Both the Heart and Kidneys of Fabry Disease Model Knock-Out Mice

 

 

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Clinical Development Plans—Phase 1/2 Trial Design

Our Phase 1/2 clinical trial initiation and the treatment of our first patient is targeted for the second half of 2020. We expect this will be a single dose escalation study carried out at multiple sites within the United States with an estimated 15 to 20 patients enrolled. We expect to treat both early-onset and late-onset patients, including those with cardiomyopathy. We anticipate the primary endpoint will be safety, plus the definition of the maximum-tolerated or -feasible dose. Pharmacodynamic biomarker assessments may include cardiac MRI, a well-established non-invasive diagnostic imaging technique that allows quantitative assessment of Gb3 substrate buildup in cardiac tissues. Additional pharmacodynamic endpoints may include changes in blood levels of Gb3 and AGA.

 

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4D-710 for the Treatment of Cystic Fibrosis

Target Product Profile

4D-710 is our wholly-owned product candidate for the treatment of Cystic Fibrosis lung disease. 4D-710 is comprised of our proprietary vector 4D-A101, and designed for an efficient, single dose aerosol delivery to the lung airways with resistance to pre-existing antibodies. The intended result is for Cystic Fibrosis transmembrane conductance regulator (CFTR) expression within lung airway cells for lung disease correction. We believe 4D-710 has the potential to treat Cystic Fibrosis patients with a broad range of mutations. Due to the fact that the CFTR coding sequence is larger than can be packaged into AAV gene therapy vectors, we have focused our efforts on assessing codon-optimized versions of a synthetic CFTR transgene deltaR-CFTR, which we refer to as microCFTR, a well-characterized and truncated variant that has shown activity in a large animal model of Cystic Fibrosis. The vector will carry microCFTR, a construct that retains the most critical components of the full-size CFTR gene yet is small enough to fit within AAV packaging constraints.

While we present preclinical data for components of our cystic fibrosis product candidate 4D-710 below, we have yet to conduct IND-enabling studies with 4D-710. We expect to initiate IND-enabling studies with 4D-710 in the first half of 2020. 4D-A101 is the proprietary 4DMT vector utilized in 4D-710. Its TVP was designed for relatively low dose aerosol delivery to lung in widespread fashion, with subsequent penetration of airway mucus and transduction of airway epithelial cells in the presence of human antibodies. NHP dosing with aerosolized 4D-A101 carrying the EGFP transgene resulted in consistent genome delivery (48 of 48 lung sites) and GFP protein expression (48 of 48 lung sites) in 100% of proximal, medial and distal airway samples tested.

Aerosol Delivery with 4D-A101 in NHP Resulted in Genome Localization

and Transgene Protein Expression in All Lung Samples

 

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Aerosol Delivery of 4D-A101 Carrying The EGFP Transgene in NHP Associated With GFP Protein Detection by IHC in Lung Airway Cells

 

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Disease Background, Unmet Medical Need and Target Patient Population

Cystic Fibrosis is the most common fatal inherited disease in the United States and results from mutations in the CFTR gene. Cystic Fibrosis is a multisystem disorder affecting primarily the pulmonary, gastro-intestinal tract, pancreas and reproductive organs. Cystic Fibrosis causes impaired lung function, inflammation and bronchiectasis and is commonly associated with repeat and persistent lung infections due to the inability to clear thickened mucus from the lung, often resulting in frequent exacerbations and hospitalizations and eventual end stage respiratory failure. There is no cure for Cystic Fibrosis and the median age of death for Cystic Fibrosis patients is 39 years. Cystic Fibrosis is considered a rare, or orphan, disease by both the FDA and the EMA. According to the Cystic Fibrosis Foundation, more than 30,000 people in the United States and more than 70,000 people worldwide are living with Cystic Fibrosis, and approximately 1,000 new cases of Cystic Fibrosis are diagnosed in the United States each year. Cystic Fibrosis patients require lifelong treatment with multiple daily medications, frequent hospitalizations and, ultimately, lung transplants in some end-stage patients. The quality of life for Cystic Fibrosis patients is compromised as a result of spending significant time on self-care every day and frequent outpatient doctor visits and hospitalizations.

Until recently, approved therapies to treat Cystic Fibrosis patients were only designed to treat the symptoms of Cystic Fibrosis, for example by preventing and controlling infections that occur in the

 

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lungs, rather than addressing the underlying cause of the disease. Accordingly, antibiotics are frequently used along with mucus-thinning drugs.

More recently, for patients with certain gene mutations, three therapies from Vertex have been approved for marketing in the United States and the European Union. Kalydeco (ivacaftor—a CFTR potentiator), Orkambi (ivacaftor plus lumacaftor—a CFTR corrector), and Symdeko (ivacaftor plus tezacaftor—also a CFTR corrector) were all approved based on their ability to improve lung function in genetically defined subsets of Cystic Fibrosis patients. Additionally, an NDA was recently filed by Vertex for the triple combination of VX-445 plus Symdeko (ivacaftor plus tezacaftor), which Vertex management believes would be applicable for up to 90% of Cystic Fibrosis patients, leaving at least 10% with no CFTR-targeted options. While these therapies improve lung function, they fall short of restoring it to the normal range in most patients, and these chronic therapies require daily dosing for the patient’s lifetime.

We believe there is a clinical need and market opportunity for a durable aerosolized therapy delivered by breath-actuated nebulizer, that can restore normal CFTR function across all Cystic Fibrosis patient subgroups, including patients who are receiving combination CFTR-modulator therapies and/or do not have appreciable CFTR protein expression and are therefore not amenable to CFTR modulators.

Competition and Differentiation—Viral Vector Gene Therapy including AAV for Cystic Fibrosis

A number of biotechnology companies have pursued gene therapy solutions to treat Cystic Fibrosis, most notably Targeted Genetics. We believe these prior attempts to deliver AAV gene therapy to the lungs of cystic fibrosis patients have failed due to an inability of conventional vectors to bypass pulmonary mucus and transduce lung cells efficiently. Moreover, the mucosal immune system actively transports large quantities of antibodies into all mucus secretions, including the lung mucosa.

While a number of companies are currently pursuing other gene therapy solutions to treat Cystic Fibrosis, including with conventional AAV vectors, these product candidates are in early stages of development. Moreover, they are not, to our knowledge, comprised of AAV vectors evolved in NHP for aerosol delivery. In addition, we believe these products were not designed for resistance to pre-existing antibodies to conventional AAVs, which is potentially a key requirement for successful delivery in the lung. As a result, while we have not initiated clinical trials for 4D-710, we believe it is the only AAV gene therapy product candidate in development designed specifically with a vector selected for aerosol delivery and with antibody-resistance.

Preclinical Proof-of-Concept Studies

Our co-founder Dr. Schaffer and his academic colleagues conducted preclinical proof-of-concept (POC) studies for utilizing directed evolution to discover vectors for delivering a corrective CFTR gene construct to Cystic Fibrosis lung tissue in a large animal model of Cystic Fibrosis, and in a human Cystic Fibrosis patient lung tissue model. Building on these previous POC studies, our product candidate 4D-710 will utilize a different vector (4D-A101), which has been designed to package the same microCFTR gene payload in a customized vector (4D-A101) that was identified through a directed evolution process for aerosol delivery in NHP. We expect to initiate IND-enabling studies with 4D-710 in the first half of 2020.

Dr. Schaffer and his colleagues first observed the potential to treat Cystic Fibrosis via aerosolized delivery of an evolved AAV variant (AAV2H22) in a pig model of Cystic Fibrosis. AAV2H22 was selected for highly efficient transduction of lung epithelial cells in pigs by conducting multiple rounds of directed evolution using aerosolized dosing in pigs. Aerosol delivery of microCFTR using the AAV2H22

 

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vector resulted in CFTR expression in diseased pig lungs with expression patterns that resembled those observed in normal pig lungs as well as in humans (Panel A). In addition to CFTR protein expression, AAV2H22-CFTR gene therapy also resulted in a significant increase in chloride ion transport (Isc) compared to untreated controls (Panel B) as well as a reduction in bacterial colonies within the lungs of treated animals (Panel C).

Illustrative Images in Panel (A) Below Exhibit the Pattern of CFTR Expression Observed by Steines et al. in Normal Pigs, Untreated CF Pigs and CF Pigs Treated with AAV2H22 Carrying the MicroCFTR (also referred to as CFTR-deltaR) Transgene Payload (Same Transgene Utilized in 4D-710, but Different AAV Vector). The Study Involved Six Healthy Pigs, Six Untreated CF Pigs and Three AAV2H22.MicroCFTR-Treated CF Pigs. These Animals Are Represented by the Dots in Each of the Graphs (B) and (C) which Illustrate the Range of Responses Between Animals, and the Significant Difference Between Treated and Untreated CF Pigs.

 

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CFTRDR = MicroCFTR, Cystic Fibrosis transmembrane conductance regulator with removal of the R domain, a truncated version of the CFTR transgene engineered to fit within the payload size limitations of AAV

Cl-= chloride ion

Isc = short circuit current, a measurement of Cl- movement through cell membranes

µA = microAmp

cm2 = square centimeter.

 

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In addition, Dr. Schaffer and colleagues used directed evolution in an in vitro human organotypic air-liquid interface model of Cystic Fibrosis lung epithelium to select AAV2.5T, which we in-licensed and termed 4D-A100. In preclinical studies, AAV2.5T carrying microCFTR transduced human lung epithelial tissue and resulted in expression of functional protein as suggested by increased chloride ion (Cl-) transport (Isc) as compared to untreated control (Panel B).

Excoffon et al. Previously Observed Restoration of CFTR Expression and Chloride Transport in Cystic Fibrosis Patient-Derived Airway Epithelium with AAV2.5T Vector Carrying MicroCFTR Payload (Same Payload, but Different Proprietary AAV Vector, Utilized in 4D-710).

 

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CF = Cystic Fibrosis

Na+ = sodium ion

IscGlyH = short circuit current, a measurement of Cl- movement through cell membranes

µamps = microAmp

min = minute

We believe that these results provide evidence suggesting that the directed evolution platform enabled isolation of viral vectors that could penetrate the mucus layer of diseased Cystic Fibrosis lungs and deliver functional CFTR protein in a well-validated large animal model of the disease, as well as in human CF patient-derived organotypic lung models.

 

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Pharmacology and Toxicology Studies

We plan to expand on these results and to conduct dose-ranging and durability studies with 4D-710, and to carry out planned GLP toxicology and biodistribution studies to enable an IND filing and clinical trials in patients. We plan to initiate IND-enabling toxicology and biodistribution studies in the first half of 2020.

Product Candidates in Lead Optimization for the Treatment of Duchenne Muscular Dystrophy

Target Product Profiles

We wholly-own our product candidates that are in lead optimization for muscular dystrophies, including for DMD. These product candidates are designed to treat different patient populations within DMD. We are currently in lead optimization for product candidates using our proprietary 4D-C102 vector, which is designed for efficient, low dose intravenous delivery to cardiac and skeletal muscle tissues, to have minimal toxicities, and potential resistance to pre-existing antibodies to conventional AAVs in the human patient population. A second product candidate in lead optimization has been engineered with our proprietary 4D-STAR100 vector, which is designed for resistance to pre-existing antibodies to conventional AAVs in humans. Thus, this product candidate is designed for the treatment of patients who have either been excluded from receiving AAV gene therapy treatments due to their antibody titers, or who have received prior treatment with another AAV gene therapy and we believe would potentially benefit from re-dosing. The promoter used in these product candidates has been observed to be active in both cardiac and skeletal muscle cells. We are evaluating several mini-dystrophin transgene payloads that have preclinical and/or clinical proof-of-concept.

 

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Additionally, in preclinical studies 4D-C102 improved delivery to muscle cells as compared to conventional AAV vectors, and in doing so, did not increase delivery to the liver. 4D-C102 was observed to be significantly more selective for muscle tissue versus liver tissue when compared to both AAV8 and AAV9 as demonstrated below.

4D-C102 Intravenous Targeting to NHP

Skeletal Muscle and Cardiac Tissue Versus Liver Tissue was Superior to AAV8 and AAV9

 

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Moreover, 4D-C102 transduced human cardiomyocytes, as well as skeletal muscle with EGFP more efficiently than did AAV8 or AAV9 in vitro as demonstrated below.

4D-C102 Exhibited Superior Transduction of Human Primary Skeletal Muscle in Vitro when Compared to Conventional AAV8 and AAV9 Vectors

 

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MHC = myosin heavy chain, a marker of skeletal muscle cell identity

%EGFP+/MHC+ Cells = the percentage of EGFP-expressing cells within the MHC-expressing

skeletal muscle cell population, a quantification of the transduction efficiency of the capsid for the target cell type.

Disease Background, Unmet Medical Need and Target Patient Population

DMD is a progressive and fatal muscular-wasting disease, and one of the most prevalent rare genetic diseases, with an estimated prevalence of 10,000 to 15,000 cases in the United States. DMD is caused by inadequate production of functional dystrophin, a protein necessary for muscle function, as a result of mutations in the dystrophin gene. Early indicators of disease due to muscle weakness include difficulty walking or jumping, frequent falling over and becoming fatigued more easily. By approximately 12 years of age, most DMD patients will need to use a wheelchair on a regular basis. In the later stages of disease progression, life-threatening heart and respiratory conditions become common. Cardiomyopathy, heart disease due to weakened cardiac muscles, which may result in death of patients in their twenties.

Competition and Differentiation—Viral Vector Gene Therapy with Conventional AAV for DMD

Sarepta is commercializing Exondys 51 for patients who have a confirmed mutation of the DMD gene amenable to exon 51 skipping, which affects about 13% of the population with DMD. Currently, Pfizer, Sarepta and Solid Biosciences are developing AAV therapy treatments for DMD. All three are in early clinical trials in boys with DMD with products utilizing conventional AAV vectors administered by IV infusion.

Preclinical proof-of-concept has been observed in a dog model of DMD in which a truncated version of the dystrophin gene, microdystrophin, was delivered using conventional AAV leading to stable expression and prevention of dystrophic damage in skeletal muscles; long-term effects on heart

 

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function were not reported. The AAV vectors used in clinical-stage products to date are naturally-occurring conventional AAV capsids AAVrh74 (similar to AAV8) and AAV9 and therefore are not specifically targeted to human cardiac or skeletal muscle tissue. AAV gene therapy in DMD patients treated intravenously by Nationwide Children’s Hospital and Sarepta has resulted in transgene expression within skeletal muscle biopsies and a decrease in serum markers of muscle inflammation including creatine kinase. Sarepta has also reported anecdotal improvements in boys’ functional performance without signs of adverse effects after nine months. AAV gene therapies for DMD utilizing these conventional vectors have been subject to inflammation-related toxicity issues and manufacturing challenges due to the requirement for relatively high doses.

In addition to requiring high doses, patients have been excluded from clinical trials due to significant pre-existing neutralizing antibody titers to AAVrh74 and AAV9. This antibody-based exclusion from treatment limitation increases in frequency with patient age. Finally, as patients grow and develop more muscle mass following AAV treatment, re-dosing with AAV gene therapy would likely be beneficial. AAV vectors that are not neutralized by antibodies to AAVrh74 and AAV9 would therefore be highly desirable for subsequent treatment. We believe our proprietary vectors that were selected for resistance to antibodies to conventional AAVs have potential in this clinical situation.

Pharmacology and Toxicology Programs

We expect to complete lead optimization and to identify our lead research product candidate in 2020.

Ophthalmological Diseases

We have a broad partnership with Roche in ophthalmology, excluding ddRNAi delivery where we retain full ownership. Roche is a leader in ophthalmology biotherapeutics development and commercialization. In the ophthalmology field, we and Roche both have the right to declare product candidates. Roche has an option to acquire rights to product candidates declared by us prior to initiation of a pivotal clinical trial by paying an option fee as well as milestone and royalty payments that are higher than for Roche-declared product candidates. If exercised, Roche will assume all commercial and development-related costs.

Approximately 200 rare genetic diseases of the eye have been described, in addition to large market indications such as macular degeneration, diabetic retinopathy and glaucoma. The retina is an attractive tissue to target using gene therapy for the following reasons:

 

   

Therapeutics can be easily administered locally (with intravitreal delivered vectors only)

 

   

The small volume of retinal tissue requires minimal doses

 

   

The eye is a relatively immune-privileged organ

 

   

A number of clinically-validated endpoints, with rapid readouts, have been defined

Initial AAV gene therapy products for the eye have displayed limitations associated with conventional AAVs. The eye is a complex organ composed of multiple types of cells and tissues such as retina, optic nerve, cornea and the iris. We believe gene therapies are effective only when target cells and tissues receive and express the proper transgene in a widespread fashion. Naturally-occurring conventional AAV vectors such as AAV2 do not transduce the primate retina efficiently after intravitreal injection, likely due to the inner-limiting membrane acting as a barrier to AAV.

As a result, the majority of conventional AAV product candidates studied in humans, including the marketed product Luxturna (voretigene neparvovec-rzyl) from Spark Therapeutics, are administered by subretinal injection surgery, a complex procedure performed in an operating room by highly-specialized

 

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retinal surgeons. This route of administration, typically using AAV2, generally results in a minority “bleb” area of the retina being transduced. Investigators have reported transduction of less than 10% of the retina in primates and humans. Therefore, in most patients, the majority of retinal tissue is left untreated. In addition, retinal detachment can occur, and cataracts routinely result after subretinal injections. Finally, ophthalmic surgeons must be specially trained for this operator-dependent surgical technique, thus limiting the number of sites and ophthalmologists who can perform the surgery.

Representative Bleb Area of the Retina (White Area Inside Black Box) as Treated by Subretinal Injection of an AAV Gene Therapy Candidate.

 

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We are developing a product to be administered by intravitreal injection, which includes a vector that tranduces the entire retinal surface area. Intravitreal injection is performed routinely thousands of times every day in the United States and European Union for administration of anti-VEGF protein therapeutics for Wet AMD. Procedure-related complications are uncommon, and the procedure can be carried out in the majority of out-patient eye clinics in the United States.

 

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Key Aspects of the Intravitreal and Subretinal Ocular Injection Routes Which We

Considered when Designing Our Target Product Profile Are Listed Below

 

subretinal              intravitreal
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Retinal coverage    Bleb area only (estimated <10% of total retina surface area)       Up to 100% of total retina surface area

Simultaneous

Bilateral

injection

possible

   No       Yes

# Injection procedures

performed in U.S. (daily)

   Not used in routine clinical practice       Estimated >5,000 per day
Operating room required    Yes       No

Routine

out-patient

procedure

   No       Yes