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As filed with the U.S. Securities and Exchange Commission on January 4, 2019.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Poseida Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   2836   47-3898435

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Poseida Therapeutics, Inc.

4242 Campus Point Court, Suite 700

San Diego, CA 92121

(858) 779-3100

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Eric Ostertag, M.D., Ph.D.

Chief Executive Officer

Poseida Therapeutics, Inc.

4242 Campus Point Court, Suite 700

San Diego, CA 92121

(858) 779-3100

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Sean M. Clayton

Charles S. Kim

Kenneth J. Krisko

Cooley LLP

4401 Eastgate Mall

San Diego, CA 92121

(858) 550-6000

 

Mark J. Gergen

Chief Business and Financial Officer

Poseida Therapeutics, Inc.

4242 Campus Point Court, Suite 700

San Diego, CA 92121

(858) 779-3100

 

Cheston J. Larson

Matthew T. Bush

Latham & Watkins LLP

12670 High Bluff Drive

San Diego, CA 92130

(858) 523-5400

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

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

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

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

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

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

 

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

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

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum
Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee

Common Stock, $0.0001 par value per share

 

$115,000,000

  $13,938.00

 

 

 

(1)   Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act.
(2)   Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.

 

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

 

 

 


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

 

SUBJECT TO COMPLETION, DATED JANUARY 4, 2019

PRELIMINARY PROSPECTUS

 

 

LOGO

                 Shares

Poseida Therapeutics, Inc.

Common Stock

$         per share

  

 

This is the initial public offering of our common stock. We are selling                shares of our common stock in this offering. Prior to this offering, there has been no public market for our common stock. We currently expect the initial public offering price to be between $         and $         per share.

We have granted the underwriters an option to purchase up to                additional shares of common stock. The underwriters can exercise this option at any time within 30 days after the date of this prospectus.

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

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 13.

We are an “emerging growth company” as defined in the Jumpstart Our Business Act of 2012 and, as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Public offering price

   $                        $                    

Underwriting discounts and commissions(1)

   $        $    

Proceeds to us (before expenses)

   $        $    

 

 

(1)   See the section titled “Underwriting” for additional information regarding underwriting compensation.

The underwriters expect to deliver the shares to purchasers on or about                , 2019 through book-entry facilities of The Depository Trust Company.

 

 

Citigroup   Credit Suisse     Wells Fargo Securities  

 

 

                 , 2019


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

Risk Factors

     13  

Special Note Regarding Forward-Looking Statements

     67  

Dividend Policy

     69  

Use of Proceeds

     70  

Capitalization

     72  

Dilution

     74  

Selected Consolidated Financial Data

     76  

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

     78  

Business

     97  

Management

     154  

Executive and Director Compensation

     161  

Certain Relationships and Related Party Transactions

     176  

Principal Stockholders

     181  

Description of Capital Stock

     183  

Shares Eligible for Future Sale

     188  

Material U.S. Federal Income Tax Considerations to Non-U.S. Holders of Common Stock

     190  

Underwriting

     194  

Legal Matters

     200  

Experts

     200  

Where You Can Find Additional Information

     200  

Index to Consolidated Financial Statements

     F-1  

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

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

 

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TRADEMARKS

This prospectus includes our trademarks, trade names and service marks, such as “piggyBac” and “Cas-CLOVER,” which are protected under applicable intellectual property laws and are our property. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to such trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

MARKET, INDUSTRY AND OTHER DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets which we believe to be reasonable. Although we believe the data from these third-party sources is reliable, we have not independently verified any third-party information. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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PROSPECTUS SUMMARY

This summary highlights certain information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before making an investment in our common stock. You should carefully consider, among other things, our consolidated financial statements and the related notes included elsewhere in this prospectus and the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to “Poseida,” “the company,” “we,” “us,” and “our” refer to Poseida Therapeutics, Inc. and our consolidated subsidiaries.

POSEIDA THERAPEUTICS

Company Overview

We are a clinical-stage biopharmaceutical company focused on leveraging our proprietary next-generation, non-viral gene engineering technologies to create life-saving therapeutics for patients with high unmet medical need. We have built a wholly-owned pipeline of autologous and allogeneic chimeric antigen receptor T cell, or CAR-T, product candidates, initially focused on the treatment of hematological malignancies and solid tumors. Our proprietary gene engineering technologies are used to create product candidates predominantly comprised of a specific T cell subset, stem cell memory, or TSCM, with the goal of addressing the limitations of other CAR-T therapies, including duration of response, the ability to treat solid tumors and tolerability concerns. We believe our management team’s experience in cell and gene engineering will help us to rapidly develop and, if approved, commercialize potentially curative cell and gene therapies.

Our lead product candidate, P-BCMA-101, is an autologous CAR-T therapy being developed to treat patients with relapsed/refractory multiple myeloma. Preliminary results from our ongoing Phase 1 dose escalation clinical trial of P-BCMA-101 showed that as of November 21, 2018, of the 19 patients that were evaluable by International Myeloma Working Group, or IMWG, criteria, 14 had meaningful responses (either stringent complete response, complete response, very good partial response, partial response or minimal response, by IMWG criteria), with an objective response rate, or ORR, of 100% in three evaluable patients that had received the dose of P-BCMA-101 we expect to advance into Phase 2 clinical development. In addition, as of November 21, 2018, P-BCMA-101 continued to be well tolerated in the trial, with two mild and transient instances of cytokine release syndrome, or CRS, observed, and one patient with possible neurotoxicity, each of which occurred at doses below the planned Phase 2 dose. Serious adverse events, or SAEs, of neutropenia, thrombocytopenia, anemia and infection were observed. We believe these SAEs are not related to P-BCMA-101 as they are consistent with conditioning lymphodepletion therapy and the underlying disease. One SAE of Grade 3 confusion was also observed in a patient although mental status changes occurred before administration of P-BCMA-101. While we believe these preliminary results are encouraging, they are derived from a small number of patients and may not be predictive of future results or the durability of responses over time. We plan to begin a Phase 2 clinical trial for P-BCMA-101 in the first half of 2019, moving toward a potential biologics license application, or BLA, filing with the U.S. Food and Drug Administration, or FDA, by the end of 2020. We believe our planned Phase 2 clinical trial has the potential to be a registrational trial, which is a trial that could support a BLA filing, although the FDA has not indicated its agreement or that a Phase 3 clinical trial will not be required. P-BCMA-101 has received a Regenerative Medicine Advanced Therapy, or RMAT, designation from the FDA, which is granted to regenerative medicine therapies that are intended to treat, modify, reverse or cure a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product has the potential to address unmet medical needs for the disease or condition. Our second autologous product candidate, P-PSMA-101, is being developed to treat patients with castrate-resistant prostate cancer, or CRPC, a solid tumor indication. An additional autologous solid tumor candidate, P-MUC1C-101, is in late-stage preclinical development for multiple solid tumor indications. We plan to

 

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file an Investigational New Drug Application, or IND, with the FDA and begin a Phase 1 clinical trial for P-PSMA-101 in the second half of 2019 and for P-MUC1C-101 in 2020.

In addition to our autologous CAR-T programs, we are developing fully allogeneic product candidates derived from healthy donors allowing for the treatment of hundreds or thousands of patients from a single manufacturing run. We plan to file an IND and begin a Phase 1 clinical trial for P-BCMA-ALLO1, our lead allogeneic product candidate for the treatment of multiple myeloma, by late 2019 or early 2020. We plan to develop allogeneic versions of all of our hematological and solid tumor product candidates.

The advent of CAR-T therapies has revolutionized treatment of some hematological malignancies by demonstrating profound initial response rates in highly refractory patients and, in some cases, the ability to cure. Despite these response rates, there are several key limitations to early-generation CAR-T products, including duration of response, the ability to treat solid tumors and safety concerns, which we believe have thus far curtailed broader adoption. We believe these limitations are the result of early-generation CAR-T products being comprised predominately of short-lived, more differentiated T cells.

Not all T cells are created equally

Unlike other CAR-T approaches using lentivirus, our proprietary piggyBac DNA Modification System is able to create a product with a high percentage of early memory T cells, such as TSCM cells. There is a one-way differentiation pathway from TSCM cells to central memory T cells, or TCM; then to effector memory T cells, or TEM; and lastly, to effector T cells, or TEFF. As T cells mature and differentiate, their core functions and capabilities change, impacting their potency and durability. Our approach is to utilize a high percentage of less differentiated T cells in our product candidates with the goal of increasing persistence and mitigating some of the key limitations of early-generation CAR-T products.

The following figure illustrates this directional T cell differentiation pathway, from TSCM cell to TEFF cell:

 

 

LOGO

We believe our proprietary approach, combining an advanced manufacturing method with a sophisticated gene engineering platform, can address the primary challenges of early-generation CAR-T therapies in the following ways:

Duration and Activity

Durable responses.    Our piggyBac manufacturing method results in product candidates with a high percentage of less differentiated early memory T cells, including the highly desirable TSCM cells. TSCM cells engraft in the patient’s body and are long-lived, self-renewing and available to re-respond to future relapses, which we believe has the potential to result in a lifetime durable response.

 

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Response in solid tumors.    TSCM cells have the unique ability to produce a potentially unlimited number of TEFF cells, generating multiple waves of CAR-T responses with only a single administration of product. P-PSMA-101 resulted in the elimination of tumor cells to undetectable levels in 100% of animals, with one incidence of a relapse in the low dose cohort, in a preclinical model of prostate cancer. To our knowledge based on published literature, no other product candidate has shown complete solid tumor elimination in any animal in this same preclinical model.

Tolerability

More gradual killer.    CAR-T products comprised of a high percentage of TSCM cells are more gradual killers of tumor cells, which we believe can effectively dampen the rapid release of cytokines as seen in early-generation CAR-T products containing predominantly differentiated T cells, potentially resulting in a significantly higher therapeutic index, meaning a limited change in toxicity relative to increased dose.

Pure product candidates.    We use our proprietary positive selection method to create product candidates that are comprised of essentially 100% CAR-positive cells, thereby minimizing one of the potential sources of CAR-T toxicity. Early-generation products do not utilize positive selection and typically contain a significant number of CAR-negative cells, which cannot kill cancer cells but may contribute to toxicity because they are artificially activated and expanded outside of the body.

Scalability

Allogeneic capability.    We intend to use Cas-CLOVER, our proprietary site-specific gene editing platform, to develop allogeneic CAR-T product candidates, with the goal of further revolutionizing treatment by enabling administration of drug, derived from a single healthy donor and created in a single manufacturing run, to potentially hundreds or thousands of patients.

Versatility.    Our proprietary non-viral piggyBac DNA Modification System allows us to insert multiple CARs and/or T cell receptors, or TCRs, as well as other genes into T cells simultaneously. This significantly increases the number of potential indications we can target and, therefore, the number of future product candidates in our pipeline. Additionally, the ability to insert positive selection and safety switch genes alongside CAR molecule genes has the potential to address the tolerability limitations that have precluded administration of early-generation CAR-T products in community hospitals and outpatient infusion sites.

Our CAR-T Pipeline

The following table summarizes our CAR-T oncology product candidate portfolio:

 

 

LOGO

*Phase 3 may not be necessary if Phase 1/2 can serve as a registrational clinical trial. The FDA has not indicated whether a Phase 1/2 clinical trial would be considered a registrational clinical trial or whether Phase 3 clinicial trials will be required for any of our product candidates.

 

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P-BCMA-101.    Our lead product candidate is an autologous CAR-T therapy being developed to treat patients with relapsed/refractory multiple myeloma. P-BCMA-101 targets cells that express B cell maturation antigen, or BCMA, which is expressed on essentially all multiple myeloma cells. P-BCMA-101 is engineered with our non-viral piggyBac manufacturing method, resulting in a high percentage of TSCM cells. Preliminary results from our ongoing Phase 1 clinical trial of P-BCMA-101 showed that as of November 21, 2018, of the 19 patients that were evaluable, 14 had meaningful responses (either stringent complete response, complete response, very good partial response, partial response or minimal response, by IMWG criteria), with an ORR of 100% in three evaluable patients that had received the planned Phase 2 dose of P-BCMA-101. In addition, as of November 21, 2018, P-BCMA-101 continued to be well tolerated in the trial, with two mild and transient instances of CRS observed, and one patient with possible neurotoxicity, each of which occurred at doses below the planned Phase 2 dose. We continue to enroll patients in, and intend to use the data from, this trial to meet with the FDA in early 2019 to discuss our plan to initiate a Phase 2 clinical trial in the first half of 2019.

P-PSMA-101.    P-PSMA-101 is an autologous CAR-T product candidate being developed with the goal of enabling treatment of patients with CRPC. P-PSMA-101 targets cells that express prostate-specific membrane antigen, or PSMA, which is expressed on most prostate cancer cells. P-PSMA-101 also utilizes our piggyBac manufacturing method, resulting in a high percentage of TSCM cells. P-PSMA-101 has demonstrated elimination of tumor cells to undetectable levels in 100% of animals, with one incidence of a relapse in the low dose cohort, in a preclinical model of prostate cancer in which immuno-deficient mice were implanted with solid tumors comprised of a human metastatic CRPC cell line. See pages 99 and 120 for additional information regarding this study. To our knowledge based on published literature, no other product candidate has shown complete solid tumor elimination in any animal in this preclinical model.

P-PSMA-101 is currently undergoing IND-enabling activities and we anticipate an IND filing and initiation of a Phase 1 clinical trial in the second half of 2019.

P-BCMA-ALLO1.    P-BCMA-ALLO1 is an allogeneic, or universal donor, CAR-T product candidate using well-characterized cells derived from a healthy donor as starting material and is being developed with the goal of enabling treatment of potentially hundreds or thousands of patients with multiple myeloma from a single manufacturing run. Doses could be cryopreserved and stored at treatment centers for future off-the-shelf use. P-BCMA-ALLO1 utilizes our proprietary Cas-CLOVER gene editing technology to reduce or eliminate alloreactivity. We anticipate an IND filing and initiation of a Phase 1 clinical trial for P-BCMA-ALLO1 by late 2019 or early 2020.

P-MUC1C-101.    P-MUC1C-101 is an autologous CAR-T product candidate in late-stage preclinical development for multiple solid tumor indications. We believe P-MUC1C-101 has the potential to treat a wide range of solid tumors derived from epithelial cells, such as breast, colorectal, lung, ovarian, pancreatic and renal cancers, as well as other cancers expressing a cancer-specific form of the Mucin 1 protein, or MUC1C. P-MUC1C-101 has shown the elimination of tumor cells to undetectable levels in a preclinical model of breast cancer in which immuno-deficient mice were implanted with a human metastatic breast cancer cell line. See page 128 for additional information regarding this study. We anticipate an IND filing and initiation of a Phase 1 clinical trial for P-MUC1C-101 in 2020.

Our Proprietary Technologies

We have developed a proprietary suite of technologies that we believe capitalizes on the benefits of TSCM cells. Our primary differentiating technologies include:

 

   

Ability to Increase Percentage of TSCM Cells.    We believe our ability to generate CAR-T product candidates that are comprised of a high percentage of TSCM cells will provide the potential to increase duration of response, possibly allow for re-response and lead to a more gradual production of TEFF cells, thereby reducing toxicity and the requirement for an intensive care unit at treatment sites.

 

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Non-Viral Gene Insertion.    Our proprietary piggyBac DNA Modification System is highly efficient and has a significantly larger genetic cargo capacity compared to viral methods. As a result, our product candidates can contain transgenes large enough to include multiple CAR and/or TCR molecule genes, a selection gene, a safety switch gene, and potentially other cargo as needed for specific treatment applications, potentially making it more flexible.

 

   

Gene Editing with Precise Specificity.    Our proprietary, highly precise Cas-CLOVER gene editing technology has shown little to no off-target activity in our preclinical studies and we believe it can efficiently edit resting T cells, allowing for the maintenance of TSCM product composition in allogeneic product candidates.

 

   

Additional Proprietary Tools:

 

  -   Positive selection.    We create product candidates utilizing a fully-human drug resistance gene that can be employed during manufacturing to create a purified product that is essentially 100% CAR-positive, minimizing one of the sources of CAR-T toxicity and thereby potentially enhancing the therapeutic index.

 

  -   iCasp9-based safety switch.    We have developed a proprietary safety switch comprised of fully-human genes that can be activated by administration of a small molecule, and thereafter, has the potential to rapidly eliminate some or all administered CAR-T cells in the patient.

 

  -   Booster molecules.    We have developed an approach that enables improved expansion of gene-edited allogeneic cells without affecting their desirable TSCM characteristics.

 

  -   CAR binding libraries.    Instead of traditional single chain variable fragment, or scFv, binders, we utilize novel binder technologies which we believe are stable, do not result in tonic signaling and result in low to no immunogenicity.

Our Strategy

Our mission is to develop cell and gene therapies with the capacity to cure.

We intend to develop and commercialize novel cell and gene therapy products by using our broad gene engineering platform technologies to treat patients with high unmet medical need, initially focusing on CAR-T product candidates for oncology indications. We plan to pursue our mission through the following strategies:

 

   

Rapidly develop and commercialize novel CAR-T therapies targeting hematological malignancies.    We developed P-BCMA-101, a product candidate for patients with relapsed/refractory multiple myeloma, which is one of the more challenging hematological malignancies to treat, in order to showcase the advantages of our proprietary platform technologies. Over time, we plan to develop our product candidates in earlier lines of treatment and other hematological malignancies and will seek to commercialize in community hospital settings, and eventually in outpatient infusion sites.

 

   

Leverage the strength and breadth of our platform technologies to develop CAR-T therapies in solid tumors.    Our platform technology is designed to address the historical CAR-T limitations in treating solid tumors, which result from the lack of product persistence needed to have a clinical impact on these indications. We are advancing both P-PSMA-101 and P-MUC1C-101 as our initial product candidates for the treatment of solid tumors.

 

   

Utilize our proprietary next-generation gene editing capabilities to develop allogeneic CAR-T products.    Our lead allogeneic product candidate, P-BCMA-ALLO1, was designed to demonstrate our ability to develop a universal donor product candidate that has the same inherent properties and functions of our autologous anti-BCMA product candidate, P-BCMA-101. We plan to rapidly develop, and if approved, commercialize P-BCMA-ALLO1 and eventually develop an allogeneic version of all of our hematological and solid tumor product candidates.

 

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Fully exploit the versatility and scalability of our technology and capabilities beyond CAR-T for oncology.    Our platform technologies have the potential to generate a broad array of future product candidates to treat a multitude of indications outside of oncology. For example, P-HBB-101, a non-CAR-T product candidate, is in early preclinical development for sickle cell disease.

 

 

LOGO

Our Team

We have assembled an experienced and highly qualified management team with deep expertise in cell and gene therapy and a successful record of building and growing biotechnology companies. Our Chief Executive Officer, Eric Ostertag, Ph.D., M.D., was the first graduate from the Gene Therapy Program at the University of Pennsylvania and has over 20 years of experience in cell and gene engineering, founding multiple biotechnology companies, including Transposagen Biopharmaceuticals, Inc. Dr. Ostertag served as Transposagen’s Chief Executive Officer for 13 years, developing next-generation genetic engineering technologies that were eventually spun out to create Poseida Therapeutics, Inc. in early 2015. We are also supported by a veteran group of life science investors including Longitude Capital, Vivo Capital, Boxer Capital and Malin Corporation.

Risks Associated with Our Business

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

 

   

We are 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 significant losses for the foreseeable future. We have never generated any revenue from product sales and may never be profitable.

 

   

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

 

   

Our product candidates are in the early stages of development. We only recently began clinical trials to test one of our product candidates in humans and, as a company, we have limited experience in this area. We may not be able to successfully complete clinical development of any of our product candidates.

 

   

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

 

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

 

   

We rely on third parties to conduct our clinical trials, perform some of our research and preclinical studies and provide certain manufacturing services. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs.

 

   

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

 

   

We are currently party to several in-license agreements under which we acquired rights to use, develop, manufacture and/or commercialize certain of our gene engineering technologies and resulting product candidates. If we breach our obligations under these agreements, we may be required to pay damages, lose our rights to these technologies or both.

 

   

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

 

   

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

 

   

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

Corporate Information

We were incorporated in Delaware in December 2014. Our principal executive offices are located at 4242 Campus Point Court, Suite 700, San Diego, CA 92121, and our telephone number is 858-779-3100. Our website address is www.poseida.com. The information contained in, or that can be accessed through, our website is not part of this prospectus.

Poseida Therapeutics, Inc. was created through a corporate reorganization of Transposagen Biopharmaceuticals, Inc., or Transposagen, with the purpose of pursuing Transposagen’s gene engineering tools for developing therapeutic products. Transposagen is based in Lexington, Kentucky and has been a leader in developing gene engineering technologies since 2003. Our Chief Executive Officer, Eric Ostertag, M.D., Ph.D., was the founder and Chief Executive Officer of Transposagen.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

reduced obligations with respect to financial data, including presenting only two years of audited financial statements in addition to any required unaudited interim financial statements and only two years of selected financial data;

 

   

an exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act of 2002, or the Sarbanes Oxley Act;

 

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

 

   

reduced disclosure obligations about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements.

In addition, as an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless we later irrevocably elect not to avail ourselves of this exemption. We have elected to use this extended transition period under the JOBS Act; however, we may choose to early adopt new or revised accounting pronouncements, if permitted under such pronouncements.

We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Because we have taken advantage of certain reduced reporting requirements, the information contained herein may be different from the information you receive from other public companies in which you hold stock.

 

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The Offering

 

Common stock offered by us

                 shares

 

Option to purchase additional shares

                 shares

 

Common stock to be outstanding immediately following this offering

                 shares (or                  shares if the underwriters exercise in full their option to purchase additional shares)

 

Use of proceeds

We estimate that the net proceeds from this offering will be approximately $             million, or $             million if the underwriters exercise their option to purchase additional shares in full, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $             per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus. We intend to use the net proceeds from this offering to fund the preclinical and clinical development of our product candidates, research and development of new discovery programs for both the CAR-T and gene therapy platforms and for working capital and general corporate purposes. See the section titled “Use of Proceeds.”

 

Risk factors

You should read the section titled “Risk Factors” for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

 

Proposed Nasdaq Global Select Market symbol

“PSTX”

The number of shares of common stock to be outstanding after this offering is based on 33,490,647 shares of common stock outstanding as of September 30, 2018, and excludes the following:

 

   

2,468,240 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2018 with a weighted-average exercise price of $2.61 per share;

 

   

4,400,000 shares of common stock reserved for issuance under our 2019 Equity Incentive Plan, or the 2019 Plan, which will become effective in connection with this offering, as well as any automatic annual increases in the number of shares of common stock reserved for future issuance under the 2019 Plan, as more fully described in the section titled “Equity Compensation—Equity Plans;”

 

   

440,000 shares of common stock reserved for future issuance under our 2019 Employee Stock Purchase Plan, or 2019 ESPP, which will become effective in connection with this offering, as well as any automatic annual increases in the number of shares of common stock reserved for future issuance under the 2019 ESPP, as more fully described in the section titled “Equity Compensation—Equity Plans;”

 

   

116,618 shares of common stock issuable upon the exercise of outstanding warrants as of September 30, 2018, with an exercise price of $3.43 per share;

 

   

17,212 shares of common stock issuable upon the exercise of an outstanding warrant as of September 30, 2018, with an exercise price of $5.81 per share; and

 

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up to 1,893,287 shares of common stock potentially issuable to the former stockholders of Vindico NanoBioTechnology, Inc. if a specified preclinical development milestone is achieved prior to July 31, 2019.

Unless otherwise indicated, all information in this prospectus assumes:

 

   

the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 18,200,011 shares of common stock immediately prior to and in connection with the completion of this offering;

 

   

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

 

   

no exercise of the underwriters’ option to purchase additional shares; and

 

   

no exercise or cancellation of outstanding options or warrants subsequent to September 30, 2018; however, any options issued under our 2015 Equity Incentive Plan that expire, terminate or are forfeited will become available for issuance under our 2019 Equity Incentive Plan.

 

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Summary Consolidated Financial Data

The following tables set forth a summary of our historical consolidated financial data as of, and for the periods ended on, the dates indicated. We have derived the summary consolidated statements of operations data for the years ended December 31, 2016 and 2017 and the summary consolidated balance sheet data as of December 31, 2017 from our audited consolidated financial statements appearing elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the nine months ended September 30, 2017 and 2018 and the summary consolidated balance sheet data as of September 30, 2018 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements included in this prospectus and, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of September 30, 2018 and results of operations for the nine months ended September 30, 2017 and 2018. You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Year Ended
December 31,
    Nine Months Ended
September 30,
 
     2016     2017     2017     2018  
                 (unaudited)  

Consolidated Statements of Operations Data:

        

(In thousands, except share and per share amounts)

        

Revenue

   $ 9,768     $ 2,985     $ 2,985     $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     9,264       19,099       14,745       21,130  

General and administrative

     5,353       5,479       3,884       7,277  

Increase (decrease) in contingent consideration

     —         (1,925     (768     1,462  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     14,617       22,653       17,861       29,869  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (4,849     (19,668     (14,876     (29,869

Other income (expense):

        

Interest expense

     —         (558     (228     (1,167

Other income (expense), net

     109       37       45       (686
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income tax

     (4,740     (20,189     (15,059     (31,722

Income tax benefit

     165       527       188       208  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (4,575   $ (19,662   $ (14,871   $ (31,514
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.35   $ (1.38   $ (1.06   $ (2.08
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding, basic and diluted

     12,909,518       14,198,666       14,044,726       15,158,963  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted(1)

     $ (0.78     $ (0.96
    

 

 

     

 

 

 

Pro forma weighted average common shares outstanding, basic and diluted(1)

       25,348,462         31,859,098  
    

 

 

     

 

 

 

 

(1)   See Notes 2 and 16 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical and pro forma net loss per share of common stock, basic and diluted, and the number of shares used in the computation of the per share amounts.

 

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     September 30, 2018  
              Actual                  Pro Forma(2)         Pro Forma
    As Adjusted(3)    
 
           (unaudited)        

Consolidated Balance Sheet Data:

      

(In thousands)

      

Cash and cash equivalents

   $ 38,534     $ 38,534     $    

Working capital(1)

     30,640       30,640    

Total assets

     47,712       47,712    

Term debt, net of discount

     19,023       19,023                     

Preferred warrant liability

     1,336       —      

Convertible preferred stock

     72,460       —      

Total stockholders’ equity (deficit)

     (64,215     9,581    

 

(1)   We define working capital as total current assets less total current liabilities. See our consolidated financial statements included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
(2)   Gives effect to (i) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 18,200,011 shares of our common stock and the resulting reclassification of the carrying value of the preferred stock to additional paid-in capital, (ii) the automatic conversion of all outstanding warrants to purchase shares of preferred stock into warrants to purchase up to an aggregate of 116,618 shares of our common stock and the resulting reclassification of the carrying value of the warrant liability to additional paid-in capital, and (iii) the filing and effectiveness of our amended and restated certificate of incorporation, each of which will occur immediately prior to the completion of this offering.
(3)   Gives effect to (i) the pro forma adjustments set forth in footnote (2) above and (ii) our issuance and sale of          shares of our common stock in this offering at the assumed initial public offering price of $         per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $         , assuming the number of shares offered by us, as set forth on the cover page of this prospectus remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, at the assumed initial public offering price of $         per share would increase (decrease) the pro forma as adjusted amounts of each of cash and cash equivalents, working capital, total assets and total stockholders’ equity by approximately $         , after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

 

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RISK FACTORS

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

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

We 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 significant losses for the foreseeable future. We have never generated any revenue from product sales and may never be profitable.

We are a clinical-stage biopharmaceutical company with a very limited operating history that may make it difficult to evaluate the success of our business to date and to assess our future viability. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, establishing and protecting our intellectual property portfolio, developing our gene engineering technologies, identifying potential product candidates and undertaking research and development and manufacturing activities, including preclinical studies and clinical trials of our product candidates. All of our product candidates are in early development, and none have been approved for commercial sale. We have never generated any revenue from product sales and have incurred net losses each year since we commenced operations. For the years ended December 31, 2016 and 2017 and the nine months ended September 30, 2018, our net losses were $4.6 million, $19.7 million and $31.5 million, respectively. As of September 30, 2018, we had an accumulated deficit of $52.8 million. We expect that it will be several years, if ever, before we have a product candidate ready for regulatory approval and commercialization. We expect to incur increasing levels of operating losses over the next several years and for the foreseeable future as we advance our product candidates through clinical development. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ deficit and working capital.

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

Our recurring losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. As a result, the audit report of our independent registered public accounting firm

 

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contained in our consolidated financial statements for the year ended December 31, 2017 includes an explanatory paragraph that describes conditions that raise substantial doubt about our ability to continue as a going concern. We are seeking to complete an initial public offering, or IPO, of our common stock. In the event we do not complete an IPO, we expect to seek additional funding through private equity financings, debt financings, collaborations or grant funding. However, if we are unable to obtain adequate financing, we could be forced to delay, reduce or eliminate our research and development programs or other operations. If any of these events occur, our ability to achieve the development and commercialization goals would be adversely affected. We do not have any additional financing in place and there can be no assurance that we can obtain financing, if at all, on terms acceptable to us.

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

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

As of September 30, 2018, we had $38.5 million in cash and cash equivalents. With the expected net proceeds from this offering, we believe that our cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next          months from the date of this offering. However, the expected net proceeds from this offering will not be sufficient to fund any of our product candidates through regulatory approval, and we will need to raise substantial additional capital to complete the development and commercialization of our product candidates.

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

 

   

scope, progress and results of our ongoing and planned preclinical studies and clinical trials for our product candidates;

 

   

unanticipated serious safety concerns related to the use of our product candidates;

 

   

timing of licensing payments we may be required to make based on the development of our product candidates;

 

   

the number of and development requirements of other product candidates that we may pursue;

 

   

the timing and outcome of regulatory review of our product candidates;

 

   

changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approval;

 

   

our decisions to initiate additional clinical trials, not to initiate any clinical trial or to terminate an existing clinical trial;

 

   

the cost of obtaining raw materials and drug product for clinical trials and commercial supply;

 

   

whether we decide to establish a pilot manufacturing facility for supply of product candidates for clinical trials; and

 

   

additions or departures of key scientific or management personnel.

 

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

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

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

If we raise funds through collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

The terms of our loan agreement place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business.

We have an outstanding term loan in the principal amount of $20.0 million under our loan and security agreement, as amended, with Oxford Finance LLC, or Oxford. The loan is secured by a lien covering substantially all of our personal property, rights and assets, excluding intellectual property. The loan agreement contains customary affirmative and negative covenants and events of default applicable to us and any subsidiaries. The affirmative covenants include, among others, covenants requiring us (and us to cause our subsidiaries, if any) to maintain governmental approvals, deliver certain financial reports, maintain insurance coverage, keep inventory, if any, in good and marketable condition and protect material intellectual property. The negative covenants include, among others, restrictions on us and our subsidiaries transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying cash dividends or making other distributions, making investments, creating liens, selling assets and making any payment on subordinated debt, in each case subject to certain exceptions. The restrictive covenants of the loan agreement could cause us to be unable to pursue business opportunities that we or our stockholders may consider beneficial. In addition, Oxford could declare a default upon the occurrence of any event that it interprets as a material adverse change as defined under the loan agreement. If we default under the loan agreement, Oxford may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately cease operations. Further, if we are liquidated, Oxford’s right to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation. Any declaration by Oxford of an event of default could significantly harm our business and prospects and could

 

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cause the price of our common stock to decline. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.

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

Our product candidates are in the early stages of development. We only recently began clinical trials to test one of our product candidates in humans and, as a company, we have limited experience in this area.

We are early in our development efforts and most of our operations to date have been limited to developing our gene-engineering technologies, establishing manufacturing capabilities and conducting drug discovery and preclinical studies. Our lead product candidate, P-BCMA-101, entered a Phase 1 clinical trial in December 2017 which was the first time one of our product candidates had been tested in humans. As a result, we have limited infrastructure, experience conducting clinical trials as a company and regulatory interactions, and cannot be certain that our clinical trials will be completed on time, that our planned clinical trials will be initiated on time, if at all, that our planned development programs would be acceptable to the FDA or other comparable foreign regulatory authorities, or that, if approval is obtained, such product candidates can be successfully commercialized.

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

 

   

successful completion of preclinical studies;

 

   

submission of our Investigational New Drug applications, or INDs, or other regulatory applications for our planned clinical trials or future clinical trials and authorizations from regulators to initiate clinical studies;

 

   

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

 

   

receipt of marketing approvals from applicable regulatory authorities;

 

   

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

 

   

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

 

   

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

 

   

effectively competing with other therapies;

 

   

developing and implementing marketing and reimbursement strategies;

 

   

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;

 

   

the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all; and

 

   

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

If we do not achieve one or more of these requirements in a timely manner, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business.

 

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

The research and development of drugs and biological products is extremely risky. Only a small percentage of product candidates that enter the development process ever receive marketing approval. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, can take many years to complete and its outcome is uncertain.

The results of preclinical studies and early clinical trials of our product candidates and other products, even those with the same or similar mechanisms of action, may not be predictive of the results of later-stage clinical trials. In particular, it is not uncommon for product candidates to exhibit unforeseen safety or efficacy issues when tested in humans despite promising results in preclinical animal models. While we have conducted preclinical studies and have Phase 1 clinical trial results for P-BCMA-101 at certain dose levels, we do not know how P-BCMA-101 will perform at higher dose levels, whether any initial tumor responses observed to date will be durable, whether adverse events will arise over time or how P-BCMA-101 will perform in future clinical trials. Other than P-BCMA-101, none of our product candidates has ever been tested in humans. Future results of preclinical and clinical testing of our product candidates are also less certain due to the novel and relatively untested nature of our approach to CAR-T therapy and gene engineering technologies and resulting product candidates. In general, clinical trial failure may result from a multitude of factors including flaws in study design, dose selection, patient enrollment criteria and failure to demonstrate favorable safety or efficacy traits. As such, failure in clinical trials can occur at any stage of testing. A number of companies in the biopharmaceutical industry have suffered setbacks in the advancement of clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.

If the results of our clinical trials are inconclusive or if there are safety concerns or adverse events associated with our product candidates, we may:

 

   

incur unplanned costs;

 

   

be delayed in or prevented from obtaining marketing approval for our product candidates;

 

   

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

   

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings including boxed warnings;

 

   

be subject to changes in the way the product is administered;

 

   

be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;

 

   

have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution in the form of a modified Risk Evaluation and Mitigation Strategy, or REMS;

 

   

be subject to the addition of labeling statements, such as warnings or contraindications;

 

   

be sued; or

 

   

experience damage to our reputation.

Treatment with our product candidates involves chemotherapy and myeloablative treatments, which can cause side effects or adverse events that are unrelated to our product candidate but may still impact the success of our clinical trials. Additionally, our product candidates could potentially cause other adverse events. The inclusion of critically ill patients in our clinical trials may result in deaths or other adverse medical events due to other therapies or medications that such patients may be using. As described above, any of these events could

 

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prevent us from obtaining regulatory approval or achieving or maintaining market acceptance of our product candidates and impair our ability to commercialize our products. Because all of our product candidates are derived from our gene engineering technologies, a clinical failure of one of our product candidates may also increase the actual or perceived likelihood that our other product candidates will experience similar failures.

We may encounter substantial delays in our clinical trials.

We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. For example, we cannot begin our planned Phase 1 clinical trials for P-PSMA-101, P-BCMA-ALLO1 or P-MUC1C-101 until we complete certain preclinical development and submit and receive approvals of INDs. Other events that may prevent successful or timely completion of clinical development include:

 

   

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

 

   

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

 

   

delays in obtaining required institutional review board, or IRB, approval at each clinical trial site;

 

   

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

 

   

imposition of a clinical hold by regulatory agencies, after an inspection of our clinical trial operations or study sites;

 

   

failure by our CROs, other third parties or us to adhere to the trial protocol or the FDA’s good clinical practices, or GCPs, or applicable regulatory guidelines in other countries;

 

   

third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other comparable foreign regulatory authorities for violations of applicable regulatory requirements;

 

   

delays in the testing, validation, manufacturing and delivery of our product candidates to the treatment sites, including due to a facility manufacturing any of our product candidates or any of their components being ordered by the FDA or comparable foreign regulatory authorities to temporarily or permanently shut down due to violations of current good manufacturing practices, or cGMPs, regulations or other applicable requirements, or infections or cross-contaminations of product candidates in the manufacturing process;

 

   

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

 

   

clinical trial sites or patients dropping out of a study;

 

   

discovering that product candidates have unforeseen safety issues, undesirable side effects or other unexpected characteristics;

 

   

to the extent that we conduct clinical trials in foreign countries, the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries;

 

   

receiving untimely or unfavorable feedback from applicable regulatory authorities regarding the trial or requests from regulatory authorities to modify the design of a trial;

 

   

suspensions or terminations by IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by regulatory authorities due to a number of factors, including those described above;

 

   

lack of adequate funding; or

 

   

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

 

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Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to raise capital, generate revenues from product sales and enter into or maintain collaboration arrangements. In addition, if we make manufacturing changes to our product candidates, we may need to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

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

We have concentrated our research and development efforts on product candidates using our gene engineering technologies, and our future success depends on the successful development of this approach. CAR-T and gene editing in general are newly-emerging fields and our approaches in particular have not been extensively tested over any significant period of time. In particular, while we believe that CAR-T products with higher percentages of Tscm cells may be capable of overcoming certain challenges faced by early-generation CAR-T products, we cannot be certain that increasing the percentage of these cells will result in the intended benefits or will not result in unforeseen negative consequences over time, including due to the potential long-term persistence of the modified cells in the body. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing any products on a timely or profitable basis, if at all.

In addition, the clinical trial requirements of the FDA, the European Medicines Agency, or EMA, and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates. While CAR-T and gene therapy products have made progress in recent years, only a small number of products have been approved in the United States or other markets, which makes it difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates.

In addition, the gene-editing industry is rapidly developing, and our competitors may introduce new technologies that render our technologies obsolete or less attractive. New technology could emerge at any point in the development cycle of our product candidates. As competitors use or develop alternative technologies, any failures of such technologies could adversely impact our programs. For example, recent studies suggested that gene editing using the CRISPR-Cas9 method may increase the risk that the edited cells themselves become cancerous. Regardless of our belief that our non-viral Cas-CLOVER approach to gene editing may avoid some of the issues identified in these studies, it is possible that our approach will be associated with similar risks or that issues encountered with other gene editing techniques will create a negative perception of or increase scrutiny for our technologies and product candidates.

Regulatory requirements governing products created with gene editing technology or involving gene therapy treatment have changed frequently and will likely continue to change in the future. Approvals by one regulatory agency may not be indicative of what any other regulatory agency may require for approval, and there is substantial, and sometimes uncoordinated, overlap in those responsible for regulation of gene therapy products and other products created with gene editing technology. For example, under the National Institutes of Health, or NIH, Guidelines for Research Involving Recombinant DNA Molecules, or NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public

 

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health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Even though we may not be required to submit a protocol for our product candidates through the NIH for review, we will still be subject to significant regulatory oversight by the FDA, and in addition to the government regulators, the applicable IBC and institutional review board, or IRB, of each institution at which we conduct clinical trials of our product candidates, or a central IRB if appropriate, would need to review and approve the proposed clinical trial.

Additionally, adverse developments in clinical trials conducted by others of gene therapy products or products created using genome editing technology, such as products developed through the application of a CRISPR/Cas9 technology, or adverse public perception of the field of gene editing, may cause the FDA and other regulatory bodies to revise the requirements for approval of any product candidates we may develop or limit the use of products utilizing gene editing technologies, either of which could materially harm our business. Furthermore, regulatory action or private litigation could result in expenses, delays or other impediments to our research programs or the development or commercialization of current or future product candidates.

We are also developing allogeneic CAR-T product candidates that are engineered from healthy donor T cells and are intended for use in any patient with certain cancers. Allogeneic versions of CAR-T product candidates is an unproven field of development and is subject to particular risks that are difficult to quantify, including understanding and addressing variability in the quality of a donor’s T cells and the patient’s potential immune reaction to the foreign donor cells, which could ultimately affect safety, efficacy and our ability to produce product in a reliable and consistent manner.

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

To date, we have only tested P-BCMA-101 in a limited number of patients with cancer and these clinical trial participants have only been observed for a limited period of time after dosing. As we continue developing our product candidates and initiate clinical trials of our additional product candidates, serious adverse events, undesirable side effects, relapse of disease or unexpected characteristics may emerge causing us to abandon these product candidates or limit their development to more narrow uses or subpopulations in which the serious adverse events or undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective or in which efficacy is more pronounced or durable. For example, a significant risk observed in prior CAR-T product clinical trials, which in some instances resulted in patient deaths, is the development of cytokine release syndrome, or CRS. While they were mild in nature, at least two instances of CRS have been reported in our on-going Phase 1 clinical trial of P-BCMA-101. Should we observe additional or more severe cases of CRS in our clinical trials or if we identify other undesirable side effects or other unexpected findings depending on their severity, our trials could be delayed or even stopped and our development programs may be halted entirely. In addition, SAEs of neutropenia, thrombocytopenia, anemia and infection were observed. We believe these SAEs are not related to P-BCMA-101 as they are consistent with conditioning lymphodepletion therapy and the underlying disease. One SAE of Grade 3 confusion was also observed in a patient although mental status changes occurred before administration of P-BCMA-101.

Even if our product candidates initially show promise in early clinical trials, the side effects of biological products are frequently only detectable after they are tested in larger, longer and more extensive clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. Sometimes, it can be difficult to determine if the serious adverse or unexpected side effects were caused by the product candidate or

 

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another factor, especially in oncology subjects who may suffer from other medical conditions and be taking other medications. If serious adverse or unexpected side effects are identified during development or after approval and are determined to be attributed to our product candidate, we may be required to develop a REMS to ensure that the benefits of treatment with such product candidate outweigh the risks for each potential patient, which may include, among other things, a communication plan to health care practitioners, patient education, extensive patient monitoring or distribution systems and processes that are highly controlled, restrictive and more costly than what is typical for the industry. Product-related side effects could also result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

In addition, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

the product may become less competitive;

 

   

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

 

   

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

In the future, certain of our product candidates may require companion diagnostics in certain indications. Failure to successfully develop, validate and obtain regulatory clearance or approval for such tests could harm our product development strategy or prevent us from realizing the full commercial potential of our product candidates.

In the future certain of our product candidates may require companion diagnostics to identify appropriate patients for those product candidates in certain indications. Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as a medical device and may require separate regulatory authorization prior to commercialization. We may rely on third parties for the design, development, testing and manufacturing of these companion diagnostics, the application for and receipt of any required regulatory authorization, and the commercial supply of these companion diagnostics. If these parties are unable to successfully develop companion diagnostics for these product candidates, or experience delays in doing so, the development of our product candidates may be adversely affected, and we may not be able to obtain marketing authorization for these product candidates. Furthermore, our ability to market and sell, as well as the commercial success, of any of our product candidates that require a companion diagnostic will be tied to, and dependent upon, the receipt of required regulatory authorization and the continued ability of such third parties to make the companion diagnostic commercially available on reasonable terms in the relevant geographies. Any failure to develop, validate, obtain and maintain marketing authorization for or manufacture a companion diagnostic such companion diagnostic will harm our business, results of operations and financial condition.

Our product candidates must meet extensive regulatory requirements before they can be commercialized and any regulatory approval may contain limitations or conditions that require substantial additional development expenses or limit our ability to successfully commercialize the product.

The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA in the

 

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United States and by comparable foreign regulatory authorities in foreign markets. In the United States, we are not permitted to market our product candidates until we receive regulatory approval from the FDA. The process of obtaining regulatory approval is expensive, often takes many years following the commencement of clinical trials and can vary substantially based upon the type, complexity and novelty of the product candidates involved, as well as the target indications and patient population. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed. In addition, while P-BCMA-101 has received a Regenerative Medicine Advanced Therapy, or RMAT, designation, the designation does not change the standards for product approval, and there is no assurance that such designation or eligibility will result in expedited review or approval or that the approved indication will not be narrower than the indication covered by the RMAT designation. To date, we have not submitted a biologics license application, or BLA, or other marketing authorization application to the FDA or similar drug approval submissions to comparable foreign regulatory authorities for any product candidate.

Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our potential future collaborators must demonstrate with substantial evidence from adequate and well-controlled clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory authorities, that such product candidates are safe and effective for their intended uses. Even if we believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and comparable foreign regulatory authorities. In particular, because we are seeking to identify and develop product candidates using new technologies, there is heightened risk that the FDA or other regulatory authorities may impose additional requirements prior to granting marketing approval, including enhanced safety studies or monitoring. Furthermore, as more product candidates within a particular class of products proceed through clinical development to regulatory review and approval, the amount and type of clinical data that may be required by regulatory authorities may increase or change.

The FDA or comparable foreign regulatory authorities can delay, limit or deny approval of a product candidate for many reasons, including:

 

   

such authorities may disagree with the design or implementation of our clinical trials;

 

   

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

 

   

serious and unexpected product-related side effects may be experienced by participants in our clinical trials or by individuals using biological products similar to our product candidates;

 

   

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

 

   

such authorities may not accept clinical data from trials which are conducted at clinical facilities or in countries where the standard of care is potentially different from that of the United States;

 

   

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

   

such authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

 

   

such authorities may not agree that the data collected from clinical trials of our product candidates are acceptable or sufficient to support the submission of an application for regulatory approval or other submissions or to obtain regulatory approval in the United States or elsewhere, and such authorities may impose requirements for additional preclinical studies or clinical trials;

 

   

such authorities may disagree regarding the formulation, labeling and/or the specifications of our product candidates;

 

   

approval may be granted only for indications that are significantly more limited than what we apply for and/or with other significant restrictions on distribution and use;

 

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such authorities may fail to approve any required companion diagnostics to be used with our product candidates;

 

   

such authorities may find deficiencies in the manufacturing processes or facilities of our third-party manufacturers with which we or any of our potential future collaborators contract for clinical and commercial supplies; or

 

   

the approval policies or regulations of such authorities may significantly change in a manner rendering our or any of our potential future collaborators’ clinical data insufficient for approval.

With respect to foreign markets, approval procedures vary among countries and, in addition to the foregoing risks, may involve additional product testing, administrative review periods and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased cautiousness by the FDA and comparable foreign regulatory authorities in reviewing new products based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals.

Even if we eventually complete clinical trials and receive approval to commercialize our product candidates, the FDA or comparable foreign regulatory authority may grant approval contingent on the performance of costly additional clinical trials, including Phase 4 clinical trials, and/or the implementation of a REMS. The FDA or the comparable foreign regulatory authority also may approve a product candidate for a more limited indication or patient population than we originally requested or may not approve the labeling that we believe is necessary or desirable for the successful commercialization of a product. Manufacturers of our products and manufacturers’ facilities are also required to comply with cGMP regulations, which include requirements related to quality control and quality assurance, as well as the corresponding maintenance of records and documentation. Further, regulatory authorities must approve these manufacturing facilities before they can be used to manufacture our products, and these facilities are subject to continual review and periodic inspections by the FDA and other comparable foreign regulatory authorities for compliance with cGMP regulations.

Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of that product candidate and would materially adversely impact our business and prospects.

Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

If the FDA, EMA or any other comparable regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration requirements and continued compliance with cGMPs, and good clinical practices, or GCPs, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

   

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

 

   

fines, untitled or warning letters or holds on clinical trials;

 

   

refusal by the FDA, the EMA or any other comparable regulatory authority to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals;

 

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

 

   

injunctions or the imposition of civil or criminal penalties.

Moreover, if any of our product candidates are approved, our product labeling, advertising and promotion will be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about biopharmaceutical products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling.

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

In addition, the policies of the FDA, the EMA and other comparable regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. 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, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance and review and approval of marketing applications. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose restrictions on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. If we or are slow or unable to adapt to changes in existing requirements or the adoption of new requirements, or if we are unable to maintain regulatory compliance, marketing approval that has been obtained may be lost and we may not achieve or sustain profitability.

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

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

 

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

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

 

   

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

 

   

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

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

Risks Related to Manufacturing, Commercialization and Reliance on Third Parties

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

We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. As a result, we are and expect to remain dependent on third parties to conduct our ongoing Phase 1 clinical trial and any future clinical trials of our product candidates. Specifically, we expect CROs, clinical investigators, and consultants to play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, we will not be able to control all aspects of their activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs and other third parties does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, clinical trial investigators and clinical trial sites. If we or any of our CROs or clinical trial sites fail to comply with applicable GCP requirements, the data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to stop and/or repeat clinical trials, which would delay the marketing approval process.

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

 

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comparable foreign regulatory authority. Any such delay or rejection could prevent us from commercializing our product candidates.

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

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

We do not have any manufacturing facilities. We produce in our laboratory relatively small quantities of product for evaluation in our research programs. We rely on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates are approved. We are evaluating whether to establish a pilot manufacturing facility and have entered into an option to lease property adjacent to our office for that purpose. Even if we are successful in establishing a pilot manufacturing facility, we expect that we will continue to rely on third parties for various manufacturing needs. We currently have limited manufacturing arrangements and expect that each of our product candidates will only be covered by single source suppliers for the foreseeable future. This reliance increases the risk that we will not have sufficient quantities of our product candidates or products, if approved, or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

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

In the event that any of our manufacturers fails to comply with such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third-party, which we may not be able to do on commercially reasonable terms, if at all. In particular, any replacement of our manufacturers could require significant effort and expertise because there may be a limited number of qualified replacements. In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty transferring such skills or technology to another third-party and a feasible alternative may not exist. In addition, certain of our product candidates and our own proprietary methods have never been produced or implemented outside of our company, and we may therefore experience delays to our development programs if and when we attempt to establish new third-party manufacturing arrangements for these product candidates or methods. These factors would increase

 

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our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third-party manufacture our product candidates. If we are required to or voluntarily change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.

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

 

   

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

 

   

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

 

   

loss of the cooperation of future collaborators;

 

   

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

 

   

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

 

   

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

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

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

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

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

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

 

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

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

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

 

   

efficacy and potential advantages compared to alternative treatments;

 

   

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

 

   

convenience and ease of administration compared to alternative treatments;

 

   

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

 

   

the strength of marketing and distribution support; and

 

   

the prevalence and severity of any side effects.

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

Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time-consuming and costly process, with uncertain results, that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. There may be significant delays in obtaining such coverage and reimbursement for newly approved products, and coverage may not be available, or may be more limited than the purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacture, sale and distribution expenses. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors, by any future laws limiting drug prices and by any future relaxation of laws that presently restrict imports of product from countries where they may be sold at lower prices than in the United States.

 

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

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

 

   

a covered benefit under its health plan;

 

   

safe, effective and medically necessary;

 

   

appropriate for the specific patient;

 

   

cost-effective; and

 

   

neither experimental nor investigational.

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

Reimbursement may impact the demand for, and the price of, any product for which we obtain marketing approval. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Separate reimbursement for the product itself may or may not be available. Instead, the hospital or administering physician may be reimbursed only for providing the treatment or procedure in which our product is used. Further, from time to time, CMS revises the reimbursement systems used to reimburse health care providers, including the Medicare Physician Fee Schedule and Hospital Outpatient Prospective Payment System, which may result in reduced Medicare payments.

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

Additionally, we or collaborators may develop companion diagnostic tests for use with our product candidates. We, or our collaborators, will be required to obtain coverage and reimbursement for these tests separate and apart from the coverage and reimbursement we may seek for our product candidates. While we have

 

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not yet developed any companion diagnostic tests for our product candidates, if we do, there is significant uncertainty regarding our ability to obtain coverage and adequate reimbursement for the same reasons applicable to our product candidates.

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

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

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act, signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our product candidates.

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

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

If the market opportunities for any of our product candidates are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.

We are focused initially on the development of treatments for cancer. Our projections of addressable patient populations that have the potential to benefit from treatment with our product candidates are based on estimates.

 

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If any of our estimates are inaccurate, the market opportunities for any of our product candidates could be significantly diminished and have an adverse material impact on our business.

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

Because we rely on third parties to research and develop and to manufacture our product candidates, we must share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s independent discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with will likely expect to be granted rights to publish data arising out of such collaboration and any joint research and development programs may require us to share trade secrets under the terms of our research and development or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

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

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

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

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

 

   

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

 

   

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

 

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

 

   

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

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

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

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

Risks Related to Our In-Licenses and Other Strategic Agreements

We are currently party to several in-license agreements under which we acquired rights to use, develop, manufacture and/or commercialize certain of our gene engineering technologies and resulting product candidates. If we breach our obligations under these agreements, we may be required to pay damages, lose our rights to these technologies or both, which would adversely affect our business and prospects.

We rely, in part, on license and other strategic agreements, which subject us to various obligations, including diligence obligations with respect to development and commercialization activities, payment obligations for achievement of certain milestones and royalties on product sales, negative covenants and other material obligations. For example, with respect to P-BCMA-101 and P-PSMA-101, we license Centyrin binders under an agreement with Janssen Biotech Inc., with respect to P-BCMA-ALLO1, we license heavy chain only antibodies (VH) binders under an agreement with TeneoBio, Inc. and with respect to our Cas-CLOVER gene editing technology, which we use in the manufacture of P-BCMA-ALLO1, we license certain intellectual property under an agreement with Helmholtz-Zentrum München - Deutsches Forschungszentrum für Gesundheit und Umwelt GmbH. If we fail to comply with the obligations under our license agreements or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and our licensors may have the right to terminate the license. If our license agreements are terminated, we may not be able to develop,

 

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manufacture, market or sell the products covered by our agreements and those being tested or approved in combination with such products. Such an occurrence could materially adversely affect the value of the product candidates being developed under any such agreement.

In addition, the agreements under which we license intellectual property or technology to or from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

Our business also would suffer if any current or future licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights.

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

If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant research programs or product candidates and our business, financial condition, results of operations and prospects could suffer.

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

We have entered into in-license agreements with multiple licensors and in the future may seek and form strategic alliances, create joint ventures or collaborations, or enter into acquisitions or additional licensing arrangements with third parties that we believe will complement or augment our existing technologies and product candidates.

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

 

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

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

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

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

Risks Related to Our Industry and Business Operations

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

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing

 

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

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

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

 

   

impairment of our business reputation;

 

   

withdrawal of clinical trial participants;

 

   

costs due to related litigation;

 

   

distraction of management’s attention from our primary business;

 

   

substantial monetary awards to patients or other claimants;

 

   

the inability to commercialize our product candidates; and

 

   

decreased demand for our product candidates, if approved for commercial sale.

We carry product liability insurance of $5.0 million per occurrence and $5.0 million aggregate limit. We believe our product liability insurance coverage is sufficient in light of our current clinical programs; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability claims, or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

Patients with cancer and other diseases targeted by our product candidates are often already in severe and advanced stages of disease and have both known and unknown significant pre-existing and potentially life-

 

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

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

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and The Nasdaq Global Select Market have imposed various requirements on public companies. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Recent legislation permits smaller “emerging growth companies” to implement many of these requirements over a longer period and up to five years from the pricing of this offering. We intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costlier. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain our current levels of such coverage. We estimate that we will annually incur approximately $2.0 million to $3.0 million in additional expenses to comply with the requirements imposed on us as a public company.

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

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, including our President and Chief Executive Officer, our Chief Business and Financial Officer, our Chief Medical Officer and our Vice President, Finance. The loss of the services of any of our executive officers, other key employees, and other scientific and medical advisors, and our inability to find suitable replacements could result in delays in product development and harm our business.

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

To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options that vest over time may be

 

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

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

As of September 30, 2018, we had 46 full-time employees. As we advance our research and development programs, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of clinical development, quality, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must:

 

   

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

 

   

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

 

   

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

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

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

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

The development and commercialization of new products is highly competitive. We compete in the segments of the pharmaceutical, biotechnology and other related markets that develop immunotherapies for the treatment of cancer. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop or that would render any products that we may develop obsolete or non-competitive. Our competitors also may obtain marketing 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. Moreover, with the proliferation of new drugs and therapies into oncology, we expect to face increasingly intense competition as new technologies become available. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. The highly competitive nature of and rapid technological changes in the biotechnology and pharmaceutical industries could render our product candidates or our technology obsolete, less competitive or uneconomical.

 

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

Specifically, there are many companies pursuing a variety of approaches to CAR-T therapies, including Adaptimmune Therapeutics plc, Allogene, Inc., Autolus Ltd., Bellicum Pharmaceuticals Inc., Bluebird Bio, Inc., Cellectis S.A., Janssen Pharmaceuticals Inc., Juno Therapeutics, Inc. (which was recently acquired by Celgene Corporation), Kite Pharma, Inc. (a Gilead Sciences, Inc. company), Nanjing Legend Biotech, and Novartis AG. Immunotherapy and gene therapy approaches are further being pursued by several smaller biotechnology companies as well as larger pharmaceutical companies. We also face competition from non-cell-based treatments offered by companies such as Amgen Inc., AstraZeneca plc, Bristol-Myers Squibb Company, F. Hoffman-La Roche AG, GlaxoSmithKline plc, Merck & Co., Inc. and Pfizer Inc. Many of our competitors, either alone or with their collaboration partners, have substantially greater financial, technical and other resources, such as larger research and development staff and/or greater expertise in research and development, manufacturing, preclinical testing and conducting clinical trials.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other 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, establishing clinical trial sites and subject enrollment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

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

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

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

Despite the implementation of security measures, given their size and complexity and the increasing amounts of confidential information that they maintain, our internal information technology systems and those of our third-party CROs and other contractors and consultants are potentially vulnerable to breakdown or other

 

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damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by our employees, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information), which may compromise our system infrastructure or lead to data leakage. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and reputational damage and the further development and commercialization of our product candidates could be delayed.

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

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

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

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

We have incurred substantial losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. Unused losses for the tax year ended December 31, 2017 and prior tax years will carry forward to offset future taxable income, if any, until such unused losses expire. Unused losses generated after December 31, 2017, under new tax legislation will not expire and may be carried forward indefinitely but will be only deductible to the extent of 80% of current year taxable income in any given year. In addition, both our current and our future unused losses may be subject to limitation under Sections 382 and 383

 

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of the Internal Revenue Code of 1986, as amended, or the Code, if we undergo an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period. As a result, if we earn net taxable income our pre-2018 net operating loss carryforwards may expire prior to being used, our net operating loss carryforwards generated in 2018 and thereafter will be subject to a percentage limitation and, if we undergo an ownership change, our ability to use all of our pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset such taxable income may be subject to limitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, even if we attain profitability, we may be unable to use all or a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows. As of September 30, 2018, we had aggregate federal NOLs of approximately $63.6 million and aggregate U.S. research and development credits of approximately $2.3 million.

U.S. federal income tax reform could adversely affect us.

On December 22, 2017, President Trump signed into law new legislation, known as the Tax Cuts and Jobs Act of 2017, or the Tax Act, that significantly revises the Code. The Tax Act, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. We do not expect the Tax Act to have a material impact to our current projection of minimal cash taxes for the near future. However, we continue to examine the impact that the Tax Act may have on our business in the longer term. Accordingly, notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the Tax Act. The impact of the Tax Act on holders of our common stock is also uncertain and could be adverse. We urge prospective investors to consult with their legal and tax advisors with respect to the Tax Act and the potential tax consequences of investing in or holding our common stock.

Failure to comply with health and data protection laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.

We and any potential collaborators may be subject to federal, state, and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH. Depending on the facts and circumstances, we could be subject to criminal penalties if we knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.

Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal framework that may also apply to health-related and other personal information obtained outside of

 

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the United States, including but not limited to the European Union, or EU. The unstable nature of EU’s data protection landscape may result in possible significant operational costs for internal compliance and risk to our business. While we could take steps to mitigate the impact on us, such as implementing standard contractual clauses and self-certifying under the EU-US Privacy Shield, the efficacy and longevity of these mechanisms remains uncertain. In addition, the EU has adopted the General Data Protection Regulation, or GDPR, which went into effect on May 25, 2018 and contains numerous requirements and changes from existing EU law, including more robust obligations on data controllers and data processors, and heavier documentation requirements for data protection compliance programs by companies. Specifically, the GDPR contains numerous privacy-related changes for companies operating in the EU, including greater control for data subjects (e.g., the “right to be forgotten”), increased data portability for EU consumers, data breach notification requirements, and increased fines. In particular, under the GDPR, fines of up to 20 million euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s requirements. The GDPR requirements would apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, including employee information.

Compliance with the GDPR may cause us to incur substantial operational costs or require us to change our business practices. Despite our efforts to bring practices into compliance before the effective date of the GDPR, we may not be successful either due to internal or external factors such as resource allocation limitations or a lack of vendor cooperation. Non-compliance could result in proceedings against us by governmental entities, customers, data subjects, or others. We may also experience difficulty retaining or obtaining new European or multi-national customers due to the legal requirements, compliance cost, potential risk exposure, and uncertainty for these entities, and we may experience significantly increased liability with respect to these customers pursuant to the terms set forth in our engagements with them. We may find it necessary to establish systems to maintain personal data originating from the EU in the European Economic Area, which may involve substantial expense and distraction from other aspects of our business. In the meantime, there could be uncertainty as to how to comply with EU privacy law.

Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation, breach reporting requirements and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

Changes in healthcare law and implementing regulations, as well as changes in healthcare policy, may impact our business in ways that we cannot currently predict, and may have a significant adverse effect on our business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval. Among policy makers and payors in the United States and elsewhere, including in the European Union, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

The Affordable Care Act, substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Affordable Care Act, among other things: (i) introduced a new methodology by which rebates owed by manufacturers under the Medicaid

 

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Drug Rebate Program are calculated for certain drugs and biologics that are inhaled, infused, instilled, implanted or injected and not generally dispensed through retail community pharmacies; (ii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program; (iii) established a branded prescription drug fee that pharmaceutical manufacturers of branded prescription drugs must pay to the federal government; (iv) expanded the list of covered entities eligible to participate in the 340B drug pricing program by adding new entities to the program; (v) established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (and 70% commencing on January 1, 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; (vi) extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; (vii) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; (viii) created a licensure framework for follow on biologic products; (ix) established a Center for Medicare Innovation at the Centers for Medicare and Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending; and (x) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, as well as recent efforts by the Trump administration to repeal or replace and replace certain aspects of the Affordable Care Act. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. In addition, CMS issued a final rule in 2018 that will give states greater flexibility, starting in 2020, 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 Affordable Care Act for plans sold through such marketplaces. Concurrently, Congress has considered legislation that would repeal or repeal and replace portions of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, the Tax Act includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high-cost, employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. More recently, in July 2018, CMS published a final rule permitting further collections and payments to and from certain Affordable Care Act qualified health plans and health insurance issuers under the Affordable Care Act risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. Congress may consider other legislation to repeal and replace elements of the Affordable Care Act. We continue to evaluate the effect that the Affordable Care Act and its possible repeal and replacement has on our business. It is uncertain the extent to which any such changes may impact our business or financial condition.

Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013 and, due to legislative amendments to the statute, including the BBA, will remain in effect through 2027 unless additional Congressional action is taken. New laws may result in additional reductions in Medicare and other healthcare funding, which may materially adversely affect customer demand and affordability for our products and, accordingly, the results of our financial operations. In

 

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January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Additional changes that may affect our business include the expansion of new programs such as Medicare payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, which will first affect physician payment in 2019. At this time, it is unclear how the introduction of the Medicare quality payment program will impact overall physician reimbursement.

Also, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which have resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and, at the same, is immediately implementing others under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product. Although a number of these, and other proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures. For example, California requires pharmaceutical companies to notify health insurers and government health plans at least 60 days before any scheduled increases in the prices of their products if they exceed 16% over a two-year period, and further requiring pharmaceutical companies to explain the reasons for such increase. Similarly, Vermont recently passed a law which requires certain pharmaceutical manufacturers to disclose price information on prescription drugs, which is in addition to a prior law from 2016 that requires pharmaceutical manufacturer price reporting.

Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

We expect that these and other healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and lower reimbursement and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost-

 

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containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs, once marketing approval is obtained.

In the European Union, coverage and reimbursement status of any product candidates for which we obtain regulatory approval are provided for by the national laws of EU Member States. The requirements may differ across the EU Member States. Also, at national level, actions have been taken to enact transparency laws regarding payments between pharmaceutical companies and health care professionals.

We are subject to applicable fraud and abuse, transparency, government price reporting, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any future product candidates we may develop and any product candidates for which we obtain marketing approval. Our current and future arrangements with third-party payors, healthcare provider and customers expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the business or financial arrangements and relationships through which we research, market, sell and distribute our products. The laws that may affect our ability to operate include, but are not limited to:

 

   

the federal Anti-Kickback Statute, which prohibits any person or entity from, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of an item or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value. The federal Anti-Kickback Statute has also been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, and purchasers, on the other the other hand. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, but these exceptions and safe harbors are narrowly drawn. Practices that are alleged to be intended to induce prescribing, purchases or recommendations, or include any payments of more than fair market value, may be subject to scrutiny if they do not qualify for an exception or safe harbor;

 

   

federal civil and criminal false claims laws and civil monetary penalty laws, such as the False Claims Act, or FCA, which can be enforced by private citizens through civil qui tam actions, prohibits individuals or entities from, among other things, knowingly presenting, or causing to be presented, false, fictitious or fraudulent claims for payment of federal funds, and knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. For example, pharmaceutical companies have been prosecuted under the FCA in connection with, among other things their alleged off-label promotion of drugs, engaging in sham consulting arrangements with physicians, concealing price concessions in the pricing information submitted to the government for government price reporting purposes, and providing free product to customers with the expectation that the customers would bill federal health care programs for the product. In addition, 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 FCA. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. In addition, manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims;

 

   

HIPAA which, among other things, imposes criminal liability for executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and creates federal criminal laws that prohibit knowingly and

 

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willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services;

 

   

HIPAA, as amended by HITECH and their implementing regulations, which imposes privacy, security and breach reporting obligations with respect to individually identifiable health information upon covered entities and their respective business associates. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in U.S. federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

 

   

the federal transparency requirements under the Physician Payments Sunshine Act, created under the Affordable Care Act, which requires, among other things, certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, or the Children’s Health Insurance Program to report to CMS information related to payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests, including such ownership and investment interests held by a physician’s immediate family members;

 

   

state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, that may impose similar or more prohibitive restrictions, and may apply to items or services reimbursed by any non-governmental third-party payors, including private insurers; and

 

   

state and foreign laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or to track and report gifts, compensation and other remuneration provided to physicians and other health care providers, state and local laws that require the registration of pharmaceutical sales representatives, and other federal, state and foreign laws that govern the privacy and security of health information or personally identifiable information in certain circumstances, including state health information privacy and data breach notification laws which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus requiring additional compliance efforts.

We may also be subject to federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers.

We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers, some of which include provisions of stock options, including some who could influence the use of our product candidates, if approved. Because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financial relationships with providers who may influence the ordering of and use our product candidates, if approved, to be in violation of applicable laws.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.

 

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Ensuring that our business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. If our operations are found to be in violation of any of these laws or any other current or future governmental laws and regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could substantially disrupt our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

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

U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations, or collectively, Trade Laws, prohibit, among other things, companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities to increase over time. We expect to rely on third parties for research, preclinical studies, and clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other marketing approvals. We can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

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

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

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

 

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Risks Related to Our Intellectual Property

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

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our product candidates and research programs. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel discoveries and technologies that are important to our business. Our pending and future patent applications may not result in patents being issued which protect our product candidates or their intended uses or which effectively prevent others from commercializing competitive technologies, products or product candidates.

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

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

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

Further, we may not be aware of all third-party intellectual property rights potentially relating to our product candidates or their intended uses, and as a result the impact of such third-party intellectual property rights upon the patentability of our own patents and patent applications, as well as the impact of such third-party intellectual property upon our freedom to operate, is highly uncertain. Patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our patents or pending patent applications may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third-party pre-issuance submission of prior art to the USPTO or

 

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become involved in post-grant review procedures, oppositions, derivations, reexaminations, or inter partes review proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Any failure to obtain or maintain patent protection with respect to our product candidates could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent which might adversely affect our ability to develop and market our products.

We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. We may incorrectly determine that our products are not covered by a third-party patent or may incorrectly predict whether a third-party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We are a party to a number of intellectual property license agreements that are important to our business and expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license.

We may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend considerable time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current product candidates or future products, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.

In many cases, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights,

 

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these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

   

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

 

   

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

 

   

the sublicensing of patent and other rights under our collaborative development relationships;

 

   

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

 

   

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

 

   

the priority of invention of patented technology.

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

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

We currently have rights to intellectual property, covering our product candidates and other proprietary technologies. Other pharmaceutical companies and academic institutions may also have filed or are planning to file patent applications potentially relevant to our business. From time to time, in order to avoid infringing these third-party patents, we may be required to license technology from additional third parties to further develop or commercialize our product candidates. Should we be required to obtain licenses to any third-party technology, including any such patents required to manufacture, use or sell our product candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop or commercialize any of our product candidates could cause us to abandon any related efforts, which could seriously harm our business and operations.

The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us.

Moreover, some of our owned and in-licensed patents or patent applications or future patents are or may be co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents

 

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against third parties, and such cooperation may not be provided to us. Furthermore, our owned and in-licensed patents may be subject to a reservation of rights by one or more third parties. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

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

We have pending U.S. and foreign patent applications in our portfolio; however, we cannot predict:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

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

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

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

 

   

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

 

   

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

 

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

we may not develop additional proprietary technologies that are patentable;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

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

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

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

 

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

If we are found to infringe a third-party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third-party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, and could divert the time and attention of our technical personnel and management, cause development delays, and/or require us to develop non-infringing technology, which may not be possible on a cost-effective basis, any of which could materially harm our business. In the event of a successful claim of infringement against us, we may have to pay substantial monetary damages, including treble damages and attorneys’ fees for willful infringement, pay royalties and other fees, redesign our infringing drug or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

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

Competitors or other third parties may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which

 

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can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or insufficient written description. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention, or decide that the other party’s use of our patented technology falls under the safe harbor to patent infringement under 35 U.S.C. §271(e)(1). An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.

Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, we cannot assure you that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

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

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

 

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

We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of former employers or competitors. Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may become subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor.

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

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

Patents are of national or regional effect, and filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. As such, our intellectual property rights in some countries outside the United States can be less extensive than those in the United States and we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products or technology and may export otherwise infringing products or technology to territories where we have patent protection, but enforcement rights are not as strong as those in the United States. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals or biologics, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any such lawsuits that we initiate and the damages and other remedies awarded, if any, may not be commercially meaningful. Similarly, if our trade secrets are disclosed in a foreign jurisdiction, competitors worldwide could have access to our proprietary information and we may be without satisfactory recourse. Such disclosure could have a material adverse effect on our business. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. In addition, certain developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third-party, which could materially diminish the value of those patents. In addition, many countries limit the enforceability of patents against government agencies or government contractors. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

 

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

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs, and may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our owned and licensed patents. Recent patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law on September 16, 2011, could increase those uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. After March 2013, under the Leahy-Smith Act, the United States transitioned to a first inventor to file system in which, assuming that the other statutory requirements are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third-party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before we file an application covering the same invention, could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we or our licensors were the first to either (i) file any patent application related to our product candidates and other proprietary technologies we may develop or (ii) invent any of the inventions claimed in our or our licensor’s patents or patent applications. Even where we have a valid and enforceable patent, we may not be able to exclude others from practicing the claimed invention where the other party can show that they used the invention in commerce before our filing date or the other party benefits from a compulsory license. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

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

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

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

 

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

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

In addition to seeking patents for some of our technology and product candidates, we may also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Elements of our product candidate, including processes for their preparation and manufacture, may involve proprietary know-how, information, or technology that is not covered by patents, and thus for these aspects we may consider trade secrets and know-how to be our primary intellectual property. Any disclosure, either intentional or unintentional, by our employees, the employees of third parties with whom we share our facilities or third-party consultants and vendors that we engage to perform research, clinical trials or manufacturing activities, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market. Because we expect to rely on third parties in the development and manufacture of our product candidates, we must, at times, share trade secrets with them. Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Trade secrets and know-how can be difficult to protect. We require our employees to enter into written employment agreements containing provisions of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We and any third parties with whom we share facilities enter into written agreements that include confidentiality and intellectual property obligations to protect each party’s property, potential trade secrets, proprietary know-how, and information. We further seek to protect our potential trade secrets, proprietary know-how, and information in part, by entering into non-disclosure and confidentiality agreements with parties who are given access to them, such as our corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties. With our consultants, contractors, and outside scientific collaborators, these agreements typically include invention assignment obligations. We cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes. We cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third-party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third-party, our competitive position would be harmed.

 

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

We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our product candidates or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

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

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

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

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

 

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

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

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

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

Risks Related to Our Common Stock and this Offering

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

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

 

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stock in this offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon the completion of this offering or, if it does develop, it may not be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

overall performance of the equity markets;

 

   

our operating performance and the performance of other similar companies;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

recruitment or departure of key personnel;

 

   

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

 

   

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

 

   

the expiration of market standoff or contractual lock-up agreements;

 

   

the size of our market float; and

 

   

any other factors discussed in this prospectus.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many immuno-oncology companies. Stock prices of many immuno-oncology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.

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

As of September 30, 2018, our executive officers, directors, five percent stockholders and their affiliates beneficially own approximately 76.4% of our voting stock and, upon closing of this offering, that same group will beneficially own approximately     % of our outstanding voting stock. Therefore, even after this offering, these stockholders will have the ability to influence us through their ownership positions. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders, acting together, may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may believe are in your best interest as one of our stockholders.

 

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In addition, Dr. Ostertag, our Chief Executive Officer, a member of our board of directors and the beneficial owner of approximately 35.7% of our voting stock as of September 30, 2018, is also a member of the board of directors of Transposagen and Hera and beneficially owns 69.3% and 45.5% of Transposagen’s and Hera’s capital stock on a fully-diluted basis, respectively. As a result, the interests of Dr. Ostertag may not be aligned with the interests of you and our other stockholders with respect to our relationships with Transposagen and Hera, and he may from time to time be incentivized to take certain actions that benefit his interests in those other entities and that you and our other stockholders do not view as being in your interest as investors in our company.

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

The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, or if there is a large number of shares of our common stock available for sale and the market perceives that sales will occur. After this offering, we will have                  outstanding shares of our common stock, based on the number of shares outstanding as of September 30, 2018. All of the shares of common stock sold in this offering will be available for sale in the public market. Substantially all of our outstanding shares of common stock are currently restricted from resale as a result of market standoff and lock-up agreements, as more fully described in the section titled “Shares Eligible for Future Sale.” These shares will become available to be sold 181 days after the date of this prospectus, in addition to shares issuable pursuant to outstanding option and warrants. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements.

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

Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC may, in their discretion, permit our stockholders to sell shares prior to the expiration of the restrictive provisions contained in those lock-up agreements.

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

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

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share of $        per share as of September 30, 2018, based on an assumed initial public offering price of our common stock of $        per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon exercise of options to purchase common stock under our equity incentive plans, upon vesting of options to purchase common stock under our equity incentive plans, if we issue restricted stock to our employees under our equity incentive plans or if we otherwise issue additional shares of our common stock.

 

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

Additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner, we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

Pursuant to our 2019 Equity Incentive Plan, or the 2019 Plan, our management is authorized to grant stock options and other equity-based awards to our employees, directors and consultants. The number of shares of our common stock reserved for issuance under our 2019 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2020 through January 1, 2029, in an amount equal to the lesser of (i) 4% of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of each automatic increase, (ii) 8,000,000 shares of common stock, or (iii) a lesser number of shares determined by our board of directors prior to the applicable January 1st. If our board of directors elects to increase the number of shares available for future grant by the maximum amount each year, our stockholders may experience additional dilution, which could cause our stock price to fall.

We could be subject to securities class action litigation.

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

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

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

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

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

 

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coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

Requirements associated with being a public company will increase our costs significantly, as well as divert significant company resources and management attention.

After the completion of this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or the other rules and regulations of the SEC or any securities exchange relating to public companies. Compliance with the various reporting and other requirements applicable to public companies requires considerable time and attention of management. We cannot assure you that we will satisfy our obligations as a public company on a timely basis.

In addition, as a public company, it may be more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified personnel to serve on our board of directors, our board committees or as executive officers.

We have identified material weaknesses in our internal control over financial reporting. If our remediation of the material weaknesses is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

After the completion of this offering, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the Nasdaq Stock Market. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Prior to the completion of this offering, we have been a private company with limited accounting personnel to adequately execute our accounting processes and other supervisory resources with which to address our internal control over financial reporting and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner. To date, we have never conducted a review of our internal control for the purpose of providing the reports required by the Sarbanes-Oxley Act. During our review and testing, we may identify deficiencies and be unable to remediate them before we must provide the required reports.

In connection with the preparation of our 2017 consolidated financial statements, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. These material weaknesses related to a lack of a sufficient complement of accounting resources, which led to our inability to maintain segregation of duties between the creation and posting of journal entries and review of account reconciliations. These material weaknesses did not result in a misstatement to our consolidated financial statements.

As the hiring of additional accounting personnel becomes economically feasible, we intend to take appropriate and reasonable steps to remediate these material weaknesses through the implementation of appropriate segregation of duties. However, we cannot assure you that these measures will significantly improve or remediate the material weaknesses described above.

We may discover additional weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our consolidated financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter

 

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how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls over financial reporting, we may not be able to produce timely and accurate financial statements. If that were to happen, our investors could lose confidence in our reported financial information, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.

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

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

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

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

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

In particular, in May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting standards applicable to public companies until such pronouncements are made applicable to private companies.

 

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

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

 

   

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

 

   

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

 

   

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

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

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

In addition, as an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, unless we later irrevocably elect not to avail ourselves of this exemption. We have elected to use this extended transition period under the JOBS Act. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.

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

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

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

 

   

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

 

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

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

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

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

Our amended and restated certificate of incorporation that will become effective upon the closing of this offering designates the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against our company and our directors, officers and employees.

Our amended and restated certificate of incorporation that will become effective upon the closing of this offering provides that, to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty

 

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owed by any of our directors, officers or employees to our company or our stockholders, any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our amended and restated certificate of incorporation or amended and restated bylaws, or any action asserting a claim against us governed by the internal affairs doctrine, but excluding actions to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Furthermore, our amended and restated certificate of incorporation will also provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, although investors will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. Furthermore, if a court were to find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus are forward-looking statements, including statements about:

 

   

our expectations regarding the timing, scope and results of our development activities, including our ongoing and planned clinical trials;

 

   

the timing of and plans for regulatory filings;

 

   

our plans to obtain and maintain regulatory approvals of our product candidates in any of the indications for which we plan to develop them, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate;

 

   

the potential benefits of our product candidates and technologies;

 

   

our expectations regarding the use of our platform technologies to generate novel product candidates;

 

   

the market opportunities for our product candidates and our ability to maximize those opportunities;

 

   

our business strategies and goals;

 

   

estimates of our expenses, capital requirements, any future revenue, and need for additional financing;

 

   

our expectations regarding potentially establishing a pilot manufacturing facility;

 

   

the performance of our third-party suppliers and manufacturers,

 

   

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and our ability to operate our business without infringing on the intellectual property rights of others;

 

   

our expectations regarding developments and projections relating to our competitors, competing therapies that are or become available; and our industry;

 

   

regulatory development in the United States and foreign countries; and

 

   

our expectations regarding the uses of the net proceeds from this offering and the sufficiency of such net proceeds together with our existing cash and cash equivalents to fund our operations.

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives and financial needs.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, advancements, discoveries, levels of activity, performance or events and circumstances reflected in

 

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the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our capital stock for the foreseeable future. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Any future determination to pay dividends will be made at the discretion of our board of directors’ subject to applicable laws and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. In addition, the loan and security agreement, as amended, governing our indebtedness contains restrictions on our ability to declare and pay cash dividends on our capital stock.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $         million, or $         million if the underwriters exercise their option to purchase additional shares in full, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $         per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus. Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, would increase (decrease) the net proceeds to us from this offering by $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $         million, assuming no change in the assumed initial public offering price per share and after deducting the estimated underwriting discounts and commissions.

The principal purposes of this offering are to increase our financial flexibility and create a public market for our common stock. We intend to use the net proceeds from this offering as follows:

 

   

approximately $        million for our ongoing clinical development of P-BCMA-101, our autologous CAR-T product candidate for relapsed/refractory multiple myeloma, including clinical trial costs and manufacturing expenses;

 

   

approximately $        million for developing our preclinical product candidates and research programs for our CAR-T and gene therapy platforms; and

 

   

the remainder for working capital and other general corporate purposes.

Based upon our current operating plan, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents as of September 30, 2018, will enable us to fund our operations through at least the next      months from the date of this offering, including                  with respect to P-BCMA-101 and             . However, the expected net proceeds from this offering will not be sufficient for us to fund any of our product candidates through regulatory approval, and we will need to raise substantial additional capital to complete the development and commercialization of our product candidates. Because the time and costs to complete development of our product candidates will depend on the results of future preclinical studies and clinical trials and discussions with and decisions by regulatory authorities, we cannot reasonably estimate the amount of additional capital we will require to complete development. We may also use a portion of the net proceeds from this offering designated for working capital and general corporate purposes to establish an internal pilot GMP manufacturing facility for our product candidates, which we estimate would cost up to $15.0 million, or to in-license, acquire or invest in complementary businesses, technologies, products or assets. Although we currently have no agreements, commitments or obligations to do so, we evaluate such opportunities and engage in related discussions with third parties from time to time. To the extent that we elect to establish an internal pilot GMP manufacturing facility and the net proceeds of this offering are insufficient to complete the facility, we would intend to raise the required capital through equity offerings, debt financings or other capital sources, including potentially grants, collaborations, licenses or other similar arrangements.

Our expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures and the extent of our preclinical, clinical and future development activities may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from our ongoing and planned clinical trials, our ability to take advantage of expedited programs or to obtain regulatory approval for product candidates, the timing and costs associated with the manufacture and supply of product candidates for clinical

 

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

Pending our use of the net proceeds from this offering, we plan to invest the net proceeds in a variety of capital preservation investments, including short-term interest-bearing investment-grade securities, certificates of deposit or government securities.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2018:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to: (i) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 18,200,011 shares of our common stock; (ii) the automatic conversion of all outstanding warrants to purchase shares of preferred stock into warrants to purchase up to an aggregate of 133,830 shares of our common stock and the resulting reclassification of the carrying value of the warrant liability to additional paid-in capital; and (iii) the filing and effectiveness of our amended restated certificate of incorporation, each of which will occur immediately prior to the completion of this offering; and

 

   

on a pro forma as adjusted basis to give effect to (i) the pro forma adjustments set forth above and (ii) the sale and issuance of                  shares of our common stock by us in this offering and our receipt of the estimated net proceeds from this offering, based upon an assumed initial public offering price of $        per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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

 

     As of September 30, 2018  
     Actual     Pro Forma(1)     Pro Forma as
Adjusted(2)
 
(In thousands, except share and per share data)       

Cash and cash equivalents

   $ 38,534     $ 38,534     $                        
  

 

 

   

 

 

   

 

 

 

Convertible preferred stock warrant liability

   $ 1,336       —         —    

Convertible preferred stock, $0.0001 par value per share; 18,410,938 shares authorized, 18,200,011 issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

   $ 72,460     $ —       $ —    

Stockholders’ (deficit) equity:

      

Preferred stock, $0.0001 par value per share; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

     —         —      

Common stock, $0.0001 par value per share; 40,000,000 shares authorized, 15,290,636 shares issued and outstanding, actual; 200,000,000 shares authorized, 33,490,647 shares issued and outstanding, pro forma; 200,000,000 shares authorized,              shares issued and outstanding, pro forma as adjusted

     2       3    

Additional paid-in capital

     (11,414     62,381    

Accumulated deficit

     (52,803     (52,803  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (64,215     9,581    
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 9,581     $ 9,581     $    
  

 

 

   

 

 

   

 

 

 

 

(1)   Gives effect to (i) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 18,200,011 shares of common stock upon the closing of this offering and (ii) all outstanding warrants to purchase shares of preferred stock becoming warrants to purchase shares of common stock upon the closing of this offering.

 

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(2)   Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, at the assumed initial public offering price, would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $        , after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

The outstanding share information in the table above excludes, as of September 30, 2018, the following:

 

   

2,468,240 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2018 with a weighted-average exercise price of $2.61 per share;

 

   

4,400,000 shares of common stock reserved for issuance under our 2019 Equity Incentive Plan, or the 2019 Plan, which will become effective in connection with this offering, as well as any automatic annual increases in the number of shares of common stock reserved for future issuance under the 2019 Plan, as more fully described in “Equity Compensation—Equity Plans”;

 

   

440,000 shares of common stock reserved for future issuance under our 2019 Employee Stock Purchase Plan, or 2019 ESPP, which will become effective in connection with this offering, as well as any automatic annual increases in the number of shares of common stock reserved for future issuance under the 2019 ESPP, as more fully described in “Equity Compensation—Equity Plans”;

 

   

116,618 shares of common stock issuable upon the exercise of outstanding warrants as of September 30, 2018, at an exercise price of $3.43 per share;

 

   

17,212 shares of common stock issuable upon the exercise of an outstanding warrant as of September 30, 2018, at an exercise price of $5.81 per share; and

 

   

up to 1,893,287 shares of common stock potentially issuable to the former stockholders of Vindico NanoBioTechnology, Inc. if a specified scientific development milestone is achieved prior to July 31, 2019.

 

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DILUTION

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

Historical net tangible book value (deficit) per share represents our total tangible assets less our liabilities and preferred stock that is not included in equity divided by the total number of shares of common stock outstanding. As of September 30, 2018, our historical net tangible book deficit was approximately $69.8 million, or $4.56 per share. Our pro forma net tangible book value as of September 30, 2018, was approximately $        million, or $        per share, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 18,200,011 shares of our common stock immediately prior to the completion of this offering.

After giving further effect to receipt of the net proceeds of our sale of                shares of common stock in this offering at an assumed initial public offering price of $        per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2018 would have been approximately $        million, or $        per share. This represents an immediate increase in pro forma net tangible book value of $        per share to our existing stockholders and an immediate dilution of $        per share to investors purchasing common stock in this offering.

The following table illustrates this dilution to new investors on a per share basis:

 

Assumed initial public offering price per share

     $                

Historical net tangible book deficit per share at September 30, 2018

   $ (4.56  

Pro forma increase in historical net tangible book value per share attributable to conversion of all outstanding shares of preferred stock

                     
  

 

 

   

Pro forma net tangible book value per share at September 30, 2018, before giving effect to this offering

    

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

    
  

 

 

   

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

    
    

 

 

 

Dilution per share to new investors participating in this offering

     $                
    

 

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $        , and dilution in pro forma net tangible book value per share to new investors by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Similarly, each increase of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase our pro forma as adjusted net tangible book value per share after this offering by approximately $        and decrease the dilution to investors participating in this offering by approximately $        per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Each decrease of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by approximately $        and increase the dilution to investors participating in this offering by approximately $        per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.

 

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If the underwriters exercise their option to purchase additional shares of our common stock in full in this offering, the pro forma as adjusted net tangible book value after the offering would be $        per share, the increase in pro forma as adjusted net tangible book value per share to existing stockholders would be $        per share and the dilution per share to new investors would be $        per share, in each case assuming an initial public offering price of $        per share.

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

The following table summarizes on a pro forma as adjusted basis as of September 30, 2018, the number of shares of common stock purchased or to be purchased from us, the total consideration paid or to be paid to us in cash and the weighted-average price per share paid by existing stockholders for shares issued prior to this offering and the price to be paid by new investors in this offering. The calculation below is based on an assumed initial public offering price of $        per share, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table below shows, investors participating in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 

     Shares Purchased    

 

Total Consideration

    Weighted-
Average
Price Per
Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

                                $                         $            

Investors participating in this offering

             $    
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100.0   $          100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

The foregoing tables and calculations exclude:

 

   

2,468,240 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2018 with a weighted-average exercise price of $2.61 per share;

 

   

4,400,000 shares of common stock reserved for issuance under 2019 Plan, which will become effective in connection with this offering, as well as any automatic annual increases in the number of shares of common stock reserved for future issuance under the 2019 Plan, as more fully described in the section titled “Equity Compensation—Equity Plans;”

 

   

440,000 shares of common stock reserved for future issuance under our 2019 ESPP, which will become effective in connection with this offering, as well as any automatic annual increases in the number of shares of common stock reserved for future issuance under the 2019 ESPP, as more fully described in the section titled “Equity Compensation—Equity Plans;”

 

   

116,618 shares of common stock issuable upon the exercise of outstanding warrants as of September 30, 2018, at an exercise price of $3.43 per share;

 

   

17,212 shares of common stock issuable upon the exercise of an outstanding warrant as of September 30, 2018, at an exercise price of $5.81 per share; and

 

   

up to 1,893,287 shares of common stock potentially issuable to the former stockholders of Vindico NanoBioTechnology, Inc. if a specified scientific development milestone is achieved prior to July 31, 2019.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following tables set forth selected historical consolidated financial data as of, and for the periods ended on, the dates indicated. We have derived the selected consolidated statements of operations data for the years ended December 31, 2016 and 2017 and the selected consolidated balance sheet data as of December 31, 2016 and 2017 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the selected consolidated statements of operations data for the nine months ended September 30, 2017 and 2018 and the selected consolidated balance sheet data as of September 30, 2018 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements included in this prospectus and, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position as of September 30, 2018 and results of operations for the nine months ended September 30, 2017 and 2018. You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Year Ended December 31,     Nine months
Ended September 30,
 
     2016     2017     2017     2018  
                 (unaudited)  

Consolidated Statements of Operations Data:

        

(In thousands, except share and per share amounts)

        

Revenue

   $ 9,768     $ 2,985     $ 2,985     $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     9,264       19,099       14,745       21,130  

General and administrative

     5,353       5,479       3,884       7,277  

Increase (decrease) in contingent consideration

     —         (1,925  

 

(768

 

 

1,462

 

  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     14,617       22,653       17,861       29,869  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (4,849     (19,668     (14,876     (29,869

Other income (expense):

        

Interest expense

     —         (558     (228     (1,167

Other income (expense), net

     109       37       45       (686
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income tax

     (4,740     (20,189     (15,059     (31,722

Income tax benefit

     165       527       188       208  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (4,575   $ (19,662   $ (14,871   $ (31,514
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.35   $ (1.38   $ (1.06   $ (2.08
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     12,909,518       14,198,666       14,044,726       15,158,963  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted(1)

                      $ (0.78     $ (0.96
    

 

 

     

 

 

 

Pro forma weighted-average shares of common stock outstanding, basic and diluted(1)

       25,348,462         31,859,098  
    

 

 

     

 

 

 

 

(1)   See Notes 2 and 16 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate the historical and pro forma net loss per share of common stock, basic and diluted, and the number of shares used in the computation of the per share amounts.

 

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     December 31,     September 30,
2018
 
     2016     2017  
                 (unaudited)  

Consolidated Balance Sheet Data:

      

(In thousands)

      

Cash and cash equivalents

   $ 17,892     $ 15,625     $ 38,534  

Working capital(1)

     8,448       8,582       30,640  

Total assets

     28,190       25,454       47,712  

Term debt, net of discount

     —         9,708       19,023  

Convertible preferred stock warrant liability

     —         275       1,336  

Convertible preferred stock

     31,063       42,146       72,460  

Total stockholders’ deficit

     (14,645     (33,543     (64,215

 

(1)   We define working capital as total current assets less total current liabilities. See our consolidated financial statements included elsewhere in this prospectus for further details regarding our current assets and current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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

Overview

We are a clinical-stage biopharmaceutical company focused on leveraging our proprietary next-generation, non-viral gene engineering technologies to create life-saving therapeutics for patients with high unmet medical need. We have built a wholly-owned pipeline of autologous and allogeneic chimeric antigen receptor T cell, or CAR-T, product candidates, initially focused on the treatment of hematological malignancies and solid tumors.

P-BCMA-101 is an autologous CAR-T product candidate being developed to treat patients with relapsed/refractory multiple myeloma. We are currently conducting a Phase 1 clinical trial for P-BCMA-101 and plan to begin a Phase 2 clinical trial in the first half of 2019, moving toward a potential BLA filing with the FDA by the end of 2020. We believe our planned Phase 2 clinical trial has the potential to be a registrational trial, which is a trial that could support a BLA filing, although the FDA has not indicated its agreement or that a Phase 3 clinical trial will not be required.

Our second autologous product candidate, P-PSMA-101, is being developed to treat patients with CRPC, a solid tumor indication. An additional autologous solid tumor product candidate, P-MUC1C-101, is in late-stage preclinical development for multiple solid tumor indications. We plan to file an IND with the FDA and begin a Phase 1 clinical trial for P-PSMA-101 in the second half of 2019 and for P-MUC1C-101 in 2020.

In addition to our autologous CAR-T programs, we are developing fully allogeneic product candidates derived from healthy donors. We plan to file an IND and begin a Phase 1 clinical trial for P-BCMA-ALLO1 our lead allogeneic product candidate for treatment of multiple myeloma, by late 2019 or early 2020. We plan to develop allogeneic versions of all of our hematological and solid tumor product candidates.

We were incorporated in December 2014 and subsequently spun out from Transposagen, a company that has been developing gene engineering technologies since 2003. Since our inception, our operations have focused on organizing and staffing our company, business planning, raising capital, establishing and protecting our intellectual property portfolio, developing our gene engineering technologies, identifying potential product candidates and undertaking research and development and manufacturing activities, including preclinical studies and clinical trials of our product candidates. We do not have any product candidates approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through the sale of equity. Since our inception, we have raised an aggregate of $74.8 million of gross proceeds from the sale of shares of our convertible preferred stock and received $20.0 million of gross proceeds from borrowings under our loan agreement and $15.0 million in grant funding from the California Institute of Regenerative Medicine, or CIRM. As of September 30, 2018, we had cash and cash equivalents of $38.5 million. Since our inception, we have incurred significant operating losses. Our net losses were $4.6 million and $19.7 million for the years ended December 31, 2016 and 2017, respectively, and $31.5 million for the nine months ended September 30, 2018. As of September 30, 2018, we had an accumulated deficit of $52.8 million.

We expect our expenses and losses to increase substantially for the foreseeable future as we continue our development of, and seek regulatory approvals for, our product candidates, including P-BCMA-101, and begin to commercialize any approved products, as well as hire additional personnel, pay for accounting, audit, legal,

 

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regulatory and consulting services, and pay costs associated with maintaining compliance with Nasdaq listing rules and SEC requirements, director and officer insurance, investor and public relations activities and other expenses associated with operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

Based upon our current operating plan, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents as of September 30, 2018, will enable us to fund our operations through at least the next              months from the date of this offering. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for P-BCMA-101 or any other product candidates, which will not be for at least the next several years, if ever. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through equity offerings, debt financings or other capital sources, including potentially grants, collaborations, licenses or other similar arrangements. However, we may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms, if at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

The manufacturing process for our allogeneic product candidates is identical to the process for our autologous product candidates, except for the gene editing and a related additional purification step. We work with a number of third-party contract manufacturers for production of our product candidates. We also work with a variety of suppliers to provide our manufacturing raw materials including media, DNA and RNA components. In the future, we may also build a pilot GMP manufacturing facility to develop and manufacture preclinical materials and clinical supplies of our product candidates for Phase 1 and Phase 2 clinical trials. Any manufacturing facility build would substantially increase our operating expenses.

License Agreements

Below is a summary of the key terms for certain of our license agreements. For a more detailed description of these and our other license agreements, see the section titled “Business—License Agreements” and Notes 5, 13 and 17 to our consolidated financial statements included elsewhere in this prospectus.

License Agreement with Janssen Biotech Inc.

On August 3, 2015, we entered into a license agreement, or the Janssen Agreement, with Janssen Biotech Inc., or Janssen, pursuant to which we obtained exclusive worldwide rights to research, develop, manufacture and commercialize pharmaceutical products comprising autologous T-cells or any natural killer (NK) or NK-like cells expressing certain Centyrin molecules or Centyrin CAR molecules for the treatment or prevention of any disease in humans. This is the binding technology we use in our P-BCMA-101 and P-PSMA-101 product candidates. Under the Janssen Agreement, we also have the right to screen Janssen’s centyrin library for agents that bind or modify targets of interest for our internal research and development purposes for potential use in a licensed product.

Pursuant to the Janssen Agreement, we paid Janssen an upfront fee of $0.2 million. We are required to pay Janssen up to an aggregate of $75.8 million upon the achievement of certain clinical, regulatory and sales milestones for the first licensed product and up to an aggregate of $46.8 million upon the achievement of certain clinical, regulatory and sales milestones for each licensed product thereafter. We are also obligated to pay, on a product-by-product and country-by-country basis, royalties in the low single-digit percentage range on annual net sales, with the royalty rates varying depending on if there is a valid claim present within the licensed patent rights

 

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covering the licensed product in the applicable country in which the net sales occur. The royalty rates are subject to reduction upon certain events.

April 2017 Commercial License Agreement with TeneoBio, Inc.

On April 27, 2017, we entered into a commercial license agreement, or the 2017 TeneoBio Agreement, with TeneoBio, Inc., or TeneoBio, pursuant to which we obtained exclusive worldwide rights to use and develop pharmaceutical products comprising allogeneic T-cells expressing a CAR molecule containing certain heavy chain sequences (VH) provided by TeneoBio for the treatment of human disease. We use a VH binder in our P-BCMA-ALLO1 product candidates.

Pursuant to the 2017 TeneoBio Agreement, we have paid TeneoBio $0.5 million through our selection of the antibodies licensed under the 2017 TeneoBio Agreement. We are required to pay TeneoBio up to an aggregate of $20.5 million upon the first achievement of certain clinical and regulatory milestones for any allogeneic product and up to an aggregate of $20.5 million upon the first achievement of certain clinical and regulatory milestones for any autologous product. We are also obligated to pay, on a product-by-product and country-by-country basis, a royalty in the low single-digit percentage on net sales of any licensed products.

August 2018 Commercial License Agreement with TeneoBio, Inc.

On August 3, 2018, we entered into a commercial license agreement, or the 2018 TeneoBio Agreement, with TeneoBio for the development and use of TeneoBio’s human heavy chain only antibodies in CAR-T cell therapies. Under the terms of the 2018 TeneoBio Agreement, we have the option to obtain exclusive rights to research, develop and commercialize up to a certain number of targets from TeneoBio.

Pursuant to the 2018 TeneoBio Agreement, we paid TeneoBio an upfront fee of $4.0 million. We are required to pay additional fees in the low- to mid-six figure dollar range upon (a) selecting exclusivity for a particular target, which restricts TeneoBio from licensing that particular target to a third party for a period of time, (b) continuing exclusivity for any selected target on each anniversary thereafter and (c) exercising our commercial option for each target. We are required to pay TeneoBio up to an aggregate of $31.0 million upon the first achievement of certain clinical and regulatory milestones for each licensed product. We are also obligated to pay, on a product-by-product and country-by-country basis, a low single-digit percentage royalty on net sales of any licensed products. The royalty rate is subject to reduction upon certain events.

Acquisition of Vindico

On October 10, 2016, we completed the acquisition of all the outstanding ownership interests in Vindico NanoBiotechnology, Inc. (Vindico). We paid $1.1 million in cash and issued an aggregate of 437,115 shares of common stock to the selling shareholders. The common stock was valued at $0.7 million based on the fair value of our common stock at October 10, 2016 or $1.51 per share. We paid additional cash consideration of $0.6 million in 2017.

We may issue additional shares of common stock based on the achievement of a preclinical developmental milestone. The number of shares issued and associated fair value could vary based on when and if the milestone is reached. The number of shares of common stock potentially issuable at September 30, 2018 was 3,206,997, and was subsequently reduced to 1,893,287 on October 10, 2018.

CIRM Grant Funding

In December 2017, we were granted an award in the amount of $19.8 million from CIRM to support our clinical trial for P-BCMA-101. The terms of the award include an option to repay the grant or convert it to a

 

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royalty obligation upon commercialization of the program. Based upon the terms of the agreement, we will record proceeds as a liability when received. The award provides for a $4.6 million initial payment, which was received in January 2018, an additional $8.2 million, which was received through November 2018, and up to $7.0 million in future milestone payments.

In September 2018, we were granted an additional award in the amount of $4.0 million from CIRM to support our preclinical studies for P-PSMA-101. The award provided for a $1.0 million initial payment, which was received in September 2018, an additional $1.2 million, which was received through December 2018, and up to $1.8 million in future milestone payments.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. We have previously generated revenue under a collaboration agreement with Janssen which was terminated in January 2017. Over time, we may generate revenue from product sales, payments from any future collaboration or license agreements, or any combination thereof.

Operating Expenses

Research and development

Research and development expenses consist primarily of costs incurred for our research activities, including development of our platform technologies, our drug discovery efforts and the development of our product candidates, which include:

 

   

employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions;

 

   

expenses incurred in connection with the preclinical and clinical development of our product candidates and research programs, including under agreements with third parties, such as consultants, contractors and contract research organizations, or CROs;

 

   

the cost of developing and scaling our manufacturing process and manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants, contractors and contract manufacturing organizations, or CMOs;

 

   

payments made under third-party licensing agreements;

 

   

laboratory supplies and research materials; and

 

   

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

We expense research and development costs as incurred. 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 or other long-term assets. These amounts are expensed as the related goods are delivered or the services are performed.

Our direct external research and development expenses include fees, reimbursed materials and other costs paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical development and manufacturing activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform technology and, as such, are not separately classified.

 

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Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to CRO activity and manufacturing expenses. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. Our clinical development costs may vary significantly based on factors such as:

 

   

per patient trial costs;

 

   

the number of trials required for approval;

 

   

the number of sites included in the trials;

 

   

the countries in which the trials are conducted;

 

   

the length of time required to enroll eligible patients;

 

   

the number of patients that participate in the trials;

 

   

the number of doses that patients receive;

 

   

the drop-out or discontinuation rates of patients;

 

   

potential additional safety monitoring requested by regulatory agencies;

 

   

the duration of patient participation in the trials and follow-up;

 

   

the cost and timing of manufacturing our product candidates;

 

   

the phase of development of our product candidates; and

 

   

the efficacy and safety profile of our product candidates.

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials and preclinical studies.

General and administrative

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates, including P-BCMA-101, and begin to commercialize any approved products. We also anticipate that our general and administrative expenses will increase as a result of payments for accounting, audit, legal, regulatory and consulting services, as well as costs associated with maintaining compliance with Nasdaq listing rules and SEC requirements, director and officer insurance, investor and public relations activities and other expenses associated with operating as a public company.

Increase (decrease) in contingent consideration

In connection with our acquisition of Vindico in October 2016, we agreed to pay additional consideration based on the achievement of a certain milestone using the acquired technology. The additional purchase consideration is payable in shares of our common stock. The number of shares of common stock issuable and the

 

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associated fair value can vary depending on (i) the price paid by investors in a qualified equity financing prior to the achievement of the milestone and (ii) when and if the milestone is reached. We classify this contingent consideration as a liability on our consolidated balance sheets that we remeasure to fair value at each reporting date, and we recognize changes in the fair value of the contingent consideration liability as a component of other income (expense) in our consolidated statements of operations. We will continue to recognize changes in the fair value of the contingent consideration liability until the milestone is met or the milestone period has expired. For additional detail, see the subsections titled “—License Agreements—Acquisition of Vindico” above and “—Critical Accounting Policies and Significant Judgments and Estimates—Valuation of Contingent Liability” below, and Notes 4 and 6 to our annual consolidated financial statements included elsewhere in this prospectus.

Other Income (Expense)

Interest expense

Interest expense consists of (i) interest expense on outstanding borrowings under our loan agreement and (ii) amortization of debt discount and debt issuance costs.

Other income (expense), net

Other income (expense), net consists of (i) interest income and (ii) miscellaneous income and expense unrelated to our core operations.

Interest income is comprised of interest earned on our invested cash balances. We expect our interest income to increase as we invest the cash received from the sale of Series B preferred stock in March 2018 and the net proceeds from this offering.

Miscellaneous income and expense unrelated to our core operations is comprised of:

 

   

Changes in fair value of warrant liability. We issued warrants to purchase shares of our Series A-1 preferred stock in connection with our loan agreement in July 2017. We issued additional warrants to purchase shares of our Series B preferred stock in connection with the amendment of our loan agreement in August 2018. We classify these warrants as a liability on our consolidated balance sheets that we remeasure to fair value at each reporting date, and we recognize changes in the fair value of the warrant liability as a component of other income (expense) in our consolidated statements of operations. We will continue to recognize changes in the fair value of the warrant liability until the warrants are exercised, expire or qualify for equity classification. Upon the closing of this offering, the preferred stock warrants will become exercisable for common stock instead of preferred stock and the fair value of the warrant liabilities at that time will be reclassified to additional paid-in-capital. For the year ended December 31, 2017, there was no change in fair value of these preferred stock warrants. For additional detail, see the subsection titled “—Critical Accounting Policies and Significant Judgments and Estimates—Valuation of Warrants to Purchase Preferred Stock” below and Note 10 to our annual consolidated financial statements included elsewhere in this prospectus.

 

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Results of Operations

Comparison of the Nine Months Ended September 30, 2017 and 2018

The following table summarizes our results of operations for the nine months ended September 30, 2017 and 2018 (in thousands):

 

           2017                  2018              Change    
                      

Revenue

   $ 2,985      $ —        $ (2,985
  

 

 

    

 

 

    

 

 

 

Operating expenses:

        

Research and development

     14,745        21,130        6,385  

General and administrative

     3,884        7,277        3,393  

Increase (decrease) in contingent consideration

     (768      1,462        2,230  
  

 

 

    

 

 

    

 

 

 

Total operating expenses

     17,861        29,869        12,008  
  

 

 

    

 

 

    

 

 

 

Loss from operations

     (14,876      (29,869      (14,993
  

 

 

    

 

 

    

 

 

 

Other income (expense):

        

Interest expense

     (228      (1,167      (939

Other income (expense), net

     45        (686      (731
  

 

 

    

 

 

    

 

 

 

Net loss before income tax

     (15,059      (31,722      (16,663

Income tax benefit

     188        208        20  
  

 

 

    

 

 

    

 

 

 

Net loss and comprehensive loss

   $ (14,871    $ (31,514    $ (16,643
  

 

 

    

 

 

    

 

 

 

Revenue

Revenue was $3.0 million for the nine months ended September 30, 2017, compared to zero for the nine months ended September 30, 2018. This decrease in revenue of $3.0 million was due to the termination of a collaboration agreement with Janssen in early 2017.

Research and development expenses

The following table summarizes our research and development expense for the nine months ended September 30, 2017 and 2018 (in thousands):

 

           2017                  2018              Change    

Direct external research expenses by program:

        

P-BCMA-101

   $ 8,339      $ 9,051      $ 712  

Other Programs

     234        417        183  
  

 

 

    

 

 

    

 

 

 

Subtotal

     8,573        9,468        895  
  

 

 

    

 

 

    

 

 

 

License Fees

     908        4,420        3,512  

Impairment of IPR&D

     —          1,060        1,060  

Personnel

     3,488        4,407        919  

Other unallocated costs

     1,776        1,775        (1
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 14,745      $ 21,130      $ 6,385  
  

 

 

    

 

 

    

 

 

 

Research and development expenses were $14.7 million for the nine months ended September 30, 2017, compared to $21.1 million for the nine months ended September 30, 2018. This increase in research and development expenses of $6.4 million was primarily due to increases in the following: $3.5 million of in-license payments related to the timing of third-party license fees upon execution of license agreements and achievement of milestone events, $0.9 million of personnel expenses related to increased headcount, $1.1 million IPR&D impairment related to a delay in development and results of recent preclinical studies, and $0.9 million of contract manufacturing costs related to CRO expense related to increased enrollment in the ongoing P-BCMA-101 Phase 1 trial.

 

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General and administrative expenses

General and administrative expenses were $3.9 million for the nine months ended September 30, 2017, compared to $7.3 million for the nine months ended September 30, 2018. This increase in general and administrative expenses of $3.4 million was primarily due to increases in the following: $2.7 million of legal and professional fees related to an increase in legal and patent costs related to our ongoing business activities and preparations to operate as a public company, $0.4 million of personnel expenses related to increased headcount and $0.3 million of facility and overhead expenses.

Increase (decrease) in contingent consideration

Decrease in contingent consideration was $0.8 million for the nine months ended September 30, 2017, compared to an increase in contingent consideration of $1.5 million for the nine months ended September 30, 2018. This increase in contingent consideration was due to an increase in our contingent consideration liability of $2.2 million resulting from a change in certain fair value assumptions, including an increase in our estimated share price, offset partially by a decrease in the probability of successfully completing the applicable milestone within the contractual timeline.

Interest expense

Interest expense was $0.2 million for the nine months ended September 30, 2017, compared to $1.2 million for the nine months ended September 30, 2018. This increase in interest expense of $1.0 million was due to a loan agreement originally entered into in July 2017, in addition to an increase in the principal outstanding in August 2018.

Other income (expense), net

Other income was $45,000 for the nine months ended September 30, 2017, compared to other expense of $0.7 million for the nine months ended September 30, 2018. This change in other income (expense) of $0.7 million was primarily related to an increase of $0.9 million in warrant liability.

 

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Comparison of the Years Ended December 31, 2016 and 2017

The following table summarizes our results of operations for the years ended December 31, 2016 and 2017 (in thousands):

 

         2016             2017             Change      

Revenue

   $ 9,768     $ 2,985     $ (6,782
  

 

 

   

 

 

   

 

 

 

Operating expenses:

      

Research and development

     9,264       19,099       9,835  

General and administrative

     5,353       5,479       127  

Increase (decrease) in contingent consideration

     —         (1,925     (1,925
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     14,617       22,653       8,037  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (4,849     (19,668     (14,819

Other income (expense):

      

Interest expense

     —         (558     (558

Other income (expense), net

     109       37       (72
  

 

 

   

 

 

   

 

 

 

Loss from operations before income tax

     (4,740     (20,189     (15,449

Income tax benefit

     165       527       362  
  

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (4,575   $ (19,662   $ (15,086
  

 

 

   

 

 

   

 

 

 

Revenue

Revenue was $9.8 million for the year ended December 31, 2016, compared to $3.0 million for the year ended December 31, 2017. This decrease in revenue of $6.8 million was due to the termination of a collaboration agreement with Janssen in early 2017.

Research and development expenses

The following table summarizes our research and development expense for the years ended December 31, 2016 and 2017 (in thousands):

 

         2016              2017              Change      

Direct external research expenses by program:

        

P-BCMA-101

   $ 3,441      $ 10,701      $ 7,260  

Other Programs

     429        282        (147
  

 

 

    

 

 

    

 

 

 

Subtotal

     3,870        10,983        7,113  

License Fees

     312        917        605  

Personnel

     3,268        4,742        1,474  

Other unallocated costs

     1,814        2,457        643  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 9,264      $ 19,099      $ 9,835  
  

 

 

    

 

 

    

 

 

 

Research and development expenses were $9.3 million for the year ended December 31, 2016, compared to $19.1 million for the year ended December 31, 2017. This increase in research and development expenses of $9.8 million was primarily due to increases in the following: $7.0 million of contract manufacturing costs related to the preparation of an IND submission and a clinical trial for P-BCMA-101, $1.5 million of personnel expenses related to increased headcount, $0.6 million of laboratory supplies expenses and $0.6 million of in-license payments related to the timing of third-party license fees upon achievement of milestone events.

 

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General and administrative expenses

General and administrative expenses were $5.4 million for the year ended December 31, 2016, compared to $5.5 million for the year ended December 31, 2017. This increase in general and administrative expenses of $0.1 million was primarily due to increases in the following: $0.4 million of personnel expenses related to increased headcount and $0.3 million of facility and overhead expenses, offset in part by a $0.6 million decrease in legal and professional fees related to specific tax planning projects that were primarily performed in 2016 and to a lesser extent in 2017.

Increase (decrease) in contingent consideration

Increase (decrease) in contingent consideration was zero for the year ended December 31, 2016, compared to $1.9 million for the year ended December 31, 2017. This decrease in contingent consideration of $1.9 million was due to a decrease in our contingent consideration liability of $1.9 million resulting from a change in certain fair value assumptions, including a decrease in the probability of successfully completing the applicable milestone within the contractual timeline.

Interest expense

Interest expense was zero for the year ended December 31, 2016, compared to $0.6 million for the year ended December 31, 2017. This increase in interest expense of $0.6 million was due to a loan agreement originally entered into in July 2017.

Other income (expense), net

Other income (expense), net was $0.1 million for the year ended December 31, 2016, compared to $37,000 for the year ended December 31, 2017. This decrease in other income (expense) was primarily related to a decrease in interest income.

Liquidity and Capital Resources

We were incorporated in December 2014 and subsequently spun out from Transposagen, a company that has been developing gene engineering technologies since 2003. Since our inception in 2014, we have incurred significant operating losses. Our net losses were $4.6 million and $19.7 million for the years ended December 31, 2016 and 2017, respectively, and $31.5 million for the nine months ended September 30, 2018. As of September 30, 2018, we had an accumulated deficit of $52.8 million. Our operations have focused on developing our clinical and preclinical product candidates, establishing our intellectual property portfolio organizing and staffing our company, raising capital and general business planning. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. We have funded our operations primarily through the sale of equity. Since our inception, we have raised an aggregate of $74.8 million of gross proceeds from the shares of our redeemable convertible preferred stock and received $20.0 million of gross proceeds from borrowings under our loan agreement and an aggregate of $15.0 million in grant funding from CIRM. As of September 30, 2018, we had cash and cash equivalents of $38.5 million.

Loan Agreement

In July 2017, we entered into a loan and security agreement, or 2017 Loan Agreement, with Oxford. As of December 31, 2017, we had outstanding borrowings of an aggregate of $10.0 million under this facility.

 

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In August 2018, we entered into an amended agreement with Oxford, or the 2018 Loan Agreement, to increase principal amount of borrowings available under the facility to $20.0 million, modify the interest rate and extend the interest-only payment period and the maturity date. As of September 30, 2018, we had outstanding borrowings of an aggregate of $20.0 million under this amended facility.

Commencing in August 2018, outstanding borrowings under the 2018 Loan Agreement bear interest at a floating per annum rate equal to (i) 6.94% plus (ii) the greater of (a) the 30 day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue and (b) 2.00%. As of September 30, 2018, the interest rate applicable to borrowings under the 2018 Loan Agreement was 9.1%. Interest only payments were extended through April 2020, with a maturity date of March 2023. We will be required to make a final payment of 7.5% of the principal balance outstanding, payable on the earlier of (i) the maturity date, (ii) acceleration of any term loan or (iii) the prepayment of the term loans.

Our obligations under the 2018 Loan Agreement are secured by a first priority security interest in substantially all of our current and future assets, other than our intellectual property. In addition, have also agreed not to encumber our intellectual property assets, except as permitted by the 2018 Loan Agreement. While any amounts are outstanding under the 2018 Loan Agreement, we are subject to a number of affirmative and restrictive covenants, including covenants regarding dispositions of property, business combinations or acquisitions, among other customary covenants. We are also restricted from paying dividends or making other distributions or annual payments on our capital stock in excess of $250,000, subject to limited exceptions.

Cash Flows

The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below (in thousands):

 

     Year Ended
December 31,
    Nine Months Ended
September 30,
 
           2016                 2017                 2017                 2018        

Cash used in operating activities

   $ (9,988   $ (22,697   $ (17,884   $ (25,804

Cash used in investing activities

     (2,359     (201     (177     (651

Cash provided by financing activities

     8,586       20,630       20,738       49,364  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (3,761   $ (2,268   $ 2,677     $ 22,909  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash used in operating activities

During the nine months ended September 30, 2017, operating activities used $17.9 million of cash, primarily resulting from our net loss of $14.9 million, in addition to net cash used by changes in our operating assets and liabilities of $2.9 million. Net cash provided by changes in our operating assets and liabilities for the year ended September 30, 2017 consisted primarily of a $2.7 million decrease in deferred revenue.

During the nine months ended September 30, 2018, operating activities used $25.8 million of cash, primarily resulting from our net loss of $31.5 million, offset in part by non-cash charges of $4.8 million and net cash provided by changes in our operating assets and liabilities of $1.0 million. Non-cash charges consisted primarily of $1.5 million increase in contingent consideration, a $1.1 million impairment of IPR&D and $0.9 million expense due to an increase in our warrant liabilities. Net cash provided by changes in our operating assets and liabilities for the nine months ended September 30, 2018 consisted primarily of a $1.1 million increase in accrued liabilities.

During the year ended December 31, 2016, operating activities used $10.0 million of cash, primarily resulting from our net loss of $4.6 million, in addition to net cash used by changes in our operating assets and

 

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liabilities of $5.7 million, offset in part by non-cash charges of $0.3 million, primarily consisting of stock-based compensation. Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2016 consisted primarily of a $7.3 million decrease in deferred revenue.

During the year ended December 31, 2017, operating activities used $22.7 million of cash, primarily resulting from our net loss of $19.7 million, in addition to net cash used by changes in our operating assets and liabilities of $1.9 million and non-cash gains of $1.2 million, mainly consisting of remeasurements of contingent consideration. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2017 consisted primarily of a $2.7 million decrease in deferred revenue.

Decrease in deferred revenue for all periods was due to the recognition of an up-front payment over the term of a collaboration agreement. The increases in accrued liabilities were generally due to growth in our business, namely the advancement of our research and development programs.

Cash used in investing activities

During the nine months ended September 30, 2017, net cash used in investing activities was $0.2 million consisting of property and equipment purchases.

During the nine months ended September 30, 2018, net cash used in investing activities was $0.7 million consisting of property and equipment purchases.

During the year ended December 31, 2016, net cash used in investing activities was $2.4 million, consisting of $1.8 million in property and equipment purchases and $0.6 million for the acquisition of Vindico.

During the year ended December 31, 2017, net cash used in investing activities was $0.2 million, consisting of property and equipment purchases.

The purchase of property and equipment for all periods related to equipment purchases as we expanded our research and development and manufacturing activities, in addition to corporate office space.

Cash used in financing activities

During the nine months ended September 30, 2017, net cash provided by financings activities was $20.7 million, consisting primarily of $11.1 million in net proceeds from the sale of preferred stock and $9.8 million of net proceeds from borrowings under our loan agreement.

During the nine months ended September 30, 2018, net cash provided by financings activities was $49.4 million, consisting primarily of $30.3 million in net proceeds from the sale of preferred stock, $9.4 million of net proceeds from borrowings under our loan agreement and $9.4 million in grant payments from CIRM.

During the year ended December 31, 2016, net cash provided by financings activities was $8.6 million, consisting primarily of $8.2 million in net proceeds from the sale of preferred stock.

During the year ended December 31, 2017, net cash provided by financings activities was $20.6 million, consisting primarily of $11.1 million in net proceeds from the sale of preferred stock and $9.8 million of net proceeds from borrowings under our loan agreement.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we conduct preclinical studies and clinical trials for our product candidates. In addition, upon the closing of this

 

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offering, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating and capital expenditures will depend largely on many factors, including:

 

   

scope, progress and results of our ongoing and planned preclinical studies and clinical trials for our product candidates;

 

   

unanticipated serious safety concerns related to the use of our product candidates;

 

   

timing of licensing payments we may be required to make based on the development of our product candidates;

 

   

the number of and development requirements of other product candidates that we may pursue;

 

   

the timing and outcome of regulatory review of our product candidates;

 

   

changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approval;

 

   

our decisions to initiate additional clinical trials, not to initiate any clinical trial or to terminate an existing clinical trial;

 

   

the cost of obtaining raw materials and drug product for clinical trials and commercial supply;

 

   

whether we decide to establish a pilot manufacturing facility for supply of product candidates for clinical trials; and

 

   

additions or departures of key scientific or management personnel.

The accompanying financial statements have been prepared on a basis which assumes we are a going concern and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from any uncertainty related to our ability to continue as a going concern. As described in Note 1 to our annual consolidated financial statements, management has prepared cash flow forecasts which indicate that based on our expected operating losses and negative cash flows, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon a number of factors, including our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from obligations that become due in the ordinary course of business. Our ability to continue as a going concern may be viewed unfavorably by current and prospective investors, as well as by analysts and creditors. This may in turn make it more difficult for us to raise the additional financing necessary to continue to operate our business and we may be forced to significantly alter our business strategy, substantially curtail our current operations, or cease operations altogether. However, based upon our current operating plan, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents as of September 30, 2018, will enable us to fund our operations through at least the next          months from the date of this offering. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through equity offerings, debt financings or other capital sources, including potentially grants, collaborations, licenses or other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug 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

 

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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 drug candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2017 (in thousands):

 

     Payments Due by Period  
     Total      Less than
1 Year
     1 to 3
Years
     4 to 5
Years
     More than
5 Years
 

Operating lease commitments(1)

   $ 7,707      $ 765      $ 1,592      $ 1,680      $ 3,670  

Debt obligations(2)

     12,685        1,931        7,613        3,141        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total(3)(4)

   $ 20,392      $ 2,696      $ 9,205      $ 4,821      $ 3,670  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Amounts in table reflect payments due for our lease of office and laboratory space in San Diego, California under one operating lease agreement that expires in December 2026.
(2)   Amounts in table reflect the contractually required principal, final payment and interest payments payable under the 2017 Loan Agreement. For purposes of this table, interest due under the 2017 Loan Agreement was calculated using an assumed interest rate of 8.19% per annum, which as the interest rate in effect as of December 31, 2017.
(3)   In August 2018, we entered into an amendment of our 2017 Loan Agreement. The amended terms increase the principal outstanding by $10.0 million and extend principal payments due, commencing in 2020. As a result of our amendment, our contractual obligations will decrease by $1.5 million in 2018 and increase by $0.9 million in years 1-3 and $11.8 million in years 4-5 and $3.2 million after five years. Such amounts are not reflected in the table above.
(4)   In October 2018, we entered into a new lease for office and laboratory space in San Diego, California. The lease term is expected to commence April 1, 2019 and expected to expire in December 2029. We are not the legal owner of the leased space. As a result of the new lease, our contractual obligations will increase by $2.8 million in years 1-3, $5.3 million in years 4-5 and $21.1 million after five years. Such amounts are not reflected in the table above.

We enter into contracts in the normal course of business with CROs, CMOs and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to one year after the date of cancellation. These payments are not included in the table above as the amount and timing of such payments are not known.

We have also entered into a several license agreements under which we are obligated to make aggregate milestone payments upon the achievement of specified preclinical, clinical and regulatory milestones as well as royalty payments. We have not included future payments under this agreement in the table above since the payment obligations under this agreement are contingent upon future events, such as our achievement of specified milestones or generating product sales. As of September 30, 2018, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. See the subsection titled “—License Agreements” above.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and 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.

 

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While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable 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. The majority of our service providers invoice us in arrears for services, however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to vendors in connection with preclinical development activities, CMOs in connection with the process development and scale-up activities and the production of clinical trial materials and CROs in connection with clinical trials.

We base the expense recorded related to contract research and manufacturing on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply materials and conduct services. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Stock-Based Compensation

We measure stock-based awards granted to employees, non-employees and directors based on their fair value on the date of the grant using the Black-Scholes option-pricing model for options. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. We use the straight-line method to record the expense of awards with service-based vesting conditions. Forfeitures are recognized as they occur.

The Black-Scholes option-pricing model requires the use of subjective assumptions to determine the fair value of stock-based awards. These assumptions include:

 

   

Fair value of common stock—See the subsection titled “—Determination of fair value of common stock” below.

 

   

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the expected term to be the midpoint between the vesting date and the contractual life of the stock-based awards.

 

   

Expected volatility—Since we have been a privately held company and do not have any trading history for our common stock, the expected volatility is estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option

 

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grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

 

   

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

 

   

Expected dividend—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

Determination of fair value of common stock

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each option grant, with input from management, considering contemporaneous independent third-party valuations of common stock, and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These independent third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. These valuations were prepared using either an option pricing method, or OPM, or a hybrid method, both of which used market approaches to estimate our enterprise value. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. The hybrid method is a probability-weighted expected return method, PWERM, where the equity value in one or more scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. In addition to considering the results of these independent third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:

 

   

the prices at which we sold shares of preferred stock and the superior rights, preferences and privileges of the preferred stock relative to our common stock at the time of each grant;

 

   

the progress of our research and development programs, including the status and results of preclinical studies for our product candidates and progress of our development of manufacturing processes;

 

   

external market conditions affecting the biopharmaceutical industry and trends within the biopharmaceutical industry;

 

   

our financial position, including cash on hand, outstanding debt and our historical and forecasted performance and operating results;

 

   

the lack of an active public market for our common stock and our preferred stock;

 

   

the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company in light of prevailing market conditions; and

 

   

the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.

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

 

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different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Once a public trading market for our common stock has been established in connection with the closing of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.

As of September 30, 2018, the unrecognized stock-based compensation expense related to employee stock options was $3.8 million and is expected to be recognized as expense over a weighted-average period of approximately 3.5 years. The intrinsic value of all outstanding stock options as of September 30, 2018 was approximately $         million, based on the estimated public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, of which approximately $         million related to vested options and approximately $         million related to unvested options.

Valuation of Contingent Consideration

In connection with our acquisition of Vindico in October 2016, we agreed to pay additional purchase consideration based on the achievement of a certain developmental milestone using the acquired technology. The additional purchase consideration is payable in shares of our common stock. The number of shares of common stock issuable and the associated fair value can vary depending on (i) the price paid by investors in a qualified equity financing prior to the achievement of the milestone and (ii) when and if the milestone is reached. The fair value of this contingent consideration was estimated to be $4.4 million at the date of acquisition, based on the then expected number of shares issuable and a common stock fair value of $1.51 per share, which incorporated a probability of successfully meeting the milestone of 75%. The significant unobservable inputs used in the measurement of fair value of the contingent consideration are the probabilities of successful achievement of the milestone, the number of shares to be issued and the valuation of our common stock. Significant increases or decreases in the probability of success would result in a significantly higher or lower fair value measurement, respectively. Similarly, significant increases or decreases in the estimated valuation of common stock would result in a significantly higher or lower fair value measurement, respectively. As of December 31, 2016, the fair value of the common stock was determined with a probability of success of 75%. During 2017, the probability of successfully achieving the milestone by the end of the contingency period was reduced to 50%. This reduction in probability was offset by other factors which caused the fair value of the common stock to remain relatively consistent at $1.55. The estimated number of shares issuable was 2.9 million and 3.2 million, as of December 31, 2016 and 2017, respectively. As of September 30, 2018, the increase in contingent consideration was due to an increase in fair value of common stock, offset by the probability of successfully achieving the milestone by the end of the contingency period being reduced to 25%.

The value of the contingent consideration may change significantly as development progresses and additional data is obtained, impacting our assumptions regarding probabilities of successful achievement of the milestone and timing in which it is expected to be achieved. In addition, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

We classify this contingent consideration as a liability on our consolidated balance sheets that we remeasure to fair value at each reporting date, and we recognize changes in the fair value of the contingent consideration liability as a component of operating income (loss) in our consolidated statements of operations. We will continue to recognize changes in the fair value of the contingent consideration liability until the milestone is met or the milestone period has expired.

Valuation of Warrants to Purchase Preferred Stock

We classify warrants to purchase shares of our Series A-1 preferred stock and Series B preferred stock as a liability on our consolidated balance sheets as these warrants are free-standing financial instruments that may

 

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require us to transfer assets upon exercise. The warrants were initially recorded at fair value on the date of grant, and they are subsequently remeasured to fair value at each balance sheet date. Changes in fair value of the warrants are recognized as a component of other income (expense) in our consolidated statements of operations. We will continue to adjust the liability for changes in fair value until the warrants are exercised, expire or qualify for equity classification. Upon the closing of this offering, the preferred stock warrants will become exercisable for common stock instead of preferred stock and the fair value of the warrant liability at that time will be reclassified to additional paid-in capital.

We utilize the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the preferred stock warrants. We assess these assumptions and estimates on a quarterly basis as additional information impacting the assumptions is obtained. Similar to the fair value measurement of our common stock, estimates and assumptions impacting the fair value measurement of our preferred stock warrants include the fair value per share of the underlying Series A-1 preferred stock and Series B preferred stock, the remaining contractual term of the warrants, the expected volatility of the price of the underlying preferred stock, the risk-free interest rate and the expected dividend yield. The most significant assumption in the Black-Scholes option-pricing model impacting the fair value of the preferred stock warrants is the fair value of our preferred stock as of each remeasurement date. We determine the fair value per share of the underlying preferred stock by taking into consideration our most recent sales of our preferred stock as well as additional factors that we deem relevant (including the various factors analyzed to determine the fair value of our common stock described in the subsection titled “—Determination of fair value of common stock” above). As of December 31, 2017 and September 30, 2018, the fair value of the Series A-1 preferred stock was $3.06 and $11.72, respectively, per share. As of September 30, 2018, the fair value of the Series B preferred stock was $11.96 per share.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

JOBS Act Accounting Election

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. We have elected to use this the extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, which fifth anniversary will occur in 2023. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

Recent Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, result of operations or cash flows is disclosed in Note 2 to our annual consolidated financial statements and Note 2 to our interim condensed consolidated financial statements included elsewhere in this prospectus.

 

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Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Risk

As of December 31, 2017 and September 30, 2018, we had cash of $15.6 million and $38.5 million, respectively, and had no cash equivalents. Cash consists of deposits with financial institutions. Interest income is sensitive to changes in the general level of interest rates. However, due to the nature of these investments, a hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements included elsewhere in this prospectus.

As of December 31, 2017, we had $10.0 million of borrowings outstanding under the 2017 Loan Agreement. Commencing in August 2018 upon amendment of the 2017 Loan Agreement, outstanding borrowings under this facility began to bear interest at a variable rate equal to 30-day LIBOR plus 6.94%, subject to a floor of 8.94%. As of September 30, 2018, we had $20.0 million of borrowings outstanding under the 2018 Loan Agreement. A hypothetical 10% change in interest rates would not have had a material impact on our consolidated financial statements included elsewhere in this prospectus.

Foreign Currency Exchange Risk

We are not currently exposed to significant market risk related to changes in foreign currency exchange rates. However, we have contracted with foreign vendors located in Europe and Canada and may contract with foreign vendors in the future. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor. We do not believe that inflation had a material effect on our consolidated financial results during the periods presented.

 

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BUSINESS

Overview

We are a clinical-stage biopharmaceutical company focused on leveraging our proprietary next-generation, non-viral gene engineering technologies to create life-saving therapeutics for patients with high unmet medical need. We have built a wholly-owned pipeline of autologous and allogeneic chimeric antigen receptor T cell, or CAR-T, product candidates, initially focused on the treatment of hematological malignancies and solid tumors. Our proprietary gene engineering technologies are used to create product candidates predominantly comprised of a specific T cell subset, stem cell memory, or TSCM, with the goal of addressing the limitations of other CAR-T therapies, including duration of response, the ability to treat solid tumors and tolerability concerns.

P-BCMA-101 is an autologous CAR-T product candidate that targets B cell maturation antigen, or BCMA, which is expressed on essentially all multiple myeloma cells. Preliminary results from our ongoing Phase 1 dose escalation clinical trial of P-BCMA-101 showed that as of November 21, 2018, of the 19 patients that were evaluable by International Myeloma Working Group, or IMWG, criteria, 14 had meaningful responses (either stringent complete response, complete response, very good partial response, partial response or minimal response, by IMWG criteria), with an objective response rate, or ORR, of 100% in three evaluable patients that had received the dose of P-BCMA-101 we expect to advance into Phase 2 clinical development. In addition, as of November 21, 2018, P-BCMA-101 continued to be well tolerated in the trial, with two mild and transient instances of cytokine release syndrome, or CRS, observed, and one patient with possible neurotoxicity, each of which occurred at doses below the planned Phase 2 dose. Serious adverse events, or SAEs, of neutropenia, thrombocytopenia, anemia and infection were observed. We believe these SAEs are not related to P-BCMA-101 as they are consistent with conditioning lymphodepletion therapy and the underlying disease. One SAE of Grade 3 confusion was also observed in a patient although mental status changes occurred before administration of P-BCMA-101. While we believe these preliminary results are encouraging, they are derived from a small number of patients and may not be predictive of future results or the durability of responses over time. We plan to begin a Phase 2 clinical trial for P-BCMA-101 in the first half of 2019, moving toward a potential biologics license application, or BLA, filing with the FDA by the end of 2020. We believe our planned Phase 2 clinical trial has the potential to be a registrational trial, which is a trial that could support a BLA filing, although the FDA has not indicated its agreement or that a Phase 3 clinical trial will not be required. P-BCMA-101 has received a Regenerative Medicine Advanced Therapy, or RMAT, designation from the FDA, which is granted to regenerative medicine therapies that are intended to treat, modify, reverse or cure a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product has the potential to address unmet medical needs for the disease or condition.

Our second autologous product candidate, P-PSMA-101, is being developed to treat patients with castrate-resistant prostate cancer, or CRPC, a solid tumor indication. P-PSMA-101 targets cells that express prostate-specific membrane antigen, or PSMA, which is expressed on most prostate cancer cells. An additional autologous solid tumor product candidate, P-MUC1C-101, is in late-stage preclinical development for multiple solid tumor indications. We plan to file an Investigational New Drug Application, or IND, with the FDA and begin a Phase 1 clinical trial for P-PSMA-101 in the second half of 2019 and for P-MUC1C-101 in 2020.

In addition to our autologous CAR-T programs, we are developing fully allogeneic product candidates derived from healthy donors, allowing for the treatment of hundreds or thousands of patients from a single manufacturing run. Our lead allogeneic product candidate, P-BCMA-ALLO1, is designed to have the same inherent properties and functions of P-BCMA-101, but with the ability to treat hundreds or thousands of patients from a single manufacturing run. We plan to file an IND and begin a Phase 1 clinical trial for P-BCMA-ALLO1 by late 2019 or early 2020. We plan to develop allogeneic versions of all of our hematological and solid tumor product candidates.

Cancer is a leading cause of death worldwide. Recently, the field of immuno-oncology has emerged as a breakthrough in cancer treatment by harnessing the patient’s immune system to detect and kill tumor cells. The

 

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field of immuno-oncology is expected to generate more than $100 billion in worldwide sales by 2025. Within immuno-oncology, the advent of CAR-T therapies has revolutionized treatment of some hematological malignancies by demonstrating profound initial response rates in highly refractory patients and in some cases, the ability to cure.

Despite these response rates, there are several key limitations to early-generation CAR-T products, including duration of response, the ability to treat solid tumors and safety concerns, which we believe have thus far curtailed broader adoption. We believe these limitations are the result of early-generation CAR-T products being predominantly comprised of short-lived differentiated T cells. The duration of response with early-generation CAR-T therapies is often limited because more differentiated T cells do not persist long term in the body. CAR-T has also historically been ineffective in treating solid tumors, apart from a few cases involving numerous repeat administrations, consistent with a hypothesis that early-generation products lack the persistence needed to have a clinical impact on these tumors. Additionally, when differentiated CAR-T cells are infused they begin releasing cytokines and other molecules, which can lead to severe toxicities including cytokine release syndrome, or CRS, and neurotoxicity, either of which can be fatal. This toxicity profile may limit the ability of early-generation CAR-T therapies to be administered in community hospitals and outpatient infusion sites.

T cell engineering is typically achieved via viral transduction, the process of introducing foreign DNA into a cell using a virus, most notably with retroviruses, such as g-retrovirus or lentivirus. Despite extensive optimization of these viral vectors, their limitations are becoming more evident, including safety concerns regarding the insertional profile, limited genetic cargo capacity, and an undesirable phenotype of the final CAR-T product. We use our proprietary non-viral piggyBac DNA Modification System to deliver CAR-containing genes to T cells. The most significant advantage of using a non-viral approach is the ability to generate CAR-T products comprised of a high percentage of early memory T cells, such as TSCM cells. We believe this has the potential to result in therapies that elicit more consistent and durable responses with less toxicity. Additionally, we believe our non-viral approach will have much lower manufacturing costs and shorter manufacturing timelines.

Not all T cells are created equally

Unlike other CAR-T approaches using lentivirus, our proprietary piggyBac DNA Modification System is able to create a product with a high percentage of TSCM cells. There is a one-way differentiation pathway from TSCM cells to central memory T cells, or TCM; then to effector memory T cells, or TEM; and lastly, to effector T cells, or TEFF. As T cells mature and differentiate, their core functions and capabilities change, impacting their potency and durability. Our approach is to utilize a high percentage of less differentiated T cells in our product candidates with the goal of increasing persistence and mitigating some of the key limitations of early-generation CAR-T products.

The following figure illustrates this directional T cell differentiation pathway, from TSCM cell to TEFF cell:

 

 

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A single TEFF cell can kill multiple target cells in a highly specific manner, and it is this function that gives CAR-T therapeutics their remarkable properties when compared with prior oncology treatment modalities. In particular, TEFF cells typically kill only target cells without impacting healthy cells. However, TEFF cells are short-lived, generally lasting only days to weeks, so a patient treated with a CAR-T product comprised of predominantly fully differentiated T cells, such as TEFF, will likely experience relapse unless the initial dose of CAR-T cells is capable of eliminating every cancer cell in the body during their short lifespan in the patient.

In contrast, TSCM cells are long-lived, self-renewing and multipotent, with the capacity to reconstitute the entire spectrum of memory and TEFF cell subsets. TSCM cells survive for decades, and potentially for entire human lifespans, and are responsible for providing lifelong T cell immunity against some infectious agents. We believe TSCM cell longevity, their ability to self-renew, and their robust proliferative potential make them an ideal cell population in adoptive immunotherapy. In a retrospective analysis of CAR-T clinical results, complete responses were correlated with the percentage of TSCM cells in the pre-manufactured patient material. In a separate CAR-T clinical trial, responses were correlated with persistence of CAR-T product in vivo. The persistence of CAR-T product in vivo was in turn correlated with the amount of TSCM cells in the product.

We believe our proprietary approach, combining an advanced manufacturing method with a sophisticated gene engineering platform, addresses the primary challenges of early-generation CAR-T therapies in the following ways:

Duration and Activity

Durable responses.    Our piggyBac manufacturing method results in product candidates with a high percentage of less differentiated early memory T cells, including the highly desirable TSCM cells. TSCM cells engraft in the patient’s body and are long-lived, self-renewing and available to re-respond to future relapses, which we believe has the potential to result in a lifetime durable response.

Response in solid tumors.    TSCM cells have the unique ability to produce a potentially unlimited number of TEFF cells, generating multiple waves of CAR-T responses with only a single administration of product. P-PSMA-101 resulted in the elimination of tumor cells to undetectable levels in 100% of animals, with one incidence of a relapse in the low dose cohort, in a preclinical model of prostate cancer. P-PSMA-101 was evaluated using two different established tumor models. Both studies used intact, male immuno-deficient NOD scid gamma mice. First, P-PSMA-101 was tested in an established LNCaP tumor model where human tumor cells were injected subcutaneously high in the axilla. After approximately 17 days, mice were stratified into treatments arms based on tumor size via caliper measurement. Only mice bearing established, palpable tumors were treated. The first study was a dose range study, where mice were dosed intravenously with various doses of P-PSMA-101 cells (5 × 106 (n=3), or 10 × 106 (n=3)) or saline (no T cells; n=4). The predetermined duration of the study was planned until the last control vehicle mouse succumbed to LNCaP tumor burden, which occurred at Day 42 of the study. Treatment with 5 × 106 or 10 × 106 P-PSMA-101 cells resulted in 100% clearance of tumor in all animals by day 14, with no evidence of disease by caliper and bioluminescence imaging. One animal in the low dose cohort relapsed later in the study. To our knowledge based on published literature, no other product candidate has shown complete solid tumor elimination in any animal in this same preclinical model.

Tolerability

More gradual killer.    CAR-T products comprised of a high percentage of TSCM cells are more gradual killers of tumor cells, which we believe can effectively dampen the rapid release of cytokines as seen in early-generation CAR-T products containing predominantly differentiated T cells, potentially resulting in a significantly higher therapeutic index, meaning a limited change in toxicity relative to increased dose.

Pure product candidates.    We use our proprietary positive selection method to create product candidates that are comprised of essentially 100% CAR-positive cells, thereby minimizing one of the potential sources of CAR-T toxicity. Early-generation products do not utilize positive selection and typically contain a significant number of CAR-negative cells, which cannot kill cancer cells but may contribute to toxicity because they are artificially activated and expanded outside of the body.

 

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Scalability

Allogeneic capability.    We intend to use Cas-CLOVER, our proprietary site-specific gene editing platform, to develop allogeneic CAR-T product candidates, with the goal of further revolutionizing treatment by enabling administration of drug, derived from a single healthy donor and created in a single manufacturing run, to potentially hundreds or thousands of patients.

Versatility.    Our proprietary non-viral piggyBac DNA Modification System allows us to insert multiple CARs and/or T cell receptors, or TCRs, as well as other genes into T cells simultaneously. This significantly increases the number of potential indications we can target and, therefore, the number of future product candidates in our pipeline. Additionally, the ability to insert positive selection and safety switch genes alongside CAR molecule genes has the potential to address the tolerability limitations that have precluded administration of early-generation CAR-T products in community hospitals and outpatient infusion sites.

Our CAR-T Pipeline

The following table summarizes our CAR-T oncology product candidate portfolio:

 

 

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*Phase 3 may not be necessary if Phase 1/2 can serve as a registrational clinical trial. The FDA has not indicated whether a Phase 1/2 clinical trial would be considered a registrational clinical trial or whether Phase 3 clinicial trials will be required for any of our product candidates.

 

P-BCMA-101.    Our lead product candidate is an autologous CAR-T therapy being developed to treat patients with relapsed/refractory multiple myeloma. P-BCMA-101 targets cells that express B cell maturation antigen, or BCMA, which is expressed on essentially all multiple myeloma cells. P-BCMA-101 is engineered with our non-viral piggyBac manufacturing method, resulting in a high percentage of TSCM cells. Preliminary results from our ongoing Phase 1 clinical trial of P-BCMA-101 showed that as of November 21, 2018, of the 19 patients that were evaluable, 14 had meaningful responses (either stringent complete response, complete response, very good partial response, partial response or minimal response, by IMWG criteria), with an ORR of 100% in three evaluable patients that had received the planned Phase 2 dose of P-BCMA-101. In addition, as of November 21, 2018, P-BCMA-101 continued to be well tolerated in the trial, with two mild and transient instances of CRS observed, and one patient with possible neurotoxicity, each of which occurred at doses below the planned Phase 2 dose. We continue to enroll patients in, and intend to use the data from, this trial to meet with the FDA in early 2019 to discuss our plan to initiate a Phase 2 clinical trial in the first half of 2019.

P-PSMA-101.    P-PSMA-101 is an autologous CAR-T product candidate being developed with the goal of enabling treatment of patients with CRPC. P-PSMA-101 targets cells that express prostate-specific membrane antigen, or PSMA, which is expressed on most prostate cancer cells. P-PSMA-101 also utilizes our piggyBac manufacturing method, resulting in a high percentage of TSCM cells. P-PSMA-101 has demonstrated elimination of tumor cells to undetectable levels in 100% of animals, with one incidence of a relapse in the low dose cohort, in a preclinical model of prostate cancer in which immuno-deficient mice were implanted with solid tumors comprised of a human metastatic CRPC cell line. See pages 99 and 120 for additional information regarding this

 

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study. To our knowledge based on published literature, no other product candidate has shown complete solid tumor elimination in any animal in this preclinical model. P-PSMA-101 is currently undergoing IND-enabling activities and we anticipate an IND filing and initiation of a Phase 1 clinical trial in the second half of 2019.

P-BCMA-ALLO1.    P-BCMA-ALLO1 is an allogeneic, or universal donor, CAR-T product candidate using well-characterized cells derived from a healthy donor as starting material and is being developed with the goal of enabling treatment of potentially hundreds or thousands of patients with multiple myeloma from a single manufacturing run. Doses could be cryopreserved and stored at treatment centers for future off-the-shelf use. P-BCMA-ALLO1 utilizes our proprietary Cas-CLOVER gene editing technology to reduce or eliminate alloreactivity. We anticipate an IND filing and initiation of a Phase 1 clinical trial for P-BCMA-ALLO1 by late 2019 or early 2020.

P-MUC1C-101.    P-MUC1C-101 is an autologous CAR-T product candidate in late-stage preclinical development for multiple solid tumor indications. We believe P-MUC1C-101 has the potential to treat a wide range of solid tumors, particularly common cancers derived from epithelial cells, such as breast, colorectal, lung, ovarian, pancreatic and renal cancers, as well as other cancers expressing a cancer-specific form of the Mucin 1 protein, or MUC1C. P-MUC1C-101 has shown the elimination of tumor cells to undetectable levels in a preclinical model of breast cancer in which immuno-deficient mice were implanted with a human metastatic breast cancer cell line. See page 128 for additional information regarding this study. We anticipate an IND filing and initiation of a Phase 1 clinical trial for P-MUC1C-101 in 2020.

Our Proprietary Technologies

We have developed a proprietary suite of technologies that we believe capitalizes on the benefits of TSCM cells. Our primary differentiating technologies include:

 

   

Ability to Increase Percentage of TSCM Cells.    We believe our ability to generate CAR-T product candidates that are comprised of a high percentage of TSCM cells will provide the potential to increase duration of response, possibly allow for re-response and lead to a more gradual production of TEFF cells, thereby reducing toxicity and the requirement for an intensive care unit at treatment sites.

 

   

Non-Viral Gene Insertion.    Our proprietary piggyBac DNA Modification System is highly efficient and has a significantly larger genetic cargo capacity compared to viral methods. As a result, our product candidates can contain transgenes large enough to include multiple CAR and/or TCR molecule genes, a selection gene, a safety switch gene, and potentially other cargo as needed for specific treatment applications, potentially making it more flexible.

 

   

Gene Editing with Precise Specificity.    Our proprietary, highly precise Cas-CLOVER gene editing technology has shown little to no off-target activity in our preclinical studies and we believe it can efficiently edit resting T cells, allowing for the maintenance of TSCM product composition in allogeneic product candidates.

 

   

Additional Proprietary Tools:

 

  -   Positive selection.    We create product candidates utilizing a fully-human drug resistance gene that can be employed during manufacturing to create a purified product that is essentially 100% CAR-positive, minimizing one of the sources of CAR-T toxicity and thereby potentially enhancing the therapeutic index.

 

  -   iCasp9-based safety switch.    We have developed a proprietary safety switch comprised of fully-human genes that can be activated by administration of a small molecule and thereafter has the potential to rapidly eliminate some or all administered CAR-T cells in the patient.

 

  -   Booster molecules.    We have developed an approach that enables improved expansion of gene-edited allogeneic cells without affecting their desirable TSCM characteristics.

 

  -   CAR Binding libraries.    Instead of traditional single chain variable fragment, or scFv, binders, we utilize novel binder technologies which we believe are stable, do not result in tonic signaling and result in low to no immunogenicity.

 

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Our Strategy

Our mission is to develop cell and gene therapies with the capacity to cure.

We intend to develop and commercialize novel cell and gene therapy products by using our broad gene engineering platform technologies to treat patients with high unmet medical need, initially focusing on CAR-T product candidates for oncology indications. We plan to pursue our mission through the following strategies:

 

   

Rapidly develop and commercialize novel CAR-T therapies targeting hematological malignancies.    We developed P-BCMA-101, a product candidate for patients with relapsed/refractory multiple myeloma, which is one of the more challenging hematological malignancies to treat, in order to showcase the advantages of our proprietary platform technologies. At the 2018 meeting of the American Society of Hematology, we presented data from our on-going Phase 1 clinical trial of P-BCMA-101. Based on these early results, we plan to continue pursuing development and commercialization of P-BCMA-101 and broaden our pipeline into other hematological indications. Over time, we plan to develop our product candidates in earlier lines of treatment and other hematological malignancies and will seek to commercialize in community hospital settings, and eventually in outpatient infusion sites.

 

   

Leverage the strength and breadth of our platform technologies to develop CAR-T therapies in solid tumors.    Our platform technology is designed to address the historical CAR-T limitations in treating solid tumors, which result from the lack of product persistence needed to have a clinical impact on these indications. We are initially focused on developing P-PSMA-101 for the treatment of CRPC, given the significant unmet medical need for this indication. In a preclinical model of CRPC, widely recognized as aggressive and difficult to treat, P-PSMA-101 demonstrated 100% elimination of engrafted and well-established solid tumors after a single dose. Based on these data, we plan to rapidly develop, and if approved, commercialize P-PSMA-101. Additionally, we plan to develop P-MUC1C-101 for multiple solid tumor indications and generate other solid tumor product candidates.

 

   

Utilize our proprietary next-generation gene editing capabilities to develop allogeneic CAR-T products.    Our lead allogeneic product candidate, P-BCMA-ALLO1, was designed to demonstrate our ability to develop a universal donor product candidate that has the same inherent properties and functions of our autologous anti-BCMA product candidate, P-BCMA-101. We plan to rapidly develop, and if approved, commercialize P-BCMA-ALLO1 and eventually develop an allogeneic version of all of our hematological and solid tumor product candidates.

 

   

Fully exploit the versatility and scalability of our technology and capabilities beyond CAR-T for oncology.    Our platform technologies have the potential to generate a broad array of future product candidates to treat a multitude of indications outside of oncology. For example, P-HBB-101, a non-CAR-T product candidate, is in early preclinical development for sickle cell disease.

 

 

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Our Team

We have assembled an experienced and highly qualified management team with deep expertise in cell and gene therapy and a successful record of building and growing biotechnology companies. Our Chief Executive Officer, Eric Ostertag, Ph.D., M.D., was the first graduate from the Gene Therapy Program at the University of Pennsylvania and has over 20 years of experience in cell and gene engineering, founding multiple biotechnology companies, including Transposagen Biopharmaceuticals, Inc. Dr. Ostertag served as Transposagen’s Chief Executive Officer for 13 years, developing next-generation genetic engineering technologies that were eventually spun out to create Poseida Therapeutics, Inc. in early 2015. We are also supported by a veteran group of life science investors including Longitude Capital, Vivo Capital, Boxer Capital and Malin Corporation.

History of CAR-T

Increased understanding of cancer biology and cancer genetics has led to paradigm shifts and entirely new categories of treatment modalities for cancer. However, until recently, all of the major modalities including radical surgery, radiation and chemotherapy shared the same problem: they killed cancer cells, but not without damaging healthy cells and tissues. Immuno-oncology is the concept of using the patient’s own immune system to attack cancer, and it has the potential to eliminate the greatest challenge for all prior cancer treatment modalities by specifically killing cancer cells without harming healthy cells and tissues.

A person’s adaptive immune system is responsible for recognizing and eliminating a number of threats to the body, such as infectious agents, as well as infected and abnormal cells. One crucial component of the adaptive immune response is the T cell. T cells are specialized white blood cells capable of detecting and killing infected and abnormal cells that also act to signal other immune cells to respond to threats. Recognition of an infected or abnormal cell occurs through TCRs on the surface of T cells, which are tailored to recognize specific foreign molecules on the surface of other cells. A human body contains billions of distinct T cells with millions of specific TCRs capable of recognizing a vast array of potential foreign targets.

There are several characteristics of T cells that make them ideally suited for immuno-oncology applications. First, they are exceptionally good at killing, as a single T cell can kill numerous target cells. Second, they are extremely specific killers, able to kill an infected cell and ignore an almost identical uninfected healthy cell. T cells normally eliminate some potential cancers from the body before they can become established. However, certain genetic mutations in cancers can allow the cancer cell to evade killing by T cells. If a T cell could be re-educated to kill cancer cells through genetic modification, it could then potentially be used as a very potent and non-toxic immunotherapy. This is the concept behind CAR-T therapies.

CAR-T therapy has recently emerged as a revolutionary and potentially curative therapy for patients with hematologic cancers, including those that have become heavily refractory to standard therapy. In autologous CAR-T therapy, T cells are removed from the body, engineered with receptors specific to cell surface targets on the patient’s tumor cells, and administered back into the body. Once the engineered T cells are administered, they are able to recognize and kill the tumor cells that express the target for the engineered receptor.

In 2017, two autologous anti-CD19 CAR-T cell therapies, Yescarta, developed by Kite Pharma, Inc., and Kymriah, developed by Novartis International AG, were approved by the FDA for the treatment of relapsed/refractory large B-cell lymphoma (Yescarta) and relapsed/refractory B-cell precursor acute lymphoblastic leukemia (Kymriah). These therapies have received breakthrough designations from the FDA and have shown high response rates with prolonged treatment effects for a subset of patients. However, there remains much room to improve efficacy, duration of response and safety.

Addressing the Limitations of Early-Generation CAR-T Therapies

Although early-generation CAR-T therapy has shown significant potential, there are a number of limitations. The great majority of early-generation and current CAR-T therapies are produced using viral-based

 

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manufacturing. We believe that there are a number of inherent problems related to viral-based manufacturing that cause the limitations of other CAR-T therapies. T cell engineering is typically achieved via viral transduction, the process of introducing foreign DNA into a cell using a virus, most notably with retroviruses, such as g–retrovirus or lentivirus.

Despite extensive optimization of these viral vectors, their limitations are becoming more evident, including safety concerns regarding the insertional profile, limited genetic cargo capacity, and an undesirable phenotype of the final product. We use our proprietary non-viral piggyBac DNA Modification System to deliver CAR molecule genes to T cells. The most significant advantage of using a non-viral approach is the ability to generate CAR-T products comprised of a high percentage of TSCM cells. We believe this has the potential to result in therapies that elicit more consistent and durable responses with less toxicity. Additionally, we believe our non-viral approach will have much lower manufacturing costs and shorter manufacturing timelines.

CAR-T in Liquid Tumors

Early-generation CAR-T therapeutics have demonstrated an ability to achieve impressive responses in hematologic malignancies, even in pre-treated patients who are relapsed and/or refractory to prior lines of standard therapies. Dramatically higher response rates than those reported for all prior therapeutics have been achieved in some indications, with some patients likely being cured. Despite these outcomes, however, a significant number of patients have relapsed after receiving CAR-T therapy and duration of response has generally been poor.

There are several potential reasons for the poor duration of response, which generally fall into two categories: elimination of the CAR-T cells from the body and loss of expression of a CAR-T target on a tumor cell, known as antigen escape. Another major limitation of early-generation CAR-T therapies is the potential for severe toxicity, most notably CRS and neurotoxicity, either of which can be fatal. Lastly, there remains significant manufacturing and commercial scalability challenges ahead for other CAR-T candidates, mainly due to the nature of viral-based manufacturing.

Efficacy Challenge: Elimination of CAR-T Cells

 

 

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Early-Generation Challenges Poor Duration of Response Due to poor persistence in the patient Poseida's Technologies piggyBac non-viral manufacturing Tscm cells Fully-human binders and other components The Potential Benefits of Poseida's Approach " Product comprised primarily of early memory cells, including Tscm cells are more likely to engraft and are self-renewing and long-lived High percentage of Tscm cells and potentially enables relapse control and longer duration of response " No tonic signaling or T cell exhaustion from Poseida fully-human binding molecules observed to date " Low or no immunogenicity from Poseida binding molecules or other fully-human components

There are numerous explanations as to why CAR-T cells are eliminated from a patient after administration, but we believe the primary explanation is that the majority of T cells in other CAR-T products are more differentiated and short-lived T cells, including TEFF cells. It is our belief that not all T cells are created equally, and the ability to develop a product that consists predominantly of early memory T cells, particularly TSCM cells, is the key to increasing duration of response and tolerability. Our non-viral piggyBac manufacturing method is the only commercially viable approach known to us that can create CAR-T products with a high percentage of the highly desirable TSCM cells.

 

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In order to test the ability of our piggyBac DNA Modification System to preferentially deliver CAR-containing transgenes to TSCM cells, we conducted a preclinical experiment in which we separated T cells into their various subtypes, then individually put those subsets through either an optimized piggyBac manufacturing process or an optimized lentivirus process and measured the percentage of transposed or transduced cells in each subset. As shown in the figures below, piggyBac was very efficient at transposing (the piggyBac process of delivering the CAR-containing transgene) in TSCM cells, while lentivirus was relatively ineffective at transducing (the lentiviral process of delivering the CAR-containing transgene) in TSCM cells. We measured both CD4+ T cells (also known as T helper cells) and CD8+ T cells (also known as cytotoxic T cells) which represent two subsets of T cells believed to interact and be important in immune function and T cell response.

 

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Given the uni-directional differentiation pathway of T cells, we believe utilizing a genetic engineering method that preferentially modifies TSCM cells is essential for creating a final product with a high percentage of TSCM cells. Once we have completed the genetic modification step, we then perform a positive selection step to eliminate cells that have not been modified. Lastly, we activate and expand the remaining cells under conditions that favor self-renewal of TSCM cells without differentiation, resulting in a product that has a high percentage of TSCM cells, even when starting with patient material with a relatively low percentage of TSCM cells. Our non-viral piggyBac DNA Modification System typically yields TSCM cell percentages reaching as high as 80%. We compared our piggyBac manufacturing method to a lentivirus-based manufacturing method that utilizes alternative media (Aim V, Thermo Fisher Scientific), different T cell stimulation (CD3/CD28 beads from Dynal/Thermo Fisher Scientific) and virus for vector integration (lentivirus). The results of the comparisons of these two methods indicate that the process using the piggyBac DNA Modification System yields a greater frequency of CD8+ TSCM (61% to 78%, with a median of 70%) than the standard lentivirus process (5.5% to 31%, with a median of 29.6%). The sorted T cell subsets were put through the piggyBac process once in a pilot experiment with cells from one donor, and again in a comparison with the lentivirus process with cells from three donors. The early memory component, or combined TSCM and TCM cells, typically comprise greater than 90% of the cells of our product candidates.

Others in the field of CAR-T development are also attempting to increase the percentage of TSCM cells in their products through alternative methods during the manufacturing process, including the addition of small molecule inhibitor drugs and various cytokines, reducing the time in culture, and physically enriching through sorting methods for early T cells. However, we believe these methods all have inherent problems that will limit the ability to successfully create a final product candidate with a high percentage of TSCM cells.

 

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Since TSCM cells in CAR-T products have been shown to correlate with clinical response, and our CAR-T product candidates contain a high percentage of TSCM cells, our goal is that our product candidates will overcome the limitations of other CAR-T products in many respects, including durability of response. The importance of these cells can be seen in a preclinical model in which mice are implanted with a highly aggressive human multiple myeloma cell line (MM.1S). In this model, P-BCMA-101 engrafted with marked persistence in vivo, and remarkably, was able to control relapses without re-administration of product, as shown in the chart below:

 

 

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More fully differentiated T cells, which already have a short lifespan compared with TSCM cells, can be eliminated abruptly from the patient, leading to poor efficacy of the product. One reason for premature loss of CAR-T occurs if the cells have CAR binding molecules that interact with each other on the surface of the cell. This results in crosslinking of the CAR molecule and a phenomenon called tonic signaling, a state in which the CAR-T cells are essentially always active. Tonic signaling, in turn, results in premature loss of efficacy and cell death, referred to as T cell exhaustion. We use binding molecules, such as Centyrins and heavy chain only antibodies (VH), that are unable to crosslink and are resistant to tonic signaling.

Premature loss of CAR-T can also occur when the patient develops an antibody response against the CAR-T product itself. A patient can have an immune reaction if the CAR-T contains components that are not human, as when using a binder created in mice. Our binders are based upon fully-human components, which we believe make them non-immunogenic. Furthermore, all of our other CAR-T components are based on fully human sequences, and therefore we believe are less likely to cause a patient immune response.

Efficacy Challenge: Antigen Escape

 

 

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Early Generation Challenges Poor Duration of Response Due to antigen escape Poseida's Technologies " Posieda target selection " piggyBac non-viral manufacturing The Potential Benefits to Poseida's Approach " Targets likely less susceptible to antigen escape " Ability to deliver multiple CAR or other molecules on same cell to increase number of targets

Some CAR-T products have been shown to lose efficacy due to what is called antigen escape, which occurs when expression of a CAR-T target on a tumor cell is lost or drastically reduced, resulting in an expansion of the tumor cells that have escaped the ability of the CAR-T to kill them. To avoid antigen escape, we have focused our efforts on selecting targets where we believe expression is less likely to be reduced. For example, BCMA is important for cell proliferation, and so is considered less likely to be lost by the tumor cell following CAR-T treatment.

Another method to prevent antigen escape involves pursuing multiple targets on the cancer cell with the same CAR-T product. The likelihood that a cancer cell will be able to simultaneously downregulate or lose

 

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expression of multiple targets, as opposed to any single target, is greatly reduced. While the genetic cargo capacity of viral vectors is quite limited, piggyBac has demonstrated the ability to deliver greater than 20 times more genetic cargo, allowing transfer of multiple CAR molecule genes simultaneously. In the future, we believe the large genetic cargo capacity of piggyBac could allow us to further address antigen escape by including two or more CARs or TCRs on the same T cell.

Safety

 

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Early Generation Challenges Significant Toxicity CRS and neurotoxicity Poseida's Technologies " Tscm Phenotype " piggyBac non-viral manufacturing " Positive selection " iCasp9-based safety switch The Potential Benefits to Poseida's Approach " Tscm cells differentiate more slowly into effector cells resulting in more gradual killing and significantly less toxicity and greater therapeutic index " Positive selection results in pure product greater therapeutic index essentially 100% CAR-positive" Non-oncogenic and low to no mutagenesis " Safety Switch allows rapid elimination of some or all CAR-T cells if desired

The excitement over the impressive responses seen initially with early-generation CAR-T approaches has unfortunately been tempered by potentially life-threatening toxicities, most notably CRS and neurotoxicity. As more is being understood about these toxicities, it is now appreciated that they may be caused by different molecular mechanisms. However, both are rooted in a T cell response that is essentially too rapid and too strong. The CAR-T cells and other immune cells of the patient release cytokines and other molecules that initiate immune cascades that can be fatal if not done in a controlled manner.

TSCM cells express fewer cytotoxic effector molecules than more differentiated T cells and are postulated to differentiate and develop cytotoxic capability gradually. We believe the TSCM cell phenotype may lead to a more controlled expansion of CAR-T and more gradual killing of tumor cells, thereby lessening the severity of toxicities, such as CRS and neurotoxicity, and resulting in a CAR-T product with a greater therapeutic index.

A second safety feature incorporated into our CAR-T product candidates is the positive selection for CAR-positive cells during the manufacturing process. Drug resistance genes have been employed in other cellular therapeutics as a mechanism for selecting and purifying gene-modified cells to improve the efficiency of gene therapy. Our product candidates are engineered to express a variation of the human dihydrofolate reductase, or DHFR, gene. Cells containing this variant of the DHFR gene are slightly resistant to the drug methotrexate, or MTX. The advantage of DHFR over other drug-resistance strategies is that MTX is not genotoxic and preferentially kills dividing cells. Importantly, this gene-drug combination has been previously demonstrated to permit ex vivo selection of genetically modified T cells with relatively low concentrations of MTX.

Additionally, we enrich for gene-modified CAR-positive cells during ex vivo expansion, thereby purifying the therapeutic product and controlling for any patient-to-patient variability in raw material or manufacture, making our CAR-T product candidates essentially 100% CAR-positive. This contrasts with competing products that do not utilize positive selection and typically contain a significant number of CAR-negative cells that cannot kill cancer cells but are artificially activated and expanded outside of the body and may contribute to CRS and/or neurotoxicity. Thus, we believe that positive selection is another mechanism, in addition to the high percentage of TSCM cells, that may result in our CAR-T product candidates having a significantly greater therapeutic index.

Given that every CAR-T cell has a transgene, which is stably integrated into the genome, there is the possibility that the transgene delivery part of the CAR-T manufacturing process could create a detrimental

 

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mutation that allows the cell to expand in an uncontrolled manner, which can result in the cell itself becoming cancerous. Additionally, in the case of viral-manufacturing, some viral component that is integrated into the CAR-T cell as part of the transgene, such as the long terminal repeats, or LTRs, of the transgene may be able to activate a gene already in the cell, resulting in the cell becoming cancerous, a process called oncogenesis.

Although a transformation event has yet to be documented in any CAR-T product, there has been an example of a clonal expansion in a patient who received a CAR-T product made from lentivirus. A clonal expansion means that a single T cell was given a proliferative advantage and was able to grow to 100% of all the CAR-positive cells in the patient. In this case, the clonal expansion was caused by the lentivirus inserting into a gene important for proliferation.

Our CAR-T product candidates utilize our proprietary piggyBac technology. PiggyBac has shown low integration into intragenic regions, meaning that it is less likely to cause a detrimental mutation. Also, unlike retroviruses, piggyBac does not contain LTR sequences, but rather inverted terminal repeat sequences, or ITRs, which act as strong insulators, enhancing stable transgene expression and lowering risk of oncogenesis.

We have included a cellular safety switch in each of our product candidates as an additional safety mechanism. Both CRS and neurotoxicity are thought to be related to an overactive T cell response. Therefore, timely intervention to diminish the number of CAR-T cells should be an effective method of managing the majority of adverse events. We believe an ideal intervention technique is one that could be titrated such that not all CAR-T cells would be eliminated, leaving some for continued therapeutic effect.

A recently validated class of cellular safety switches called the inducible caspase 9, or iCasp9, system has the potential to mitigate the risks of CAR-T cell therapy by enabling the rapid elimination of some or all administered T cells, if desired. An iCasp9-based safety switch has been used successfully in the field of hematopoietic stem cell, or HSC, transplantation to rapidly eliminate modified T cells in the event of graft-versus-host disease, or GvHD.

Our proprietary iCasp9-based safety switch gene is constructed of fully human sequences, so we do not expect it to be immunogenic. The iCasp9 sequence consists of a drug-binding domain coupled to the signaling domain of caspase-9, an enzyme that is part of the apoptotic pathway. The induction of our iCasp9-based switch depends on the subsequent administration of the drug rimiducid (a generic version of AP1903), which rapidly induces apoptosis in cells expressing the normally inert iCasp9-based safety switch protein. Based on our preclinical studies and clinical trials of other product candidates using a similar safety switch, we believe induction of the switch is kinetically favorable, resulting in apoptosis of cells containing the iCasp9-based safety switch protein within minutes to hours after rimiducid administration, and can be titrated to eliminate some or all of the genetically modified T cells.

Commercial Scalability

 

 

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Early Generation Challenges Costly Manufacturing and Commercialization viral-based CAR- T therapies are expensive to manufacture and safety concerns may limit commercial reach Poseida's Technologies " piggyBac non-viral manufacturing " Additional manufacturing cost savings " Tscm cells " The Potential Benefits to Poseida's Approach Manufacturing cost benefits - Non-viral: no need for costly and time-consuming GMP virus manufacture - GMP DNA and RNA materials are low cost and easy to produce - No need for magnetic beads or exogenous cytokines " Better safety profile may enable broader commercial reach to community hospitals and infusion centers

 

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Another challenge with early-generation CAR-T products is their commercial scalability. Autologous CAR-T products are, by definition, individualized products. They are also typically expensive to produce, particularly when using viral-based manufacturing methods. We believe our non-viral piggyBac approach is more efficient and cost effective than historical CAR-T methods as it utilizes GMP nucleic acids, DNA and RNA, which are faster and cheaper to produce than GMP virus. We have further optimized the manufacturing process to eliminate some of the costly materials associated with the viral-based methods, including magnetic beads and cytokines.

CAR-T products that elicit severe and potentially fatal toxicities, such as CRS and neurotoxicity, require that the drug be administered in a tertiary care hospital where the physicians are familiar with treating these toxicities and where admission to an intensive care unit is an option. The potential for these severe toxicities currently precludes administration in community hospitals or outpatient infusion centers. Because our approach has the potential to improve on these attributes, it is possible that our CAR-T product candidates could eventually be administered at community hospitals or outpatient infusion centers, thereby greatly expanding patient access. In our dose-escalation Phase 1 clinical trial, as of                 , 2018, there have been no toxicities that have resulted in admission of patients to intensive care units.

CAR-T in Solid Tumors

 

 

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Early Generation Challenges Efficacy and Safety in Solid Tumors Poseida Technologies " Tscm cells " Superior binders piggyBac non-viral manufacturing The Potential Benefits to Poseida's Approach " Key to efficacy in solid tumors - Tscm engraft and differentiate into effectors to hit tumors with multiple waves of effector cells " Tumor-specific binding molecules " Ability to deliver multiple CAR or other molecules on same cell to increase specificity

Efficacy Challenge

In addition to the standard concerns regarding persistence of T cells in the treatment of hematologic malignancies, there are factors that exacerbate this problem when using CAR-T products for the treatment of solid tumors. To date, the great majority of early-generation CAR-T products have not demonstrated significant responses in solid tumors and there are a number of potential explanations for this poor efficacy. First, it is possible that CAR-T cells have more difficulty accessing solid tumor cells. In some diseases, such as acute lymphoblastic leukemia, the tumor cells are easily accessible by the CAR-T cells. However, in most solid tumors, there are a number of factors that may make it more difficult for CAR-T cells to access the tumor. Second, it is possible that solid tumor cells have changes in expression of certain checkpoint genes that render them resistant to killing by T cells. Third, the center of many solid tumors is very hypoxic, or low in oxygen concentration, and this environment is not thought to be conducive to T cell function.

There have been a few exceptions to the poor efficacy of CAR-T in solid tumors, notably in glioblastoma multiforme and hepatocellular carcinoma, where treatment with CAR-T has led to complete responses in solid tumors. In these rare cases, the patient was treated with numerous administrations of CAR-T product. Though CAR-T cells are not as effective against solid tumor cells as they are against liquid tumor cells, this can potentially be overcome by giving multiple administrations of CAR-T, resulting in numerous waves of more differentiated T cells killing the cancer cells. This approach would be more viable if there were an unlimited number of cells with which to treat the patient. However, manufacturing early-generation CAR-T products is relatively time consuming and expensive, and the final product is comprised of a limited number of cells, thereby making this approach impractical for many patients.

 

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All of our solid tumor product candidates, including P-PSMA-101 and P-MUC1C-101, are comprised of a high percentage of TSCM cells, which we believe are able to engraft and differentiate into wave after wave of more differentiated T cells. Therefore, we believe our CAR-T product candidates will be able to achieve high rates of response against solid tumors with a single administration. P-PSMA-101 resulted in the elimination of tumor cells to undetectable levels in 100% of animals, with one incidence of a relapse in the low dose cohort, in a preclinical model of prostate cancer in which immuno-deficient mice were implanted with solid tumors comprised of a human metastatic CRPC cell line. See pages 99 and 120 for additional information regarding this study. To our knowledge based on published literature, no other product candidate or already approved cancer therapeutic has shown complete solid tumor elimination in any animal in this preclinical model.

Safety

Our solutions addressing the toxicity concerns regarding CRS and neurotoxicity with respect to hematological tumors also apply to solid tumors. However, there are additional toxicity concerns for CAR-T products when administered to treat solid tumors. When compared to hematological tumors, solid tumors generally have fewer unique surface targets that are not also expressed on healthy cells, so greater care must be taken when choosing targets to avoid on-target/off-tumor toxicity, which occurs when a CAR-T cell recognizes the intended target on a healthy cell and kills that cell. We seek to address this risk by choosing targets that are overexpressed in cancer cells, such as PSMA and MUC1C, and by using binding molecules that we believe are more effective at binding the cancerous form of the target.

As we expand our solid tumor CAR-T pipeline, we expect it to become harder to identify targets that are unique to the solid tumor cells. Therefore, we are developing sophisticated systems that can direct a CAR-T cell to kill a tumor cell based on presence or absence of a combination of targets. For example, we believe that we can develop a CAR-T that will kill only tumor cells that have both target A and target B on their surface but will not kill normal cells with target A or target B singularly on their surface.

A related strategy is developing a CAR-T that will kill a cell only if it expresses target A (which may be present on both cancer cells and normal cells) but not target B (which may only be present on normal cells). All such strategies require the co-expression of more than one CAR molecule on the surface of the same CAR-T cell. We believe the piggyBac manufacturing method can enable these approaches due to its large genetic cargo capacity. In contrast, viral-based approaches are typically unable to express more than two CAR molecules.

We have demonstrated that we can produce CAR-T cells that express up to four full-length CAR molecule genes, each with a different target specificity, along with two additional genes, using a single piggyBac transposon in manufacturing (left panel). We further demonstrated that, when expressed, all CAR molecules perform specific killing of corresponding cell lines that express the target (right panel):

 

 

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Specific killing was evaluated via reporter-based killing assays where the indicated human tumor cells were genetically modified to express the luciferase gene. These tumor cells were co-cultured in vitro with CAR-T cells for 24 hours at a defined effector to target ratio of ten to one (10:1). The CAR-T cells expressed different combinations of full-length CARs: (1) BCMA CARTyrn, (2) BCMA CARTyrin and PSMA CARTyrin, (3) BCMA CARTyrin, PSMA CARTyrin and CD19 scFv-based CAR or (4) BCMA CARTyrin, PSMA CARTyrin, CD19 scFV-based CAR and GD2 scFv-based CAR. Cytotoxicity (specific lysis) was evaluated by adding luciferin substrate and reading luminescence signal and percent cytotoxicity was calculated by enumerating the luminescence of tumor cells alone versus tumor cells with CAR-T cells. Each individual CAR demonstrated cytotoxicity against its cognate antigen, even when expressed in the presence of three additional full-length CARs.

Another approach to treating solid tumors is to express a variation of a TCR that is specific for a cancer-associated protein that is only expressed inside of the cancer cell, in contrast to a CAR molecule that only recognizes targets on the surface of the cell. We believe we can use the TCR strategy in combination with the CAR strategy by expressing combinations of both CAR and TCR molecules on the surface of the same cell using the piggyBac manufacturing method.

Commercial Scalability

We believe each of the commercial and scalability benefits of our approach in liquid tumors would also apply to solid tumors.

Allogeneic or Universal CAR-T Therapies

 

 

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Early Generation Challenge Safety and Scalability in Allogeneic CAR-T Poseida Technologies " piggyBac manufacturing " Tscni Phenotype " Cas-CLOVER gene editing " Booster molecules The Potential Benefits to Poseida's Approach " Proprietary hybrid gene editing technology " Ability to modify resting T cells to maintain superior Tscm phenotype and function High specificity with no observed off target cutting minimizing risk of unwanted off-target mutations " Allogeneic approach can be applied across entire product platform " Booster molecules result in ability to produce hundreds or thousands of doses from a single run, thereby dramatically reducing cost

Efficacy Challenge

The goal of an allogeneic, or universal donor, CAR-T product is to create a large number of doses of CAR-T from a single donor or cell line. A successful allogeneic CAR-T product could be used as an off-the-shelf product to treat any patient with a specific indication, thereby greatly decreasing the costs associated with manufacturing. However, if an allogeneic product requires high doses or multiple doses in order to achieve the same activity as a similar autologous product, then many of the potential cost-saving advantages of an allogeneic product would not be realized.

Gene editing tools are widely used to eliminate expression of certain cell surface molecules, which may be used to avoid the potential reactivity of donor cells against the patient, which results in GvHD, as well as the reactivity of the patient’s cells against the CAR-T product, a reaction called host-versus-graft. We believe it is imperative to use gene editing tools that can efficiently edit resting T cells when creating an allogeneic CAR-T product, as activating T cells will initiate the differentiation pathway. Once T cells begin differentiating, they

 

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start to lose the desirable TSCM cells and the resulting product becomes less efficacious. It is our belief that some gene editing tools, such as TALENs and ZFNs, do not efficiently edit resting T cells. In contrast, our Cas-CLOVER technology is highly efficient at editing resting T cells, which we believe will allow us to maintain the high percentage of TSCM cells and superior functionality of our autologous product candidates even after gene editing to create a fully allogeneic product.

Our goal with all of our allogeneic product candidates is to create a product with a profile comparable to an autologous version of the same product; in the case of our first fully allogeneic product candidate for multiple myeloma, P-BCMA-ALLO1, our efficacy benchmark will be against P-BCMA-101.

Safety

In addition to the standard concerns regarding CRS and neurotoxicity, there are additional safety concerns relative to an allogeneic product. As mentioned above, an allogeneic product can cause two forms of alloreactivity: GvHD and host-versus-graft. Host-versus-graft is concerning only in that it may cause premature elimination of the allogeneic CAR-T cells, resulting in all of the previously discussed efficacy challenges related to poor persistence of product, but it does not create a safety concern.

However, GvHD, a situation where the CAR-T cells are killing the healthy cells of the patient, is a serious and potentially fatal condition. Studies have suggested that the endogenous TCR is the molecule that needs to be eliminated in order to prevent GvHD. If this molecule is not completely eliminated in nearly 100% of CAR-T cells, then GvHD may become a problem. Our highly efficient Cas-CLOVER technology and subsequent purification step has resulted in cells that have TCR expression completely eliminated from at least 99.9% of the cells, a level thought to be safely above that required to prevent GvHD.

An advantage of an allogeneic product is that many doses can be generated from a single individual donor or cell line. However, a potential disadvantage is that any detrimental mutation created during manufacturing would be potentially present in doses given to many patients, as opposed to an autologous product where this risk is limited to the individual patient. Therefore, it is especially important to minimize or completely prevent unwanted off-target mutations, which could potentially lead to a transformation event and cancer. It is well known that some gene editing technologies, such as CRISPR, have the possibility of creating unwanted mutations. In preclinical testing, our Cas-CLOVER technology has shown precise site-specificity, having no or very little propensity for creating off-target mutations. Based on preclinical data generated at Poseida and previously published results on other fully dimeric CRISPR systems, we believe Cas-CLOVER is the most specific editing method available.

Commercial Scalability

A fully allogeneic CAR-T product would offer the possibility of significant time and cost savings in manufacturing, thereby greatly decreasing the cost per dose and increasing patient accessibility. Nonetheless, a manufacturing process must still be run on individual donor or cell line material in order to create a fixed number of doses of an allogeneic product. One of the most expensive parts of a manufacturing run for viral-based manufacturing methods is the virus itself. The piggyBac manufacturing system uses only GMP DNA and RNA without the need for GMP virus. We believe this will result in product candidates that are significantly cheaper to produce, even in the context of an allogeneic CAR-T product. Furthermore, the development and manufacturing timelines for piggyBac are shorter than those for virus, meaning one can move from product concept to GMP material more quickly. As an example, we moved P-BCMA-101 from product concept to the first patient dosed in a clinical trial in less than two years, and we believe we can apply these learnings to meet or exceed these timelines for future product candidates.

Genetic modification of the TCR, necessary to avoid GvHD as discussed previously, creates T cells that may be difficult to expand during the manufacturing process. We have developed proprietary booster molecules

 

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that have the potential to overcome this issue, while retaining or even increasing the percent of TSCM cells in the final product. Therefore, we believe that we can create fully allogeneic product candidates, such as P-BCMA-ALLO1, that retain a profile that is comparable to the corresponding autologous product, but with the ability to create enough doses to potentially treat hundreds or thousands of patients from a single manufacturing run.

Early Generation Challenge Safety and Scalability in Allogeneic CAR-T Poseida Technology " piggyBacTM manufacturing " Tscni Phenotype " Cas-CLOVERTM gene editing " Booster molecules The Potential Benefits to Poseida's Approach " Proprietary hybrid gene editing technology " Ability to modify resting T cells to maintain superior Tscm phenotype and function Exquisite specificity with no off target cutting eliminating risk of unwanted off-target mutations " Allogeneic approach can be applied across entire product platform " Booster molecules result in ability to produce 10's, 100's or even 1000's of doses from a single run, thereby dramatically reducing cost

Our CAR-T Product Candidate Pipeline

We believe we are particularly well-positioned to drive the continued advancement of CAR-T therapies in oncology and are focused initially on indications with high unmet need. Our proprietary non-viral, gene engineering technologies are designed to address some of the greatest challenges to the successful implementation and commercialization CAR-T therapies. We have built a wholly-owned pipeline of autologous and allogeneic CAR-T product candidates, initially focused on the treatment of hematological malignancies and solid tumors.

P-BCMA-101: Autologous CAR-T for Multiple Myeloma

Overview

P-BCMA-101, our lead product candidate, is an autologous CAR-T therapy being developed to treat patients with relapsed/refractory multiple myeloma. P-BCMA-101 targets BCMA, which is expressed on essentially all multiple myeloma cells. P-BCMA-101 utilizes several of our proprietary CAR technologies, including an anti-BCMA CAR molecule gene, a human DHFR gene, which is used to manufacture a highly purified product, as well an iCasp9-based safety switch gene, which we believe allows elimination of some or all of the P-BCMA-101 cells following treatment if desired by the clinician. All components of the P-BCMA-101 transgene are comprised of fully human sequences. We are currently conducting a Phase 1 dose-escalation clinical trial for P-BCMA-101.

The P-BCMA-101 CAR molecule utilizes an anti-BCMA Centyrin as the binding molecule, rather than an scFv antibody fragment used in most other CAR-T therapies. Centyrins, like antibody fragments, have high binding affinities and are target-specific. However, Centyrins are fully human, making them potentially less immunogenic than scFv derived from mouse. Centyrins are also stable on the cell surface and do not form multimers, which we believe render them resistant to tonic signaling and T cell exhaustion.

P-BCMA-101 is engineered using our piggyBac DNA Modification System. PiggyBac modification of human T cells requires only piggyBac transposon transgene DNA and RNA encoding piggyBac transposase, the enzyme that specifically mobilizes piggyBac transposon DNA, thereby eliminating the need for viral vectors and resulting in significant time and cost savings in manufacturing. P-BCMA-101 is produced with our proprietary manufacturing system that results in a highly purified product with a cell composition comprised of a high percentage of TSCM cells, which we believe convey numerous benefits over other CAR-T products manufactured using viral methods.

Target Indication

Multiple myeloma is a deadly form of blood cancer that develops from plasma cells, a type of immune cell that is typically responsible for secreting antibodies to fight infection. The underlying cause of multiple myeloma is unknown, but it affects patients by creating abnormal plasma cells and antibodies resulting in kidney and other organ malfunction. It can also cause overproduction of abnormal plasma cells in the blood and tumor masses called plasmacytomas in the bone marrow or soft tissue.

There are approximately 100,000 patients suffering from multiple myeloma in the United States, with 30,000 new cases and nearly 13,000 deaths from the disease annually. It occurs more commonly in men than in women, typically striking older adults, with the average age of onset of approximately 61 years.

 

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The current treatment paradigm in multiple myeloma begins with proteasome inhibitors and immunomodulatory imide drugs, or IMiDs. The great majority of patients become refractory to these drugs and/or relapse, creating a high unmet need for treatments for relapsed/refractory patients. After failing proteasome inhibitors and IMiDs, patients typically resort to intensive chemotherapy regimens, with or without autologous stem cell transplant, or move to palliative care.

Multiple myeloma is rarely cured, with the great majority of patients dying from the disease. Without treatment, the typical life span of a multiple myeloma patient is approximately seven months, while approximately half of those treated under the current regimens survive for five years after diagnosis. We believe P-BCMA-101, if successful in the clinic, can dramatically increase survival, as well as quality of life for relapsed/refractory multiple myeloma patients.

Clinical Data

The primary objectives of the ongoing Phase 1 clinical trial are to evaluate safety and any dose limiting toxicities, or DLT, and determine the maximum tolerated dose, or MTD, of a single-dose infusion of P-BCMA-101 in adult patients with multiple myeloma who are relapsed and or refractory to conventional therapy. In addition, we are assessing anti-myeloma response activity using IMWG criteria.

We are initially focused on enrolling patients with relapsed/refractory multiple myeloma who have received at least three prior lines of therapy, including a proteasome inhibitor and an IMiD, and/or who are double refractory to a proteasome inhibitor and an IMiD.

The protocol allows for enrollment of up to 40 adult subjects across up to five cohorts, using a standard 3 + 3 dose-escalation design. Eligible subjects who enroll in the study undergo leukapheresis, a procedure that specifically collects a patient’s peripheral blood mononuclear cells, or PBMCs, a population of cells that contains the patient’s white blood cells, including T cells, for P-BCMA-101 manufacturing. Before administering the P-BCMA-101 product candidate, subjects receive a standard conditioning lymphodepletion chemotherapy regimen of 300 mg/m2 of cyclophosphamide and 30 mg/m2 of fludarabine, with each chemotherapy agent given intravenously daily for three consecutive days. We believe that the conditioning regimen is important to create space in the bone marrow for the engraftment of the T cells after administration of the P-BCMA-101 product candidate.

Consenting subjects who have received P-BCMA-101 and have completed or withdrawn from the Phase 1 clinical trial can enroll in a separate trial that allows for continued follow up for a total of 15 years after dosing to evaluate long-term safety. As of November 29, 2018, one patient has consented for the additional trial that allows for continued follow up for a total of 15 years after dosing to evaluate long-term safety.

Phase 1 Clinical Trial: Interim Findings

Interim data from our ongoing P-BCMA-101 Phase 1 clinical trial for patients with relapsed/refractory multiple myeloma was presented at the American Society of Hematology, or ASH, annual meeting on December 3, 2018.

This open-label, multicenter, single-ascending dose, Phase 1 clinical trial is designed to assess the safety of P-BCMA-101 in up to 40 patients with relapsed and/or refractory multiple myeloma. The primary objective of this trial is to determine the safety and maximum-tolerated dose of P-BCMA-101. Secondary objectives include evaluation of the anti-myeloma effect of P-BCMA-101. As of the cutoff date of November 21, 2018, 21 patients had been treated across four dose cohorts with no dose limiting toxicities observed. As of November 29, 2018, two additional patients in Cohort 5 are being dosed with our highest dose level of more than one billion (1000 x 106) CAR-T cells each but had not yet been evaluated as of the data cutoff date.

 

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Patients were treated in escalating dose cohorts based on weight as set forth in the following table, with the average total number of administered CAR-T cells partitioned into the dose groups indicated below:

 

Cohorts Assessed

 

cells/kg

   

1

  0.75 x 106  

2

  2 x 106  

3

  6 x 106  

4

  10 x 106  

5

  15 x 106  
Total CAR-T cell administered per dose group  

cells (mean)

 

patients (#)

range 48 –1241 x  106

  51 x 106   3
    152 x 106   7
    456 x 106   7
    845 x 106   4
    1143 x 106   2

The median enrolled patient age was 61, with 14 patients considered high-risk, including those with high-risk cytogenetics. The majority of patients received six or more prior lines of therapy and all patients had received at least one proteasome inhibitor and at least one IMiD. Ninety-one percent of these patients had received daratumumab and eighty-three percent of the patients had received an autologous stem cell transplant.

 

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Enrolled patient demographic and characteristic data are presented in the figure below:

 

Patients (n=23)

 

Median (min, max) age, years

     61 (42, 74)     

Male, n (%)

     16 (70)     

Median (min, max) time since diagnosis, years

     4.6 (2.4, 13.2)     

High-risk, n (%)

     14 (61)     

ECOG PS, n (%)

     

0

     8 (35)     

1

     14 (61)     

Median (min, max) prior regimens

     6 (3, 11)     
     Exposed      Refractory  

proteasome inhibitor, n (%)

     23 (100)        14 (61)  

Bortezomib

     23 (100)        14 (61)  

Carfilzomib

     20 (87)        13 (57)  

IMiD, n (%)

     23 (100)        19 (83)  

Lenalidomide

     23 (100)        18 (78)  

Pomalidomide

     21 (91)        19 (83)  

daratumumab, n (%)

     21 (91)        18 (78)  

Prior autologous SCT, n (%)

     19 (83)     

 

 

Interim Safety Results

All 21 patients treated as of the November 21, 2018 data cutoff date and evaluable for safety results received a single dose of P-BCMA-101 following a standard conditioning regimen of lymphodepleting chemotherapy consisting of 300 mg/m2 cyclophosphamide and 30 mg/m2 fludarabine. The table below summarizes treatment-emergent adverse events, or TEAEs, considered particularly relevant to CAR-T cell products and lymphodepletion regimens. Grade 1 toxicities are generally considered mild, Grade 2 toxicities are medium, Grade 3 toxicities are serious, Grade 4 toxicities are potentially life threatening and Grade 5 result in death, with any toxicities of Grade 3 and higher considered SAEs. No patient deaths have been reported as related to treatment with P-BCMA-101.

 

TEAEs of Interest, n (%)    Overall    ³ Grade 3

Dose Limiting Toxicity (DLT)(1)

   0    0

Cytokine Release Syndrome(1)

   2 (9.5%)    0

Neurotoxicity(1)

Grade 2 CRES with Grade 3 confusion (1 pt)

   1 (4.8%)    1 (4.8%)

Neutropenia/Neutrophil count decreased(2)

   14 (66.7%)    14 (66.7%)

Thrombocytopenia/Platelet count decreased(2)

   10 (47.6%)    7 (33.3%)

Anemia

   8 (38.1%)    7 (33.3%)

Infection(3)

     

Overall

   8 (38.1%)    2 (9.5%)

First month

   6 (28.6%)    2 (9.5%)

 

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(1) by investigator assessment; confusion reported in patient with baseline mental status decrement not including orthostatic dizziness or peripheral neuropathy/tremor. The term CRES refers to CAR-T Related Encephalopathy Syndrome.

(2) includes events in the SOC Infections and Infestations. Subject counted once for any PT within the SOC.

(3) subject counted once for either term.

The most common TEAEs reported were neutropenia, febrile neutropenia and anemia. We believe these TEAEs are not related to P-BCMA-101 as they are consistent with conditioning lymphodepletion therapy and the underlying disease.

Notably, very little CRS has been reported with P-BCMA-101. As seen in the chart below, as of the November 21, 2018 data cutoff date, two cases of CRS (9.5%) had been observed, one Grade 1 and one Grade 2. In both cases, the CRS was minimal and transient and neither patient was treated with an IL-6 inhibitor or steroids, which are standard therapies for CRS. In addition, no patient required admittance to the intensive care unit for CRS or neurotoxicity. In both patients, peak measured IL-6 levels, a suspected correlate marker for CRS, were under 50 pg/ml, far below the levels typically associated with severe CRS.

 

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One case of suspected neurotoxicity (4.8%) was observed in a patient with mental status changes prior to treatment and was treated with an IL-6 inhibitor and steroids. No dose limiting toxicities have been reported as of the data cutoff date, nor has use of the safety switch been indicated in any patient.

Interim Response Results

As of November 21, 2018, 19 patients treated with P-BCMA -101 were evaluable for response by IMWG criteria. One patient from Cohort 1 was not evaluable by IMWG criteria due to the lack of protein markers. One patient treated in Cohort 4 and two patients treated in Cohort 5 were not evaluable for response as of the data cutoff date because they had not yet reached the time-point for their first assessment.

 

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Of these 19 evaluable patients, 14 showed meaningful responses, including five patients who demonstrated stringent complete response, or sCR, complete response, or CR, or very good partial response, or VGPR, seven patients who demonstrated partial response, or PR, and two patients treated within 60 days of the data cutoff date who demonstrated minimal response, or MR, and continued to show improvement. The following chart presents the objective response rate, or ORR, by dose for IMWG evaluable patients by dose group, with a breakdown by depth of response:

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Of note, while three patients were treated in Cohort 1, one patient was only evaluable by positron emission tomography, or PET, scan and was not evaluable by m-protein-based IMWG criteria at the time of treatment. While not included in the statistics above, the patient had a notable response by PET. Pictured below are the patient scans at baseline and again at four weeks post P-BCMA-101 treatment with plasmacytomas (tumors) indicated with circles, visibly illustrating the activity of the product candidate:

 

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In the original design of the Phase 1 clinical trial, we had provided for testing for minimal residual disease, or MRD, only after patients reached a CR. Since the clinical trial was originally designed, MRD has become

 

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better understood to correlate with CRs and the risk for relapse. As a result, we modified the protocol to test patient MRD status earlier in the process and that testing is underway. As of November 29, 2018, two patients have tested negative for MRD.

Many patients have only recently been treated in this ongoing trial, therefore, we could not objectively assess duration as of the data cutoff date. While we believe that the high percentage of TSCM phenotype cells in our P-BCMA-101 product candidate will enhance the probability of achieving durable responses, it will take more time to assess the durability of responses observed as of the data cutoff date. However, the data available as of the cutoff date is encouraging, with two of three patients from Cohort 1 still alive at approximately 10- and 11-months post P-BCMA-101 treatment.

Future Clinical Development Strategy

Given the clinical results seen to date, we plan to rapidly move into a Phase 2 clinical trial to support potential accelerated or full approval of a BLA based on response rates and duration of response, the same endpoints used for a number of approved multiple myeloma therapies such as daratumumab, bortezomib and carfilzomib. Subsequently, we plan to conduct additional Phase 2 and comparative Phase 3 clinical trials to support full approval, if required, and label expansion to expand the indication into earlier lines of therapy and combination therapies.

P-PSMA-101: Autologous CAR-T for Prostate Cancer

Overview

P-PSMA-101 is a solid tumor autologous CAR-T product candidate being developed to treat CRPC. P-PSMA-101 targets cells that express PSMA, which is expressed on most prostate cancer cells. PSMA is involved in folate uptake and is thought to confer a proliferative advantage to PSMA-expressing tumor cells. Additionally, PSMA levels increase as tumor cells become androgen-independent, a hallmark of advancing prostate disease. Therefore, we believe that PSMA may be less susceptible to antigen escape. P-PSMA-101 is currently undergoing IND-enabling activities and we anticipate an IND filing and initiation of a Phase 1 clinical trial in the second half of 2019.

The piggyBac transposon transgene of the P-PSMA-101 product candidate differs from P-BCMA-101 only in the binding (Centyrin) portion of the CAR molecule used, thereby helping to reduce development and manufacturing risk by leveraging the experience gained with P-BCMA-101. As with P-BCMA-101, P-PSMA-101 includes a DHFR gene used to manufacture a highly purified product, as well as an iCasp9-based safety switch gene that we believe will allow some or most cells to be eliminated in the patient, if desired. Also, as with P-BCMA-101, P-PSMA-101 is produced with our proprietary manufacturing system that results in a highly purified product with a cell composition comprised of a high percentage of TSCM cells, with the goal of conveying numerous benefits over other CAR-T products manufactured using viral methods.

Target Indication

Prostate cancer is the third most common cancer globally and the second leading cause of cancer death among men in the United States, with a 60% occurrence rate in men over the age of 65. In the United States alone, there are approximately 2.8 million men living with prostate cancer, with approximately 40,000 new cases of metastatic CRPC estimated each year. The majority of prostate cancer patient deaths in the United States are due to metastatic CRPC.

Treatment paradigms for prostate cancer vary based on the age of the patient at the time of diagnosis. Typical treatment options for prostate cancer range from active surveillance, radiation therapy, cryotherapy, immunotherapy, hormone therapy and surgical treatment. For metastatic disease, the paradigm bifurcates

 

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between hormone naïve disease and CRPC. CRPC cases are typically treated with the chemotherapy drug docetaxel, and a choice of abiraterone, enzalutamide, cabaziltaxel and/or Radium-223. Typically, none of these therapies are curative.

Although five-year survival rates for local and regional prostate cancers are nearly 100%, a high unmet need for CRPC remains, with a five-year survival rate of only approximately 25%. We believe P-PSMA-101, if successful in the clinic, can dramatically increase survival, as well as quality of life for CRPC patients.

Preclinical Data

P-PSMA-101 resulted in the elimination of tumor cells to undetectable levels in 100% of animals, with one incidence of a relapse in the low dose cohort, in a preclinical model of prostate cancer. This preclinical model involves the implantation of subcutaneous solid tumors comprised of a human metastatic CRPC cell line (LNCaP (fLuc+)) in immuno-deficient mice. These tumors were well established to a size of at least 100 mm3 before administration of P-PSMA-101. In the model shown below, we demonstrated elimination of tumors to below the limit of detection by both bioluminescence imaging measurements (left panel in figure) or caliper measurements (right side of figure) in 100% of animals with both a standard dose of 10 million P-PSMA-101 cells per animal (10 x 106), as well as a low dose of five million cells per animal (5 x 106). One animal in the low dose cohort relapsed later in the study. To our knowledge based on published literature, no other product candidate has shown complete solid tumor elimination in any animal in this preclinical model:

 

 

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P-PSMA-101, comprised of a high percentage of TSCM cells, expanded in vivo and gave rise to CAR-positive T cells that were more differentiated, including TEFF cells, which were detected in the peripheral blood at early timepoints, followed by a decrease in tumor burden to below detectable levels as measured by both bioluminescent imaging and caliper.

 

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Consistent with our hypothesis, the short-lived, more differentiated T cells were then eliminated and the long-lived TSCM cells engrafted and persisted, and were the only cells detectible in the peripheral blood at later timepoints. Thus, even after solid tumor elimination, a population of P-PSMA-101 TSCM cells persisted. The figures below show that in mice with no tumor, TSCM cells engrafted and persisted without in vivo expansion and differentiation. In contrast, TSCM cells expanded and differentiated in the presence of tumor in subject mice treated with P-PSMA-101, and continued to persist following solid tumor elimination:

 

 

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Clinical Development Strategy

We are completing IND-enabling activities for P-PSMA-101 and anticipate an IND filing and initiation of a Phase 1 clinical trial in the second half of 2019. P-PSMA-101 will be administered as a single dose after a standard 3-day lymphodepleting regimen. Patients will be followed for safety and anti-tumor activity for up to 15 years thereafter. We will evaluate further development based on the outcome of this trial.

P-BCMA-ALLO1: Allogeneic CAR-T in Multiple Myeloma

Overview

P-BCMA-ALLO1 is a fully allogeneic CAR-T product candidate being developed to treat multiple myeloma, which we believe could be used either as a stand-alone therapy or a bridging therapy to the use of P-BCMA-101. P-BCMA-ALLO1 is in late preclinical development. We anticipate an IND filing and initiation of a Phase 1 clinical trial for P-BCMA-ALLO1 by late 2019 or early 2020.

P-BCMA-ALLO1 is our first allogeneic universal donor CAR-T product candidate derived from healthy donor cells, giving it the potential to be used as an off-the-shelf therapy for unrelated multiple myeloma patients. We believe our technology and manufacturing process are ideally suited to develop allogeneic CAR-T product candidates with reduced alloreactivity and without unwanted mutations. We use our proprietary Cas-CLOVER platform to genetically engineer T cells in order to reduce or eliminate both GvHD and host versus graft alloreactivity. Cas-CLOVER is designed to efficiently edit resting T cells and has demonstrated precise specificity, thereby limiting unwanted off-target mutations and helping to ensure patient saf