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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
    
    
    
to
    
    
    
    
Commission File Number:
001-39425
 
 
Checkmate Pharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
Delaware
 
36-4813934
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
245 Main Street,
2
nd
Floor
Cambridge, MA 02142
(617)
682-3625
(Address of principal executive offices including zip code)
Registrant’s telephone number, including area code: (617)
682-3625
 
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
 
Title of each class
 
Trading
Symbol
 
Name of each exchange
on which registered
Common Stock, $0.0001 par value per share
 
CMPI
 
The Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated filer      Smaller reporting company  
       
         Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).     Yes  ☐    No  
As of May 12, 2022, the registrant had 22,038,218 shares of common stock, $0.0001 par value per share outstanding.
 
 
 

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SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
 
   
We entered into an Agreement and Plan of Merger (“Merger Agreement”) with Regeneron Pharmaceuticals, Inc. (“Parent”), and Scandinavian Acquisition Sub, Inc., a wholly owned subsidiary of Parent (“Purchaser”), pursuant to which and upon terms and conditions set forth in the Merger Agreement, Purchaser will merge with and into the Company, with the Company as the surviving corporation and as a direct wholly owned subsidiary of Parent (the “Merger”), after which the Company will cease to be a stand-alone entity. The completion of the Merger is subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Merger could have material adverse effects on us.
 
   
We are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred net losses since our inception and anticipate that we will continue to incur substantial and increasing net losses in the foreseeable future. We may never achieve or sustain profitability.
 
   
A pandemic, epidemic, or outbreak of an infectious disease, such as the global novel coronavirus disease 2019
(“COVID-19”)
pandemic, has, and may in the future, materially and adversely affect our business, including our preclinical studies, clinical trials, third-parties on whom we rely, our supply chain, our ability to raise capital, and our financial results.
 
   
We have never generated any revenue from product sales, and our ability to generate revenue from product sales and become profitable will depend significantly on our success in achieving a number of goals and on other factors.
 
   
We require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate all or a significant portion of our research and product development efforts, including one or more of our clinical trials.
 
   
There are substantial doubts about our ability to continue as a going concern. Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations.
 
   
We are heavily dependent on the success of vidutolimod (formerly
CMP-001),
our only current product candidate.
 
   
We will not be able to commercialize vidutolimod and future product candidates if our preclinical studies do not produce successful results and our clinical trials do not demonstrate the safety and efficacy of vidutolimod and future product candidates.
 
   
Vidutolimod is based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development.
 
   
Difficulty in enrolling patients has caused delays to our ongoing clinical trials of vidutolimod and could further delay ongoing trials or prevent or delay other clinical trials for vidotolimud or future product candidates. We have had difficulty enrolling patients due primarily to the
COVID-19
pandemic, and may continue to find it difficult to enroll patients in our ongoing clinical trials or any subsequent trials that we may conduct.
 
   
Vidutolimod is being, and future product candidates may be, evaluated in combination with third-party drugs, and we do not have control over the supply, regulatory status, or regulatory approval of such drugs.
 
   
We currently rely on third-party contract manufacturing organizations (“CMOs”) for the production of clinical supply of vidutolimod and may rely on CMOs for the production of commercial supply of vidutolimod, if approved. This reliance on CMOs increases the risk that we will not have sufficient quantities of such materials, product candidates, or any therapies that we may develop and commercialize, or that such supply will not be available to us at an acceptable cost, which could delay, prevent, or impair our development or commercialization efforts.
 
   
We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials. If those third parties do not perform satisfactorily, we may be unable to obtain regulatory approval for vidutolimod or any future product candidates or any approvals that may be obtained may be delayed.
 
   
Our collaboration agreements with any future third-parties may not be successful, which could adversely affect our ability to develop and commercialize vidutolimod or any future product candidates.
 
   
The regulatory approval processes of the U.S. Food and Drug Administration (the “FDA”) and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we will not be able to commercialize vidutolimod and future product candidates as expected, and our ability to generate revenue may be materially impaired or eliminated.
 
   
Our relationships with patients and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.
 
   
We face significant competition, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If competitive product candidates are shown to be safer or more effective than ours, our commercial opportunity may be reduced or eliminated.
 
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If we are unable to obtain, maintain and protect our intellectual property rights for our technology and our product candidates, or if our intellectual property rights are inadequate, our competitive position could be harmed.
 
   
Our success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on
Form 10-Q
contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve risks, uncertainties, and other factors that may cause actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. All statements, other than statements of historical facts, contained in this Quarterly Report on
Form 10-Q,
including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions, or the negative of these terms, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements include, among other things, statements about:
 
   
our ability to consummate the Merger and the timing of the closing of the Merger, including the satisfaction to conditions to closing of the Merger within the expected timeframe or at all;
 
   
the outcome of any legal proceedings that may be instituted against the parties and others related to the Merger Agreement;
 
   
the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement;
 
   
unanticipated difficulties or expenditures relating to the Merger,
 
   
the response of our collaborators or other parties to the announcement of the Merger;
 
   
the response of Company stockholders to the Merger Agreement;
 
   
our current expectations and anticipated results of operations;
 
   
our ability and need to raise additional funding and our ability to continue as a going concern;
 
   
the timing and the success of preclinical studies and clinical trials of vidutolimod and any future product candidates, including our current Phase 2 trial for
anti-PD-1
refractory melanoma, our current randomized Phase 2/3 trial for first-line melanoma, and our current Phase 2 proof of concept trial in advanced head and neck squamous cell carcinoma (“HNSCC”) and our currently anticipated Phase 2 proof of concept, multi-indication trial in refractory cutaneous squamous cell carcinoma (“CSCC”) and Merkel cell carcinoma (“MCC”);
 
   
the ongoing impact of the
COVID-19
pandemic on our business and the timing and enrollment of our clinical trials;
 
   
our ability to enroll and conduct successful clinical trials or the timing or likelihood of obtaining regulatory approval for vidutolimod or any future product candidates that we may identify or develop;
 
   
our ability to ensure adequate supply of vidutolimod and any future candidates;
 
   
our ability to maintain third-party relationships necessary to conduct our business;
 
   
our dependence upon the success of our research to generate and advance additional product candidates;
 
   
our ability to establish an adequate safety and efficacy profile for vidutolimod or any future product candidates that we may pursue;
 
   
the implementation of our strategic plans for our business, vidutolimod and any other product candidates we may develop and our technology;
 
   
our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
 
   
the rate and degree of market acceptance and clinical utility for vidutolimod and any other product candidates we may develop;
 
   
our estimates about the size of our market opportunity;
 
   
our ability to maintain and establish collaborations and strategic relationships, including our clinical trial collaborations with Bristol-Myers Squibb Company (“BMS”) and Regeneron Pharmaceuticals, Inc. (“Regeneron”);
 
2

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the potential benefits of the continued research, development, testing and manufacturing services provided by contract manufacturing organizations;
 
   
our financial performance and liquidity;
 
   
our ability to effectively manage our anticipated growth;
 
   
developments relating to our competitors and our industry, including the impact of government regulation;
 
   
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals, including any potential difficulties in employee retention as a result of the announcement and pendency of the Merger;
 
   
our ability to maintain adequate internal controls over financial reporting;
 
   
our expectations regarding the period during which we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”);
 
   
our expectations regarding the period during which we qualify as a “smaller reporting company”;
 
   
our use of proceeds from our initial public offering (“IPO”) and any other fundraising and our expectations regarding our estimated expenses, the sufficiency of our cash resources, our expected cash runway and our need for additional financing, and
 
   
other risks and uncertainties, including those listed under the section titled “Risk Factors.”
The forward-looking statements in this Quarterly Report on Form
10-Q
represent our views as of the date of this Quarterly Report on Form
10-Q.
We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form
10-Q.
We disclaim any obligation to update any forward-looking statements as a result of new information, future events or otherwise, including the potential impact of any mergers, acquisitions, divestitures or other events that may be announced after the date hereof. We may from time to time provide estimates, projections and other information concerning our industry, our business and the markets for our product candidates. 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 our own internal estimates and research as well as 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. These estimates involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form
10-Q.
 
3

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CHECKMATE PHARMACEUTICS, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM
10-Q
FOR THE QUARTER ENDED MARCH 31, 2022
 
TABLE OF CONTENTS
 
      
  
Item 1.
   Condensed Consolidated Financial Statements      5  
   Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2022 and December 31, 2021      5  
   Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three Months Ended March 31, 2022 and 2021      6  
   Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) for the Three Months Ended March 31, 2022 and 2021      7  
   Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2022 and 2021      8  
   Notes to Unaudited Condensed Consolidated Financial Statements      9  
Item 2.
   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      15  
Item 3.
   Quantitative and Qualitative Disclosures About Market Risk      24  
Item 4.
   Controls and Procedures      25  
  
Item 1.
   Legal Proceedings      25  
Item 1A.
   Risk Factors      26  
Item 2.
   Unregistered Sales of Equity Securities and Use of Proceeds      79  
Item 3.
   Defaults Upon Senior Securities      79  
Item 4.
   Mine Safety Disclosures      79  
Item 5.
   Other Information      79  
Item 6.
   Exhibits      80  
 
4

Table of Contents
PART I. – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
CHECKMATE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
    
March 31,
2022
   
December 31,
2021
 
Assets
                
Current Assets:
                
Cash and cash equivalents
   $ 39,478     $ 50,675  
Restricted cash
     20       20  
Short-term investments
     20,555       20,192  
Prepaid expenses and other current assets
     2,057       3,075  
    
 
 
   
 
 
 
Total current assets
     62,110       73,962  
    
 
 
   
 
 
 
Equipment, net
     735       777  
Other assets
     4,099       4,099  
    
 
 
   
 
 
 
Total assets
   $ 66,944     $ 78,838  
    
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
                
Current Liabilities:
                
Accounts payable
   $ 3,608     $ 3,385  
Accrued expenses
     8,334       5,994  
    
 
 
   
 
 
 
Total current liabilities
     11,942       9,379  
    
 
 
   
 
 
 
Total liabilities
     11,942       9,379  
Commitments and Contingencies (Note 9)
            
Stockholders’ Equity:
                
Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of March 31, 2022 and December 31, 2021;
no
shares outstanding as of March 31, 2022 and December 31, 2021
                  
Common stock, $0.0001 par value; 300,000,000 authorized as of March 31, 2022 and December 31, 202
1
; 21,630,627 and 21,630,572 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
     2       2  
Additional
paid-in
capital
     272,400       270,947  
Accumulated other comprehensive gain (loss)
     (57     (14
Accumulated deficit
     (217,343 )     (201,476
Total stockholders’ equity
     55,002       69,459  
Total liabilities and stockholders’ equity
   $ 66,944     $ 78,838  
 
 
 
 
 
 
 
 
 
The
 
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
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CHECKMATE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
  
Three Months Ended March 31,
 
 
  
2022
 
 
2021
 
Operating expenses:
  
 
Research and development
   $ 11,648     $ 10,378  
General and administrative
     4,238       3,803  
    
 
 
   
 
 
 
Total operating expenses
     15,886       14,181  
    
 
 
   
 
 
 
Loss from operations
     (15,886 )     (14,181
    
 
 
   
 
 
 
Other income:
                
Interest income
     19       53  
    
 
 
   
 
 
 
Total other income
     19       53  
    
 
 
   
 
 
 
Net loss
   $ (15,867 )   $ (14,128
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding—basic and diluted
     21,630,600       21,582,143  
    
 
 
   
 
 
 
Net loss per share—basic and diluted
   $ (0.73 )   $ (0.65
    
 
 
   
 
 
 
Comprehensive loss:
                
Net loss
   $ (15,867 )   $ (14,128
Unrealized loss on
available-for-sale
investments
     (43     (9
    
 
 
   
 
 
 
Comprehensive loss
   $ (15,910 )   $ (14,137
    
 
 
   
 
 
 
The
 
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
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CHECKMATE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
(Unaudited)
 
 
  
Common Stock
 
  
Additional
Paid-In

Capital
 
  
Accumulated
Deficit
 
 
Accumulated
Other
Comprehensive
Gain/(Loss)
 
 
Total
Stockholders’
Equity (Deficit)
 
 
  
Shares
 
  
Amount
 
  
 
 
  
 
 
 
 
 
 
 
 
Balances at December 31, 2021
  
 
21,630,572
 
  
$
2
 
  
$
270,947
 
  
$
(201,476
)
 
  $ (14  
$
69,459
 
Exercise of stock options
     55        —          —          —         —         —    
Stock-based compensation expense
            —          1,453        —         —         1,453  
Unrealized loss on
available-for-sale
investments
     —          —          —          —         (43     (43
Net loss
     —          —          —          (15,867 )     —         (15,867 )
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance at March 31, 2022
  
 
21,630,627
 
  
$
2
 
  
$
272,400
 
  
$
(217,343
)  
$
(57
 
$
55,002
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
 

 
  
Common Stock
 
  
Additional
Paid-In

Capital
 
  
Accumulated
Deficit
 
 
Accumulated
Other
Comprehensive
Gain/(Loss)
 
 
Total
Stockholders’
Equity (Deficit)
 
 
  
Shares
 
  
Amount
 
  
 
 
  
 
 
 
 
 
 
 
 
Balances at December 31, 2020
  
 
21,560,398
 
  
$
2
 
  
$
265,342
 
  
$
(140,071
 
$
(74  
$
(125,199
Exercise of stock options
     59,225        —          118        —         —         118  
Stock-based compensation expense
     —          —          1,216        —         —         1,216  
Unrealized loss on
available-for-sale
investments
     —          —          —          —         (9     (9
Net loss
     —          —          —          (14,128     —         (14,128
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance at March 31, 2021
  
 
21,619,623   
$
2
 
  
$
266,676
 
  
$
(154,129
 
$
(83
 
$
112,396
 
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
The
 
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
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CHECKMATE PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
  
Three Months ended March 31,
 
 
  
2022
 
 
2021
 
Cash flows from operating activities
  
 
Net loss
   $ (15,867 )   $ (14,128
Adjustments to reconcile net loss to net cash used in operating activities:
                
Stock based compensation
     1,453       1,216  
Depreciation
     42       —    
Amortization/accretion of investments
     121       202  
Change in operating assets and liabilities:
                
Prepaid expenses and other current assets
     1,018       (1,033
Accounts payable
     223       (210
Accrued expenses
     2,340       (354
    
 
 
   
 
 
 
Net cash used in operating activities
     (10,670     (14,307
    
 
 
   
 
 
 
Cash flows from investing activities
                
Purchases of investments
     (4,527     (10,239
Maturities of investments
     4,000       20,500  
    
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     (527     10,261  
Cash flows from financing activities
                
Proceeds from stock option exercises
              118  
    
 
 
   
 
 
 
Net cash provided by financing activities
              118  
    
 
 
   
 
 
 
Net decrease in cash, cash equivalents and restricted cash
     (11,197     (3,928
Cash, cash equivalents and restricted cash at beginning of period
     50,695       43,075  
    
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period
   $ 39,498     $ 39,147  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
8

Table of Contents
CHECKMATE PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 – N
ATURE
OF
B
USINESS
Nature of Business
Checkmate Pharmaceuticals, Inc. (“Checkmate” or the “Company”), headquartered in Cambridge, Massachusetts, is a clinical stage biotechnology company incorporated under the laws of the State of Delaware in July 2015 that is focused on developing and commercializing its proprietary technology to harness the power of the immune system to combat cancer. Since its inception, the Company has devoted substantially all of its efforts to the research and development activities, including recruiting management and technical staff, raising capital, producing materials for
non-clinical
and clinical studies and building infrastructure to support such activities, and has not yet generated any revenue. Expenses have primarily been for research and development and related administrative costs. The Company has financed its operations through the issuance of common and redeemable convertible preferred stock.
Proposed Merger with Regeneron Pharmaceuticals, Inc.
On April 18, 2022, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Regeneron Pharmaceuticals, Inc., a New York corporation (“Parent”), and Scandinavian Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Purchaser”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions therein, Purchaser filed a tender offer on May 2, 2022, (the “Offer”) to acquire all of the issued and outstanding shares of the common stock of the Company at a price per share of $10.50, to be paid to the seller in cash, without interest and subject to reduction for any applicable withholding of taxes required by applicable law. The Offer will initially remain open for 20 business days, subject to extension under certain circumstances. If successful, upon terms and conditions set forth in the Merger Agreement, Purchaser will merge with and into the Company, with the Company as the surviving corporation and as a direct wholly owned subsidiary of Parent (the “Merger”), after which the Company will cease being a standalone entity. The Merger and related transactions are currently expected to close in
mid-2022,
subject to the satisfaction or waiver of customary closing conditions. The Merger Agreement provides that the Company will be required to pay Parent a termination fee in the amount of $8.8 million
 
if, among other reasons: (i) the Company elects to terminate the Merger Agreement in accordance therewith; (ii) the Company fails to include a favorable recommendation of the Board in the Schedule
14D-9
or in the preliminary proxy statement filed with the SEC related to the stockholder meeting approving and adopting the Merger Agreement; or (iii) the Merger Agreement is terminated by either the Company or Parent resulting from the failure of the parties to consummate the closing of the Merger in the timetable specified in the Merger Agreement.
Assuming successful completion of the Merger, the Company will incur approximately $10.0 million of closing costs to third-party advisors in accordance with contractual obligations tied to the successful closing of the transaction.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, the outcome of clinical trials, development by competitors of new therapeutics and technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, ability to secure additional capital to fund operations, and risks associated with the ongoing
COVID-19
global pandemic or future pandemics, including known and potential delays associated with its ongoing and anticipated trials and the Company’s ability to raise additional capital to finance its operations. We are also subject to risks related to the Merger, including our ability consummate the Merger and the timing of the closing of the Merger, the risks that a condition to closing would not be satisfied within the expected timeframe or at all or that the closing of the Merger will not occur; the outcome of any legal proceedings that may be instituted against the parties and others related to the Merger Agreement; the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement; unanticipated difficulties or expenditures relating to the Merger, the response of our collaborators or other third parties to the announcement of the Merger, and/or potential difficulties in employee retention as a result of the announcement and pendency of the Merger; and the response of our stockholders to the Merger Agreement, If the Merger does not occur, there can be no assurance that we will be able to successfully raise sufficient additional capital or complete in a timely manner the development of, or receive regulatory approval for, any products developed, and if approved, that any products will be commercially viable. Any products resulting from the Company’s current research and development efforts will require significant
 
9

Table of Contents
additional research and development, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel, infrastructure and extensive compliance reporting capabilities. The Company has not generated any revenues from the sale of any products to date. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
Going Concern
Since
 
inception, the Company has incurred recurring losses and negative cash flows from operations. The Company expects to continue to generate operating losses for the foreseeable future. The Company has funded its operations primarily with proceeds from the sale of its common stock, convertible debt and redeemable convertible preferred stock. The Company’s cash, cash equivalents and
available-for-sale
investments were $
60.1
 million as of March 31, 2022.
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) 2014-15,
 Disclosure of Uncertainties about an Entity’s Ability to Continue as
a
Going Concern (Subtopic
 205-40)
, management is required to assess the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. The Company expects to seek additional funding to sustain its future operations through issuances of equity, licenses and other strategic collaborations. If the Company is unable to secure adequate additional funding, the Company may make reductions in certain expenditures. This may include delaying, reducing the scope of, suspending or eliminating one or more research and development or clinical programs.
As a result, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. If the Merger does not occur, the Company expects its existing cash, cash equivalents and
available-for-sale
investments will be sufficient to fund its operating expenses and capital expenditure requirements through the end of 2022. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and that contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
2 – S
UMMARY
OF
S
IGNIFICANT
A
CCOUNTING
P
OLICIES
The Company’s significant accounting policies are described in Note 3,
Summary of Significant Accounting Policies
, to the consolidated financial statements for the year ended December 31, 2021 in the Company’s 2021 Annual Report on Form
10-K.
There have been no material changes to the significant accounting policies during the three-month period ended March 31, 2022.
Basis of Presentation
The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiary Checkmate Pharmaceuticals Security Corporation. Any reference in these notes to applicable guidance is meant to refer to the authoritative accounting principles generally accepted in the United States as found in the Accounting Standard Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).
Unaudited interim financial information
The accompanying interim condensed consolidated financial statements and related disclosures are unaudited and have been prepared in accordance with GAAP for interim financial information and the instructions to Form
10-Q
and Article 10 of Regulation
S-X
of the Exchange Act. Accordingly, they do not include all the information and footnotes required by GAAP for complete consolidated financial statements and should be read in conjunction with the Company’s consolidated financial statements and related footnotes as of and for the year ended December 31, 2021, included in the Company’s 2021 Annual Report on Form
10-K.
The Company’s financial information as of March 31, 2022, and for the three months ended March 31, 2022 and 2021 is unaudited, but in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. The balance sheet data as of December 31, 2021 was derived from audited consolidated financial statements. The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year.
 
10

Table of Contents
Use of estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU
2016-13,
“Credit Losses (Topic 326).” ASU
2016-13
requires that financial assets measured at amortized cost, such as trade receivables and investments, be represented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial asset. The new guidance requires enhanced disclosures related to trade receivables and associated credit losses. In May 2019, the FASB issued ASU
No. 2019-05,
“Financial Instruments—Credit Losses (Topic 326) Targeted Transition Relief,” which allows for a transition election on certain instruments. The guidance is effective for Smaller Reporting Companies for fiscal years beginning after December 15, 2022 and interim periods in those fiscal years. In November 2019, the FASB issued ASU
No. 2019-11
which amends certain aspects of ASU
No. 2016-13,
including transition relief for trouble debt restructuring, among other topics. The Company is currently evaluating the impact of this pronouncement on its condensed consolidated financial statements.
3 – I
NVESTMENTS
AND
F
AIR
V
ALUE
M
EASUREMENT
The following tables summarizes the amortized cost and estimated fair value of the Company’s investments, which are considered to be
available-for-sale
investments as of March 31, 2022 and December 31, 2021.
As of March 31,
2022
 
 
  
Amortized

Cost
 
  
Unrealized

Gains
 
  
Unrealized

Losses
 
 
Fair Value
 
  
Short-term
Investments
 
  
Investments,

non-current
 
 
  
 
 
  
 
 
  
(in thousands
)
 
 
 
 
  
 
 
  
 
 
Corporate debt securities
   $ 20,612      $          $ (57   $ 20,555      $ 20,555      $      
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
As of December 31,
2021
 
 
  
Amortized

Cost
 
  
Unrealized

Gains
 
  
Unrealized

Losses
 
 
Fair Value
 
  
Short-term
Investments
 
  
Investments,

non-current
 
 
  
 
 
  
 
 
  
(in thousands
)
 
 
 
 
  
 
 
  
 
 
Corporate debt securities
   $ 20,206      $         $ (14   $ 20,192      $ 20,192      $     
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
 
At March 31, 2022 all
available-for-sale
investments had contractual maturities of one year or less, and there were no securities in the Company’s total investment portfolio that were in a continuous unrealized loss position for more than 12 months. The Company concluded that the net declines in market value of
available-for-sale
securities were temporary in nature and did not consider any of investments to be other-than-temporarily impaired.
 
11

Table of Contents
The following tables set forth the fair value of the Company’s financial assets and liabilities by level within the fair value hierarchy that are measured at fair value on a recurring basis:
 
 
  
March 31, 2022
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
 
  
(in thousands)
 
Assets:
  
     
  
     
  
     
  
     
Money markets funds (included in cash equivalents)
   $ 38,237      $ —        $ —        $ 38,237  
Corporate debt securities
     —          20,555        —          20,555  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total assets
   $ 38,237      $ 20,555      $ —        $ 58,792  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
  
December 31, 2021
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
 
  
(in thousands)
 
Assets:
                                   
Money markets funds (included in cash equivalents)
   $ 49,482      $ —        $ —        $ 49,482  
Corporate debt securities
     —          20,192        —          20,192  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total assets
   $ 49,482      $ 20,192      $ —        $ 69,674  
    
 
 
    
 
 
    
 
 
    
 
 
 
Investments classified as Level 2 within the valuation hierarchy consist of corporate debt securities. The Company estimates the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources.
4 – A
CCRUED
E
XPENSES
Accrued expenses consist of the following:

 
  
March 31,
 
  
December 31,
 
 
  
2022
 
  
2021
 
 
  
(in thousands)
 
Payroll and employee related expenses
   $  1,849      $  2,499  
External research and development
     5,938        3,291  
Other accrued expenses
     547        204  
    
 
 
    
 
 
 
Total accrued expenses
   $ 8,334      $ 5,994  
    
 
 
    
 
 
 
5 – S
TOCK
-B
ASED
C
OMPENSATION
Total stock-based compensation expense was classified in the accompanying condensed consolidated statements of operations and comprehensive loss as follows:
 
 
  
Three Months Ended March 31,
 
 
  
2022
 
  
2021
 
 
  
(in thousands)
 
Research and development
   $ 731      $ 486  
General and administrative
     722        730  
    
 
 
    
 
 
 
Total stock-based compensation expense
   $ 1,453      $  1,216  
    
 
 
    
 
 
 
 
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Table of Contents
During
 
the three months ended March 31, 2022, the Company granted options with service-based vesting conditions for the purchase of
1,589,475
shares of common stock with a weighted average exercise price of $
2.41
per share and a weighted average grant-date fair value of $
1.70
per share.
6 – N
ET
L
OSS
P
ER
S
HARE
Because
 
the Company reports a net loss, basic and diluted net loss per share are the same for both years presented. All stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact. At March 31, 2022 and 2021, options to purchase common stock of
4,724,613
and
3,178,556
, respectively, have been excluded from the calculation of diluted net loss per share because their inclusion would have been antidilutive.
7 – C
OMMITMENTS
AND
C
ONTINGENCIES
Operating Lease
The Company has a
month-to-month
lease agreement for its corporate space in Cambridge, Massachusetts. Rent expense is recognized as incurred. Rent expense for each of the three months ended March 31, 2022 and 2021 was $0.2 million and $0.1 million, respectively.
Clinical Trial Collaboration and Supply Agreements
On May 10, 2021, the Company entered into a Supply and
Non-Exclusive
License Agreement (“SNLA”) with Regeneron Pharmaceuticals, Inc. (“Regeneron”). The SNLA dictates the general terms that govern specific collaborative studies between the Company and Regeneron, including a Phase 2 proof of concept trial, with patient cohorts in
anti-PD-1
naïve and
anti-PD-1
refractory cutaneous squamous cell carcinoma
and anti-PD-1
refractory Merkel cell carcinoma. Pursuant to the SNLA, Regeneron agreed to provide cemiplimab, a drug to be used concurrently or in combination with vidutolimod in the aforementioned studies, at its own expense. As part of the SNLA, the parties granted each other
non-exclusive
licenses to use background intellectual property and regulatory documentation to seek regulatory approval of the other party’s compound solely for use as a combination therapy. The Company does not expect any future consideration to be payable to Regeneron pursuant to the SNLA.
On
 December 7, 2020, the Company entered into the Master Clinical Trial Collaboration Agreement (“MCTCA”) with Bristol-Myers Squibb Company (“BMS”). The MCTCA dictates the general terms that govern specific collaborative studies between the companies, including the Company’s Phase 2 refractory melanoma study and Phase 2 front-line melanoma study (collectively, the “collaborative studies”). Pursuant to the MCTCA, BMS agreed to provide nivolumab, a drug to be used in combination with vidutolimod in the collaborative studies, at its own expense. As part of the MCTCA, the parties granted each other
non-exclusive
licenses to use background intellectual property and regulatory documentation to seek regulatory approval of the other party’s compound solely for use as a combination therapy. The Company does not expect any further consideration to be payable to BMS pursuant to the MCTCA.
License Agreement
In
 June 2015, the Company entered into an exclusive license agreement with Cytos Biotechnology LTD (now Kuros Biosciences AG, or “Kuros”) as amended in August 2017 and as further amended in January 2018 (the “Kuros License Agreement”). Pursuant to the Kuros License Agreement, in return for payments made, the Company was granted an exclusive, royalty-bearing, sublicensable, worldwide license, under all of Kuros’ intellectual property rights, including any intellectual property rights arising during the term of the agreement, to commercially develop, manufacture, use, distribute, and sell certain therapeutic products, including vidutolimod, (the “Licensed Products”) for the diagnosis, treatment and prevention of all indications in humans and animals. Under the terms of the Kuros License Agreement, the Company is required to use commercially reasonable efforts to develop at least one Licensed Product. Under the Kuros License Agreement, the Company agreed to make payments to Kuros for each product that achieves certain development and regulatory milestones, including payments of up to $
56.0
 million for the Company’s current oncology programs. Through
March
31, 202
2
, the Company has incurred license fees and milestone payments totaling $
8.3
 
million,
 
13

Table of Contents
including
 
$
6.0
 million in 2021. Cost incurred in 2021 relate
d
to: (i) a $
2.0
 million milestone payment in connection with the dosing of the first patient in the Phase 2/3 first-line melanoma trial for
vidutolimod, which was recognized in the condensed consolidated statement of operations for the three months ended March 31, 2021
and (ii) a $
4.0
 million milestone payment in connection with the patient dosing in a Phase 2 trial of vidutolimod in combination with nivolumab for the treatment of patients with
anti-PD-1
refractory melanoma and to potentially support a Biologics License Application (“BLA”) and marketing approval of
vidutolimod, which was entirely recognized in the condensed consolidated statements of operations for the three months ended June 30, 2021.
 
Future milestone payments will be due upon filing for regulatory approval in each of the United States, Europe and the Far East and for ultimate approval in each of those regions.
The
 Company is also required to pay tiered royalties of high single-digit to low teens percentages on annual net sales of Licensed Products that are covered by a licensed patent, as well as royalties at 50% of the foregoing amounts with respect to sales of Licensed Products that are not covered by a licensed patent, but are covered by
licensed know-how.
The Kuros License Agreement expires upon the expiration of
the last-to-expire royalty
term for the Licensed Products in the territory. Either party has the right to terminate the agreement in full for an uncured material breach of the agreement upon written 60 days’ notice to the other party. The Company has the right to terminate the agreement for any reason upon 90 days’ written notice to Kuros.
Other Contingencies
During the ordinary course of its operations, the Company may become a party to contractual disputes, litigation, and potential claims. The Company does not believe that the resolution of any of these matters, if any, will have a material adverse effect on its financial position or results of operations.
 
14

Table of Contents
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form
10-Q
and our audited
consolidated
financial statements and related notes thereto for the year ended December
 31, 2021 included in our 2021 Annual Report on Form
10-K.
This discussion and analysis and other parts of this Quarterly Report on Form
10-Q
contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in the “Risk Factors” section of this Quarterly Report on Form
10-Q
and in other filings with the SEC. Please also see the section entitled “Note Regarding Forward-Looking Statements” contained in the Quarterly Report on Form
10-Q.
Pending Transaction with Regeneron Pharmaceuticals, Inc.
On April 18, 2022, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with Regeneron Pharmaceuticals, Inc., a New York corporation (“Parent”), and Scandinavian Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Purchaser”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions therein, Purchaser filed a tender offer on May 2, 2022, (the “Offer”) to acquire all of the issued and outstanding shares of the common stock of the Company at a price per share of $10.50, to be paid to the seller in cash, without interest and subject to reduction for any applicable withholding of taxes required by applicable law. The Offer will initially remain open for 20 business days, subject to extension under certain circumstances. If successful, upon terms and conditions set forth in the Merger Agreement, Purchaser will merge with and into the Company, with the Company as the surviving corporation and as a direct wholly owned subsidiary of Parent (the “Merger”), after which the Company will cease being a standalone entity.
The Merger and related transactions are currently expected to close in the
mid-2022,
subject to the satisfaction or waiver of customary closing conditions. Additional information about the Merger and related transactions is set forth in our filings with the Securities and Exchange Commission (“SEC”).
Overview
We are a clinical-stage biotechnology company focused on developing and commercializing our proprietary technology to harness the power of the immune system to combat cancer. Our product candidate, vidutolimod (formerly
CMP-001),
is a differentiated Toll-like receptor 9 (“TLR9”), agonist delivered as a noninfectious biologic virus-like particle (“VLP”), utilizing a
CpG-A
oligonucleotide as a key component. When injected into a tumor, vidutolimod is designed to trigger the body’s innate immune system, thereby altering the tumor microenvironment and directing activated anti-tumor T cells to attack both the injected tumor and also tumors throughout the body. In a clinical trial of vidutolimod in combination with a systemic checkpoint inhibitor (“CPI”), in patients whose tumors were unresponsive or no longer responsive to a CPI, we have observed a best objective response rate (“ORR”), of 28% (27/98), including post-progression responders. We are evaluating vidutolimod across multiple tumor types in combination with other immunotherapy agents. Our founder, Art Krieg, first reported the discovery of immunostimulatory cytosine-phosphate-guanine (“CpG”), DNA in 1995, which, combined with the discovery of TLR9, led to the recognition that synthetic
CpG-A
oligonucleotides have the potential to stimulate the TLR9 receptor for therapeutic purposes. Our goal is to establish vidutolimod as a foundational immuno-oncology therapy that engages the innate immune system to fight cancer and improve outcomes for patients with a broad range of solid tumors.
Since our inception, we have devoted substantially all of our efforts and financial resources to the research and development activities related to our technology and our vidutolimod program, and the administrative support for such activities including raising capital, business planning, undertaking
pre-clinical
studies and clinical trials and other support activities. We do not have any products approved for sale and have not generated any revenue from product sales or any other sources and do not expect to generate any revenue for the next several years. We have not yet successfully completed any registrational clinical trials, obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.
We have funded our operations to date primarily with proceeds from the sale of preferred stock, convertible debt and common stock. Since inception, we have received net cash proceeds of $241.7 million from sales of our preferred stock, convertible debt and common stock.
 
15

Table of Contents
We have incurred recurring losses and had negative operating cash flows since inception and our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of vidutolimod or any other products we acquire or develop. Our net losses were $36.9 million and $61.4 million for the years ended December 31, 2020 and 2021, respectively, and $15.9 million for the three months ended March 31, 2022. We expect to continue to incur significant expenses and to increase operating losses for at least the next several years.
Going forward, if the Merger does not occur, we expect our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we:
 
   
conduct our current and any additional clinical trials of vidutolimod, including, among others, our current Phase 2 trial in
anti-PD-1
refractory melanoma, our current randomized Phase 2/3 trial in first-line melanoma, our current Phase 2 proof of concept trial in head and neck squamous cell carcinoma, and our currently anticipated Phase 2 proof of concept trial with patient cohorts in
anti-PD-1
naïve and
anti-PD-1
refractory CSCC and MCC;
 
   
conduct the necessary
scale-up
activities to support the potential commercialization of vidutolimod, if approved;
 
   
conduct research and preclinical development of any future product candidates;
 
   
hire additional clinical and scientific personnel to support our ongoing preclinical activities and clinical trials of vidutolimod and any other product candidates we choose to develop;
 
   
seek marketing approval for vidutolimod and any other product candidates that successfully complete clinical development;
 
   
acquire or
in-license
additional product candidates;
 
   
maintain compliance with applicable regulatory requirements;
 
   
maintain, expand, protect and enforce our intellectual property portfolio;
 
   
develop and expand our sales, marketing and distribution capabilities for vidutolimod and any other product candidates for which we obtain marketing approval;
 
   
expand our operational, financial and management systems and increase administrative personnel, including to support our clinical development and commercialization efforts and our operations as a public company;
 
   
encounter continued delays or interruptions related to current development activities, our supply chain, or the third-parties on whom we rely due to the ongoing
COVID-19
pandemic and otherwise; and
 
   
expand our infrastructure and facilities to accommodate the planned growth of our employee base;
As a result, if the Merger does not occur, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing and distribution or licensing arrangements. As a result, in the event the Merger and related transactions do not close and we remain a stand-alone company, we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable 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 vidutolimod or any of our future product candidates.
Since our inception in 2015, through venture funding and our IPO in August 2020, we have raised $241.7 million. Our private rounds included prominent biotechnology institutional investors including Sofinnova Investments, venBio Partners,
F-Prime
Capital, Decheng Capital, Longitude Capital, Novo Holdings, Medixci, Omega Funds, Clough Capital Partners, Sectoral Asset Management, and BrightEdge, the venture investment fund of the American Cancer Society.
Risks and Uncertainties
We are subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, the outcome of clinical trials, development by competitors of new therapeutics and technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, ability to secure additional capital to fund operations, and risks associated with the
ongoing COVID-19 global
pandemic or future pandemics, including known and potential additional delays associated with our ability to enroll our ongoing trials. We are also subject to risks related to the Merger, including our ability consummate the Merger and the timing of the closing of the Merger, the risks that a condition to closing would not be satisfied within the expected timeframe or at all or that the closing of the Merger will not occur; the outcome of any legal proceedings that may be instituted against the parties and others related to the Merger Agreement; the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement; unanticipated difficulties or
 
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expenditures relating to the Merger, the response of our collaborators or other third parties to the announcement of the Merger, and/or potential difficulties in employee retention as a result of the announcement and pendency of the Merger; and the response of our stockholders to the Merger Agreement. If the Merger does not occur, there can be no assurance that we will be able to successfully raise sufficient additional capital or complete in a timely manner the development of, or receive regulatory approval for, any products developed, and if approved, that any products will be commercially viable. Any products resulting from our current research and development efforts will require significant additional research and development, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel, infrastructure and extensive compliance reporting capabilities. We have not generated any revenues from the sale of any products to date. Even if our product development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales.
If the Merger does not occur, we will need to obtain significant additional funding and may seek additional funding through private or public equity financings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing agreements. If we are unable to obtain additional funding, we may be forced to delay, reduce or eliminate some or all of our research and development programs, which could adversely affect our business prospects, or we may be unable to continue operations. There is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.
If the Merger does not occur, we believe that our existing cash, cash equivalents and
available-for-sale
investments of $60.1 million as of March 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements through the end of 2022. Because we do not have sufficient resources for our current operating plan, we require additional external sources of capital to complete our planned clinical programs for vidutolimod, including completing our ongoing clinical trials. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Because of the uncertainty in securing additional capital, we have concluded that substantial doubt exists with respect to our ability to continue as a going concern within one year after the date of the filing of this Quarterly Report on
Form 10-Q.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our results of operations during the quarter ended March 31, 2022.
COVID-19
In March 2020 the World Health Organization declared the global novel coronavirus disease 2019
(“COVID-19”)
a pandemic. Despite progress with distribution and administration of vaccines,
COVID-19
and its effects continue to evolve, particularly in light of emerging variants, such as the Delta and Omicron variants. Although we have experienced some impact of the ongoing
COVID-19
pandemic on our business and operations, including delays in initiation of study sites and enrolling patients, we cannot currently predict the scope and severity of any potential business shutdowns or disruptions or the resulting impact on clinical trials as the pandemic evolves. Our clinical trials that commenced during the
COVID-19
pandemic have been and continue to be adversely affected by the
COVID-19
pandemic, resulting in patient enrollment delays. As a result, in December 2021, we revised our expectations with respect to the anticipated timing of clinical data milestones in our Phase 2 clinical trial
in anti-PD-1 refractory
melanoma patients, our Phase 2/3 trial in first-line melanoma and our Phase 2 clinical trial in head and neck cancer. We are continuing to monitor the latest developments regarding the
COVID-19
pandemic, including the emergence of new and potentially more contagious strains of the virus, and the resulting impact on our ability to enroll our clinical trials. The financial impact of the
COVID-19
pandemic cannot be reasonably estimated at this time and the pandemic may continue to have a material adverse impact on our business, financial condition and results of operations.
 
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Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from any sources and do not expect to generate any revenue from the sale of products for the next several years. If the Merger does not occur and our development efforts for vidutolimod or any future product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. However, we cannot predict whether, when, or to what extent we will generate revenue from the commercialization and sale of vidutolimod or any future product candidates as we may never succeed in obtaining regulatory approval for any of our product candidates. If we enter into license or collaboration agreements for any of our product candidates or intellectual property, we may generate revenue in the future from payments as a result of such license or collaboration agreements, however there can be no assurance that we will be able to enter into any license or collaboration agreements.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities and the development of our VLP technology and our vidutolimod program and include:
 
   
expenses incurred in connection with the preclinical and clinical development of our technology and vidutolimod, including clinical trials under agreements with contract research organizations (“CROs”), clinical investigators and consultants;
 
   
employee-related expenses, including salaries, benefits and travel and stock-based compensation expense, for employees engaged in research and development functions;
 
   
the cost of contract manufacturing organizations (“CMOs”), that manufacture drug product for use in our preclinical studies and clinical trials and perform analytical testing,
scale-up
and other services in connection with our development activities;
 
   
costs related to compliance with regulatory requirements;
 
   
payments made under third-party licensing agreements, such as the exclusive license agreement we entered into in 2015 with Cytos Biotechnology LTD (now Kuros Biosciences AG, or “Kuros”) (the “Kuros License Agreement”);
 
   
facilities and other expenses, which include direct and allocated expenses for facilities, insurance and supplies; and
 
   
costs related to compliance with regulatory requirements.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Any nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.
Upfront payments under license agreements are expensed upon receipt of the license, and any annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued and a corresponding expense is recognized in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
We do not track our research and development expenses by indication. Our direct external research and development expenses consist primarily of external costs, such as fees paid to CROs, CMOs, research/testing laboratories and outside consultants in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses also include fees incurred under licensing agreements. We do not allocate these costs to specific indications because they are deployed across the entire the vidutolimod development program and, as such, are not separately classified. We use internal resources primarily to manage our preclinical development, outsourced clinical trials, process development, manufacturing and clinical development activities. These employees work across the entire the vidutolimod development program and, therefore, we do not track their costs by indication.
Research and development activities have been central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the
 
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increased size and duration of later-stage clinical trials. As a result, if the Merger does not occur, we expect that our research and development expenses will continue to increase substantially over the next several years as we advance vidutolimod into later stages of clinical development toward potential regulatory approval, advance vidutolimod for additional indications, as well as conduct translational research efforts and other preclinical and clinical development, including submitting regulatory filings for any other product candidates we may acquire or develop. In addition to the expected increase in third-party costs, we expect our personnel costs, including costs associated with stock-based compensation, will also increase substantially in the future. In addition, if and as we advance vidutolimod into potentially registrational clinical trials and, subject to positive data and regulatory approvals, potentially commercialize vidutolimod, we expect to incur additional expenses from milestone and royalty payments related to the Kuros License Agreement.
We do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization of vidutolimod or any other product candidates we may acquire or develop. This is due to numerous factors, some of which are beyond our control, that are associated with the successful development and commercialization of vidutolimod and any other product candidates we may acquire or develop, including the following:
 
   
the scope, progress, outcome and costs of our preclinical studies and clinical trials for vidutolimod or any other product candidates we may acquire or develop;
 
   
making arrangements with third-party manufacturers for both clinical and commercial supplies of vidutolimod or any other product candidates;
 
   
successful patient enrollment in, and the initiation and completion of clinical trials in a timely manner;
 
   
raising additional funds necessary to complete clinical development and the potential commercialization, of vidutolimod or any other product candidates;
 
   
receipt, timing and related terms of marketing approvals from applicable regulatory authorities;
 
   
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
 
   
developing and implementing marketing and reimbursement strategies;
 
   
establishing sales, marketing and distribution capabilities and launching commercial sales of vidutolimod or any other products, if approved, whether alone or in collaboration with others;
 
   
acceptance of vidutolimod or any other products, if approved, by patients, the medical community and third-party payors;
 
   
effectively competing with other therapies and/or changes in standard of care;
 
   
obtaining and maintaining third-party coverage and adequate reimbursement;
 
   
obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates;
 
   
protecting and enforcing our rights in our intellectual property portfolio;
 
   
significant and changing government regulations; and
 
   
maintaining an acceptable tolerability profile of the products following approval, if any.
A change in the outcome of any of these variables with respect to the development of vidutolimod or any future product candidates would significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and benefits, stock-based compensation and travel expense for personnel in executive, business development, finance, human resources, legal and support functions. General and administrative expenses also include direct and allocated facility-related costs as well as insurance costs and professional fees for legal, patent, consulting, accounting and audit services, investor and public relations services and outsourced information technology services.
If the Merger does occur, we anticipate that our general and administrative expenses will continue to increase in the future as we increase our headcount to support the continued advancement of vidutolimod toward potential commercialization and the future development of any other product candidates that we may pursue. Additionally, if we believe a regulatory approval of vidutolimod or any other product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations to market and sell that product candidate.
 
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Interest Income
Interest income consists of interest earned on our cash, cash equivalent and
available-for-sale
investments balances. We expect that our interest income will fluctuate based on prevailing interest rates, our ability to raise additional funds, as well as the amount of expenditures for our clinical development of vidutolimod and ongoing business operations
Income Taxes
There were no provisions for income taxes for the quarters ended March 31, 2021 and 2022 because we have historically incurred operating losses and we maintain a full valuation allowance against our net deferred tax assets.
Results of operations
Comparison of the quarters (“Q1”) ended March 31, 2022 and 2021
The following table summarizes our results of operations for the quarters ended March 31, 2022 and 2021:
 
    
Quarters ended
March 31,
    
Increase

(Decrease)
 
    
2022
    
2021
 
    
(in thousands)
 
Operating expenses:
        
Research and development
   $ 11,648      $ 10,378      $ 1,270  
General and administrative
     4,238        3,803        435  
  
 
 
    
 
 
    
 
 
 
Total operating expenses
     15,886        14,181        1,705  
Loss from operations
     (15,886      (14,181      1,705  
Interest income
     19        53        (34
  
 
 
    
 
 
    
 
 
 
Total other income
     19        53        (34
  
 
 
    
 
 
    
 
 
 
Net loss
   $  (15,867)      $  (14,128)      $ 1,739  
  
 
 
    
 
 
    
 
 
 
Research and Development Expenses
Research and development expenses were $11.6 million in Q1 2022 compared to $10.4 million in Q1 2021. The increase of approximately $1.3 million was primarily driven by increased clinical trial cost of $1.5 million on the Company’s ongoing clinical trials, increased personnel and consulting costs of $0.6 million, increased third-party spending on early stage research of $0.5 million, increased stock-based compensation costs of $0.3 million and recruiting costs of $0.1 million. These increases were partially offset by the impact of the $2.0 million milestone payment incurred and paid to Kuros in March 2021, which became payable upon initiating dosing of the first patient in a Phase 2 clinical trial and was expensed in Q1 2021, with no corresponding expense in Q1 2022.
General and Administrative Expenses
General and administrative expenses were $4.2 million in Q1 2022 compared to $3.8 million in Q1 2021. The increase of $0.4 million was primarily related to $0.3 million of professional fees incurred in Q1 2022 in connection with the aforementioned Merger and $0.2 million recruiting costs associated hiring a chief executive officer in March 2022.
Interest Income
Interest income was $19,000 for Q1 2022 compared to $0.1 million for Q1 2021. The quarter-over-quarter decrease reflects the lower investment balance in the 2022 period resulting from the funding of operational expenses.
 
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Liquidity and capital resources
Overview
We have funded our operations to date primarily with proceeds from the sale of preferred stock, convertible debt and common stock. Since inception and through March 31, 2022, we have received net cash proceeds of $241.7 million from sales of our preferred stock, convertible debt and common stock.
On September 7, 2021, we filed a shelf registration statement on Form
S-3
(File
No. 333-259353),
which was declared effective by the SEC on September 15, 2021 (the “Shelf Registration Statement”). Under the Shelf Registration Statement, we may offer and sell, from time to time, various securities in an aggregate amount of up to $150 million. In connection with filing the Registration Statement, we entered into an Open Market Sale Agreement
SM
(the “2021 Sales Agreement”), with Jefferies LLC (“Jefferies”), pursuant to which we may offer and sell, from time to time, shares of our common stock having an aggregate offering of up to $50.0 million through Jefferies as our sales agent. As of March 31, 2022, no shares of common stock have been sold and no net proceeds have been received by us pursuant to the 2021 Sales Agreement.
As of the date of this Quarterly Report on
Form 10-Q,
we have not generated any product sales. We do not know when, or if, we will generate revenue from product sales. We will not generate significant revenue from product sales unless and until we obtain regulatory approval and commercialize one of our current or future product candidates. Our primary uses of capital are, and, if the Merger does not occur, we expect will continue to be, compensation and related expenses, third-party clinical and contract manufacturing costs, legal and other regulatory expenses, and general overhead costs. We expect that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to risks in the development of our products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. If the Merger does not occur, we expect that we will need substantial additional funding to support our continuing operations.
As of March 31, 2022, we had an accumulated deficit of $217.3 million. If the Merger does not occur, we anticipate operating losses to continue for the foreseeable future due to, among other things, costs related conducting clinical trials and our administrative organization. We would require substantial additional financing to fund our operations and to continue to execute our strategy, and we would pursue a range of options to secure additional capital.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We believe that our existing cash, cash equivalents, and investments of $60.1 million as of March 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements through the end of 2022. Because our current operating plan does not contain sufficient resources, we will require additional external sources of capital to complete the planned clinical programs for vidutolimod, including completing our ongoing clinical trials. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Because of the uncertainty in securing additional capital, we have concluded that substantial doubt exists with respect to our ability to continue as a going concern within one year after the date of the filing of this Quarterly Report on
Form 10-Q.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
 
    
Quarter Ended March 31
    
Increase

(Decrease)
 
    
2022
    
2021
 
    
( in thousands)
 
Net cash used in operating activities
   $ (10,670)      $ (14,307)      $ (3,637)  
Net cash provided by (used in) investing activities
     (527)        10,261        (10,788)  
Net cash provided by financing activities
     —          118        (118)  
  
 
 
    
 
 
    
 
 
 
Net decrease in cash, cash equivalents and restricted cash
   $  (11,197)      $ (3,928)      $ 7,269  
  
 
 
    
 
 
    
 
 
 
 
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Operating Activities
During Q1 2022, net cash used in operating activities was $10.7 million, resulting from our net loss of $15.9 million, offset by
non-cash
charges of $1.6 million, a reduction in prepaid assets of $1.0 million due to the amortization of prepaid directors and officers insurance costs and an increase in accounts payables and accrued expenses of $2.6 million.
During Q1 2021, net cash used in operating activities was $14.3 million, resulting from our net loss of $14.1 million, an increase in prepaid assets of $1.0 million due to upfront payments associated with clinical trial initiations and reductions in accounts payables and accrued expenses of $0.6 million, which were partially offset by
non-cash
charges of $1.4 million.
Investing Activities
Net cash used in investing activities of $0.5 million in Q1 2022 and provided by investing activities of $10.3 million in Q1 2021 reflect net purchases and maturities of
available-for-sale
investments.
Financing Activities
There were no cash flows from financing activities in Q1 2022.
Net cash provided by financing activities in Q1 2021 was $0.1 million and consisted of proceeds from the exercise of stock options.
Funding Requirements
If the Merger does not occur, we expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for vidutolimod and any other product candidates that we may develop or acquire in the future. The timing and amount of our operating expenditures will depend largely on:
 
   
our ability to complete the Merger and the timing thereof;
 
   
the extent to which we experience delays or interruptions to preclinical studies and clinical trials, to our third-party service providers on whom we rely, or to our supply chain due to the ongoing
COVID-19
pandemic or otherwise;
 
   
the initiation, progress, timing, costs and results of current and future preclinical studies and clinical trials for vidutolimod and any other product candidates we may develop or acquire in the future;
 
   
the cost and timing of the manufacture of additional clinical trial materials and the completion of commercial-scale outsourced manufacturing activities;
 
   
the costs and timing to seek and obtain regulatory approvals for any product candidates that successfully complete clinical trials;
 
   
the need to hire additional clinical, quality assurance, quality control and other scientific personnel;
 
   
the number and characteristics of product candidates that we develop or may
in-license;
 
   
the outcome, timing and cost of meeting and maintaining compliance with regulatory requirements established by the U.S. Food and Drug Administration (the “FDA”), the European Medical Agency (the “EMA”) and other comparable foreign regulatory authorities;
 
   
the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
 
   
the terms of any collaboration agreements we may choose to enter into;
 
   
the cost associated with the expansion of our operational, financial and management systems and increased personnel, including personnel to support our operations as a public company; and
 
   
the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products, if approved, on our own.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through
 
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the sale of equity or convertible debt securities, ownership interests may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in fixed payment obligations. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual obligations and other commitments
We enter into contracts in the normal course of business with CROs, CMOs and other third parties for clinical trials, preclinical research studies and testing and manufacturing services. These contracts are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. The amount and timing of such payments are not known.
We have also entered into license and collaboration agreements with third parties, which are in the normal course of business. We have not included future payments under these agreements since obligations under these agreements are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones, or royalties on net product sales.
Pursuant to the Kuros License Agreement, we are required to make payments to Kuros for each product that achieves certain development and regulatory milestones. We may be obligated to make up to $56.0 million in milestone payments to Kuros related to vidutolimod. We are also required to pay royalties on sales of future products, if any. Through March 31, 2022, the Company has incurred license fees and milestone payments totaling $8.3 million, including $6.0 million in 2021. Cost incurred in 2021 relate to: (i) a $2.0 million milestone payment in connection with the dosing of the first patient in the Phase 2/3 first-line melanoma trial for vidutolimod, which was recognized in the condensed consolidated statement of operations for the three months ended March 31, 2021 and (ii) a $4.0 million milestone payment in connection with the dosing of a first patient in a Phase 2 trial of vidutolimod in combination with nivolumab for the treatment of patients with
anti-PD-1
refractory melanoma and to potentially support a Biologics License Application (“BLA”) and marketing approval of vidutolimod, which was entirely recognized in the condensed consolidated statements of operations for the three months ended June 30, 2021. Future milestone payments will be due upon filing for regulatory approval in each of the United States, Europe and the Far East and for ultimate approval in each of those regions.
We do not currently have any long-term leases. We rent our office space in Cambridge, Massachusetts based on a
month-to-month
license agreement with the landlord.
The Merger Agreement provides that we will be required to pay Parent a termination fee in the amount of $8.8 million if, among other reasons: (i) we elect to terminate the Merger Agreement in accordance therewith; (ii) we fail to include a favorable recommendation of the Board in the Schedule
14D-9
or in the preliminary proxy statement filed with the SEC related to the stockholder meeting approving and adopting the Merger Agreement; or (iii) the Merger Agreement is terminated by either us or Parent resulting from the failure of the parties to consummate the closing of the Merger in the timetable specified in the Merger Agreement.
Assuming successful completion of the Merger, we will incur approximately $10.0 million of closing costs to third-party advisors in accordance with contractual obligations tied to the successful closing of the transaction.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our unaudited condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates on historical experience, known trends and
 
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events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies and Use of Estimates” in our 2021 Annual Report on Form
10-K.
There have been no changes to the critical accounting policies during the quarter ended March 31, 2022.
Recent accounting pronouncements
A description of recently issued and recently adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form
10-Q.
Emerging Growth Company and Smaller Reporting Company Status
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to not “opt out” of this provision and, as a result, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited consolidated financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2012, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We would cease to be an emerging growth company upon the earliest of: (1) the last day of the fiscal year ending after the fifth anniversary of our initial public offering; (2) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (3) the last day of the fiscal year in which we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by
non-affiliates
as of the prior June 30th; or (4) the issuance, in any three-year period, by our company of more than $1.0 billion in
non-convertible
debt securities held by
non-affiliates.
We are also a “smaller reporting company” and we may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that (i) the market value of our stock held by
non-affiliates
is more than $250 million or (ii) our annual revenue was more than $100 million during the most recently completed fiscal year and the market value of our stock held by
non-affiliates
is more than $700 million measured on the last business day of our second fiscal quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited consolidated financial statements in our Annual Report on Form
10-K
and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate risk
We are exposed to market risk related to changes in interest rates. Our current investment policy is to maintain an investment portfolio consisting mainly of United States money market, government-secured, and high-grade corporate securities, directly or through managed funds, with maturities of twenty-four months or less. Our cash is deposited in and invested through highly rated financial institutions in North America. Our investments are subject to interest rate risk and will fall in value if market interest rates increase. However, due to the conservative nature of our investments, low prevailing market rates and relatively short effective maturities of debt instruments, interest rate risk is mitigated. If market interest rates were to increase immediately and uniformly by 10% from levels at March 31, 2022, we estimate that the fair value of our investment portfolio would decline by an immaterial amount. We do not own derivative financial instruments in our investment portfolio.
 
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Foreign currency exchange risk
Our primary exposure to market risk is foreign exchange rate sensitivity to the British Pound. Foreign currency losses were neglectable in each of the quarters ended March 31, 2022 and 2021. These foreign currency transaction losses were recorded as a component of general and administrative expense in our condensed consolidated statements of operations. At March 31, 2022, an immediate 5% change in the British Pound exchange rate would not have a material effect on our results of operations.
As we continue to grow our business, our results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates, which could adversely impact our results of operations. To date, we have not entered into any foreign currency hedging contracts to mitigate our exposure to foreign currency exchange risk.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Systems of disclosure controls and internal controls over financial reporting and their associated policies and procedures, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the system of control are achieved. Further, the design of a control system must be balanced against resource constraints, and therefore the benefits of controls must be considered relative to their costs. Given the inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of internal control, financial statement misstatements due to error or fraud may occur and may not be detected. Our disclosure controls and procedures are designed to provide a reasonable assurance of achieving their objectives. We conduct periodic evaluations of our systems of controls to enhance, where necessary, our control policies and procedures.
PART II. – OTHER INFORMATION
Item 1. Legal Proceedings
From
time-to-time,
we may become involved in legal proceedings arising in the ordinary course of our business. As of the date of this Quarterly Report on Form
10-Q,
we were not a party to any material legal matters or claims. In the future, we may become party to legal matters and claims in the ordinary course of business, the resolution of which we do not anticipate would have a material adverse impact on our financial position, results of operations or cash flows.
 
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Item 1A. Risk Factors
In evaluating the Company and our business, careful consideration should be given to the following risk factors, in addition to the other information set forth in this Quarterly Report on
Form 10-Q
and in other documents that we file with the SEC. Investing in our common stock involves a high degree of risk. If any of the following risks and uncertainties actually occurs, our business, prospects, financial condition or results of operations could be materially and adversely affected. The risks described below are not intended to be exhaustive and are not the only risks facing the Company. New risk factors can emerge from time to time, and it is not possible to predict the impact that any factor or combination of factors may have on our business, prospects, financial condition or results of operations. Other than the risks under “Risks related to the pending transaction with Regeneron Pharmaceuticals”, the risk factors below generally assume we continue to operate as an independent company.
Risks related to the pending transaction with Regeneron Pharmaceuticals, Inc.
The completion of the Merger is subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Merger could have material adverse effects on our business.
On April 18, 2022, we entered into the Merger Agreement with Parent and Purchaser and expect the Merger to close in
mid-2022.
The completion of the Offer and the Merger is subject to a number of conditions, which make the completion and timing of the Merger uncertain. There can be no assurance that the conditions to the completion of the Offer or the Merger will be satisfied or waived, that the Offer and the Merger will be completed, or that the Offer and the Merger will be consummated as contemplated by the Merger Agreement.
If the Merger is not consummated within the expected time frame or at all, we may be materially adversely affected as a company, including that the price of our common stock may decline to the extent that current market prices reflect a market assumption that the Merger will be completed and that we will have incurred significant costs in connection with the Merger, without having realized the benefits of the Merger.
The Merger will involve substantial costs to us and will require substantial management resources.
In connection with the consummation of the Merger, management and financial resources have been diverted and will continue to be diverted towards the completion of the Merger. We expect to incur substantial costs and expenses relating to, as well as the direction of management resources towards, both the Offer and the Merger. Such costs, fees and expenses include fees and expenses payable to financial advisors, other professional fees and expenses, fees and costs relating to regulatory and SEC filings and notices and other transaction-related costs, fees and expenses. Further, if the Merger Agreement is terminated under specified circumstances, we will be required to pay Parent a termination fee in the amount of $8.8 million. If the Merger is not completed, we will have incurred substantial expenses and expended substantial management resources for which we will have received little or no benefit if the closing of the Merger does not occur.
The pendency of the Merger could adversely affect our business, financial results or operations.
The pendency of the Merger could cause disruptions and create uncertainty surrounding our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the transaction is consummated, and could cause suppliers, collaborators and other counterparties to change existing business relationships. Changes to existing business relationships, including termination or modification, could negatively affect our revenues, earnings and cash flow, as well as the market price of our common stock.
We are also subject to restrictions on the conduct of our business prior to the consummation of the Offer and the Merger as provided in the Merger Agreement, including, among other things: restrictions on our ability to acquire other businesses and assets; sell, transfer or license our assets; make investments; repurchase or issue securities; pay dividends; make capital expenditures; amend our organizational documents; hire, promote, or terminate certain employees; and incur indebtedness. These restrictions could prevent or delay the pursuit of strategic corporate or business opportunities, result in our inability to respond effectively to competitive pressures, industry developments, developments relating to our suppliers, and future opportunities, and may as a result or otherwise have a significant negative impact on our business, results of operations and financial condition.
 
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Any legal proceedings or governmental inquiries in connection with the Merger, the outcomes of which are uncertain, could delay or prevent the completion of the Merger.
In connection with the Merger, plaintiffs may file lawsuits against us, Parent, Purchaser and/or the directors and officers of each company. In addition, we may face inquiries from governmental entities in connection with the Merger. The outcome of such litigation or governmental inquiry is uncertain. Such legal proceedings or governmental inquiries could also prevent or delay the completion of the Merger and result in additional costs and expenses to us.
Risks related to our financial position and need for additional capital
We are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred net losses since our inception and anticipate that we will continue to incur substantial and increasing net losses in the foreseeable future. We may never achieve or sustain profitability.
We are a clinical-stage biopharmaceutical company with a limited operating history, and we are relatively early in our development efforts. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain marketing approval and become commercially viable. We have financed our operations to date primarily through the sale of equity securities. Since our inception, most of our resources have been dedicated to the preclinical and clinical development of our vidutolimod program and our VLP technology. To date, no drugs based on our VLP technology have been approved. The size of our future net losses will depend, in part, on our future expenses and our ability to generate revenue, if any.
We are not profitable, have never generated any revenue and have incurred losses in each period since our inception. For the years ended December 31, 2020 and 2021, we reported net losses of $36.9 million and $61.4 million, respectively, and a net loss of $15.9 million for the three months ended March 31, 2022. At March 31, 2022, we had an accumulated deficit of $217.3 million. We anticipate operating losses to continue for the foreseeable future due to, among other things, costs related to conducting clinical trials and third-party contract manufacturing, and our administrative organization. If the Merger does not occur, we will require substantial additional financing to fund our operations and to continue to continue our ongoing clinical trials and execute our strategy, and we may pursue a range of options to secure additional capital. Given our cash position and our need to raise substantial additional financing, there is substantial doubt about our ability to continue as a going concern within one year after the date of filing this Quarterly Report on
Form 10-Q.
We are exploring various sources of funding including the issuance of additional equity to fund our operations, and we may pursue other sources of funding, such as debt financings, licensing arrangements and strategic collaborations. To the extent that we raise additional capital through the sale of equity, the ownership interest of our existing shareholders will be diluted and other preferences may be necessary that adversely affect the rights of existing shareholders. If we raise additional funds through strategic collaborations, which may include existing collaboration partners, we may have to relinquish valuable rights to our technologies or product candidates, or, grant licenses or other rights on terms that are not favorable to us. Because our current operating plan does not contain sufficient resources, we will require significant additional external sources of capital to complete the planned clinical program for vidutolimod. If we are unable to raise sufficient capital, we intend to curtail expenses contemplated by the current operating plan, and we may be required to delay, limit, reduce or terminate our product development efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. If the foregoing plans are unsuccessful and we are unable to continue as a going concern, you could lose all or part of your investment in the company.
Even if we succeed in receiving marketing approval for and commercializing vidutolimod or any other product candidate, we will continue to incur substantial research and development and other expenditures to develop and market additional potential indications or products. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
 
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We have never generated any revenue from product sales, and our ability to generate revenue from product sales and become profitable will depend significantly on our success in achieving a number of goals and on other factors.
We have no products approved for commercial sale, have not generated any revenue from product sales, and do not anticipate generating any revenue from product sales until after we have received marketing approval for the commercial sale of a product candidate, if ever. Our ability to generate revenue and achieve profitability depends significantly on our ability to raise sufficient additional funds and our success in achieving a number of goals in a timely manner, including:
 
   
initiating and completing preclinical and clinical development of vidutolimod and future product candidates, including completing enrollment in and obtaining results from our current Phase 2 trial for
anti-PD-1
refractory melanoma, our current randomized Phase 2/3 trial for first-line melanoma, our current Phase 2 proof of concept trial in advanced head and neck squamous cell carcinoma and our currently anticipated Phase 2 proof of concept, multi-indication trial in CSCC and MCC;
 
   
obtaining regulatory and marketing approvals for vidutolimod and future product candidates for which we complete clinical trials;
 
   
achieving and maintaining compliance with all regulatory requirements applicable to vidutolimod or any other product candidates;
 
   
establishing and maintaining commercially viable supply and manufacturing relationships with third parties for vidutolimod and future product candidates;
 
   
launching and commercializing vidutolimod, if approved, and future product candidates for which we obtain marketing approvals, either directly or with a collaborator or distributor;
 
   
obtaining market acceptance of vidutolimod, if approved, and future product candidates as viable treatment options by patients, the medical community and third-party payors;
 
   
addressing any competing technological and market developments;
 
   
identifying, assessing, acquiring and developing new product candidates;
 
   
negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;
 
   
obtaining, maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and
know-how;
and
 
   
attracting, hiring, and retaining qualified personnel.
Even if vidutolimod or any future product candidates that we develop are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any such product candidate. Our expenses could increase beyond expectations if we are required by the FDA or comparable foreign regulatory authorities to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate.
If we are successful in obtaining regulatory approvals to market vidutolimod or any future product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain marketing approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, the labels for vidutolimod and future product candidates contain significant safety warnings, regulatory authorities impose burdensome or restrictive distribution requirements, or the reasonably accepted patient population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. If we are not able to generate revenue from the sale of any approved products, we could be prevented from or significantly delayed in achieving profitability.
 
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There is substantial doubt regarding our ability to continue as a going concern. If the Merger does not occur, we will need to raise significant additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit, reduce or terminate our product development efforts, including ongoing clinical trials, research, or other operations.
As of March 31, 2022 our cash, cash equivalents and marketable securities were $60.1 million. Based on our current business plan, there is substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that our consolidated financial statements for the three months ended March 31, 2022 are issued and we need to raise significant amounts of additional funding to complete all of our ongoing trials and execute on our business plan. Financing may not be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. In addition, our efforts to raise additional capital may divert our management from their
day-to-day
activities, which may adversely affect our ability to develop vidutolimod in a timely manner.
Based on our public float, as of the date of the filing of this Quarterly Report on Form
10-Q,
we are only permitted to utilize a “shelf” registration statement, including the registration statement under which our Open Market Sale Agreement
SM
with Jefferies LLC, is operated, subject to Instruction I.B.6 to Form
S-3,
which is referred to as the “baby shelf” rule. For so long as our public float is less than $75 million, we may not sell more than the equivalent of
one-third
of our public float during any 12 consecutive months pursuant to the baby shelf rules. Although alternative public and private transaction structures may be available, these may require additional time and cost, may impose operational restrictions on us, and may not be available on attractive terms.
If we are unable to obtain adequate funding on a timely basis, we may be required to revise our business plan and strategy, which may result in us significantly curtailing, delaying or discontinuing one or more of our clinical trials and our research efforts, or may result in our being unable to expand our operations or otherwise capitalize on our business opportunities. As a result, our business, financial condition and results of operations could be materially affected.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, research or commercialization efforts.
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the clinical and preclinical development of vidutolimod and future product We will need to obtain substantial additional funds to complete our ongoing clinical trials and achieve our other business objectives. If we are able to gain marketing approval of any product candidate, we will require significant additional amounts of cash in order to launch and commercialize such product. In addition, other unanticipated costs may arise.
Our future capital requirements depend on many factors, including:
 
   
the scope, progress, results, timing and costs of researching and developing vidutolimod and our VLP technology and future product candidates, and conducting preclinical studies and clinical trials, including our current Phase 2 trial for
anti-PD-1
refractory melanoma, our current randomized Phase 2/3 trial for first-line melanoma, our current Phase 2 proof of concept trial in advanced head and neck squamous cell carcinoma and our current Phase 2 proof of concept, multi-indication trial in CSCC and MCC, including any unforeseen costs we may incur as a result of trial delays we have experienced or other impacts due to the ongoing global pandemic associated with
COVID-19
(the
“COVID-19
pandemic”) or otherwise;;
 
   
the timing of, and the costs involved in, obtaining regulatory and marketing approvals for vidutolimod and future product candidates if clinical trials are successful;
 
   
the success of existing or any future collaborations, including the BMS CTCSA and the Regeneron SNLA;
 
   
the cost of commercialization activities for any approved product, including marketing, sales and distribution costs;
 
   
the cost of manufacturing vidutolimod and future product candidates for clinical trials;
 
   
our ability to establish and maintain strategic licensing or other arrangements and the financial terms of such agreements, including the Kuros License Agreement
 
   
the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
 
   
the timing, receipt, and amount of sales of, or royalties on, our future products, if any; and
 
   
the emergence, and regulatory approval, of competing cancer therapies and other adverse market developments.
 
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We do not have any committed external source of funds or other support for our development efforts. Until we can generate sufficient product revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. We can provide no assurance that we will be able to finance our future cash needs on favorable terms, if at all.
We believe that our existing cash, cash equivalents and
available-for-sale
investments of $60.1 million as of March 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements through the end of 2022. Because our current operating plan does not contain sufficient resources, we will require additional external sources of capital to complete the planned clinical programs for vidutolimod. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Because of the uncertainty in securing additional capital, we have concluded that substantial doubt exists with respect to our ability to continue as a going concern within one year after the date of the filing of this Quarterly Report on
Form 10-Q.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or vidutolimod and future product candidates.
Until such time, if ever, as we can generate substantial drug revenues, we may finance our cash needs through a combination of private and public equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that materially adversely affect your rights as a common stockholder. Debt financing, if available, would increase our fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
We have filed a shelf registration statement on Form
S-3
with the SEC (the “Shelf Registration Statement”), pursuant to which we may offer and sell, from time to time, shares of our common stock, preferred stock, debt securities, warrants or units in an aggregate amount of up to $150 million. In connection with filing the Shelf Registration Statement, we entered into an Open Market Sale Agreement
SM
(the “2021 Sales Agreement”), with Jefferies LLC (“Jefferies”), pursuant to which we may offer and sell, from time to time, shares of our common stock having an aggregate offering of up to $50.0 million through an “at the market” equity offering program under which Jefferies will act as our sales agent. Future sales of securities under the Shelf Registration Statement, including under the 2021 Sales Agreement, could result in dilution of our stockholders and could have a negative impact on our stock price.
If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or vidutolimod and future product candidates or to grant licenses on terms that may not be favorable to us. Market volatility, the size of our public float, and competitive dynamics could also adversely impact our ability to access capital as and when needed and the terms thereof, if we can raise capital at all. If we are unable to raise adequate additional funds when needed, we may be required to delay, limit, reduce or terminate our drug development, research, or future commercialization efforts or grant rights to develop and market vidutolimod and future product candidates that we would otherwise prefer to develop and market ourselves.
Risks related to our business and industry
We are heavily dependent on the success of vidutolimod, our only product candidate.
We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We expect that a substantial portion of our efforts and expenditures over the next several years will be devoted to our vidutolimod program, which is currently our only product candidate. Accordingly, our business currently depends heavily on the successful development, regulatory approval, and commercialization of vidutolimod. We can provide no assurance that vidutolimod will receive
 
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regulatory approval or be successfully commercialized even if we receive regulatory approval. If we were required to discontinue development of vidutolimod or if vidutolimod does not receive regulatory approval or fails to achieve significant market acceptance, we would be delayed by many years in our ability to achieve profitability, if ever.
The research, testing, manufacturing, safety, efficacy, recordkeeping, labeling, approval, licensure, sale, marketing, advertising, promotion and distribution of vidutolimod is, and will remain, subject to comprehensive regulation by the FDA and foreign regulatory authorities. Failure to obtain regulatory approval for vidutolimod in the United States, Europe, Japan, China and other major markets around the world will prevent us from commercializing and marketing vidutolimod in such jurisdictions.
Even if we were to successfully obtain approval from the FDA and foreign regulatory authorities for vidutolimod, any approval might contain significant limitations related to use, including limitations on the stage or type of cancer vidutolimod is approved to treat, as well as restrictions for specified age groups, warnings, precautions or contraindications, or requirement for a risk evaluation and mitigation strategy (“REMS”). Any such limitations or restrictions could similarly impact any supplemental marketing approvals we may obtain for vidutolimod. Furthermore, even if we obtain regulatory approval for vidutolimod, we will still need to develop a commercial infrastructure or develop relationships with collaborators to commercialize, establish a commercially viable pricing structure and obtain coverage and adequate reimbursement from third-party payors, including government healthcare programs. If we, or any future collaborators, are unable to successfully commercialize vidutolimod, we may not be able to generate sufficient revenue to continue our business.
If we fail to develop additional product candidates, our commercial opportunity could be limited.
We expect to focus the vast majority our resources on the development of vidutolimod in the near term. Part of our strategy, however, is to pursue clinical development of additional product candidates using our VLP technology. Developing, obtaining marketing approval for, and commercializing any future product candidates will require substantial additional funding and will be subject to the risks of failure inherent in drug product development. We cannot assure you that we will be able to successfully advance any future product candidates through the development process.
Even if we obtain approval from the FDA or comparable foreign regulatory authorities to market any future product candidates for any indication, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace, or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize additional product candidates, our commercial opportunity may be limited and our business, financial condition, results of operations, stock price and prospects may be materially harmed.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Due to our limited financial and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future discovery and preclinical development programs and product candidates for specific indications may not yield any commercially viable products.
We will not be able to commercialize vidutolimod and future product candidates if our preclinical studies do not produce successful results and our clinical trials do not demonstrate the safety and efficacy of vidutolimod and future product candidates.
Vidutolimod and future product candidates that we may develop will require extensive preclinical and clinical trials before we can submit a marketing application to the applicable regulatory authorities. These product candidates are susceptible to the risks of failure inherent at any stage of product development, including the occurrence of unexpected or unacceptable adverse events or the failure to demonstrate efficacy in clinical trials. Clinical development is expensive and can take many years to complete, and its outcome is inherently uncertain.
The results of preclinical studies, preliminary study results, and early clinical trials of vidutolimod and future product candidates may not be predictive of the results of later-stage clinical trials or of the results of clinical trials conducted in other types of cancer or
non-cancer
indications. Even if early-stage clinical trials are successful, we may need to conduct additional clinical trials of our product candidates in additional patient populations or under different treatment conditions before we are able to seek regulatory approvals from the FDA or other regulatory authorities. Vidutolimod and future product candidates may not perform as we expect, and we may
 
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be unable to demonstrate to the FDA’s satisfaction that vidutolimod or any future product candidates are safe, pure, and potent, or effective for their desired indications. Moreover, while we plan to pursue a first-line therapy approval for vidutolimod, the FDA has discretion to approve our candidate for a second- or later-line indication than we seek. In addition, any negative outcomes or results for one indication or combination could delay or prevent our ability to advance development of the same candidate in a different indication or combination. Any negative outcomes or results for other TLR9 agents could potentially affect the vidutolimod development program in one or more indications or combinations. These setbacks may result in enhanced scrutiny by regulators or institutional review boards (“IRBs”) of clinical trials of product candidates, including vidutolimod, which could result in regulators or IRBs prohibiting the commencement of clinical trials, requiring additional nonclinical studies as a precondition to commencing clinical trials or imposing restrictions on the design or scope of clinical trials, as well as increasing the costs of trials or limiting the significance of the results of trials. Such setbacks could also adversely impact the desire of investigators to enroll patients in, and the desire of patients to enroll in, clinical trials of our product candidates.
Additionally, our ongoing trials are open-label studies, including our current Phase 1b, Phase 2 and Phase 2/3 trials, where both the patient and investigator know whether the patient is receiving the investigational product candidate or an existing approved drug, introducing bias in early interpretation of the results. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. The results from an open-label trial may not be predictive of future clinical trial results with any of our product candidates for which we include an open-label clinical trial when studied in a controlled environment with a placebo or active control.
We may also experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize vidutolimod and future product candidates, including that:
 
   
we may fail to reach an agreement with regulators or IRBs regarding the scope, design, or implementation of our clinical trials;
 
   
the FDA, comparable foreign regulators or IRBs may not authorize us or our investigators to commence a clinical trial, to conduct a clinical trial at a prospective trial site or to amend trial protocols, or such regulators or IRBs may require that we modify or amend our clinical trial protocols in ways that make further clinical trials impractical or not financially prudent;
 
   
we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites or contract research organizations (“CROs”);
 
   
we may be unable to initiate or complete preclinical studies or we may experience additional enrollment delays that could prevent us from completing our clinical trials on time or at all due to the evolving impacts of the ongoing
COVID-19
pandemic, and the spread of
COVID-19
may affect the operations of research sites, CROs, IRBs, or key governmental agencies, such as the FDA, which may delay the development of vidutolimod or any future product candidates;
 
   
the supply or quality of raw materials or manufactured product candidates (whether provided by us or third parties) or other materials necessary to conduct clinical trials of our product candidates may be insufficient, inadequate or not available at an acceptable cost, or in a timely manner, or we may experience interruptions in supply;
 
   
the number of patients required for clinical trials of vidutolimod and future product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or be lost to
follow-up
at a higher rate than we anticipate;
 
   
patients that enroll in our studies may misrepresent their eligibility or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the study or clinical trial, increase the needed enrollment size for the clinical trial or extend its duration;
 
   
clinical trial participants may elect to participate in alternative clinical trials sponsored by our competitors with product candidates that treat the same indications as vidutolimod and future product candidates;
 
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our third-party contractors may fail to comply with regulatory requirements or the clinical trial protocol, or meet their contractual obligations to us in a timely manner, or at all, and we may be required to engage in additional clinical trial site monitoring to review our contractors’ performance;
 
   
we, regulators, or IRBs may require that we or our investigators suspend or terminate clinical trials for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable side effects, or other unexpected characteristics of the product candidate, or if such undesirable effects are found to be caused by a chemically or mechanistically similar therapeutic or therapeutic candidate;
 
   
clinical trials of vidutolimod and future product candidates may produce negative or inconclusive results, or our studies may fail to reach the necessary level of statistical significance, and we may decide, or regulators may require us, to conduct additional clinical trials, analyses, reports, data, or preclinical trials or abandon product development programs;
 
   
regulators may revise the requirements for approving our product candidates, or such requirements may not be as we expect or statutes, regulations clinical trial or site policies could be amended or new ones could be adopted;
 
   
the cost of clinical trials of vidutolimod and future product candidates may be greater than we anticipate or we may have insufficient funds or resources to pursue or complete certain aspects of our clinical trial program or to do so within the timeframes we planned;
 
   
we may have insufficient funds to pay the substantial user fees required by the FDA upon the submission of a BLA or equivalent authorizations from comparable foreign regulatory authorities;
 
   
we may have delays in adding new investigators or clinical trial sites, or we may experience a withdrawal of clinical trial sites;
 
   
there may be regulatory questions or disagreements regarding interpretations of data and results, or new information may emerge regarding vidutolimod and future product candidates;
 
   
the FDA or comparable foreign regulatory authorities may not accept data from studies with clinical trial sites in foreign countries;
 
   
the FDA or comparable foreign regulatory authorities may disagree with our proposed indications, fail to approve or subsequently find fault with the manufacturing processes or our manufacturing facilities for clinical and future commercial supplies, and may take longer than we anticipate to review any regulatory submissions we may make for vidutolimod or any future product candidates;
 
   
the data collected from clinical trials of vidutolimod and future product candidates may not be sufficient for or to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
 
   
we may not be able to demonstrate that a product candidate provides an advantage over current standards of care or current or future competitive therapies in development; and
 
   
regarding trials managed by our existing or any future collaborators, our collaborators may face any of the above issues, and may conduct clinical trials in ways they view as advantageous to them but potentially suboptimal for us.
In addition, ongoing disruptions caused by the
COVID-19
pandemic or future pandemics may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials. For example, our clinical trials that commenced in 2020 have been and continue to be adversely affected by the
COVID-19
pandemic, resulting in site initiation and patient enrollment delays. As a result, in December 2021 we revised our expectations with respect to the anticipated timing of clinical data milestones in our Phase 2 clinical trial
in anti-PD-1 refractory
melanoma patients, our Phase 2/3 trial in first-line melanoma and our Phase 2 clinical trial in head and neck cancer. We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a Data Safety Monitoring Board for such trial or by the FDA or comparable foreign regulatory authorities. A suspension or termination of a trial may be imposed 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 comparable foreign regulatory authorities
 
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resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to comply with these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial.
Further, conducting clinical trials in foreign countries, as we may do for vidutolimod or any future product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocols as a result of differences in healthcare services or cultural customs, and managing both additional administrative burdens associated with foreign regulatory schemes, and the political and economic risks relevant to such foreign countries.
Moreover, principal investigators for our clinical trials serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates. If we experience delays in testing or approvals, our development costs will also increase, and we may not have sufficient funding to complete the testing and approval process for vidutolimod and future product candidates. We will y be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of vidutolimod and future product candidates. See “Risks related to our financial position and need for additional capital.” We do not know whether any preclinical tests or clinical trials beyond what we currently have anticipated or planned will be required, will begin as anticipated or planned, will need to be restructured, or will be completed on schedule, or at all. Significant delays relating to any preclinical studies or clinical trials also could shorten any periods during which we may have the exclusive right to commercialize vidutolimod and future product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize vidutolimod and future product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, delays in clinical trials may ultimately lead to the denial of marketing approval of vidutolimod and future product candidates. If any of these occur, our business, financial condition, results of operations, stock price and prospects may be materially harmed.
Vidutolimod is based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development.
While immuno-oncology therapeutics are an emerging class of cancer treatment, they remain a novel approach. We have concentrated all of our research and development efforts on vidutolimod, and our future success depends on the successful development of this therapeutic approach. Should we encounter development problems, the FDA and foreign regulatory authorities may refuse to approve vidutolimod, or may require additional information, tests, or trials, which could significantly delay product development and significantly increase our development costs. Moreover, even if we are able to provide the requested information or clinical data to the FDA or foreign regulatory authority, there would be no guarantee that the FDA or foreign regulatory authority would accept them or approve vidutolimod. We or our CMOs may also experience delays in developing a sustainable, reproducible and scalable manufacturing process, or developing or qualifying and validating product release assays, other testing and manufacturing methods, and our or their equipment and facilities in a timely manner, which may prevent us from completing our clinical trials or commercializing vidutolimod or future product candidates on a timely or profitable basis, if at all.
In addition, the clinical trial requirements of the FDA and comparable foreign regulatory authorities 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 FDA and comparable foreign regulatory authorities have limited experience with the approval of oncolytic immunotherapies, which could lengthen the regulatory review process. Any product candidates that are approved may be subject to extensive post-approval regulatory requirements, including requirements pertaining to manufacturing, distribution, and promotion. We may need to devote significant time and resources to compliance with these requirements which could increase our development costs and delay or prevent commercialization of vidutolimod or any future product candidates.
Further, negative clinical trial results for other immuno-oncology therapeutics may adversely impact product development and medical interest in vidutolimod, which may prevent us from completing our clinical trials, obtaining regulatory approval or commercializing vidutolimod on a timely or profitable basis, if at all.
 
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Difficulty in enrolling patients has caused delays to our ongoing clinical trials of vidutolimod and could further delay ongoing trials or prevent or delay other clinical trials of vidutolimod and future product candidates. We have had difficulty enrolling patients due primarily to the
COVID-19
pandemic, and may continue to find it difficult to enroll patients in our clinical trials or any subsequent trials that we may conduct.
Identifying and qualifying patients to participate in clinical studies of vidutolimod and future product candidates is critical to our success. The timing of completion of our clinical studies depends in part on the speed at which we can recruit patients to participate in testing vidutolimod and future product candidates, and we have experienced and may continue to experience delays in our clinical trials if we encounter difficulties in enrollment or due to other unforeseen factors such as the impact of the ongoing
COVID-19
pandemic. For example, our clinical trials that commenced in 2020 have been adversely affected by the
COVID-19
pandemic, resulting in patient enrollment delays. As a result, in December 2021, we revised our expectations with respect to the anticipated timing of clinical data milestones in our Phase 2 clinical trial
in anti-PD-1 refractory
melanoma patients, our Phase 2/3 trial in first-line melanoma and our Phase 2 clinical trial in head and neck cancer. Patient enrollment delays may continue, including as a result of the continuing emergence and identification of new
COVID-19
variants, and as a result, there can be no assurance that we will be able to report trial results even on our revised anticipated timelines and it is possible such anticipated timelines may have to be adjusted further. Further, we may not be able to initiate or continue clinical trials for vidutolimod and future product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. For example, with respect to vidutolimod, we cannot be certain of the status of other competitive products in development, whether trial designs and sites for other similar products are more accessible for eligible patients or that we will be able to find enough qualified investigators and sites willing to participate in our trials. In addition, some of our competitors or potential competitors have ongoing clinical trials for product candidates that treat the same indications as vidutolimod, including product candidates that are administered by intravenous injection rather than intertumoral injection or are otherwise more convenient for patients, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.
The eligibility criteria of our planned clinical trials will further limit the pool of available study participants, as we will require that patients have specific characteristics that we can measure to assure their cancer is at the appropriate level to include them in a study. Additionally, the process of finding patients for our planned clinical trials may prove costly. We also may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical studies because of the perceived risks or lack of benefits of the product candidate under study, challenges with the method of administration of the product candidate, the availability and efficacy of competing therapies and clinical trials, the proximity and availability of clinical study sites for prospective patients, the patient referral practices of physicians or as a result of disruptions caused by the ongoing
COVID-19
pandemic. If patients are unwilling to participate in our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which may further reduce the number of patients who are available for our clinical trials at such clinical trial sites.
The enrollment of patients further depends on many factors, including:
 
   
the design of the clinical trial;
 
   
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
 
   
our ability to administer vidutolimod according to the protocol dose, schedule and route of administration;
 
   
our ability to obtain and maintain patient consents;
 
   
reporting of the preliminary results of any of our clinical trials;
 
   
the ability to monitor patients adequately during and after treatment; and
 
   
the risk that patients enrolled in clinical trials will drop out of the clinical trials before clinical trial completion.
If we experience additional delays in the completion of, or termination of, any clinical trial of vidutolimod or any future product candidates, the commercial prospects of vidutolimod or such future product candidates will be harmed, and our ability to generate product revenue from such product candidates could be delayed or prevented.
 
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Interim,
“top-line,”
and preliminary data from our clinical trials that we may announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose interim,
top-line
or preliminary data from our preclinical studies and clinical trials, based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data when we publicly disclose such data. As a result, any interim,
top-line
or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. 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,
top-line
and preliminary data should be viewed with caution until the final data are available. In addition, preliminary or interim data from ongoing clinical trials 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 or as patients from our clinical trials continue other treatments for their disease. Adverse differences between any preliminary or interim data we disclose and final data could significantly harm our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is 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 interim,
top-line
or preliminary 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 significantly harm our business, financial condition, results of operations and prospects.
Vidutolimod is being, and future product candidates may be, evaluated in combination with third-party drugs, and we will have limited or no control over the supply, regulatory status, or regulatory approval of such drugs.
Vidutolimod is being, and future product candidates may be, evaluated in combination with checkpoint inhibitors (“CPIs”) or other compounds. In December 2020, we entered into a clinical collaboration with BMS to evaluate vidutolimod in combination with nivolumab and in May 2021, we entered into a supply agreement with Regeneron to evaluate vidutolimod concurrently or in combination with cemiplimab. Our ability to develop and ultimately commercialize vidutolimod and future product candidates used in combination with avelumab, nivolumab, cemiplimab, pembrolizumab, atezolizumab, ipilimumab or any other CPIs or other compounds will depend on our ability to access such drugs on commercially reasonable terms for the clinical trials and their availability for use with the commercialized product, if approved. We cannot be certain that current or potential future commercial relationships will provide us with a steady supply of such drugs on commercially reasonable terms or at all.
Any failure to maintain or enter into new successful commercial relationships, or inability to source or purchase CPIs or other potential combination agents in the market, may delay our development timelines, increase our costs and jeopardize our ability to develop vidutolimod and future product candidates as potential combination therapies, which may materially harm our business, financial condition, results of operations, stock price and prospects.
Moreover, the development of product candidates for use in combination with another product or product candidate may present challenges that are not encountered when developing single-agent product candidates. For example, the FDA may require us to use more complex clinical trial designs in order to evaluate the contribution of each product and product candidate to any observed effects. During an
end-of-Phase
1 meeting held in March 2020 to discuss the planned registration path for vidutolimod in melanoma, the FDA indicated that one
single-arm
Phase 2 trial may not be sufficient to support accelerated approval of a BLA for vidutolimod for the treatment of
anti-PD-1
failure patients with metastatic or unresectable melanoma in combination with pembrolizumab. The FDA also recommended that we conduct a randomized trial in the proposed patient population to evaluate the contribution of each component to the potential treatment effect of the combination. Additionally, following product approval, the FDA may require that products used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to the other product, this may require us to work with a third party under terms unfavorable to us to satisfy such a requirement. Moreover, developments related to
 
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the other product may impact our clinical trials for the combination as well as our commercial prospects should we receive marketing approval. Such developments may include changes to the other product’s safety or efficacy profile, changes to the availability of the approved product, and changes to the standard of care.
In the event that BMS, Regeneron or any future collaborator or supplier cannot continue to supply their products on commercially reasonable terms, we would need to identify alternatives for accessing such CPIs. Additionally, should the supply of products from BMS, Regeneron or any future collaborator or supplier be interrupted, delayed or otherwise be unavailable to us or our collaborators, our clinical collaborations may be delayed. In the event we are unable to source an alternative supply, or are unable to do so on commercially reasonable terms, our business, financial condition, results of operations, stock price and prospects may be materially harmed.
Changes in product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates are developed through preclinical studies to later-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize processes and results. Any of these changes could cause vidutolimod or any future product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. Such changes may also require additional testing, or notification to, or approval by, the FDA or a comparable foreign regulatory authority. This could delay completion of clinical trials, require the conduct of bridging clinical trials or studies, require the repetition of one or more clinical trials, increase clinical trial costs, delay approval of vidutolimod and future product candidates and jeopardize our ability to commence product sales and generate revenue.
If we are unable to successfully commercialize vidutolimod or any product candidate for which we receive regulatory approval, or experience significant delays in doing so, our business will be materially harmed.
If we are successful in obtaining marketing approval from applicable regulatory authorities for vidutolimod or any future product candidates, our ability to generate revenues from vidutolimod or any future product candidates will depend on our success in:
 
   
launching commercial sales of vidutolimod and future product candidates, whether alone or in collaboration with others;
 
   
receiving an approved label with claims that are necessary or desirable for successful marketing, and that does not contain safety or other limitations that would impede our ability to market vidutolimod or any future product candidates;
 
   
creating market demand for our product candidates through marketing, sales and promotion activities;
 
   
hiring, training, and deploying a sales force or contracting with third parties to commercialize vidutolimod or any future product candidates in the United States;
 
   
manufacturing, either on our own or through third parties, product candidates in sufficient quantities and at acceptable quality and cost to meet commercial demand at launch and thereafter;
 
   
establishing and maintaining agreements with wholesalers, distributors, and group purchasing organizations on commercially reasonable terms;
 
   
creating partnerships with, or offering licenses to, third parties to promote and sell product candidates in foreign markets where we receive marketing approval;
 
   
maintaining patent and trade secret protection and regulatory exclusivity for vidutolimod or any future product candidates;
 
   
achieving market acceptance of vidutolimod or any future product candidates by patients, the medical community, and third-party payors;
 
   
achieving appropriate reimbursement for vidutolimod or any future product candidates;
 
   
effectively competing with other therapies; and
 
   
maintaining an acceptable tolerability profile of vidutolimod or any future product candidates following launch.
 
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To the extent we are not able to do any of the foregoing, our business, financial condition, results of operations, stock price and prospects will be materially harmed.
We face significant competition from other biopharmaceutical and biotechnology companies, academic institutions, government agencies, and other research organizations, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, our commercial opportunity may be reduced or eliminated.
The development and commercialization of cancer immunotherapy products is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary rights. We face competition with respect to vidutolimod, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major biopharmaceutical companies, specialty biopharmaceutical companies, and biotechnology companies worldwide. There are a number of large biopharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of solid tumors, including oncolytic immunotherapy and cancer vaccine approaches. Additionally, certain companies whom we view as our most direct potential competitors are currently developing in cancer immunotherapy that may have utility for similar indications that we are targeting, as well as competing therapies utilizing
LAG-3
and other approaches. 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.
While vidutolimod is intended to be used in combination with other drugs with different mechanisms of action, if and when marketed it will still compete with a number of drugs that are currently marketed or in development that also target cancer. To compete effectively with these drugs, vidutolimod or any future product candidates will need to demonstrate advantages in clinical efficacy and safety compared to these competitors when used alone or in combination with other drugs.
Our commercial opportunities 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 easier to administer or are less expensive alone or in combination with other therapies than any products that we may develop alone or in combination with other therapies. Our competitors also may obtain the FDA’s or comparable foreign regulatory authorities’ approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors coverage decisions.
Many of the companies with which we are competing or may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the biopharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties 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 developing or acquiring technologies complementary to, or necessary for, our programs. If we are unable to successfully compete with these companies our business, financial condition, results of operations, stock price and prospects may be materially harmed.
If we are unable to establish effective marketing, sales and distribution capabilities or enter into agreements with third parties to market and sell vidutolimod or any future product candidates, if they are approved, the revenues that we generate may be limited and we may never become profitable.
We currently do not have a commercial infrastructure for the marketing, sale, and distribution of our cancer immunotherapies. If vidutolimod or any future product candidates receive marketing approval, we intend to commercialize such product candidates on our own in the United States and potentially with pharmaceutical or biotechnology partners in other geographies. In order to commercialize our products, we must build our marketing, sales, and distribution capabilities or make arrangements with third parties to perform these services. We may not be successful in doing so. Should we decide to move forward in developing our own marketing capabilities, we may incur expenses prior to product launch or even approval in order to recruit a sales force and develop a marketing and sales infrastructure. If a commercial launch is delayed as a result of the FDA’s or comparable foreign regulatory authority’s requirements or for other reasons, we would incur these expenses prior to being able to realize any revenue from sales of vidutolimod and future product candidates. Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing vidutolimod or any future product candidates. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
 
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We may also or alternatively decide to collaborate with third-party marketing and sales organizations to commercialize any approved product candidates in the United States, in which event, our ability to generate product revenues may be limited. To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these products ourselves, which could materially harm our prospects. In addition, we would have less control over the sales efforts of any other third parties involved in our commercialization efforts, and could be held liable if they failed to comply with applicable legal or regulatory requirements.
We have no prior experience in the marketing, sale, and distribution of biopharmaceutical products, and there are significant risks involved in building and managing a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We will have to compete with other biopharmaceutical and biotechnology companies, including oncology-focused companies, to recruit, hire, train, manage, and retain marketing and sales personnel, which is expensive and time consuming and could delay any product launch. Developing our sales capabilities may also divert resources and management attention away from product development. In the event we are unable to develop a marketing and sales infrastructure, we may not be able to commercialize vidutolimod or any future product candidates in the United States or elsewhere, which could limit our ability to generate product revenues and materially harm our business, financial condition, results of operations, stock price and prospects. Factors that may inhibit our efforts to commercialize vidutolimod or any future product candidates include:
 
   
the inability to recruit, train, manage, and retain adequate numbers of effective sales and marketing personnel;
 
   
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe vidutolimod or any future product candidates;
 
   
our inability to effectively oversee a geographically dispersed sales and marketing team;
 
   
the costs associated with training sales and marketing personnel on legal and regulatory compliance matters and monitoring their actions;
 
   
an inability to secure adequate coverage and reimbursement by government and private health plans;
 
   
the clinical indications for which the products are approved and the claims that we may make for the products;
 
   
limitations or warnings, including distribution or use restrictions, contained in the product’s approved labeling;
 
   
any distribution and use restrictions imposed by the FDA or comparable foreign regulatory authorities or to which we agree as part of a mandatory REMS or voluntary risk management plan;
 
   
liability for sales or marketing personnel who fail to comply with the applicable legal and regulatory requirements;
 
   
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 sales and marketing organization or engaging a contract sales organization.
If vidutolimod or any future product candidates do not achieve broad market acceptance, the revenues that we generate from their sales may be limited, and we may never become profitable.
We have never commercialized a product candidate for any indication. Even if vidutolimod and future product candidates are approved by the appropriate regulatory authorities for marketing and sale, they may not gain acceptance among physicians, patients, third-party payors, and others in the medical community. If any product candidates for which we obtain regulatory approval do not gain an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. Market acceptance of vidutolimod and future product candidates by the medical community, patients, and third-party payors will depend on a number of factors, some of which are beyond our control. For example, physicians are often reluctant to switch their patients and patients may be reluctant to switch from existing therapies even when new and potentially more effective or safer treatments enter the market.
 
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Efforts to educate the medical community and third-party payors on the benefits of vidutolimod and our novel approach to cancer treatment, and future product candidates, may require significant resources and may not be successful. If vidutolimod or any future product candidates are approved but do not achieve an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. The degree of market acceptance of vidutolimod and future product candidates will depend on a number of factors, including:
 
   
the efficacy of our vidutolimod and our VLP modality, and future product candidates alone or in combination with checkpoint inhibitor immunotherapies or other therapies;
 
   
the commercial success of the checkpoint blockade drugs with which vidutolimod or future products are or may be
co-administered;
 
   
the prevalence and severity of adverse events associated with vidutolimod and future product candidates or those products with which they are
co-administered;
 
   
the clinical indications for which the products are approved and the approved claims that we may make for the products;
 
   
limitations or warnings contained in the product’s
FDA-approved
labeling or those of comparable foreign regulatory authorities, including potential limitations or warnings for vidutolimod and future product candidates that may be more restrictive than other competitive products;
 
   
changes in the standard of care for the targeted indications for vidutolimod and future product candidates, which could reduce the marketing impact of any claims that we could make following FDA approval or approval by comparable foreign regulatory authorities, if obtained;
 
   
the relative convenience and ease of administration of vidutolimod and future product candidates and any products with which they are
co-administered;
 
   
the cost of treatment compared with the economic and clinical benefit of alternative treatments or therapies;
 
   
the availability of adequate coverage or reimbursement by third parties, such as insurance companies and other healthcare payors, and by government healthcare programs, including Medicare and Medicaid;
 
   
the price concessions required by third-party payors to obtain coverage;
 
   
the extent and strength of our marketing and distribution of vidutolimod and future product candidates;
 
   
the safety, efficacy, and other potential advantages over, and availability of, alternative treatments already used or that may later be approved;
 
   
distribution and use restrictions imposed by the FDA or comparable foreign regulatory authorities with respect to vidutolimod and future product candidates or to which we agree as part of a REMS or voluntary risk management plan;
 
   
the timing of market introduction of vidutolimod and future product candidates, as well as competitive products;
 
   
our ability to offer vidutolimod and future product candidates for sale at competitive prices;
 
   
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
 
   
the extent and strength of our third-party manufacturer and supplier support;
 
   
the actions of companies that market any products with which vidutolimod and future product candidates are
co-administered;
 
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the approval of other new products;
 
   
adverse publicity about vidutolimod and future product candidates or any products with which they are
co-administered,
or favorable publicity about competitive products; and
 
   
potential product liability claims.
The size of the potential markets for vidutolimod or any future product candidates is difficult to estimate and, if any of our assumptions are inaccurate, the actual markets for vidutolimod or any future product candidates may be smaller than our estimates.
The potential market opportunities for vidutolimod or any future product candidates are difficult to estimate and will depend in large part on the drugs with which vidutolimod or any future product candidates are
co-administered
and the success of competing therapies and therapeutic approaches. Our estimates of the potential market opportunities in melanoma, HNSCC, CSCC, MCC and other indications are predicated on many assumptions, which may include industry knowledge and publications, third-party research reports, and other surveys. Although we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain, and their reasonableness has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual markets and patient populations eligible for vidutolimod and future product candidates could be smaller than our estimates of the potential market opportunities.
Negative developments in the field of immuno-oncology could damage public perception of vidutolimod or any future product candidates and negatively affect our business.
The commercial success of vidutolimod or any future product candidates will depend in part on public acceptance of the use of cancer immunotherapies. Adverse events in clinical trials of vidutolimod or any future product candidates or adverse outcomes, including actual or perceived lack of efficacy, or adverse events in clinical trials of others developing similar products and the resulting publicity, as well as any other negative developments in the field of immuno-oncology that may occur in the future, including in connection with competitor therapies, could result in a decrease in demand for vidutolimod or any future product candidates that we may develop. These events could also result in the suspension, discontinuation, or clinical hold of or modification to our clinical trials. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to our therapies or those of our competitors, vidutolimod and future product candidates may not be accepted by the general public or the medical community and potential clinical trial subjects may be discouraged from enrolling in our clinical trials. As a result, we may not be able to continue or may be delayed in conducting our development programs. Future negative developments in the field of immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of vidutolimod or any future product candidates. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for vidutolimod or any future product candidates.
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of vidutolimod and future product candidates that we may develop.
We will face an inherent risk of product liability exposure related to the testing of vidutolimod and future product candidates in human clinical trials and will face an even greater risk if we commercially sell vidutolimod or any future product candidates that we may develop. If we cannot successfully defend ourselves against claims that vidutolimod and future product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
 
   
decreased demand for any of vidutolimod and future product candidates that we may develop;
 
   
injury to our reputation and significant negative media attention;
 
   
regulatory investigations that could require costly recalls or product modifications;
 
   
withdrawal of clinical trial participants;
 
   
significant costs to defend the related litigation;
 
   
substantial monetary awards to trial participants or patients;
 
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loss of revenue;
 
   
the diversion of management’s attention away from managing our business; and
 
   
the inability to commercialize vidutolimod and future product candidates that we may develop.
Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage when we begin clinical trials and if we successfully commercialize any product candidate. Insurance coverage is increasingly expensive. We may not be able to maintain product liability insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Even if we are able to commercialize vidutolimod or any future product candidates, such drugs may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.
The regulations that govern regulatory 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 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 candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product candidate, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product candidate in that country. Adverse pricing limitations may hinder our ability to recoup our investment in vidutolimod or any future product candidates, even if vidutolimod and future product candidates obtain marketing approval.
Our ability to commercialize vidutolimod and future product candidates successfully also will depend in part on the extent to which coverage and reimbursement for vidutolimod and future product candidates and related treatments will be available from third-party payors. In the United States and markets in other countries, patients generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Our ability to successfully commercialize our product candidates will depend in part on the extent to which coverage and adequate 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. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Factors payors consider in determining reimbursement are based on whether the product is:
 
   
a covered benefit under its health plan;
 
   
safe, effective and medically necessary;
 
   
appropriate for the specific patient;
 
   
cost-effective; and
 
   
neither experimental nor investigational.
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 drugs. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs. For products administered under the supervision of a physician, such as vidutolimod, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if coverage is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.
 
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There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities outside the United States. 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, manufacturing, 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. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition.
Risks related to
COVID-19
or other public health crises
A pandemic, epidemic, or outbreak of an infectious disease, such as the ongoing
COVID-19
pandemic, has and may in the future materially and adversely affect our business, including our preclinical studies, clinical trials, third parties on whom we rely, our supply chain, our ability to raise capital and our financial results.
We are subject to risks related to public health crises such as the ongoing
COVID-19
pandemic. The pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended, and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The extent to which the
COVID-19
pandemic, or ongoing measures in response to the pandemic, may further impact our preclinical studies or clinical trial operations, as well as our supply chain, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, the severity and spread of new strains or variants of the virus, such as the Delta and Omicron variants, the pace and success of vaccination and booster efforts and the effectiveness of existing or future vaccine or the effectiveness of other actions to contain and treat
COVID-19
or its variants. The ongoing
COVID-19
pandemic may also affect or continue to affect employees of third-party contract research organizations (“CROs”) located in affected geographies that we rely upon to carry out our clinical trials. For example, our clinical trials that commenced in 2020 have been, and continue to be, adversely affected by the
COVID-19
pandemic as a result of delays in enrolling patients. As a result, in December 2021, we revised our expectations with respect to the anticipated timing of clinical data milestones in our Phase 2 clinical trial
in anti-PD-1 refractory
melanoma patients, our Phase 2/3 trial in first-line melanoma and our Phase 2 clinical trial in head and neck cancer. As
COVID-19
or its variants continue to spread, despite current vaccination efforts, around the globe, we may experience additional disruptions that could severely impact our business and clinical trials, including:
 
   
further delays or difficulties in enrolling patients in our clinical trials
 
   
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
 
   
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials or absenteeism due to the ongoing
COVID-19
pandemic that reduces site resources;
 
   
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data;
 
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risk that participants enrolled in our clinical trials will contract
COVID-19
or variants thereof while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events or patient withdrawals from our trials;
 
   
limitations in employee resources that would otherwise be focused on conducting our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
 
   
delays in receiving authorizations from local regulatory authorities to initiate our planned clinical trials;
 
   
delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;
 
   
interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials;
 
   
changes in local regulations as part of a response to the ongoing
COVID-19
pandemic, which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
 
   
interruptions or delays in preclinical studies due to restricted or limited operations at research and development laboratory facilities;
 
   
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and
 
   
refusal of the FDA to accept data from clinical trials in affected geographies outside the United States.
Any additional future negative impact the evolving
COVID-19
pandemic has on patient enrollment or treatment or the development of vidutolimod and future product candidates could cause additional, and potentially costly delays to clinical trial activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize vidutolimod and future product candidates, if approved, increase our operating expenses, and have a material adverse effect on our financial results. Since the beginning of the
COVID-19
pandemic, three vaccines for
COVID-19
have received Emergency Use Authorization by the FDA and two of those later received marketing approval. Additional vaccines may be authorized or approved in the future. The continued demand for vaccines as the need for boosters persists and potential for manufacturing facilities and materials to be commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or manufacturing slots for the products needed for our clinical trials, which could lead to delays in these trials. The
COVID-19
pandemic has also caused significant disruptions to the U.S. and global economies. This increased volatility and economic dislocation may make it more difficult for us to raise capital on favorable terms, or at all.
Although we have experienced impacts of the ongoing
COVID-19
pandemic on our business and operations, we cannot currently predict the scope and severity of any additional impacts. If we or any of the third parties with whom we engage were to experience additional shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business and our results of operations and financial condition. To the extent the
COVID-19
pandemic adversely affects our business and financial results, it may also heighten many of the other risks described in this “Risk Factors” section, such as those relating to the timing and completion of our clinical trials and our ability to obtain future financing.
Risks related to government regulation
Even if our development efforts are successful, we may not obtain regulatory approval of vidutolimod or any future product candidates in the United States or other jurisdictions, which would prevent us from commercializing vidutolimod and future product candidates. Even if we obtain regulatory approval for vidutolimod and future product candidates, any such approval may be subject to limitations, including with respect to the approved indications or patient populations, which could impair our ability to successfully commercialize vidutolimod or any future product candidates.
We are not permitted to market or promote or sell vidutolimod or any future product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory
 
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authorities for each therapeutic indication to establish the product candidate’s safety and efficacy for that indication. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and clinical trial sites by, the regulatory authorities. If we do not receive approval from the FDA and comparable foreign regulatory authorities for any of vidutolimod and future product candidates, we will not be able to commercialize such product candidates in the United States or in other jurisdictions. If significant delays in obtaining approval for and commercializing vidutolimod and future product candidates occur in any jurisdictions, our business, financial condition, results of operations, stock price and prospects will be materially harmed. Even if vidutolimod and future product candidates are approved, they may:
 
   
be subject to limitations on the indicated uses or patient populations for which they may be marketed, distribution restrictions, or other conditions of approval;
 
   
contain significant safety warnings, including boxed warnings, contraindications, and precautions;
 
   
not be approved with label statements necessary or desirable for successful commercialization; or
 
   
contain requirements for costly post-market testing and surveillance, or other requirements, including the submission of a REMS to monitor the safety or efficacy of the products.
We have not previously submitted a BLA to the FDA, or a similar marketing application to comparable foreign regulatory authorities, for vidutolimod or any product candidate, and we can provide no assurance that we will ultimately be successful in obtaining regulatory approval for claims that are necessary or desirable for successful marketing, if at all.
The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we will not be able to commercialize vidutolimod and future product candidates as expected, and our ability to generate revenue may be materially impaired.
The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. 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. These regulatory requirements may require us to amend our clinical trial protocols, conduct additional preclinical studies or clinical trials that may require regulatory or IRB approval, or otherwise cause delays in obtaining approval or rejection of an application. Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability to generate revenue from the particular product candidate, which may materially harm our business, financial condition, results of operations, stock price and prospects.
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. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. The number and types of preclinical studies and clinical trials that will be required for regulatory approval also varies depending on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product candidate. 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, and there may be varying interpretations of data obtained from preclinical studies or clinical trials, any of which may cause delays or limitations in the approval or a decision not to approve an application. It is possible that vidutolimod and future product candidates will never obtain the appropriate regulatory approvals necessary for us to commence product sales.
If we experience delays in obtaining approval, if we fail to obtain approval of vidutolimod or any future product candidate or if the label for a product candidate does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate, the commercial prospects for such product candidate may be harmed and our ability to generate revenues from that product candidate may be materially impaired.
Vidutolimod or future product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any. Serious adverse events or undesirable side effects caused by vidutolimod and future product candidates
 
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could cause us, IRBs, and other reviewing entities 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 comparable foreign regulatory authorities. For example, if concerns are raised regarding the safety of a new therapeutic as a result of undesirable side effects identified during clinical or preclinical testing, the FDA or comparable foreign regulatory authority may order us to cease further development, decline to approve the product candidate or issue a letter requesting additional data or information prior to making a final decision regarding whether or not to approve the product candidate. The FDA or comparable foreign regulatory authorities, or IRBs and other reviewing entities, may also require, or we may voluntarily develop, strategies for managing adverse events during clinical development, which could include restrictions on our enrollment criteria, the use of stopping criteria, adjustments to a study’s design, or the monitoring of safety data by a data monitoring committee, among other strategies. For example, patients enrolled in our ongoing clinical trials of vidutolimod have experienced mild to moderate adverse events, consisting mainly of
flu-like
symptoms and injection site reactions. In response to these adverse events, we have implemented prophylactic measures, including intravenous fluids, antiemetics, and antipryetics. The FDA’s or a comparable foreign regulatory authority’s requests for additional data or information could also result in substantial delays in the approval of vidutolimod and future product candidates.
Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of a product candidate may only be uncovered when a significantly larger number of patients are exposed to the product candidate or when patients are exposed for a longer period of time.
Undesirable side effects caused by vidutolimod or any future product candidates could also result in denial of regulatory approval by the FDA or comparable foreign regulatory authorities for any or all targeted indications or the inclusion of unfavorable information in our product labeling, such as limitations on the indicated uses for which the products may be marketed or distributed, a label with significant safety warnings, including boxed warnings, contraindications, and precautions, a label without statements necessary or desirable for successful commercialization, or may result in requirements for costly post-marketing testing and surveillance, or other requirements, including REMS, to monitor the safety or efficacy of the products, and in turn prevent us from commercializing and generating revenues from the sale of vidutolimod and future product candidates. Any such limitations or restrictions could similarly impact any supplemental marketing approvals we may obtain for vidutolimod. Undesirable side effects may limit the potential market for any approved products or could result in restrictions on manufacturing processes, the discontinuation of the sales and marketing of the product, or withdrawal of product approvals. We could also be sued and held liable for harm caused to patients, or become subject to fines, injunctions or the imposition of civil or criminal penalties.
If vidutolimod and future product candidates are associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. The therapeutic-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may materially harm our business, financial condition, results of operations, stock price and prospects.
Regulatory approval by the FDA or comparable foreign regulatory authorities is limited to those specific indications and conditions for which approval has been granted, and we may be subject to substantial fines, criminal penalties, injunctions, or other enforcement actions if we are determined to be promoting the use of our products for unapproved or
“off-label”
uses, or in a manner inconsistent with the approved labeling, resulting in damage to our reputation and business.
We must comply with requirements concerning advertising and promotion for any product candidates for which we obtain marketing approval. Promotional communications with respect to therapeutics are subject to a variety of legal and regulatory restrictions and continuing review by the FDA, Department of Justice, Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress, and the public. When the FDA or comparable foreign regulatory authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific uses and indications for which a product is approved. If we are not able to obtain FDA approval for desired uses or indications for vidutolimod and future product candidates, we may not market or promote them for those indications and uses, referred to as
off-label
uses, and our business, financial condition, results of operations, stock price and prospects will be materially harmed. We also must sufficiently substantiate any claims that we make for any products, including claims comparing those products to other companies’ products, and must abide by the FDA’s strict requirements regarding the content of promotion and advertising.
Physicians may choose to prescribe products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical trials and approved by the regulatory authorities. Regulatory authorities in the United States generally do not restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine. Regulatory authorities do, however, restrict communications by biopharmaceutical companies and third parties acting on behalf of such companies concerning
off-label
use.
 
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If we are found to have impermissibly promoted any of vidutolimod and future product candidates, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations regarding product promotion, particularly those prohibiting the promotion of
off-label
uses, and a company that is found to have improperly promoted a product may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in
off-label
promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
In the United States, engaging in the impermissible promotion of any products, following approval, for
off-label
uses can also subject us to false claims and other litigation under federal and state statutes. These include fraud and abuse and consumer protection laws, which can lead to civil and criminal penalties and fines, agreements with governmental authorities that materially restrict the manner in which we promote or distribute therapeutic products and conduct our business. These restrictions could include corporate integrity agreements, suspension or exclusion from participation in federal and state healthcare programs, and suspension and debarment from government contracts and refusal of orders under existing government contracts. These False Claims Act lawsuits against manufacturers of drugs and biologics have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements pertaining to certain sales practices and promoting
off-label
uses. In addition, False Claims Act lawsuits may expose manufacturers to
follow-on
claims by private payers based on fraudulent marketing practices. This growth in litigation has increased the risk that a biopharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid, or other federal and state healthcare programs. If we do not lawfully promote our approved products, if any, we may become subject to such litigation and, if we do not successfully defend against such actions, those actions may have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
In the United States, the promotion of biopharmaceutical products is subject to additional FDA requirements and restrictions on promotional statements. If, after vidutolimod or any future product candidates obtains marketing approval, the FDA determines that our promotional activities violate its regulations and policies pertaining to product promotion, it could request that we modify our promotional materials or subject us to regulatory or other enforcement actions, including issuance of warning letters or untitled letters, suspension or withdrawal of an approved product from the market, requests for recalls, payment of civil fines, disgorgement of money, imposition of operating restrictions, injunctions or criminal prosecution, and other enforcement actions. Similarly, industry codes in foreign jurisdictions may prohibit companies from engaging in certain promotional activities, and regulatory agencies in various countries may enforce violations of such codes with civil penalties. If we become subject to regulatory and enforcement actions, our business, financial condition, results of operations, stock price and prospects will be materially harmed.
We have received orphan drug designation for vidutolimod, and we may in the future seek orphan drug status for additional indications for vidutolimod or for our future product candidates, but we may be unable to obtain such designations or to maintain the benefits associated with orphan drug status, including market exclusivity, which may cause our revenue, if any, to be reduced.
We have received Orphan Drug Designation for vidutolimod for Stage
IIb-IV
melanoma in the U.S., and we may seek Orphan Drug Designation for future product candidates. Regulatory authorities in some jurisdictions, including the U.S. and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the U.S., or a patient population of greater than 200,000 individuals in the United States, but for which there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the United States.
In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and
user-fee
waivers. In addition, if a product with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for the same drug for that time period.
The applicable period is seven years in the U.S. and ten years in the European Union. The exclusivity period in the European Union can be reduced to six years if a drug no longer meets the criteria for Orphan Drug Designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan Drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
 
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Even if we obtain Orphan Drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because competing drugs containing a different active ingredient can be approved for the same condition. In addition, even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be 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 nor gives the drug any advantage in the regulatory review or approval process.
We have received Fast Track designation by the FDA for vidutolimod for certain designations and may seek such designation for any future product candidates, but such designation may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that vidutolimod and future product candidates will receive marketing approval.
If a drug is intended for the treatment of a serious or life-threatening condition and nonclinical or clinical data demonstrate the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA Fast Track designation for a particular indication. In July 2020, the FDA granted Fast Track designation for vidutolimod in combination with a
PD-1
blocking antibody (nivolumab or pembrolizumab) in both
anti-PD-1
refractory melanoma and first-line metastatic melanoma.
We may seek Fast Track designation for our future product candidates, but there is no assurance that the FDA will grant this designation to any of our product candidates. Marketing applications filed by sponsors of products receiving Fast Track designation may qualify for priority review under the policies and procedures offered by the FDA, but the Fast Track designation alone does not assure qualification for priority review. The FDA has broad discretion whether or not to grant Fast Track designation, so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA would decide to grant it. Even though vidutolimod has received Fast Track designation, and any future product candidates may receive Fast Track designation, we may not experience a faster development, regulatory review or approval process compared to conventional FDA procedures, and receiving a Fast Track designation does not provide assurance of ultimate FDA approval or that approval will be granted in any particular time frame. In addition, the FDA may withdraw Fast Track designation at any time if it believes that the designation is no longer supported by data from our clinical development program or that the relevant criteria are no longer met.
We may attempt to secure approval from the FDA through the use of the accelerated approval pathway by the FDA. If we are unable to obtain such approval, we may be required to conduct additional preclinical studies or clinical trials beyond those that we contemplate, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals. Even if we seek to utilize the accelerated approval pathway, we may not be able to obtain accelerated approval and, even if we do, we may not experience a faster development, regulatory review or approval process for that product. In addition, receiving accelerated approval does not assure that the product’s accelerated approval will eventually be converted to a traditional approval. Even if we receive accelerated approval from the FDA, if our confirmatory trials do not verify clinical benefit, or if we do not comply with rigorous post-marketing requirements, the FDA may seek to withdraw accelerated approval.
We currently intend to seek approval of vidutolimod for the treatment of refractory melanoma and first-line melanoma, and may seek approval of future product candidates, under the FDA’s accelerated approval pathway. A product may be eligible for accelerated approval if it is designed to treat a serious or life-threatening disease or condition and generally provides a meaningful advantage over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. If the sponsor fails to conduct such studies in a timely manner, or if such post-approval studies fail to verify the drug’s predicted clinical benefit, the FDA may withdraw its approval of the drug on an expedited basis.
 
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Prior to seeking accelerated approval for vidutolimod or future product candidates, we would intend to seek feedback from the FDA and will otherwise evaluate our ability to seek and receive accelerated approval. There can be no assurance that after our evaluation of the feedback and other factors we will decide to pursue or submit a BLA for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance that after subsequent FDA feedback we will continue to pursue or apply for accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we decide to submit an application for accelerated approval or receive an expedited regulatory designation for our product candidates, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. The FDA or other comparable foreign regulatory authorities could also require us to conduct further studies prior to considering our application or granting approval of any type. Specifically, during an
end-of-Phase
1 meeting held in March 2020 to discuss our plans for a registration path for vidutolimod in melanoma, the FDA indicated that one
single-arm
Phase 2 trial may be unlikely to support accelerated approval of a BLA for vidutolimod for the treatment of
anti-PD-1
refractory patients with metastatic or unresectable melanoma in combination with pembrolizumab, and recommended that we conduct a randomized trial in the proposed patient population to evaluate the contribution of each component to the potential treatment effect of the combination. A failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidate would result in a longer time period to commercialization of such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace.
Obtaining and maintaining regulatory approval of vidutolimod or any future product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of vidutolimod or any future product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of vidutolimod or any future product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets or receive applicable marketing approvals, our target markets will be reduced and our ability to realize the full market potential of vidutolimod or any future product candidates will be harmed.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, or approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA and other government agencies to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the ability to perform routine functions. 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 government agencies may also slow the time necessary for new drugs, medical devices and biologics or modifications to cleared or approved drugs, medical devices and biologics to be reviewed and approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Since March 2020 when foreign and domestic inspections were largely placed on hold, the FDA has been working to resume routine surveillance, bioresearch monitoring and
pre-approval
inspections on a prioritized basis. Since April 2021, the FDA has conducted limited inspections and employed remote interactive evaluations, using risk management methods, to meet user fee commitments and goal dates. Ongoing travel restrictions and other uncertainties continue to impact oversight operations both domestic and abroad and it is unclear when standard operational levels will resume. The FDA is continuing to complete mission-critical work, prioritize other
 
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higher-tiered inspectional needs (e.g.,
for-cause
inspections), and carry out surveillance inspections using risk-based approaches for evaluating public health. Should FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, and the FDA does not determine a remote interactive evaluation to be adequate, the agency has stated that it generally intends to issue, depending on the circumstances, a complete response letter or defer action on the application until an inspection can be completed. During the
COVID-19
public health emergency, a number of companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the ongoing
COVID-19
pandemic and may experience delays in their regulatory activities. Additionally, during the
COVID-19
public health emergency, the FDA has noted that it is working to ensure timely reviews of applications for medical products in line with its user fee performance goals and conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. However, the FDA may not be able to maintain this pace and delays or setbacks are possible in the future. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Even if vidutolimod or any future product candidates receive regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense and limit how we manufacture and market our products.
Any product candidate for which we may obtain marketing approval will be subject to extensive and ongoing requirements of and review by the FDA and comparable foreign regulatory authorities, including requirements related to the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such product. These requirements further include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listing requirements, the payment of annual fees, continued compliance with current good manufacturing practices (“cGMPs”), requirements relating to manufacturing, quality control, quality assurance, applicable tracking and tracing requirements and corresponding maintenance of records and documents, and good clinical practices (“GCPs”) for any clinical trials that we conduct post-approval.
The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of vidutolimod and future product candidates, they may withdraw approval, issue public safety alerts, require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Any such restrictions could limit sales of the product.
We and any of our suppliers or collaborators, including our contract manufacturers, could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs and other FDA regulatory requirements. Application holders must further notify the FDA, and depending on the nature of the change, obtain FDA
pre-approval
for product and manufacturing changes. For certain commercial prescription drug and biologic products, manufacturers and other parties involved in the supply chain must also meet chain of distribution requirements and build electronic, interoperable systems for product tracking and tracing and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products or other products that are otherwise unfit for distribution in the United States.
In addition, later discovery of previously unknown adverse events or that the product is less effective than previously thought or other problems with any products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements both before and after approval, may yield various negative results, including:
 
   
restrictions on manufacturing, distribution, or marketing of such products;
 
   
restrictions on the labeling, including required additional warnings, such as boxed warnings, contraindications, precautions, and restrictions on the approved indication or use;
 
   
modifications to promotional pieces;
 
   
issuance of corrective information;
 
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requirements to conduct post-marketing studies or other clinical trials;
 
   
clinical holds or termination of clinical trials;
 
   
requirements to establish or modify a REMS or similar strategy;
 
   
changes to the way the product is administered to patients;
 
   
liability for harm caused to patients or subjects;
 
   
reputational harm;
 
   
the product becoming less competitive;
 
   
warning or untitled letters;
 
   
suspension of marketing or withdrawal of the products from the market;
 
   
regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing warnings or other safety information about the product;
 
   
refusal to approve pending applications or supplements to approved applications that we submit;
 
   
recalls of products;
 
   
fines, restitution or disgorgement of profits or revenues;
 
   
suspension or withdrawal of marketing approvals;
 
   
refusal to permit the import or export of our products;
 
   
product seizure or detention;
 
   
FDA debarment, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements; or
 
   
injunctions or the imposition of civil or criminal penalties, including imprisonment.
Any of these events could prevent us from achieving or maintaining market acceptance of any particular product or could substantially increase the costs and expenses of commercializing such product, which in turn could delay or prevent us from generating significant revenues from its marketing and sale. Any of these events could further have other material and adverse effects on our operations and business and could adversely impact our business, financial condition, results of operations, stock price and prospects.
Further, the FDA’s policies or those of comparable foreign regulatory authorities may change and could impose extensive and ongoing regulatory requirements and obligations on any product candidate for which we obtain marketing approval. 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 be subject to regulatory enforcement action, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of vidutolimod and future product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell a product for which we obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
 
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In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Affordable Care Act (the “ACA”) was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% (increased pursuant to the Bipartisan Budget Act of 2018, effective as of 2019)
point-of-sale
discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an Executive Order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The Executive Order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare reform measures of the Biden administrations or other efforts, if any, to challenge repeal or replace the ACA, will impact our business.
 
   
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted that may impact our business if we are able to commercialize any product candidates. In August 2011, the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers up to 2% per fiscal year, and, due to subsequent legislative amendments, including the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) will remain in effect through 2030 unless additional Congressional action is taken. Pursuant to the CARES Act, which was signed into law on March 27, 2020 to provide financial support and resources to individuals and businesses affected by the
COVID-19
pandemic, and subsequent legislation, these reductions were suspended from May 1, 2020 through March 31, 2022. Then, a 1% payment reduction will occur beginning April 1, 2022 through June 30, 2022, and the 2% payment reduction will resume on July 1, 2022.
 
   
In addition, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several 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.
 
   
On April 13, 2017, CMS published a final rule that gives states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.
 
   
Additionally, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. However, it is unclear whether the Biden administration will challenge, reverse, revoke or otherwise modify these executive and administrative actions.
 
   
On December 20, 2019, former President Trump signed into law the Further Consolidated Appropriations Act (H.R. 1865), which repealed the Cadillac tax, the health insurance provider tax, and the medical device excise tax. It is impossible to determine whether similar taxes could be instated in the future.
There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the former Trump administration’s budget for fiscal year 2021 included a $135 billion allowance to support legislative
 
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proposals seeking to reduce drug prices, increase competition, lower
out-of-pocket
drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. At a federal level, the President Biden signed an Executive Order on July 9, 2021 affirming its policy (i) to support legislative reforms that would lower prescription drug prices, including by allowing Medicare to negotiate drug prices and by imposing inflation caps; and (ii) to support the enactment of a public health insurance option. Among other things, the Executive Order also directs HHS to submit a report to combat excessive pricing of prescription drugs, to enhance the domestic drug supply chain, to reduce the price that the Federal government pays for drugs, and to address price gouging in the industry; and directs the FDA to work with states to develop prescription drug importation plans pursuant to the Medicare Modernization Act of 2003 and FDA’s related implementing regulations. FDA released such implementing regulations on September 24, 2020, which went into effect on November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, CMS issued an Interim Final Rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B reimbursement rates will be calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation and Development countries with a similar gross domestic product per capita. The MFN Model regulations mandate participation by identified Part B providers and would have applied to all U.S. states and territories for a seven-year period beginning January 1, 2021, and ending December 31, 2027. However, in response to a lawsuit filed by several industry groups, on December 28, the U.S. District Court for the Northern District of California issued a nationwide preliminary injunction enjoining government defendants from implementing the MFN Rule pending completion of
notice-and-comment
procedures under the Administrative Procedure Act. On January 13, 2021, in a separate lawsuit brought by industry groups in the U.S. District of Maryland, the government defendants entered a joint motion to stay litigation on the condition that the government would not appeal the preliminary injunction granted in the U.S. District Court for the Northern District of California and that performance for any final regulation stemming from the MFN Interim Final Rule shall not commence earlier than 60 days after publication of that regulation in the Federal Register. Further, authorities in Canada have passed rules designed to safeguard the Canadian drug supply from shortages. If implemented, importation of drugs from Canada and the MFN Model may materially and adversely affect the price we receive for any of our product candidates. Additionally, on December 2, 2020, HHS published a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the
point-of-sale,
as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. on December 2, 2020, HHS published a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the
point-of-sale,
as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Pursuant to court order, the removal and addition of the aforementioned safe harbors were delayed and recent legislation imposed a moratorium on implementation of the rule until January 1, 2026. Further, implementation of this change and new safe harbors for
point-of-sale
reductions in price for prescription pharmaceutical products and pharmacy benefit manager service fees are currently under review by the Biden administration and may be amended or repealed. Although a number of these and other proposed measures may require authorization through additional legislation to become effective, and the Biden administration may reverse or otherwise change these measures, both the Biden administration and Congress have indicated that it will continue to seek new legislative measures to control drug costs.
On July 9, 2021, President Biden issued an executive order directing the FDA to work with states and tribes to safely import prescription drugs from Canada and to continue to clarify and improve the approval framework for generic drugs and biosimilars, including the standards for interchangeability of biological products, facilitate the development and approval of biosimilar and interchangeable products, clarify existing requirements and procedures related to the review and submission of BLAs, and identify and address any efforts to impede generic drug and biosimilar competition.
At the state level, individual state governments are increasingly becoming aggressive in passing legislation and implementing 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. In addition, regional health care 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 health care programs. These measures could reduce the ultimate demand for our products, if approved, or put pressure on our product pricing.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for vidutolimod and future product candidates or additional pricing pressures.
Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition.
 
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There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future, including repeal, replacement or significant revisions to the ACA. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and impose price controls may adversely affect:
 
   
the demand for vidutolimod and future product candidates, if we obtain regulatory approval;
 
   
our ability to set a price that we believe is fair for our products;
 
   
our ability to obtain coverage and reimbursement approval for a product;
 
   
our ability to generate revenue and achieve or maintain profitability;
 
   
the level of taxes that we are required to pay; and
 
   
the availability of capital.
Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain drug access and marketing cost disclosure and transparency measures, and 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 harm our business, financial condition, results of operations and prospects. 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 drugs or put pressure on our drug pricing, which could negatively affect our business, financial condition, results of operations and prospects. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.
Our relationships with patients and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.
Although we do not currently have any drugs on the market, once we begin commercializing vidutolimod and future product candidates, if approved, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of vidutolimod and future product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute vidutolimod and future product candidates for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
 
   
the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties;
 
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the federal civil and criminal false claims laws and civil monetary penalty laws, such as the federal False Claims Act, impose criminal and civil penalties, including through civil whistleblower or qui