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As filed with the Securities and Exchange Commission on September 28, 2020.

Registration Statement No. 333-248757

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ONCORUS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2834   47-3779757

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

50 Hampshire Street, Suite 401

Cambridge, Massachusetts 02139

Tel: (857) 320-6400

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

 

 

Theodore (Ted) Ashburn, M.D., PhD.

President and Chief Executive Officer

Oncorus, Inc.

50 Hampshire Street, Suite 401

Cambridge, Massachusetts 02139

Tel: (857) 320-6400

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

Copies to:

 

Marc A. Recht

Brian F. Leaf

Courtney T. Thorne

Cooley LLP

500 Boylston Street

Boston, Massachusetts 02116

(617) 937-2300

 

Lisa Firenze

Rosemary G. Reilly

Jeffries L. Oliver-Li

Wilmer Cutler Pickering Hale and Dorr LLP

7 World Trade Center

250 Greenwich Street

New York, New York 10007

(212) 230-8800

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, as amended, 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 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 elected not 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 SECURITIES BEING REGISTERED  

AMOUNT TO BE
REGISTERED (1)

 

PROPOSED

MAXIMUM

OFFERING PRICE

PER SHARE

 

PROPOSED

MAXIMUM
AGGREGATE
OFFERING PRICE (2)

  AMOUNT OF
REGISTRATION
FEE (3)

Common Stock, $0.0001 par value per share

  6,670,000   $16.00   $106,720,000   $13,852.26

 

 

(1) 

Includes 870,000 shares of common stock the underwriters have the option to purchase.

(2) 

Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. Includes the offering price of additional shares that the underwriters have the option to purchase.

(3) 

The registrant previously paid $11,195.25 of this amount in connection with the prior filing of this registration statement, and the additional amount of $2,657.01 is being paid herewith.

 

 

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 is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION DATED SEPTEMBER 28, 2020

 

PRELIMINARY PROSPECTUS

5,800,000 Shares

 

 

LOGO

Common Stock

We are offering 5,800,000 shares of common stock. This is our initial public offering of our common stock.

Prior to this offering, there has been no public market for our shares. We expect that the initial public offering price will be between $14.00 and $16.00 per share. We have applied to have our common stock approved for listing on The Nasdaq Global Market under the symbol “ONCR.”

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

Investing in our common stock involves a high degree of risk. Before buying any shares, you should read carefully the discussion of the material risks of investing in our common stock under the heading ‘‘Risk Factors’’ starting on page 12 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission approved or disapproved of the securities that may be offered under this prospectus, nor have any of these organizations determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

     PER SHARE      TOTAL  

Public offering price

   $                    $                

Underwriting discount (1)

   $        $    

Proceeds, before expenses, to us

   $        $    

 

 

(1)    We refer you to “Underwriting” beginning on page 183 for additional information regarding underwriting compensation.

Delivery of the shares of common stock is expected to be made on or about                 , 2020.

We have granted the underwriters an option for a period of 30 days to purchase an additional 870,000 shares of our common stock. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $        , and the total proceeds to us, before expenses, will be $        .

 

Jefferies   Evercore ISI   Piper Sandler

The date of this prospectus is                 , 2020.


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TABLE OF CONTENTS

 

 

 

     PAGE  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     12  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     65  

INDUSTRY AND MARKET DATA

     67  

USE OF PROCEEDS

     68  

DIVIDEND POLICY

     69  

CAPITALIZATION

     70  

DILUTION

     72  

SELECTED FINANCIAL DATA

     75  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     77  

BUSINESS

     93  

MANAGEMENT

     141  

EXECUTIVE COMPENSATION

     149  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     163  

PRINCIPAL STOCKHOLDERS

     168  

DESCRIPTION OF CAPITAL STOCK

     171  

SHARES ELIGIBLE FOR FUTURE SALE

     176  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

     179  

UNDERWRITING

     183  

LEGAL MATTERS

     191  

EXPERTS

     192  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     193  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

 

Through and including                 , 2020, (the 25th day after the date of this prospectus), all dealers effecting transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

We have not, and the underwriters have not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any amendment or supplement to this prospectus or 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 of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus, any amendment or supplement to this prospectus or 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.

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


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PROSPECTUS SUMMARY

This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements before deciding to buy shares of our common stock. Unless the context requires otherwise, references in this prospectus to “Oncorus,” “the company,” “we,” “us” and “our” refer to Oncorus, Inc.

Overview

We are a clinical stage biopharmaceutical company focused on developing next-generation viral immunotherapies to transform outcomes for cancer patients. Using our two distinct proprietary platforms, we are developing a pipeline of intratumorally and intravenously administered product candidates designed to selectively attack and kill tumor cells and stimulate multiple arms of the immune system against tumors. Our lead product candidate, ONCR-177, is an intratumorally administered viral immunotherapy based on our oncolytic HSV-1 platform, referred to as our oHSV Platform, which leverages the Herpes Simplex Virus type 1, or HSV-1, a virus which has been clinically proven to effectively treat certain cancers. Utilizing this proprietary platform, we are engineering our product candidates, such as ONCR-177, to carry greater numbers of immunostimulatory transgenes than viral immunotherapies that are either currently approved or in clinical development. These transgenes are designed to drive strong systemic anti-tumor immunity to elicit tumor responses at injected tumor sites and distant non-injected tumor sites, or abscopal activity. In addition, viruses from our oHSV Platform maintain full viral replication competency in tumors and are designed to be selectively attenuated in healthy tissues. We believe this unique combination of features allows us to break the safety versus potency trade-off that has generally limited the viral immunotherapy field to date. We are also developing a broad pipeline of product candidates that leverages our second platform, which we refer to as our Synthetic Platform. This platform aims to enable repeat intravenous administration of viral immunotherapies in order to treat cancers that are less amenable to intratumoral injection due to safety and feasibility reasons, such as cancers of the lung.

We have initiated and begun dosing patients in a Phase 1 clinical trial of ONCR-177 in patients with several different types of solid tumors, including breast cancers and cutaneous tumors. We expect to report preliminary data from this trial in multiple data readouts beginning in the second half of 2021 through the second half of 2022. We also have additional preclinical stage oHSV programs in development that address both intratumoral and intravenous solutions to other unmet medical needs, including a program designed to target brain cancer through intratumoral injection, which we refer to as ONCR-GBM. We expect to nominate a clinical candidate for this program in the second half of 2021.

We designed ONCR-177 to overcome the limitations of existing viral immunotherapies by enhancing abscopal activity and potency. In addition to its ability to cause immunogenic cell death by way of viral oncolysis, ONCR-177 is armed with five immunostimulatory transgenes: IL-12, CCL4, FLT3LG, a PD-1 antagonist nanobody, and a CTLA-4 antagonist monoclonal antibody (which has the same amino acid sequence as ipilimumab). In multiple preclinical models of cancer, immune cells activated by ONCR-177 and its encoded payloads drive anti-tumor responses both in injected tumors and non-injected tumors. We also designed ONCR-177 to replicate and express transgenes only in tumor cells while disabling its effects on healthy tissues. In multiple preclinical cancer models we observed that these anti-tumor activities of ONCR-177 are achieved without either the systemic release of cytokines that can be associated with toxicity or significant presence of the virus in non-injected tumors or in the circulation, in addition to favorable tolerability when administered via intravenous and intratumoral injection in a validated murine model of HSV-1 infection.



 

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We intend to develop ONCR-177 for multiple indications. Our ongoing Phase 1 dose escalation clinical trial of ONCR-177 is currently enrolling patients with several types of solid tumors, including breast cancers, such as triple negative and hormone receptor-positive breast cancers; squamous cell carcinomas of head and neck, or SCCHN; and cutaneous tumors, including melanoma and non-melanoma skin cancers. We also plan to enroll patients with tumors that have spread to the liver, such as metastases from microsatellite stable colorectal cancer, or MSS CRC. We intend to investigate ONCR-177 in our Phase 1 clinical trial both as monotherapy and in combination with the immune checkpoint inhibitor pembrolizumab, which is marketed by Merck under the brand name KEYTRUDA. In July 2020, we entered into a clinical trial collaboration and supply agreement with Merck under which we are conducting the combination arm of the trial in partnership with Merck and Merck is supplying pembrolizumab for the trial with no financial obligation to us.

Our initial clinical development of ONCR-177 is focusing on patients with tumors with low levels of infiltrated immune cells, which are referred to as cold tumors, and who would not be expected to respond to current immunotherapies, as well as patients with tumors infiltrated with high levels of immune cells, or hot tumors, who have not responded to, or progressed after treatment with, immune checkpoint inhibitors. Once we determine a recommended Phase 2 dose, or RP2D, for ONCR-177, we intend to continue its clinical development through focused expansion cohorts. The expansion cohorts are intended to enable us to obtain further safety, biomarker and clinical activity data that will guide our future clinical development. Given its anticipated safety profile and ability to stimulate multiple arms of the immune system to attack cancer systemically, we also believe that ONCR-177 has potential in pre-surgical, or neoadjuvant, settings. We intend to enroll additional cohorts of patients with early-stage breast cancer once the RP2D for ONCR-177 in the Phase 1 clinical trial has been determined.

Our Synthetic Platform is designed to avoid the rapid clearance of the virus from the circulation by neutralizing antibodies, which have hindered the clinical effectiveness of current intravenously administered viral immunotherapies. The viruses we develop under our Synthetic Platform are designed to deliver engineered viral genomes encapsulated within a lipid nanoparticle, or LNP. We believe this approach will avoid rapid immune clearance from circulation and enable repeat administration. We have established preclinical proof of concept for two synthetic viral immunotherapies, based on coxsackievirus A21, or CVA21 and Seneca Valley Virus, or SVV. These viruses have been studied extensively by others in clinical trials in which they have been administered intravenously and shown to be well tolerated. However, patients in these trials developed neutralizing antibodies leading to rapid clearance of the virus from circulation. Our lead Synthetic Platform product candidate, based on CVA21, is intended to be administered intravenously for the treatment of non-small cell lung cancer, or NSCLC, among other potential indications, including melanoma and bladder cancer. We are also developing a second synthetic program, which is based on SVV, that is intended to be administered intravenously, for the treatment of small cell lung cancer, or SCLC, treatment-emergent small cell neuroendocrine prostate cancer, or t-SCNC, and other neuroendocrine tumors. These synthetic viral immunotherapy programs, referred to as Synthetic CVA21 and Synthetic SVV, respectively, are currently in preclinical development. We intend to nominate clinical candidates in our Synthetic CVA21 and Synthetic SVV programs for development in the first half of 2021.

We believe the therapies that we are developing will bring significant benefit to many patients who are currently underserved by approved immuno-oncology therapies, including other viral immunotherapies and immune checkpoint inhibitors.

Our company was co-founded by a team including MPM Capital executive partner Mitchell Finer, Ph.D., who has three decades of experience in cancer immunotherapy, cell and gene therapy and regenerative medicine. Dr. Finer previously served as our chief executive officer and chief scientific officer and currently serves as our Executive Chairman. Our oHSV portfolio is based upon the work of renowned scientist Professor Joseph Glorioso III, Ph.D., who is chairman of our scientific advisory board. Professor Glorioso has conducted over four decades of research related to the basic biology and genetics of herpes simplex virus and is a pioneer in the design and application of HSV-1 gene vectors.



 

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We have assembled a seasoned leadership team with extensive experience in developing and manufacturing oncology therapies, including advancing product candidates from preclinical research through clinical development and commercialization. Our President and Chief Executive Officer, Theodore (Ted) Ashburn, M.D., Ph.D., was previously Head of Oncology Development at Moderna Therapeutics, Inc. and Global Head of Leukine® (rhu GM-CSF) and Elitek®/Fasturtec® (rasburicase) within Sanofi Oncology at Sanofi S.A., and also held multiple business development roles at Genzyme Corporation. Christophe Quéva, Ph.D., our Chief Scientific Officer and Senior Vice President, Research, previously served as chief scientific officer at iTeos Therapeutics SA. Before iTeos, he held successive senior positions at AstraZeneca, plc, Amgen, Inc. and Gilead Sciences, Inc. where he led or supported multiple drug discovery programs for oncology and inflammatory diseases, from target selection to commercial approval for small molecules and biologics. John Goldberg, M.D., our Senior Vice President, Clinical Development, is a pediatric oncologist who trained at the Dana Farber Cancer Institute with clinical development experience at both H3 Biomedicine Inc. and Agenus, Inc.

We are backed by a group of leading institutional life science investors, including affiliates of Arkin Bio-Ventures, Astellas Venture Management, Bristol-Myers Squibb, Cathay Fortune Capital, Cowen Healthcare Investments, Deerfield Management, Excelyrate Capital, Fosun Industrial, IMM Investment, MPM Capital, Perceptive Advisors, QUAD Investment Management, Shinhan, Sphera Funds, Surveyor Capital, SV Investment Corp., UBS Oncology Impact Fund and UTC Investments.

Recent Developments

In September 2020, we closed the second and final tranche of our Series B preferred stock financing, which was triggered by our achievement of specified clinical development milestones for ONCR-177. One of those milestones was that the three patients in the first cohort and first patient in the second cohort of our Phase 1 trial experienced no dose limiting toxicities within the first 28 days following their initial doses of ONCR-177. Upon the closing of the second tranche of the Series B financing, we received gross proceeds of $35.8 million.

Our Pipeline

The status of our current product candidates is shown in the table below.

 

 

LOGO

Our oHSV Platform—Developing the next generation of oncolytic HSV-1-based viral immunotherapy

Our lead product candidate, ONCR-177, is based on our oHSV Platform. Herpes Simplex Virus-1, or HSV-1, has emerged as the leading viral vector for immunotherapy due to its potency at killing tumor cells, large and well-studied genome, overall safety and sensitivity to acyclovir, and the regulatory approval pathway established by talimogene laherparepvec, or T-VEC. We designed our oHSV Platform to develop improved viral immunotherapies that overcome the limitations in potency and in the ability to stimulate anti-tumor immunity that have both been encountered by previous viral immunotherapies and other immuno-oncology therapies. We



 

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also intend to develop therapies derived from this platform that will address multiple types of tumors, including our ONCR-GBM program designed to treat brain cancer.

Our oHSV Platform improves upon three basic characteristics of viral immunotherapies: the number of encoded transgenes, which can help drive the extent and robustness of immune responses and abscopal effects; replication competency in tumors, which determines cell killing potency; and selective replication in tumor versus normal tissues to improve potency and to help ensure an acceptable therapeutic index:

 

   

Greater capacity to encode transgenes to drive systemic immunostimulatory activity. Using our proprietary technology, we are developing HSV-1-based product candidates with the ability to carry greater numbers of transgenes than viral immunotherapies that are either currently approved or in clinical development, which allows for greater systemic immunostimulatory activity than could otherwise be achieved.

 

   

Retention of full replication competency to enable high tumor-killing potency. Using our proprietary oHSV Platform, we are developing HSV-1 based product candidates that retain their full ability to replicate in tumor cells.

 

   

Orthogonal safety strategies to allow tumor-specific replication. Under our oHSV Platform, we use gene regulatory elements, known as microRNA target sequences, inserted within the genomes of viruses, and a proprietary mutation in a HSV-1 protein that prevents transport, replication and latency in neurons, as two orthogonal safety strategies to restrict viral activity to tumor cells while sparing normal tissues.

Our Synthetic Platform—Enabling the repeat intravenous administration of viral immunotherapies

We are currently developing two programs, based on CVA21 and SVV, using our Synthetic Platform. Our Synthetic Platform is focused on designing and developing viral immunotherapy candidates that can effectively infect tumors while avoiding neutralizing antibodies thereby allowing for repeat intravenous administration. To overcome the limitations caused by neutralizing antibodies, we have developed a novel delivery strategy, in which we engineer a synthetic viral immunotherapy comprised of a synthetic viral genome encapsulated within a LNP that is intended to be less immunogenic than a natural viral capsid.

Our Strategy

To achieve our objective of transforming clinical outcomes for cancer patients through the development of viral immunotherapies, we intend to:

 

   

advance ONCR-177 through clinical development both as monotherapy and in combination with immune checkpoint inhibitors, including pembrolizumab;

 

   

advance our synthetic viral immunotherapy product candidates for repeat intravenous administration both as monotherapies and in combination with immune checkpoint inhibitors;

 

   

continue to strengthen our position in the viral immunotherapy field through continuous product development and investments in our platforms;

 

   

broaden and strengthen our in-house manufacturing capabilities; and

 

   

selectively partner with leading biopharmaceutical companies to unlock the full potential of our viral immunotherapy product candidates and platforms while retaining product rights in key markets.

Risks Associated with Our Business

You should consider carefully the risks described under the “Risk Factors” section beginning on page 12 and elsewhere in this prospectus. The risks that could be materially and adversely affect our business, financial condition, operating results and prospects include the following:

 

 

  We have a limited operating history. We have incurred significant losses since our inception and anticipate that we will incur significant and increasing losses for the foreseeable future and we may never achieve or maintain profitability.


 

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Even if we complete this offering, we will require substantial additional financing to advance the development of our product candidates, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, potential commercialization efforts or other operations.

 

   

We have never generated any revenue from product sales and may never become profitable.

 

   

Our product candidates are in early stages of development, are not approved for commercial sale and might never receive regulatory approval or become commercially viable. We have never generated any revenue from product sales and may never be profitable.

 

   

The report of our independent registered public accounting firm included a “going concern” explanatory paragraph.

 

   

We currently have only one product candidate, ONCR-177, in clinical development. A failure of this product candidate in clinical development would adversely affect our business and may require us to discontinue development of other product candidates based on the same therapeutic approach.

 

   

Public health crises such as pandemics, including the coronavirus disease, or COVID-19, or similar outbreaks could materially and adversely affect our preclinical studies and clinical trials, business, financial condition and results of operations.

 

   

Preclinical and clinical development involve a lengthy and expensive process with an uncertain outcome, and delays can occur for a variety of reasons outside of our control.

 

   

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

 

   

Serious adverse events, undesirable side effects or other unexpected properties of our current or future product candidates may be identified during development or after approval, which could halt their development or 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.

 

   

We anticipate that many of our product candidates will be used in combination with third-party drugs, some of which may still be in development, and we have limited or no control over the supply, regulatory status or regulatory approval of such drugs.

 

   

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.

 

   

We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials. If those third parties do not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with regulatory requirements, we may be unable to obtain regulatory approval for our product candidates or any other product candidates that we may develop in the future.

 

   

If the manufacturers upon which we rely fail to produce any product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to biopharmaceutical manufacturers, we may face delays in the development and commercialization of, or be unable to meet demand for, any product candidates, which may have an adverse effect on our business.

 

   

If we are unable to successfully commercialize any product candidate for which we receive regulatory approval, or experience significant delays in doing so, our business will be materially harmed.

 

   

We face significant competition from other biopharmaceutical and biotechnology companies, academic institutions, government agencies, and other research organizations, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, our commercial opportunity may be reduced or eliminated.



 

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Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, hospitals, cancer treatment centers, third-party payors and others in the medical community necessary for commercial success. The revenues that we generate from their sales may be limited, and we may never become profitable.

 

   

Negative developments in the field of immuno-oncology could damage public perception of our oHSV and Synthetic Platforms and our product candidates, including ONCR-177, and negatively affect our business.

 

   

If we are unable to obtain, maintain and protect our intellectual property rights for our technology and product candidates, or if our intellectual property rights are inadequate, our competitive position could be harmed.

 

   

We are highly dependent on our key personnel, including our Chief Executive Officer, Chief Scientific Officer and Senior Vice President, Clinical Development. If we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Corporate Information

We were incorporated under the laws of the State of Delaware in April 2015. Our principal executive office is located at 50 Hampshire Street, Suite 401, Cambridge, Massachusetts 02139. Our telephone number is (857) 320-6400. Our website address is www.oncorus.com. Information contained in, or accessible through, our website does not constitute a part of, and is not incorporated into, this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

The Oncorus logo and the name Oncorus® and other registered or common law trademarks or service marks of Oncorus, Inc. appearing in this prospectus are the property of Oncorus, Inc. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for your convenience, trade names, trademarks and service marks contained in this prospectus may appear without the “®” or “” symbols. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to those trade names, trademarks and service marks.

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. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

   

being permitted to present in this prospectus only two years of audited financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

   

reduced disclosure about the compensation paid to our executive officers;

 

   

not being required to submit to our stockholders advisory votes on executive compensation or golden parachute arrangements;

 

   

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; and

 

   

an exemption from new or revised financial accounting standards until they would apply to private companies and from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of



 

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(1) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (2) December 31, 2025; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (4) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or the SEC. We may choose to take advantage of some but not all of these exemptions.

We have elected to take advantage of the extended transition period to comply with new or revised accounting standards. As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult. We have also elected to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of these elections, the information that we provide in this prospectus may be different than the information you may receive from other public companies in which you hold equity interests. In addition, it is possible that some investors will find our common stock less attractive as a result of these elections, which may result in a less active trading market for our common stock and higher volatility in our stock price.



 

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THE OFFERING

 

Common stock offered by us

5,800,000 shares.

 

Common stock to be outstanding immediately after this offering

21,845,884 shares (or 22,715,884 shares if the underwriters exercise in full their option to purchase additional shares).

 

Option to purchase additional shares

We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional 870,000 shares from us.

 

Use of proceeds

We estimate that we will receive net proceeds of approximately $77.7 million (or approximately $89.8 million if the underwriters exercise in full their option to purchase additional shares), based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering to advance our clinical programs, including ONCR-177, to fund our preclinical programs, to expand our manufacturing capabilities and for working capital purposes. See “Use of Proceeds” for additional information.

 

Risk factors

You should carefully read “Risk Factors” on page 12 of this prospectus for a discussion of factors that you should consider before deciding to invest in our common stock.

 

Proposed Nasdaq Global Market symbol

“ONCR”

The number of shares of our common stock to be outstanding immediately after this offering is based on 1,094,365 shares of our common stock outstanding as of September 25, 2020, which includes 22,406 shares of our common stock subject to forfeiture and our right of repurchase, and gives effect to the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 14,951,519 shares of common stock upon the closing of this offering, but excludes:

 

   

2,109,151 shares of our common stock issuable upon the exercise of options outstanding as of September 25, 2020, at a weighted-average exercise price of $3.81 per share;

 

   

71,544 shares of common stock issuable upon the exercise of warrants to purchase shares of our common stock outstanding as of September 25, 2020, at a weighted-average exercise price of $1.21 per share;

 

   

19,048 shares of our common stock reserved for future issuance under our 2016 Equity Incentive Plan, or the 2016 Plan, as of September 25, 2020, which shares will cease to be available for future issuance immediately prior to the time that our 2020 Equity Incentive Plan, or the 2020 Plan, becomes effective in connection with this offering;

 

   

2,800,000 shares of our common stock reserved for future issuance pursuant to our 2020 Plan, which will become effective upon the execution of the underwriting agreement related to this offering, of which our board of directors has approved, subject to the pricing of this offering, grants of stock options to purchase an aggregate of 363,150 shares of common stock, at an exercise price per share equal to the initial public offering price for this offering, to certain of our employees, as well as any shares which may be reserved pursuant to provisions in our 2020 Plan that automatically increase the number of shares of common stock reserved for issuance under the 2020 Plan; and



 

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280,000 shares of our common stock reserved for future issuance under our 2020 Employee Stock Purchase Plan, or ESPP, which will become effective upon the execution of the underwriting agreement related to this offering, as well as any shares which may be reserved pursuant to provisions in the ESPP that automatically increase the number of shares of common stock reserved for issuance under the ESPP.

Unless otherwise indicated, this prospectus reflects and assumes the following:

 

   

a one-for-12.0874 reverse stock split of our common stock, and proportionate adjustments to the applicable conversion ratios for our convertible preferred stock, that became effective on September 25, 2020;

 

   

the automatic conversion of all of our outstanding shares of convertible preferred stock into an aggregate of 14,951,519 shares of our common stock upon the closing of this offering;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur in connection with the closing of this offering;

 

   

no exercise of the outstanding options and warrants referred to above; and

 

   

no exercise by the underwriters of their option to purchase additional shares of our common stock.



 

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SUMMARY FINANCIAL DATA

The following tables set forth our summary financial data. The summary consolidated statement of operations data presented below for the years ended December 31, 2018 and 2019 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statement of operations data presented below for the six months ended June 30, 2019 and 2020 and the summary consolidated balance sheet data as of June 30, 2020 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in any future period, and results for the six-month period ended June 30, 2020, are not necessarily indicative of the results to be expected for the full year ending December 31, 2020.

When you read this summary financial data, it is important that you read it together with the historical consolidated financial statements and related notes to those statements, as well as the sections of this prospectus titled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

 

 

     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
(in thousands, except per share data)    2018     2019         2019             2020      

Consolidated Statement of Operations Data:

        

Operating Expenses:

        

Research and development

   $ 12,541     $ 24,047     $ 11,962     $ 12,633  

General and administrative

     6,037       7,119       2,465       4,059  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     18,578       31,166       14,427       16,692  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (18,578     (31,166     (14,427     (16,692

Total other income (expense), net

     532       462       163       (509
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (18,046   $ (30,704   $ (14,264   $ (17,201
  

 

 

   

 

 

   

 

 

   

 

 

 

Accretion of discount and dividends on redeemable convertible preferred stock

     (98     (4,287     (31     (5,450
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (18,144   $ (34,991   $ (14,295   $ (22,651
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (22.88   $ (37.42   $ (15.78   $ (22.67
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of common shares outstanding—basic and diluted (1)

     793       935       906       999  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     $ (3.35     $ (1.33
    

 

 

     

 

 

 

Pro forma weighted average common shares outstanding(1)

       9,160         12,502  
    

 

 

     

 

 

 

 

 

1.    See Note 2 and Note 12 to our annual consolidated financial statements and Note 2 and Note 10 to our interim consolidated financial statements included elsewhere in this prospectus for a description of the method used to calculate basic and diluted net loss per share and unaudited pro forma basic and diluted net loss per share.


 

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     AS OF JUNE 30, 2020  
(in thousands)    ACTUAL     PRO FORMA (1)     PRO FORMA AS
ADJUSTED (2)
 

Consolidated Balance Sheet Data

      

Cash and cash equivalents

   $ 28,921     $ 64,762     $ 142,422  

Working capital (3)

     24,459       60,300       137,960  

Total assets

     35,815       71,656       149,316  

Redeemable convertible preferred stock

     122,082       —         —    

Accumulated deficit

     (96,324     (96,324     (96,324

Total stockholders’ (deficit) equity

     (96,324     64,100       141,760  

 

 

1.    Pro forma amounts give effect to (i) the sale by us of 41,690,117 shares of Series B convertible preferred stock in September 2020 for gross proceeds of $35.8 million and (ii) the automatic conversion of all of our outstanding shares of convertible preferred stock into an aggregate of 14,951,519 shares of our common stock upon the closing of this offering.

 

2.    Pro forma as adjusted amounts reflect the pro forma adjustments described in footnote 1 above as well as the sale of 5,800,000 shares of our common stock in this offering at the assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

3.    We define working capital as current assets less current liabilities.

The pro forma as adjusted information set forth above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $5.4 million, 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 estimated underwriting discounts and commissions payable by us. We may also increase or decrease the number of shares we are offering. Each 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $14.0 million, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions payable by us.



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus and “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” before deciding whether to purchase shares of our common stock. If any of the following risks are realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

Risks Related to our Financial Position and Need for Additional Capital

We have a limited operating history. We have incurred significant losses since our inception and anticipate that we will incur significant and increasing losses for the foreseeable future and we may never achieve or maintain profitability.

We have a limited operating history, and we are early in our development efforts. Since our inception in April 2015, we have incurred significant operating losses. Our net loss was $18.0 million and $30.7 million for the years ended December 31, 2018 and 2019, respectively, and $17.2 million for the six months ended June 30, 2020. As of June 30, 2020, we had an accumulated deficit of $96.3 million. We have funded our operations to date primarily through the sale of preferred equity securities. Since inception, we have devoted substantially all of our financial resources and efforts to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing a clinical trial and manufacturing. We are still in the early stages of development of our product candidates, and we have not completed development of any products. We expect to continue to incur significant and increasing operating losses for the foreseeable future. We expect that it will be several years, if ever, before we have a commercialized product. The net losses we incur may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially if, and as, we:

 

   

advance the clinical trial for our lead product candidate, ONCR-177;

 

   

continue the ongoing and planned preclinical and clinical development of our other development programs;

 

   

discover and develop new product candidates, and conduct research and development activities, preclinical studies and clinical trials;

 

   

initiate preclinical studies and clinical trials for any additional product candidates that we may pursue in the future;

 

   

manufacture preclinical, clinical and commercial supplies of our product candidates;

 

   

seek regulatory approvals for any product candidates that successfully complete clinical trials;

 

   

maintain, expand and protect our intellectual property portfolio;

 

   

hire additional research and development, clinical, scientific and management personnel;

 

   

add operational, financial and management information systems and personnel;

 

   

ultimately establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain regulatory approval and we commercialize on our own or in collaboration with others; and

 

   

incur additional legal, accounting and other expenses operating as a public company following the completion of this offering.

To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials, obtaining regulatory approval for product candidates and manufacturing, marketing and selling products for which we may obtain marketing approval and satisfying any post-marketing requirements. We are only in the preliminary stages of most of these activities. We may never succeed in

 

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these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment

Even if we complete this offering, we will require substantial additional financing to advance the development of our product candidates, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, potential commercialization efforts or other operations.

The development of biopharmaceutical product candidates is capital-intensive. Our operations have consumed substantial amounts of cash since inception. As of June 30, 2020, our cash and cash equivalents were $28.9 million. In September 2020, we raised an additional $35.8 million in gross proceeds from the sale of Series B convertible preferred stock in the second and final tranche of our Series B preferred stock financing. We expect to continue to spend substantial amounts to continue the preclinical and clinical development of our current and future programs. If we are able to gain marketing approval of any product candidate that we develop, including ONCR-177, we will require significant additional amounts of cash in order to launch and commercialize such product either alone or in collaboration with others. Because the design and outcome of our ongoing, anticipated and any future clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate we develop.

Our future capital requirements depend on many factors, including:

 

   

the scope, progress, results and costs of researching and developing ONCR-177 and our other product candidates and programs, and of conducting preclinical studies and clinical trials and any delays related to the COVID-19 pandemic;

 

   

the timing of, and the costs involved in, obtaining marketing approvals for ONCR-177 and future product candidates we develop if clinical trials are successful;

 

   

the success of any future collaborations;

 

   

the cost of commercialization activities for any approved product, including marketing, sales and distribution costs;

 

   

the cost and timing of establishing, equipping, and operating our planned manufacturing activities;

 

   

the cost of manufacturing ONCR-177 and future product candidates for clinical trials in preparation for marketing approval and commercialization;

 

   

our ability to establish and maintain strategic licensing or other arrangements and the financial terms of such agreements;

 

   

the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

 

   

our ability to establish and maintain healthcare coverage and adequate reimbursement for our future products, if any;

 

   

the timing, receipt, and amount of sales of, or royalties on, our future products, if any;

 

   

the emergence of competing cancer therapies and other adverse market developments; and

 

   

the impact of the COVID-19 pandemic, which may exacerbate the magnitude of the factors discussed above.

We do not have any committed external source of funds or other support for our development efforts. Until we can generate sufficient product revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings and debt financings, or other sources such as potential collaborations, strategic alliances, licensing arrangements and other arrangements. Based on our research and development plans, we expect that the net proceeds from this offering, together with our existing cash and cash equivalents, including the $35.8 million in gross proceeds that we received from the second and final tranche of our Series B financing, will enable us to fund our planned operating expenses and capital expenditure requirements into 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. In addition, because the design and

 

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outcome of our anticipated and any future clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of ONCR-177 or any future product candidates.

The net proceeds of this offering, together with our existing cash and cash equivalents, will not be sufficient to complete development of ONCR-177 or any other product candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives. Adequate additional funding may not be available to us on acceptable terms, or at all. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we are unable to raise additional funding in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue our research and development initiatives. We could also be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves. Any of these events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

We have never generated any revenue from product sales and may never become profitable.

Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with future partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our development programs. We have no products approved for commercial sale, have not generated any revenue from product sales, and do not anticipate generating any revenue from product sales until after we have received marketing approval for the commercial sale of a product candidate, if ever. Our ability to generate revenue and achieve profitability depends heavily on our success in achieving a number of goals, including:

 

   

completing research regarding, and preclinical and clinical development of product candidates and programs, including ONCR-177, and identifying and developing new product candidates;

 

   

obtaining marketing approvals for any product candidates for which we complete clinical trials;

 

   

developing a sustainable and scalable manufacturing process for ONCR-177 and future product candidates, including establishing and maintaining supply and manufacturing relationships with third parties;

 

   

launching and commercializing product candidates for which we obtain marketing approvals, either directly by establishing a sales force and marketing, medical affairs and distribution infrastructure or, alternatively, with a collaborator or distributor;

 

   

establishing and maintaining healthcare coverage and adequate reimbursement for our future products, if any;

 

   

obtaining market acceptance of product candidates that we develop as viable treatment options;

 

   

addressing any competing technological and market developments;

 

   

identifying, assessing, acquiring and developing new product candidates;

 

   

negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter and performing our obligations in such collaborations;

 

   

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

 

   

attracting, hiring, and retaining qualified personnel.

Even if ONCR-177 or any future product candidates that we develop are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any such product candidate that we commercialize on our own or in collaboration with others. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, or comparable foreign regulatory authorities, to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate.

 

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If we are successful in obtaining regulatory approvals to market ONCR-177 or any future product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain marketing approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indications approved by regulatory authorities are narrower than we expect, the labels for our product candidates contain significant safety warnings, regulatory authorities impose burdensome or restrictive distribution requirements, or the reasonably accepted patient populations for treatment are narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. If we are not able to generate revenue from the sale of any approved products, we could be prevented from or significantly delayed in achieving profitability.

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.

To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest may be diluted. Any future debt financings we undertake, if available, are likely to involve restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through licensing or collaboration arrangements with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. We also could be required to seek collaborators for product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves.

Failure to obtain capital when needed on acceptable terms may force us to delay, limit or terminate our product development and commercialization of our current or future product candidates, which could have a material and adverse effect on our business, financial condition, results of operations and prospects. Securing additional financing could also require a substantial amount of time from our management and may divert a disproportionate amount of their attention away from daily activities, which may adversely affect our management’s ability to oversee the development of ONCR-177 or any future product candidates.

Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We are an early-stage company. We were founded and commenced operations in 2015. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing a clinical trial and manufacturing. All of our research programs are still in the preclinical or research stage of development, and their risk of failure is high. We have not yet demonstrated an ability to initiate or successfully complete any clinical trials, including large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial-scale therapy, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes about 10 to 15 years to develop a new therapy from the time it is discovered to when it is available for treating patients. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. We will need to transition from a company primarily focused on research and in the early stages of a clinical trial to a company capable of supporting clinical activities on a larger scale and commercial activities. We may not be successful in such a transition.

The report of our independent registered public accounting firm included a “going concern” explanatory paragraph.

The report of our independent registered public accounting firm on our consolidated financial statements as of and for the year ended December 31, 2019 included an explanatory paragraph indicating that there was substantial doubt about our ability to continue as a going concern. If we are unable to raise sufficient capital in this offering or otherwise as and when needed, our business, financial condition and results of operations will be materially and adversely affected, and we may be forced to delay our development efforts, limit our activities and reduce research and development costs. If we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected

 

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in our consolidated financial statements. The inclusion of a going concern explanatory paragraph by our independent registered public accounting firm, our lack of cash resources and our potential inability to continue as a going concern may materially adversely affect our share price and our ability to raise new capital, enter into critical contractual relations with third parties and otherwise execute our development strategy.

Risks Related to Product Discovery, Development and Regulatory Approval

Our product candidates are in early stages of development, are not approved for commercial sale and might never receive regulatory approval or become commercially viable. We have never generated any revenue from product sales and may never be profitable.

We are very early in our development efforts and all of our product candidates are in research, preclinical or early-stage clinical development. We have not completed the development of any product candidates, we currently generate no revenue and we may never be able to develop a marketable product. We only recently commenced clinical development of our lead product candidate, ONCR-177, in June 2020. Additionally, we have a portfolio of programs, including our two lead synthetic viral immunotherapy programs, which are based on coxsackievirus A21, or CVA21, and Seneca Valley Virus, or SVV, that are in earlier stages of discovery and preclinical development and may never advance to clinical-stage development. Our ability to generate product revenues, which we do not expect will occur for several years, if ever, will depend on obtaining regulatory approvals for, and successfully commercializing our product candidates, either alone or in collaboration with others, and we cannot guarantee that we will ever obtain regulatory approval for any of our product candidates. Before obtaining regulatory approval for the commercial distribution of our product candidates, we, or a future collaborator, must conduct extensive preclinical tests and clinical trials to demonstrate the safety and efficacy in humans of our product candidates.

The success of our current and future product candidates will depend on several factors, including the following:

 

   

successful completion of preclinical studies and clinical trials;

 

   

sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;

 

   

acceptance of INDs for our planned clinical trials or future clinical trials;

 

   

successful enrollment and completion of clinical trials;

 

   

successful data from our clinical trials that support an acceptable risk-benefit profile of our product candidates in the intended populations;

 

   

receipt of regulatory and marketing approvals from applicable regulatory authorities;

 

   

obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our product candidates;

 

   

making arrangements with third-party manufacturers for, or establishing, clinical and commercial manufacturing capabilities;

 

   

successfully launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;

 

   

acceptance of any products we develop and their benefits and uses, if and when approved, by patients, the medical community and third-party payors;

 

   

effectively competing with other therapies;

 

   

obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors; and

 

   

maintaining a continued acceptable safety profile of the products following approval.

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

We currently have only one product candidate, ONCR-177, in clinical development. A failure of this product candidate in clinical development would adversely affect our business and may require us to discontinue development of other product candidates based on the same therapeutic approach.

We have invested a significant portion of our efforts and financial resources in our oncolytic platform, referred to as our oHSV Platform, and our synthetic viral platform and, in particular, in the development of our lead product candidate, ONCR-177. We commenced clinical trials of ONCR-177 in June 2020.

 

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We have only submitted an IND application with respect to one product candidate, ONCR-177, and we have not previously submitted a Biologics License Application, or BLA, to the FDA, or similar regulatory approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials.

Since ONCR-177 is based on our oHSV Platform, if ONCR-177 fails in development as a result of any underlying problem with our oHSV Platform, then we may be required to discontinue development of all product candidates that are based on this therapeutic approach. If we were required to discontinue development of ONCR-177 or our other future product candidates, or if any of them were to fail to receive regulatory approval or achieve sufficient market acceptance, we could be prevented from or significantly delayed in achieving profitability. We can provide no assurance that we would be successful at developing other product candidates based on an alternative therapeutic approach.

Our product candidates are based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development.

We have concentrated all of our research and development efforts on product candidates based on our oHSV Platform and synthetic platform, each of which is novel. Our Synthetic Platform has not yet produced a product candidate that has been tested in clinical trials and we only recently commenced clinical development of ONCR-177, which is based on our oHSV Platform. Our future success depends on the successful development of these platforms. There can be no assurance that any development problems we experience in the future will not cause significant delays or unanticipated costs, or that such development problems can be solved. Should we encounter development problems, including unfavorable preclinical or clinical trial results, the FDA or foreign regulatory authorities may refuse to approve our product candidates, or may require additional information, tests, or trials, which could significantly delay product development and significantly increase our development costs. Moreover, even if we are able to provide the requested information or trials to the FDA, there would be no guarantee that the FDA would accept them or approve our product candidates. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process, or developing or qualifying and validating product release assays, other testing and manufacturing methods, and our equipment and facilities in a timely manner, which may prevent us from completing our clinical trials or commercializing our product candidates on a timely or profitable basis, if at all.

In addition, the clinical trial requirements of the FDA and comparable foreign regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The FDA and comparable foreign regulatory authorities have limited experience with the approval of viral immunotherapies. There are only three viral immunotherapies approved globally, H101, Rigvir, and talimogene laherparepvec, or T-VEC, and only T-VEC has received FDA approval to date. Any viral immunotherapies that are approved may be subject to extensive post-approval regulatory requirements, including requirements pertaining to manufacturing, distribution and promotion. We may need to devote significant time and resources to compliance with these requirements.

Preclinical and clinical development involve a lengthy and expensive process with an uncertain outcome, and delays can occur for a variety of reasons outside of our control.

In order to obtain FDA approval to market a new biological product, we must demonstrate proof of safety, purity and potency or efficacy in humans. To meet these requirements, we will have to conduct adequate and well-controlled clinical trials. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies that support our planned INDs in the United States. We only have one product candidate currently being evaluated in clinical development, ONCR-177. The rest of our programs are in preclinical development, have not yet been evaluated in IND-enabling studies and their risk of failure is high. We cannot be certain of the timely completion or outcome of our preclinical testing and studies or clinical trials and cannot predict if the FDA will accept our proposed clinical programs or if the outcome of our preclinical testing and studies or clinical trials will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin and we cannot be sure that our planned clinical trials will begin on time or that our ongoing clinical trials will be completed on schedule.

 

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Conducting preclinical testing and clinical development is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity and novelty of the program, and often can be several years or more per program. Delays associated with programs for which we are directly conducting preclinical testing and studies may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the preclinical testing and studies of certain programs that are the responsibility of any potential future partners over which we have no control. The commencement and rate of completion of preclinical studies and clinical trials for a product candidate may be delayed by many factors, including, for example:

 

   

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

 

   

unexpected toxicities observed in preclinical IND-enabling studies precluding the identification of a safe dose to move forward in human clinical trial;

 

   

delays in production or manufacturing of clinical supply;

 

   

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

 

   

regulatory authorities not allowing us to rely on previous findings of safety and efficacy for other similar but approved products and published scientific literature.

We may experience delays in initiating or completing clinical trials. We also may experience numerous unforeseen events during, or as a result of, any ongoing or future clinical trials that we could conduct that could delay or prevent our ability to receive marketing approval or commercialize ONCR-177 or any future product candidates, including:

 

   

delays or failures related to the COVID-19 pandemic, which may result in clinical site closures, delays to patient enrollment, patients discontinuing their treatment or follow up visits or changes to trial protocols;

 

   

regulators or institutional review boards, or IRBs, may not authorize us or our investigators to commence a clinical trial, conduct a clinical trial at a prospective trial site, or amend trial protocols, or may require that we modify or amend our clinical trial protocols;

 

   

we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and/or contract research organizations, or CROs;

 

   

clinical trials of our product candidates may produce negative or inconclusive results, or our studies may fail to reach the necessary level of statistical significance, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

   

the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or be lost to follow-up at a higher rate than we anticipate, or may elect to participate in alternative clinical trials sponsored by our competitors with product candidates that treat the same indications as our product candidates;

 

   

third-party contractors may fail to comply with regulatory requirements or the clinical trial protocol, or meet their contractual obligations to us in a timely manner, or at all, or we may be required to engage in additional clinical trial site monitoring;

 

   

manufacturing delays;

 

   

we, regulators, or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable side effects, or other unexpected characteristics of the product candidate, or due to findings of undesirable effects caused by a chemically or mechanistically similar therapeutic or therapeutic candidate;

 

   

changes could be adopted in marketing approval policies during the development period, rendering our data insufficient to obtain marketing approval;

 

   

statutes or regulations could be amended or new ones could be adopted;

 

   

changes could be adopted in the regulatory review process for submitted product applications;

 

   

the cost of clinical trials of our product candidates may be greater than we anticipate or we may have insufficient funds for a clinical trial or to pay the substantial user fees required by the FDA upon the submission of a BLA or equivalent authorizations from comparable foreign regulatory authorities;

 

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the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate;

 

   

the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;

 

   

we may decide, or regulators may require us, to conduct or gather, as applicable, additional clinical trials, analyses, reports, data, or preclinical trials, or we may abandon product development programs;

 

   

we may fail to reach an agreement with regulators or IRBs regarding the scope, design, or implementation of our clinical trials, and the FDA or comparable foreign regulatory authorities may require changes to our study designs that make further study impractical or not financially prudent;

 

   

regulators may ultimately disagree with the design or our conduct of our preclinical studies or clinical trials, finding that they do not support product candidate approval;

 

   

we may have delays in adding new investigators or clinical trial sites, or we may experience a withdrawal of clinical trial sites;

 

   

patients that enroll in our studies may misrepresent their eligibility or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the study or clinical trial, increase the needed enrollment size for the clinical trial or extend its duration;

 

   

there may be regulatory questions or disagreements regarding interpretations of data and results, or new information may emerge regarding our product candidates;

 

   

the FDA or comparable foreign regulatory authorities may disagree with our trial design, including endpoints, or our interpretation of data from preclinical studies and clinical trials or find that a product candidate’s benefits do not outweigh its safety risks;

 

   

the FDA or comparable foreign regulatory authorities may not accept data from studies with clinical trial sites in foreign countries;

 

   

the FDA or comparable foreign regulatory authorities may disagree with our intended indications;

 

   

the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or our manufacturing facilities for clinical and future commercial supplies;

 

   

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

 

   

the FDA or comparable foreign regulatory authorities may take longer than we anticipate to make a decision on our product candidates; and

 

   

we may not be able to demonstrate that a product candidate provides an advantage over current standards of care or current or future competitive therapies in development.

Our product development costs will also increase if we experience delays in clinical testing or marketing approvals, and we may not have sufficient funding to complete the testing and approval process for any of our current or future product candidates. We may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our product candidates. We do not know whether any preclinical tests or clinical trials beyond what we currently have planned will be required, will begin as planned, will need to be restructured, or will be completed on schedule or at all. Significant delays relating to any preclinical studies or clinical trials also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, delays in clinical trials may ultimately lead to the denial of marketing approval of any of our product candidates. Any delays in our clinical development programs may harm our business, financial condition and results of operations significantly.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or foreign

 

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regulatory authorities. In addition, some of our competitors may have ongoing clinical trials for drug candidates that treat the same indications as our drug candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

Patient enrollment is affected by other factors, including:

 

   

availability and efficacy of approved therapies for the disease under investigation;

 

   

patient eligibility criteria for the trial in question;

 

   

risks that enrolled subjects will drop out before completion of the trial, including as a result of contracting COVID-19 or other health conditions or being forced to quarantine;

 

   

perceived risks and benefits of the product candidate under study;

 

   

efforts to facilitate timely enrollment in clinical trials;

 

   

patient referral practices of physicians;

 

   

the ability to monitor patients adequately during and after treatment; and

 

   

proximity and availability of clinical trial sites for prospective patients.

Our inability to enroll a sufficient number of patients for our anticipated and any future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which could have an adverse effect on our business, financial condition, results of operations, and prospects. In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter patient enrollment difficulties.

Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials.

For our lead product candidate, ONCR-177, we commenced clinical trials in June 2020, while other product candidates that may be generated from both our oHSV Platform and our synthetic viral platform are in preclinical development. We will be required to conduct additional clinical trials of ONCR-177 before we can submit a marketing application to the applicable regulatory authorities. Clinical development is expensive and can take many years to complete and its outcome is inherently uncertain. ONCR-177 may not perform as we expect in clinical trials, may ultimately have a different or no impact on tumors, may have a different mechanism of action than we expect and may not ultimately prove to be safe and effective.

The results of early clinical trials of ONCR-177 and results of preclinical studies or early clinical trials of any other product candidate we develop, may not be predictive of the results of later-stage clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we, or future collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Moreover, should there be an issue with the design of any of our clinical trials, our results may be impacted. We may not discover such a flaw until the clinical trial is at an advanced stage.

Interim and preliminary or topline data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim topline or preliminary data from clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change

 

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as patient enrollment continues and more patient data become available. Preliminary or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary or topline data previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between interim or preliminary or topline data and final data could significantly harm our reputation and business prospects.

Serious adverse events, undesirable side effects or other unexpected properties of our current or future product candidates may be identified during development or after approval, which could halt their development or 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 not tested any product candidate in humans, other than ONCR-177. The Phase 1 clinical trial for ONCR-177 commenced in June 2020 and we expect to report preliminary data in multiple data readouts beginning in the second half of 2021 through the second half of 2022. We have tested mONCR-177, a mouse version of ONCR-177 in IND-enabling studies conducted in mice, and the most common treatment-related toxicity we have observed to date is low severity lymphocyte hyperplasia in the spleen. Reversible body weight loss was observed after intravenous and intratumoral injection, particularly following the initial administration at the highest dose level. As we continue our development of ONCR-177 and initiate clinical trials of any future product candidates, serious adverse events, undesirable side effects 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, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Even if our product candidates initially show promise in early clinical trials, the side effects of therapies are frequently only detectable after they are tested in large, phase 3 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 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 and are determined to be attributed to our product candidates, the FDA or comparable foreign regulatory authorities, or IRBs and other reviewing entities, may also require, or we may voluntarily develop, a Risk Evaluation and Mitigation Strategy, or REMS, or other strategies for managing adverse events during clinical development, which could include restrictions on our enrollment criteria, the use of stopping criteria, adjustments to a study’s design, or the monitoring of safety data by a data monitoring committee, among other strategies. Any requests from the FDA or comparable foreign regulatory authority for additional data or information could also result in substantial delays in the approval of our product candidates.

Drug-related side effects could also affect subject recruitment or the ability of enrolled subjects to complete the trial or 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 withdraw approvals of such product;

 

   

regulatory authorities may require additional warnings on the label;

 

   

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

 

   

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

 

   

our reputation may suffer.

If any of our product candidates are associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. The therapeutic-related side effects could affect patient

 

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recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

We anticipate that many of our product candidates will be used in combination with third-party drugs, some of which may still be in development, and we have limited or no control over the supply, regulatory status or regulatory approval of such drugs.

In addition to developing our product candidates as monotherapies, we also anticipate developing our product candidates for use in combination with immune checkpoint inhibitors. For example, we anticipate developing ONCR-177 in combination with the anti-PD-1 checkpoint inhibitor KEYTRUDA (pembrolizumab), which is being supplied by Merck in our ongoing Phase 1 clinical trial. In the future, we may enter into additional agreements for the supply of immune checkpoint inhibitors for use in connection with the development of one or more of our product candidates. Our ability to develop and ultimately commercialize our product candidates used in combination with pembrolizumab or any other immune checkpoint inhibitors will depend on our ability to access such drugs on commercially reasonable terms for the clinical trials and their availability for use with the commercialized product, if approved. We cannot be certain that current or potential future commercial relationships will provide us with a steady supply of such drugs on commercially reasonable terms or at all.

Any failure to maintain or enter into new successful commercial relationships, or the expense of purchasing immune checkpoint inhibitors in the market, may delay our development timelines, increase our costs and jeopardize our ability to develop our product candidates as commercially viable therapies. If any of these occur, our business, financial condition, results of operations, stock price and prospects may be materially harmed.

Moreover, the development of product candidates for use in combination with another product or product candidate may present challenges that are not faced for single agent product candidates. For our product candidates that may be used in combination with immune checkpoint inhibitors, the FDA may require us to use more complex clinical trial designs in order to evaluate the contribution of each product and product candidate to any observed effects. It is possible that the results of these trials could show that any positive previous trial results are attributable to the combination therapy and not our product candidates. Moreover, following product approval, the FDA may require that products used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to the other product, this may require us to work with a third party to satisfy such a requirement. Moreover, developments related to the other product may impact our clinical trials for the combination as well as our commercial prospects should we receive marketing approval. Such developments may include changes to the other product’s safety or efficacy profile, changes to the availability of the approved product, and changes to the standard of care.

In the event that any future collaborator or supplier of immune checkpoint inhibitors administered in combination with our product candidates does not supply their products on commercially reasonable terms or in a timely fashion, we would need to identify alternatives for accessing these products. This could cause our clinical trials to be delayed and limit the commercial opportunities for our product candidates, in which case our business, financial condition, results of operations, stock price and prospects may be materially harmed.

We may not be successful in our efforts to expand our pipeline of product candidates and develop marketable products.

We expect initially to develop our lead product candidate, ONCR-177. A key part of our strategy, however, is to pursue clinical development of additional product candidates, including product candidates based on our Synthetic Platform. Research programs to identify new product candidates require substantial technical, financial and human resources. Developing, obtaining marketing approval for, and commercializing additional product candidates will require substantial additional funding beyond the net proceeds of this offering and will be subject to the risks of failure inherent in medical product development. We cannot assure you that we will be able to successfully advance any of these additional product candidates through the development process.

Even if we obtain approval from the FDA or comparable foreign regulatory authorities to market additional product candidates for the treatment of cancer, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace, or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize additional product candidates our

 

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commercial opportunity may be limited and our business, financial condition, results of operations, stock price and prospects may be materially harmed.

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

Because we have limited financial and managerial resources, we must prioritize our research programs and will need to focus our product candidates on the potential treatment of certain indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future 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.

If we do not achieve our product development goals in the time frames we announce and expect, the commercialization of our product candidates may be delayed and as a result our share price may decline.

Drug development is inherently risky and uncertain. We cannot be certain that we will be able to:

 

   

complete IND-enabling preclinical studies or develop manufacturing processes and associated analytical methods that meet current good manufacturing practice, or cGMP, requirements in time to initiate clinical trials in the timeframes we announce;

 

   

obtain sufficient clinical supply of our product candidates to support our anticipated or future clinical trials;

 

   

initiate clinical trials within the timeframes we announce;

 

   

enroll and maintain a sufficient number of subjects to complete any clinical trials; or

 

   

analyze the data collected from any completed clinical trials in the timeframes we announce.

The actual timing of our development milestones could vary significantly compared to our estimates, in some cases for reasons beyond our control. If we are unable to achieve our goals within the timeframes we announce, the commercialization of our product candidates may be delayed and, as a result, the stock price of our common stock could fall and you may lose all of your investment.

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us or any of our potential future collaboration partners from obtaining approvals for the commercialization of ONCR-177 and any other product candidate we develop.

Any current or future product candidate we may develop and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, and distribution, are subject to comprehensive regulation by the FDA and other regulatory authorities in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate in a given jurisdiction. We have not received approval to market any product candidates from regulatory authorities in any jurisdiction and it is possible that none of the product candidates we may seek to develop in the future will ever obtain regulatory approval.

 

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Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy for that indication. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and clinical trial sites by, the regulatory authorities. If we do not receive approval from the FDA and comparable foreign regulatory authorities for any of our product candidates, we will not be able to commercialize such product candidates in the United States or in other jurisdictions. If significant delays in obtaining approval for and commercializing our product candidates occur in any jurisdictions, our business, financial condition, results of operations, stock price and prospects will be materially harmed. Even if our product candidates are approved, they may:

 

   

be subject to limitations on the indicated uses or patient populations for which they may be marketed, distribution restrictions, or other conditions of approval;

 

   

contain significant safety warnings, including boxed warnings, contraindications, and precautions;

 

   

not be approved with label statements necessary or desirable for successful commercialization; or

 

   

contain requirements for costly post-market testing and surveillance, or other requirements, including the submission of a REMS to monitor the safety or efficacy of the products.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive, takes many years even if successful, and can vary substantially based upon a variety of factors, including the type, complexity, and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

If we experience delays in obtaining approval or if we fail to obtain approval of any current or future product candidates we may develop, the commercial prospects for those product candidates may be harmed, and our ability to generate revenues will be materially impaired.

Regulatory approval by the FDA or comparable foreign regulatory authorities is limited to those specific indications and conditions for which approval has been granted, and we may be subject to substantial fines, criminal penalties, injunctions, or other enforcement actions if we are determined to be promoting the use of any products for unapproved or “off-label” uses, resulting in damage to our reputation and business.

We must comply with requirements concerning advertising and promotion for any product candidates for which we obtain marketing approval. Promotional communications with respect to therapeutics are subject to a variety of legal and regulatory restrictions and continuing review by the FDA, Department of Justice, Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress, and the public. When the FDA or comparable foreign regulatory authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific uses and indications for which a product is approved. If we are not able to obtain FDA approval for desired uses or indications for our product candidates, we may not market or promote them for those indications and uses, referred to as off-label uses, and our business, financial condition, results of operations, stock price and prospects will be materially harmed. We also must sufficiently substantiate any claims that we make for any products we develop, including claims comparing our products to other companies’ products, and must abide by the FDA’s strict requirements regarding the content of promotion and advertising.

Because regulatory authorities in the United States generally do not restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine, physicians may choose to prescribe products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical trials and approved by the regulatory authorities. Regulatory authorities do, however, restrict communications by biopharmaceutical companies concerning off-label use. We are prohibited for marking and promoting the products for indications and uses that are not specifically approved by the FDA.

 

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If we are found to have impermissibly promoted any products that we may develop, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations regarding product promotion, particularly those prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted a product may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

In the United States, engaging in the impermissible promotion of our products, following approval, for off-label uses can also subject us to false claims and other litigation under federal and state statutes. These include fraud and abuse and consumer protection laws, which can lead to civil and criminal penalties and fines, agreements with governmental authorities that materially restrict the manner in which we promote or distribute therapeutic products and conduct our business. These restrictions could include corporate integrity agreements, suspension or exclusion from participation in federal and state healthcare programs, and suspension and debarment from government contracts and refusal of orders under existing government contracts. These False Claims Act lawsuits against manufacturers of drugs and biologics have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements, up to $3.0 billion, pertaining to certain sales practices and promoting off-label uses. In addition, False Claims Act lawsuits may expose manufacturers to follow-on claims by private payers based on fraudulent marketing practices. This growth in litigation has increased the risk that a biopharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid, or other federal and state healthcare programs. If we do not lawfully promote our approved products, if any, we may become subject to such litigation and, if we do not successfully defend against such actions, those actions may have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.

In the United States, the promotion of biopharmaceutical products are subject to additional FDA requirements and restrictions on promotional statements. If after one or more of our product candidates obtains marketing approval the FDA determines that our promotional activities violate its regulations and policies pertaining to product promotion, it could request that we modify our promotional materials or subject us to regulatory or other enforcement actions, including issuance of warning letters or untitled letters, suspension or withdrawal of an approved product from the market, requests for recalls, payment of civil fines, disgorgement of money, imposition of operating restrictions, injunctions or criminal prosecution, and other enforcement actions. Similarly, industry codes in foreign jurisdictions may prohibit companies from engaging in certain promotional activities and regulatory agencies in various countries may enforce violations of such codes with civil penalties. If we become subject to regulatory and enforcement actions our business, financial condition, results of operations, stock price and prospects will be materially harmed.

Obtaining and maintaining marketing approval for our product candidates in one jurisdiction would not mean that we will be successful in obtaining marketing approval of that product candidate in other jurisdictions, which could prevent us from marketing our products internationally.

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

Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign marketing approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and

 

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costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed. If we obtain approval for any product candidate and ultimately commercialize that product in foreign markets, we would be subject to additional risks and uncertainties, including the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements and the reduced protection of intellectual property rights in some foreign countries.

Even if our product candidates receive regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense and limit how we manufacture and market our products.

Any product candidate for which we obtain marketing approval will be subject to extensive and ongoing requirements of and review by the FDA or comparable foreign regulatory authorities, including requirements related to the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such product. These requirements further include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listing requirements, the payment of annual fees, continued compliance with cGMP requirements relating to manufacturing, quality control, quality assurance, and corresponding maintenance of records and documents, and good clinical practices, or GCPs, for any clinical trials that we conduct post-approval.

The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of our product candidates, they may withdraw approval, issue public safety alerts, require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Any such restrictions could limit sales of the product.

We and any of our suppliers or collaborators, including our contract manufacturers, could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs and other FDA regulatory requirements. Application holders must further notify the FDA, and depending on the nature of the change, obtain FDA pre-approval for product and manufacturing changes.

In addition, later discovery of previously unknown adverse events or that the product is less effective than previously thought or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements both before and after approval, may yield various negative results, including:

 

   

restrictions on manufacturing, distribution, or marketing of such products;

 

   

restrictions on the labeling, including required additional warnings, such as black boxed warnings, contraindications, precautions, and restrictions on the approved indication or use;

 

   

modifications to promotional pieces;

 

   

issuance of corrective information;

 

   

requirements to conduct post-marketing studies or other clinical trials;

 

   

clinical holds or termination of clinical trials;

 

   

requirements to establish or modify a REMS or similar strategy;

 

   

changes to the way the product candidate is administered;

 

   

liability for harm caused to patients or subjects;

 

   

reputational harm;

 

   

the product becoming less competitive;

 

   

warning, untitled, or cyber letters;

 

   

suspension of marketing or withdrawal of the products from the market;

 

   

regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing warnings or other safety information about the product candidate;

 

   

refusal to approve pending applications or supplements to approved applications that we submit;

 

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recalls of products;

 

   

fines, restitution or disgorgement of profits or revenues;

 

   

suspension or withdrawal of marketing approvals;

 

   

refusal to permit the import or export of our products;

 

   

product seizure or detention;

 

   

FDA debarment, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements; or

 

   

injunctions or the imposition of civil or criminal penalties, including imprisonment.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, or could substantially increase the costs and expenses of commercializing such product, which in turn could delay or prevent us from generating significant revenues from its marketing and sale. Any of these events could further have other material and adverse effects on our operations and business and could adversely impact our business, financial condition, results of operations, stock price and prospects.

The FDA’s policies or those of comparable foreign regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates, limit the marketability of our product candidates, or impose additional regulatory obligations on us. Changes in medical practice and standard of care may also impact the marketability of our product candidates.

If we are slow or unable to adapt to changes in existing requirements, standards of care, or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and be subject to regulatory enforcement action.

Should any of the above actions take place, we could be prevented from or significantly delayed in achieving profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operations and business and could adversely impact our business, financial condition, results of operations, stock price and prospects.

Risks Related to Our Reliance on Third Parties

We currently rely on contract manufacturing organizations, or CMOs, to supply components of and manufacture ONCR-177. The loss of these CMOs or their failure to meet their obligations to us could affect our ability to develop ONCR-177 in a timely manner.

We rely on a limited number of CMOs and have entered into an agreement with a third-party CMO to manufacture ONCR-177 and supply the Phase 1 clinical trial material, in compliance with applicable regulatory and quality standards. While we do not own or operate manufacturing facilities, our team has in-house process development and manufacturing expertise and has internally developed a closed, serum-free manufacturing process. Our proprietary process is then used by third-party contract manufacturers we direct for production of batches of clinical material for us. Although we intend to initiate further development of our in-house manufacturing capabilities in 2021, we intend to continue to rely on third-party contract manufacturers to implement our proprietary process to manufacture our clinical supply for the foreseeable future. Any replacement of a third-party contract manufacturer could require significant effort and expertise because there may be a limited number of qualified replacements. Any delays in obtaining adequate clinical supply that meets the necessary quality standards may delay our development or commercialization.

Our reliance on third-party providers for certain manufacturing activities will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations. Under certain circumstances, these third-party providers may be entitled to terminate their engagements with us. If a third-party provider terminates its engagement with us, or does not successfully carry out its contractual duties, meet expected deadlines or manufacture ONCR-177 or any other product candidates in accordance with regulatory requirements, or if there are disagreements between us and a third-party provider, we may not be able to complete, or may be delayed in completing, the preclinical studies required to support future IND submissions and the clinical trials required for

 

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approval of ONCR-177 or any other product candidate. In such instance, we may need to enter into an appropriate replacement third-party relationship, which may not be readily available or available on acceptable terms, which would cause additional delay or increased expense prior to the approval of ONCR-177 or any future product candidate and would thereby have a negative impact on our business, financial condition, results of operations and prospects.

We may rely on additional third parties to manufacture ingredients of our product candidates in the future and to perform quality testing. Reliance on third-party contract manufacturers and service providers entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:

 

   

reduced control for certain aspects of manufacturing activities;

 

   

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

 

   

the possible breach by our third-party manufacturers and service providers of our agreements with them;

 

   

the failure of our third-party manufacturers and service providers to comply with applicable regulatory requirements;

 

   

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

 

   

the possible misappropriation of our proprietary information, including our trade secrets and know-how.

Any of these events could lead to clinical trial delays or failure to obtain regulatory approval, impact our ability to successfully commercialize any of our product candidates or otherwise harm our business, financial condition, results of operations, stock price and prospects. Some of these events could be the basis for FDA or other regulatory authority action, including injunction, recall, seizure or total or partial suspension of product manufacture.

We are subject to multiple manufacturing risks, any of which could substantially increase our costs, limit supply of our product candidates and result in delays in our clinical trials.

The process of manufacturing viral immunotherapies, including our product candidates, is complex, time-consuming, highly regulated and subject to several risks, including:

 

   

product loss during the manufacturing process, including loss caused by contamination, operator error, equipment failure or improper installation or operation of equipment, inconsistency in yields, variability in product characteristics, and difficulties in scaling the production process. In particular, we have experienced manufacturing loss of ONCR-177 clinical supply caused by operator error. We may also experience additional manufacturing losses in the future. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination;

 

   

the manufacturing facilities in which our product candidates are made could be adversely affected by equipment failures, labor and raw material shortages, natural disasters, power failures and numerous other factors; and

 

   

any adverse developments affecting manufacturing operations for our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our product candidates. We may also have to take inventory write-offs and incur other charges and expenses for product candidate batches that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.

We may also make changes to our manufacturing processes at various points during development, for a number of reasons, such as controlling costs, achieving scale, decreasing processing time, increasing manufacturing success rate or other reasons. Such changes carry the risk that they will not achieve their intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of our ongoing or future clinical trials. In some circumstances, changes in the manufacturing process may require us to perform ex vivo comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials. For instance, changes in our process during the course of clinical development may require us to show the

 

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comparability of the product used in earlier clinical phases or at earlier portions of a trial to the product used in later clinical phases or later portions of the trial.

Any of these events could substantially increase our costs or lead to delays in our clinical trials.

We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials. If those third parties do not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with regulatory requirements, we may be unable to obtain regulatory approval for our product candidates or any other product candidates that we may develop in the future.

We rely, and will rely, on third-party CROs, study sites and others to conduct, supervise, and monitor our preclinical studies and clinical trials for our product candidates and do not currently plan to independently conduct preclinical studies or clinical trials of any product candidates. We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct our preclinical studies and clinical trials. Although we have agreements governing their activities, we have limited influence over their actual performance and control only certain aspects of their activities. The failure of these third parties to successfully carry out their contractual duties or meet expected deadlines could substantially harm our business because we may be delayed in completing or unable to complete the studies required to support future approval of our product candidates, or we may not obtain marketing approval for or commercialize our product candidates in a timely manner or at all. Moreover, these agreements might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements our product development activities would be delayed and our business, financial condition, results of operations, stock price and prospects may be materially harmed.

Our reliance on these third parties for development activities will reduce our control over these activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on third parties does not relieve us of our regulatory responsibilities. For example, we will remain responsible for ensuring that each of our trials is conducted in accordance with the general investigational plan and protocols for the trial. We must also ensure that our preclinical trials are conducted in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations, as appropriate. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with standards, commonly referred to as GCPs for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce these requirements through periodic inspections of trial sponsors, clinical investigators, and trial sites. If we or any of our third parties fail to comply with applicable GCPs or other regulatory requirements, we or they may be subject to enforcement or other legal actions, the data generated in our trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional studies.

In addition, we will be required to report certain financial interests of our third-party investigators if these relationships exceed certain financial thresholds or meet other criteria. The FDA or comparable foreign regulatory authorities may question the integrity of the data from those clinical trials conducted by investigators who may have conflicts of interest.

We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our trials complies with the applicable regulatory requirements. In addition, our clinical trials must be conducted with product candidates that were produced under cGMP regulations. Failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. We also are required to register certain clinical trials and post the results of certain completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in enforcement actions and adverse publicity.

The third parties with which we work may also have relationships with other entities, some of which may be our competitors, for whom they may also be conducting trials or other therapeutic development activities that could harm our competitive position. In addition, such third parties are not our employees, and except for remedies available to us under our agreements with such third parties we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, non-clinical, and preclinical programs. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our preclinical studies or clinical

 

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trials in accordance with regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our trials may be repeated, extended, delayed, or terminated; we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates; we may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates; or we or they may be subject to regulatory enforcement actions. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the performance of third-party service providers in the future, our business, financial condition, results of operations, stock price and prospects may be materially harmed.

If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative providers or to do so on commercially reasonable terms. Switching or adding additional third parties involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays could occur, which could compromise our ability to meet our desired development timelines.

We will also rely on other third parties to store and distribute our product candidates for the clinical trials that we conduct. Any performance failure on the part of our distributors could delay clinical development, marketing approval, or commercialization of our product candidates, which could result in additional losses and deprive us of potential product revenue.

If the manufacturers upon which we rely fail to produce any product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to biopharmaceutical manufacturers, we may face delays in the development and commercialization of, or be unable to meet demand for, any product candidates, and may lose potential revenues.

For the near future, we will continue to rely on third-party contract manufacturers to manufacture our clinical trial product supplies. There can be no assurance that our clinical product supply will not be limited, interrupted, or of satisfactory quality or continue to be available at acceptable prices. In particular, any replacement of a contract manufacturer could require significant effort and expertise because there may be a limited number of qualified replacements. Any delays in obtaining adequate supplies of our product candidates that meet the necessary quality standards may delay our development or commercialization.

We may not succeed in our efforts to establish manufacturing relationships or other alternative arrangements for any of our product candidates or programs. Any product candidates we develop compete with other products and product candidates for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations that are both capable of manufacturing and filling our viral product for us and willing to do so. If our existing third-party CMOs, or the third-party providers, that we engage in the future should cease to work with us, we likely would experience delays in obtaining sufficient quantities of any product candidates for us to advance our clinical studies and trials while we identify and qualify replacement suppliers. If for any reason we are unable to obtain adequate supplies of any product candidates we develop or the substances used to manufacture them, it will be more difficult for us to develop product candidates and compete effectively. Further, even if we do establish such collaborations or arrangements, our third-party manufacturers may breach, terminate, or not renew these agreements.

Any problems or delays we experience in preparing for commercial-scale manufacturing of a product candidate or component may result in a delay in product development timelines and FDA or comparable foreign regulatory authority approval of the product candidate or may impair our ability to manufacture commercial quantities or such quantities at an acceptable cost and quality, which could result in the delay, prevention, or impairment of clinical development and commercialization of any product candidates and may materially harm our business, financial condition, results of operations, stock price and prospects.

We currently have only one contract manufacturer for ONCR-177 for use in our clinical trials. In addition, we do not have any long-term commitments from our suppliers of clinical trial material or guaranteed prices for our product candidates or their components. The manufacture of biopharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of therapeutics often encounter difficulties in production, particularly in scaling up initial production. These problems include difficulties with production costs and yields, quality control, including stability of the

 

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product candidate and quality assurance testing, shortages of qualified personnel or key raw materials, and compliance with strictly enforced federal, state, and foreign regulations. Our current and future contract manufacturers may not perform as agreed. If our manufacturers were to encounter these or other difficulties, our ability to provide product candidates to patients in our clinical trials could be jeopardized.

Contract manufacturers of our product candidates may be unable to comply with our specifications, applicable cGMP requirements or other FDA, state or foreign regulatory requirements. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of a product candidate that may not be detectable in final product testing. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure or maintain regulatory approval for their manufacturing facilities. Any such deviations may also require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business. Any delays in obtaining products or product candidates that comply with the applicable regulatory requirements may result in delays to clinical trials, product approvals, and commercialization. It may also require that we conduct additional studies.

While we are ultimately responsible for the manufacturing of our product candidates and therapeutic substances, other than through our contractual arrangements, we have little control over our manufacturers’ compliance with these regulations and standards. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Any new manufacturers would need to either obtain or develop the necessary manufacturing know-how, and obtain the necessary equipment and materials, which may take substantial time and investment. We must also receive FDA approval for the use of any new manufacturers for commercial supply.

A failure to comply with the applicable regulatory requirements, including periodic regulatory inspections, may result in regulatory enforcement actions against our manufacturers or us (including fines and civil and criminal penalties, including imprisonment) suspension or restrictions of production, injunctions, delay or denial of product approval or supplements to approved products, clinical holds or termination of clinical trials, warning or untitled letters, regulatory authority communications warning the public about safety issues with the product candidate, refusal to permit the import or export of the products, product seizure, detention, or recall, operating restrictions, suits under the civil False Claims Act, corporate integrity agreements, consent decrees, withdrawal of product approval, environmental or safety incidents and other liabilities. If the safety of any quantities supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.

Any failure or refusal to supply our product candidates or components for our product candidates that we may develop could delay, prevent or impair our clinical development or commercialization efforts. Any change in our manufacturers could be costly because the commercial terms of any new arrangement could be less favorable and because the expenses relating to the transfer of necessary technology and processes could be significant.

We may in the future seek to establish collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

We may in the future seek collaboration arrangements with other parties for the development or commercialization of our product candidates. The success of any collaboration arrangements may depend on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these arrangements. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision making authority.

 

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Collaborations with biopharmaceutical companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration could adversely affect us financially and could harm our business reputation.

Any future collaborations we might enter into may pose a number of risks, including the following:

 

   

collaborators may not perform their obligations as expected;

 

   

collaborators may not pursue development and commercialization of product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

 

   

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

 

   

collaborators could fail to make timely regulatory submissions for a product candidate;

 

   

collaborators may not comply with all applicable regulatory requirements or may fail to report safety data in accordance with all applicable regulatory requirements, which could subject them or us to regulatory enforcement actions;

 

   

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

 

   

product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

 

   

a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product candidate or product;

 

   

disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time consuming and expensive;

 

   

collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; and

 

   

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

In addition, if we establish one or more collaborations, all of the risks relating to product development, regulatory approval and commercialization described in this prospectus would also apply to the activities of any such future collaborators.

If any collaborations we might enter into in the future do not result in the successful development and commercialization of products or if one of our future collaborators subsequently terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under such potential future collaboration. If we do not receive the funding we expect under the agreements, our development of our product candidates could be delayed and we may need additional resources to develop our product candidates and our product platform.

Additionally, if any future collaborator of ours is involved in a business combination, the collaborator might deemphasize or terminate development or commercialization of any product candidate licensed to it by us. If one of our future collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our reputation in the business and financial communities could be adversely affected.

 

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We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for any 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 a number of factors.

If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms, or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product platform and our business may be materially and adversely affected.

Risks Related to Commercialization of Our Product Candidates

If we are unable to successfully commercialize any product candidate for which we receive regulatory approval, or experience significant delays in doing so, our business will be materially harmed.

If we are successful in obtaining marketing approval from applicable regulatory authorities for ONCR-177 or any other product candidate, our ability to generate revenues from any such products will depend on our success in:

 

   

launching commercial sales of such products, whether alone or in collaboration with others;

 

   

receiving approved labels with claims that are necessary or desirable for successful marketing, and that do not contain safety or other limitations that would impede our ability to market such products;

 

   

creating market demand for such products through marketing, sales and promotion activities;

 

   

hiring, training, and deploying a sales force or contracting with third parties to commercialize such products in the United States;

 

   

creating partnerships with, or offering licenses to, third parties to promote and sell such products in foreign markets where we receive marketing approval;

 

   

manufacturing such products in sufficient quantities and at acceptable quality and cost to meet commercial demand at launch and thereafter;

 

   

establishing and maintaining agreements with wholesalers, distributors, and group purchasing organizations on commercially reasonable terms;

 

   

maintaining patent and trade secret protection and regulatory exclusivity for such products;

 

   

achieving market acceptance of such products by patients, the medical community, and third-party payors;

 

   

achieving coverage and adequate reimbursement from third-party payors for such products;

 

   

patients’ willingness to pay out-of-pocket in the absence of such coverage and adequate reimbursement from third-party payors;

 

   

effectively competing with other therapies; and

 

   

maintaining a continued acceptable safety profile of such products following launch.

To the extent we are not able to do any of the foregoing, our business, financial condition, results of operations, stock price and prospects will be materially harmed.

We face significant competition from other biopharmaceutical and biotechnology companies, academic institutions, government agencies, and other research organizations, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, our commercial opportunity may be reduced or eliminated.

The development and commercialization of cancer immunotherapy products is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary rights. We face competition with respect to our current product candidates, and will face competition with respect to any product candidates that we may seek

 

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to develop or commercialize in the future, from major biopharmaceutical companies, specialty biopharmaceutical companies, and biotechnology companies worldwide. There are a number of large biopharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of solid tumors, including viral immunotherapy and cancer vaccine approaches. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.

While certain of our product candidates may be used in combination with other drugs with different mechanisms of action, if and when marketed they will still compete with a number of drugs that are currently marketed or in development that also target cancer. To compete effectively with these drugs, our product candidates will need to demonstrate advantages in clinical efficacy and safety compared to these competitors when used alone or in combination with other drugs.

Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are easier to administer or are less expensive alone or in combination with other therapies than any products that we may develop alone or in combination with other therapies. Our competitors also may obtain FDA or comparable foreign regulatory authorities’ approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by third-party payors’ coverage and reimbursement decisions.

Many of the companies with which we are competing or may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the biopharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in developing or acquiring technologies complementary to, or necessary for, our programs. If we are unable to successfully compete with these companies our business, financial condition, results of operations, stock price and prospects may be materially harmed.

If we are unable to establish effective marketing, sales and distribution capabilities or enter into agreements with third parties to market and sell our product candidates, if they are approved, the revenues that we generate may be limited and we may never become profitable.

We currently do not have a commercial infrastructure for the marketing, sale, and distribution of any products that we may develop. If and when our product candidates receive marketing approval, we intend to commercialize our product candidates on our own or in collaboration with others and potentially with pharmaceutical or biotechnology partners in other geographies. In order to commercialize our products, we must build our marketing, sales, and distribution capabilities or make arrangements with third parties to perform these services. We may not be successful in doing so. Should we decide to move forward in developing our own marketing capabilities, we may incur expenses prior to product launch or even approval in order to recruit a sales force and develop a marketing and sales infrastructure. If a commercial launch is delayed as a result of the FDA or comparable foreign regulatory authority requirements or other reasons, we would incur these expenses prior to being able to realize any revenue from sales of our product candidates. Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing our product candidates. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

We may also or alternatively decide to collaborate with third-party marketing and sales organizations to commercialize any approved product candidates, in which event, our ability to generate product revenues may be limited. To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these products ourselves, which could materially harm our prospects. In addition, we would have less control over the sales efforts of any other third parties involved in our

 

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commercialization efforts, and could be held liable if they failed to comply with applicable legal or regulatory requirements.

We have no prior experience in the marketing, sale, and distribution of biopharmaceutical products, and there are significant risks involved in building and managing a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We will have to compete with other biopharmaceutical and biotechnology companies, including oncology-focused companies, to recruit, hire, train, manage, and retain marketing and sales personnel, which is expensive and time consuming and could delay any product launch. Developing our sales capabilities may also divert resources and management attention away from product development.

In the event we are unable to develop a marketing and sales infrastructure, we may not be able to commercialize our product candidates, which could limit our ability to generate product revenues and materially harm our business, financial condition, results of operations, stock price and prospects. Factors that may inhibit our efforts to commercialize our product candidates include:

 

   

the inability to recruit, train, manage, and retain adequate numbers of effective sales and marketing personnel;

 

   

the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the benefits of prescribing our product candidates;

 

   

our inability to effectively oversee a geographically dispersed sales and marketing team;

 

   

the costs associated with training personnel, including sales and marketing personnel, on compliance matters and monitoring their actions;

 

   

an inability to secure coverage and adequate reimbursement by third-party payors, including government and private health plans;

 

   

the unwillingness of patients to pay out-of-pocket in the absence of coverage and adequate reimbursement from third-party payors;

 

   

the clinical indications for which the products are approved and the claims that we may make for the products;

 

   

limitations or warnings, including distribution or use restrictions, contained in the products’ approved labeling;

 

   

any distribution and use restrictions imposed by the FDA or comparable foreign regulatory authorities or to which we agree as part of a mandatory REMS or voluntary risk management plan;

 

   

liability for our personnel, including sales or marketing personnel, who fail to comply with applicable law;

 

   

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

 

   

unforeseen costs and expenses associated with creating an independent sales and marketing organization or engaging a contract sales organization.

Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, hospitals, cancer treatment centers, third-party payors and others in the medical community necessary for commercial success. The revenues that we generate from their sales may be limited, and we may never become profitable.

We have never commercialized a product candidate for any indication. Even if our product candidates are approved by the appropriate regulatory authorities for marketing and sale, they may not gain acceptance among physicians, patients, third-party payors, and others in the medical community. If any product candidates for which we obtain regulatory approval does not gain an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. Market acceptance of our product candidates by the medical community, patients, and third-party payors will depend on a number of factors, some of which are beyond our control. For example, physicians are often reluctant to switch their patients and patients may be reluctant to switch from existing therapies even when new and potentially more effective or safer treatments enter the market.

 

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Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. If any of our product candidates is approved but does not achieve an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. The degree of market acceptance of any product for which we receive marketing approval will depend on a number of factors, including:

 

   

the efficacy of our product both as a monotherapy and in combination with marketed checkpoint inhibitors;

 

   

the commercial success of any checkpoint inhibitors with which our product may be co-administered;

 

   

the prevalence and severity of adverse events associated with our product or those products with which it is co-administered;

 

   

the clinical indications for which our product is approved and the approved claims that we may make with respect to the product;

 

   

limitations or warnings contained in the FDA-approved labeling of the product or the labeling approved by comparable foreign regulatory authorities, including potential limitations or warnings for our product that may be more restrictive than other competitive products;

 

   

changes in the standard of care for the targeted indications for our product, which could reduce the marketing impact of any claims that we could make following FDA approval or approval by comparable foreign regulatory authorities, if obtained;

 

   

the relative convenience and ease of administration of our product and any products with which it is co-administered;

 

   

the cost of treatment compared with the economic and clinical benefit of alternative treatments or therapies;

 

   

the availability of coverage and adequate reimbursement by third-party payors, such as private insurance companies and government healthcare programs, including Medicare and Medicaid;

 

   

patients’ willingness to pay out-of-pocket in the absence of such coverage and adequate reimbursement from third-party payors;

 

   

the price concessions required by third-party payors to obtain coverage and adequate reimbursement;

 

   

the extent and strength of our marketing and distribution of our product;

 

   

the safety, efficacy, and other potential advantages over, and availability of, alternative treatments already used or that may later be approved;

 

   

distribution and use restrictions imposed by the FDA or comparable foreign regulatory authorities with respect to our product or to which we agree as part of a REMS or voluntary risk management plan;

 

   

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

 

   

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

 

   

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

 

   

the extent and strength of our third-party manufacturer and supplier support;

 

   

the actions of companies that market any products with which our product is co-administered;

 

   

the approval of other new products;

 

   

adverse publicity about our product or any products with which it is co-administered, or favorable publicity about competitive products; and

 

   

potential product liability claims.

The size of the potential market for our product candidates is difficult to estimate and, if any of our assumptions are inaccurate, the actual markets for our product candidates may be smaller than our estimates.

The potential market opportunities for our product candidates are difficult to estimate and will depend in large part on the drugs with which our product candidates are co-administered and the success of competing therapies and therapeutic approaches. In particular, the market opportunity for viral immunotherapies is hard to estimate given that it is an emerging field with only one existing FDA-approved viral immunotherapy, T-VEC, which has yet to enjoy broad market acceptance. Our estimates of the potential market opportunities are predicated on many assumptions, which may include industry knowledge and publications, third-party research reports, and other surveys. Although we

 

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believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain, and their reasonableness has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual markets for our product candidates could be smaller than our estimates of the potential market opportunities.

Negative developments in the field of immuno-oncology could damage public perception of our oHSV and Synthetic Platforms and our product candidates, including ONCR-177, and negatively affect our business.

The commercial success of our product candidates will depend in part on public acceptance of the use of cancer viral immunotherapies. Adverse events in clinical trials of our product candidates, including ONCR-177, or in clinical trials of others developing similar products and the resulting publicity, as well as any other negative developments in the field of immuno-oncology that may occur in the future, including in connection with competitor therapies or with checkpoint inhibitors, could result in a decrease in demand for ONCR-177 or any other product candidates that we may develop. These events could also result in the suspension, discontinuation, or clinical hold of or modification to our clinical trials. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to our therapies or those of our competitors, our product candidates may not be accepted by the general public or the medical community and potential clinical trial subjects may be discouraged from enrolling in our clinical trials. As a result, we may not be able to continue or may be delayed in conducting our development programs.

As our product candidates consist of modified or synthetic viruses, adverse developments in anti-viral vaccines or clinical trials of other viral immunotherapy products based on viruses may result in a disproportionately negative effect for ONCR-177 or our other product candidates as compared to other products in the field of immuno-oncology that are not based on viruses. Future negative developments in the field of immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our products. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for ONCR-177 or our other product candidates.

Risks Related to Intellectual Property

If we are unable to obtain, maintain and protect our intellectual property rights for our technology and product candidates, or if our intellectual property rights are inadequate, our competitive position could be harmed.

Our commercial success will depend in part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our technology, including our oHSV Platform and Synthetic Platform, and ONCR-177 and our other product candidates. We also rely in part on trade secret, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the United States and abroad related to our technology and product candidates.

The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our licensed patents and any patents we own are highly uncertain. The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside of the United States.

Further, the examination process may require us to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. Our pending and future patent applications may not result in patents being issued that protect our product candidates, in whole or in part, or which effectively prevent others from commercializing competitive product candidates. The scope of a patent may also be reinterpreted after issuance. The rights that may be granted under our issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. If we are unable to obtain and maintain patent protection for our technology or for ONCR-177 or our other product candidates, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize products similar or superior

 

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to ours in a non-infringing manner, and our ability to successfully commercialize ONCR-177 or our other product candidates and future technologies may be adversely affected. It is also possible that we will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.

In addition, the patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, collaborators, and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. It is also possible that we will fail to identify patentable aspects of our research and development efforts in time to obtain patent protection.

For the core technology in our oHSV Platform and Synthetic Platform and ONCR-177 and our other product candidates, patent applications are pending at each of the U.S. provisional, Patent Cooperation Treaty, or PCT, and national stages with, minimally, filings submitted to the U.S., European Patent Conventions, or EPC, and Japan. As of July 1, 2020, our patent portfolio consisted of 15 issued U.S. patents, 14 pending U.S. patent applications, 11 issued foreign patents and 96 pending foreign applications. Any future provisional patent applications are not eligible to become issued patents until, among other things, we file a non-provisional patent application within 12 months of filing of one or more of our related provisional patent applications. If we do not timely file any non-provisional patent applications, we may lose our priority date with respect to our provisional patent applications and any patent protection on the inventions disclosed in our provisional patent applications. Although we intend to timely file non-provisional patent applications relating to our provisional patent applications, we cannot predict whether any of our future patent applications will result in the issuance of patents that effectively protect our technology or ONCR-177 or our other product candidates, or if any of our future issued patents will effectively prevent others from commercializing competitive products. We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and 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 until they are issued as a patent. Therefore, we cannot be certain that we were the first to make the inventions claimed in our pending patent applications, or that we were the first to file for patent protection of such inventions.

Our pending applications cannot be enforced against third parties practicing the inventions claimed in such applications unless and until a patent issues from such applications with a claim that covers such third party activity. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we license from third parties or own in the future may be challenged in the courts or patent offices in the United States and abroad, including through opposition proceedings, derivation proceedings, post-grant review, inter partes review, interference proceedings or litigation. Such proceedings may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical products, or limit the duration of the patent protection for our technology. Protecting against the unauthorized use of our patented inventions, trademarks and other intellectual property rights is expensive, time consuming, difficult and in some cases may not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult. If we are unable to obtain, maintain, and protect our intellectual property our competitive advantage could be harmed, and it could result in a material adverse effect on our business, financial condition, results of operations, stock price and prospects.

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 intellectual property rights that are important to our business.

We are a party to license agreements with entities including the University of Pittsburgh, Northwestern University, WuXi Biologics, Ospedale San Raffaele S.r.l. and Fondazione Telethon, and the University of Chicago, and we may need to obtain additional licenses from others to advance our research and development activities or allow the commercialization of our current or future product candidates. These license agreements impose, and we expect that

 

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future license agreements will impose, various development, diligence, commercialization, and other obligations on us. For example, under our license agreement with the University of Pittsburgh, we are required to use commercially reasonable efforts to engage in various development and commercialization activities with respect to licensed products, and must satisfy specified milestone and royalty payment obligations. In spite of our efforts, our licensors might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by the intellectual property under these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek regulatory approval of, and to market, products identical to ours and we may be required to cease our development and commercialization our product candidates. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

Moreover, 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 product candidates, 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 inventorship and 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.

In addition, the agreements under which we currently license intellectual property or technology 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, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to seeking patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential and proprietary information. To maintain the confidentiality of our trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators, contractors, and other third parties who have access to our trade secrets. Our agreements with employees and consultants also provide that any inventions conceived by the individual employee or consultant in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. The assignment of intellectual property 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. In addition, 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. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.

 

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Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information including a breach of our confidentiality agreements. 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 in and outside of 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. The disclosure of our trade secrets or the independent development of our trade secrets by a competitor or other third party would impair our competitive position and may materially harm our business, financial condition, results of operations, stock price and prospects.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.

Our commercial success depends on our ability and the ability of any future collaborators to develop, manufacture, market and sell ONCR-177 and our other product candidates, and to use our related proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. We may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our current and any other future product candidates, including interference proceedings, post-grant review, inter partes review and derivation proceedings before the USPTO. Third parties may assert infringement or other intellectual property claims against us based on existing patents or patents that may be granted in the future. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that we may be subject to claims of infringement of the patent rights of third parties. If we are found to infringe a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such intellectual property rights are invalid or unenforceable, we could be required to obtain a license from such third party to continue developing, manufacturing and commercializing ONCR-177 and our other product candidates. 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 and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We also could be forced, including by court order, to cease developing, manufacturing, and commercializing ONCR-177 or our other product candidates. In addition, in any such proceeding or litigation, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar material adverse effect on our business. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.

Parties making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

Furthermore, in addition to developing ONCR-177 as a monotherapy, we also anticipate developing ONCR-177 in combination with the commercially available anti-PD-1 checkpoint inhibitor pembrolizumab. Pembrolizumab, while commercially available in the market, is covered by patents held by Merck. We have entered into a clinical trial collaboration and supply agreement with Merck under which Merck has agreed to supply pembrolizumab for our ongoing Phase 1 clinical trial. We also plan to develop our product candidates in combination with products developed by additional companies that are covered by patents or licenses held by those entities to which we do not have a license or a sublicense. In the event that a labeling instruction is required in product packaging recommending that combination, we could be accused of, or held liable for, infringement of the third-party patents

 

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covering the product candidate or product recommended for administration with ONCR-177 or our other product candidates. In such a case, we could be required to obtain a license from the other company or institution to use the required or desired package labeling, which may not be available on commercially reasonable terms, or at all.

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

Filing, prosecuting and defending patents on our technology throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws and practices of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop and/or manufacture their own products, and may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as that in the United States. These products may compete with our products and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the granting or enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to obtain patent rights or stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally in those countries. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to protect and enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property we develop or license.

In addition, the laws of certain foreign countries may not protect our rights to the same extent as the laws of the United States, and those foreign laws may also be subject to change. For example, methods of treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries. Furthermore, biosimilar product manufacturers or other competitors may challenge the scope, validity and enforceability of our patents, requiring us to engage in complex, lengthy and costly litigation or proceedings.

Moreover, many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business and results of operations may be adversely affected.

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

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payments and other similar provisions during the patent application process and to maintain patents after they are issued. For example, periodic maintenance fees, renewal fees, annuity fees and various other government fees on issued patents and patent applications often must be paid to the USPTO and foreign patent agencies over the lifetime of our licensed patents or any patents we own. In certain circumstances, we may rely on future licensing partners to take the necessary action to comply with these requirements with respect to licensed intellectual property. Although an unintentional lapse can be cured for a period of time 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

 

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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 obtain and maintain the patents and patent applications covering our products or procedures, we may not be able to stop a competitor from marketing products that are the same as or similar to ONCR-177 or our other product candidates, which could have a material adverse effect on our business.

Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect ONCR-177 and our other 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 or other jurisdictions in which we have or seek patent protection could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. 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 in the United States 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. 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, stock price and prospects.

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.

We may wish to acquire rights to future assets through in-licensing or may attempt to form collaborations in the future with respect to our product candidates, but may not be able to do so, 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 in other countries or territories of the world. 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 a number of factors. Those factors may include the following:

 

   

the design or results of clinical trials;

 

   

the likelihood of approval by the FDA or comparable foreign regulatory authorities;

 

   

the potential market for the product candidate;

 

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the costs and complexities of manufacturing and delivering such product candidate to patients;

 

   

the potential of competing products;

 

   

the existence of uncertainty with respect to our ownership of technology or other rights, which can exist if there is a challenge to such ownership without regard to the merits of the challenge; and

 

   

industry and market conditions generally.

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.

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful and have a material adverse effect on the success of our business.

Competitors may infringe our licensed patents or any patent we own or misappropriate or otherwise violate our intellectual property rights. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. If we were to initiate legal proceedings against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. 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, written description or non-enablement. 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. Our licensed patents and any patents we own in the future may become involved in priority or other intellectual property related disputes. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. Also, third parties may initiate legal proceedings against us to challenge the validity or scope of our owned or licensed intellectual property rights. These proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to conduct intellectual property related litigations or proceedings than we can. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation and other intellectual property related proceedings could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or other intellectual property related proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation in the United States, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings,

 

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motions or other interim proceedings or developments in any such proceedings. 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, and could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market. Any of the foregoing may have a material adverse effect our business, financial condition, results of operations, stock price and prospects.

We may be subject to claims by third parties asserting that we, our employees or any future collaborators have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Many of our employees, including our senior management team, were previously employed at, or consulted for, universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these people, including each member of our senior management team, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment or consulting agreements, that assigned ownership of intellectual property relating to work performed under such agreements to the contracting third party. Although we try to ensure that our employees do not use, claim as theirs, or misappropriate the intellectual property, proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used, claimed as theirs, misappropriated or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms, or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. Any of the foregoing may have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed confidential information of third parties or are in breach of non-competition or non-solicitation agreements with our competitors.

We could be subject to claims that we or our employees, including senior management, have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of former employers or competitors or others. 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 be subject to claims that we caused an employee to breach the terms of their 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 or other party. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, 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 ONCR-177 and our other 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, competitors or other parties. An inability to incorporate such technologies or features would have a material adverse effect on our business, and may prevent us from successfully commercializing ONCR-177 and our other product candidates. In addition, we may lose valuable intellectual property rights or personnel as a result of such claims. Moreover, any such litigation or the threat thereof may adversely affect our ability to hire employees or consultants. A loss of key personnel or their work product could hamper or prevent our ability to develop and commercialize ONCR-177 and our other product candidates, which could have an adverse effect on our business, financial condition, results of operations, stock price and prospects.

If we obtain any issued patents covering our technology, such patents could be found invalid or unenforceable if challenged in court or before the USPTO or comparable foreign regulatory authority.

If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering any of our technology, the defendant could counterclaim that the patent covering our product candidate is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or

 

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unenforceability of a patent. Grounds for a validity challenge could be, among other things, an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be, among other things, an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, inter partes review, post-grant review, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions, such as opposition proceedings. Such proceedings could result in revocation, cancellation or amendment to our patents in such a way that they no longer cover and protect ONCR-177 and our other product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. For example, with respect to the validity of our licensed patents or any patents we obtain in the future, we cannot be certain that there is no invalidating prior art of which we, our or our licensing partner’s patent counsel, and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on ONCR-177 and our other product candidates. Such a loss of patent protection could have a material adverse impact on our business.

Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time, and our product candidates for which we intend to seek approval as biological products may face competition sooner than anticipated.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, such as ONCR-177 and our other product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, but no longer than 14 years from the product’s approval date, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authorities in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their products earlier than might otherwise be the case, which could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.

The enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, or ACA, created an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. Certain changes, however, and supplements to an approved BLA, and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the 12-year exclusivity period.

ONCR-177 and our other product candidates are all biological product candidates. We anticipate being awarded market exclusivity for each of our biological product candidates that is subject to its own BLA for 12 years in the United States, 10 years in Europe and significant durations in other markets. However, the term of the patents that cover such product candidates may not extend beyond the applicable market exclusivity awarded by a particular country. For example, in the United States, if all of the patents that cover our particular biological product expire

 

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before the 12-year market exclusivity expires, a third party could submit a marketing application for a biosimilar product four years after approval of our biological product, the FDA could immediately review the application and approve the biosimilar product for marketing 12 years after approval of our biological product, and the biosimilar sponsor could then immediately begin marketing. Alternatively, a third party could submit a full BLA for a similar or identical product any time after approval of our biological product, and the FDA could immediately review and approve the similar or identical product for marketing and the third party could begin marketing the similar or identical product upon expiry of all of the patents that cover our particular biological product.

There is also a risk that this exclusivity could be changed in the future. For example, this exclusivity could be shortened due to congressional action or through other actions, including future proposed budgets, international trade agreements and other arrangements or proposals. Additionally, there is a risk that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. 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. It is also possible that payors will give reimbursement preference to biosimilars over reference biologics, even absent a determination of interchangeability.

To the extent that we do not receive any anticipated periods of regulatory exclusivity for our product candidates or the FDA or foreign regulatory authorities approve any biosimilar, interchangeable, or other competing products to our product candidates, it could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.

Risks Related to Government Regulation

If we fail to comply with federal and state healthcare laws, including fraud and abuse and patient privacy and security laws, we could face substantial penalties and our business, financial condition, results of operations, stock price and prospects will be materially harmed.

Our current and future arrangements with healthcare providers, third-party payors, customers, and others may expose us to broadly applicable healthcare fraud and abuse, patient privacy and security, and other healthcare laws, which may constrain the business or financial arrangements and relationships through which we research, as well as, sell, market and distribute any products for which we obtain marketing approval. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include, but are not limited to:

 

   

The federal Anti-Kickback Statute, which prohibits, among other things, individuals and entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs.

 

   

The federal civil and criminal false claims laws, including, without limitation, the civil False Claims Act, and the federal civil monetary penalties law, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making, or causing to be made, 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.

 

   

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters.

 

   

The federal physician payment transparency requirements, sometimes referred to as the Physician Payments Sunshine Act, created under the ACA and its implementing regulations, which require certain

 

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manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by such physicians and their immediate family members.

 

   

HIPAA, as amended by the Health Information Technology for Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.

 

   

Analogous state and foreign anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or that apply regardless of payor; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state and local laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require the reporting of information related to drug pricing; state and local laws requiring the registration of pharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

If we or our operations are found to be in violation of any federal or state healthcare law, or any other governmental laws or regulations that apply to us, we may be subject to penalties, including significant civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, imprisonment, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from participation in U.S. federal or state health care programs, additional reporting requirements and/or oversight if we become subject to corporate integrity agreements or similar agreement to resolve allegations of non-compliance, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our business and our financial results. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, it may be subject to significant criminal, civil or administrative sanctions, including but not limited to, exclusions from participation in U.S. federal or state healthcare programs, which could also materially affect our business.

Although an effective compliance program can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Moreover, achieving and sustaining compliance with such laws may prove costly. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

If the government or third-party payors fail to provide adequate coverage, reimbursement and payment rates for our product candidates, or if health maintenance organizations or long-term care facilities choose to use therapies that are less expensive or considered a better value, our revenue and prospects for profitability will be limited.

In both domestic and foreign markets, sales of our products will depend in part upon the availability of coverage and adequate reimbursement from third-party payors. Such third-party payors include government health programs such as Medicare and Medicaid, managed care providers, private health insurers, and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new therapeutic products when more established or lower cost therapeutic alternatives are already available or subsequently become available, even if our products are alone in a class. Third-party payors establish reimbursement levels. Therefore, even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain a market share sufficient to realize a sufficient return on our or their investments. If reimbursement is not available, or is

 

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available only to limited levels, our product candidates may be competitively disadvantaged, and we may not be able to successfully commercialize our product candidates. Alternatively, securing favorable reimbursement terms may require us to compromise pricing and prevent us from realizing an adequate margin over cost.

There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved therapeutics. Marketing approvals, pricing, and reimbursement for new therapeutic products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a therapeutic before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription biopharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenues 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 our product candidates obtain marketing approval. Our ability to commercialize our product candidates will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from third-party payors.

The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. Several third-party payors are requiring that companies provide them with predetermined discounts from list prices, are using preferred drug lists to leverage greater discounts in competitive classes, are disregarding therapeutic differentiators within classes, are challenging the prices charged for therapeutics, and are negotiating price concessions based on performance goals. In addition, third-party payors are increasingly requiring higher levels of evidence of the benefits and clinical outcomes of new technologies, benchmarking against other therapies, seeking performance-based discounts, and challenging the prices charged. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if available, that the reimbursement rates will be adequate. If payors subject our product candidates to maximum payment amounts, or impose limitations that make it difficult to obtain reimbursement, providers may choose to use therapies which are less expensive when compared to our product candidates. Additionally, if payors require high copayments, beneficiaries may seek alternative therapies. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any products to the satisfaction of hospitals, other target customers and their third-party payors. Such studies might require us to commit a significant amount of management time and financial and other resources. Our products might not ultimately be considered cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.

In addition, in the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for our products or product candidates for which we receive regulatory approval may not be available or adequate in either the United States or international markets, which could have a negative effect on our business, financial condition, results of operations, stock price and prospects.

There may also be delays in obtaining coverage and reimbursement for newly approved therapeutics, and coverage may be more limited than the indications for which the product is approved by the FDA or comparable foreign regulatory authorities. Such delays have made it increasingly common for manufacturers to provide newly approved drugs to patients experiencing coverage delays or disruption at no cost for a limited period in order to ensure that patients are able to access the drug. Moreover, eligibility for reimbursement does not imply that any therapeutic will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new therapeutics, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary, by way of example, according to the use of the product and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost products or may be incorporated into existing payments for other services.

 

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An inability to promptly obtain coverage and adequate reimbursement from third-party payors for any of our product candidates for which we obtain marketing approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

We are subject to new legislation, regulatory proposals and third-party payor initiatives that may increase our costs of compliance, and adversely affect our ability to market our products, obtain collaborators, and raise capital.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we may receive for any approved products.

For example, the ACA was passed in March 2010 and substantially changed the way healthcare is financed by both governmental and private insurers, and continues to significantly impact the United States pharmaceutical industry. Since its enactment, there have been executive, judicial and political challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. For example, the Tax Cuts and Jobs Act, or the Tax Act, includes a provision repealing the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall. It is unclear how such litigation and other efforts to repeal and replace the ACA will impact the ACA and our business. Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include, among other things, aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 unless additional Congressional action is taken. The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which was signed into law in March 2020 and is designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030. In addition, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. The CMS promulgated regulations governing manufacturers’ obligations and reimbursement under the Medicaid Drug Rebate Program, and recently promulgated a regulation that limited Medicare Part B payment to certain hospitals for outpatient drugs purchased under the 340B program.

There has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent 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 products. For example, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. Further, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contained proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize

 

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manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has solicited feedback on some of these measures and has implemented others under its existing authority. Any new laws or regulations that result in additional reductions in Medicare and other healthcare funding could have a material adverse effect on customers for our products, if approved, and, accordingly, on our results of operations.

We expect that the ACA, as well as other federal and state healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria, increased regulatory burdens and operating costs, decreased net revenue from our biopharmaceutical products, decreased potential returns from our development efforts, and additional downward pressure on the price that we receive for any approved product. It is also possible that additional governmental action is taken to address the COVID-19 pandemic. Any reduction in reimbursement from Medicare or other government healthcare programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from commercializing our products and being able to generate revenue, and we could be prevented from or significantly delayed in achieving profitability.

In addition, there have been a number of other legislative and regulatory proposals aimed at changing the biopharmaceutical industry. For instance, the Drug Quality and Security Act of 2013 imposes obligations on manufacturers of biopharmaceutical products related to product tracking and tracing. Further, manufactures have product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products that would result in serious adverse health consequences of death to humans, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.

Compliance with the federal track and trace requirements may increase our operational expenses and impose significant administrative burdens. As a result of these and other new proposals, we may determine to change our current manner of operation, provide additional benefits or change our contract arrangements, any of which could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.

We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as import and export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, and other consequences, which could adversely affect our business, financial condition, results of operations, stock price and prospects.

Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws that apply in countries where we do business. The FCPA and these other anti-corruption laws generally prohibit us and our employees and intermediaries 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. We can be held liable for the corrupt or other illegal activities of our personnel or intermediaries, even if we do not explicitly authorize or have prior knowledge of such activities.

We are also subject to other laws and regulations governing our international operations, including applicable import and export control regulations, economic sanctions on countries and persons, anti-money laundering laws, customs requirements and currency exchange regulations, collectively referred to as the trade control laws.

We can provide no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws or other legal requirements, including trade control laws. If we are not in compliance with applicable anti-corruption laws or trade control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations, stock price and prospects. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. An investigation of any potential violations of anti-corruption laws or trade control laws by U.S. or other authorities could also have an adverse impact on our reputation, our business, financial condition, results of operations, stock price and prospects.

 

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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 may be subject to or affected by evolving federal, state and foreign data protection laws and regulations, such as laws and regulations that address privacy and data security. In the United States, numerous federal and state laws and regulations, including federal and state health information privacy laws, state data breach notification laws, and federal and state consumer protection laws, such as Section 5 of the Federal Trade Commission Act, govern the collection, use, disclosure and protection of health information and other personal information could apply to our operations. These laws and regulations are subject to differing interpretations and may be inconsistent among jurisdictions, and guidance on implementation and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal information. 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 HIPAA, as amended HITECH, and its implementing rules and regulations. 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.

Foreign data protection laws, including European Union, or EU, Regulation 2016/679, known as the General Data Protection Regulation, or GDPR, may also apply to health-related and other personal information obtained outside of the United States. The GDPR went into effect on May 25, 2018. The GDPR introduced new data protection requirements in the EU. Companies that violate the GDPR can face private litigation, restrictions on data processing, as well as fines up to the greater of 20 million or 4% of annual global revenue. The GDPR, which is wide-ranging in scope, imposes several requirements relating to control over personal data by individuals to whom personal data relates, the information that an organization must provide to individuals, the documentation an organization must maintain, the security and confidentiality of personal data, data breach notification, and the use of third party processors in connection with the processing of personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Economic Area, or EEA, to the United States. Although there are legal mechanisms to allow for the transfer of personal data from the EEA and Switzerland to the United States, there is current litigation challenging such mechanisms, and uncertainty about compliance with EU data protection laws remains. Such mechanisms may not be available or applicable with respect to the personal data processing activities necessary to research, develop, and market our products and services. Further, the United Kingdom’s vote in favor of exiting the EU, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the United Kingdom. In particular, it is unclear how data transfers to and from the United Kingdom will be regulated. The GDPR, the applicable laws of EU Member States, and the applicable privacy laws of the United Kingdom may impact our business activities and increase our compliance costs and potential liability.

In addition, the California Consumer Privacy Act, or CCPA, took effect on January 1, 2020. The CCPA creates new individual privacy rights for California consumers (as the word is broadly defined in the law) and places increased privacy and security obligations on many organizations that handle personal information of consumers or households. The CCPA will require covered companies to provide new disclosures to consumers about such companies’ data collection, use and sharing practices, provide such consumers with data privacy rights such as rights to access and delete their personal information, receive detailed information about how their personal information is used, and opt-out of certain sharing of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that is expected to increase data breach litigation. The Attorney General and local government attorneys may also bring enforcement actions for alleged violations of the CCPA. Although there are some exemptions for clinical trial data and health information, the CCPA may impact our business activities and increase our compliance costs and potential liability. Many similar privacy laws have been proposed at the federal level and in other states.

Compliance with U.S. and foreign data protection laws and regulations could require us to take on more onerous obligations in our contracts, increase our costs of legal compliance, restrict our ability to collect, use and disclose data, or in some cases, impact our or our partners’ suppliers’ ability to operate in certain jurisdictions. Our or our vendors’ actual or perceived failure to comply with U.S. and foreign data protection laws and regulations could result in government investigations and/or enforcement actions (which could include civil, criminal, and administrative

 

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penalties), private litigation 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.

We publish privacy policies, self-certifications, and other documentation regarding our collection, use and disclosure of personal information and/or other confidential information. Although we endeavor to comply with our published policies, certifications, and documentation, we may at times fail to do so or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our employees or vendors fail to comply with our published policies, certifications, and documentation. Such failures can subject us to potential international, local, state and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.

Violations of or liabilities under environmental, health and safety laws and regulations could subject us to fines, penalties or other costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures, the handling, use, storage, treatment and disposal of hazardous materials and wastes and the cleanup of contaminated sites. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We would incur substantial costs as a result of violations of or liabilities under environmental requirements in connection with our operations or property, including fines, penalties and other sanctions, investigation and cleanup costs and third-party claims. Although we generally contract with third parties for the disposal of hazardous materials and wastes from our operations, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. 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 or hazardous materials.

Risks Related to Our Business and Operations

We are highly dependent on our key personnel, including our Chief Executive Officer, Chief Scientific Officer and Senior Vice President, Clinical Development. If we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract, motivate and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management and particularly on the services of our scientific personnel including Theodore (Ted) Ashburn, M.D., Ph.D., our President and Chief Executive Officer, Christophe Quéva, Ph.D., our Chief Scientific Officer and Senior Vice President, Research and John Goldberg, M.D., our Senior Vice President, Clinical Development. We believe that their drug discovery and development experience and overall biopharmaceutical company management experience, would be difficult to replace. Any of our executive officers could leave our employment at any time, as all of our employees are “at-will” employees. We currently do not have “key person” insurance on any of our employees. The loss of the services of our key personnel and any of our other executive officers, key employees, and scientific and medical advisors, and our inability to find suitable replacements, could result in delays in our research and development objectives and harm our business.

Recruiting and retaining qualified employees, consultants and advisors for our business, including scientific and technical personnel, also will be critical to our success. Competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies and academic institutions for skilled individuals. In

 

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addition, failure to succeed in preclinical studies, clinical trials or applications for marketing approval may make it more challenging to recruit and retain qualified personnel. The inability to recruit, or the loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects.

We will need to continue to expand the size of our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

As of September 1, 2020, we had 51 full-time employees, including 40 employees engaged in research and development. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

 

   

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

 

   

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

 

   

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

Our future financial performance and our ability to commercialize ONCR-177 and any other product candidates we develop will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. The services include substantially all aspects of clinical trial management and manufacturing. We cannot assure you that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain marketing approval of ONCR-177 and our other product candidates or otherwise advance our business. We cannot assure you that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

If we are not able to effectively expand our organization by hiring qualified 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 ONCR-177 and our other product candidates and, accordingly, may not achieve our research, development and commercialization goals.

Public health crises such as pandemics, including the COVID-19 pandemic, or similar outbreaks could materially and adversely affect our preclinical studies and clinical trials, business, financial condition and results of operations.

In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a national emergency with respect to COVID-19. In response to the COVID-19 pandemic, a number of governmental orders and other public health guidance measures have been implemented across much of the United States, including in the locations of our office, clinical trial sites and third parties on whom we rely. We anticipate that our clinical development timelines could be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition and results of operations. Further, we have implemented a work-from-home policy allowing employees who can work from home to do so, while those needing to work in laboratory facilities work in shifts to reduce the number of people gathered together at one time. Business travel has been suspended, and online and teleconference technology is used to meet virtually rather than in person. We have taken measures to secure our research and development project activities, while work in laboratories has been organized to reduce risk of COVID-19 transmission. Our increased reliance on personnel working from home may negatively

 

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impact productivity, or disrupt, delay or otherwise adversely impact our business. For example, with our personnel working from home, some of our research activities that require our personnel to be in our laboratories could be delayed.

As a result of the COVID-19 pandemic, or similar pandemics, and related governmental orders and other public health guidance measures, we have and may in the future experience disruptions that could materially and adversely impact our preclinical studies, clinical trials, business, financial condition and results of operations. Potential disruptions might include but are not limited to:

 

   

delays or difficulties in enrolling patients in our clinical trials;

 

   

delays or difficulties in initiating or expanding clinical trials, including delays or difficulties with clinical site initiation and recruiting clinical site investigators and clinical site staff;

 

   

increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or being forced to quarantine;

 

   

interruption of key clinical trial activities, such as clinical trial site data monitoring and efficacy, safety and translational data collection, processing and analyses, due to limitations on travel imposed or recommended by federal, state or local governments, employers and others or interruption of clinical trial subject visits, which may impact the collection and integrity of subject data and clinical study endpoints;

 

   

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

 

   

delays or disruptions in preclinical experiments and studies due to restrictions of on-site staff and unforeseen circumstances at CROs and vendors;

 

   

interruption or delays in the operations of the FDA and comparable foreign regulatory agencies;

 

   

interruption of, or delays in receiving, supplies of our product candidates from third-party providers due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;

 

   

limitations on employee or other resources that would otherwise be focused on the conduct of our clinical trials and preclinical work, including because of sickness of employees or their families, the desire of employees to avoid travel or contact with large groups of people, an increased reliance on working from home, school closures or mass transit disruptions;

 

   

changes in regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether; and

 

   

delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government or contractor personnel.

The COVID-19 global pandemic continues to rapidly evolve. The extent to which the outbreak may affect our preclinical activities, clinical trials, business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States, business closures or business disruptions and the effectiveness of actions taken in the United States to contain and treat the disease. Future developments in these and other areas present material uncertainty and risk with respect to our clinical trials, business, financial condition and results of operations.

We depend on our information technology systems, and any failure of these systems could harm our business. Security breaches, loss of data, and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business, results of operations and financial condition.

We collect and maintain information in digital and other forms that is necessary to conduct our business, and we are increasingly dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual

 

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property, proprietary business information and personal information. It is critical that we do so in a secure manner to maintain the privacy, security, confidentiality, availability and integrity of such confidential information. We have established physical, electronic and organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems, software, tools, and monitoring to provide security for our information technology systems and the processing, transmission and storage of digital information. We have also outsourced elements of our information technology infrastructure, and as a result a number of third-party vendors may or could have access to our confidential information. Our internal information technology systems and infrastructure, and those of our current and any future collaborators, contractors consultants, vendors, and other third parties on which we rely, are vulnerable to damage or unauthorized access or use resulting from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, denial or degradation of service attacks, ransomware, hacking, phishing and other social engineering attacks, attachments to emails, persons inside our organization, or persons with access to systems inside our organization.

The risk of a security breach or disruption or data loss, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition, the prevalent use of mobile devices that access confidential information increases the risk of lost or stolen devices, security incidents, and data security breaches, which could lead to the loss of confidential information or other intellectual property. As a result of the COVID-19 pandemic, we may face increased risks of a security breach or disruption due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service, negative publicity, and other harm to our business and our competitive position. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Any security compromise affecting us, our partners or our industry, whether real or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures, and lead to regulatory scrutiny. Moreover, if a computer security breach affects our systems or results in the unauthorized access to or unauthorized use, disclosure, release or other unauthorized processing of personal information, our reputation could be materially damaged. In addition, such a breach may require notification to governmental agencies, the media or individuals pursuant to various federal, state, and foreign privacy and security laws, if applicable, including HIPAA, as amended HITECH, and its implementing rules and regulations, as well as regulations promulgated by the Federal Trade Commission, state data breach notification laws, and the GDPR. We would also be exposed to a risk of loss, governmental investigations or enforcement, or litigation and potential liability, any of which could materially adversely affect our business, results of operations and financial condition.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability and have to limit the commercialization of any approved products and/or our product candidates.

The use of our product candidates in clinical trials, and the sale of any product for which we obtain regulatory approval, exposes us to the risk of product liability claims. We face inherent risk of product liability related to the testing of our product candidates in human clinical trials, including liability relating to the actions and negligence of our investigators, and will face an even greater risk if we commercially sell any product candidates that we may develop. For example, we may be sued if any product candidate we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. Product liability claims might be brought against us by consumers, healthcare providers or others using, administering or selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful

 

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defense would require significant financial and management resources. Regardless of merit or eventual outcome, liability claims may result in:

 

   

loss of revenue from decreased demand for our products and/or product candidates;

 

   

impairment of our business reputation or financial stability;

 

   

costs of related litigation;

 

   

substantial monetary awards to patients or other claimants;

 

   

diversion of management attention;

 

   

withdrawal of clinical trial participants and potential termination of clinical trial sites or entire clinical programs;

 

   

the inability to commercialize our product candidates;

 

   

significant negative media attention;

 

   

decreases in our stock price;

 

   

initiation of investigations and enforcement actions by regulators; and

 

   

product recalls, withdrawals or labeling, marketing or promotional restrictions, including withdrawal of marketing approval.

We believe we have sufficient insurance coverage in place for our business operations. However, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, 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. We intend to expand our insurance coverage to include clinical trials and the sale of commercial products if we obtain FDA or comparable foreign regulatory approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing, or at all. Failure to obtain and retain sufficient product liability insurance at an acceptable cost could prevent or inhibit the commercialization of products we develop. On occasion, large judgments have been awarded in class action lawsuits based on therapeutics that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash, and materially harm our business, financial condition, results of operations, stock price and prospects.

Our employees, independent contractors, consultants, commercial partners, principal investigators, CMOs, or CROs may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could have a material adverse effect on our business.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees, independent contractors, consultants, commercial partners, principal investigators, CMOs or CROs could include intentional, reckless, negligent, or unintentional failures to comply with FDA regulations, comply with applicable fraud and abuse laws, provide accurate information to the FDA, properly calculate pricing information required by federal programs, report financial information or data accurately or disclose unauthorized activities to us. This misconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter this type of 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 be in compliance with such laws or regulations. Moreover, it is possible for a whistleblower to pursue a False Claims Act case against us even if the government considers the claim unmeritorious and/or declines to intervene, which could require us to incur costs defending against such a claim. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations, stock price and prospects, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in U.S. federal healthcare programs, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations.

 

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We have generated significant net operating loss (NOL) carryforwards and research and development tax credits, and our ability to utilize our net operating loss carryforwards and research and development tax credits to reduce future tax payments may be limited or restricted.

We have generated significant NOL carryforwards and research and development tax credits, or R&D credits, as a result of our incurrence of losses and our conduct of research activities since inception. As of December 31, 2019, we had federal and state NOL carryforwards of $66.4 million and $65.3 million, respectively. We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we may never achieve profitability. Our U.S. federal NOL carryforwards generated prior to 2018 will expire if not utilized beginning in 2035. These NOL carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Act, as modified by the CARES Act, U.S. federal NOLs incurred in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the utilization of U.S. federal NOLs generated in tax years beginning after December 31, 2020 is limited. As of December 31, 2019, we also had federal and state R&D credit carryforwards of $2.3 million and $1.1 million, respectively. Our federal R&D credit carryforwards begin to expire in 2035 and our state R&D credit carryforwards begin to expire in 2030. These R&D credit carryforwards could expire unused and be unavailable to offset future income tax liabilities.

Under Sections 382 and 383 of the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and R&D credits to offset its post-change income and taxes, respectively, may be limited. For purposes of these rules, an “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The application of these rules could limit the amount of NOLs or R&D credit carryforwards that we can utilize annually to offset future taxable income or tax liabilities. 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.

Our NOL and R&D credit carryforwards are subject to review and possible adjustment by U.S. and state tax authorities.

Risks Related to Our Common Stock and this Offering

An active trading market for our common stock may not develop, and you may not be able to resell your shares at or above the initial public offering price.

Prior to this offering, there has been no public market for shares of our common stock. Although we have applied to list our common stock on The Nasdaq Global Market, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price of our common stock was determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our common stock after this offering. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the initial public offering price or at the time that they would like to sell. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to enter into collaborations or acquire other companies or technologies using our shares as consideration.

Our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.

We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:

 

   

variations in the level of expense related to the ongoing development of our product candidates, preclinical development programs and our oHSV Platform and synthetic viral platform;

 

   

results of preclinical studies and future clinical trials, or the addition or termination of future clinical trials or funding support by us, or future collaborators or licensing partners;

 

   

our execution of any collaboration, licensing or similar arrangements, and the timing of payments we may make or receive under existing or future arrangements or the termination or modification of any such existing or future arrangements;

 

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any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved;

 

   

additions and departures of key personnel;

 

   

strategic decisions by us, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

   

if any of our product candidates receives regulatory approval, the terms of such approval and market acceptance and demand for such product candidates; and

 

   

regulatory developments affecting our product candidates.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

The market price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.

Our stock price is likely to be volatile. The stock market in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme price and volume fluctuations that have been often unrelated or disproportionate to the operating performance of the issuer. In particular, the trading prices for pharmaceutical, biopharmaceutical and biotechnology companies have been highly volatile as a result of the COVID-19 pandemic. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

 

 

   

results from, and any delays in, our clinical trial for ONCR-177, our preclinical studies and any other future clinical development programs, including any delays related to the COVID-19 pandemic;

   

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

 

   

commencement or termination of collaboration, licensing or similar arrangements for our development programs;

 

   

announcements by our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

 

   

failure or discontinuation of any of our development programs;

 

   

results of clinical trials of product candidates of our competitors;

 

   

developments or setbacks related to drugs that are co-administered with any of our product candidates, such as checkpoint inhibitors;

 

   

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

 

   

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

 

   

the recruitment or departure of key personnel;

 

   

the level of expenses related to the development of ONCR-177 and any other product candidate we may develop;

 

   

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

 

   

announcements or expectations of additional financing efforts by us;

 

   

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

 

   

expiration of market stand-off or lock-up agreements;

 

   

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

 

   

changes in the structure of healthcare payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

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general economic, political, and market conditions and overall fluctuations in the financial markets in the United States and abroad; and

 

   

investors’ general perception of us and our business.

These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their shares at or above the price paid for the shares and may otherwise negatively affect the liquidity of our common stock.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against public companies following declines in the market prices of their securities. This risk is especially relevant for biopharmaceutical companies, which 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 our resources, which could harm our business.

If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

You will suffer immediate and substantial dilution with respect to the common stock you purchase in this offering. Based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and that the underwriters do not exercise their option to acquire additional common stock in this offering, purchasers of common stock in this offering will experience immediate dilution of $8.49 per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering and the assumed initial public offering price, and, following the completion of this offering, investors purchasing common stock in this offering will have contributed 36.5% of the total amount invested by stockholders since inception but will only own 26.6% of the shares of common stock outstanding. In the past, we have issued options and warrants to purchase common stock at prices significantly below the initial public offering price. To the extent these outstanding securities are ultimately exercised, investors purchasing common stock in this offering will sustain further dilution. See “Dilution” for a more detailed description of the dilution to new investors in the offering.

We have broad discretion in how we use the proceeds of this offering and may not use these proceeds effectively, which could affect our results of operations and cause our stock price to decline.

We will have considerable discretion in the application of the net proceeds of this offering. Because of the number and variability of factors that will determine our use of the net proceeds, their ultimate use may vary substantially from their currently intended use. Management might not apply our net proceeds in ways that ultimately increase the value of your investment. While we expect to use the net proceeds from this offering as set forth in “Use of Proceeds,” we are not obligated to do so. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

You should not rely on an investment in our common stock to provide dividend income. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock, which may never occur, as the only way to realize any return on their investment.

Our executive officers, directors, and stockholders and their affiliates who beneficially own more than 5% of our common stock will continue to exercise significant influence over our company after this offering, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.

Based upon the number of shares of our common stock outstanding as of September 25, 2020, and after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 14,951,519 shares of our common stock upon the closing of this offering and the sale of 5,800,000 shares in this offering, immediately following the completion of this offering, the existing holdings of our executive officers,

 

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directors, and stockholders and their affiliates who beneficially own more than 5% of our common stock will represent beneficial ownership, in the aggregate, of approximately 45% of our outstanding common stock, assuming no exercise of the underwriters’ option to acquire additional common stock in this offering. As a result, these stockholders, if they act together, will be able to exercise significant influence over our management and affairs and the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. These stockholders acquired their shares of common stock at prices per share that were substantially less than the per share price of the shares of common stock being sold in this offering, these stockholders may have interests with respect to their common stock that are different from those of investors in this offering, and the concentration of voting power among these stockholders may have an adverse effect on the price of our common stock. In addition, this concentration of ownership might adversely affect the market price of our common stock by:

 

   

delaying, deferring or preventing a change of control of our company;

 

   

impeding a merger, consolidation, takeover or other business combination involving our company; or

 

   

discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.

See “Principal Stockholders” in this prospectus for more information regarding the ownership of our outstanding common stock by our executive officers, directors, principal stockholders and their respective affiliates.

Conflicts of interest may arise because some members of our board of directors are representatives of our principal stockholders.

Certain of our principal stockholders or their affiliates are venture capital funds or other investment vehicles that could invest in entities that directly or indirectly compete with us. As a result of these relationships, conflicts may arise between the interests of the principal stockholders or their affiliates and the interests of other stockholders, and members of our board of directors that are representatives of such principal stockholders may not be disinterested in such conflicts. Neither the principal stockholders nor the representatives of the principal stockholders on our board of directors, by the terms of our amended and restated certificate of incorporation, are required to offer us any transaction opportunity of which they become aware and could take any such opportunity for themselves or offer it their other affiliates, unless such opportunity is expressly offered to them solely in their capacity as members of our board of directors. We expect that all decisions made by our executive officers and directors will be made in accordance with their duties and obligations to deal fairly and in good faith and to act in the best interests of us and our stockholders, as well as in compliance with our Code of Business Conduct and Ethics, which will be adopted in connection with this offering and includes a “conflicts of interest” section applicable to all employees, executive officers and directors.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up, stand-off and other legal restrictions on resale discussed in this prospectus lapse, the market price of our common stock could decline. Based upon the number of shares of common stock, on an as-converted basis, outstanding as of September 25, 2020 and the sale of 5,800,000 shares in this offering, upon the completion of this offering, we will have outstanding a total of 21,845,884 shares of common stock, assuming no exercise of the underwriters’ option to purchase an additional 870,000 shares. Of these shares, the 5,800,000 shares sold by us in this offering will be freely tradable without restriction in the public market immediately following this offering unless purchased by our “affiliates”. Under the Securities Act of 1933, as amended, or the Securities Act, an “affiliate” of an issuer is a person who directly or indirectly controls, is controlled by or is under common control with that issuer. The remaining 16,045,884 shares are currently restricted under securities laws or as a result of lock-up or other agreements, but will be able to be sold after this offering as described in “Shares Eligible for Future Sale.” The representatives of the underwriters for this offering may release stockholders from their lock-up agreements with the underwriters at any time and without notice, which would allow for earlier sales of shares in the public market.

Upon completion of this offering, approximately 5.4 million shares of common stock that are either subject to outstanding options, reserved for future issuance under our equity incentive plans or subject to outstanding warrants

 

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will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements described above and applicable securities laws. We plan to register under the Securities Act all of these shares that we may issue under our equity incentive plans. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to volume limitations applicable to affiliates and the lock-up agreements described above. If any of the additional shares of common stock described above are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

After the completion of this offering, the holders of approximately 15.0 million shares of our common stock, or their permitted transferees, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the lock-up agreements described above. See “ Description of Capital Stock—Registration Rights.” Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the market price of our common stock.

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

The trading market for our common stock will rely, in part, on the research and reports that industry or financial analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which, in turn, could cause our stock price to decline.

We will incur significantly 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 and corporate governance practices.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, Nasdaq listing requirements and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain sufficient coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. The increased costs may require us to reduce costs in other areas of our business or increase the prices of our services. Moreover, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

We are an “emerging growth company” and a “smaller reporting company” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies or smaller reporting 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, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and (iii) exemptions from the requirements of holding nonbinding advisory stockholder votes on executive compensation and stockholder approval of any golden parachute payments not approved previously. In addition, as an emerging

 

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growth company, we are only required to provide two years of audited financial statements and two years of selected financial data in this prospectus. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an “emerging growth company” or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act, upon issuance of a new or revised accounting standard that applies to our consolidated financial statements and that has a different effective date for public and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.

We could be an emerging growth company until December 31, 2025, although circumstances could cause us to lose that status earlier, including if we are deemed to be a “large accelerated filer,” which occurs when the market value of our common stock that is held by non-affiliates equals or exceeds $700.0 million as of the prior June 30, or if we have total annual gross revenue of $1.07 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31, or if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, in which case we would no longer be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this prospectus and in our periodic reports and proxy statements.

We cannot predict if investors will find our common stock less attractive because we may rely on the exemptions and reduced disclosure obligations applicable to emerging growth companies and smaller reporting companies. 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 share price may be more volatile.

If we fail to maintain proper and effective internal controls over financial reporting our ability to produce accurate and timely financial statements could be impaired.

Pursuant to Section 404 of the Sarbanes-Oxley Act, our management will be required to report upon the effectiveness of our internal control over financial reporting beginning with our second annual report on Form 10-K. When we lose our status as an “emerging growth company” and a “smaller reporting company,” our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we will need to implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff.

We cannot assure you that there will not be material weaknesses in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

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 must design 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.

 

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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 a required related party transaction disclosure. 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.

Provisions in our corporate charter and bylaws and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our corporate charter and our bylaws that will become effective upon the completion of this offering and provisions of Delaware law may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

 

   

establish a classified board of directors such that not all members of the board are elected at one time;

 

   

allow the authorized number of our directors to be changed only by resolution of our board of directors;

   

limit the manner in which stockholders can remove directors from the board;

 

   

establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

 

   

require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

 

   

prohibit our stockholders from calling a special meeting of our stockholders;

 

   

authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

 

   

require the approval of the holders of at least 662/3% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired 15% or more of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.

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

Our amended and restated certificate of incorporation, which will become effective upon the completion of this offering, will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

 

   

any derivative action or proceeding brought on our behalf;

 

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any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders;

 

   

any action or proceeding asserting a claim against us or any of our current or former directors, officers or other employees, arising out of or pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws;

 

   

any action or proceeding to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; and

 

   

any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

These exclusive 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, which may discourage these types of lawsuits. If a court were to find either exclusive forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other jurisdictions, which could seriously harm our business.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are contained principally in the sections of this prospectus titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” but are also contained elsewhere in this prospectus. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” or “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.

These forward-looking statements include statements about:

 

   

the effects of the ongoing COVID-19 pandemic including the impact on the initiation, patient enrollment, development and operation of our programs and clinical trials;

 

   

our preclinical and clinical development plans including our Phase 1 clinical trial of ONCR-177;

 

   

our ability to receive the required regulatory approvals and clearances to successfully market and sell our products in the United States and certain other countries;

 

   

our ability to successfully advance our pipeline of product candidates;

 

   

our ability to develop sales and marketing capabilities;

 

   

the rate and degree of market acceptance of any products we are able to commercialize;

 

   

the effects of increased competition as well as innovations by new and existing competitors in our market;

 

   

our ability to obtain funding for our operations;

 

   

our ability to establish and maintain collaborations;

 

   

our ability to effectively manage our anticipated growth;

 

   

our ability to maintain, protect and enhance our intellectual property rights and proprietary technologies;

 

   

our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;

 

   

costs associated with defending intellectual property infringement, product liability and other claims;

 

   

regulatory developments in the United States and other foreign countries;

 

   

our ability to attract and retain qualified employees;

 

   

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

 

   

statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock performance;

 

   

our expected use of proceeds of this offering; and

 

   

the future trading prices of our common stock and the impact of securities analysts’ reports on these prices.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions described under the section titled “Risk Factors” and elsewhere in this prospectus. We also operate in a very competitive and rapidly changing environment. New risks emerge from time to time and 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, or implied by, any forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances described in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements contained in this prospectus.

 

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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, levels of activity, performance, events, circumstances or achievements reflected in the forward-looking statements will ever be achieved or occur. Except as required by law, 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 as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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INDUSTRY AND MARKET DATA

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates of potential market opportunities. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We believe that these third-party sources and estimates are reliable, but have not independently verified them. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.

In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section of this prospectus titled “Risk Factors” and elsewhere in this prospectus. 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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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be approximately $77.7 million, or approximately $89.8 million if the underwriters exercise in full their option to purchase additional shares from us, in each case after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us from this offering by approximately $5.4 million, 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 estimated underwriting discounts and commissions payable by us. We may also increase or decrease the number of shares we are offering. Each 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease the net proceeds to us from this offering by approximately $14.0 million, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions payable by us. We do not expect that a change in the initial price to the public or the number of shares by these amounts would have a material effect on uses of the proceeds from this offering, although a decrease in the initial offering price without a corresponding increase in the number of shares offered may accelerate the time at which we will need to seek additional capital.

We intend to use the net proceeds of this offering, along with our current cash and cash equivalents, as follows:

 

   

approximately $32.0 million to advance ONCR-177 through our Phase 1 clinical trial, including monotherapy, combination therapy, and expansion cohorts, as well as additional clinical development expenses;

 

   

approximately $11.5 million to fund preclinical and clinical development expenses for a Synthetic CVA21 product candidate, including candidate nomination and IND-enabling activities;

 

   

approximately $1.5 million to fund our efforts to develop a product candidate from our second synthetic program based on SVV, through candidate nomination;

 

   

approximately $2.0 million to fund our efforts to develop ONCR-GBM, an intratumoral product candidate targeting brain cancer that is based on our oHSV platform, through candidate nomination;

 

   

approximately $18.9 million to fund a portion of the planned buildout of our manufacturing capabilities; and

 

   

the remaining proceeds for working capital and general corporate purposes.

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

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and prevailing business conditions, which could change in the future as such plans and conditions evolve. Predicting the costs necessary to develop product candidates can be difficult, and the amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from preclinical studies and clinical trials, any collaborations that we may enter into with third parties and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

Based on our current plans, we believe that our existing cash and cash equivalents, including the $35.8 million in gross proceeds that we received from the second and final tranche of our Series B financing, together with the anticipated net proceeds from this offering, will enable us to fund our operating expenses and capital expenditure requirements into 2023. 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. For additional information regarding our potential capital requirements, see “Risk Factors.”

Pending these uses, we plan to invest these net proceeds in short-term, interest bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States.

 

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DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We currently intend to retain all available funds and any future earnings for the operation and expansion of our business and, therefore, we do not anticipate declaring or paying cash dividends in the foreseeable future. The payment of dividends will be at the discretion of our board of directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in any future debt agreements, and other factors that our board of directors may deem relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2020:

 

   

on an actual basis;

 

   

on a pro forma basis, giving effect to (1) the sale by us of 41,690,117 shares of Series B redeemable convertible preferred stock in September 2020 for gross proceeds of $35.8 million, (2) the automatic conversion of all of our outstanding shares of redeemable convertible preferred stock into an aggregate of 14,951,519 shares of our common stock upon the closing of this offering and (3) the filing of our amended and restated certificate of incorporation, which will be filed in connection with this offering; and

 

   

on a pro forma as adjusted basis to reflect (1) the pro forma items described immediately above and (2) the sale of 5,800,000 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The information below is illustrative only, and our capitalization following the closing of this offering will depend on the actual initial public offering price and other terms of the offering determined at the pricing of this offering.

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

 

 

 

     AS OF JUNE 30, 2020  
       ACTUAL         PRO FORMA         PRO FORMA AS  
ADJUSTED (1)
 
     (in thousands, except per share data)  

Cash and cash equivalents

   $ 28,921     $ 64,762     $ 142,422  
  

 

 

   

 

 

   

 

 

 

Series B tranche rights liability

   $ 2,501     $     $  

Redeemable convertible preferred stock:

      

Series A-1 redeemable convertible preferred stock, $0.0001 par value; 76,500 shares authorized, 76,500 shares issued and outstanding, actual; 0 shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     66,634              

Series B redeemable convertible preferred stock, $0.0001 par value; 104,225 shares authorized, 62,535 shares issued and outstanding, actual; 0 shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     55,448              

Stockholders’ (deficit) equity:

          

Preferred stock, $0.0001 par value; 0 shares authorized, issued or outstanding, actual; 10,000 shares authorized, 0 shares issued or outstanding, pro forma and pro forma as adjusted

                  

Common stock, $0.0001 par value; 227,000 shares authorized, 1,004 shares issued and outstanding, actual; 100,000 shares authorized, 15,983 shares issued and outstanding, pro forma; 100,000 shares authorized, 21,783 shares issued and outstanding, pro forma as adjusted

           2       2  

Additional paid-in capital

           160,422       238,082  

Accumulated deficit

     (96,324     (96,324     (96,324
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (96,324     64,100       141,760  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 28,259     $ 64,100     $ 141,760  
  

 

 

   

 

 

   

 

 

 

 

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(1)    The pro forma as adjusted information set forth above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $5.4 million, 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 estimated underwriting discounts and commissions payable by us. We may also increase or decrease the number of shares we are offering. Each 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $14.0 million, assuming that the assumed initial public offering price remains the same, and after deducting estimated underwriting discounts and commissions payable by us.

The number of shares of common stock shown as issued and outstanding in the table above, on an actual basis, is based on 1,031,864 shares of common stock outstanding as of June 30, 2020, but excludes 27,576 shares of our common stock subject to forfeiture and our right of repurchase. The number of shares of common stock shown as issued and outstanding in the table above, on an actual, pro forma and pro forma as adjusted basis, also excludes:

 

   

2,135,884 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2020, at a weighted-average exercise price of $3.65 per share (which does not include stock options to purchase an aggregate of 35,771 shares of common stock, at a weighted average exercise price of $9.83 per share, that were granted subsequent to June 30, 2020);

 

   

71,544 shares of common stock issuable upon the exercise of warrants to purchase shares of our common stock outstanding as of June 30, 2020, at a weighted-average exercise price of $1.21 per share;

 

   

54,829 shares of our common stock reserved for future issuance under our 2016 Plan as of June 30, 2020, which does not account for stock options to purchase an aggregate of 35,771 shares of common stock that were granted subsequent to June 30, 2020, and which shares will cease to be available for future issuance immediately prior to the time that our 2020 Plan becomes effective in connection with this offering;

 

   

2,800,000 shares of our common stock reserved for future issuance pursuant to our 2020 Plan, which will become effective upon the execution of the underwriting agreement related to this offering, of which our board of directors has approved, subject to the pricing of this offering, grants of stock options to purchase an aggregate of 363,150 shares of common stock, at an exercise price per share equal to the initial public offering price for this offering, to certain of our employees, as well as any shares which may be reserved pursuant to provisions in our 2020 Plan that automatically increase the number of shares of common stock reserved for issuance under the 2020 Plan; and

 

   

280,000 shares of our common stock reserved for future issuance under our ESPP, which will become effective upon the execution of the underwriting agreement related to this offering, as well as any shares which may be reserved pursuant to provisions in the ESPP that automatically increase the number of shares of common stock reserved for issuance under the ESPP.

 

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DILUTION

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

Our historical net tangible book value (deficit) as of June 30, 2020 was $(96.3) million, or $(93.35) per share of common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our liabilities and redeemable convertible preferred stock, which is not included within stockholders’ (deficit) equity. Historical net tangible book value (deficit) per share is our historical net tangible book value (deficit) divided by the 1,031,864 shares of common stock outstanding as of June 30, 2020, including 27,576 shares of unvested restricted stock.

Our pro forma net tangible book value as of June 30, 2020 was $64.1 million, or $4.01 per share of common stock. Pro forma net tangible book value per share is our pro forma net tangible book value divided by the total number of shares of common stock outstanding as of June 30, 2020, including unvested restricted stock, after giving effect to (i) the sale by us in September 2020 of 41,690,117 shares of Series B redeemable convertible preferred stock for gross proceeds of $35.8 million and (ii) the automatic conversion of all of our outstanding shares of redeemable convertible preferred stock into an aggregate of 14,951,519 shares of our common stock upon the closing of this offering.

Our pro forma as adjusted net tangible book value is our pro forma net tangible book value, after giving further effect to the sale of 5,800,000 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Our pro forma as adjusted net tangible book value as of June 30, 2020 was $141.8 million, or $6.51 per share of common stock. This amount represents an immediate increase in pro forma net tangible book value of $2.50 per share to our existing stockholders and an immediate dilution of $8.49 per share to new investors participating in this offering. We determine dilution per share to new investors by subtracting pro forma as adjusted net tangible book value per share after this offering from the assumed initial public offering price per share paid by new investors.

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

 

 

 

Assumed initial public offering price per share

     $ 15.00  

Historical net tangible book value (deficit) per share as of June 30, 2020

   $ (93.35  

Increase per share attributable to the pro forma adjustments described above

     97.36    
  

 

 

   

Pro forma net tangible book value per share as of June 30, 2020

     4.01    

Increase in pro forma net tangible book value per share attributed to new investors purchasing shares from us in this offering

     2.50    
  

 

 

   

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

       6.51  
    

 

 

 

Dilution per share to new investors participating in this offering

     $ 8.49  
    

 

 

 

 

 

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted net tangible book value per share by $0.25 per share and the dilution per share to investors participating in this offering by $0.75 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. We may also increase or decrease the number of shares we are offering. Each 1,000,000 share increase in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book

 

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value per share by $0.32 and decrease the dilution per share to investors participating in this offering by $0.32, assuming the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. Each 1,000,000 share decrease 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 $0.36 and increase the dilution per share to new investors participating in this offering by $0.36, assuming the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

If the underwriters exercise in full their option to purchase an additional 870,000 shares of our common stock in this offering, the pro forma as adjusted net tangible book value would increase to $6.79 per share, representing an immediate increase to existing stockholders of $2.78 per share and the dilution per share to new investors participating in this offering would be $8.21 per share, assuming the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

The following table summarizes as of June 30, 2020, on the pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (1) paid to us by our existing stockholders and (2) to be paid by investors purchasing our common stock in this offering at an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

 

     SHARES PURCHASED      TOTAL CONSIDERATION      WEIGHTED-
AVERAGE PRICE
PER SHARE
 
     NUMBER      PERCENT      AMOUNT      PERCENT  

Existing stockholders

     15,983,383        73.4%      $ 151,376,970        63.5%      $ 9.47  

New investors

     5,800,000        26.6           87,000,000        36.5           15.00  
  

 

 

    

 

 

    

 

 

    

 

 

    

Total

     21,783,383        100.0%      $ 238,376,970        100.0%     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by investors in this offering by approximately $5.8 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. Each 1,000,000 share increase or decrease in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by investors in this offering by approximately $15.0 million, assuming the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same.

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters exercise in full their option to purchase 870,000 additional shares from us, the number of shares held by the existing stockholders after this offering would be reduced to 70.6% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors would increase to 29.4% of the total number of shares of our common stock outstanding after this offering.

The tables and calculations above are based on 1,031,864 shares of our common stock outstanding as of June 30, 2020, which includes 27,576 shares of our common stock subject to forfeiture and our right of repurchase, and excludes:

 

   

2,135,884 shares of our common stock issuable upon the exercise of options outstanding as of June 30, 2020, at a weighted-average exercise price of $3.65 per share (which does not include stock options to

 

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purchase an aggregate of 35,771 shares of common stock, at a weighted average exercise price of $9.83 per share, that were granted subsequent to June 30, 2020);

 

   

71,544 shares of common stock issuable upon the exercise of warrants to purchase shares of our common stock outstanding as of June 30, 2020, at a weighted-average exercise price of $1.21 per share;

 

   

54,829 shares of our common stock reserved for future issuance under our 2016 Plan as of June 30, 2020, which does not account for stock options to purchase an aggregate of 35,771 shares of common stock that were granted subsequent to June 30, 2020, and which shares will cease to be available for future issuance immediately prior to the time that our 2020 Plan becomes effective in connection with this offering;

 

   

2,800,000 shares of our common stock reserved for future issuance pursuant to our 2020 Plan, which will become effective upon the execution of the underwriting agreement related to this offering, of which our board of directors has approved, subject to the pricing of this offering, grants of stock options to purchase an aggregate of 363,150 shares of common stock, at an exercise price per share equal to the initial public offering price for this offering, to certain of our employees, as well as any shares which may be reserved pursuant to provisions in our 2020 Plan that automatically increase the number of shares of common stock reserved for issuance under the 2020 Plan; and

 

   

280,000 shares of our common stock reserved for future issuance under our ESPP, which will become effective upon the execution of the underwriting agreement related to this offering, as well as any shares which may be reserved pursuant to provisions in the ESPP that automatically increase the number of shares of common stock reserved for issuance under the ESPP.

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

 

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SELECTED FINANCIAL DATA

The following tables set forth our selected consolidated statement of operations and balance sheet data. The selected consolidated statement of operations data presented below for the years ended December 31, 2018 and 2019 and the selected consolidated balance sheet data as of December 31, 2018 and 2019 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statement of operations data presented below for the six months ended June 30, 2019 and 2020 and the selected consolidated balance sheet data as of June 30, 2020 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited consolidated financial statements. The selected financial data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in any future period, and results for the six-month period ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020. The selected financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

 

 

 

     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
(in thousands, except per share data)    2018     2019     2019     2020  

Consolidated Statement of Operations Data:

        

Operating Expenses:

        

Research and development

   $ 12,541     $ 24,047     $ 11,962     $ 12,633  

General and administrative

     6,037       7,119       2,465       4,059  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     18,578       31,166       14,427       16,692  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (18,578     (31,166     (14,427     (16,692

Total other income (expense), net

     532       462       163       (509
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss and comprehensive loss

   $ (18,046   $ (30,704   $ (14,264   $ (17,201
  

 

 

   

 

 

   

 

 

   

 

 

 

Accretion of discount and dividends on redeemable convertible preferred stock

     (98     (4,287     (31     (5,450
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (18,144   $ (34,991   $ (14,295   $ (22,651
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (22.88   $ (37.42   $ (15.78   $ (22.67
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of common shares outstanding—basic and diluted (1)

     793       935       906       999  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     $ (3.35     $ (1.33
    

 

 

     

 

 

 

Pro forma weighted average common shares outstanding(1)

       9,160         12,502  
    

 

 

     

 

 

 

 

 

1.    See Note 2 and Note 12 to our annual consolidated financial statements and Note 2 and Note 10 to our interim consolidated financial statements included elsewhere in this prospectus for a description of the method used to calculate basic and diluted net loss per share and unaudited pro forma basic and diluted net loss per share.

 

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     AS OF
DECEMBER 31
    AS OF
JUNE 30,
 
(in thousands)    2018     2019     2020  

Consolidated Balance Sheet Data

      

Cash and cash equivalents

   $ 20,079     $ 45,286     $ 28,921  

Working capital (1)

     18,210       40,963       24,459  

Total assets

     25,656       50,826       35,815  

Redeemable convertible preferred stock

     60,893       116,632       122,082  

Accumulated deficit

     (40,983     (74,297     (96,324

Total stockholders’ deficit

     (40,077     (74,297     (96,324

 

 

1.    We define working capital as current assets less current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with “Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and analysis and other parts of this prospectus contain forward-looking statements based upon current beliefs that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” section of this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a biopharmaceutical company focused on developing next-generation viral immunotherapies to transform outcomes for cancer patients. Using our two distinct proprietary platforms, we are developing a pipeline of intratumorally and intravenously administered product candidates designed to selectively attack and kill tumor cells and deliver transgenes to stimulate multiple arms of the immune system against tumors. Our lead product candidate, ONCR-177, is an intratumorally administered viral immunotherapy based on our oncolytic HSV-1 platform, referred to as our oHSV Platform, which leverages the Herpes Simplex Virus-1, or HSV-1, a virus which has been clinically proven to effectively treat certain cancers. Utilizing this proprietary platform, we are engineering our product candidates, such as ONCR-177, to carry greater numbers of immunostimulatory transgenes than viral immunotherapies that are either currently approved or in clinical development. These transgenes are designed to drive strong systemic anti-tumor immunity to elicit tumor responses at injected and distant non-injected tumor sites, or abscopal activity. In addition, viruses from our oHSV Platform maintain full viral replication competency in tumors and are designed to be selectively attenuated in normal tissues. We believe this unique combination of features allows us to break the safety versus potency trade-off that has generally limited the viral immunotherapy field to date. In June 2020, we initiated a Phase 1 clinical trial of ONCR-177 in several different tumor types. We are also developing a broad pipeline of product candidates that leverages our second platform, which we refer to as our Synthetic Platform, to enable repeat intravenous administration of viral immunotherapies in order to treat cancers that are less amenable to intratumoral injection due to safety and feasibility reasons, such as cancers of the lung.

Since inception, our operations have focused on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies and manufacturing. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through the sale and issuance of redeemable convertible preferred equity securities. From inception through June 30, 2020, we have raised an aggregate of $115.1 million of gross proceeds through the issuance of Series A redeemable convertible preferred stock, or Series A, Series A-1 redeemable convertible preferred stock, or Series A-1, and Series B redeemable convertible preferred stock, or Series B. In 2019, we conducted a Series B financing, with the funding to occur in two tranches. We closed the first tranche of the Series B financing in August 2019 and November 2019, raising $53.8 million of gross proceeds. In September 2020, we achieved the clinical development milestones that triggered the second and final tranche of the Series B financing, and as a result we received an additional $35.8 million of gross proceeds.

Since inception, we have incurred significant operating losses. Our net losses were $18.0 million and $30.7 million for the years ended December 31, 2018 and 2019, respectively, and $14.3 million and $17.2 million for the six months ended June 30, 2019 and 2020, respectively. As of June 30, 2020, we had an accumulated deficit of $96.3 million. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.

 

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In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a national emergency with respect to COVID-19. In response to the COVID-19 pandemic, a number of governmental orders and other public health guidance measures have been implemented across much of the United States, including in the locations of our office, clinical trial sites and third parties on whom we rely. We anticipate that our clinical development timelines could be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition and results of operations. Further, we have implemented a work-from-home policy allowing employees who can work from home to do so, while those needing to work in laboratory facilities work in shifts to reduce the number of people gathered together at one time. Business travel has been suspended, and online and teleconference technology is used to meet virtually rather than in person. We have taken measures to secure our research and development project activities, while work in laboratories has been organized to reduce risk of COVID-19 transmission. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact our business. For example, with our personnel working from home, some of our research activities that require our personnel to be in our laboratories could be delayed.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as, and when needed, could have a material adverse effect on our business, results of operations and financial condition.

Without giving effect to the second tranche of the Series B financing, or the anticipated net proceeds from this offering, based on our current operating plan, we believe we do not have sufficient cash and cash equivalents on hand to support current operations for at least one year from the date of issuance of the consolidated financial statements for the year ended December 31, 2019, which was July 29, 2020, and for at least one year from the date of issuance of the consolidated financial statements for the six months ended June 30, 2020, which was August 25, 2020, in each case appearing at the end of this prospectus. We have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern, and the report of our independent registered public accounting firm on our consolidated financial statements as of and for the year ended December 31, 2019 included an explanatory paragraph indicating that there was substantial doubt about our ability to continue as a going concern. See Note 1 to our annual and interim consolidated financial statements appearing at the end of this prospectus for additional information on our assessment.

As of June 30, 2020, we had cash and cash equivalents of $28.9 million. We received an additional $35.8 million in gross proceeds from the closing of the second and final tranche of our Series B financing in September 2020. We believe that our existing cash and cash equivalents, together with the anticipated net proceeds from this offering, will enable us to fund our operating expenses and capital expenditure requirements into 2023.

Components of Operating Results

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts, preclinical and clinical studies under our research programs, which include:

 

   

employee-related expenses, including salaries, benefits and stock-based compensation expense for our research and development personnel;

 

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costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on our behalf;

 

   

costs of manufacturing drug product and drug supply related to our current or future product candidates;

 

   

costs of conducting preclinical studies and clinical trials of our product candidates;

 

   

consulting and professional fees related to research and development activities, including equity-based compensation to non-employees;

 

   

costs of maintaining our laboratory, including purchasing laboratory supplies and non-capital equipment used in our preclinical studies;

 

   

costs related to compliance with clinical regulatory requirements;

 

   

facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies; and

 

   

fees for maintaining licenses and other amounts due under our third-party licensing agreements.

Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our preclinical and clinical studies or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.

We track external research and development costs on a program-by-program basis beginning, with respect to each program, upon our internal nomination of a candidate in that program for further preclinical and clinical development. External costs include fees paid to consultants, contractors and vendors, including contract manufacturing organizations, or CMOs, and clinical research organizations, or CROs, in connection with our preclinical, clinical and manufacturing activities and license milestone payments related to candidate development. We do not allocate employee costs, costs associated with our discovery efforts, costs incurred for laboratory supplies, and facilities, including depreciation, or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. Our lead product candidate, ONCR-177, was nominated for further development in October 2018.

The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if they are approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

 

   

the scope, rate of progress, and expenses of our ongoing research activities as well as any preclinical studies and clinical trials and other research and development activities;

 

   

establishing an appropriate safety profile;

 

   

successful enrollment in and completion of clinical trials;

 

   

whether our product candidates show safety and efficacy in our clinical trials;

 

   

receipt of marketing approvals from applicable regulatory authorities;

 

   

establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

   

obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

 

   

commercializing product candidates, if and when approved, whether alone or in collaboration with others; and

 

   

continued acceptable safety profile of the products following any regulatory approval.

A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily

 

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due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as we commence clinical trials and continue the development of our current and future product candidates. However, we do not believe that it is possible at this time to accurately project expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

General and Administrative Expenses

General and administrative expenses include salaries and other compensation-related costs, including stock-based compensation, for personnel in executive, finance and accounting, business development, operations and administrative roles. Other significant costs include professional service and consulting fees including legal fees relating to intellectual property and corporate matters, accounting fees, recruiting costs and costs for consultants who we utilize to supplement our personnel, insurance costs, travel costs, facility and office-related costs not included in research and development expenses and depreciation and amortization.

We anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities, including our future clinical programs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside service providers, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the Securities and Exchange Commission, or the SEC, and listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums, and investor relations costs. In addition, if we obtain regulatory approval for any of our product candidates and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.

Other Income (Expense)

Other income (expense) primarily includes changes in fair value of the Series A-1 and Series B tranche rights and interest income, net.

Included in the terms of the Series A-1 stock purchase agreement in July 2016 were tranche rights granted to the holders of the Series A-1. The tranche rights provided the holders with the right to purchase additional shares of Series A-1 and Series A-2 redeemable convertible preferred stock, or Series A-2, in two additional tranches under certain events. The tranche rights met the definition of a freestanding financial instrument as the tranche rights were legally detachable and separately exercisable from the Series A-1. The tranche rights were initially recorded at fair value as an asset or a liability on our consolidated balance sheet and were subsequently re-measured at fair value at the end of each reporting period and at settlement. The changes in the fair value were recognized as a component of other income (expense). Changes in the fair value of the tranche rights were recognized until the tranche obligations were settled in full in September 2018.

Included in the terms of the Series B stock purchase agreement in August 2019 were tranche rights granted to the holders of the Series B. The tranche rights provide the Series B holders with the right to purchase additional shares of Series B in an additional tranche under certain events. The tranche rights met the definition of a freestanding financial instrument as the tranche rights are legally detachable and separately exercisable from the Series B. The tranche rights were initially recorded at fair value as a liability on our consolidated balance sheet. The tranche rights are subsequently re-measured at fair value at the end of each reporting period and at settlement. Changes in the fair value are recognized as a component of other income (expense).

Interest income primarily consists of interest income from our cash and cash equivalents.

 

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Results of Operations

The following table summarizes our results of operations for the periods indicated.

 

 

 

    YEAR ENDED
DECEMBER 31,
    CHANGE     SIX MONTHS ENDED
JUNE 30,
    CHANGE  
    2018     2019     $     %     2019     2020     $     %  
   

(in thousands, except percentages)

 

Operating expenses:

               

Research and development

  $ 12,541     $ 24,047     $ 11,506       92   $ 11,962     $ 12,633     $ 671       6

General and administrative

    6,037       7,119       1,082       18       2,465       4,059       1,594       65  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    18,578       31,166       12,588       68       14,427       16,692       2,265       16  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (18,578     (31,166     (12,588     (68     (14,427     (16,692     (2,265     (16

Total other income (expense), net

    532       462       (70     (13     163       (509     (672     (412
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (18,046   $ (30,704   $ (12,658     (70 )%    $ (14,264   $ (17,201   $ (2,937     (21 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2020

Research and Development Expenses

The table below summarizes our research and development expenses by product candidate or development program and unallocated research and development expenses for each of the periods presented:

 

 

 

     SIX MONTHS ENDED
JUNE 30,
        
     2019      2020      CHANGE  
     (in thousands)         

Direct external expenses by program

  

ONCR-177

   $ 5,033      $ 4,258      $ (775

Platform development, early stage research and unallocated expenses:

        

Employee compensation and related

     2,795        4,039        1,244  

External research, development and consulting

     1,088        1,570        482  

Laboratory supplies

     1,469        1,348        (121

Facility-related

     668        685        17  

Other expenses

     909        733        (176
  

 

 

    

 

 

    

 

 

 

Total research and development

   $ 11,962      $ 12,633      $ 671  
  

 

 

    

 

 

    

 

 

 

 

 

Research and development expenses increased from $12.0 million for the six months ended June 30, 2019 to $12.6 million for the six months ended June 30, 2020. The increase of $0.7 million, or 6%, was primarily the result of:

 

   

a $0.8 million decrease in direct external expenses for our product candidate ONCR-177, which was attributable to a combination of decreased production costs due to the timing of production activity in 2019 compared to 2020, decreased consultant expenses as we increased headcount in 2020 and reduced consultant activity, increased clinical trial costs as we began our Phase 1 clinical trial in 2020 and increased license costs which related to milestone payment obligations associated with the first patient being dosed in our Phase 1 clinical trial of ONCR-177;

 

   

a $1.2 million increase in employee compensation costs, including salaries, bonus and employee benefits, due to increased headcount in 2020 as compared to 2019. Employee compensation costs also increased due to higher stock compensation expense from increased stock option grants to existing and new employees at higher share prices in 2020 compared to 2019;

 

   

a $0.5 million increase in external research, development and consulting costs that was primarily attributable to costs related to the increased development activity of potential candidates from our synthetic platform;

 

   

a $0.1 million decrease in laboratory supplies costs resulting from reduced onsite laboratory activity due to the COVID-19 pandemic; and

 

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a $0.2 million decrease in other expenses primarily related to reduced travel and office related expenses due to the COVID-19 pandemic and lower license costs in 2020 compared to 2019.

 

General and Administrative Expenses

 

 

 

     SIX MONTHS
ENDED JUNE 30,
        
     2019      2020      CHANGE  
     (in thousands)         

Employee compensation and related

   $ 873      $ 1,678      $ 805  

Professional service and consultant fees

     947        1,670        723  

Facility-related

     218        245        27  

Other expenses

     427        466        39  
  

 

 

    

 

 

    

 

 

 

Total general and administrative expenses

   $ 2,465      $ 4,059      $ 1,594  
  

 

 

    

 

 

    

 

 

 

 

 

General and administrative expenses increased from $2.5 million for the six months ended June 30, 2019 to $4.1 million for the six months ended June 30, 2020. The increase of $1.6 million, or 65%, was primarily the result of:

 

   

a $0.8 million increase in employee compensation costs, primarily related to increased headcount associated with our growth as well as higher stock compensation expenses in 2020 compared to 2019, due to an increased number of stock options granted at higher share prices to existing and new employees; and

 

   

a $0.7 million increase in professional service and consultant fees primarily related to increased legal fees associated with corporate matters and increased intellectual property activity as we incurred fees to broaden our intellectual property portfolio.

Other Income (Expense)

Other income (expense) for the six months ended June 30, 2020 decreased by $0.7 million compared to the six months ended June 30, 2019 due to a loss of $0.6 million in 2020 related to an increase in the fair value of the Series B tranche rights liability and a decrease in interest income from 2019 to 2020 primarily due to lower returns on invested cash.

Year Ended December 31, 2018 Compared to the Year Ended December 31, 2019

Research and Development Expenses

The table below summarizes our research and development expenses by product candidate or development program and unallocated research and development expenses for each of the periods presented:

 

 

 

     YEAR ENDED
DECEMBER 31,
        
     2018      2019      CHANGE  
     (in thousands)  

Direct external expenses by program:

  

ONCR-177

   $ 761      $ 9,371      $ 8,610  

Platform development, early-stage research and unallocated expenses:

        

Employee compensation and related

     4,183        5,991        1,808  

External research, development and consulting

     2,920        2,680        (240

Laboratory supplies

     2,030        2,850        820  

Facility-related

     1,261        1,322        61  

Other expenses

     1,386        1,833        447  
  

 

 

    

 

 

    

 

 

 

Total research and development

   $ 12,541      $ 24,047      $ 11,506  
  

 

 

    

 

 

    

 

 

 

 

 

 

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Research and development expenses increased from $12.5 million for the year ended December 31, 2018 to $24.0 million for the year ended December 31, 2019. The increase of $11.5 million, or 92%, was primarily the result of:

 

   

a $8.6 million increase in direct external expenses, as our lead product candidate, ONCR-177, was nominated for further development in October 2018 and we significantly increased our costs and efforts related to this program in 2019. Our costs and efforts in 2019 included IND-enabling activities for ONCR-177, including preclinical studies and external support, and significantly increased manufacturing efforts to produce drug supply and product for the IND filing and in expectation of the planned clinical trial;

 

   

a $1.8 million increase in employee compensation costs, including salaries, bonus and employee benefits, due to increased headcount in 2019 as compared to 2018. Employee compensation costs also increased due to higher stock compensation expense from increased stock option grants to existing and new employees at higher share prices in 2019 compared to 2018;

 

   

a $0.2 million decrease in external research, development and consulting that was primarily attributable to costs incurred for ONCR-177. For 2018, costs included those incurred for ONCR-177 prior to its nomination. Upon candidate nomination in late 2018, we began tracking direct external expenses of ONCR-177, resulting in the decrease from 2018 to 2019. This decrease was partially offset by increased activities related to our synthetic platform;

 

   

a $0.8 million increase in laboratory supply costs resulting from increased headcount and activity related to drug discovery; and

 

   

a $0.4 million increase in other expenses primarily related to new licenses of technology in 2019.

General and Administrative Expenses

 

 

 

     YEAR ENDED
DECEMBER 31,
        
     2018      2019      CHANGE  
     (in thousands)  

Employee compensation and related

   $ 2,296      $ 2,084      $ (212

Professional service and consultant fees

     2,566        3,508        942  

Facility-related

     401        430        29  

Other expenses

     774        1,097        323  
  

 

 

    

 

 

    

 

 

 

Total general and administrative expenses

   $ 6,037      $ 7,119      $ 1,082  
  

 

 

    

 

 

    

 

 

 

 

 

General and administrative expenses increased from $6.0 million for the year ended December 31, 2018 to $7.1 million for the year ended December 31, 2019. The increase of $1.1 million, or 18%, was primarily the result of:

 

   

a $0.9 million increase in professional service and consultant fees primarily related to increased legal and accounting costs of $1.5 million related to this offering that were expensed due to the timing of the offering, increased recruiting costs and increased consultant costs incurred to support our growth. These increases were partially offset by decreased legal costs related to a strategic matter that we considered in 2018 and decreased legal fees associated with intellectual property, which were higher in 2018 as we incurred fees to broaden our intellectual property portfolio;

 

   

a $0.3 million increase in other expenses in support of our growth, including increased employee support costs, primarily office and technology-related expenses; and

 

   

a $0.2 million decrease in employee compensation costs, primarily related to severance and one-time bonus payments in 2018 that did not recur in 2019, offset in part by higher stock compensation expenses in 2019 compared to 2018, due to an increased number of stock options granted at higher prices per share.

Other Income (Expense)

Other income (expense) decreased by $0.1 million from 2018 to 2019 due to a gain of $0.4 million in 2018 related to the change in fair value of the Series A-1 tranche rights that were settled in September 2018 and did not recur in

 

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2019, offset by an increase of $0.3 million in interest income due to improved investment returns and more cash available for investment in 2019.

Liquidity and Capital Resources

Sources of Liquidity

From inception through June 30, 2020, we had funded our operations with gross proceeds of $115.1 million from sales of our Series A, Series A-1 and Series B. As of June 30, 2020, our cash and cash equivalents totaled $28.9 million. In 2019, we conducted a Series B financing with the funding to occur in two tranches. We closed the first tranche of the Series B financing in August 2019 and November 2019, raising a total of $53.8 million of gross proceeds. The second and final tranche of the Series B financing provided for an additional $35.8 million of gross proceeds, which we received in September 2020 upon the achievement of certain clinical development milestones for our primary product candidate, ONCR-177.

Cash Flows

 

 

 

     YEAR ENDED
DECEMBER 31,
    SIX MONTHS ENDED
JUNE 30,
 
     2018     2019     2019     2020  
     (in thousands)     (in thousands)  

Net cash (used in) provided by:

        

Operating activities

   $ (17,163   $ (27,204   $ (10,998   $ (15,623

Investing activities

     (291     (977     (118     (747

Financing activities

     24,502       53,388       28       5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 7,048     $ 25,207     $ (11,088   $ (16,365
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

Operating Activities

Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2020

Net cash used in operating activities for the six months ended June 30, 2019 was $11.0 million and was primarily related to our net loss for the period of $14.3 million, partially offset by non-cash charges consisting of depreciation and amortization of $0.5 million and stock-based compensation expense of $0.2 million. Cash used in operations was decreased by a $2.5 million cash inflow from changes in operating assets and liabilities. This inflow was driven by an increase in accounts payable ($2.2 million) and an increase in accrued expenses ($0.7 million). These cash inflows were offset by cash outflows related to a decrease in deferred rent ($0.2 million) and an increase in prepaid expenses and other current assets ($0.1 million). The increases in accounts payable and accrued expenses were both due to overall expense growth and the timing of invoices. The increase in prepaid expenses and other current assets was a result of increased payments in 2019 in advance of services being provided by various vendors and the decrease in deferred rent was related to the timing of payments in comparison to the rent expense, which is being recorded on a straight-line basis.

Net cash used in operating activities for the six months ended June 30, 2020 was $15.6 million and was primarily related to our net loss for the period of $17.2 million, partially offset by non-cash charges consisting of depreciation and amortization of $0.6 million, stock-based compensation expense of $0.6 million and a $0.6 million loss related to the increase in the fair value of the Series B tranche rights liability. Cash used in operations was increased by a $0.3 million cash outflow from changes in operating assets and liabilities. This cash outflow was driven by an increase in prepaid expenses and other current assets ($1.1 million) and a decrease in deferred rent ($0.2 million) offset by an increase in accounts payable ($1.0 million). The increase in prepaid expenses and other current assets was a result of increased advance payments to vendors as services were utilized during the period. The decrease in deferred rent was related to the timing of payments in comparison to the rent expense, which is being recorded on a straight-line basis. The increase in accounts payable was due to our overall expense growth and the timing of invoicing.

 

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Year Ended December 31, 2018 Compared to the Year Ended December 31, 2019

Net cash used in operating activities for the year ended December 31, 2018 was $17.2 million and was primarily related to our net loss for the period of $18.0 million as well as an increase in the fair value of the Series A-1 tranche rights of $0.4 million, partially offset by non-cash charges consisting of depreciation and amortization of $1.0 million and stock-based compensation expense of $0.3 million. Cash used in operations was increased by a $0.04 million cash outflow from changes in operating assets and liabilities. This outflow was driven by an increase in prepaid expenses and other current assets ($0.3 million), a decrease in accrued expenses ($0.2 million) and a decrease in deferred rent ($0.4 million). These cash outflows were offset by cash inflows related to an increase in accounts payable ($0.8 million). The increase in prepaid expenses and other current assets was a result of increased payments in 2018 in advance of services being provided by various vendors. The decrease in accrued expenses was due to the timing of invoicing between the periods and the decrease in deferred rent was related to the timing of payments in comparison to the rent expense, which is being recorded on a straight-line basis. The increase in accounts payable was a result of increased activity in 2018 compared to 2017 as well as the timing of invoicing and payments.

Net cash used in operating activities for the year ended December 31, 2019 was $27.2 million and was primarily related to our net loss for the period of $30.7 million, partially offset by non-cash charges consisting of depreciation and amortization of $1.1 million and stock-based compensation expenses of $0.7 million. Cash used in operations was offset by a $1.7 million cash inflow from changes in operating assets and liabilities and was driven by a decrease in prepaid expenses and other current assets ($0.2 million) and an increase in accrued expenses ($1.9 million), partially offset by a decrease in deferred rent ($0.4 million). The decrease in prepaid expenses and other current assets was a result of decreased payments in 2019, compared to 2018, in advance of services being provided by various vendors. The increase in accrued expenses was due to overall expense growth and the timing of invoicing as well as an increase in accrued compensation related to increased headcount. The decrease in deferred rent was related to the timing of payments in comparison to the rent expense, which is being recorded on a straight-line basis.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2019 and 2020 was $0.1 million and $0.7 million, respectively, and consisted of the purchase of property and equipment.

Net cash used in investing activities for the years ended December 31, 2018 and 2019 was $0.3 million and $1.0 million, respectively, and consisted of the purchase of property and equipment.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2019 and 2020 consisted exclusively of proceeds from the exercise of stock options.

Net cash provided by financing activities for the years ended December 31, 2018 and 2019 was $24.5 million and $53.4 million, respectively, and primarily consisted of proceeds from the issuance of Series A-1 in 2018 and proceeds from the issuance of Series B in 2019.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, initiate clinical trials, and seek marketing approval for our current and any of our future product candidates. In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. Furthermore, upon the completion of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

Without giving effect to the second tranche of the Series B financing, or the anticipated net proceeds from this offering, based on our current operating plan, we believe we do not have sufficient cash and cash equivalents on

 

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hand to support current operations for at least one year from the date of issuance of the consolidated financial statements for the year ended December 31, 2019, which was July 29, 2020, and for at least one year from the date of issuance of the consolidated financial statements for the six months ended June 30, 2020, which was August 25, 2020, in each case appearing at the end of this prospectus. To finance our operations beyond that point we will need to raise additional capital, which cannot be assured. We have concluded that this circumstance raises substantial doubt about our ability to continue as a going concern for at least one year from the dates that our consolidated financial statements for the year ended December 31, 2019 and the six months ended June 30, 2020 were issued, which were July 29, 2020 and August 25, 2020, respectively. See Note 1 to our annual and interim consolidated financial statements appearing at the end of this prospectus for additional information on our assessment.

We believe that our existing cash and cash equivalents, including the $35.8 million in gross proceeds that we received from the second and final tranche of our Series B financing, together with the anticipated net proceeds from this offering, will enable us to fund our operating expenses and capital expenditure requirements into 2023. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on a number of factors, including:

 

   

the costs of conducting preclinical studies and clinical trials;

 

   

the costs of manufacturing;

 

   

the scope, progress, results and costs of discovery, preclinical development, laboratory testing, and clinical trials for product candidates we may develop, if any;

 

   

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

 

   

our ability to establish and maintain collaborations on favorable terms, if at all;

 

   

the achievement of milestones or occurrence of other developments that trigger payments under any license or collaboration agreements we might have at such time;

 

   

the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

 

   

the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

 

   

the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;

 

   

our headcount growth and associated costs as we expand our business operations and research and development activities; and

 

   

the costs of operating as a public company.

The net proceeds of this offering, together with our existing cash and cash equivalents, will not be sufficient to complete development of ONCR-177 or any other product candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.

If we raise funds through potential collaborations, strategic alliances 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 to 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.

 

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Critical Accounting Policies and Significant Judgments and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our consolidated financial statements prospectively from the date of the change in estimate.

We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 2 to our audited consolidated financial statements appearing elsewhere in this prospectus, we believe the following are the critical accounting policies used in the preparation of our consolidated financial statements that require significant estimates and judgments.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.

The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. 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 research and development 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 our estimate, we adjust the accrual or prepaid balance accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Although we do not expect our estimates to be materially different from amounts incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.

Stock-Based Compensation

We measure stock options and other stock-based awards granted to employees and directors based on the fair value of the award on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. We recognize forfeitures as they occur. The reversal of compensation cost previously recognized for an award that is forfeited because of a failure to satisfy a service or performance condition is recognized in the period of the forfeiture. Generally, we issue stock options and

 

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restricted stock awards with only service-based vesting conditions and record the expense for these awards using the straight-line method over the requisite service period.

Prior to the adoption of Accounting Standard Update No. 2018-07, Compensation—Stock Compensation (ASU 2018-07) on January 1, 2019, we measured stock-based awards granted to non-employee consultants based on the fair value of the award on the date on which the related service was complete. Compensation expense was recognized over the period during which services were rendered by such consultants and non-employees until completed. At the end of each reporting period prior to completion of the service, the fair value of these awards was remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model. Subsequent to the adoption of ASU 2018-07, we recognize stock compensation expense for awards granted to non-employee consultants based on the grant date fair value of the award, consistent with our practice for employee awards. There was no material impact to our consolidated financial statements as a result of our adoption of ASU 2018-07.

We classify equity-based compensation expense in our consolidated statements of operations in the same manner in which the award recipient’s salary and related costs are classified or in which the award recipient’s service payments are classified. In future periods, we expect equity-based compensation expense to increase, due in part to our existing unrecognized stock-based compensation expense and as we grant additional stock-based awards to continue to attract and retain employees.

Determination of the Fair Value of Equity-Based Awards

We estimate the fair value of stock option awards granted using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and subjective assumptions we make, including expected stock price volatility, the expected term of the award, the risk-free interest rate, and expected dividends. Due to the lack of a public market for the trading of our common stock and a lack of company-specific historical and implied volatility data, we base the estimate of expected stock price volatility on the historical volatility of a representative group of publicly traded companies for which historical information is available. The historical volatility is generally calculated based on a period of time commensurate with the expected term assumption. We use the simplified method to calculate the expected term for options granted to employees and directors. We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. For options granted to non-employees, we utilize the contractual term. The risk-free interest rate is based on a U.S. treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero, as we have never paid dividends and do not have current plans to pay any dividends on our common stock. We determine the fair value of restricted common stock awards based on the fair value of our common stock on the date of grant.

As there has been no public market for our common stock, the estimated fair value of our common stock has been approved by our board of directors, with input from management, as of the date of each award grant, considering our most recently available independent third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors deemed relevant that may have changed from the date of the most recent valuation through the date of the grant.

We obtained third-party independent valuations of our common stock in September 2018, August 2019, September 2019, November 2019 and April 2020, which valuations were considered by our board of directors in determining the fair value of our common stock. These 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. In the valuations, the value of our common stock was estimated using either an option pricing method, or OPM, or a hybrid method of the probability-weighted expected return method and the OPM, both of which used market approaches to estimate our enterprise value. The OPM treats common securities and preferred securities 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 exceed the value of the preferred security liquidation preference at the time of the liquidity event, such as a strategic sale or a merger. The hybrid method estimates the probability-weighted value across multiple scenarios but uses the OPM to estimate the allocation of value within at least one of the scenarios. In addition to the OPM, the hybrid

 

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method considers an initial public offering, or IPO, scenario in which the shares of redeemable convertible preferred stock are assumed to convert to common stock. The future value of the common stock in the IPO scenario is discounted back to the valuation date using an appropriate risk-adjusted discount rate. In the hybrid method, the present value indicated for each scenario is probability weighted to arrive at an indication of value for the common stock. The values of our common stock determined by these independent third-party valuations were $1.81 per share in September 2018, $3.87 per share in August 2019, $5.32 per share in September 2019, $6.77 per share in November 2019, $7.01 per share in April 2020 and $11.72 in August 2020.

The additional objective and subjective factors considered by our board of directors in determining the fair value of our common stock included the following, and if the grant date as of which fair value was being determined was a date later than the date of the most recent independent third-party valuation of our common stock, our board of directors considered changes in such factors from the date of the most recent such valuation through the grant date:

 

   

the prices of our preferred stock sold to outside investors in arm’s length transactions, if any, and the rights, preferences and privileges of our preferred stock as compared to those of our common stock, including the liquidation preferences of our preferred stock;

 

   

the progress of our research and development efforts, including the status of preclinical studies and planned clinical trials for our product candidates;

 

   

the lack of liquidity of our equity as a private company;

 

   

our stage of development and business strategy and the material risks related to our business and industry;

 

   

the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

 

   

any external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;

 

   

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

 

   

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

 

   

with respect to the most recent grants made on September 22, 2020, the estimated price range for this offering as set forth on the cover page of this prospectus.

The assumptions underlying our board of directors’ valuations represented our board’s best estimates, which involved inherent uncertainties and the application of our board’s judgment. As a result, if factors or expected outcomes had changed or our board of directors had used significantly different assumptions or estimates, our equity-based compensation expense could have been materially different. Following the completion of this offering, our board of directors will determine the fair value of our common stock based on the quoted market prices of our common stock.

 

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Between January 1, 2019 and the date of this prospectus, the awards we granted were stock options. The following table sets forth, by grant date, the number of shares of common stock subject to options granted, the per share exercise price and the fair value per share of the common stock underlying the options on the date of grant.

 

 

 

DATE OF ISSUANCE

   NUMBER OF
SHARES
SUBJECT TO

GRANTS
     PER SHARE
EXERCISE PRICE
     FAIR VALUE PER
SHARE OF
COMMON STOCK

ON GRANT DATE
 

February 28, 2019

     140,176      $ 1.81      $ 1.81  

March 15, 2019

     60,296      $ 1.81      $ 1.81  

August 15, 2019

     12,987      $ 3.87      $ 3.87  

September 7, 2019

     9,927      $ 3.87      $ 3.87  

September 17, 2019

     817,437      $ 5.32      $ 5.32  

December 12, 2019

     58,323      $ 6.77      $ 6.77  

December 19, 2019

     9,927      $ 6.77      $ 6.77  

February 27, 2020

     57,945      $ 6.77      $ 6.77  

March 31, 2020

     13,236      $ 6.77      $ 6.77  

June 10, 2020

     63,288      $ 7.01      $ 7.01  

June 19, 2020

     11,911      $ 7.01      $ 7.01  

July 22, 2020

     21,095      $ 7.01      $ 7.01  

September 9, 2020

     4,962      $ 11.72      $ 11.72  

September 22, 2020

     9,714      $ 15.00      $ 15.00  

 

 

Stock Option Awards in Connection with This Offering

In September 2020, our board of directors approved, subject to the pricing of this offering, grants of stock options to purchase an aggregate of 363,150 shares of common stock, at an exercise price per share equal to the initial public offering price for this offering, to certain of our employees.

Determination of Estimated Offering Price

The midpoint of the price range set forth on the cover page of this prospectus is $15.00 per share. In comparison, our estimate of the fair value of our common stock was $11.72 per share as of the September 9, 2020 option grants. We note that, as is typical in initial public offerings, the price range was not derived using a formal determination of fair value, but was determined based upon discussions between us and the underwriters. Among the factors that were considered in setting this range were our prospects and the history of and prospects for our industry, the general condition of the securities markets and the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. We believe that the difference between the fair value of our common stock as of September 9, 2020 and the midpoint of the price range for this offering is the result of these factors, as well as the fact that the initial public offering price range necessarily assumes that the initial public offering has occurred, a public market for our common stock has been created and that our convertible preferred stock has converted into common stock in connection with this offering. The price range therefore excludes any probability that we might not complete this offering and any consideration of the liquidation preferences and other rights and preferences of our preferred stock, which were factored into the September 9, 2020 valuation. For the option grant made on September 22, 2020, we used the midpoint of the estimated price range for this offering as set forth on the cover page of this prospectus in estimating the fair value of our common stock on such date.

Series A-1 and Series B Preferred Stock Tranche Rights

The tranche rights included in the terms of the Series A-1 met the definition of a freestanding financial instrument, as the tranche rights were legally detachable and separately exercisable from the Series A-1. The tranche rights were initially recorded at fair value as a liability on our consolidated balance sheet and were subsequently re-measured at fair value each reporting period and at settlement. The changes in the fair value were recognized as a component of other income (expense). Changes in the fair value of the tranche rights were recognized until the tranche obligations were settled in full in September 2018.

The tranche rights included in the terms of the Series B also met the definition of a freestanding financial instrument, as the tranche rights were legally detachable and separately exercisable from the Series B. The tranche

 

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rights were initially recorded at fair value as a liability on our consolidated balance sheet and are subsequently re-measured at fair value each reporting period and at settlement with changes in the fair value recognized as a component of other income (expense). Upon closing of a tranche, we evaluate whether there are any potential beneficial conversion features present.

While outstanding, the estimated fair value of the tranche rights are determined using a probability-weighted present value model that considers the probability of triggering the tranche rights through achievement of the product development milestones specified in the stock purchase agreement. We convert the future values to present value using a discount rate that we believe to be appropriate for probability-adjusted cash flows. The estimates are based, in part, on subjective assumptions. Changes to these assumptions could have had a significant impact on the fair value of the tranche rights.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

Contractual Obligations

The following table summarizes our significant contractual obligations by period presented according to the payment due date at December 31, 2019 (in thousands):

 

 

 

AS OF DECEMBER 31, 2019

   TOTAL      LESS THAN
1 YEAR
     1 TO 3
YEARS
     3 TO 5
YEARS
     MORE THAN
5 YEARS
 

Operating lease obligations (1)(2)

   $ 6,235      $ 1,479      $ 3,092      $ 1,664         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,235      $ 1,479      $ 3,092      $ 1,664         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

(1)    Represents future minimum repayments under our non-cancelable operating leases for office and laboratory space.

 

(2)    There were no material changes to our contractual obligations in the six months ended June 30, 2020.

We enter into agreements in the normal course of business with vendors for preclinical and clinical studies, preclinical and clinical supply and manufacturing services, professional consultants for expert advice, and other vendors for other services for operating purposes. We have not included these payments in the table of contractual obligations above since the contracts do not contain any minimum purchase commitments and are cancelable at any time by us, generally upon 30 days prior written notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.

In addition, we have entered into license and royalty agreements for intellectual property with certain parties. Such arrangements require ongoing payments, including payments upon achieving certain development, regulatory and commercial milestones, receipt of sublicense income, as well as royalties on commercial sales. Payments under these arrangements are expensed as incurred and are recorded as research and development expenses. We paid amounts under such agreements at the time of execution and pay annual fees. Upon the dosing of the first patient in our Phase 1 clinical trial for ONCR-177, certain payments came due. We have not paid any royalties under these agreements to date. We have not included the annual license fee payments in the table of contractual obligations above because the license agreements are cancelable by us and therefore, we believe that our non-cancelable obligations under these agreements are not material. We have not included potential royalties or milestone obligations in the table above because they are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty. For further information regarding these agreements and amounts that could become payable in the future under these agreements, please see the section of this prospectus titled “Business—License Agreements.”

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our cash equivalents, in the form of a money market fund, are primarily invested in U.S. Treasury obligations. However, because of the short-term nature of the investments in our portfolio, an immediate one percentage point change in

 

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market interest rates would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.

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

Inflation generally affects us by increasing our cost of labor. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 2018 or 2019 or the six months ended June 30, 2020.

Emerging Growth Company and Smaller Reporting Company Status

We are an ‘‘emerging growth company,’’ or EGC, under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of the delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as private entities.

As an EGC, we may also take advantage of certain exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC:

 

   

we are presenting only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;

 

   

we will avail ourselves of the exemption from providing an auditor’s attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

   

we will avail ourselves of the exemption from complying with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis;

 

   

we are providing reduced disclosure about our executive compensation arrangements; and

 

   

we will not require nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments.

We will remain an EGC until the earliest of (i) December 31, 2025, (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (iii) the date on which we have issued more than $1 billion in non-convertible debt during the previous rolling three-year period, or (iv) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

We are also a ‘‘smaller reporting company,’’ meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.

If we are a smaller reporting company at the time we cease to be an EGC, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to EGCs, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recent Accounting Pronouncements

Other than as disclosed in Note 2 to our audited and unaudited consolidated financial statements appearing elsewhere in this prospectus, we do not expect that any recently issued accounting standards will have a material impact on our financial statements or will otherwise apply to our operations.

 

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BUSINESS

Overview

We are a clinical stage biopharmaceutical company focused on developing next-generation viral immunotherapies to transform outcomes for cancer patients. Using our two distinct proprietary platforms, we are developing a pipeline of intratumorally and intravenously administered product candidates designed to selectively attack and kill tumor cells and stimulate multiple arms of the immune system against tumors. Our lead product candidate, ONCR-177, is an intratumorally administered viral immunotherapy based on our oncolytic HSV-1 platform, referred to as our oHSV Platform, which leverages the Herpes Simplex Virus type 1, or HSV-1, a virus which has been clinically proven to effectively treat certain cancers. Utilizing this proprietary platform, we are engineering our product candidates, such as ONCR-177, to carry greater numbers of immunostimulatory transgenes than viral immunotherapies that are either currently approved or in clinical development. These transgenes are designed to drive strong systemic anti-tumor immunity to elicit tumor responses at injected and distant non-injected tumor sites, or abscopal activity. In addition, viruses from our oHSV Platform maintain full viral replication competency in tumors and are designed to be selectively attenuated in healthy tissues. We believe this unique combination of features allows us to break the safety versus potency trade-off that has generally limited the viral immunotherapy field to date. We are also developing a broad pipeline of product candidates that leverages our second platform, which we refer to as our Synthetic Platform. This platform aims to enable repeat intravenous administration of viral immunotherapies in order to treat cancers that are less amenable to intratumoral injection due to safety and feasibility reasons, such as cancers of the lung.

We have initiated and begun dosing patients in a Phase 1 clinical trial of ONCR-177 in patients with several different types of solid tumors, including breast cancers and cutaneous tumors. We expect to report preliminary data from this trial in multiple data readouts beginning in the second half of 2021 through the second half of 2022. We also have additional preclinical stage oHSV programs addressing both intratumoral and intravenous solutions to other unmet medical needs, including a program designed to target brain cancer through intratumoral injection, which we refer to as ONCR-GBM. We expect to nominate a clinical candidate from this program in the second half of 2021.

Viral immunotherapies cause an immunogenic cell death by way of viral oncolysis, which has the added benefit of exposing all the tumor’s neoantigens to the immune system. These therapies can also be engineered to express multiple transgenes to further stimulate robust and durable patient-specific anti-tumor immune responses. We designed ONCR-177 to overcome the limitations of existing viral immunotherapies by enhancing abscopal activity and potency. In addition to its ability to cause immunogenic cell death, ONCR-177 is armed with five immunostimulatory transgenes: IL-12, CCL4, FLT3LG, a PD-1 antagonist nanobody and a CTLA-4 antagonist monoclonal antibody (which has the same amino acid sequence as ipilimumab). In multiple preclinical models of cancer, immune cells activated by ONCR-177 and its encoded payloads drive anti-tumor responses in both injected tumors and non-injected tumors, or abscopal activity. We also designed ONCR-177 to replicate and express transgenes only in tumor cells while disabling its effects on healthy tissues. In multiple preclinical cancer models we observed that these anti-tumor activities of ONCR-177 are achieved without either the systemic release of cytokines that can be associated with toxicity or significant presence of the virus in non-injected tumors or in the circulation, in addition to favorable tolerability when administered via intravenous and intratumoral injection in a validated murine model of HSV-1 infection.

We intend to develop ONCR-177 for multiple indications. Our ongoing Phase 1 dose escalation clinical trial of ONCR-177 is currently enrolling patients with several types of solid tumors, including breast cancers, such as triple negative and hormone receptor-positive breast cancers; squamous cell carcinomas of head and neck, or SCCHN; and cutaneous tumors, including melanoma and non-melanoma skin cancers. We also plan to enroll patients with tumors that have spread to the liver, such as metastases from microsatellite stable colorectal carcinomas, or MSS CRC. We intend to investigate ONCR-177 in our Phase 1 clinical trial both as monotherapy and in combination with the immune checkpoint inhibitor pembrolizumab, which is marketed by Merck under the brand name KEYTRUDA. In July 2020, we entered into a clinical trial collaboration and supply agreement with Merck under which we are

 

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conducting the combination arm of the trial in partnership with Merck and Merck is supplying pembrolizumab for the trial with no financial obligation to us.

Our initial clinical development of ONCR-177 is focusing on patients with tumors with low levels of infiltrated immune cells, which are referred to as cold tumors, and who would not be expected to respond to current immunotherapies, as well as patients with tumors infiltrated with high levels of immune cells, or hot tumors, who have not responded to, or progressed after treatment with, immune checkpoint inhibitors. Once we determine a recommended Phase 2 dose, or RP2D, for ONCR-177, we intend to continue its clinical development through focused expansion cohorts. The expansion cohorts are intended to enable us to obtain further safety, biomarker and clinical activity data that will guide our future clinical development. Given its anticipated safety profile and ability to stimulate multiple arms of the immune system to attack cancer systemically, we also believe that ONCR-177 has potential in pre-surgical, or neoadjuvant, settings. We intend to enroll additional cohorts of patients with early-stage breast cancer once the RP2D for ONCR-177 in the Phase 1 clinical trial has been determined.

We are also pioneering viral immunotherapy programs for repeat intravenous administration. This platform is designed to deliver synthetic viral genomes protected within a lipid nanoparticle, or LNP. We believe this approach will avoid the rapid immune clearance from circulation caused by neutralizing antibodies otherwise observed to date with intravenously-administered oncolytic viruses and thought to limit their effectiveness in the clinic. Once inside the tumor, the synthetic viral genome from our synthetic viruses is first amplified and then instructs tumor cells to synthesize actual infectious virions, which can cause tumor lysis before infecting nearby tumor cells while stimulating immune cell recruitment and activity.

Using our Synthetic Platform, we have established preclinical proof of concept for two synthetic viral immunotherapies, based on coxsackievirus A21, or CVA21, and Seneca Valley Virus, or SVV. These viruses have been studied extensively by others in clinical trials in which they have been administered intravenously and shown to be well tolerated. However, patients in these trials developed neutralizing antibodies leading to rapid clearance of the virus from circulation. Our lead Synthetic Platform product candidate, based on CVA21, is intended to be administered intravenously for the treatment of non-small cell lung cancer, or NSCLC, among other potential indications, including melanoma, bladder cancer and other solid tumors. We are also developing a second synthetic program, which is based on SVV, that is intended to be administered intravenously for the treatment of small cell lung cancer, or SCLC, treatment-emergent small cell neuroendocrine prostate cancer, or t-SCNC, and other neuroendocrine tumors. These synthetic viral immunotherapy programs, referred to as Synthetic CVA21 and Synthetic SVV, respectively, are currently in preclinical development. We intend to nominate clinical candidates in our Synthetic CVA21 and Synthetic SVV programs for clinical development in the first half of 2021.

We believe the therapies that we are developing will bring significant benefit to many patients who are currently underserved by approved immuno-oncology therapies, including other viral immunotherapies and immune checkpoint inhibitors.

Our pipeline

The status of our current product candidates is shown in the table below.

 

 

LOGO

 

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Our founders, leadership team and key investors

Our company was co-founded by a team including MPM Capital executive partner Mitchell Finer, Ph.D., who has over three decades of experience in cancer immunotherapy, cell and gene therapy and regenerative medicine. Dr. Finer previously served as our chief executive officer and chief scientific officer and currently serves as our Executive Chairman. Our oHSV portfolio is based upon the work of renowned scientist Professor Joseph Glorioso III, Ph.D., who is chairman of our scientific advisory board. Professor Glorioso has conducted over four decades of research related to the basic biology and genetics of herpes simplex virus and is a pioneer in the design and application of HSV-1 gene vectors.

We have assembled a seasoned leadership team with extensive experience in developing and manufacturing oncology therapies, including advancing product candidates from preclinical research through clinical development and commercialization. Our President and Chief Executive Officer, Theodore (Ted) Ashburn, M.D., Ph.D., was previously Head of Oncology Development at Moderna Therapeutics, Inc. and Global Head of Leukine® (rhu GM-CSF) and Elitek®/Fasturtec® (rasburicase) within Sanofi Oncology at Sanofi S.A., and also held multiple business development roles at Genzyme Corporation. Christophe Quéva, Ph.D., our Chief Scientific Officer and Senior Vice President, Research, previously served as chief scientific officer at iTeos Therapeutics SA. Before iTeos, he held successive senior positions at AstraZeneca, plc, Amgen, Inc. and Gilead Sciences, Inc. where he led or supported multiple drug discovery programs for oncology and inflammatory diseases, from target selection to commercial approval for small molecules and biologics. John Goldberg, M.D., our Senior Vice President, Clinical Development, is a pediatric oncologist who trained at the Dana Farber Cancer Institute with clinical development experience at both H3 Biomedicine Inc. and Agenus, Inc.

We are backed by a group of leading institutional life science investors, including affiliates of Arkin Bio-Ventures, Astellas Venture Management, Bristol-Myers Squibb, Cathay Fortune Capital, Cowen Healthcare Investments, Deerfield Management, Excelyrate Capital, Fosun Industrial, IMM Investment, MPM Capital, Perceptive Advisors, QUAD Investment Management, Shinhan, Sphera Funds, Surveyor Capital, SV Investment Corp., UBS Oncology Impact Fund and UTC Investments.

Recent developments

In September 2020, we closed on the second and final tranche of our Series B preferred stock financing, which was triggered by our achievement of specified clinical development milestones for ONCR-177. One of those milestones was that the three patients in the first cohort and the first patient in the second cohort of our Phase 1 trial experienced no dose limiting toxicities within the first 28 days following their initial doses of ONCR-177. Upon the closing of the second tranche of the Series B financing, we received gross proceeds of $35.8 million.

Our strategy

To achieve our objective of transforming clinical outcomes for cancer patients through the development of viral immunotherapies, we intend to:

 

   

Advance ONCR-177 through clinical development both as monotherapy and in combination with pembrolizumab. We are currently evaluating as monotherapy and eventually, we plan to evaluate, in combination with pembrolizumab, the safety, tolerability, immune stimulation, and preliminary efficacy of ONCR-177 in both cold and hot tumors in a Phase 1 clinical trial (NCT04348916). We expect to report preliminary data from this trial in multiple data readouts beginning in the second half of 2021 through the second half of 2022. We expect these readouts to include preliminary dose escalation and expansion data for ONCR-177 as monotherapy and in combination with pembrolizumab.

 

   

Advance our synthetic viral immunotherapy product candidates for repeat intravenous administration both as monotherapies and in combination with immune checkpoint inhibitors. We plan to conduct activities in the near-term that will allow us to optimize the viral genomes and formulation for both our lead synthetic program, which is based on CVA21, and our second synthetic program, which is based on SVV, in order to nominate candidates for further clinical development. Synthetic viral immunotherapy product candidates to be developed from our Synthetic Platform will utilize shared formulation, regulatory and manufacturing strategies, allowing us to be more efficient in the development of subsequent product candidates.

 

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Continue to strengthen our position in the viral immunotherapy field through continuous product development and investments in our platforms. We intend to continue to pursue internal discovery of both HSV-1 and synthetic viral immunotherapy product candidates. We plan to drive innovation and to engineer our next-generation viral immunotherapies to target specific tumors based on tumor affinity, or tropism, and develop transgene combinations tailored to overcome immunosuppressive activity in order to further improve outcomes for cancer patients. A first example of this approach is with the development of ONCR-GBM, our preclinical oHSV program specifically engineered to address the unmet medical need of patients suffering from brain cancer.

 

   

Broaden and strengthen our in-house manufacturing capabilities. We have strong in-house process development capabilities for both of our platforms and will continue to invest in building these capabilities and in proprietary processes to enhance our competitive advantage when manufacturing product candidates for our oHSV and synthetic viral immunotherapy programs. We currently leverage external contract manufacturing organizations, or CMOs, to implement our processes to produce material manufactured using current good manufacturing practices, or cGMP. We intend to establish our own cGMP manufacturing facilities to produce cGMP-grade material and expect to complete these facilities in 2023.

 

   

Selectively partner with leading biopharmaceutical companies to unlock the full potential of our viral immunotherapy product candidates and platforms while retaining product rights in key markets. We intend to accelerate development of our viral immunotherapy product candidates to commercialization by pursuing strategic partnerships with leading biopharmaceutical companies. Our oHSV and Synthetic Platforms along with our proprietary technology provide us the opportunity to pursue discovery and development partnerships for novel and innovative candidates not currently in our development pipeline. In addition, given the breadth of the therapeutic and global market opportunities for our current product candidates, we believe that entering into select global or regionally focused strategic partnerships for individual product candidates may accelerate development and expand patient access.

Traditional cancer therapy, immunotherapy and the need for new options for cancer patients

The treatment of certain cancers has improved markedly over the past decade. Whereas many cancer treatments were historically limited to surgical removal, cytotoxic chemotherapy and/or radiation, recent advances target specific genetic changes in individual tumors or redirect the patient’s immune system, particularly T cells, to eliminate tumors to improve outcomes. However, unfortunately most patients either are not eligible for, or do not respond to, these therapies. For example, the efficacy of immune-based approaches in patients who qualify for this type of therapy is limited to around 12 percent. While these therapies have advanced the treatment of cancer for some patients, many are still underserved and therapies with improved clinical outcomes are still desperately needed.

The goal of immuno-oncology therapy is to harness an individual’s immune system and better enable it to identify, attack and kill tumor cells and to form long-term immunologic memory against such tumors. We believe that the best way to significantly improve outcomes for cancer patients is to stimulate not only T cells, as has been the focus of approved immune checkpoint inhibitors, but also additional key immune cells within the innate and adaptive immune systems. We believe that viral immunotherapies have the greatest potential to achieve this highly desirable aim.

The immune system is generally divided into two arms, the innate and the adaptive, which are responsible for driving immediate and lasting anti-tumor responses. The innate immune system involves a diverse set of cells, including Natural-Killer, or NK, cells, macrophages and dendritic cells, all of which generate a rapid response to any foreign body, pathogen or tumor cell. The adaptive immune system is a second line of defense that is specific to a pathogen or antigen and is triggered when the innate immune system releases signals to activate and recruit cells from the adaptive immune system. The adaptive immune system is composed of T cells and B cells which can form immunologic memory and therefore be activated upon reintroduction of the initial antigen or pathogen. Many of the recent advances in immuno-oncology, such as immune checkpoint inhibitors, have focused on improving the function of T cells, which are a key cell type of a patient’s adaptive immune system.

We see a vast opportunity for therapies that can stimulate robust anti-tumor responses by activating both the innate and adaptive immune systems that also influence both the immunosuppressive tumor microenvironment and systemic immune responses. We believe that viral-based immunotherapies offer this potential benefit by delivering

 

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potent immune stimulating agents to tumors that engage key anti-tumor immune cells, including not only T cells, but also NK cells and dendritic cells, and, to inhibit immune suppression within tumors, immune checkpoint inhibitors.

Our focus—unlocking the full potential of viral immunotherapies to engage multiple arms of the immune system to transform outcomes for cancer patients

We believe that viral immunotherapies are the most promising modality available today to activate multiple arms of the immune system and improve outcomes for cancer patients. Viral immunotherapy selectively infects and destroys tumor cells and leverages key cell types from the patient’s innate and adaptive immune systems, resulting in a robust and durable anti-tumor response. In the process of directly killing the tumor, tumor-specific antigens and danger signals are released. These molecules recruit and activate the innate and adaptive immune responses to identify, attack and destroy tumors and to develop long term immunity against such tumors. Viral immunotherapies can also be engineered to express transgenes to further stimulate and prevent downregulation of the immune system. Viral immunotherapies have several properties that differentiate them from other anti-tumor therapies, which make them particularly attractive additions to today’s anti-cancer arsenal, including the ability to:

 

   

Selectively kill tumor cells. Viral immunotherapies can be designed to selectively kill tumor cells while sparing healthy cells. Tumor cells are often more vulnerable to killing by viruses than healthy cells because tumors often have diminished antiviral defenses, such as a downregulated interferon pathway, creating an environment conducive to viral replication.

 

   

Create an inflammatory state that turns cold tumors hot. When tumor cells die following viral replication, the cells release tumor specific antigens and danger signals, which activate the innate immune system through multiple pattern recognition receptors including TLRs, RIG-I and STING, and promote inflammation within the tumor microenvironment. This, in turn, attracts both innate and adaptive immune cells to the area. Viral immunotherapies have been shown in the clinic to transform so-called cold tumors, with low numbers of infiltrated immune cells, into hot tumors, with high numbers of infiltrated immune cells, which are more likely to respond to checkpoint inhibitors.

 

   

Cause the release and presentation of tumor-specific antigens. The breadth of tumor antigens that are presented by viral immunotherapy-induced tumor cell lysis is far greater than that of other anti-tumor vaccine approaches that rely on single antigens or small collections of neoantigens. Viruses kill tumor cells by way of an immunogenic, rather than apoptotic, cell death, which not only alerts and activates the immune system, but also causes the entire contents of the tumor cell to spill out. Tumor cell contents, including tumor-specific antigens or neoantigens, are thereby exposed to the immune system. These antigens can then be presented by the recruited innate immune cells, such as macrophages and dendritic cells, to cells of the adaptive immune system to stimulate highly effective antigen-specific immunity. By activating the adaptive immune response, anti-tumor T cells can then identify and attack all tumors in the body in addition to forming immunologic memory which can provide patients with durable protective immunity.

 

   

Express transgenes within the tumor microenvironment that encode for immunostimulatory proteins. Viruses can be engineered to carry transgenes directly into tumors where they can be expressed in high concentrations. These transgenes can encode immunostimulatory cytokines, immune checkpoint antibodies and other proteins that can further amplify anti-tumor immune responses. The ability of viral immunotherapies to deliver potent immunostimulatory factors directly to tumors with minimal systemic exposure represents a powerful method of amplifying the initial immune response by both stimulating the infiltrating immune cells and preventing their suppression in tumors and leads to improved outcomes for cancer patients.

These properties have been clinically validated by viral immunotherapies that are either currently approved or in clinical development. For example, talimogene laherparepvec, or T-VEC, was approved by the FDA in 2015 for the treatment of recurrent melanoma and is marketed as Imlygic® by Amgen. It is an attenuated oncolytic virus based on HSV-1, engineered to deliver a single transgene encoding for granulocyte macrophage colony stimulating factor, or GM-CSF. In a Phase 3 clinical trial in patients with metastatic melanoma, patients treated intratumorally with T-VEC monotherapy had a 26 percent objective response rate compared to 6 percent for the control arm, which was

 

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GM-CSF. Notably, responses to T-VEC occurred in only 34 percent of non-injected non-visceral lesions and 15 percent of non-injected visceral lesions, compared to 64 percent of injected lesions, suggesting that, despite encouraging validation that this early-generation oncolytic virus can generate an immune response against a non-injected tumor, increased abscopal activity is needed to improve outcomes for patients. Visceral lesions are lesions that are not cutaneous, subcutaneous or nodal.

The preliminary readout of the ongoing MASTERKEY-265/KEYNOTE-034 Phase 1b/3 clinical trial in metastatic melanoma showed a 62 percent objective response rate in patients treated with a combination of T-VEC and KEYTRUDA. In a paper published in the journal Cell in 2017 that describes these results, the authors noted that the response rates typically seen in this patient population with single agent pembrolizumab are between 35 and 40 percent. Notably, responses in this trial were seen in 12 of 17 patients with cold tumors as evidenced by the low pre-treatment levels of intratumoral CD8 T cells as shown below, and a complete response was seen in an 18th patient who had a higher pre-treatment level of intratumoral CD8 T cells.

 

 

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Figure 1. Combination of T-VEC and KEYTRUDA elicited clinical responses in patients with low tumor CD8 density. Each bar represents a single patient. Abbreviations: CR = complete response, PR = partial response, PD = progressive disease.

In addition, T-VEC was observed in this same trial to create an inflammatory state that turns tumors from cold to hot. Histological examinations taken from the Phase 1b portion of the MASTERKEY-265/KEYNOTE-034 clinical trial provide support for the ability of viral immunotherapies to promote the infiltration of CD8 T cells into tumors providing evidence of the potential for this immunotherapy to enhance response to immune checkpoint inhibitors as shown below.

 

                                   Week 1   Week 6   Week 30                                   

 

 

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Figure 2. T-VEC increased tumor-infiltrating lymphocyte density and PD-L1 expression in tumors. The figure shows a combination of melanoma marker (blue), CD8 (green), and PD-L1 (red) staining at high magnification from a patient who had a partial response. The image on the left is from a baseline biopsy (week 1), the image in the middle is from week 6 after injection of T-VEC, and the image on the right is from week 30 after long-term treatment with the combination of T-VEC and KEYTRUDA (pembrolizumab).

In a separate clinical trial, a similar improvement in overall response rate was observed when T-VEC was used in combination with ipilimumab, a CTLA-4 antagonist antibody which is marketed by Bristol-Myers Squibb as YERVOY, versus ipilimumab alone. Furthermore, improvements in response rates over the single agent immune checkpoint inhibitors pembrolizumab and ipilimumab in melanoma patients has also been reported in clinical trials following intratumoral injection of an unarmed oncolytic virus, CVA21, which is being developed by Merck as CAVATAK®, when used in combination with these approved immune checkpoint inhibitors. The following chart summarizes the clinical response rates in metastatic melanoma of these various therapies and therapeutic candidates.

Objective Response Rates in Metastatic Melanoma

 

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Figure 3. Objective Response Rates, or ORRs, of two oncolytic viruses both when used as monotherapy and in combination with the immune checkpoint inhibitors, KEYTRUDA (pembrolizumab) and YERVOY (ipilimumab) in patients with metastatic melanoma. All data presented are from separate single arm trials except for the YERVOY vs. YERVOY plus Imlygic (T-VEC) data, which are from a head-to-head trial. The trials from which data are presented are: 1. Andtbacka, et al., JCO, 2015 and Andtbacka, et al., Ann Surg Oncol, 2016; 2. CALM study, Andtbacka et al., ASCO, 2015; 3. Ribas, et al., Cell, 2017; 4. CAPRA study, Silk et al. SITC, 2017; 5. Chesney, et al., JCO, 2017; 6. MITCI study, Curti, et al., AACR, 2017.

We believe these clinical results involving two different viral immunotherapies used with two different immune checkpoint inhibitors provide compelling evidence that viral immunotherapies can improve clinical outcomes while maintaining a favorable tolerability profile. However, a significant unmet need still exists as a result of the limitations of current viral immunotherapies, including: limited transgene payload capacity to drive robust abscopal responses and the need to sacrifice potency for safety by attenuating viral replication in all tissues. We believe that data generated with T-VEC and CAVATAK provide the justification to examine the therapeutic potential of our viral immunotherapy candidates to dramatically improve clinical outcomes and expand the number of tumor types and treatment settings in which they can be used.

Our oHSV Platform—developing the next generation of oncolytic HSV-1-based viral immunotherapy

Herpes Simplex Virus-1, or HSV-1, has emerged as the leading viral vector for immunotherapy due to its potency at killing tumor cells, large and well-studied genome, overall safety and sensitivity to acyclovir, and the regulatory approval pathway established by T-VEC. We designed our oHSV Platform to develop improved viral immunotherapies that overcome the limitations in potency and in the ability to stimulate anti-tumor immunity that have both been encountered by previous viral immunotherapies and other immuno-oncology therapies. We also intend to develop therapies derived from this platform that will address multiple types of tumors, including our ONCR-GBM program designed to target brain cancer.

 

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Our oHSV Platform improves upon three basic characteristics of viral immunotherapies: the number of encoded transgenes, which can help drive the extent and robustness of immune responses and abscopal effects; replication competency in tumors, which determines cell killing potency; and selective replication in tumor versus normal tissues to improve potency and to help ensure an acceptable therapeutic index:

 

   

Greater capacity to encode transgenes to drive systemic immunostimulatory activity. Using our proprietary technology, we are developing HSV-1-based product candidates with the ability to carry greater numbers of transgenes than viral immunotherapies that are either currently approved or in clinical development. The ability to deliver a combination of rationally and experimentally selected transgenes directly into tumors enables the promotion of greater systemic immunostimulatory activity than could otherwise be achieved. It also enables the combined delivery of immunostimulatory agents directly to tumors including those that cannot be safely dosed in patients due to systemic toxicities, such as IL-12.

 

   

Retention of full replication competency to enable high tumor-killing potency. Using our proprietary oHSV Platform, we are developing HSV-1 based product candidates that retain their full ability to replicate in tumor cells. In contrast, current HSV-1-based viral immunotherapies that are either currently approved or in clinical development have introduced mutations which attenuate their replication competency in both normal and tumor tissues in order to limit toxicity. We believe this has the effect of lowering the potency of the virus in tumor cells and trading off potency for safety.

 

   

Orthogonal safety strategies to allow tumor-specific replication. Our oHSV Platform incorporates two highly innovative approaches to restrict viral activity to tumor cells while sparing healthy tissues. The first approach involves the insertion of gene regulatory elements known as microRNA target sequences within the genomes of viruses. The microRNAs complementary to these target sequences are primarily found only in healthy tissues and not in tumor tissues. The second approach involves a proprietary mutation in a HSV-1 protein, known as UL37, which eliminates the virus’ ability to transport, replicate and establish latency inside neurons.

Our lead product candidate—ONCR-177

We are developing ONCR-177 for the treatment of multiple cancers. ONCR-177 is a replication-competent oncolytic HSV-1 viral immunotherapy for intratumoral injection carrying five transgenes designed to stimulate multiple arms of the immune system in order to maximize anti-tumor immune responses and abscopal responses in non-injected tumors. In preclinical experiments, we have observed durable virus and immune system driven anti-tumor activity in injected tumors as well as abscopal activity. We have also observed that ONCR-177 is well tolerated in a validated animal safety model of HSV-1 when administered intravenously. We have initiated and begun dosing patients in a Phase 1 clinical trial of ONCR-177 in patients with several different types of solid tumors, including breast cancers and cutaneous tumors. We expect to report preliminary data from this trial in multiple data readouts beginning in the second half of 2021 through the second half of 2022. We expect these readouts to include preliminary dose escalation and expansion data for ONCR-177 as monotherapy and in combination with KEYTRUDA.

ONCR-177 has broad application for multiple solid tumor indications

Each year in the United States, approximately 1.5 million patients are diagnosed with solid tumor cancers, and approximately 550,000 die from these diseases. Potentially any patient with a solid tumor can be treated by intratumoral injection, so there is a large unmet medical need for effective intratumoral therapy. Cancers potentially most addressable by intratumoral therapy include breast cancers, including triple negative and hormone receptor positive breast cancers; SCCHN; both melanoma and non-melanoma skin cancer; and injectable visceral tumors that have spread to the liver, such as metastases from MSS CRC. There are several advantages of administering potential therapies, including viral immunotherapies, by intratumoral injection. These advantages include the ability to directly target the tumor, resulting in high local concentrations of the therapeutic agent as well as lower systemic exposure to the therapy, which we believe could potentially limit systemic toxicities.

Key features of ONCR-177

We have designed ONCR-177 to achieve both oncolytic anti-tumor activity and potent immune system stimulation. The fundamental ways in which we have applied our technologies to ONCR-177 to improve upon current HSV-1-based

 

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viral immunotherapies include engineering the virus to deliver directly into the tumor a greater number of transgenes than the viral immunotherapies that are either currently approved or in clinical development, as well as to retain its full replication competency while broadening tumor infectivity and preventing replication in healthy tissues.

Delivery of five immunostimulatory transgenes to stimulate systemic anti-tumor responses in both injected and non-injected tumors

We took advantage of our proprietary deletion of the joint region in HSV-1, creating 25kb of additional payload capacity, to include a rationally and experimentally selected combination of five immunostimulatory transgenes in ONCR-177. Our goal was to include a diverse set of transgenes that increase the overall potency of ONCR-177 in a broad range of potential tumors and in particular, to improve abscopal activity. We evaluated 15 potential transgenes, including GM-CSF, the transgene included in T-VEC, and prioritized transgenes for inclusion in ONCR-177 based on their ability to enhance systemic anti-tumor immune responses in cancer models. We chose transgenes with the expectation that ONCR-177 would lead to their expression within these tumors with very limited systemic exposure. This feature allowed us to consider transgenes with promising anti-tumor activity that are challenging to deliver intravenously, as monotherapy or in combination with other anti-cancer therapies, due to toxicities. We prioritized combinations of transgenes that work through complimentary, but not overlapping, mechanisms, to stimulate multiple arms of the immune system. Our evaluations suggest that the optimal combination of transgenes within ONCR-177 includes:

 

   

Interleukin-12, or IL-12—IL-12 is a potent stimulatory cytokine with established anti-tumoral properties. IL-12 displays multifaceted activities leading to broad immune stimulation of both innate immune cells, such as NK cells and adaptive immune cells, such as T cells. Intravenous administration of IL-12 has demonstrated potent anti-tumor activity in preclinical cancer models, however, its clinical development as a systemic agent has been limited by its toxicity profile. Intratumoral delivery of IL-12 by ONCR-177 strongly stimulated abscopal activity in preclinical models of cancer without causing systemic toxicity.

 

   

C-C motif chemokine 4, or CCL4—CCL4 is an inflammatory chemokine that recruits T cells, monocytes and classical dendritic cells to sites of tissue injury or viral infection. Classical dendritic cells have been shown to be particularly important for the presentation of tumor antigens and response to immune therapy. Low CCL4 levels in tumors are predictive of poor T cell infiltration, which is characteristic of cold tumors. The inclusion of CCL4 in ONCR-177 may therefore enhance the recruitment of T cells and dendritic cells within a cold tumor to enhance response to anti-PD-1 and anti-CTLA-4 therapy.

 

   

Fms-like tyrosine kinase 3 ligand, or FLT3LG—FLT3LG is a major growth factor that stimulates the proliferation and commitment of classical tumor antigen cross presenting dendritic cells, which are critical for anti-tumor immune responses. We have also shown that the addition of FLT3LG enhanced the abscopal anti-tumor activity of a virus expressing IL-12 in preclinical models.

 

   

PD-1 antagonist nanobody—PD-1 is an immune checkpoint that prevents activation of cytotoxic T cells. Its blockade has been clinically validated as an oncology target with the approval of multiple therapies that inhibit the interaction of PD-1 with its ligand, PD-L1. PD-L1 upregulation is a major mechanism of acquired resistance in response to high levels of interferon gamma that are the result of productive anti-tumor and anti-viral immune responses. Inclusion of a PD-1 antagonist nanobody in ONCR-177 is designed to overcome both the endogenous tumor-specific PD-L1 expression as well as increased PD-L1 expression induced in response to the virus, and has demonstrated abscopal benefit in preclinical studies.

 

   

CTLA-4 antagonist monoclonal antibody; identical in sequence to ipilimumab—CTLA-4 is a clinically validated immune checkpoint that regulates the activation of T cells independently from PD-1. Co-targeting of CTLA-4 and PD-1 by intravenous administration of blocking antibodies has increased clinical efficacy but is associated with significantly greater toxicities. Inclusion of these two clinically validated immune checkpoint inhibitors in ONCR-177 has the potential to deliver a synergistic activation of anti-tumor immunity with improved tolerability, which we believe will be a result of the intratumoral route of administration.

 

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The multiple mechanisms of action mediated by ONCR-177’s inherent oncolytic activity together with the immune stimulation elicited by the viral infection and the expression of these five transgenes are illustrated in the figure below.

 

 

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Figure 4. Mechanisms of action of ONCR-177. ONCR-177 infected cells allow the production of five payloads as well as viral replication that induces cancer cell oncolysis. The oncolysis results in the release of all tumor antigens and also signals trigger inflammation. CCL4 and FLT3LG can induce the recruitment and differentiation of tumor antigen presenting dendritic cells and IL-12 activates the NK cells and T cells to enhance their cytolytic activity. CTLA-4 blockade promotes the priming and activation of T cells while the PD-1 antagonist prevents the exhaustion of T cells. The T cells can migrate to the other tumor sites to enable abscopal responses.

 

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Retention of full replication competency

ONCR-177 was designed as a fully replication competent HSV-1-based viral immunotherapy to allow for robust viral replication in tumor cells and generate greater tumor lysis and activation of the immune system as compared to HSV-1-based viral immunotherapies that are either currently approved or in clinical development. The ability of HSV-1 to infect human cells has led others to develop HSV-1-derived viral immunotherapies with genetic changes that limit replication by inactivating the g34.5 gene in order to protect healthy tissue. Inactivation of g34.5 makes HSV-1 more vulnerable to the normal antiviral activity of the endogenous interferon pathway, which the body uses to fight viral infections. Consequently, current HSV-1-based viral immunotherapies containing this mutation are less able to replicate in the presence of interferon alpha, or IFNa. Unfortunately, inactivation of g34.5 also leads to unwanted attenuation of viral replication in cancer cells, thereby limiting the potential for these therapies to impact the survival and growth of cancer cells. ONCR-177 retains an active version of the gene that encodes for g34.5 and, therefore, is able to replicate in the presence of IFNa, as seen in the figure below.

 

 

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Figure 5. Impact of inclusion of g34.5 in our oHSV product candidates. Inclusion of g34.5 in our HSV-1 vectors allows replication in presence of IFNa compared to a g34.5 deleted virus for which complete suppression of replication is observed in the presence of interferon. PFU=plaque-forming units.

We have chosen not to sacrifice the inherent potency of HSV-1 in cancer cells and have implemented other methods to limit the ability of our HSV-1-based product candidates to replicate in healthy cells. We believe the retention of g34.5 enables our candidates to generate robust infections in tumor cells to drive anti-tumor activity.

Broaden tumor infectivity and increasing the rate of infection

To enhance the ability of HSV-1 to infect a broad spectrum of tumor cells, we have introduced a set of specific mutations in the HSV-1 gB protein, which is a surface glycoprotein that mediates viral entry into cells during infection. These mutations, referred to as gB:N/T mutations, have been shown to increase the range of cells that HSV-1 can infect in addition to increasing the rate of infection. Studies published by one of our co-founders, Professor Glorioso in the Journal of Virology in 2012 showed that introduction of these mutations into otherwise identical copies of HSV-1 viruses lead to greatly enhanced infectivity of cell lines, including those lacking the normal receptors for HSV-1. We believe gB:N/T mutations enable our candidates to generate robust infections in a broad spectrum of tumor cells and increase the rate of infection.

Tissue-specific safety controls

We balanced the native viral replication competency and increased infectivity in the development of ONCR-177 with a set of specific genetic safety switches that prevent ONCR-177 from replicating in non-tumor cells and also causing latent infections in neuronal cells using two orthogonal safety strategies. First, we implemented a series of conditional genetic switches in the genetic sequence of ONCR-177 that limit the ability of ONCR-177 to replicate in non-tumor cells. These switches are controlled by the presence of RNA molecules, referred to as microRNAs, and

 

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selectively disable key viral genes responsible for HSV-1 replication and pathogenicity in healthy tissues by targeted RNA silencing via the RNA-induced silencing complex. The microRNAs we selected for ONCR-177 attenuation are differentially expressed in tumors versus healthy tissues as detailed below.

 

 

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Figure 6. Principle for microRNA, or miR, dependent attenuation of ONCR-177 in healthy tissues. microRNA target sequences, or miR-T, engineered into our oHSV product candidates function as conditional switches to control viral replication based on the expression of their complementary microRNAs that were selected to be absent or expressed at low level in tumors versus to normal healthy tissues.

 

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Our attenuation strategy is based on the differential expression of this subset of microRNAs in cancer compared to healthy tissues

To identify these microRNAs, we conducted a quantitative analysis of 800 regulatory microRNAs in normal and tumor cells. As triggers for the shutdown of ONCR-177 in healthy cells, we chose a set of ten microRNAs from this analysis that are highly expressed in tissues such as the nervous system, skeletal and cardiac muscle, and organs such as the liver and pancreas and not expressed in the tumors we intend to treat with ONCR-177.

 

 

 

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Figure 7. The heatmap above shows the differential expression of the microRNAs selected for ONCR-177 attenuation in cancer compared to healthy tissues. Mal.=malignant.

 

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We introduced microRNA target sequences into four critical HSV-1 genes such that the presence of the corresponding microRNAs in healthy tissues would prevent viral replication and pathogenesis. These genes include infected-cell polypeptide 4, or ICP4, and infected-cell polypeptide 27, or ICP27, both of which are transcriptional regulatory proteins essential for viral growth; UL8, a component of the viral replication complex, which we identified as an essential gene for viral replication; and g34.5, which is required for inhibition of host cells’ antiviral response. This microRNA attenuation strategy for ONCR-177 is reflected in the figure below.

 

 

 

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Figure 8. Overview of ONCR-177 microRNA attenuation strategy. Four cassettes, each containing three microRNA target sequences (miR-T), are inserted in the non-coding region of the HSV-1 gene to control its replication.

Attenuation of multiple viral genes by microRNAs found in normal cells prevent viral replication in these tissues

We have shown that the microRNA responsive sequences that we introduced into these key HSV-1 genes lead to the suppression of ONCR-177 replication in cells expressing any of the corresponding microRNAs. Only when all ten microRNAs are absent, a condition which we have found to only occur in tumor cells, can ONCR-177 replication proceed unimpeded.

We also introduced a set of mutations in the gene coding for UL37 that are intended to prevent HSV-1 transport in neurons and to inhibit replication and latency in this cell type. In published in vitro and animal model preclinical studies, HSV-1 containing these mutations was unable to infect the nervous system. In addition, although dosing of unmodified