UNITED STATES
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FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Provention Bio, Inc.
Form 10-Q
For the Quarter Ended September 30, 2022
Table of Contents
| 2 |
FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including, among others, statements regarding the impact of the ongoing COVID-19 pandemic on our business; the timing progress and potential success of our ongoing and planned clinical trials; our ongoing and planned engagements with regulatory agencies relating to, and the expected timing of regulatory review of, or decisions relating to, our product candidates; execution of our business plans; and our current expectations regarding the ability of our cash, cash equivalents and marketable securities to fund our projected operating requirements for at least the next 12 months, are forward-looking statements. The words “believe,” “may,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed herein may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Some of the key factors that could cause actual results to differ from our expectations include the following risks related to our business:
| ● | Our teplizumab Biologics License Application (“BLA”) resubmission in February 2022 for the delay of clinical type 1 diabetes (“T1D”) in at-risk individuals (“At-Risk Indication”), which the U.S. Food and Drug Administration (“FDA”) deemed to be complete and accepted for review on March 17, 2022 and for which the FDA assigned a user fee goal date of August 17, 2022 that was extended to November 17, 2022, may not be ultimately approved by the FDA. Our BLA resubmission and other regulatory efforts may not be successful in addressing, to the FDA’s satisfaction, the deficiencies identified in the FDA’s July 2021 Complete Response Letter (“CRL”) for our original teplizumab BLA for an At-Risk Indication, including product quality and pharmacokinetic (“PK”) comparability considerations. Additionally, our BLA resubmission and our regulatory efforts may not successfully address the FDA’s requests and requirements discussed at our January 2022 Type B meeting. For example, although we included in the BLA resubmission, as requested by the FDA, a proposed adjusted 14-day dosing regimen based on PK modeling and clinical data for teplizumab to match exposure of our planned commercial product to drug product used in historical clinical trials, the FDA’s PK comparability concerns may not be addressed to their satisfaction which could result in another CRL for our BLA resubmission. Furthermore, as a result of any final resolutions to address the FDA’s considerations related to PK comparability in connection with the teplizumab BLA resubmission for an At-Risk Indication, the FDA may require that we further characterize the teplizumab planned commercial product in the PROTECT Trial, including potentially requiring additional research, analysis, clinical data or clinical trials, to support a regulatory pathway for a newly diagnosed indication of teplizumab. | |
| ● | We are completely dependent on third parties to manufacture our product candidates, with no, to limited, redundancies in our supply chain, and the commercialization of our product candidates, if approved, could be halted, delayed or made less profitable if those third parties fail to comply with regulatory requirements, fail to obtain manufacturing approval from the FDA or comparable foreign regulatory authorities, fail to provide us with sufficient quantities of our product candidates, or fail to do so at acceptable quality levels or prices. | |
| ● | We have incurred substantial operating losses in each year since our inception and expect to continue to incur substantial losses for the foreseeable future and we may never become profitable or, if achieved, be able to sustain profitability. | |
| ● | We need to raise additional funding to support our business plans and operations. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate certain, or all of our product development programs or commercialization efforts. | |
| ● | We are a small company that relies on third parties for execution of our business operations and plans, including contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”) for conducting our clinical trials, manufacturing and testing our investigational and planned commercial drug products, including any additional work the FDA may require relating to product quality and PK comparability for teplizumab. If these parties fail to perform their contractual obligations or fail to comply with our requirements or the requirements of regulatory authorities our business plans and operations may be negatively, and materially, impacted. |
| 3 |
| ● | The ongoing COVID-19 pandemic has caused delays to our clinical trials and could impact the quality or quantity of data we are able to collect or otherwise negatively impact the execution of our clinical trials. Moreover, the longer the pandemic persists, the more impact it may have on our clinical trials and other business plans and timelines, including any product launch plans if we successfully obtain approval for our teplizumab BLA resubmission for an At-Risk Indication in the United States, or obtain approval for teplizumab from other competent authorities, including the European Commission in the European Union and the Medicines and Healthcare Products Regulatory Agency (“MHRA”) in the UK. In addition, the COVID-19 pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on our business, operations and ability to raise capital. | |
| ● | Clinical drug development involves a risky, lengthy and expensive process with an uncertain outcome. Although prior pre-clinical and clinical studies, data and analysis may support our belief in the potential of our pipeline of products, the results of our ongoing clinical trials for them may not be positive or supportive of our beliefs. We may encounter substantial delays in completing our ongoing clinical trials or starting any new clinical trials, which in turn may require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities for our product candidates, which could negatively and materially impact our business. | |
| ● | The FDA may conduct additional site-inspections at any of our CMOs which, depending on timing and outcomes, could negatively impact timing of or regulatory decisions relating to any BLA resubmission. | |
| ● | We are a clinical-stage biopharmaceutical company with a limited operating history. | |
| ● | We have a limited number of product candidates and may not be able to acquire additional product candidates in the future. | |
| ● | We have received breakthrough therapy designation and priority review from the FDA, a PRIority MEdicines (“PRIME”) designation from the European Medicines Agency (“EMA”), and the UK’s Innovation Passport from the MHRA for teplizumab and we may pursue such expedited pathways for other product candidates, however, expedited development or regulatory review paths may not actually lead to a faster development or regulatory review or approval process. | |
| ● | We may not be able to obtain orphan drug marketing exclusivity for our product candidates. | |
| ● | We may be unable to obtain or maintain governmental approvals to market our product candidates in the United States, European Union, United Kingdom or in other jurisdictions. | |
| ● | The FDA, EMA or comparable foreign regulatory authorities could require the clearance, CE marking or approval of a companion diagnostic device for teplizumab for use in at-risk individuals, as a post-marketing commitment or otherwise, or the FDA may require other post-marketing commitments, which may require substantial financial resources and could delay regulatory approval or commercialization of teplizumab. | |
| ● | Even if we receive regulatory approval for teplizumab or any of our product candidates, we may not be able to successfully commercialize any approved products, and the revenue that we generate from sales, if any, may be limited. | |
| ● | We have never commercialized a product and are in the process of building and scaling our business for potential commercialization of a first product candidate, including building our compliance, medical affairs and commercial organizations, which, if we are not able to do so successfully could negatively impact our business, including the potential for a successful commercialization of our product candidates. | |
| ● | We currently have a limited commercial organization. If we are unable to establish satisfactory sales and commercial support and marketing capabilities, we may not successfully commercialize any of our product candidates, if approved. | |
| ● | We depend on rights to certain pharmaceutical compounds that are licensed to us, and any loss of our rights to them could prevent us from developing, commercializing or selling our product candidates if approved. | |
| ● | We are generally a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which could result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal exposure. | |
| ● | We may be unable to protect our intellectual property rights or may infringe on the intellectual property rights of others. | |
| ● | If product liability, securities law related, patent or other lawsuits are brought against us, we may incur substantial costs and liabilities and may be required to limit commercialization of our product candidates, if approved. See Part II, Item 1 Legal Proceedings for additional information. |
The forward-looking statements included herein are made only as of the date hereof. 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 or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligations to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations.
We
may from time to time provide estimates, projections and other information concerning our industry, the general business environment,
and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and
prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar
methodologies is inherently subject to uncertainties, and actual events, circumstances, or numbers, including actual disease prevalence
rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated,
we obtain industry, business information, market data, prevalence information and other data from reports, research surveys, studies
and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data,
and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PROVENTION BIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Marketable securities | ||||||||
| Fixed assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Debt, long-term | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Operating lease liabilities, long-term | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized; shares issued or outstanding at September 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value; shares authorized; shares issued and outstanding at September 30, 2022; shares issued and outstanding at December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying unaudited notes are an integral part of the condensed consolidated financial statements.
| 5 |
PROVENTION BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
(in thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Collaboration revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income, net | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Loss before income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ( | ) | ( | ) | ||||||
| Net loss per common share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares outstanding, basic and diluted | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Unrealized (loss) gain on marketable securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying unaudited notes are an integral part of the condensed consolidated financial statements.
| 6 |
PROVENTION BIO, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (unaudited)
(in thousands, except per share data)
| Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock in connection with private placement, net | ||||||||||||||||||||||||
| Issuance of common stock in connection with at-the-market stock sales, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock in connection with stock option exercises | ||||||||||||||||||||||||
| Issuance of warrants in connection with debt issuance | — | |||||||||||||||||||||||
| Unrealized loss on marketable securities, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Deficit | Equity | |||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Unrealized loss on marketable securities, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying unaudited notes are an integral part of the condensed consolidated financial statements.
| 7 |
PROVENTION BIO, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (unaudited)
(in thousands, except per share data)
| Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock in connection with private placement, net | ||||||||||||||||||||||||
| Issuance of common stock in connection with at-the-market stock sales, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock in connection with stock option exercises | ||||||||||||||||||||||||
| Issuance of warrants in connection with debt issuance | — | |||||||||||||||||||||||
| Unrealized loss on marketable securities, net of tax | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Income (Loss) | Deficit | Equity | |||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock in connection with underwritten public offering, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock in connection with stock option exercises | ||||||||||||||||||||||||
| Unrealized gain on marketable securities, net of tax | — | |||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying unaudited notes are an integral part of the condensed consolidated financial statements.
| 8 |
PROVENTION BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense | ||||||||
| Amortization of premium and discounts on marketable securities | ||||||||
| Amortization of debt issuance costs and accretion of debt discount | ||||||||
| Non-cash operating lease expense | ( | ) | ( | ) | ||||
| Depreciation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued interest receivable | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Deferred revenue | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Maturities of marketable securities | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Financing activities | ||||||||
| Proceeds from private placement, net | ||||||||
| Proceeds from at-the-market stock sales, net | ||||||||
| Proceeds from issuance of debt, long-term, net | ||||||||
| Proceeds from underwritten public offering, net | ||||||||
| Proceeds from stock option exercises | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Operating cash flows used for operating leases | $ | $ | ||||||
| Supplemental disclosure of non-cash financing transactions: | ||||||||
| Fair Value of warrants issued in connection with debt issuance | $ | $ | ||||||
The accompanying unaudited notes are an integral part of the condensed consolidated financial statements.
| 9 |
PROVENTION BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(tabular dollars and shares in thousands, except per share data)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Business
Provention Bio, Inc. (the “Company”), is a clinical-stage biopharmaceutical company dedicated to intercepting and preventing immune-mediated diseases. Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. The Company’s business is subject to significant risks and uncertainties and will be dependent on raising substantial additional capital before it becomes profitable, and it may never achieve profitability. The Company was incorporated in 2016 under the laws of the State of Delaware.
Basis of presentation
The accompanying unaudited consolidated financial information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Condensed Consolidated Balance Sheet as of December 31, 2021 was derived from the Company’s audited financial statements. These interim financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K (“Annual Report”) for 2021, as filed with the SEC on February 24, 2022.
In the opinion of management, the unaudited consolidated financial information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021, reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of the financial position, results of operations and cash flows of the Company. The results of operations for the three and nine months ended September 30, 2022 and 2021 are not necessarily indicative of the operating results for the full fiscal year or any future period.
2. LIQUIDITY
The
accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which
contemplates continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the normal course
of business. The Company has incurred recurring losses since inception and as of September 30, 2022, the Company had an accumulated deficit
of $
The
Company has devoted substantially all of its financial resources and efforts to research and development and pre-commercial activities.
As of September 30, 2022, the Company had cash, cash equivalents and marketable securities of approximately $
In
addition, during the three months ended September 30, 2022, the Company also received $
| 10 |
Additionally,
on October 4, 2022, the Company and Genzyme Corporation, a fully-owned subsidiary of Sanofi (“Sanofi”) entered into a Co-Promotion
Agreement (the “Sanofi Co-Promotion Agreement”). Pursuant to the Sanofi Co-Promotion Agreement, the Company appointed Sanofi
to co-promote and conduct certain commercialization activities with respect to teplizumab in the United States, should teplizumab receive
approval by the FDA, on a co-exclusive basis for the treatment of the indication for which teplizumab receives approval in the United
States. The Company also committed to reimburse the field force-related expenses and certain other allowable expenses that Sanofi will
incur in connection with commercializing teplizumab under the agreement, up to an aggregate cap of $
The
Company also granted Sanofi an exclusive, one-time right of first negotiation to obtain exclusive rights to research, develop and commercialize
teplizumab with respect to the treatment or delay of T1D, or any of its root causes throughout the world, and to manufacture teplizumab
in support of such research, development and commercialization (the “ROFN”) in exchange for a one-time upfront, non-refundable,
payment of $
Simultaneously with the Sanofi Co-Promotion Agreement, the Company and Sanofi also entered into a Securities Purchase Agreement (the “Sanofi Securities Purchase Agreement”), pursuant to which Sanofi has agreed to purchase $35.0 million of the Company’s common stock at a purchase price per share equal 140% of the daily volume-weighted average per share price of the Company’s common stock for the five consecutive trading days prior to the closing date, if the BLA submitted to the FDA for the delay of clinical T1D in at-risk individuals is approved by the FDA. The closing date and five consecutive trading day period for determining the purchase price per share shall be at the Company’s election, but the closing must occur no later than February 16, 2023. See Note 16 – Subsequent Events for a full description and additional details of the Sanofi Co-Promotion agreement and the Securities Purchase Agreement.
The Company expects to continue to incur significant expenses and increasing operating losses over the next several years due to, among other things, costs related to research funding, development of its product candidates, strategic alliances and pre-commercial activities for teplizumab, as well as the development of its administrative and commercial organization. The Company’s net losses may fluctuate significantly from quarter to quarter and year to year.
The Company’s cash requirements for the remainder of 2022 and for 2023 will be impacted by a number of factors, the most significant of which are expenses related to teplizumab, including costs, timing and outcome of the Company’s regulatory activities, costs to build out the Company’s commercial infrastructure and pre-commercial activities for teplizumab, and if approval is received from the FDA, commercial sales activities (including the Sanofi Co-Promotion Agreement), the PROTECT clinical trial, manufacturing activities for teplizumab and any potential milestone payments that may become due upon a potential regulatory approval of teplizumab by the FDA. Ahead of its upcoming FDA user fee goal date of November 17, 2022, the Company has invested and will continue to invest in pre-commercial activities to prepare for the potential commercial launch of teplizumab. Other factors include costs related to the Company’s other ongoing clinical trials, such as the Phase 2b PROACTIVE clinical study of PRV-015 in celiac disease and the Phase 2a PREVAIL-2 clinical study of PRV-3279 in lupus, which was initiated in January 2022.
The
Company believes, based on its current operating plans, which include the Company’s plans to prepare for a potential commercialization
of teplizumab if approved by the FDA, and other factors described above, that its cash, cash equivalents and marketable securities of
$
The timing and outcome of the Company’s regulatory activities for teplizumab will impact the Company’s cash runway. If the Company’s teplizumab BLA resubmission is approved by the FDA, the Company will likely encounter future liquidity needs if it does not raise additional capital. Factors that could impact the Company’s cash runway include, but are not limited to, the Company’s plans for and potential changes to estimated costs of commercialization which would include the Company’s commitments under the Sanofi Co-Promotion Agreement, the success of the Company’s potential commercial launch for teplizumab and potential milestone payments that may be triggered under the Company’s current agreements, including with MacroGenics.
| 11 |
The Company will need to raise additional capital to fund its operations, to continue to execute its strategy and to continue as a going concern. The Company currently plans to raise additional capital through public or private equity or debt financings, or potential out-licensing transactions. Such additional funding will be necessary to continue to develop the Company’s product candidates, to pursue the license or purchase of other technologies, to commercialize its product candidates or to purchase other products. The Company may seek to sell common or preferred equity or convertible debt securities, enter into other credit facilities or another form of third-party funding, or seek other debt financing. In addition, the Company may consider raising additional capital to fund operating activities, to expand its business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons. The sale of equity and convertible debt securities may result in dilution to the Company’s stockholders and those securities may have rights senior to those of the Company’s common stock. If the Company raises additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict the Company’s operations. Any other third-party funding arrangement could require the Company to relinquish valuable rights. The Company may require additional capital beyond its currently anticipated needs. Additional capital may not be available on reasonable terms, or at all. If the Company is unable to obtain sufficient additional funds when required, it may be forced to delay, restrict or eliminate all or a portion of its development programs, dispose of assets or technology or cease operations.
3. SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies followed by the Company in the preparation of the consolidated financial statements is as follows:
Use of estimates
The process of preparing financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates and changes in estimates may occur.
Segment and geographic information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating and reporting segment.
In October 2021, the Company incorporated Provention Bio Limited, a wholly owned private limited subsidiary, in the United Kingdom. The Company incorporated this subsidiary to facilitate the potential future submission of a Marketing Authorization Application (“MAA”) for teplizumab, to the Medicines and Healthcare Products Regulatory Agency (“MHRA”).
Cash, cash equivalents and concentration of credit risk
The Company considers only those investments which are highly liquid, readily convertible to cash, or that mature within 90 days from the date of purchase to be cash equivalents. Marketable securities are those investments with original maturities in excess of 90 days. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents are valued at cost, which approximates their fair value.
The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other hedging arrangements. The Company holds cash and cash equivalents in banks in excess of FDIC insurance limits. However, the Company believes risk of loss is minimal as the cash and cash equivalents are held by large, highly rated financial institutions.
Marketable securities
The Company considers securities with original maturities of greater than 90 days to be available for sale securities. Available for sale securities are classified as either current or non-current assets based on the nature of the securities and their availability for use in current operations. Securities with an effective maturity greater than one year from the balance sheet date are classified as non-current. Available for sale securities are recorded at fair value and unrealized gains and losses are recorded within accumulated other comprehensive (loss) income. The estimated fair value of the available for sale securities is determined based on quoted market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted for amortization of premium and accretion of discount to maturity.
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On a quarterly basis, the Company reviews the status of each security in an unrealized loss position, to evaluate the existence of potential credit losses. The Company first considers whether it intends to sell, or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company considers a number of factors to determine if the decline in fair value has resulted from credit losses or other factors, including but not limited to: (1) the extent of the decline; (2) changes to the rating of the security by a rating agency; (3) any adverse conditions specific to the security; and (4) other market conditions that may affect the fair value of the security. If this assessment indicates that a credit loss exists and the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance for credit losses is required for the credit loss. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive (loss) income. As of September 30, 2022, the Company has not recognized any impairment or credit losses on its available for sale securities.
Financial instruments
Cash, cash equivalents and marketable securities are reflected in the accompanying consolidated financial statements at fair value. The carrying amount of accounts payable and accrued expenses and other current liabilities, including accrued research and development expenses, approximates fair value due to the short-term nature of those instruments. The Company believes the terms of its long-term debt reflect current market conditions for an instrument with similar terms and maturity. Therefore, the carrying value of the Company’s debt approximates its fair value.
Fixed assets, net
Fixed assets, which consists primarily of leasehold improvements, furniture and fixtures, software, office equipment and certain clinical equipment, are carried at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets, generally three to seven years, using the straight-line method. Amortization of leasehold improvements is recorded over the shorter of the lease term or estimated useful life of the related asset.
Leases
The Company determines if an arrangement is a lease at contract inception. A lease is a contract, or part of a contract, which conveys the right to control the use of explicitly or implicitly identified property, plant or equipment in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company classifies its leases as operating or financing by considering factors such as the length of the lease term, the present value of the lease payments, the specialized nature of the asset being leased and the potential for ownership of the asset to transfer during the lease term.
Leases with terms greater than one-year are recognized on the Company’s consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities and are measured at the present value of the fixed payments due over the lease term minus the present value of any incentives, rebates or abatements expected to be received from the lessor. Options to extend a lease are typically excluded from the expected lease term as the exercise of the option is typically not reasonably certain. Leases are measured at present value using the rate implicit in the lease or, if the implicit rate is not determinable, the lessee’s incremental borrowing rate. As the implicit rate is not typically readily determinable, the Company uses an incremental borrowing rate, which is established based upon the information available at the lease commencement date, to determine the present value of lease payments due under an arrangement. The incremental borrowing rate approximates the rate the Company would pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments.
ROU assets are amortized on a straight-line basis over the term of the lease. Lease liabilities accrete to yield and are reduced at the time when the lease payment is payable to the vendor. Costs determined to be variable and not based on an index or rate are not included in the measurement of the lease liability and are recognized in the consolidated statements of comprehensive loss in the same line item as expenses arising from fixed lease payments at the time when the event giving rise to the payment occurs.
| 13 |
Foreign currency translation
The Company considers the U.S. dollar to be its functional currency. Expenses denominated in foreign currencies are translated at the exchange rate on the date the expense is incurred. The effect of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars is included in the consolidated statements of comprehensive loss. Foreign exchange transaction gains and losses are included in the results of operations and are not material in the Company’s consolidated financial statements.
Research and development expenses
Research and development expenses primarily consist of costs associated with the preclinical and clinical development of the Company’s product candidate portfolio, including the following:
| ● | external research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CROs”) and other vendors and contract manufacturing organizations (“CMOs”) for the production of drug substance and drug product; and |
| ● | employee-related expenses, including salaries, benefits and stock-based compensation expense. |
Research and development expenses also include costs of acquired product licenses and related technology rights where there is no alternative future use, costs of prototypes used in research and development, consultant fees and amounts paid to certain of our collaborative partners.
All research and development expenses are charged to operations as incurred in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic (“ASC”) 730, Research and Development. The Company accounts for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.
Accrued research and development expenses
As part of the process of preparing the consolidated financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice the Company monthly in arrears for services performed or when contractual milestones are met. The Company makes estimates of its accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to the Company at that time. The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary. The significant estimates in the Company’s accrued research and development expenses are related to expenses incurred with respect to CROs, CMOs and other vendors in connection with research and development and manufacturing activities.
The Company bases its expense related to CROs and CMOs on its estimates of the services received and efforts expended pursuant to quotations and contracts with such vendors that conduct research and development and manufacturing activities on the Company’s 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 the Company’s vendors will exceed the level of services provided and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, the Company estimates 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 its estimate, the Company adjusts the accrual or prepaid expense accordingly. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented.
| 14 |
The Company follows the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and non-employees, including stock options. Stock-based compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is generally recognized as an expense over the requisite service period. For grants containing performance-based vesting provisions, the grant-date fair value of the performance-based stock options is recognized as compensation expense once it is probable that the performance condition will be achieved. The Company accounts for actual forfeitures in the period the forfeiture occurs.
Stock Options
The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. Due to the lack of trading history, the Company’s computation of stock-price volatility is based on the volatility rates of comparable publicly held companies over a period equal to the expected term of the options granted by the Company. The Company also utilizes its limited available historical volatility, to a lesser weight, in its expected volatility calculation. The Company’s computation of expected term is determined using the “simplified” method, which is the midpoint between the vesting date and the end of the contractual term. The Company believes that it does not have sufficient reliable exercise data in order to justify the use of a method other than the “simplified” method of estimating the expected exercise term of employee stock option grants. For non-employee stock option grants, the Company has the option to utilize either the expected term or the contractual term, determined on an award-by-award basis. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends to stockholders and has no current intentions to pay cash dividends. The risk-free interest rate is based on the zero-coupon United States Treasury yield at the date of grant for a term equivalent to the expected term of the option.
Stock-based compensation expense is included in both research and development expenses and general and administrative expenses in the consolidated statements of comprehensive loss.
Collaboration revenue
At the inception of a collaboration agreement, the Company first assesses whether the contractual agreement is within the scope of ASC 808, Collaborative Arrangements by evaluating whether the agreement involves a joint operating activity and involves two (or more) parties that are both active participants in the activity and exposed to significant risks and rewards dependent on the commercial success of such activity. Then the Company determines whether the collaboration agreement in its entirety represents a contract with a customer as defined by ASC 606, Revenue from Contracts with Customers (“ASC 606”). If only a portion of the collaboration agreement is potentially with a customer, the Company applies the distinct good or service unit-of-account guidance in ASC 606 to determine whether there is a unit of account that should be accounted for under ASC 606.
In accordance with ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
From time to time, the Company enters into licensing agreements that are within the scope of ASC 606, under which it may license rights to research, develop and commercialize its product candidates to third parties. The terms of these collaborative research and development agreements typically include non-refundable, upfront license fees; reimbursement for research and development activities; development, regulatory and commercial milestone payments; and royalties on net sales of commercialized products. The Company may also enter into development and manufacturing service agreements with its collaborators. For each arrangement, at contract inception, the Company identifies all performance obligations, which may include a license to intellectual property and know-how, research and development activities, transition activities and/or manufacturing services and determines if each performance obligation is distinct. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. These estimates are re-assessed each reporting period as required.
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Once the estimated transaction price is established, amounts are allocated to the performance obligations that have been identified. The transaction price is generally allocated to each separate performance obligation on a relative standalone selling price basis, which requires the use of assumptions and judgement. Standalone selling prices used to perform the initial allocation are not updated after contract inception. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied.
Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion. Refer to Note 6 – Commitments and Contingencies, for specific details regarding the Company’s collaboration agreements.
Debt issuance costs and debt discount
Debt issuance costs and debt discounts are presented on the accompanying consolidated balance sheets as a direct reduction from the carrying value of the debt and are amortized to interest expense over the term of the related debt using the effective interest method. The Company applies the relative fair value to allocate issuance costs among freestanding instruments that form part of the same transaction.
Income taxes
The Company utilizes the liability method of accounting for deferred income taxes, as set forth in ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense.
Recent accounting pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (ASU 2021-04). This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. Effective January 1, 2022, the Company adopted ASU 2021-04 on a prospective basis. The adoption had no impact on the Company’s consolidated financial statements and related disclosures.
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4. CAPITALIZATION
As of September 30, 2022 and December 31, 2021, the Company had authorized shares of common stock, $ par value per share, of which and shares, respectively, were issued and outstanding. In addition, as of September 30, 2022 and December 31, 2021, the Company had authorized shares of preferred stock, $ par value per share, of which were issued and outstanding.
July 2022 Private Placement
In
July 2022, the Company entered into a Securities Purchase Agreement with certain institutional purchasers, pursuant to which the Company
sold, in a private placement, shares of common stock and
2021 ATM Program
The
Company has established an at-the-market program (the “2021 ATM Program”) through which the Company may sell, from time to
time at its sole discretion, up to $
January 2021 Public Offering
In
January 2021, the Company completed an underwritten public offering in which it sold shares of common stock at a public offering
price of $ per share. In February 2021, the underwriters partially exercised their option to purchase an additional shares
at a price of $ per share. In the aggregate, total net proceeds from this underwritten public offering were $
5. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The
Company considers all highly liquid investments purchased with original maturities of 90 days or less at the date of purchase to be cash
equivalents. Cash and cash equivalents as of September 30, 2022 and December 31, 2021 were $
The
Company considers securities with original maturities of greater than 90 days at the date of purchase to be available for sale securities.
The Company held available for sale securities with a fair value totaling $
The Company evaluates securities with unrealized losses, if any, to determine whether the decline in fair value has resulted from credit loss or other factors. As of September 30, 2022, the Company has not recognized any impairment or credit losses on the Company’s available for sale securities. While the Company classifies these securities as available for sale, the Company does not intend to sell its investments and based on its current plans, the Company currently believes it has the ability to hold these investments until maturity.
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The following table summarizes the amortized cost, fair value, allowance for credit losses and effective maturities of the Company’s cash, cash equivalents and available for sale securities:
| September 30, 2022 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Cash and cash equivalents | ||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | ||||||||||
| Money market funds | ||||||||||||||||
| U.S. Treasury securities | ||||||||||||||||
| Total cash and cash equivalents | ||||||||||||||||
| Marketable securities, current | ||||||||||||||||
| Corporate debt securities | ( | ) | ||||||||||||||
| U.S. Treasury securities | ( | ) | ||||||||||||||
| U.S. Government agency securities | ||||||||||||||||
| Total marketable securities, current | ( | ) | ||||||||||||||
| Marketable securities, non-current | ||||||||||||||||
| Corporate debt securities | ( | ) | ||||||||||||||
Total marketable securities | ( | ) | ||||||||||||||
| Total cash, cash equivalents and marketable securities | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2021 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Cash and cash equivalents | ||||||||||||||||
| Cash | $ | $ | — | $ | — | $ | ||||||||||
| Money market funds | ||||||||||||||||
| Total cash and cash equivalents | ||||||||||||||||
| Marketable securities, current | ||||||||||||||||
| Corporate debt securities | ( | ) | ||||||||||||||
| Marketable securities, non-current | ||||||||||||||||
| Corporate debt securities | ( | ) | ||||||||||||||
| Total marketable securities | ( | ) | ||||||||||||||
| Total cash, cash equivalents and marketable securities | $ | $ | $ | ( | ) | $ | ||||||||||
The Company’s available for sale securities are reported at fair value on the Company’s consolidated balance sheets. Unrealized gains (losses) are reported within accumulated other comprehensive (loss) income in the consolidated statements of comprehensive loss. The cost of securities sold and any realized gains/losses from the sale of available for sale securities are based on the specific identification method. The changes in accumulated other comprehensive (loss) income associated with the unrealized gain (loss) on available for sale securities during the three and nine months ended September 30, 2022 and 2021, respectively, were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Beginning balance | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Current period changes in fair value before reclassifications, net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Amounts reclassified from accumulated other comprehensive (loss) income, net of tax | ||||||||||||||||
| Other comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Ending balance | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
6. COMMITMENTS AND CONTINGENCIES
License and Other Agreements
In
May 2018, the Company entered into an Asset Purchase Agreement (the “MacroGenics Asset Purchase Agreement”) with MacroGenics,
Inc. (“MacroGenics”) pursuant to which the Company acquired MacroGenics’ interest in teplizumab (renamed PRV-031),
a humanized mAb for the treatment of Type 1 Diabetes (“T1D”). As partial consideration for the MacroGenics Asset Purchase
Agreement, the Company granted MacroGenics a warrant to purchase
| 18 |
In
May 2018, the Company entered into a License Agreement with MacroGenics (the “MacroGenics License Agreement”), pursuant to
which MacroGenics granted the Company exclusive global rights for the purpose of developing and commercializing MGD010 (renamed PRV-3279),
a humanized protein and a potential treatment for systemic lupus erythematosus (“SLE”) and other similar diseases. As partial
consideration for the MacroGenics License Agreement, the Company granted MacroGenics a warrant to purchase
The Company is obligated to use commercially reasonable efforts to develop and seek regulatory approval for PRV-3279. The license agreement may be terminated by either party upon a material breach or bankruptcy of the other party, by the Company without cause upon prior notice to MacroGenics, and by MacroGenics in the event that the Company challenges the validity of any licensed patent under the agreement.
In
February 2021, the Company entered into a License Agreement with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd., a wholly-owned subsidiary
of Huadong Medicine Co., Ltd. (the “Huadong License Agreement”), pursuant to which the Company granted Huadong exclusive
rights for the purpose of developing and commercializing PRV-3279, a DART® (bispecific antibody-based molecule) targeting the B cell
surface proteins CD32B and CD79B, in Greater China (mainland China, Hong Kong, Macau and Taiwan). Provention Bio will retain exclusive
worldwide rights to develop PRV-3279 for combination uses to reduce the immunogenicity of biotherapeutics, but Huadong will have the
exclusive right to distribute PRV-3279 in that field in Greater China. In consideration of the license and other rights granted as part
of the Huadong License Agreement, the Company received an upfront payment of $
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The
Company evaluated the Huadong License Agreement under the provisions of ASC 606 and identified the following three material promises:
(1) the license of rights to PRV-3279 in Greater China, (2) the performance of clinical research activities and (3) manufacturing process
improvements. The Company concluded that the performance obligations were not distinct and consequently do not have value on a standalone
basis. Accordingly, they were determined to represent one performance obligation. The Company determined that the transaction price of
the Huadong License Agreement was $
The
Company recognizes collaboration revenue using a cost-based input method according to costs incurred to date compared to estimated total
costs of the clinical research activities over the period which the activities are performed under the agreement, which is currently
expected to occur through the second half of 2024. The Company recognized collaboration revenue of $
In
November 2018, the Company entered into a License and Collaboration Agreement (the “Amgen Agreement”) with Amgen, Inc. (“Amgen”)
for PRV-015 (ordesekimab, also known as AMG 714), a novel anti-IL-15 monoclonal antibody being developed for the treatment of gluten-free
diet non-responsive celiac disease (“NRCD”). Under the terms of the agreement, the Company will conduct and fund a Phase
2b trial in NRCD and lead the development and regulatory activities for the program. Amgen agreed to make an equity investment of up
to $
In
April 2017, the Company entered into a License Agreement with Vactech Ltd. (the “Vactech License Agreement”), pursuant to
which Vactech Ltd. (“Vactech”) granted the Company exclusive global rights for the purpose of developing and commercializing
the group B coxsackievirus vaccine (“CVB”) platform technology. In consideration of the licenses and other rights granted
by Vactech, the Company issued two million shares of its common stock to Vactech. The Company recorded the issuance of the shares at
their estimated fair value of approximately $ per share, for a total of $
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Legal Proceedings
On May 21, 2021, a putative class action complaint was filed in the U.S. District Court for the District of New Jersey (the “Court”), naming the Company, Chief Executive Officer Ashleigh Palmer, and retired and former Chief Financial Officer Andrew Drechsler as defendants (the “Securities Action”). The complaint alleged violations of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline.
On December 23, 2021, the subsequently appointed lead plaintiff (“Lead Plaintiff”) and named plaintiff filed an amended complaint (the “Amended Complaint”) alleging similar violations to the original complaint. Lead Plaintiff sought to represent a class of shareholders who purchased or otherwise acquired the Company’s securities between November 2, 2020 and July 6, 2021. The Amended Complaint also sought unspecified damages. The Company, Mr. Palmer, and Mr. Drechsler filed their response, a motion to dismiss, to the Amended Complaint on February 8, 2022 (the “Motion to Dismiss”). The Lead Plaintiff filed an opposition to that motion on March 25, 2022. The Company, Mr. Palmer, and Mr. Drechsler filed their reply on April 26, 2022. On August 4, 2022, Judge Patty Shwartz of the Third Circuit, sitting by designation for the limited purpose of deciding the Motion to Dismiss, granted the Motion to Dismiss with prejudice. Lead Plaintiff did not appeal the decision.
On August 5, 2021 and October 7, 2021, two shareholder derivative lawsuits concerning substantially the same facts and disclosures underlying the Securities Action (the “New Jersey Derivative Actions”) were filed in the same Court, naming Chief Executive Officer Ashleigh Palmer, retired and former Chief Financial Officer Andrew Drechsler, and Company directors Jeffrey Bluestone, Avery Catlin, Sean Doherty, John Jenkins, Wayne Pisano, and Nancy Wysenski as defendants (the “Individual Defendants”). The Company was named in both New Jersey Derivative Actions as a nominal defendant. The New Jersey Derivative Actions alleged: (1) violations of Section 14(a) of the Exchange Act against the Company directors (including Ashleigh Palmer) in connection with the Company’s March 29, 2021 proxy statement; (2) breaches of fiduciary duty against all Individual Defendants in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline, among other common law causes of action; and (3) sought contribution under Sections 10(b) and 21D of the Exchange Act against Ashleigh Palmer and Andrew Drechsler in connection with the Securities Action. The New Jersey Derivative Actions sought unspecified damages, including legal fees associated with the Securities Action and compensation paid to the Individual Defendants. The New Jersey Derivative Actions also sought an order directing the Company and Individual Defendants to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures.
On October 28, 2021, both plaintiffs and all defendants in the New Jersey Derivative Actions filed a joint stipulation and proposed order to consolidate the Derivative Actions and appoint co-lead counsel, which the Court granted on November 1, 2021. In response to a series of stipulations and motions, the Court entered a temporary stay of proceedings in the New Jersey Derivative Actions pending the resolution of the Motion to Dismiss in the Securities Action. On September 21, 2022, following the dismissal of the Securities Action, the Court ordered a voluntarily dismissal of the New Jersey Derivative Actions without prejudice in response to a joint stipulation filed by the parties.
On August 8, 2022, a third shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware concerning substantially the same facts and disclosures underlying the Securities Action and the New Jersey Derivative Actions (the “Delaware Derivative Action”). The Delaware Derivative Action names the same Individual Defendants as the New Jersey Derivative Actions and names the Company as a nominal defendant. The complaint in the Delaware Derivative Action alleges: (1) breaches of fiduciary duty against all Individual Defendants in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline; and (2) unjust enrichment. The Delaware Derivative Action seeks unspecified damages from the Individual Defendants in favor of the Company and an order directing the Company to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures, among other forms of relief. The Company’s and the Individual Defendants’ response to the complaint was filed on October 28, 2022.
| 21 |
The Company is unable at this time to determine whether the outcomes of these litigations would have a material impact on its results of operations, financial condition or cash flows. The Company does not have contingency reserves established for any litigation liabilities.
Basic and diluted net loss per common share is determined by dividing net loss by the weighted average common shares outstanding during the period. For the periods where there is a net loss, stock options and warrants have been excluded from the calculation of diluted net loss per common share because their effect would be anti-dilutive. Therefore, the weighted average common shares used to calculate both basic and diluted net loss per common share would be the same.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares of common stock outstanding, basic and diluted | ||||||||||||||||
| Net loss per share of common stock, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Stock options | ||||||||||||||||
| Warrants | ||||||||||||||||
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Accrued research and development expenses | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued pre-commercial costs | ||||||||
| Accrued professional fees | ||||||||
| Accrued interest payable | ||||||||
| Other accrued liabilities | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
9. FAIR VALUE OF ASSETS AND LIABILITIES
The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts payable and accrued expenses approximate fair value based on the short-term nature of these items.
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In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy prioritizes the inputs used to measure fair value as follows:
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
The following is a summary of assets and their related classifications under the fair value hierarchy:
| September 30, 2022 | ||||||||||||||||
| Financial Instruments Carried at Fair Value | ||||||||||||||||
| Quoted prices in active markets for identical items | Significant other observable inputs | Significant unobservable inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash and cash equivalents1 | $ | $ | $ | $ | ||||||||||||
| Investments in U.S. Treasury securities2 | ||||||||||||||||
| Investments in U.S. Government agency securities2 | ||||||||||||||||
| Investments in corporate debt securities2 | ||||||||||||||||
| December 31, 2021 | ||||||||||||||||
| Financial Instruments Carried at Fair Value | ||||||||||||||||
| Quoted prices in active markets for identical items | Significant other observable inputs | Significant unobservable inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Assets: | ||||||||||||||||
| Cash and cash equivalents 1 | $ | $ | $ | $ | ||||||||||||
| Investments in corporate debt securities2 | ||||||||||||||||
| 1 | |
| 2 |
In 2017, the Company adopted the Provention Bio, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). Pursuant to the 2017 Plan, the Company’s Board of Directors may grant incentive stock options, nonqualified stock options and restricted stock to employees, officers, directors, consultants and advisors. As of September 30, 2022, there were options to purchase an aggregate of shares of common stock outstanding under the 2017 Plan. Options issued under the 2017 Plan are exercisable for up to years from the date of issuance.
In 2018, the Company amended and restated its 2017 Plan to, among other things, include an evergreen provision, which would automatically increase .
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In connection with the evergreen provisions of the 2017 Plan, the number of shares available for issuance under the 2017 Plan was increased by shares, as determined by the board of directors under the provisions described above, effective as of January 1, 2022. As of September 30, 2022, there were shares available for future grants.
In October 2020, the Company adopted the Provention Bio, Inc. 2020 Inducement Plan (the “2020 Inducement Plan”). Pursuant to the terms of the 2020 Inducement Plan, the Company may grant non-statutory stock options, stock appreciation rights, restricted stock unit awards and restricted stock for up to a total of shares of common stock to individuals that were not previously an employee or director of the Company or individuals returning to employment after a bona fide period of non-employment with the Company. In May 2022, the Company amended its 2020 Inducement Plan to increase the number of shares available for issuance by shares, increasing the total number of shares available for issuance under the plan to shares. As of September 30, 2022, there were options to purchase shares of common stock outstanding under the 2020 Inducement Plan and shares available for future grants. Options issued under the 2020 Inducement Plan are exercisable for up to years from the date of issuance.
Stock-based compensation
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
Option activity
The Company grants options with service-based vesting requirements as well as options with performance-based vesting requirements. Generally, the service-based requirements vest over a four-year period in multiple tranches. Each tranche of the performance-based component vests upon the achievement of a specific milestone. These milestones are related to the Company’s clinical trials, manufacturing activities, regulatory activities, commercial activities and certain other performance metrics.
| Weighted- | ||||||||||||||
| Weighted- | Average | |||||||||||||
| Average | Remaining | |||||||||||||
| Underlying | Exercise | Contractual | Intrinsic | |||||||||||
| Stock Option Awards | Shares | Price | Term | Value | ||||||||||
| Outstanding at December 31, 2021 | $ | years | ||||||||||||
| Granted | $ | |||||||||||||
| Exercised | ( | ) | $ | |||||||||||
| Forfeited or expired | ( | ) | $ | |||||||||||
| Outstanding at September 30, 2022 | $ | years | $ | |||||||||||
| Exercisable at September 30, 2022 | $ | years | $ | |||||||||||
The weighted average grant-date fair value of options granted during the nine months ended September 30, 2022 was $ per share. As of September 30, 2022, there were approximately unvested options subject to performance-based vesting criteria with approximately $ million of unrecognized compensation expense. This expense will be recognized when each milestone becomes probable of occurring. In addition, as of September 30, 2022, there were approximately unvested options outstanding subject to time-based vesting with approximately $ million of unrecognized compensation expense which will be recognized over a period of years.
| 24 |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cash proceeds from options exercised | $ | $ | $ | $ | ||||||||||||
| Aggregate intrinsic value of options exercised | ||||||||||||||||
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Exercise price | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Expected dividends | ||||||||
| Expected term (in years) | ||||||||
| Risk-free interest rate | % | % | ||||||
The weighted-average valuation assumptions were determined as follows:
| ● | Risk-free interest rate: The Company bases the risk-free interest rate on the interest rate payable on United States Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term. | |
| ● | Expected annual dividends: The estimate for annual dividends is , because the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend. | |
| ● | Expected stock price volatility: The expected volatility used is based on historical volatilities of similar entities within the Company’s industry which were commensurate with the Company’s expected term assumption. The Company also utilizes its limited available historical volatility, to a lesser weight, in its expected volatility calculation. | |
| ● | Expected term of options: The expected term of options represents the period of time options are expected to be outstanding. The expected term of the options granted to employees is derived from the “simplified” method as described in Staff Accounting Bulletin 107 relating to stock-based compensation, whereby the expected term is an average between the vesting period and contractual period due to the limited operating history. For non-employee stock option grants, the Company has the option to utilize either the expected term or the contractual term, determined on an award-by-award basis. |
11. DEBT
On
August 31, 2022 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Hercules
LSA”) with certain financial institutions (the “Lenders”) and Hercules Capital, Inc., (“Hercules”).
The Hercules LSA provides for up to $
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The
term loans have a scheduled maturity date of
The
term loans will bear interest at a per annum rate equal to the greater of (i) the prime rate as reported in The Wall Street Journal plus
If
the Company makes a prepayment on the term loans, it will be obligated to pay a prepayment charge, based on a percentage of the amount
of term loans so prepaid, equal to: (i)
The Hercules LSA contains customary representations and warranties as well as certain financial covenants in term loan facilities of this type for similarly situated companies, including but not limited to liquidity, monthly revenue performance and market capitalization covenants. The Company was in compliance with all such covenants at September 30, 2022.
In
connection with the funding of each tranche of Hercules LSA, the Company will issue warrants to the Lenders to acquire shares of the
Company’s common stock at an exercise price per share equal to the three-day volume-weighted average price prior to the
closing of each tranche of term loans (the “Exercise Price”), subject to certain terms and conditions (the “Term
Loan Warrants”). The number of shares of the Company’s common stock into which such Term Loan Warrants will be
exercisable will be equal to the aggregate principal amount of the applicable tranche of term loans funded multiplied by
In
accordance with ASC 470, Debt, the value of the initial Hercules LSA term loan and the Term Loan Warrants was allocated using
a relative fair value allocation. The Company evaluated the features of the Hercules LSA and the Term Loan Warrants in accordance with
ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. The Company determined that the Hercules
LSA and the Term Loan Warrants did not contain any features that would qualify as a derivative or embedded derivative. In addition, the
Company determined that the Term Loan Warrants should be classified as equity. The estimated fair value of the Term Loan Warrants, determined
to be approximately $
| Fair value of common stock | $ | |||
| Exercise price | $ | |||
| Expected volatility | % | |||
| Expected dividends | ||||
| Contractual term (in years) | ||||
| Risk-free interest rate | % |
The
fair value of the Term Loan Warrants was recorded as a credit to additional paid-in capital and treated as a debt discount. The remaining
value was allocated to the initial Hercules LSA term loan, net of $
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The following table presents the carrying value of the Company’s debt balance as of the periods indicated:
| September 30, 2022 | December 31, 2021 | |||||||
| Hercules LSA term loan | $ | $ | ||||||
| Debt discount and debt issuance costs, unamortized | ( | ) | ||||||
| End of term charge accretion | ||||||||
| Debt, long-term | $ | $ | ||||||
As of September 30, 2022, future principal payments of the Company’s debt balance, including the contractual end of term charge, for each of the fiscal years through maturity were as follows:
| Year ending December 31, | ||||
| 2022 (remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| $ |
Interest expense during the periods presented below were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Contractual interest expense | $ | $ | $ | $ | ||||||||||||
| Accretion of debt discount | ||||||||||||||||
| Amortization of debt issuance costs | ||||||||||||||||
| Total interest expense | $ | $ | $ | $ | ||||||||||||
12. WARRANTS
In
connection with the April 2017 sale of Series A Convertible Redeemable Preferred Stock, the Company issued warrants to MDB Capital Group,
LLC (“MDB”), the placement agent, and its designees to purchase
In
connection with the Company’s completion of its IPO, in July 2018, the Company issued to MDB, the underwriter in the IPO, and its
designees warrants to purchase
In
connection with the July 2022 Private Placement, the Company issued to certain institutional purchasers warrants to acquire
additional shares of the Company’s common stock. The warrants will expire
| 27 |
The Company evaluated whether the warrants should be classified as a liability or equity in accordance with ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. Based on its evaluation, the Company determined that the warrants should be classified as equity and were recorded as a credit to additional paid-in capital as a component of the net proceeds from the July 2022 Private Placement and are not subject to remeasurement. The Company will continue to evaluate the classification of the equity warrants on a quarterly basis, to determine whether the warrants continue to meet equity classification.
During the three and nine months ended September 30, 2022 and 2021, no warrants to purchase shares of the Company’s common stock were exercised.
As of September 30, 2022, outstanding warrants consisted of the following:
| Number of Warrants | Weighted Average Exercise Price | Expiration Date | ||||||||
| July 2022 Private Placement warrants | $ | |||||||||
| IPO warrants | ||||||||||
| Series A warrants | ||||||||||
| Term Loan Warrants - 1st tranche (see Note 11) | ||||||||||
| Total | $ | |||||||||
13. FIXED ASSETS
Fixed assets consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Software | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Furniture and fixtures | ||||||||
| Clinical equipment | ||||||||
| Office equipment | ||||||||
| Software in progress | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Fixed assets, net | $ | $ | ||||||
Depreciation
expense was $
14. LEASES
The Company’s lease portfolio consists of one office lease located in Red Bank, NJ. This lease is classified as an operating lease and has an initial term of 64 months from the lease commencement date, which began in October 2020. The Company has the option to renew or terminate the current term of a lease agreement at the end of the lease term. In its initial assessment of the lease term of the Red Bank, NJ office lease, the Company concluded that it is not reasonably certain to exercise the option to renew or terminate and therefore, this option was not considered in its lease assessment. The Company does not separate lease and non-lease components for all classes of underlying assets. The Company does not have any leases that contain residual value guarantees and the Company does not sublease any of its leased assets. The Company does not record leases with an initial lease term of one-year or less on its consolidated balance sheet. As of September 30, 2022, the Company has not entered into any short-term leases.
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The components of lease expense from continuing operations were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Variable lease expense | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
Supplemental balance sheet information related to leases are as follows:
| Classification | As of September 30, 2022 | As of December 31, 2021 | ||||||||
| Operating leases | ||||||||||
| Lease right-of-use assets | ||||||||||
| Non-current | Operating lease right-of-use assets | $ | $ | |||||||
| Lease liabilities | ||||||||||
| Current | Accrued expenses and other current liabilities | $ | $ | |||||||
| Non-current | Operating lease liabilities, long-term | $ | $ | |||||||
| Weighted average remaining lease term | ||||||||||
| Operating leases | ||||||||||
| Weighted average discount rate | ||||||||||
| Operating leases | % | % | ||||||||
As of September 30, 2022, maturities of lease liabilities on an annual basis for the remaining years of the Company’s non-cancelable lease agreements were as follows:
| Operating Leases | ||||
| Year ending December 31, | ||||
| 2022 (remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: present value discount | ||||
| Present value of lease liabilities | $ | |||
15. INCOME TAXES
The
Company recorded no provision or benefit for state income taxes for the three months ended September 30, 2022 and 2021. The Company recorded
a benefit from state income taxes of $
| 29 |
16. SUBSEQUENT EVENTS
On
October 4, 2022, the Company and Genzyme Corporation, a fully-owned subsidiary of Sanofi, entered into the Sanofi Co-Promotion Agreement.
Pursuant to the Sanofi Co-Promotion Agreement, the Company appointed Sanofi to co-promote and conduct certain commercialization activities
with respect to teplizumab in the United States on a co-exclusive basis for the treatment of the indication for which teplizumab receives
approval in the United States during the term of the Sanofi Co-Promotion Agreement. The Company also committed to reimburse the field
force-related expenses and certain other allowable expenses that Sanofi will incur in connection with commercializing teplizumab under
the agreement, up to an aggregate cap of $
The
Company also granted Sanofi an exclusive, one-time right of first negotiation to obtain exclusive rights to research, develop and commercialize
teplizumab with respect to the treatment or delay of T1D, or any of its root causes throughout the world, and to manufacture teplizumab
in support of such research, development and commercialization (the “ROFN”) in exchange for a one-time upfront, non-refundable,
payment of $
Simultaneously,
the Company and Sanofi also entered into the Sanofi Securities Purchase Agreement. Pursuant to the Sanofi Securities Purchase Agreement,
if the BLA submitted to the FDA for the delay of clinical T1D in at-risk individuals is approved by the FDA, Sanofi has agreed to purchase
$
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage biopharmaceutical company dedicated to intercepting and preventing immune-mediated diseases. Since our inception, we have devoted substantially all of our efforts to business planning, research and development, pre-commercial activities, recruiting management and technical staff, acquiring operating assets, partnering and raising capital. We have not yet commenced any commercial revenue-generating operations, do not have any positive cash flows from operations and we will need to raise additional capital to finance our operations.
We have not generated any revenue from commercial product sales to date and, through September 30, 2022, we had an accumulated deficit of $372.4 million. We have financed our operations primarily through equity offerings.
| 30 |
We expect that over the next several years we will continue to incur losses from operations as we increase our expenditures in research and development in connection with our regulatory submissions, clinical trials and other development activities, as well as costs to support our commercialization efforts to launch teplizumab, if we receive regulatory approval in the United States. If adequate funds are not available to us on a timely basis, or at all, we may be required to terminate or delay certain development and pre-commercial activities.
Our Focus and Pipeline
Our goal is to pioneer substantial improvements in standards of care for autoimmune disease. Autoimmune disorders are a leading cause of death and disability around the world. Over 24 million patients in the United States live with autoimmune disease, with prevalence increasing significantly. There are over 100 types of autoimmune disorders which reduce patient quality-of-life, can result in complications such as cardiovascular risk and organ failures, and increase the risk of overall mortality.
Our portfolio aims to address autoimmune disease through modulating key upstream and nodal mechanisms of immune dysregulation. Our lead asset is focused initially on patients at-risk for clinical T1D, for which we resubmitted a BLA to the FDA, have been assigned a user fee goal date of August 17, 2022 that was extended to November 17, 2022 and continue to prepare for a potential approval and commercialization, and newly diagnosed patients, for which we have an ongoing Phase 3 clinical trial, the PROTECT study. Further, we intend to pursue the development of our other pipeline product candidates in systemic lupus erythematosus (“SLE”), celiac disease, and other debilitating and life-threatening autoimmune diseases.
While the etiology of autoimmune diseases is often complex, poorly characterized or unknown, infections are believed to play a key role in triggering and/or driving the disease. Inflammation is a natural consequence of most infections, as it is the immune system’s first response to invading pathogens in the event of injury or acute illness. Most of the time, this response is beneficial and well-controlled; helping to repair tissue damage and clear pathogens from the body. But when patients have the requisite genetic predisposition for autoimmunity, infections can also trigger and/or drive chronic autoimmune responses that persist and progress long after the original insult has subsided. Our pipeline of investigational candidates under development target upstream autoimmune pathways and viral triggers/drivers with the goal of intercepting and preventing life-threatening and debilitating immune-mediated diseases.
Pipeline Status
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● |
PRV-031 (teplizumab): a humanized, anti-CD3 monoclonal antibody (“mAb”) for the delay of clinical T1D in at-risk individuals and for patients with newly diagnosed T1D. Teplizumab has been designated by the FDA as an orphan drug for the treatment of newly diagnosed T1D. Teplizumab was also granted breakthrough therapy designation from the FDA in August 2019, PRIME eligibility from the EMA in October 2019 and granted an Innovation Passport in the United Kingdom in July 2021 for the delay of clinical type 1 diabetes in at-risk individuals; | |
| ● | PRV-3279: a humanized bispecific scaffold molecule targeting the B-cell surface proteins, CD32B and CD79B, for the treatment of SLE and for the prevention of immunogenicity of biotherapeutics such as those used in gene therapy; | |
| ● | PRV-015 (ordesekimab): a human anti-interleukin 15 (“IL-15”) mAb for the treatment of gluten-free diet non-responsive celiac disease (“NRCD”), intercepting the effects of contaminating gluten in the most common autoimmune disorder without any approved medication; and | |
| ● | PRV-101: a coxsackievirus B (“CVB”) vaccine to prevent acute CVB infections and, in those patients at-risk, to prevent the CVB-driven autoimmune damage to pancreatic beta cells that may progress to T1D and damage to intestinal cells that may lead to celiac disease. |
Recent Company Developments
PRV-031 (teplizumab, anti-CD3 mAb)
Type-B Pre-BLA Resubmission Meeting
On January 27, 2022, we announced our intent to resubmit the teplizumab BLA for the delay of clinical T1D in at-risk individuals following a Type B pre-BLA resubmission meeting with the FDA. The purpose of the Type B pre-BLA resubmission meeting was to discuss the FDA’s feedback and obtain agreement on our proposed clinical pharmacology data package, including data and analysis from the pharmacokinetic/pharmacodynamic (“PK/PD”) substudy completed by us to address the FDA’s PK comparability considerations contained in the CRL issued in July 2021. In preliminary meeting comments, the FDA noted that the data package presented does not adequately support PK comparability because predicted primary PK parameters are indicative of a lower exposure. To address this concern, the FDA proposed, and we agreed, to use PK modeling to adjust the 14-day dosing regimen for the planned commercial product to match the exposure of clinical material used in prior clinical trials by ensuring that the 90% confidence intervals for relevant PK parameters fall within the target 80-125% range. On this basis, the FDA agreed that we could proceed to resubmit the BLA.
Based on our and the FDA’s agreed upon PK modeling, and our experience with various doses and regimens tested in prior clinical trials, we announced that we planned to propose in the BLA resubmission a modified 14-day course of therapy to address the FDA’s comparability considerations and also include responses to address the CRL’s Chemical, Manufacturing, and Controls (“CMC”) and product quality considerations, as agreed with the FDA at a Type A meeting held in August of 2021.
Teplizumab BLA Resubmission
On February 22, 2022, we announced that we resubmitted the BLA for teplizumab for the delay of clinical T1D in at-risk individuals. The purpose of the resubmission is to address the FDA’s PK comparability considerations contained in the CRL issued in July 2021, as well as the CRL’s CMC and product quality considerations. The CRL did not cite any clinical deficiencies related to the efficacy and safety data packages submitted to the original BLA. The resubmission comes after the January 2022 Type B meeting during which the FDA proposed, and we agreed, to use PK modeling to adjust the 14-day dosing regimen for the planned commercial product to match the exposure of clinical material used in prior clinical trials by ensuring that the 90% confidence intervals for relevant PK parameters fall within the target 80-125% range.
| 32 |
Teplizumab BLA Resubmission Acceptance
On March 21, 2022, we announced that the resubmitted BLA for teplizumab for the delay of clinical T1D in at-risk individuals was considered a complete, class 2 response to the July 2021 CRL from the FDA. The FDA assigned a user fee goal date of August 17, 2022.
Extension of FDA User Fee Goal Date
On June 30, 2022, we announced that the FDA extended its review period by three months for the BLA for teplizumab. The extended user fee goal date is now November 17, 2022. The FDA informed us that our timely responses to an information request, related to updating the PK model to include additional anti-drug antibody data and re-evaluating the proposed modeled regimens made earlier in June 2022, to be a Major Amendment to the BLA resubmission, requiring additional time for the FDA’s review.
We were also informed that if no major deficiencies are identified during the review period, the FDA plans to communicate proposed labeling and, if necessary, any post-marketing requirement or commitment requests by October 17, 2022.
The FDA has engaged with us in routine negotiations and discussions with respect to their ongoing review, the draft label sent to us by the FDA in October, as well as the FDA’s proposed post-marketing requirements or commitments. These negotiations and discussions with the FDA may not lead to an approval of the BLA resubmission for teplizumab.
Sanofi Co-Promotion Agreement
On October 4, 2022, we announced that we entered into the Sanofi Co-Promotion Agreement with Genzyme Corporation, a fully-owned subsidiary of Sanofi. Pursuant to the agreement, we appointed Sanofi to co-promote and conduct certain commercialization activities with respect to teplizumab in the United States on a co-exclusive basis for the treatment of the indication for which teplizumab receives approval in the United States during the term of the Sanofi Co-Promotion Agreement. We also committed to reimburse the field force-related expenses and certain other allowable expenses that Sanofi will incur in connection with commercializing teplizumab under the agreement, up to an aggregate cap of $33.0 million, which includes a pre-determined margin on field force-related expenses.
We also granted Sanofi an exclusive, one-time ROFN to obtain exclusive rights to research, develop and commercialize teplizumab with respect to the treatment or delay of T1D, or any of its root causes throughout the world, and to manufacture teplizumab in support of such research, development and commercialization in exchange for a one-time upfront, non-refundable, payment of $20.0 million.
Simultaneously, we also entered into the Sanofi Securities Purchase Agreement, pursuant to which, if the BLA submitted to the FDA for the delay of clinical T1D in at-risk individuals is approved by the FDA, Sanofi has agreed to purchase $35.0 million of our common stock at a purchase price per share equal 140% of the daily volume-weighted average per share price of our common stock for the five consecutive trading days prior to the closing date. The closing date and five consecutive trading day period for determining the purchase price per share shall be at our election, but the closing must occur no later than February 16, 2023.
PRV-3279 (humanized anti-CD32B and CD79B bispecific)
PREVAIL-2 Phase 2a Study
On January 20, 2022, we announced the initiation of the Phase 2a PREVAIL-2 study (PRV-3279 EVAluation In Lupus – Phase 2). PRV-3279 is an investigational humanized bispecific DART molecule targeting the B-cell surface proteins CD32B and CD79B, which has the potential to intercept the pathophysiology of SLE and other B cell-mediated autoimmune diseases, as well as to prevent the immunogenicity of biotherapeutic products such as gene therapy.
| 33 |
The PREVAIL-2 study is a Phase 2a proof-of-concept (“POC”) study in moderate-to-severe SLE patients induced into response with a short course of corticosteroids, and then monitored for relapse, after randomization to either PRV-3279 or placebo treatment. This design enables the withdrawal of most concomitant medications and clear POC evaluation. The study will be conducted in the United States and Hong Kong. Screening has commenced in the United States with the goal of identifying and enrolling approximately 100 patients to 6 monthly infusions of PRV-3279 or placebo, with primary efficacy readout at 24 weeks. PRV-3279 was well-tolerated in a prior single ascending dose Phase 1 study and a multiple ascending dose Phase 1b study, PREVAIL-1, establishing proof of mechanism with long-lasting inhibition of B cell function as shown by reduction in Immunoglobulin M (“IgM”) production 8 weeks post last dose of PRV-3279. These results, together with observations that CD32B genetic variants are associated with SLE, and that PRV-3279 inhibits B cells isolated from SLE patients, support evaluation in SLE.
The ongoing effects of the COVID-19 pandemic have affected the PREVAIL-2 study enrollment, primarily due to resource constraints at the clinical site level and subdued patient interest in participating in clinical trials of immune modulatory agents. We now expect top-line results of the PREVAIL-2 study in the second half of 2024.
PRV-101 (CVB Vaccine)
Final Results from First-in-Human Phase 1 Clinical Study of PRV-101 (PROVENT Study)
On March 28, 2022, we announced results from the final analysis of the first-in-human PROVENT study of PRV-101, a polyvalent inactivated CVB vaccine candidate targeting all key CVB strains associated with T1D autoimmunity. We are developing PRV-101 for the prevention of CVB- driven autoimmune damage to pancreatic beta cells that may progress to T1D and damage to intestinal cells that may lead to celiac disease.
The study’s primary endpoint was the safety of two dose levels of PRV-101 in healthy adult volunteers provided three administrations with 4-week intervals. Tolerability and immunogenicity were also evaluated. In the final analysis, 6-months following the last administered dose of the vaccine, PRV-101 met the primary endpoint confirming the tolerability observed in the previously reported interim analysis, with no treatment-emerging serious adverse events, adverse events of special interest, or adverse events leading to study drug discontinuation or study withdrawal. The results showed durability of viral neutralizing antibody (“VNT”) responses. 6-months following the final dosing, the percentage of subjects in the high-dose PRV-101 arm who maintained high titers of VNT were 100% for the majority of serotypes included in the vaccine and no less than 90% for all serotypes. We are currently exploring partnership opportunities to further the clinical development of PRV-101.
Impact of COVID-19 on our Business
We are closely monitoring continued developments related to the COVID-19 pandemic and are making every effort to ensure we remain focused on the health and well-being of our patients and our employees while maintaining business continuity. At this time, we are unable to predict what the long-term impact of the pandemic, and the associated economic downturn, will have on our business, including planned clinical trial readouts, regulatory interactions and submissions, manufacturing and supply chain, regulatory review and related timelines for our BLA resubmission, including any potential United States launch of teplizumab if approved by the FDA. We have experienced some level of disruption to each of our current trials. We completed target enrollment in the PROTECT study in August 2021 and expect to report top-line results in the second half of 2023, subject to change for any potential interruptions related to COVID-19, regulatory decisions or issues or other interruptions. We initiated the PRV-015 Phase 2b trial in gluten free diet NRCD in August 2020 and the pandemic has caused difficulties and delays in recruitment. As a result of these delays, we now expect to report top-line results from the PROACTIVE study by the end of 2023. Additionally, our plans to initiate the Phase 2a portion of the PREVAIL-2 study in lupus patients by the first half of 2021 were delayed, predominantly due to COVID-19 related impacts, and we initiated the study in January 2022. The ongoing effects of the COVID-19 pandemic have affected the PREVAIL-2 study enrollment, primarily due to resource constraints at the clinical site level and subdued patient interest in participating in clinical trials of immune modulatory agents. We now expect top-line results of the PREVAIL-2 study in the second half of 2024.
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KEY COMPONENTS OF OUR RESULTS OF OPERATIONS
Collaboration Revenue
To date, we have not generated any revenue from commercial product sales. Our revenue currently consists only of collaboration revenue recognized under our License Agreement with Huadong, including certain amounts recognized in connection with the upfront license payment and research, development and manufacturing funding. We recognize revenue under the Huadong License Agreement using a cost-based input method according to costs incurred to date compared to estimated total costs of the clinical research activities over the period which the activities are performed under the agreement, which is currently expected to occur through the second half of 2024. We expect that revenue will fluctuate from period to period as a result of the timing of expenses incurred in conjunction with the related research and development activities.
Research and Development Expenses
Research and development expenses consist primarily of clinical studies, the cost of manufacturing our drug candidates for clinical study, regulatory costs, other internal operating expenses, and the cost of conducting preclinical activities. Expenses also include the cost of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions. In addition, our research and development expenses include payments to third parties, as well as the fair value of equity issuances to third parties for the license rights to products in development (prior to marketing approval). Our expenses related to clinical trials are primarily related to activities at CROs and other consultants that design, obtain regulatory and ethics committee approval, and conduct clinical trials on our behalf. Our expenses related to the production of drug substance or drug product for our clinical trials and development programs are primarily related to activities performed by licensors, strategic partners or CMOs and other consultants on our behalf. Our development efforts from inception through September 30, 2022, have been principally related to the acquisition and development of our clinical programs, as well as the build out of our medical affairs infrastructure, medical education programs and grants to support the screening of potential T1D patients.
All research and development expenses are charged to operations as incurred in accordance with ASC 730, Research and Development. We account for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for our personnel serving in our executive, business development, pre-commercial, legal, finance and accounting and other administrative functions. General and administrative expenses also include professional fees for marketing and other pre-commercial activities, legal, including patent-related expenses, consulting, insurance, board of director fees, tax and accounting services. We expect that our general and administrative expenses will increase significantly in the future as a result of the build out of our commercial organization and pre-commercial activities for teplizumab.
Interest Income, Net
Interest income, net, consists of interest income earned on our cash, cash equivalents and marketable securities offset by amortization of premiums and accretion of discounts to maturity on our marketable securities.
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Interest Expense
Interest expense consists of the accretion of debt discount, contractual interest costs and the amortization of debt issuance costs related to our debt. Debt discount is accreted, and debt issuance costs are amortized, to interest expense using the effective interest rate method over the term of the debt. Our consolidated balance sheets reflect debt, net of the debt discount, debt issuance costs paid to the lender and other third-party costs.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2022 and 2021
| Three Months Ended September 30, | ||||||||||||
| 2022 | 2021 | Increase (Decrease) | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Statement of Comprehensive Loss Data: | ||||||||||||
| Collaboration revenue | $ | 756 | $ | 678 | $ | 78 | ||||||
| Operating expenses: | ||||||||||||
| Research and development | 16,339 | 17,724 | (1,385 | ) | ||||||||
| General and administrative | 13,495 | 10,031 | 3,464 | |||||||||
| Total operating expenses | 29,834 | 27,755 | 2,079 | |||||||||
| Loss from operations | (29,078 | ) | (27,077 | ) | 2,001 | |||||||
| Interest income, net | 700 | 55 | 645 | |||||||||
| Interest expense | (255 | ) | — | 255 | ||||||||
| Loss before income tax benefit | (28,633 | ) | (27,022 | ) | 1,611 | |||||||
| Income tax benefit | — | — | — | |||||||||
| Net loss | $ | (28,633 | ) | $ | (27,022 | ) | $ | 1,611 | ||||
| Net loss per common share, basic and diluted | $ | (0.34 | ) | $ | (0.43 | ) | ||||||
| Weighted average common shares outstanding, basic and diluted | 83,119 | 63,375 | ||||||||||
Collaboration Revenue
Collaboration revenue was $0.8 million and $0.7 million for the three months ended September 30, 2022 and 2021, respectively, recognized from the Huadong License Agreement. The increase in collaboration revenue recognized is due to an increase in the related clinical research activities performed as a result of the initiation of the PREVAIL-2 Phase 2a study in January 2022.
Research and Development Expenses
Research and development expenses were $16.3 million for the three months ended September 30, 2022, a decrease of $1.4 million, compared to $17.7 million for the three months ended September 30, 2021. The decrease related primarily to lower costs for our teplizumab program, including the PROTECT study as we completed target enrollment in August 2021. This decrease in research and development expenses was partially offset by increased costs for the PROACTIVE Phase 2b study (PRV-015) and the PREVAIL-2 Phase 2a study (PRV-3279) which was initiated in January 2022. Research and development expenses for the three months ended September 30, 2022 and 2021 also included personnel costs of $6.1 million and $4.1 million, respectively, including stock-based compensation of $1.6 million and $1.2 million in each respective year. The increase in personnel costs relates to an increase in headcount.
General and Administrative Expenses
General and administrative expenses were $13.5 million for the three months ended September 30, 2022, an increase of $3.5 million, compared to $10.0 million for the three months ended September 30, 2021, driven by pre-commercial expenses. General and administrative expenses for the three months ended September 30, 2022 and 2021 were comprised of the following:
| Three Months Ended September 30, | ||||||||||||
| 2022 | 2021 | Increase (Decrease) | ||||||||||
| (in thousands) | ||||||||||||
| Pre-commercial expenses | $ | 7,633 | $ | 4,284 | $ | 3,349 | ||||||
| Other general and administrative expenses | 5,862 | 5,747 | 115 | |||||||||
| Total general and administrative expenses | $ | 13,495 | $ | 10,031 | $ | 3,464 | ||||||
Pre-commercial expenses were $7.6 million for the three months ended September 30, 2022 and primarily consisted of $3.4 million in external costs for our pre-commercial activities, such as marketing and market access costs, $3.9 million in personnel costs, including stock-based compensation of $0.6 million and $0.3 million of other pre-commercial expenses. Pre-commercial expenses were $4.3 million for the three months ended September 30, 2021 and primarily consisted of $1.3 million in external costs for our pre-commercial activities, such as marketing and market access costs, and $3.0 million in personnel costs, including stock-based compensation of $0.5 million. The increase in pre-commercial expenses related primarily to an increase in our pre-commercial activities and associated costs following the FDA’s acceptance of our BLA resubmission in March 2022, for which an extended user fee goal date of November 17, 2022 has been assigned by the FDA. We expect our pre-commercial activities to increase in the fourth quarter of 2022 as we continue to build out our commercial infrastructure, including our headcount, as we prepare for the potential commercial launch of teplizumab.
Other general and administrative expenses were $5.9 million for the three months ended September 30, 2022 and primarily consisted of $3.0 million in personnel costs, including stock-based compensation of $1.1 million, $1.4 million in professional fees and legal expenses and approximately $0.6 million in insurance and other public company costs. Other general and administrative expenses were $5.7 million for the three months ended September 30, 2021 and primarily consisted of $2.8 million in personnel costs, including stock-based compensation of $1.4 million, $1.8 million in professional fees and legal expenses and approximately $0.6 million in insurance and other public company costs.
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Interest Income, Net
Interest income, net, was $0.7 million during the three months ended September 30, 2022, compared to $0.1 million during the three months ended September 30, 2021. The increase in interest income, net, primarily related higher yields from our investment portfolio during the three months ended September 30, 2022 as well as an increased cash, cash equivalents and marketable securities balance during the three months ended September 30, 2022.
Interest Expense
Interest expense was $0.3 million during the three months ended September 30, 2022 and consisted of contractual interest, accretion of debt discount and amortization of debt issuance costs for our debt. We did not have any outstanding debt during the three months ended September 30, 2021.
Comparison of the nine months ended September 30, 2022 and 2021
| Nine Months Ended September 30, | ||||||||||||
| 2022 | 2021 | Increase (Decrease) | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Statement of Comprehensive Loss Data: | ||||||||||||
| Collaboration revenue | $ | 2,082 | $ | 678 | $ | 1,404 | ||||||
| Operating expenses: | ||||||||||||
| Research and development | 50,271 | 54,379 | (4,108 | ) | ||||||||
| General and administrative | 39,803 | 36,017 | 3,786 | |||||||||
| Total operating expenses | 90,074 | 90,396 | (322 | ) | ||||||||
| Loss from operations | (87,992 | ) | (89,718 | ) | (1,726 | ) | ||||||
| Interest income, net | 903 | 114 | 789 | |||||||||
| Interest expense | (255 | ) | — | 255 | ||||||||
| Loss before income tax benefit | (87,344 | ) | (89,604 | ) | (2,260 | ) | ||||||
| Income tax benefit | 7,056 | 1,000 | 6,056 | |||||||||
| Net loss | $ | (80,288 | ) | $ | (88,604 | ) | $ | (8,316 | ) | |||
| Net loss per common share, basic and diluted | $ | (1.14 | ) | $ | (1.41 | ) | ||||||
| Weighted average common shares outstanding, basic and diluted | 70,484 | 63,008 | ||||||||||
Collaboration Revenue
Collaboration revenue was $2.1 million and $0.7 million for the nine months ended September 30, 2022 and 2021, respectively, recognized from the Huadong License Agreement. The increase in collaboration revenue recognized is due to an increase in the related clinical research activities performed as a result of the initiation of the PREVAIL-2 Phase 2a study in January 2022.
Research and Development Expenses
Research and development expenses were $50.3 million for the nine months ended September 30, 2022, a decrease of $4.1 million, compared to $54.4 million for the nine months ended September 30, 2021. The decrease related primarily to lower costs for our teplizumab program, including the PROTECT study, as we completed target enrollment in August 2021, and lower costs for regulatory activities, compared to the prior year period, which included costs related to the initial teplizumab BLA submission. Also contributing to the decrease were costs related to the PROVENT Phase 1 study (PRV-101), for which we announced interim results from in October 2021, including $0.5 million in expense related to a milestone payment to Vactech for the first subject dosed in the PROVENT study during the first quarter of 2021. We also incurred $1.1 million in expenses related to the Company’s grant of certain rights of PRV-3279 to Huadong under the Huadong License Agreement during the first quarter of 2021. This decrease in research and development expenses was partially offset by increased costs for the PROACTIVE Phase 2b study (PRV-015) and the PREVAIL-2 Phase 2a study (PRV-3279) which was initiated in January 2022. Research and development expenses for the nine months ended September 30, 2022 and 2021 also included personnel costs of $17.7 million and $12.1 million, respectively, including stock-based compensation of $4.4 million and $3.5 million in each respective year. The increase in personnel costs relates to an increase in headcount.
General and Administrative Expenses
General and administrative expenses were $39.8 million for the nine months ended September 30, 2022, an increase of $3.8 million, compared to $36.0 million for the nine months ended September 30, 2021. General and administrative expenses for the nine months ended September 30, 2022 and 2021 were comprised of the following:
| Nine Months Ended September 30, | ||||||||||||
| 2022 | 2021 | Increase (Decrease) | ||||||||||
| (in thousands) | ||||||||||||
| Pre-commercial expenses | $ | 20,813 | $ | 17,594 | $ | 3,219 | ||||||
| Other general and administrative expenses | 18,990 | 18,423 | 567 | |||||||||
| Total general and administrative expenses | $ | 39,803 | $ | 36,017 | $ | 3,786 | ||||||
Pre-commercial expenses were $20.8 million for the nine months ended September 30, 2022 and primarily consisted of $9.3 million in external costs for our pre-commercial activities, such as marketing and market access costs, $10.5 million in personnel costs, including stock-based compensation of $1.7 million, and $0.9 million in other pre-commercial expenses. Pre-commercial expenses were $17.6 million for the nine months ended September 30, 2021 and primarily consisted of $9.2 million in external costs for our pre-commercial activities, such as marketing and market access costs, and $8.4 million in personnel costs, including stock-based compensation of $1.6 million. The increase in pre-commercial expenses related primarily to an increase in our pre-commercial activities and associated costs following the FDA’s acceptance of our BLA resubmission in March 2022, for which an extended user fee goal date of November 17, 2022 has been assigned by the FDA. We expect our pre-commercial activities to increase in the fourth quarter of 2022 as we continue to build out our commercial infrastructure, including our headcount, as we prepare for the potential commercial launch of teplizumab.
Other general and administrative expenses were $19.0 million for the nine months ended September 30, 2022 and primarily consisted of $9.4 million in personnel costs, including stock-based compensation of $3.7 million, $5.5 million in professional fees and legal expenses and approximately $2.1 million in insurance and other public company costs. Other general and administrative expenses were $18.4 million for the nine months ended September 30, 2021 and primarily consisted of $8.5 million in personnel costs, including stock-based compensation of $4.2 million, $6.2 million in professional fees and legal expenses and approximately $1.9 million in insurance and other public company costs.
Interest Income, Net
Interest income, net, was $0.9 million during the nine months ended September 30, 2022, compared to $0.1 million during the nine months ended September 30, 2021. The increase in interest income, net, primarily related higher yields from our investment portfolio during the nine months ended September 30, 2022.
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Interest Expense
Interest expense was $0.3 million during the nine months ended September 30, 2022 and consisted of contractual interest, accretion of debt discount and amortization of debt issuance costs for our debt. We did not have any outstanding debt during the nine months ended September 30, 2021.
Income Tax Benefit
We recorded an income tax benefit of $7.1 million during the nine months ended September 30, 2022, compared to $1.0 million during the nine months ended September 30, 2021. Both benefits recognized related to proceeds from the sale of certain of our prior years New Jersey net operating losses. The increase in income tax benefit related to an overall increase in the amount of NOLs sold year over year.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. We expect to continue to incur losses, as we plan to continue to fund development activities and prepare for a potential commercial launch of teplizumab, if we receive regulatory approval in the United States.
Since our inception in October 2016, we have financed our operations primarily through equity offerings. Through these equity offerings, we have raised aggregate net proceeds of approximately $468.8 million to date, net of underwriting discounts, commissions and other offering expenses.
As of September 30, 2022, we had cash, cash equivalents and marketable securities of $186.5 million. We currently have invested our cash, cash equivalents and marketable securities primarily in money market funds, U.S. Treasury and Government Agency securities and corporate debt securities.
In July 2022, we entered into a Securities Purchase Agreement with certain institutional purchasers, pursuant to which we sold, in a private placement, 13,318,535 shares of common stock and 13,318,535 warrants to acquire additional shares of common stock for aggregate gross proceeds of approximately $60.0 million, based on an offering price of $4.505 for each share plus one warrant. The warrants will expire five years from the closing date of the transaction, have an exercise price of $6.00 per share and are immediately exercisable upon issuance, subject to other limitations on exercise as described in the warrants. Net proceeds from the transaction were $57.2 million after deducting fees for the placement agent of $2.4 million and other offering expenses of $0.4 million.
We established the 2021 ATM Program through which we may sell, from time to time at our sole discretion, up to $150.0 million of shares of our common stock. During the nine months ended September 30, 2022, we sold 10,306,780 shares of our common stock for aggregate net proceeds of $47.4 million, net of $1.7 million in sales commissions and other offering expenses, under the 2021 ATM Program, of which, 7,263,808 shares of common stock were sold during the three months ended September 30, 2022 for aggregate net proceeds of $33.6 million, net of $1.1 million in sales commissions and other offering expenses. We have approximately $100.9 million of available capacity under the 2021 ATM Program.
In August 2022, we entered into the Hercules LSA with Hercules. The Hercules LSA provides for up to $125.0 million of term loans in the aggregate, available to be funded in up to five tranches. The first tranche in an amount equal to $25.0 million was drawn on August 31, 2022, the Closing Date. We may draw the second tranche in an amount equal to $40.0 million upon approval of the teplizumab resubmission by the FDA, subject to certain conditions. The third and fourth tranches will be available to us in an aggregate amount of up to $35.0 million, subject to satisfaction of certain conditions, including achievement of certain milestones. The availability of the fifth tranche of up to $25.0 million is subject to the approval of the Lenders.
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In October 2022, we and Genzyme Corporation, a fully-owned subsidiary of Sanofi entered into the Sanofi Co-Promotion Agreement. Pursuant to the Sanofi Co-Promotion Agreement, we appointed Sanofi to co-promote and conduct certain commercialization activities with respect to teplizumab in the United States, should teplizumab receive approval by the FDA, on a co-exclusive basis for the treatment of the indication for which teplizumab receives approval in the United States. We also committed to reimburse the field force-related expenses and certain other allowable expenses that Sanofi will incur in connection with commercializing teplizumab under the agreement, up to an aggregate cap of $33.0 million, which includes a pre-determined margin on field force-related expenses.
We also granted Sanofi an exclusive, one-time ROFN to obtain exclusive rights to research, develop and commercialize teplizumab with respect to the treatment or delay of T1D, or any of its root causes throughout the world, and to manufacture teplizumab in support of such research, development and commercialization in exchange for a one-time upfront, non-refundable, payment of $20.0 million, which was received in October 2022.
Simultaneously with the Sanofi Co-Promotion Agreement, we and Sanofi also entered into the Sanofi Securities Purchase Agreement, pursuant to which Sanofi has agreed to purchase $35.0 million of our common stock at a purchase price per share equal 140% of the daily volume-weighted average per share price of our common stock for the five consecutive trading days prior to the closing date, if the BLA submitted to the FDA for the delay of clinical T1D in at-risk individuals is approved by the FDA. The closing date and five consecutive trading day period for determining the purchase price per share shall be at our election, but the closing must occur no later than February 16, 2023. See Note 16 – Subsequent Events for a full description and additional details of the Sanofi Co-Promotion agreement and the Securities Purchase Agreement.
We have devoted substantially all of our financial resources and efforts to research and development and pre-commercial activities. We expect to continue to incur significant expenses and increasing operating losses over the next several years due to, among other things, costs related to research funding, development of our product candidates, strategic alliances and pre-commercial activities for teplizumab, as well as the development of our administrative and commercial organization. Our net losses may fluctuate significantly from quarter to quarter and year to year.
Our cash requirements for the remainder of 2022 and for 2023 will be impacted by a number of factors, the most significant of which are expenses related to teplizumab, including costs, timing and outcome of our regulatory activities, costs to build out our commercial infrastructure and pre-commercial activities for teplizumab, and if approval is received from the FDA, commercial sales activities (including the Sanofi Co-Promotion Agreement), the PROTECT clinical trial, manufacturing activities for teplizumab and any potential milestone payments that may become due upon a potential regulatory approval of teplizumab by the FDA. Ahead of our upcoming FDA user fee goal date of November 17, 2022, we have invested and will continue to invest in pre-commercial activities to prepare for the potential commercial launch of teplizumab. Other factors include costs related to our other ongoing clinical trials, such as the Phase 2b PROACTIVE clinical study of PRV-015 (ordesekimab) in celiac disease and the Phase 2a PREVAIL-2 clinical study of PRV-3279 in lupus, which was initiated in January 2022.
We believe, based on our current operating plans, which include our plans to prepare for a potential commercialization of teplizumab if approved by the FDA, and other factors described above, that our cash, cash equivalents and marketable securities of $186.5 million as of September 30, 2022, together with the $20.0 million we received in October 2022 under the Sanofi Co-Promotion Agreement, will be sufficient to fund our operating requirements for at least the next 12 months from the issuance of these financial statements. We have based these estimates on assumptions that may differ from actual results, and our available capital resources could be consumed faster than it currently expects.
We will need to raise additional capital to fund our operations, to develop and commercialize teplizumab, PRV-015, PRV-3279 and PRV-101 and to develop, acquire, or in-license other products. We currently plan to raise additional capital through equity offerings, debt, or potential out-licensing transactions. Such additional funding will be necessary to continue to develop our product candidates, to pursue the license or purchase of other technologies, to commercialize our product candidates or to purchase other products. We may seek to sell common or preferred equity or convertible debt securities, enter into other credit facilities or another form of third-party funding, or seek other debt financing. In addition, we may consider raising additional capital to fund operating activities, to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons. The sale of equity and convertible debt securities may result in dilution to our stockholders and those securities may have rights senior to those of our common stock. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all. If we are unable to obtain sufficient additional funds when required, we may be forced to delay, restrict or eliminate all or a portion of our development programs, dispose of assets or technology or cease operations.
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The timing and outcome of our regulatory activities for teplizumab will impact our cash runway. If our teplizumab BLA resubmission is approved by the FDA, we will likely encounter future liquidity needs if we do not raise additional capital. Factors that could impact our cash runway include, but are not limited to, our plans for and potential changes to estimated costs of commercialization which would include our commitments under the Sanofi Co-Promotion Agreement, the success of our potential commercial launch for teplizumab and potential milestone payments that may be triggered under our current agreements, including with MacroGenics.
Cash Flows
The following table shows a summary of our cash flows for the nine months ended September 30, 2022 and 2021:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| (in thousands) | ||||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (67,433 | ) | $ | (71,928 | ) | ||
| Investing activities | (36,854 | ) | 6,597 | |||||
| Financing activities | 128,479 | 102,377 | ||||||
| Net change in cash and cash equivalents | $ | 24,192 | $ | 37,046 | ||||
Cash Flows from Operating Activities
Net cash used in operating activities was $67.4 million for the nine months ended September 30, 2022, and primarily related to cash used to fund clinical development, manufacturing, regulatory activities and pre-commercial activities for teplizumab, clinical development activities for PRV-015 and PRV-3279, and increased personnel costs to support our clinical programs and the build out of our corporate and commercial infrastructure. Cash expenses were offset by $3.0 million received from Huadong in connection with the Huadong License Agreement during the nine months ended September 30, 2022. Our working capital was $165.3 million as of September 30, 2022.
Net cash used in operating activities was $71.9 million for the nine months ended September 30, 2021, and primarily related to cash used to fund clinical development, manufacturing, regulatory activities and pre-commercial activities for teplizumab, clinical development activities for PRV-015, PRV-3279 and PRV-101, and increased personnel costs to support our clinical programs and the build out of our corporate and commercial infrastructure. Cash expenses were offset by $8.5 million received from Huadong in connection with the Huadong License Agreement during the nine months ended September 30, 2021.
Cash Flows from Investing Activities
Net cash used in investing activities was $36.9 million for the nine months ended September 30, 2022, and primarily related to the purchase of marketable securities totaling $49.2 million and capital expenditures associated with data information systems of $0.4 million offset by proceeds received from the maturity of marketable securities totaling $12.8 million.
Net cash provided by investing activities was $6.6 million for the nine months ended September 30, 2021, and primarily related to proceeds received from the maturity of marketable securities totaling $23.8 million offset by purchases of marketable securities totaling $16.3 million and capital expenditures associated with data information systems of $0.9 million.
Cash Flows from Financing Activities
Net cash provided by financing activities was $128.5 million for the nine months ended September 30, 2022, and primarily related to aggregate net proceeds received from the July 2022 Private Placement of $57.2 million, $47.4 million from the sale of common stock under our 2021 ATM program, $23.7 million from the issuance of debt under the Hercules LSA as well as proceeds received from stock option exercises during the period.
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Net cash provided by financing activities was $102.4 million for the nine months ended September 30, 2021, and primarily related to aggregate net proceeds of $102.3 million received from our underwritten public offering which closed in January 2021, including the subsequent partial exercise of the underwriters’ option to purchase additional shares in February 2021, as well as approximately $0.1 million in proceeds from stock option exercises during the period.
Commitments and Contractual Obligations
We have entered into a number of license, collaboration, acquisition and other agreements with third parties. For further details regarding our significant contracts, and the commitments and contractual obligations contained within each contract, please refer to Note 6 - Commitments and Contingencies, and Note 11 - Debt, to our condensed consolidated financial statements included in this report, which is incorporated herein by reference.
In July 2020, we entered into an agreement to lease approximately 7,000 square feet of office space in Red Bank, NJ, for which the initial lease term expires approximately 64 months from the lease commencement date, which occurred in October 2020, with base annual lease payments of approximately $0.2 million.
In addition, in the course of normal business operations, we have agreements with contract service providers to assist in the performance of our research and development and manufacturing activities. Expenditures to CROs, CMOs and other clinical development related vendors represent significant costs in clinical development. Subject to required notice periods and our obligations under binding purchase orders, we can elect to discontinue the work under these agreements at any time. We could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront payments and even long-term commitments of cash. As of September 30, 2022, we had $3.4 million of contracted purchase obligations which represents our commitments under binding forecasts, and purchase orders (inclusive of cancellation fees), including those provided under our agreements with our CMOs. The actual amounts incurred will be determined based on the amount of goods purchased and the pricing then in effect under the applicable arrangement. These committed purchase obligations are expected to be incurred within one year from the issuance of these financial statements.
We also have employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control or termination without cause, occur.
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.
TRENDS AFFECTING OUR BUSINESS
We are a clinical development stage company and do not currently generate revenue from commercial product sales. As of the date of this Quarterly Report on Form 10-Q, we do not have any product candidates that have received regulatory approval from the FDA, or any other comparable foreign regulatory authority. Our revenue recognized from our collaborative agreements is dependent largely on internal efforts, which are mostly within our control. Other than as discussed below and elsewhere in this report, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.
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COVID-19
The COVID-19 pandemic continues to adversely affect global economies, financial markets and the overall environment. We have experienced some level of disruption to each of our current trials. We completed target enrollment in the PROTECT study in August 2021 and expect to report top-line results in the second half of 2023, subject to change for any potential interruptions related to COVID-19, regulatory decisions or issues or other interruptions. We initiated the PRV-015 Phase 2b trial in gluten free diet NRCD in August 2020 and the pandemic has caused difficulties and delays in recruitment. As a result of these delays, we now expect to report top-line results from the PROACTIVE study by the end of 2023. Additionally, our plans to initiate the Phase 2a portion of the PREVAIL-2 study in lupus patients by the first half of 2021 were delayed, predominantly due to COVID-19 related impacts, and we initiated the study in January 2022. The ongoing effects of the COVID-19 pandemic have affected the PREVAIL-2 study enrollment, primarily due to resource constraints at the clinical site level and subdued patient interest in participating in clinical trials of immune modulatory agents. We now expect top-line results of the PREVAIL-2 study in the second half of 2024.
Inflation and Interest Rates
Inflation and interest rates have both increased during the periods covered by this report, and these increases are expected to continue to impact the economy for the near future. Inflation and higher interest rates have had a negative impact on the broader equity markets, leading to declines in equity valuations, especially in the biopharmaceutical sector, and may continue to result in higher borrowing costs, reduced liquidity and ability to raise capital, and could potentially increase the interest payments on our variable rate debt. Other factors that may be impacted by inflation include manufacturing, research and development, general and administrative, and personnel related expenses. We have not been affected materially by inflation during the periods covered by this report, however, inflationary increases in the future may adversely impact our business and corresponding financial position.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, which are detailed further within this Quarterly Report on Form 10-Q. See Note 3 - Significant Accounting Policies, to our condensed consolidated financial statements included in this report, which is incorporated herein by reference.
Recent Accounting Pronouncements
See Note 3 - Significant Accounting Policies, to our condensed consolidated financial statements included in this report, which is incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rate Risk
We are exposed to market risk related to changes in interest rates. We had cash, cash equivalents and marketable securities of $186.5 million as of September 30, 2022, consisting of cash and investments in money market funds, U.S. Treasury securities, U.S. Government agency securities and certain short and long-term investment-grade corporate debt securities. Our investments in money market funds and investment-grade corporate debt securities are not insured by the federal government. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of United States interest rates, particularly because a significant portion of our investments are in short-term securities. Due to the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.
The majority of our business is conducted in U.S. dollars. However, we do contract with certain CROs to perform clinical trial activities abroad which are denominated in other currencies, including Euros. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations. During the nine months ended September 30, 2022 and 2021, our results of operations were not materially affected by fluctuations in foreign currency exchange rates. As of September 30, 2022, substantially all of our total liabilities were denominated in the U.S. dollar.
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Interest Rate Risk
In the normal course of operations, we are exposed to market risks relating to our long-term debt arising from adverse changes in interest rates. For our variable rate debt, interest rate changes in the underlying index rates will impact future interest expense and cash flows. Based on the outstanding principal balance of the Hercules LSA term loan as of September 30, 2022, a hypothetical 100 basis point increase or decrease in interest rates would have affected our future annual interest payments by approximately $0.3 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
No significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS
On May 21, 2021, a putative class action complaint was filed in the U.S. District Court for the District of New Jersey (the “Court”), naming the Company, Chief Executive Officer Ashleigh Palmer, and retired and former Chief Financial Officer Andrew Drechsler as defendants (the “Securities Action”). The complaint alleged violations of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline. On December 23, 2021, the subsequently appointed lead plaintiff (the “Lead Plaintiff”) and named plaintiff filed an amended complaint (the “Amended Complaint”) alleging similar violations as the original complaint. Lead Plaintiff sought to represent a class of shareholders who purchased or otherwise acquired the Company’s securities between November 2, 2020 and July 6, 2021. The Amended Complaint also sought unspecified damages. The Company, Mr. Palmer, and Mr. Drechsler filed their response, a motion to dismiss, to the Amended Complaint on February 8, 2022 (the “Motion to Dismiss”). The Lead Plaintiff filed an opposition to that motion on March 25, 2022. The Company, Mr. Palmer, and Mr. Drechsler filed their reply on April 26, 2022. On August 4, 2022, Judge Patty Shwartz of the Third Circuit, sitting by designation for the limited purpose of deciding the Motion to Dismiss, granted the Motion to Dismiss with prejudice. Lead Plaintiff did not appeal the decision.
On August 5, 2021 and October 7, 2021, two shareholder derivative lawsuits concerning substantially the same facts and disclosures underlying the Securities Action (the “New Jersey Derivative Actions”) were filed in the same Court, naming Chief Executive Officer Ashleigh Palmer, retired and former Chief Financial Officer Andrew Drechsler, and Company directors Jeffrey Bluestone, Avery Catlin, Sean Doherty, John Jenkins, Wayne Pisano, and Nancy Wysenski as defendants (the “Individual Defendants”). The Company was named in both New Jersey Derivative Actions as a nominal defendant. The New Jersey Derivative Actions alleged: (1) violations of Section 14(a) of the Exchange Act against the Company directors (including Ashleigh Palmer) in connection with the Company’s March 29, 2021 proxy statement; (2) breaches of fiduciary duty against all Individual Defendants in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline, among other common law causes of action; and (3) sought contribution under Sections 10(b) and 21D of the Exchange Act against Ashleigh Palmer and Andrew Drechsler in connection with the Securities Action. The New Jersey Derivative Actions sought unspecified damages, including legal fees associated with the Securities Action and compensation paid to the Individual Defendants. The New Jersey Derivative Actions also sought an order directing the Company and Individual Defendants to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures.
On October 28, 2021, both plaintiffs and all defendants in the New Jersey Derivative Actions filed a joint stipulation and proposed order to consolidate the Derivative Actions and appoint co-lead counsel, which the Court granted on November 1, 2021. In response to a series of stipulations and motions, the Court entered a temporary stay of proceedings in the New Jersey Derivative Actions pending the resolution of the Motion to Dismiss in the Securities Action. On September 21, 2022, following the dismissal of the Securities Action, the Court ordered a voluntarily dismissal of the New Jersey Derivative Actions without prejudice in response to a joint stipulation filed by the parties.
On August 8, 2022, a third shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware concerning substantially the same facts and disclosures underlying the Securities Action and the New Jersey Derivative Actions (the “Delaware Derivative Action”). The Delaware Derivative Action names the same Individual Defendants as the New Jersey Derivative Actions and names the Company as a nominal defendant. The complaint in the Delaware Derivative Action alleges: (1) breaches of fiduciary duty against all Individual Defendants in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline; and (2) unjust enrichment. The Delaware Derivative Action seeks unspecified damages from the Individual Defendants in favor of the Company and an order directing the Company to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures, among other forms of relief. The Company’s and the Individual Defendants’ response to the complaint was filed on October 28, 2022.
The Company is unable at this time to determine whether the outcomes of these litigations would have a material impact on its results of operations, financial condition or cash flows. The Company does not have contingency reserves established for any litigation liabilities.
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ITEM 1A. RISK FACTORS
Certain factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors in its entirety, in addition to other information contained in this Quarterly Report on Form 10-Q, as well as our other public filings with the SEC. The risks and uncertainties described below are those we currently believe to be material, but they are not the only ones we face. If any of the following risks, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur or become material risks, our business and financial condition could be materially and adversely affected.
Risks Related to Our Business
We are a clinical stage biopharmaceutical company with a limited operating history.
We are a clinical-stage biopharmaceutical company formed in October 2016 and have a limited operating history. We do not lease or own any laboratory space and we have historically had a remote work environment for our employees. We outsource most of our manufacturing and clinical trial operations as well as certain other functions.
We have acquired or in-licensed four clinical stage assets and a late stage preclinical enteroviral vaccine platform. Marketing approval of our product candidates will require extensive clinical testing data to support safety and efficacy requirements, as well as pharmaceutical development, manufacturing and preclinical data, all of which are needed for regulatory approval, and the requirements may be different in different jurisdictions in which we intend to launch our products. If we obtain marketing approvals in the jurisdictions in which we intend to launch our products, we will then have to secure pricing and reimbursement approvals for our product candidates prior to product launch. The likelihood of success of our business plan must be considered in light of the challenges, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive environment in which we operate. Biopharmaceutical product development is a highly speculative undertaking, involves a substantial degree of risk, and is a capital-intensive business.
Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially clinical-stage biopharmaceutical companies such as ours. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, we may not be able to:
| ● | successfully implement or execute our current business plan; | |
| ● | successfully start and complete clinical trials and obtain regulatory approval for the marketing of our product candidates; | |
| ● | secure pricing and reimbursement approvals for our product candidates; | |
| ● | successfully contract for the manufacture of our clinical drug products and establish a commercial drug supply; | |
| ● | secure market exclusivity and/or adequate intellectual property protection for our product candidates; | |
| ● | attract and retain an experienced management and advisory team; | |
| ● | raise sufficient funds in the capital markets to effectuate our business plan, including clinical development, regulatory approval, pricing and reimbursement approval and related milestones, and commercialization for our product candidates; | |
| ● | successfully recruit and retain a fully functional launch ready commercial organization; | |
| ● | successfully launch teplizumab in the United States; | |
| ● | successfully execute our teplizumab launch plan for the At-Risk indication, including raising awareness and expanding screening to identify patients At-Risk of developing clinical T1D; and | |
| ● | successfully establish strategic partnerships to launch teplizumab outside the United States |
If we cannot successfully execute any one of the foregoing, our business may not succeed, and your investment will be adversely affected.
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We expect to incur substantial expenses and may never become profitable or be able to sustain profitability.
We expect to incur substantial expenses without corresponding revenues unless and until we are able to obtain regulatory approval and pricing and reimbursement approval for our product candidates, both of which are necessary for the successful commercialization of our product candidates. We expect to incur significant expense to complete our clinical programs for our product candidates in the United States and elsewhere. We may never be able to obtain regulatory approval, or pricing and reimbursement approval, for the marketing of our product candidates in any indication in the United States or internationally. Even if we are able to commercialize our product candidates, we may not be able to generate significant revenues or ever achieve profitability.
We expect to incur significant research and development expenses as we advance clinical trials for our product candidates as well as significant costs to build out our commercial infrastructure and conduct pre-commercial activities for teplizumab as we prepare for potential commercialization. As a result, we expect to incur substantial losses for the foreseeable future, and these losses will be increasing. We are uncertain when or if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable may impair our ability to sustain operations and adversely affect our business and our ability to raise capital.
We need to raise additional funding. If we are unable to raise sufficient capital when needed, we could be forced to delay, reduce or eliminate certain, or all of our product development programs or commercialization efforts.
We expect our operating costs to be substantial as we incur costs to support our commercialization efforts for teplizumab, including costs related to the buildout of an internal commercial infrastructure, and our ongoing and planned clinical trials for teplizumab and our other product candidates. We will operate at a loss for the foreseeable future or until such time as we obtain regulatory approval, and pricing and reimbursement approval, for and execute a successful commercial launch of teplizumab, if ever. For the nine months ended September 30, 2022 and 2021, we had a net loss of $80.3 million and $88.6 million, respectively, and as of September 30, 2022, we had an accumulated deficit of $372.4 million. We had cash, cash equivalents and marketable securities of $186.5 million as of September 30, 2022. We expect to continue to incur significant expenses and increasing operating losses over the next several years and our net losses may fluctuate significantly from quarter to quarter and year to year.
We believe, based on our current operating plans, which include our plans to prepare for a potential commercialization of teplizumab if approved by the FDA, and other factors described above, that our cash, cash equivalents and marketable securities, will be sufficient to fund current operating requirements for at least the next 12 months from the issuance of the financial statements included within this report. If the teplizumab BLA resubmission is approved by the FDA and we do not otherwise raise additional capital, we will encounter near-term liquidity needs. Factors that could impact our cash runway include, but are not limited to, our plans for and potential changes to estimated costs of commercialization which would include our commitments under the Sanofi Co-Promotion Agreement, the success of our potential commercial launch for teplizumab and potential milestone payments that may be triggered under our current agreements, including with MacroGenics.
We do not have any prospective credit facilities as a source of future funds apart from the available capacity under our 2021 ATM Program, the Hercules LSA, and the Sanofi Securities Purchase Agreement, if the teplizumab BLA resubmission is approved by the FDA, and there can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. We may seek additional capital through a combination of private equity offerings, public equity offerings, debt financings and strategic collaborations. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, could increase our expenses and could require that our assets secure such debt. Moreover, any debt we incur must be repaid regardless of our operating results. If we choose to pursue additional indications and/or geographies for our product candidates, in-license or acquire additional development assets, or otherwise expand more rapidly than we presently anticipate, we may also need to raise additional capital sooner than expected.
If we are unable to raise additional capital when required or on acceptable terms, we may need to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or cease operations altogether, or relinquish or license on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would seek to develop or commercialize.
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Our forecast of the period of time through which our financial resources will adequately support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this Risk Factors section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
Our debt agreement with Hercules contains milestones that must be achieved in order to draw down on our debt facility and operating and financial covenants that restrict our business and financing activities, and is subject to acceleration in specified circumstances, which may result in Hercules taking possession of any collateral.
The second tranche of term loans under the Hercules LSA (the “Second Tranche”), in an amount up to $40.0 million, may only be drawn on or prior to the earlier of (x) September 30, 2023 and (y) ninety (90) days following the achievement of the Approval Milestone if (i) the Approval Milestone has been achieved and (ii) certain customary borrowing conditions in the Hercules LSA have been satisfied. The third tranche of term loans under the Hercules LSA (the “Third Tranche”), in an amount up to $10.0 million, may only be drawn if the Second Tranche has been borrowed, subject to the achievement of (i) at least $70.0 million in new net cash proceeds from various equity issuances (including convertible debt) and business development transactions on or prior to December 15, 2023 and (ii) achievement of specified cumulative net product revenue related to teplizumab on or prior to November 30, 2023, provided that certain customary borrowing conditions have been satisfied. The fourth tranche of term loans under the Hercules LSA (the “Fourth Tranche”), in an amount up to $35.0 million (less the actual funded amount, if any, of the Third Tranche), may be drawn, subject to the achievement of specified trailing six-month net product revenue for any six-month period following the Closing Date and on or prior to September 30, 2024 (the “Performance Milestone”), with the drawing of the Fourth Tranche to occur on or prior to the earlier of (x) December 15, 2024 and (y) ninety (90) days following the achievement of the Performance Milestone, provided that certain customary borrowing conditions have been satisfied. The fifth tranche of term loans under the Hercules LSA, in an amount up to $25.0 million, is available solely at the discretion of the Lenders. Each of the remaining tranches may be borrowed in multiple drawings.
The Hercules LSA requires that, commencing on January 1, 2023, the Company maintain, at all times, unrestricted cash, cash equivalents and liquid funds held in accounts subject to a control agreement in favor of Hercules (“Liquidity”) in an amount not less than 50.0% of the aggregate outstanding amount of the term loans plus the aggregate amount of the Company’s accounts payable that remain unpaid 120 days after their respective due dates; provided that, upon (x) achievement of an Approval Milestone and (y) the effectiveness of the Performance Covenant (as defined below), the minimum Liquidity required to be maintained by the Company will be an amount not less than the greater of (A) $20,000,000 and (B) 25% of the aggregate outstanding amount of the aggregate outstanding amount of the term loans plus the aggregate amount of the Company’s accounts payable that remain unpaid 120 days after their respective due dates. In addition, if the Company draws Tranche 2, Tranche 3 and Tranche 4 of term loans, the Company is required to maintain minimum 6-month trailing revenue amounts, measured monthly commencing with the delivery of financial statements for the period ending June 30, 2024, as set forth in the Hercules LSA, provided that such minimum revenue covenant will be waived at any time in which the Company maintains (a) at least $550.0 million of market capitalization and minimum Liquidity of not less than 50.0% of the aggregate outstanding amount of the term loans or (b) minimum Liquidity of not less than 85.0% of the aggregate outstanding amount of the term loans. In addition, the Hercules LSA includes customary representations and warranties and other covenants associated with a secured term loan facility for similarly situated companies.
We may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls.
Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. These factors include:
| ● | the success of our development strategy; | |
| ● | the time, resources, and expense required to develop and conduct clinical trials and seek regulatory approvals, and pricing and reimbursement approvals, for our product candidates; | |
| ● | the cost of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation; | |
| ● | the cost of manufacturing and maintaining sufficient inventories of our products to meet anticipated demand; | |
| ● | any product liability or other lawsuits related to our product candidates and the costs associated with defending them or the results of such lawsuits; | |
| ● | the cost of defending against securities litigation including stock-drop litigation and related derivative lawsuits; |
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| ● | the cost of growing our ongoing development operations and establishing commercialization operations; | |
| ● | the cost to attract and retain personnel with the skills required for effective operations; | |
| ● | the costs associated with being a public company; and | |
| ● | the costs associated with commercialization. |
Any material increases in our operating expenses will have a material impact on our financial condition and business operations. In addition, if we are unable to correctly estimate or control our future operating expenses, we may need to raise additional capital, delay or cease development of one or more of our product candidates, which could have a material adverse effect on our business, operating results and prospects.
Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization
Our BLA resubmission in February 2022 and our regulatory efforts may not successfully address to the FDA’s satisfaction, the deficiencies identified by the FDA in the July 2021 CRL, including deficiencies related to the demonstration of PK comparability of our planned commercial product and drug product used in historical clinical trials as well as other product quality requirements. If we are not able to satisfy the FDA’s requests and requirements, including, as requested by the FDA in our January 2022 Type B meeting, including in the BLA resubmission an adjusted dosing regimen for the planned commercial product to match the exposure of clinical material used in prior clinical trials with safety justifications to the FDA’s satisfaction, we may not be successful in obtaining approval of teplizumab for the at-risk patient indication in the near-term, or at all. Additionally, if we are not able to address the FDA’s PK comparability and other requirements and obtain approval for teplizumab for the delay of clinical T1D in at-risk individuals, we may be required to conduct additional research, analysis or clinical trials before we can submit a BLA for teplizumab in a newly diagnosed patient indication.
As required by the FDA, we provided in the initial BLA for the at-risk indication physiochemical and analytical data for teplizumab supporting the comparability between the study drug previously manufactured by MacroGenics and Eli Lilly and our to-be-commercialized drug product. In addition to conducting analytical tests to evaluate comparability we also conducted a double-blind, single low-dose, PK/PD bridging study in healthy subjects (“Bridging PK/PD Study”) to support the CMC comparability assessment between the teplizumab study drug derived from drug substance manufactured by Eli Lilly and the to-be-commercialized teplizumab drug product derived from the drug substance manufactured by our contract manufacturing partner, AGC Biologics. This single low-dose Bridging PK/PD Study was the first time the teplizumab drug product derived from the drug substance manufactured by AGC Biologics was used in humans. We submitted to the FDA that we believe the results of the Bridging PK/PD Study suggests that the drug substances manufactured by AGC Biologics and Eli Lilly are comparable. Comparison of drug plasma concentration versus time after dosing in the Bridging PK/PD Study shows a lower AUC for the teplizumab drug product derived from the drug substance manufactured by AGC Biologics. Based on our PK/PD modeling, we submitted our supporting data and analysis to the FDA to support our belief that the lower AUC observed in the PK/PD Bridging Study is not significant enough to impact the efficacy or safety of the to-be-commercialized teplizumab drug product when used as proposed in our BLA filing. However, on July 2, 2021, the FDA issued a CRL for our BLA for teplizumab for the delay of clinical T1D in at-risk individuals. In the CRL, the FDA stated that the single, low-dose Bridging PK/PD Study we conducted had failed to show PK comparability between planned commercial product and historical clinical trial product and that we will need to establish PK comparability appropriately or provide other data that adequately justify why PK comparability is not necessary in order to obtain approval for the teplizumab BLA for an at-risk indication.
In September 2021, we announced that we had completed data collection from the PROTECT PK/PD Substudy we conducted with the goal of addressing the FDA’s PK comparability considerations and in November 2021 we announced preliminary top-line data from this substudy. We participated in a Type A meeting with the FDA on November 18, 2021, to discuss data and analysis from the PROTECT PK/PD Substudy data and PD markers that we believe are supportive of comparability and subsequently also had a Type B meeting with the FDA on January 26, 2022. In preliminary comments provided in advance of the January 26th meeting, the FDA noted that our data package does not adequately support PK comparability by itself, because predicted primary PK parameters are indicative of a lower exposure from the AGC Biologics drug substance as compared to the Eli Lilly drug substance. To address this concern, the FDA proposed, and we agreed, to use PK modeling to adjust the 14-day dosing regimen for the planned commercial product to match the exposure of clinical material used in prior clinical trials by ensuring that the 90% confidence intervals for relevant PK parameters fall within the target 80-125% range. On this basis, the FDA agreed that we could proceed to resubmit the BLA.
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Our teplizumab BLA resubmission in February 2022 for the At-Risk Indication, which the FDA deemed to be complete and accepted for review on March 17, 2022 and for which the FDA assigned a user fee goal date of August 17, 2022, which has been extended to November 17, 2022 may not be ultimately approved by the FDA. Our BLA resubmission and other regulatory efforts may not be successful in addressing, to the FDA’s satisfaction, the deficiencies identified in the FDA’s July 2021 CRL for our original teplizumab BLA for an At-Risk Indication, including product quality and PK comparability considerations. Additionally, our BLA resubmission and our regulatory efforts may not successfully address the FDA’s requests and requirements discussed at our January 2022 Type B meeting. For example, although we included in the BLA resubmission, as requested by the FDA, an adjusted dosing regimen based on PK modeling and clinical data for teplizumab to match exposure of our planned commercial product to drug product used in historical clinical trials, the FDA’s PK comparability concerns may not be addressed to their satisfaction which could result in another CRL for our BLA resubmission. Additionally, as a result of any final resolutions to address the FDA’s considerations related to PK comparability in connection with the teplizumab BLA resubmission for an At-Risk Indication, the FDA may require that we further characterize the teplizumab planned commercial product in the PROTECT Trial, including potentially requiring additional research, analysis, clinical data or clinical trials, to support a regulatory pathway for a newly diagnosed indication of teplizumab.
Ultimately, we may not be successful in our goal to continue to work with the FDA to successfully secure approval of the teplizumab BLA for at-risk patients. We may not be able to address to the FDA’s satisfaction the agency’s concerns relating to PK comparability and other requirements in the short-term or at all. If we fail to address the FDA’s concerns and requirements, our business and operations may be materially and adversely impacted.
We may not be successful in our efforts to develop and obtain regulatory approval for our product candidates. If we are unable to obtain approval for or generate revenues from our product candidates, our ability to create stockholder value will be limited.
Our product candidates are in various stages of clinical development. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates, which may never occur. For example, our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products impractical to manufacture, unmarketable, or unlikely to receive marketing approval. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.
We will be required to submit our clinical trial protocols and receive approvals from the regulatory authorities before we can commence additional studies with our product candidates. Nonclinical study results for our product candidates, including toxicology studies, may not support the filing of an IND or foreign equivalent for the product candidate.
Moreover, we may not be successful in obtaining acceptance from the regulatory authorities to start our clinical trials. Prior to commencing any clinical trials, we will also have to obtain approval from the Institutional Review Board (“IRB”), or Ethics Committee (“EC”) in each of the countries in which we plan to conduct our clinical trials. If we do not obtain such acceptance, the time in which we expect to commence clinical programs for any product candidate will be extended and such extension will increase our expenses and increase our need for additional capital.
Further, there is no guarantee that our clinical trials will be successful or that we will continue clinical development in support of an approval from the regulatory authorities for any indication. Our clinical trial results may show our product candidates to be less effective than expected or have unacceptable side effects or toxicities. For example, our Phase 2a PRINCE trial did not achieve its primary endpoint of a change in Crohn’s Disease Activity Index Score at week 12 as compared to placebo. We note that most drug candidates never reach the clinical development stage and even those that do commence clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval.
Our business currently depends entirely on the successful development, regulatory approval, pricing and reimbursement approval and commercialization of our product candidates. Our product candidates will require additional preclinical and clinical development, regulatory and marketing approval in multiple jurisdictions, obtaining sufficient manufacturing capacity and expertise for both clinical development and commercial production and substantial investment and significant commercialization efforts before we generate any revenue from product sales.
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The success of our current and future product candidates will depend on several factors, including the following:
| ● | successful completion of preclinical and clinical studies with positive results; | |
| ● | sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials; | |
| ● | entry into collaborations to further the development of our product candidates; | |
| ● | investigational new drug or clinical trial authorization applications, being cleared such that our product candidates can commence clinical trials; | |
| ● | successful initiation of enrollment in and completion of clinical trials; | |
| ● | successful data from our clinical programs that support a finding of safety and effectiveness and an acceptable risk-benefit profile of our product candidates in the intended populations; | |
| ● | receipt of regulatory, marketing and pricing and reimbursement approvals from applicable regulatory authorities; | |
| ● | establishment of arrangements with third-party manufacturers for clinical supply and commercial manufacturing and, where applicable, commercial manufacturing capabilities; | |
| ● | successful development of our internal manufacturing processes and transfer, where applicable, from our reliance on CMOs, to our own manufacturing facility, or from our own manufacturing facility to CMOs or the facilities of collaboration partners; | |
| ● | establishment and maintenance of patent and trade secret protection or regulatory exclusivity for our product candidates; | |
| ● | commercial launch of our product candidates, if and when approved, whether alone or in collaboration with others, including our ability to recruit and retain commercial talent; | |
| ● | acceptance of our product candidates and their therapeutic uses, if and when approved, by patients, the medical community and third-party payors; | |
| ● | effective competition with other therapies and treatment options; | |
| ● | establishment and maintenance of healthcare coverage and adequate reimbursement from third-party payors and national healthcare systems for any approved products; | |
| ● | enforcement and defense of intellectual property rights and claims; | |
| ● | maintenance of a continued acceptable safety profile of the product candidates following approval; and | |
| ● | achieving desirable medicinal properties for the intended indications. |
If we do not succeed in 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 product candidates. We cannot assure you that our product candidates will be successfully developed or commercialized. If we are unable to develop, or obtain regulatory approval or pricing and reimbursement approval for, or, if approved, to successfully commercialize our product candidates, it could have a material adverse effect on our business, operating results and prospects.
The outbreak of the novel coronavirus 2019 (COVID-19) has caused delays to our clinical trials. Moreover, the longer the pandemic persists, the more impact it will have on our clinical trial and other business plans and timelines. In addition, this pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on our business, operations and ability to raise capital.
The COVID-19 pandemic continues to drive global uncertainty and has caused, and may continue to cause, delays to the development of certain of our product candidates. Delays in completing our clinical trials are expected to increase our costs, slow our development and approval process and could negatively impact our ability to commence product sales and generate revenues. We have experienced some level of disruption to each of our current trials. We completed target enrollment in the PROTECT study in August 2021 and expect to report top-line results in the second half of 2023, subject to change for any potential interruptions related to COVID-19, regulatory decisions or issues or other interruptions. We initiated the PRV-015 Phase 2b trial in gluten free diet NRCD in August 2020 and the pandemic has caused difficulties and delays in recruitment. As a result of these delays, we now expect to report top-line results from the PROACTIVE study by the end of 2023. Additionally, our plans to initiate the Phase 2a portion of the PREVAIL-2 study in lupus patients by the first half of 2021 were delayed, predominantly due to COVID-19 related impacts, and we initiated the study in January 2022. The ongoing effects of the COVID-19 pandemic have affected the PREVAIL-2 study enrollment, primarily due to resource constraints at the clinical site level and subdued patient interest in participating in clinical trials of immune modulatory agents. We now expect top-line results of the PREVAIL-2 study in the second half of 2024.
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Timely enrollment in our clinical trials is dependent upon global clinical trial sites which may be adversely affected by global health matters, such as pandemics. We are currently conducting clinical trials for our product candidates in many countries, including the United States, the European Union, the UK and Canada and may expand to other geographies. Many of these regions in which we operate are currently being or may in the future be affected by COVID-19. Some factors from the COVID-19 outbreak that may delay or otherwise adversely affect enrollment in the clinical trials of our product candidates, as well as adversely impact our business generally, include:
| ● | delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff, and delays enrolling patients in our clinical trials or increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or not accepting home health visits, particularly for older patients with a higher risk of contracting COVID-19; | |
| ● | limitations on travel that could interrupt key trial activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that may impact the ability or willingness of patients, employees or contractors to travel to our clinical trial sites or secure visas or entry permissions, any of which could delay or adversely impact the conduct or progress of our clinical trials; | |
| ● | interruption or delays in the operations of the United States Food and Drug Administration and foreign regulatory authorities, which may impact review and approval timelines; | |
| ● | interruption of, or delays in receiving, supplies of raw materials for or our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; and | |
| ● | business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations or travel, and staffing shortages. |
Additionally, the COVID-19 pandemic has significantly impacted the FDA’s ability to conduct domestic and foreign inspections. On March 10, 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products; and, on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, on July 10, 2020, the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. In April 2021 the FDA issued guidance on conducting voluntary remote interactive evaluations of manufacturing and outsourcing facilities as well as facilities involved in non-clinical and clinical research. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
The pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could adversely impact our ability to raise additional funds through public offerings or private placements and may also impact the volatility of our stock price and trading in our stock. Moreover, it is possible the pandemic will continue to significantly impact economies worldwide, which could result in adverse effects on our business and operations. The rapid development and fluidity of the pandemic precludes any prediction as to the ultimate impact of COVID-19. Additionally, the pandemic could negatively impact our ability to execute a successful launch of teplizumab if we receive marketing approval and pricing and reimbursement approval, which could impact our revenue making potential and have other negative material adverse impacts on our business. The full extent of the impact and effects of COVID-19 on our business, operations, liquidity, financial condition and results of operations remain uncertain at this time.
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We are completely dependent on third parties to manufacture our product candidates, including teplizumab, with no, to limited redundancies in our supply chain and the commercialization of our product candidates could be halted, delayed or made less profitable if those third parties fail to obtain manufacturing approval from the FDA or comparable foreign regulatory authorities, fail to provide us with sufficient quantities of our product candidates or fail to do so at acceptable quality levels or prices.
We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture drug substance, in our product candidates for use in our clinical trials or for commercial products, if any. As a result, we are obligated to rely on contract manufacturers for clinical supplies of our product candidates and will be obligated, if and when any of our product candidates are approved for commercialization, to rely on contract manufacturers for commercial supply. We may not be able to engage a contract manufacturer for commercial supply of any of our product candidates on acceptable terms to us, or at all.
The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities pursuant to inspections that will be conducted after we submit an NDA or BLA to the FDA or equivalent applications to other relevant regulatory authorities. We will be completely dependent on our contract manufacturers for compliance with GMPs for manufacture of both active drug substances and finished drug products. These GMP regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to our product candidates. If our contract manufacturers do not successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. If the FDA, the competent authorities of the European Union Member States, MHRA 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.
Our contract manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with GMPs and similar regulatory requirements. Although we are responsible for oversight of manufacturing of our product candidates, we do not have control over our contract manufacturers’ compliance with these regulations and standards. Failure by any of our contract manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market any of our product candidates, delays, suspensions or withdrawals of approvals, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. In addition, although we have audit and certain other oversight rights under our contracts with our contract manufacturers, we do not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Failure by our contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop, obtain regulatory approval for or market any of our product candidates.
If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, to the extent applicable, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our drug substance or finished drug products or should cease doing business with us, we could experience significant interruptions in the supply of any of our product candidates or may not be able to create a supply of our product candidates at all. Were we to encounter manufacturing issues, our ability to produce a sufficient supply of any of our product candidates might be negatively affected. Our inability to coordinate the efforts of our third-party manufacturers, or the lack of capacity available at our third-party manufacturers, could impair our ability to supply any of our product candidates at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new active drug substances or finished drug products manufacturer, if we face these or other difficulties with our current manufacturers, we could experience significant interruptions in the supply of any of our product candidates if we decided to transfer the manufacture of any of our product candidates to one or more alternative manufacturers in an effort to deal with the manufacturing issues. Additionally, failing to obtain sufficient supply of any of our product candidates, due to manufacturing or other issues, may lead to regulatory delays and other issues which may negatively affect our business.
Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally, we rely on third parties to supply the raw materials needed to manufacture our potential products. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to a contract manufacturer caused by problems at suppliers could delay shipment of any of our product candidates, increase our cost of goods sold and result in lost sales.
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We cannot guarantee that our future manufacturers and suppliers will be able to reduce the costs of commercial scale manufacturing of any of our product candidates over time. If the commercial-scale manufacturing costs of any of our product candidates are higher than expected, these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and implement process improvements. However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot guarantee that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize output, we may not be able to reduce our costs over time.
If the contract manufacturers we use fail to comply with their teplizumab contractual obligations to us, or they fail to comply with applicable FDA regulations and requirements to support FDA review, requests and requirements in connection with our BLA resubmission, including any potential FDA decisions that result in limiting the use of our current planned commercial teplizumab supply such as assigning a shorter teplizumab shelf-life than we planned, we may be required to enter into new statements of work or other agreements with CMOs and incur additional costs to increase our planned commercial supply of teplizumab and if we are not able to do so successfully and in a timely manner our business may be negatively and materially impacted.
Each of our contract manufacturers for our product candidates is a single source supplier. If any of the contract manufacturers in the supply chain for one of our product candidates experiences a delay or is unable to deliver the products or components necessary to manufacture the subject product, our ability to produce the affected product would be materially impaired.
Although we believe we currently have adequate supply to support potential teplizumab clinical and commercial supply demands, and through existing contracts with our CMOs we have the ability to enter into new statements of work to increase our existing supply as needed, we do not have pre-set ongoing commitments from AGC Biologics for commercial supply of teplizumab or with any other contract manufacturers of our other product candidates. Our current agreement with AGC Biologics for the supply of teplizumab as well as agreements with other contract manufacturers of our other product candidates operate on a statement of work basis. If teplizumab is approved for commercial use but we are unable to reach agreement with AGC Biologics on the production of teplizumab for commercial use, or if we are unable to maintain commercial relationships with contract manufacturers of our other product candidates, we may not have sufficient supply of teplizumab to fulfill customer orders or sufficient supply for our other clinical trials. Identifying, qualifying and transferring manufacturing to secondary sources is a time-consuming process and there is no guaranty that we would be able to reach an agreement with a secondary source on acceptable terms, which could have a material adverse effect on our sales, results or operations and financial condition.
Our experience manufacturing teplizumab and our other product candidates is limited, and if the FDA requires any changes to our manufacturing process for our products, we are dependent on our CMOs and service providers to timely and compliantly deliver on their contractual obligations. If they fail to do so, this can materially and adversely impact our product development plans and timelines. Additionally, if we are not able to successfully partner with our CMOs and service providers in addressing the FDA’s product quality and other considerations as part of its review of our BLA resubmission, or if we encounter any other manufacturing issues, we may experience delays or disruptions to our efforts to bring teplizumab to market and/or to our other ongoing product development efforts, including our ongoing and planned clinical trials.
We have limited experience manufacturing teplizumab and we currently rely on single-source, third-party manufacturers to supply us with drug substance and drug product. We historically relied upon an existing supply of teplizumab drug substance produced by Eli Lilly to manufacture drug product at our third-party manufacturer for use in our clinical trials of teplizumab. We have entered into agreements with our third-party manufacturers to manufacture teplizumab for our anticipated clinical trial needs and plan to enter into additional statements or work and agreements to support teplizumab supply needs, including for a potential commercialization. We believe supplies of teplizumab sufficient to supply the PROTECT study and to fulfill our initial commercial launch needs in the United States, if approval is obtained, have already been manufactured by our third-party manufacturers and have the ability to enter into new statements of work with our manufacturers to increase our teplizumab supply.
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In order to obtain regulatory approval for teplizumab, third-party manufacturers have been required to consistently produce teplizumab in commercial quantities and of specified quality on a repeated basis and document their ability to do so. The required number of batches of teplizumab have been manufactured at our CMOs by the processes we intend to use for commercialization. The quality and consistency of these lots, along with their comparability to teplizumab manufactured previously for clinical studies, will need to be approved by the FDA. In the July 2, 2021 CRL received by the Company, the FDA stated that as PK remains the primary endpoint for demonstration of comparability between the two products, the Company will need to establish PK comparability appropriately between the intended commercial product and the clinical trial product or provide other data that adequately justify why PK comparability is not necessary. Additionally, the CRL raised product quality and other considerations that we believe we have addressed in our February 2022 BLA resubmission; however, the FDA will ultimately determine whether our efforts sufficiently address their considerations and support an approval. Addressing the FDA’s requests and requirements in the CRL and in subsequent Type A and Type B meetings, including our related efforts to otherwise complete work to support approval of teplizumab for the at-risk indication, as well as the development of our other product candidates will require additional time, resources and successful execution and support by our CMOs and service providers, on whom we are highly dependent to execute on our business plans in a compliant and timely manner. If they fail to do so, it could result in delays or failures of execution that could negatively impact the FDA’s review and decision on our BLA resubmission or any potential commercialization of teplizumab, or otherwise negatively impact our product development efforts including our ongoing clinical trials, such as the PROTECT Study, and planned clinical trials. The FDA may conduct additional site-inspections at any of our CMOs which, depending on timing and outcomes, could negatively impact timing of regulatory decisions relating to our BLA resubmission. Additionally, we have critical testing and stability work ongoing at one of our CMOs for teplizumab, that if not executed in a timely and compliant manner by our CMO, could negatively impact our BLA resubmission and product development efforts.
Changes in product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates are developed through preclinical studies to late-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered in an effort to optimize processes. During the course of a development program, sponsors may also change the contract manufacturers used to produce the product candidates. Also, if we, through third-parties, engage in the scale-up of manufacturing, we may encounter unexpected issues relating to the manufacturing process or the quality, purity and stability of the product, and we may be required to refine or alter our manufacturing processes to address these issues. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of clinical trials. Such changes may also require additional testing, notification or approval by the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities. This could delay completion of clinical trials; require the conduct of bridging clinical trials or studies, or the repetition of one or more clinical trials; increase clinical trial costs; delay approval of our product candidates and jeopardize our ability to commence product sales and generate revenue.
Clinical drug development involves a risky, lengthy and expensive process with an uncertain outcome. Although prior pre-clinical and clinical studies, data and analysis may support our belief in the potential of our pipeline of products, the results of our ongoing clinical trials for them may not be positive or supportive of our beliefs. We may encounter substantial delays in completing our ongoing clinical trials or starting any new clinical trials, which in turn may require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities for our product candidates, which could negatively and materially impact our business.
It is impossible to predict if or when any of our product candidates will prove safe or effective in humans or will receive regulatory approval and pricing and reimbursement approval, and the risk of failure through the development process is high. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
| ● | delays in reaching, or failing to reach, a consensus with regulatory agencies on study design; | |
| ● | delays in reaching, or failing to reach, agreement on acceptable terms with a sufficient number of prospective CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
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| ● | delays in obtaining required IRB, or EC, approval in the country where the clinical trial will be conducted; | |
| ● | delays in recruiting a sufficient number of suitable patients to participate in our clinical trials; | |
| ● | delays as a result of the impact of the COVID-19 pandemic on clinical trial recruitment or other clinical trial activities; | |
| ● | imposition of a clinical hold by regulatory agencies, IRBs, or ECs; | |
| ● | failure by our CROs, other third parties or us to adhere to contractual, clinical trial, regulatory or legal requirements; | |
| ● | failure to perform in accordance with the FDA’s GCP or applicable regulatory guidelines in other countries; | |
| ● | delays in the testing, validation, manufacturing and delivery of sufficient quantities of our product candidates to the clinical sites; | |
| ● | delays in having patients’ complete participation in a study or return for post-treatment follow-up; | |
| ● | subjects choosing an alternative treatment for the indications for which we are developing our product candidates, or participating in competing clinical trials; | |
| ● | clinical study sites or patients dropping out of a study; | |
| ● | delay or failure to address any patient safety concerns that arise during the course of a trial; | |
| ● | unanticipated costs or increases in costs of clinical trials of our product candidates; | |
| ● | occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; or | |
| ● | changes in regulatory requirements and guidance that require amending or submitting new clinical protocols. |
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or ECs of the countries in which such trials are being conducted, by an independent Safety Review Board for such trial or by the FDA, MHRA, the competent authorities of the European Union Member States, or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, MHRA, the competent authorities of the European Union Member States, or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Product development costs for any of our product candidates will increase if we have delays in testing or approval or if we need to perform more or larger clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA, comparable foreign regulatory authorities, and IRBs/ECs for reexamination, which may impact the costs, timing or successful completion of that study. If we experience delays in completion of, or if we, the FDA or other regulatory authorities, the IRB, the ECs or other reviewing entities, or any of our clinical trial sites suspend or terminate any of our clinical trials of any of our product candidates, its commercial prospects may be materially harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval, or pricing and reimbursement approval, of our product candidates. In addition, if one or more clinical trials are delayed, our competitors may be able to bring products to market before we do, and the commercial viability of any of our product candidates could be significantly reduced. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval, or pricing and reimbursement approval, of our product candidates.
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The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Further, product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Additionally, data submitted to regulators are subject to varying interpretations that could delay, limit or prevent agency approval. We cannot assure you that the FDA, EMA, MHRA or comparable foreign regulatory authorities will view the results as we do, that the views of different regulatory authorities on our study results and data will be consistent with each other or that any future trials of any of our product candidates will achieve positive results. For example, in the European Union, we have initiated the process of seeking scientific advice from the EMA’s Committee for Medicinal Products for Human Use (“CHMP”), with respect to the regulatory pathway for teplizumab. While the guidance provided in scientific advice procedures do not seek to pre-evaluate the results of studies, the initial scientific advice letter that we received from CHMP in December 2020 suggested that an additional confirmatory study would be necessary to support a marketing authorization application (“MAA”), for the use of PRV-031 in at-risk individuals. We plan to engage with CHMP to further elucidate the disease-modifying effect of PRV-031 supported by study data in the context of clinical management of T1D, specifically in at-risk individuals. If, however, the EMA determines that our current PRV-031 data package is insufficient to support an MAA for at-risk individuals and requires additional studies or data, such determination would delay or prevent approval of PRV-031 in the European Union and European Economic Area (“EEA”) for this indication. We have independently engaged with the MHRA to discuss a potential regulatory path for PRV-031 in the United Kingdom. We filed for and received in July 2021 an Innovation Passport for teplizumab in the UK. The Innovation Passport is the mandated entry point to the Innovative License and Access Pathway (“ILAP”) in the United Kingdom to facilitate approval of and market access to an innovative medicine. Additionally, we have engaged the MHRA in a scientific advice procedure to discuss, among other topics, ILAP. The discussions with and feedback from the MHRA in the United Kingdom, ILAP partner agencies such as the NICE and the Scottish Medicines Consortium will help us evaluate the possible regulatory and market access paths forward in the UK for teplizumab. On April 20, 2021 we received a scientific advice letter from the MHRA on matters relating to the therapeutic position, non-clinical and clinical characterization of PRV-031. We have started a preliminary discussion with MHRA and its ILAP partners in the development of a TDP and identification of the relevant toolkits to support approval of and market access to teplizumab in the United Kingdom. Further engagement with the MHRA and its ILAP partners is planned in 2022. There is no guarantee that a similar position would be taken by the EMA in the European Union. The advice given by the MHRA makes clear that it is not legally binding with regard to any future MAA for PRV-031, nor can it be taken as indicative of any future agreed position. The MHRA indicated in its letter that it is of the view that there is an unmet medical need for a treatment that delays or prevents progression to T1D in at-risk patients. The MHRA did not request another confirmatory study to be carried out, acknowledging that the indication being sought is rare and that we may have difficulties recruiting sufficient numbers of subjects for such a study. However, the MHRA has considered that an MAA may benefit from additional supplementary information on patient preference. Such additional information would seek to strengthen the argument that PRV-031 would benefit the at-risk patients according to the proposed label claim. The MHRA also considered that reliance on one pivotal study to obtain a marketing authorization ought to meet the criteria described in the EMA/CPMP guidance entitled “Points to consider on application with (i) meta-analyses and (ii) one pivotal study” (CPMP/EWP/2330/99), which for the time being, is still relevant to applications made in the United Kingdom. We also plan additional engagements with EMA and other European stakeholders, including the relevant European national regulatory authorities, in 2022; however, these stakeholders may not agree with our views on our teplizumab data package or our view of the relevant medical need in at-risk populations and our efforts may not lead to favorable positions or decisions relating to or an approval of teplizumab by the MHRA or a positive opinion by the EMA and a subsequent marketing authorization by the European Commission. Even if PRV-031 is approved in United Kingdom and/or in the European Union, the MHRA or EMA/European Commission, may limit the indication for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of an approval, amongst other requirements which we may or may not be able to comply with. Even if teplizumab were to be granted a marketing authorization, we could not guarantee that the payers and health technology agencies in the United Kingdom and the Member States of the European Union would accept the therapeutic value and/or cost-effectiveness of teplizumab for it to be adopted for clinical use in the respective national health systems.
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We have conducted and are conducting clinical trials outside the United States and anticipate conducting additional clinical trials outside the United States, and the FDA may not accept data from such trials.
We are currently conducting clinical trials for our product candidates in countries outside of the United States and we anticipate that we will conduct additional clinical trials in countries outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the clinical trial must be conducted in accordance with GCP requirements, and the FDA must be able to validate the data from the clinical trial through an onsite inspection if it deems such inspection necessary. Where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are considered applicable to the United States patient population and United States medical practice, the clinical trials were performed by clinical investigators of recognized competence, and the data is considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, such clinical trials would be subject to the applicable local laws of the foreign jurisdictions where the clinical trials are conducted. A description of any studies related to overdosage is also required, including information on dialysis, antidotes, or other treatments, if known. There can be no assurance the FDA will accept data from clinical trials conducted outside of the United States. If the FDA does not accept any such data, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay aspects of our development plan.
Risks inherent in conducting international clinical trials include, but are not limited to:
| ● | foreign regulatory requirements that could burden or limit our ability to conduct our clinical trials; | |
| ● | administrative burdens of conducting clinical trials under multiple foreign regulatory schema; | |
| ● | foreign currency fluctuations which could negatively impact our financial condition since certain payments are paid in local currencies; | |
| ● | manufacturing, customs, shipment and storage requirements; | |
| ● | cultural differences in medical practice and clinical research; and | |
| ● | diminished protection of intellectual property in some countries. |
Biologics carry unique risks and uncertainties, which could have a negative impact on future results of operations.
The successful discovery, development, manufacturing and sale of biologics is a long, expensive and uncertain process. There are unique risks and uncertainties with biologics. For example, access to and supply of necessary biological materials, such as cell lines, may be limited and governmental regulations restrict access to and regulate the transport and use of such materials. In addition, the development, manufacturing and sale of biologics is subject to regulations that are often more complex and extensive than the regulations applicable to other pharmaceutical products. Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies. Such manufacturing also requires facilities specifically designed and validated for this purpose and sophisticated quality assurance and quality control procedures. Biologics are also frequently costly to manufacture because production inputs are derived from living animal or plant material, and some biologics cannot be made synthetically by a chemical process. In addition, after receiving product approval, the FDA and other regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA and other regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Failure to successfully discover, develop, manufacture and sell biologics could adversely impact our business and results of operations.
If we are not able to obtain any required regulatory approvals for our product candidates, we will not be able to commercialize our product candidates and our ability to generate revenue will be limited.
The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products are subject to extensive regulation by the FDA, EMA, MHRA and other regulatory authorities in the United States, European Union, United Kingdom and other countries, where regulations differ from country to country. We are not permitted to market our product candidates as prescription pharmaceutical products in the United States until we receive approval of a New Drug Application (“NDA”), or BLA from the FDA, or in any foreign countries until we receive the requisite approval from such countries. In the United States, the FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before an NDA or a BLA is approved. Regulatory authorities in other jurisdictions impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA or a BLA to the FDA or other regulatory authorities and even fewer are eventually approved for commercialization. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an application. We have only limited experience in filing the applications necessary to gain regulatory approvals and expect to rely on consultants and third party CROs with expertise in this area to assist us in this process. 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. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and grant of manufacturing authorizations by the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. If our development efforts for our product candidates, including regulatory approval, are not successful for their planned indications, our business will be materially adversely affected. Our success depends on the receipt of regulatory approval and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following:
| ● | the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA, EMA/European Commission, MHRA or other regulatory agencies for marketing approval; |
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| ● | the dosing of our product candidates in a particular clinical trial may not be at an optimal level; | |
| ● | we may be required to provide additional analysis or data for already completed clinical studies, or conduct additional studies; | |
| ● | the FDA, EMA, MHRA or comparable foreign regulatory authorities may require us to obtain clearance, CE marking or approval of companion diagnostic tests; | |
| ● | the FDA, EMA, MHRA or comparable foreign regulatory authorities may disagree on the design or implementation of our clinical trials, including the methodology used in our studies, our chosen endpoints, our statistical analysis, or our proposed product indication; | |
| ● | our failure to demonstrate to the satisfaction of the FDA, EMA, MHRA or comparable regulatory authorities that a product candidate is safe and effective for its proposed indication; | |
| ● | we may fail to demonstrate that a product candidate’s clinical benefits outweigh its safety risks; | |
| ● | immunogenicity might affect a product candidate efficacy and/or safety; | |
| ● | the FDA, MHRA, the competent authorities of the European Union Member States or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical studies or clinical trials; | |
| ● | the FDA, MHRA, the competent authorities of the European Union Member States or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with whom we contract for clinical and commercial supplies; or | |
| ● | there may be changes in the approval policies or regulations that render our nonclinical and clinical data insufficient for approval. |
Additionally, even if we obtain regulatory approval for one indication, there is no guarantee we will be able to gain regulatory approval for additional indications. For example, we intend to initially seek regulatory approval for our CVB vaccine product candidate for the prevention of acute CVB infection. The results of longitudinal studies demonstrating the connection between CVB and T1D or celiac disease will be necessary to expand the indicated use of this vaccine to T1D. These studies must be completed and submitted to the FDA, MHRA or EMA prior to receiving approval in the United States, United Kingdom or European Union to market the CVB vaccine for additional indications such as prevention of T1D. Such studies will be costly and time consuming and may not demonstrate to the FDA’s, MHRA’s or EMA’s satisfaction the connection between the CVB virus and the onset of T1D or celiac disease. Failure or delay in obtaining regulatory approval for our product candidates for the foregoing, or any other reasons, will prevent or delay us from commercializing our product candidates, and our ability to generate revenue will be materially impaired. We cannot guarantee that regulators will agree with our assessment of the results of the clinical trials we have conducted or intend to conduct in the future or that such future trials will be successful. The FDA, EMA, MHRA and other regulators have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional clinical trials, or pre-clinical or other studies. In addition, varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of our product candidates.
In addition, after receiving regulatory approval of our product candidates and/or any additional indications, prior to commercialization, payers and health technology agencies will assess the therapeutic value and/or cost-effectiveness for the product candidates and/or additional indications before such product candidates can be adopted for clinical use in the respective national health systems and this is referred to as pricing and reimbursement approval throughout this document. Without such pricing and reimbursement approvals, the commercialization and market access of the product candidates would be significantly impacted. We cannot guarantee that pricing and reimbursement approval would be obtained.
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The FDA, EMA, MHRA or comparable foreign regulatory authorities could require the clearance, CE marking or approval of a companion diagnostic device for teplizumab as a post-marketing commitment or otherwise, which may require substantial financial resources and could delay or prevent regulatory approval of teplizumab.
The FDA has previously communicated that it (i) acknowledges that the diagnosis stage 2 T1D may be well understood to future prescribers of teplizumab, and therefore, specification of autoantibody testing in the labeling may not be required for the safe and effective use of teplizumab and (ii) is continuing to discuss internally the requirement for a companion diagnostic(s) for teplizumab, and given these uncertainties, we should consider seeking additional advice from the agency on the process of companion diagnostic development, as it remains possible it will be required as a post-marketing commitment. Our position is that a companion diagnostic should not be required for the use of teplizumab in at-risk individuals based upon, among other reasons, (i) relevant FDA precedent and guidance, (ii) the fact that the presence of autoantibodies is supportive, but not sufficient, for a diagnoses of stage 2 T1D and (iii) the commercial availability of FDA-cleared tests or Clinical Laboratory Improvement Amendments, licensed laboratory-developed tests to identify T1D, which the teplizumab final label can direct physicians to use.
Should the FDA, EMA, MHRA or comparable foreign regulatory authorities disagree with us and require the use of a companion diagnostic, we may face delays or obstacles in obtaining approval for teplizumab, as the FDA or other regulatory authorities may take the position that a companion diagnostic device is required prior to granting approval of teplizumab. In addition, if a companion diagnostic is required, we may be dependent on the cooperation and efforts of third-party collaborators to develop one or more companion diagnostics, which generally require FDA clearance or approval, or equivalent approval in other jurisdictions. We and our potential future collaborators may encounter difficulties in developing, validating or obtaining clearance/approval/CE marking for such companion diagnostics. Any delay or failure by us or our potential future collaborators to develop or obtain regulatory clearance, CE marking or approval of such companion diagnostics, if necessary, may delay or prevent approval of teplizumab, PRV-101 or our other product candidates.
Even if we obtain marketing approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates could be subject to labeling and other restrictions and withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates.
Even if we obtain regulatory approval for any of our product candidates for an indication, the FDA, EMA/European Commission, MHRA or foreign equivalent may still impose significant restrictions on their indicated uses or marketing or the conditions of approval or impose ongoing requirements for potentially costly and time-consuming patient registries or post-approval studies, including Phase 4 clinical trials, post-market surveillance to monitor safety and efficacy and a Risk Evaluation and Mitigation Strategy (“REMS”) in the United States or other comparable Risk Management Plan and risk minimization measures in the UK and the EU. If the FDA concludes a REMS is needed in the United States, the sponsor of the NDA or BLA must submit a proposed REMS; the FDA will not approve the NDA or BLA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA may also require a REMS for an approved product when new safety information emerges. Any such post-marketing requirements may negatively impact our commercialization plans or require us to raise additional capital to support the execution of such requirements. Additionally, if we face challenges or are unable to comply with post-marketing requirements, we may not be able to maintain marketing approval, or we may decide to abandon the program.
Our product candidates will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These requirements include registration with the FDA, as well as continued compliance with current GCP regulations for any clinical trials that we conduct post-approval, and any additional requirements in other jurisdictions. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current GMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents.
With respect to sales and marketing activities by us or any future licensor, advertising and promotional materials must comply with FDA rules in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries. We may also be subject, directly or indirectly through our customers and licensors, to various fraud and abuse laws, including, without limitation, the United States Anti-Kickback Statute, United States False Claims Act, and similar state laws, which impact, among other things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the United States Medicaid Drug Rebate Program, the Federal Supply Schedule of the United States Department of Veterans Affairs, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to United States federal and state consumer protection and unfair competition laws. Similar requirements exist in many of these areas in other countries.
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In addition, if any of our product candidates are approved for a particular indication, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA, MHRA, and the competent authorities of the European Union Member States strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA, MHRA, or the European Commission as reflected in, or in a manner that is otherwise inconsistent with, the product’s approved labeling. If we receive marketing approval for our product candidates, physicians may nevertheless legally prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, or otherwise inappropriately promoted our products, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses and false or misleading claims, and a company that is found to have improperly promoted products, including off-label uses, 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 of permanent injunctions under which specified promotional conduct is changed or curtailed.
If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory requirements, we may be subject to the following administrative or judicial sanctions:
| ● | restrictions on the marketing or manufacturing of the product; | |
| ● | withdrawal of the product from the market; | |
| ● | voluntary or mandatory product recalls; | |
| ● | restrictions of the labeling of a product; | |
| ● | restrictions on product distribution or use | |
| ● | requirements to conduct post-marketing studies or clinical trials; | |
| ● | issuance of warning letters or untitled letters; | |
| ● | injunctions or the imposition of civil or criminal penalties or monetary fines, restitution, or disgorgement of profit or revenues; | |
| ● | suspension, withdrawal, variation or revocation of regulatory approval; | |
| ● | suspension or termination of any ongoing clinical trials; | |
| ● | refusal to approve pending applications or supplements to approved applications filed by us; | |
| ● | suspension or imposition of restrictions on operations, including costly new manufacturing requirements; or | |
| ● | product seizure or detention or refusal to permit the import or export of product. |
The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase our product liability exposure.
Even though we may apply for orphan drug designation for a product candidate, we may not be able to obtain such designation or obtain orphan drug marketing exclusivity. Even if we obtain orphan drug marketing exclusivity, it may not effectively protect the product from competition.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States or for which there is no reasonable expectation that the cost of developing and making a drug available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA or a BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of regulatory review and approval process. In addition to the potential period of exclusivity, orphan designation makes a company eligible for grant funding to defray costs of clinical trial expenses, tax credits for clinical research expenses and potential exemption from the FDA application user fee. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing of clinical superiority to the product with orphan exclusivity by a competitor product. If a drug designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan drug exclusivity. There can be no assurance that we will receive orphan drug designation for any of our product candidates in the indications for which we think they might qualify, if we elect to seek such applications.
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We have obtained orphan drug designation from the FDA for teplizumab for the treatment of newly diagnosed T1D, however, there is no guarantee that the FDA, the European Commission or comparable foreign regulatory authorities will grant any future application for orphan drug designation for any of our other product candidates, including teplizumab for the use in at-risk individuals, which would make us ineligible for the additional exclusivity and other benefits of orphan drug designation, and may also impact our ability to obtain benefits under other incentive programs, such as the rare pediatric disease priority review voucher program. For example, we applied for orphan drug designation of teplizumab for the use in at-risk individuals which was denied by the FDA’s OOPD in February 2021. We believe current data suggests that there may be an initial undiagnosed prevalence approaching 165,000-200,000 Stage 2 T1D subjects in all age groups, however, we believe the diagnosed prevalence for Stage 2 T1D subjects is less than 200,000, which, we believe could have met the FDA’s criteria for orphan drug designation. We currently do not have plans to take any additional steps to address OOPD’s positions.
Even if we obtain orphan drug exclusivity for teplizumab for the treatment of newly diagnosed T1D in the United States, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication. Furthermore, the FDA can waive orphan drug exclusivity if we are unable to manufacture sufficient supply of teplizumab or if the FDA finds that a subsequent applicant for newly diagnosed T1D demonstrates clinical superiority to teplizumab. Accordingly, orphan drug exclusivity for a product may not effectively protect the product from competition.
Although we may apply for rare pediatric disease designation for our product candidates, we may not be able to obtain such designation, and rare pediatric disease designation does not guarantee that the NDA or BLA for the product will qualify for a priority review voucher upon approval.
Under the Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying BLA or NDA for the treatment of a rare pediatric disease, the sponsor of such an application would be awarded a rare pediatric disease priority review voucher that can be used to obtain priority review for a subsequent BLA or NDA. On December 27, 2020, the Creating Hope Reauthorization Act extended the Rare Pediatric Disease Priority Review Voucher Program, and after September 30, 2024, the FDA may only award a voucher for an approved rare pediatric disease product application if the sponsor has rare pediatric disease designation for the drug, and that designation was granted by September 30, 2024. After September 30, 2026, the FDA may not award any rare pediatric disease priority review vouchers.
We submitted a request for Rare Pediatric Disease designation for teplizumab for the use in at-risk individuals, however, the FDA sent a second deficiency letter for our application in October 2021. In its letter, the FDA’s Office of OOPD, noted that they believe the At-Risk Stage 2 population is greater than 200,000 subjects in the United States and we have one year from the date of the deficiency letter (or any approved extension thereof) to provide arguments otherwise, or our request for Rare Pediatric Disease designation will be considered voluntarily withdrawn. We currently do not have plans to take any additional steps to address OOPD’s positions.
There is no guarantee that the FDA will grant any future requests for Rare Pediatric Disease designation for any of our product candidates, including teplizumab for the use in at-risk individuals. Moreover, even if we obtain rare pediatric disease designation, there is no guarantee that we will qualify for a rare pediatric disease priority review voucher upon FDA approval of the NDA or BLA for a rare pediatric disease. Rare pediatric disease designation does not lead to faster development or regulatory review of the product, or increase the likelihood that it will receive marketing approval or pricing and reimbursement approval.
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Although we may pursue expedited regulatory approval pathways for a product candidate, it may not qualify for expedited development or, if it does qualify for expedited development, it may not actually lead to a faster development or regulatory review or approval process.
Although we believe there may be an opportunity to accelerate the development of certain of our product candidates through one or more of the FDA’s or EMA’s expedited programs, such as fast track, breakthrough therapy, accelerated approval or priority review, we cannot be assured that any of our other product candidates will qualify for such programs.
For example, in the United States, a drug may be eligible for designation as a breakthrough therapy if the drug is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Although breakthrough designation or access to any other expedited program may expedite the development or approval process, it does not change the standards for approval. If we apply for breakthrough therapy designation or any other expedited program for our product candidates, the FDA may determine that our proposed target indication or other aspects of our clinical development plans do not qualify for such expedited program. Even if we are successful in obtaining a breakthrough therapy designation or access to any other expedited program, we may not experience faster development timelines or achieve faster review or approval compared to conventional FDA procedures. For example, the time required to identify and resolve issues relating to chemistry, manufacturing and controls, the acquisition of a sufficient supply of our product for clinical trial purposes or the need to conduct additional preclinical or clinical studies may delay approval by the FDA, even if the product candidate qualifies for a breakthrough therapy designation or access to any other expedited program. Access to an expedited program may also be withdrawn by the FDA if it believes that the designation is no longer supported by data from our clinical development program. Additionally, qualification for any expedited review procedure does not ensure that we will ultimately obtain regulatory approval for such product candidate.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval, or pricing and reimbursement approval, of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain equivalent approvals in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials, as clinical 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.
Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/ or to receive applicable marketing approvals or pricing and reimbursement approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates.
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 for our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell our product candidates.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the United States Congress (“Congress”) of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
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The FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We also cannot predict the likelihood, nature, or extent of adverse government regulation that may arise from pending or future legislation or administrative action, either in the United States or abroad. For example, on March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the COVID-19 pandemic. Among other provisions, the CARES Act made a number of changes to the Federal Food, Drug, and Cosmetic Act (“FDCA”) aimed at preventing drug shortages. Similarly, the FDA has issued a number of guidance documents describing the agency’s expectations for how drug manufacturers should comply with various FDA requirements during the pandemic, including with respect to conducting clinical trials, distributing drug samples, and reporting post-marketing adverse events. Moreover, as a result of the COVID-19 pandemic, there has been increasing political and regulatory scrutiny of drug supply chains, resulting in proposed and enacted legislative and executive actions, including Executive Orders, to incentivize or compel drug manufacturing operations to relocate to the United States. It is not clear how these changes and proposals could impact our business. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability.
Healthcare reform and other governmental and private payor initiatives may have an adverse effect upon, and could prevent, our product candidates’ commercial success, if approved.
The United States government and individual states have been aggressively pursuing healthcare reform designed to impact delivery of, and/or payment for, healthcare, which include initiatives intended to reduce the cost of healthcare. For example, in March 2010, the United States Congress enacted the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act (the “ACA”), which, among other things, expanded healthcare coverage through Medicaid expansion and the implementation of the individual health insurance mandate; included changes to the coverage and reimbursement of drug products under government healthcare programs; imposed an annual fee on manufacturers of branded drugs; and expanded government enforcement authority. We face uncertainties because there have been, and may be additional, federal legislative and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the ACA. For example, tax reform legislation was enacted at the end of 2017 that eliminated the tax penalty for individuals who do not maintain sufficient health insurance coverage beginning in 2019. The ACA has also been subject to judicial challenge. The case Texas v. Azar, which challenges the constitutionality of the ACA, including provisions that are unrelated to healthcare reform but were enacted as part of the ACA, was argued before the Supreme Court in November 2020. The Supreme Court dismissed this challenge to the ACA on June 17, 2021 and, therefore, all of the ACA but the individual mandate to buy health insurance currently remains in effect. Further, prior to the U.S. Supreme Court ruling on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021 and remained open until August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. The ACA remains subject to legislative efforts to repeal, modify or delay the implementation of the law. However, if the ACA is repealed or modified, or if implementation of certain aspects of the ACA are delayed, any such repeal, modification or delay may materially adversely affect our business, strategies, prospects, operating results or financial condition. We are unable to predict the full impact of any repeal, modification or delay in the implementation of the ACA on us at this time.
In addition, the expansion of the 340B Drug Discount Program through the ACA has increased the number of “covered entity” purchasers who are eligible for significant discounts on branded drugs. Additionally, the Health Resources and Services Administration has interpreted the 340B Drug Discount Program law to require manufacturers to extend these discounts to contract pharmacies that have arrangements with covered entities. Several drug manufacturers have commenced litigation, which remains ongoing, challenging the legality of contract pharmacy arrangements under the 340B Drug Discount Program. The resolution of the litigation may affect the way in which manufacturers are required to extend the 340B Drug Discount Program prices to covered entities, including through contract pharmacies. There also are ongoing challenges regarding the implementation of the 340B Drug Discount Program administrative dispute resolution process, which is, in part, intended to resolve claims by covered entities that they have been overcharged for covered outpatient drugs by manufacturers, and claims by manufacturers regarding covered entity compliance with program requirements. The nature of the current administrative dispute resolution process, and the outcomes of these court cases, may have a material adverse impact on our revenue should we participate in the 340B Drug Discount Program after receiving approval for our product candidates.
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Beyond the ACA, in 2020 and early 2021, the United States Department of Health and Human Services has issued various rules that affect pricing or payment for drug products. For example, effective January 2023, revisions to the federal anti-kickback statute would remove protection for traditional Medicare Part D discounts offered by pharmaceutical manufacturers to pharmacy benefit managers and health plans. Additional healthcare reform efforts have sought to address certain issues related to the COVID-19 pandemic, including an expansion of telehealth coverage under Medicare and accelerated or advanced Medicare payments to healthcare providers. Some of these changes have been and may continue to be subject to legal challenge. For example, courts have temporarily enjoined a new “most favored nation” payment model for select drugs covered under Medicare Part B that was to take effect on January 1, 2021 and would limit payment based on international drug price. On January 13, 2021, in a separate lawsuit brought by industry groups, the government defendants entered a joint motion to stay litigation on the condition that the government would not appeal the preliminary injunction granted in the U.S. District Court for the Northern District of California and that performance for any final regulation stemming from the most favored nation payment model interim final rule shall not commence earlier than sixty (60) days after publication of that regulation in the Federal Register. In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several United States Congressional inquiries, hearings and proposed and enacted federal legislation and rules, as well as Executive Orders and regulatory actions, designed to, among other things, reduce or limit the prices of drugs and make them more affordable for patients, such as by tying the prices that Medicare reimburses for physician-administered drugs to the prices of drugs in other countries, reform the structure and financing of Medicare Part D pharmaceutical benefits, including through increasing manufacturer contributions to offset Medicare beneficiary costs, bring more transparency to drug pricing rationale and methodologies (including, for example, by requiring manufacturers to disclose planned drug price increases and the rationales for such increases), implement data collection and reporting under Section 204 of Title II of Division BB of the Consolidated Appropriations Act, 2021, which requires, among other things, health plans and issuers to disclose rebates, fees, and other remuneration provided by drug manufacturers related to certain pharmaceutical products, enable the government to negotiate prices for drugs covered under Medicare, including H.R. 3 which passed the House, revise rules associated with the calculation of Medicaid Average Manufacturer Price and Best Price, including the removal of the current statutory 100% of Average Manufacturer Price per-unit cap on Medicaid rebate liability effective as of January 1, 2024 under the American Rescue Plan Act of 2021, which may significantly affect the amount of rebates paid on prescription drugs under Medicaid and the prices that are required to be charged to covered entities under the 340B Drug Discount Program, create new anti-kickback statute safe harbors applicable to certain point-of-sale discounts to patients and fixed-fee administrative fee payment arrangements with pharmacy benefit managers, each of which are currently stayed, and facilitate the importation of certain lower-cost drugs from other countries. The nature and scope of health care reform under the Biden administration remains uncertain, although President Biden supported reforms to lower drug prices during his campaign for the presidency. Adoption of new healthcare reform legislation at the federal or state level could affect demand for, or pricing of, our products or product candidates if approved for sale. We cannot predict, however, the ultimate content, timing or effect of any healthcare reform legislation or action, or its impact on us, and healthcare reform could increase compliance costs and may adversely affect our future business and financial results.
In addition, other legislative changes have been adopted that could have an adverse effect upon, and could prevent, our products’ or product candidates’ commercial success. More broadly, the Budget Control Act of 2011, as amended, or the Budget Control Act, includes provisions intended to reduce the federal deficit, including reductions in Medicare payments to providers through 2030 (except May 1, 2020 to March 31, 2022). Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs, or any significant taxes or fees imposed as part of any broader deficit reduction effort or legislative replacement to the Budget Control Act, or otherwise, could have an adverse impact on our anticipated product revenues.
In addition to governmental efforts in the United States, foreign jurisdictions as well as private health insurers and managed care plans are likely to continue challenging manufacturers’ ability to obtain reimbursement, as well as the level of reimbursement, for pharmaceuticals and other healthcare-related products and services. These cost-control initiatives could significantly decrease the available coverage and the price we might establish for our products, which would have an adverse effect on our financial results. The pricing and reimbursement of medicinal products in the European Union and the UK is subject to strict governmental control. Pricing and reimbursement negotiations with governmental authorities are complex and may take significant amounts of time. To obtain reimbursement and/or pricing approval in the European Union Member States and/or the UK, we may be required to conduct studies or otherwise provide data demonstrating the cost effectiveness of our products compared with other available established therapies. The conduct of such studies could also result in delays in the commercialization of our products. Additionally, cost-control initiatives, increasingly based on affordability and accessibility, as well as post-marketing assessment of the product’s added value as compared to existing treatments, could decrease the price of our products or the indications for which we are able to obtain reimbursement, which would result in lower revenues to us. New legislative and policy initiatives in the European Union, aimed at increasing accessibility and affordability of medicinal products, and the increased cooperation between the European Union Member States may further impact the price and reimbursement status of our products in the future. On December 15, 2021, EU legislatures adopted Regulation (EU) 2021/2282 of the European Parliament and of the Council on health technology assessment and amending Directive 2011/24/EU. The new Regulation will apply from January 2025 which will facilitate the greater coordination and cooperation within the EU of an assessment of the relative clinical effectiveness and relative clinical safety of a new health technology as compared with existing technologies in a health technology assessment.
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If we fail to successfully commercialize any of our product candidates, we may need to acquire additional product candidates and our business will be adversely affected.
We have never developed and obtained approval for any product candidates or commercialized any product candidates. We have limited product candidates and do not have any other compounds in pre-clinical testing, lead optimization or lead identification stages beyond our product candidates. We cannot be certain that any of our product candidates will prove to be sufficiently effective and safe to meet applicable regulatory standards for any indication. If we fail to successfully obtain regulatory approval, pricing and reimbursement approval, or commercialize any of our product candidates for their targeted indications, whether as stand-alone therapies or in combination with other therapeutic agents, and if we are unable to acquire additional product candidates in the future, our business will be adversely affected.
Even if we receive regulatory approval for any of our product candidates, we may not be able to successfully commercialize the product and the revenue that we generate from its sales, if any, may be limited.
If approved for marketing, the commercial success of our product candidates will depend upon each product’s acceptance by the medical community, including physicians, patients and health care payors. The degree of market acceptance for any of our product candidates will depend on a number of factors, including:
| ● | demonstration of clinical safety and efficacy; | |
| ● | relative convenience, dosing burden and ease of administration; | |
| ● | the prevalence and severity of any adverse events and the overall safety profile; | |
| ● | the clinical indications for which our products are approved; | |
| ● | the acceptance of physicians to include T1D screening in routine patient medical care; | |
| ● | the willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies; | |
| ● | the willingness of physicians and patients to accept 14 consecutive days of IV therapy; | |
| ● | efficacy of our product candidates compared to future competing products or therapies; | |
| ● | the introduction of any new products that may in the future become available targeting indications for which our product candidates may be approved; | |
| ● | new procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show utility; | |
| ● | pricing and cost-effectiveness; | |
| ● | the inclusion or omission of our product candidates in applicable therapeutic and vaccine guidelines; | |
| ● | the effectiveness of our own or any future collaborators’ sales and marketing strategies; | |
| ● | limitations or warnings contained in approved labeling from regulatory authorities, including any interactions of our products with other medicines patients are taking; | |
| ● | our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and | |
| ● | the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals. |
If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors, and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
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In addition, even if we obtain regulatory approvals, and pricing and reimbursement approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our product candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render our product candidates not commercially viable. For example, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve any of our product candidates with a label that does not include the labeling claims necessary or desirable for the successful commercialization for that indication. Further, the FDA or comparable foreign regulatory authorities may place conditions on approvals or require risk management plans or a REMS, to assure the safe use of the drug. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of our product candidates. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial success of our product candidates.
We currently have a limited commercial organization. If we are unable to establish satisfactory sales and commercial support and marketing capabilities, we may not successfully commercialize any of our product candidates.
We have been gradually building our commercial infrastructure and at present, we have only limited sales personnel. In order to commercialize products that are approved for commercial sales, we must develop our own sales infrastructure. If we are not successful recruiting sales personnel or in building our sales and marketing infrastructure in the United States, we will have difficulty successfully commercializing our product candidates, which would adversely affect our business, operating results and financial condition.
If we are unable to establish a satisfactory sales infrastructure, we may not realize a positive return on this investment. In addition, we will have to compete with established and well-funded pharmaceutical and biotechnology companies to recruit, hire, train and retain sales personnel. Factors that may inhibit our efforts to commercialize our product candidates without strategic partners or licensees include:
| ● | our inability to recruit and retain adequate numbers of effective sales, market access, patient services, medical affairs and other key commercial personnel; | |
| ● | the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any of our product candidates; | |
| ● | 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 commercial organization. |
We have entered into collaborations with third parties, and in the future may enter into additional collaborations with third parties, for the research, development, and commercialization of certain of the product candidates we may develop. If any such collaborations are not successful, we may not be able to capitalize on the market potential of those product candidates.
We may seek additional third-party collaborators for the research, development, and commercialization of certain of the product candidates we may develop. For example, in October 2022, we and Genzyme Corporation entered into the Sanofi Co-Promotion Agreement, pursuant to which we appointed Sanofi to co-promote and conduct certain commercialization activities with respect to teplizumab in the United States, should teplizumab receive approval by the FDA, on a co-exclusive basis for the treatment of the indication for which teplizumab receives approval in the United States. In any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of any product candidates we may seek to develop with them. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter into.
Collaborations pose numerous risks to us, including the following:
| ● | collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; | |
| ● | collaborators may not pursue development and commercialization of any product candidates we may develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities; |
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| ● | 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 independently develop, or develop with third parties, products that compete directly or indirectly with our medicines or product candidates we may develop if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; | |
| ● | collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products; | |
| ● | collaborators may not properly obtain, maintain, enforce, or defend our intellectual property or proprietary rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation; | |
| ● | disputes may arise between the collaborators and us that result in the delay or termination of the research, development, or commercialization of our products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources; | |
| ● | we may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of control; | |
| ● | collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates we may develop; | |
| ● | collaboration partners may engage in fraudulent or illegal activity that violate the regulations of the FDA and other regulators, including those laws requiring the reporting of true, complete and accurate information to such regulators, manufacturing standards, healthcare fraud and abuse laws and regulations in the United States and internationally or laws that require the true, complete and accurate reporting of financial information or data; and | |
| ● | collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished, or terminated. |
If our collaborations, including the Sanofi Co-Promotion Agreement, do not result in the successful development and commercialization of product candidates, or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of product candidates could be delayed, and we may need additional resources to develop product candidates. In addition, if one of our collaborators terminates its agreement with us, we may find it more difficult to find a suitable replacement collaborator or attract new collaborators, and our development programs may be delayed or the perception of us in the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval and commercialization described in this Quarterly Report on Form 10-Q apply to the activities of our collaborators.
These relationships, or those like them, may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. In addition, we could face significant competition in seeking appropriate collaborators, and the negotiation process is time-consuming and complex. Our ability to reach a definitive collaboration agreement 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 several factors. If we license rights to any product candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture.
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If our Co-Promotion Agreement with Sanofi is terminated, or Sanofi materially breaches its obligations thereunder, our business, prospects, operating results, and financial condition, and our ability to commercialize teplizumab, if approved, in the time expected, or at all, could be materially harmed.
We will rely on support from Sanofi to commercialize teplizumab, if approved. Under the Sanofi Co-Promotion Agreement, Sanofi has committed to making field resources representing more than 100 FTEs available for co-promotion and commercialization activities if teplizumab is approved in the United States by a certain date. As a result, we will rely in part on Sanofi’s sales and marketing organization for teplizumab, if approved. If the Sanofi-Co Promotion Agreement were terminated or breached, and we no longer had access to Sanofi’s field resources, we would be required to expend substantially more resources than we have anticipated to support our commercialization efforts. This could require us to either seek additional funding that might not be available on favorable terms or at all, or materially cut back on such activities. Termination of the Sanofi Co-Promotion Agreement would create substantial new and additional risks to the successful commercialization of teplizumab and could materially harm such commercialization.
Amgen has the right to assume control over the activities of our anti-IL-15 mAb product candidate.
Pursuant to the Amgen Agreement, Amgen reserves the right, at any time until 120 days after the delivery of the final data package relating to the Phase 2b PROACTIVE study which we initiated in August 2020, to assume control over all activities with respect to our anti-IL-15 monoclonal antibody (“mAb”), product candidate, including pricing and marketing decisions, after the payment of a $150.0 million milestone. There can be no assurance that Amgen’s strategic direction will be in line with ours should it assume control of activities, or that their decisions will have a positive impact on our results of operations. Moreover, we may not realize the full economic benefit of this agreement.
We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have existing competitors and will have potential new competitors in a number of jurisdictions, many of which have or will have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than we have. Established competitors may invest heavily to quickly discover and develop novel compounds that could make any of our product candidates obsolete or uneconomical. Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, cost, convenience, tolerability and safety to be commercially successful. Other competitive factors, including generic competition, could force us to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to our product candidates. If we are not able to compete effectively against our current and future competitors, our business will not grow, and our financial condition and operations will suffer.
Our potential competitors both in the United States and throughout the world include companies developing and/or marketing drugs and therapeutic solutions for immune-mediated diseases, including oncological, autoimmune and inflammatory diseases, as well as companies working in our specific fields, including T1D, enteroviral and emerging viral diseases, lupus, and inflammatory bowel diseases, such as CD.
There can be no assurance that our product candidates will be more effective or achieve greater market acceptance than competitive products, or that our competitors will not succeed in developing products and technologies that are more effective than those being developed by us or that would render our products and technologies less competitive or obsolete. Additionally, there can be no assurance that the development by others of new or improved products will not make our product candidates superfluous or obsolete.
Our product candidates may face competition sooner than expected.
We intend to seek data exclusivity or market exclusivity for our monoclonal antibodies teplizumab and PRV-015, our DART molecule PRV-3279 and our PRV-101 CVB vaccine product candidates provided under the FDCA, and similar laws in other countries. In the United States, we believe that these product candidates will qualify for 12 years of data exclusivity under the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), which was enacted as part of the ACA. Under the BPCIA, an application for a biosimilar product or BLA cannot be submitted to the FDA until four years, or if approved by the FDA, until 12 years, after the original brand product identified as the reference product is approved under a BLA. The BPCIA provides 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. The law is complex and the processes the FDA establishes to implement the law could have a material adverse effect on the future commercial prospects for our biological product candidates. There is also a risk that Congress could repeal or amend the BPCIA to shorten this exclusivity period, potentially creating the opportunity for biosimilar competition sooner than anticipated after the expiration of our patent protection. Moreover, the extent to which a biosimilar, once approved, will be substituted for any reference product 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.
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Our product candidates that are not, or are not considered, biologics that would qualify for exclusivity under the BPCIA may be eligible for market exclusivity as drugs under the FDCA. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. The Ensuring Innovation Act, enacted on April 23, 2021, amended the FDA’s statutory authority for granting such exclusivity to reflect the agency’s existing regulations and longstanding interpretation that award exclusivity based on a drug’s active moiety, as opposed to its active ingredient, which is intended to limit the applicability of this exclusivity, thereby potentially facilitating generic competition. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (“ANDA”), or a 505(b)(2) NDA, submitted by another company for another version of such drug. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving 505(b)(2) NDAs or ANDAs for drugs containing the original active agent.
We may seek FDA pediatric exclusivity for some of our products. For a biologic, pediatric exclusivity adds 6 months of marketing exclusivity to any existing exclusivity to include all formulations, dosage forms, and indications for the active moiety. Pediatric exclusivity may be awarded when a company completes pediatric studies described in an FDA Written Request letter. Even though the Company seeks pediatric exclusivity, the FDA may not agree to issue a Written Request, or the Company may not complete the studies as described in the FDA Written Request.
Even if, as we expect, our product candidates are considered to be reference products eligible for 12 years of exclusivity under the BPCIA or five years of exclusivity under the FDCA, another company could market competing products if the FDA approves a full BLA or full NDA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the products. Moreover, an amendment or repeal of the BPCIA could result in a shorter exclusivity period for our product candidates, which would have a material adverse effect on our business.
In addition, the Further Consolidated Appropriations Act, 2020, which incorporated the framework from the Creating and Restoring Equal Access To Equivalent Samples (“CREATES”) legislation, was signed into law as part of the 2019 year-end federal spending package. The legislation purports to promote competition in the market for drugs and biological products by facilitating the timely entry of lower-cost generic and biosimilar versions of those drugs and biological products, including by allowing ANDA, 505(b)(2) NDA or biosimilar developers to obtain access to branded drug and biological product samples. While the full impact of these provisions is unclear at this time and initial litigation brought under this law is pending, its provisions do have the potential to facilitate the development and future approval of biosimilar or generic versions of our products if approved, introducing biosimilar or generic competition that could have a material adverse impact on our business, financial condition and results of operations.
Our future growth depends, in part, on our ability to penetrate international markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future profitability will depend, in part, on our ability to commercialize our product candidates in international markets for which we intend to rely on collaborations with third parties. If we commercialize any of our product candidates in international markets, we would be subject to additional risks and uncertainties, including:
| ● | our customers’ ability to obtain reimbursement for our product candidates in international markets; | |
| ● | our inability to directly control commercial activities because we are relying on third parties; | |
| ● | the burden of complying with complex and changing international regulatory, tax, accounting and legal requirements; | |
| ● | different medical practices and customs in foreign countries affecting acceptance in the marketplace; |
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| ● | import or export licensing requirements; | |
| ● | longer accounts receivable collection times; | |
| ● | longer lead times for shipping; | |
| ● | language barriers for technical training; | |
| ● | reduced protection of intellectual property rights in some foreign countries; | |
| ● | foreign currency exchange rate fluctuations; and | |
| ● | the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute. |
International sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs, any of which may adversely affect our results of operations.
If we market any of our product candidates or, if approved, commercial products, in a manner that violates healthcare laws, or if we violate government price reporting laws, we may be subject to civil or criminal penalties.
The marketing and sale of pharmaceutical products are subject to comprehensive governmental regulation within the United States, with similar requirements in other jurisdictions. Numerous federal, state and local authorities have jurisdiction over, or enforce laws related to, such activities, including the FDA, United States Drug Enforcement Agency, Centers for Medicare & Medicaid Services, the United States Department of Health and Human Services Office of Inspector General, the United States Department of Justice, state Attorneys General, state departments of health and state pharmacy boards. See the section entitled “Business—Government Regulation” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2022.
The FDA enforces laws and regulations which require that the promotion of pharmaceutical products be consistent with the approved prescribing information. While physicians may prescribe an approved product for a so-called “off label” use, it is unlawful for a pharmaceutical company to promote its products in a manner that is inconsistent with its approved label and any company which engages in such conduct can subject that company to significant liability. The federal government has levied large civil and criminal fines and/or other penalties against companies for alleged improper promotion and has investigated and/or prosecuted several companies in relation to off-label promotion. The FDA has also requested that certain companies enter consent decrees or permanent injunctions under which specified promotional conduct is changed, curtailed or prohibited. Similarly, industry codes in the European Union and other foreign jurisdictions prohibit companies from engaging in off-label promotion and regulatory agencies in various countries enforce violations of the code with civil penalties. While we intend to ensure that our promotional materials are consistent with our label, regulatory agencies may disagree with our assessment and may issue untitled letters, warning letters or may institute other civil or criminal enforcement proceedings.
We are also subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claims laws, for activities related to sales of any of our products or product candidates that may in the future receive marketing approval and pricing and reimbursement approval. Anti-kickback laws generally prohibit persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid. Although the specific provisions of these laws vary, their scope is generally broad and there may not be regulations, guidance or court decisions that apply the laws to particular industry practices. False claims laws prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, information or claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent.
These laws and regulations, among other things, constrain our current and future business, marketing and other promotional and research activities by limiting the kinds of financial arrangements, including sales programs, we may have with hospitals, physicians or other potential purchasers of our products. In particular, these laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements, as well as interactions with healthcare professionals through consultant arrangements, product training, sponsorships, or other activities. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare and other laws and regulations will involve substantial costs. Even if such efforts are made, moreover, due to the breadth of these laws, the narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject governmental authorities may possibly conclude that our business practices may not comply with healthcare laws and regulations.
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The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulatory guidance. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies, healthcare providers and other third parties, including charitable foundations, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Numerous pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of alleged improper promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicare or Medicaid for non-covered, off-label uses; and submitting inflated best price information to the Medicaid Drug Rebate Program to reduce liability for Medicaid rebates; and providing kickbacks to patients in the form of indirect copay support. Most states also have statutes or regulations similar to the federal anti-kickback statute and False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Efforts to ensure that our activities comply with applicable healthcare laws and regulations will involve substantial costs. Given the breadth of the laws and regulations, limited guidance for certain laws and regulations and evolving government interpretations of the laws and regulations, governmental authorities may possibly conclude that our business practices may not comply with healthcare laws and regulations. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or government regulations.
Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business. We may be subject to private qui tam actions brought by individual whistleblowers on behalf of the federal or state governments, with potential liability under the federal False Claims Act including mandatory treble damages and significant per-claim penalties. Additionally, as a result of these investigations and qui tam actions, we may have to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business, financial condition and results of operations. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity and be costly to respond to.
If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to sanctions, including substantial civil monetary penalties, exclusion of our products from reimbursement under government programs, integrity oversight and reporting obligations, substantial criminal fines and imprisonment, any of which could adversely affect our business, financial condition, results of operations, prospects and reputation.
If any of our product candidates are approved, we anticipate that we will need to participate in the Medicaid Drug Rebate Program and a number of other federal and state government pricing programs in the United States in order to obtain coverage for the product by certain government healthcare programs. These programs would generally require us to pay rebates or provide discounts to certain private purchasers or government payers in connection with our products when dispensed to beneficiaries of these programs. In some cases, such as with the Medicaid Drug Rebate Program, the rebates are based on pricing and rebate calculations that we report on a monthly and quarterly basis to the government agencies that administer the programs. We may have reimbursement obligations or be subject to penalties if we fail to provide timely and accurate information to the government, pay the correct rebates or offer the correct discounted pricing.
We expect to rely on third parties to conduct clinical trials for our product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize any of our product candidates and our business would be substantially harmed.
We rely on third-party CROs and vendors to conduct and manage our clinical programs including contracting with clinical sites to perform our clinical trials. We plan to rely heavily on these parties for execution of clinical trials for our product candidates and will control only certain aspects of their activities. Nevertheless, we will be 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 CROs and clinical sites will not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCPs, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the EEA and comparable foreign regulatory authorities for any products in clinical development. The FDA and its foreign equivalents enforce these GCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA or other regulatory authorities will determine that any of our clinical trials comply with GCPs. In addition, our clinical trials must be conducted with products produced under GMP regulations and will require a large number of test subjects. Our failure or the failure of our CROs or clinical sites to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process or the pricing and reimbursement approval process and could also subject us to enforcement action up to and including civil and criminal penalties.
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Although we design the clinical trials for our product candidates in consultation with CROs, we expect that the CROs will manage all of the clinical trials conducted at contracted clinical sites. As a result, many important aspects of our drug development programs are delegated to third-parties. In addition, the CROs and clinical sites may not perform all of their obligations under arrangements with us or in compliance with regulatory requirements. If the CROs or clinical sites do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development and commercialization of any of our product candidates for the subject indication may be delayed or our development program materially and irreversibly harmed. We fully cannot control the amount and timing of resources these CROs and clinical sites will devote to our program or any of our product candidates. If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical trials, which could significantly delay commercialization and require significantly greater expenditures.
If any of our relationships with these third-party CROs or clinical sites terminate, we may not be able to enter into arrangements with alternative CROs or clinical sites. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any such clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for any of our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.
The outcome of pre-clinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical trials may not satisfy the requirements of the FDA or comparable foreign regulatory authorities.
We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any future collaborators may decide, or regulators may require us, to conduct additional clinical trials or pre-clinical studies. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek marketing approvals for their commercial sale. Success in pre-clinical studies and early-stage clinical trials does not mean that future larger registration clinical trials will be successful. This is because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and comparable foreign regulatory authorities despite having progressed through pre-clinical studies and early-stage clinical trials.
From time to time, we may publish or report interim or preliminary data from our clinical trials. Interim or preliminary data from clinical trials that we may conduct may not be indicative of the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Interim or preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the interim or preliminary data. As a result, interim or preliminary data should be viewed with caution until the final data are available.
In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain marketing approval, or pricing and reimbursement approval, to commercialize our product candidates.
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Third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues.
Our ability to successfully market our product candidates will depend in part on the level of reimbursement that government health administration authorities, private health coverage insurers and other organizations provide for the cost of our products and related treatments. Countries in which any of our product candidates are sold through reimbursement schemes under national health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices and any subsequent price changes. In certain countries, including the United States, government-funded and private medical care plans can exert significant indirect pressure on prices. We may not be able to sell our product candidates profitably if adequate prices are not approved or coverage and reimbursement is unavailable or limited in scope. Increasingly, third-party payors attempt to contain health care costs in ways that are likely to impact our development of products including:
| ● | failing to approve or challenging the prices charged for health care products; | |
| ● | introducing reimportation schemes from lower priced jurisdictions; | |
| ● | limiting both coverage and the amount of reimbursement for new therapeutic products; | |
| ● | denying or limiting coverage for products that are approved by the regulatory agencies but are considered to be experimental or investigational by third-party payors; and | |
| ● | refusing to provide coverage when an approved product is used in a way that has not received regulatory marketing approval. |
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered. Some third-party payors may impose barriers to coverage of products, such as pre-approval of coverage for new drug therapies before they will reimburse healthcare providers who use such therapies. Many private third-party payors, such as managed care plans, manage access to drug products’ coverage partly to control costs to their plans, and may use drug formularies and medical policies to limit their exposure. Factors considered by these payors include product efficacy, cost effectiveness, and safety, as well as the availability of other treatments including generic prescription drugs. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
Moreover, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their commercial products. There have been several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement methodologies for drugs. While any proposed measures will require authorization through additional legislation to become effective, Congress has indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. See “Healthcare reform and other governmental and private payor initiatives may have an adverse effect upon, and could prevent, our product candidates’ commercial success, if approved.”
Risks Relating to Our Intellectual Property Rights
We depend on rights to certain pharmaceutical compounds that are licensed to us. We do not control these pharmaceutical compounds and any loss of our rights to them could prevent us from selling our products.
We are dependent on licenses from third parties for all but one of our pharmaceutical compounds. We do not own the patents that underlie these licenses. Our rights to use the pharmaceutical compounds we license are subject to the continuation of and compliance with the terms of those licenses. Thus, the patents and patent applications applicable to our product candidates were not written by us or our attorneys, and we did not have control over the drafting and prosecution. The former patent owners and our licensors might not have given the same attention to the drafting and prosecution of these patents and applications as we would have if we had been the owners of the patents and applications and had control over the drafting. Moreover, under certain of our licenses, patent prosecution activities remain under the control of the licensor. We cannot be certain that drafting of the licensed patents and patent applications, or patent prosecution, by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.
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Our rights to develop and commercialize the product candidates we license are subject to the validity of the owner’s intellectual property rights. Enforcement of our licensed patents or defense or any claims asserting the invalidity of these patents is often subject to the control or cooperation of our licensors. Legal action could be initiated against the owners of the intellectual property that we license and an adverse outcome in such legal action could harm our business because it might prevent such companies or institutions from continuing to license intellectual property that we may need to operate our business. In addition, such licensors may resolve such litigation in a way that benefits them but adversely affects our ability to develop and commercialize our product candidates.
In addition, our rights to practice the inventions claimed in the licensed patents and patent applications are subject to our licensors abiding by the terms of those licenses and not terminating them. Our licenses may be terminated by the licensor if we are in material breach of certain terms or conditions of the license agreement or in certain other circumstances. Certain of our licenses contained in our license agreements contain provisions that allow the licensor to terminate the license if (i) we breach any payment obligation or other material provision under the agreement and fail to cure the breach within a fixed time following written notice of termination, (ii) we or any of our affiliates, licensees or sublicensees directly or indirectly challenge the validity, enforceability, or extension of any of the licensed patents, (iii) we declare bankruptcy or dissolve, (iv) we fail to maintain a licensed product in active development or fail to use commercially reasonable efforts to develop or commercialize a licensed product. Our rights under the licenses are subject to our continued compliance with the terms of the license, including the payment of royalties due under the license. Termination of these licenses could prevent us from marketing some or all of our products. Because of the complexity of our products and the patents we have licensed, determining the scope of the license and related royalty obligations can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license. If a licensor believed we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the licensor might attempt to revoke the license. If such an attempt were successful, we might be barred from producing and selling some or all of our products.
It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights.
Our commercial success will depend, in part, on obtaining and maintaining patent protection for our technologies, products and processes, successfully defending these patents against third-party challenges and successfully enforcing these patents against third party competitors. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowable or enforceable in our patents. The existing patents and patent applications relating to our product candidates and related technologies may be challenged, invalidated or circumvented by third parties and might not protect us against competitors with similar products or technologies.
The degree of future protection for our proprietary rights is uncertain, because legal means afford only limited protection and may not adequately protect our rights, permit us to gain or keep our competitive advantage, or provide us with any competitive advantage at all. For example, others have filed, and in the future are likely to file, patent applications covering products and technologies that are similar, identical or competitive to any of our product candidates, or important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed by us, or that we will not be involved in interference, opposition or invalidity proceedings before United States or foreign patent offices. Additionally, the composition of matter patents for teplizumab have expired, and although we have filed method of use patents for teplizumab, these may not provide adequate protection from competitors.
In the future we may rely on know-how and trade secrets to protect technology, especially in cases when we believe patent protection is not appropriate or obtainable. However, know-how and trade secrets are difficult to protect. While we intend to require employees, academic collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to publish data and information in which we may have rights. If we cannot maintain the confidentiality of our proprietary technology and other confidential information, our ability to receive patent protection and our ability to protect valuable information owned by us may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts are sometimes less willing to protect trade secrets than patents. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
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If we fail to obtain or maintain patent protection or trade secret protection for our product candidates or our technologies, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.
We may also rely on the trademarks we may develop to distinguish our products from the products of our competitors. We cannot guarantee that any trademark applications filed by us, or our licensors will be approved. Third parties may also oppose such trademark applications, or otherwise challenge our use of the trademarks. In the event that the trademarks we use are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot provide assurance that competitors will not infringe the trademarks we use, or that we will have adequate resources to enforce these trademarks.
Our product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts.
Our success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third-party patent rights that may be relevant to our proprietary technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by commercialization of any of our product candidates or any future product candidate. There may be certain issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop or commercialize any of our product candidates, and we do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming and may:
| ● | result in costly litigation; | |
| ● | divert the time and attention of our technical personnel and management; | |
| ● | prevent us from commercializing a product until the asserted patent expires or is held finally invalid or not infringed in a court of law; | |
| ● | require us to cease or modify our use of the technology and/or develop non-infringing technology; or | |
| ● | require us to enter into royalty or licensing agreements. |
Third parties may hold proprietary rights that could prevent any of our product candidates from being marketed. Any patent-related legal action against us claiming damages and seeking to enjoin commercial activities relating to any of our product candidates or our processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market any of our product candidates or any future product candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could redesign our product candidates or any future product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing any of our product candidates or a future product candidate, which could harm our business, financial condition and operating results.
A number of companies, including several major pharmaceutical companies, have conducted, or are conducting, research in immune-mediated diseases within the therapeutic fields in which we intend to operate, which has resulted, or may result, in the filing of many patent applications related to this research. If we were to challenge the validity of these or any issued United States patent in court, we would need to overcome a statutory presumption of validity that attaches to every issued United States patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. If we were to challenge the validity of these or any issued United States patent in an administrative trial before the Patent Trial and Appeal Board in the United States Patent and Trademark Office, we would have to prove that the claims are unpatentable by a preponderance of the evidence. There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity or enforceability.
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We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.
As is commonplace in our industry, we will employ individuals who were previously employed at other pharmaceutical companies, including our competitors or potential competitors. We may be subject in the future to claims that our employees or prospective employees are subject to a continuing obligation to their former employers (such as non-competition or non-solicitation obligations) and that such obligations have been breached or claims that our employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Risks Related to Ownership of our Common Stock
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for stockholders.
The market price of our common stock has been volatile and can be subject to wide fluctuations in response to various factors, some of which are beyond our control, including, the reporting of results of our clinical trials or partner-sponsored clinical trials involving our programs. Other factors may include those discussed in this “Risk Factors” section of this Quarterly Report on Form 10-Q:
| ● | our commercialization, marketing and manufacturing prospects; | |
| ● | our intentions and our ability to establish collaborations and/or partnerships; | |
| ● | the timing or likelihood of regulatory filings and approvals; | |
| ● | our development, commercialization, marketing and manufacturing capabilities; | |
| ● | our expectations regarding the potential market size and the size of the patient populations for our product candidates; | |
| ● | the implementation of our business model and strategic plans for our business and technology; | |
| ● | the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, along with any product modifications and improvements; | |
| ● | estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital; | |
| ● | our financial performance; and | |
| ● | developments and projections relating to our competitors and our industry, including competing therapies and procedures. |
In addition, the stock markets in general, and the markets for biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the market price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer.
On May 21, 2021, a putative class action complaint was filed in the U.S. District Court for the District of New Jersey (the “Court”), naming the Company, Chief Executive Officer Ashleigh Palmer, and retired and former Chief Financial Officer Andrew Drechsler as defendants (the “Securities Action”). The complaint alleged violations of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline. On December 23, 2021, the subsequently appointed lead plaintiff (the “Lead Plaintiff”) and named plaintiff filed an amended complaint (the “Amended Complaint”) alleging similar violations as the original complaint. Lead Plaintiff sought to represent a class of shareholders who purchased or otherwise acquired the Company’s securities between November 2, 2020 and July 6, 2021. The Amended Complaint also sought unspecified damages. The Company, Mr. Palmer, and Mr. Drechsler filed their response, a motion to dismiss, to the Amended Complaint on February 8, 2022 (the “Motion to Dismiss”). The Lead Plaintiff filed an opposition to that motion on March 25, 2022. The Company, Mr. Palmer, and Mr. Drechsler filed their reply on April 26, 2022. On August 4, 2022, Judge Patty Shwartz of the Third Circuit, sitting by designation for the limited purpose of deciding the Motion to Dismiss, granted the Motion to Dismiss with prejudice. Lead Plaintiff did not appeal the decision.
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On August 5, 2021 and October 7, 2021, two shareholder derivative lawsuits concerning substantially the same facts and disclosures underlying the Securities Action (the “New Jersey Derivative Actions”) were filed in the same Court, naming Chief Executive Officer Ashleigh Palmer, retired and former Chief Financial Officer Andrew Drechsler, and Company directors Jeffrey Bluestone, Avery Catlin, Sean Doherty, John Jenkins, Wayne Pisano, and Nancy Wysenski as defendants (the “Individual Defendants”). The Company was named in both New Jersey Derivative Actions as a nominal defendant. The New Jersey Derivative Actions alleged: (1) violations of Section 14(a) of the Exchange Act against the Company directors (including Ashleigh Palmer) in connection with the Company’s March 29, 2021 proxy statement; (2) breaches of fiduciary duty against all Individual Defendants in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline, among other common law causes of action; and (3) sought contribution under Sections 10(b) and 21D of the Exchange Act against Ashleigh Palmer and Andrew Drechsler in connection with the Securities Action. The New Jersey Derivative Actions sought unspecified damages, including legal fees associated with the Securities Action and compensation paid to the Individual Defendants. The New Jersey Derivative Actions also sought an order directing the Company and Individual Defendants to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures.
On October 28, 2021, both plaintiffs and all defendants in the New Jersey Derivative Actions filed a joint stipulation and proposed order to consolidate the Derivative Actions and appoint co-lead counsel, which the Court granted on November 1, 2021. In response to a series of stipulations and motions, the Court entered a temporary stay of proceedings in the New Jersey Derivative Actions pending the resolution of the Motion to Dismiss in the Securities Action. On September 21, 2022, following the dismissal of the Securities Action, the Court ordered a voluntarily dismissal of the New Jersey Derivative Actions without prejudice in response to a joint stipulation filed by the parties.
On August 8, 2022, a third shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware concerning substantially the same facts and disclosures underlying the Securities Action and the New Jersey Derivative Actions (the “Delaware Derivative Action”). The Delaware Derivative Action names the same Individual Defendants as the New Jersey Derivative Actions and names the Company as a nominal defendant. The complaint in the Delaware Derivative Action alleges: (1) breaches of fiduciary duty against all Individual Defendants in connection with disclosures made regarding the teplizumab BLA and teplizumab’s commercialization timeline; and (2) unjust enrichment. The Delaware Derivative Action seeks unspecified damages from the Individual Defendants in favor of the Company and an order directing the Company to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures, among other forms of relief. The Company’s and the Individual Defendants’ response to the complaint was filed on October 28, 2022.
These lawsuits (and the Delaware Derivative Action in particular) and these types of litigation could result in substantial costs and divert our management’s attention and resources and could also require us to make substantial payments to satisfy judgments or to settle litigation.
An active, liquid and orderly market for our common stock may not develop, which could result in substantial losses for stockholders.
Prior to our IPO, there was no public market for shares of our common stock. Although our common stock is listed on The Nasdaq Global Select Market (“Nasdaq”), the market for our shares has demonstrated varying levels of trading activity and an active public market for our shares may not be sustained. The lack of an active market may impair the ability to sell shares at the time a shareholder wishes to sell them or at a price that a shareholder may consider reasonable. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, applications, or technologies using our shares as consideration.
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We have incurred increased costs as a result of operating as a public company, and our management is now required to devote substantial time to additional compliance initiatives and corporate governance practices.
As a public company, we incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq 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 devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will make some activities more time-consuming and costly.
Future capital raises may dilute our existing stockholders’ ownership and/or have other adverse effects on our operations.
If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced, and these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights senior to those of our common stock and the terms of the debt securities issued could impose significant restrictions on our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or product candidates, or to grant licenses on terms that are not favorable to us.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 40% of our voting stock as of September 30, 2022. Therefore, these stockholders may have the ability to influence us through this ownership position. For example, if these stockholders were to choose to act together, they may be able to significantly influence all matters submitted to our stockholders for approval, including elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to decline.
Sales of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to decline. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline.
In accordance with the guidelines specified under Rule 10b5-1 of the Exchange Act and our policies regarding stock transactions, a number of our employees, including executive officers, have adopted and may continue to adopt stock trading plans pursuant to which they have arranged to sell shares of our common stock from time to time in the future. Generally, sales under such plans by our executive officers and directors require public filings. Sales by such persons could be viewed negatively by holders and potential purchasers of our common stock, resulting in a decline in the market price of our common stock.
In addition, as of September 30, 2022, approximately 33.2 million shares of common stock were subject to outstanding options, reserved for future issuance under our equity incentive plans or subject to outstanding warrants. If these additional shares of common stock 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.
If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decrease.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on our internal control over financial reporting
If we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or if we are unable to provide an attestation report from our independent registered public accounting firm, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decrease.
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Provisions in our organizational documents and provisions under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.
Our amended and restated certificate of incorporation and bylaws contains provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions include the following:
| ● | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; | |
| ● | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; | |
| ● | the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; | |
| ● | the ability of our board of directors to amend our bylaws without obtaining stockholder approval; | |
| ● | the required approval of at least 66 2/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; | |
| ● | the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, or at the request of holders of record of at least 20% of our outstanding shares of common stock, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and | |
| ● | advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. |
In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.
We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws became effective immediately prior to the completion of the IPO and our indemnification agreements that we have entered into with our directors and officers provide that:
| ● | we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful; | |
| ● | we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law; | |
| ● | we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification; | |
| ● | we will not be obligated pursuant to our bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification; |
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| ● | the rights conferred in our bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and | |
| ● | we may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents. |
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Securities Act or any other claim for which the federal and state courts have concurrent jurisdiction.
The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
We do not intend to pay dividends on our common stock, and, consequently, the ability to achieve a return on investment will depend on appreciation in the price of our common stock.
We do not intend to pay any cash dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our growth. Therefore, shareholders are not likely to receive any dividends on their common stock for the foreseeable future. Since we do not intend to pay dividends, the ability to receive a return on investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.
General Risk Factors
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As our development and commercialization plans and strategies continue to develop, we intend to expand the size of our employee and consultant/contractor base. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, our management may have to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Our future financial performance and our ability to develop and commercialize our product candidates and any other future product candidates and our ability to compete effectively will depend, in part, on our ability to effectively manage our future growth.
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If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. In addition, the loss of the services of our co-founders would adversely impact our business prospects.
Our management team has expertise in many different aspects of drug development and commercialization. However, our ability to compete in the highly competitive pharmaceuticals industry depends in large part upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We will need to hire additional personnel as we further develop our product candidates. Competition for skilled personnel in our market is intense and competition for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptable terms. Despite our efforts to retain valuable employees, members of our management, scientific and medical teams may terminate their employment with us on short notice. We have entered into employment agreements with certain of our executive officers. However, these employment arrangements will provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. Moreover, there can be no assurance that anyone we expect to employ in a key management position will be available to join our team when we expect them to, if at all. The loss of the services of any of our executive officers or other key employees, or our inability to hire targeted executives, could potentially harm our business, operating results or financial condition. In particular, we believe that the loss of the services of our co-founders would have a material adverse effect on our business. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.
Other pharmaceutical companies with which we compete for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can develop and commercialize product candidates would be limited.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face a potential risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any of our product candidates or any other future product. For example, we may be sued if any product we develop, including any of our product candidates, or any materials that we use in our products allegedly causes injury or is found to be otherwise unsuitable during product 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 and a breach of warranties. In the United States, claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
| ● | decreased demand for any of our product candidates or any future products that we may develop; | |
| ● | injury to our reputation; | |
| ● | withdrawal of clinical trial participants; | |
| ● | costs to defend the related litigation; | |
| ● | a diversion of management’s time and our resources; | |
| ● | substantial monetary awards to trial participants or patients; | |
| ● | product recalls, withdrawals or labeling, marketing or promotional restrictions; | |
| ● | the inability to commercialize some or all of our product candidates; and | |
| ● | a decline in the value of our stock. |
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We maintain product liability insurance covering our clinical trials. Although we will maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
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We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.
We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction.
We are generally a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which could result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal exposure.
We are a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which could result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal exposure.
Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include wrongful conduct by hostile foreign governments, industrial espionage, deployment of harmful malware, denial-of-service, and other means to threaten data confidentiality, integrity and availability. A successful cyber-attack could cause serious negative consequences for our company, including the disruption of operations, the misappropriation of confidential business information and trade secrets, and the disclosure of corporate strategic plans. To date, we have not experienced threats to our data and information technology systems. However, although we devote resources to protect our information technology systems, we realize that cyber-attacks are a threat, and there can be no assurance that our efforts will prevent information security breaches that would result in business, legal or reputational harm to us, or would have a material adverse effect on our operating results and financial condition.
We rely on the proper function, availability and security of our information technology systems to operate our business and a cyber-attack or other breach or disruption of these systems could have a material adverse effect on our business and results of operations.
We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. The form and function of such systems may change over time as our business needs change. The nature of our business involves the receipt and storage of personal and financial information regarding our customers. We use our information technology systems to manage or support a variety of business processes and activities, including sales, procurement and supply chain, manufacturing and accounts payable. In addition, we use enterprise information technology systems to record, process, and summarize transactions and other financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Our information technology systems may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures, user errors or catastrophic events. Any failure by us to maintain or protect our information technology systems and data integrity, including from cyber-attacks, intrusions, disruptions or shutdowns, could result in the unauthorized access to personally identifiable information, theft of intellectual property or other misappropriation of assets or the loss of key data and information, or otherwise compromise our confidential or proprietary information and disrupt our operations. If our information technology systems are breached or suffer severe damage, disruption or shutdown and we are unable to effectively resolve the issues in a timely manner, our business and operating results may be materially and adversely affected.
If our efforts to maintain the privacy and security of our patient, employee, supplier or Company information are not successful, we could incur substantial additional costs and become subject to litigation, enforcement actions and reputational damage.
Our business, like that of most biopharmaceutical companies, involves the receipt, storage and transmission of patient information, as well as confidential information about our employees, our suppliers and our Company. Our information systems are vulnerable to an increasing threat of continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to our systems or information through fraud or other means of deceiving our employees or third-party service providers. Hardware, software or applications we develop or obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information and device security. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods of time. The ever-evolving threats mean we must continually evaluate and adapt our systems and processes, and our efforts may not be adequate to safeguard against all data security breaches, misuse of data or sabotage of our systems. Any future significant compromise or breach of our data security, whether external or internal, or misuse of patient, employee, supplier or Company data, could result in additional significant costs, lost sales, fines, lawsuits and damage to our reputation. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in additional costs.
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We are subject to stringent privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security and changes in such laws, regulations, policies and contractual obligations could adversely affect our business.
We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of personally-identifying information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information, including comprehensive regulatory systems in the United States, UK and European Union. The legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. Failure to comply with any of these laws and regulations could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.
There are numerous United States federal and state laws and regulations related to the privacy and security of personal information. For example, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended, and its implementing regulations establish privacy and security standards that limit the use and disclosure of individually identifiable health information, or protected health information, and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information. While we have determined that we are neither a “covered entity” nor a “business associate” directly subject to HIPAA, many of the United States health care providers, including United States clinical trial sites, with which we interact are subject to HIPAA, and we have assumed contractual obligations related to protecting the privacy of personal information. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and may be subject to changing interpretation. If we are unable to properly protect the privacy and security of protected health information, we could be found to have breached our contracts and we could face civil and criminal penalties. In addition, our operations have been affected by the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020. The CCPA gives California consumers (defined to include all California residents) certain rights, including the right to ask covered companies to disclose the types of personal information collected, the categories of sources from which such information was collected, the business purpose for collecting or selling the consumer’s personal information, the categories of third parties with whom a covered company shares personal information, and specific pieces of information collected by a covered company. The CCPA imposes several obligations on covered companies to provide notice to California consumers regarding their data processing activities. The CCPA also gives California consumers the right to ask covered companies to delete a consumer’s personal information and it places limitations on a covered company’s ability to sell personal information, including providing consumers a right to opt out of sales of their personal information.
In addition, we may be subject to privacy and security laws in the various jurisdictions in which we operate, obtain or store personally identifiable information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. For example, the processing of personal data in the EEA and the UK, is subject to the General Data Protection Regulation (the “GDPR”), which took effect in May 2018. The GDPR increases obligations with respect to clinical trials conducted in the EEA, such as in relation to the provision of fair processing notices, responding to data subjects who exercise their rights and reporting certain data breaches to regulators and affected individuals. The GDPR also requires us to enter certain contractual arrangements with third parties that process GDPR-covered personal data on our behalf. The GDPR also increases the scrutiny applied to transfers of personal data from the EEA (including from clinical trial sites in the EEA) to countries that are considered by the European Commission to lack an adequate level of data protection, such as the United States. The July 2020 invalidation by the Court of Justice of the European Union of the EU-United States Privacy Shield framework, one of the mechanisms used to legitimize the transfer of personal data from the EEA to the United States, and the imposition of restrictions on the use of other transfer mechanisms made such transfer more complex and challenging and have also led to increased scrutiny on data transfers from the EEA to the United States generally and may increase our costs of compliance with data privacy legislation. In June 2021, the Court of Justice of the European Union issued a ruling that expanded the scope of the “one stop shop” under the GDPR. According to the ruling, the competent authorities of European Union Member States may, under certain strict conditions, bring claims to their national courts against a company for breaches of the GDPR, including unlawful cross-border processing activities, even such company does not have an establishment in the European Union member state in question and the competent authority bringing the claim is not the lead supervisory authority. If our or our partners’ or service providers’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, as well as claims by affected individuals, negative publicity, reputational harm and a potential loss of business and goodwill.
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Data privacy remains an evolving landscape at both the domestic and international level, with new regulations coming into effect and continued legal challenges, and our ongoing efforts to comply with evolving laws and regulations may be costly and require ongoing modifications to our policies, procedures and systems. Our efforts to comply may also be unsuccessful. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. Failure to comply with laws regarding data protection would expose us to risk of enforcement actions taken by data protection authorities in the European Union, the UK, and elsewhere and carries with it the potential for significant penalties if we are found to be non-compliant. Similarly, failure to comply with federal and state laws in the United States regarding privacy and security of personal information could expose us to penalties under such laws. Any such failure to comply with data protection and privacy laws could result in government-imposed fines or orders requiring that we change our practices, claims for damages by data subjects, regulatory investigations and enforcement action, litigation and significant costs for remediation, any of which could adversely affect our business. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our business, financial condition, results of operations or prospects.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We only recently obtained research coverage by securities and industry analysts. If there are insufficient securities or industry analysts covering us, the market price for our stock would be negatively impacted. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the quarter ended September 30, 2022 that were not previously reported on a Current Report on Form 8-K.
Issuer Purchases of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On November 1, 2022, Sean Doherty resigned from the Board of Directors (the “Board”) of the Company, effective immediately. Mr. Doherty served on the Audit Committee and Nominating and Corporate Governance Committee of the Board. His departure is not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. In connection with Mr. Doherty’s resignation, the Company appointed Nancy Wysenski as a member to the Audit Committee of the Board.
In connection with Dr. Doherty’s resignation, the Board decreased its size to five directors.
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ITEM 6. EXHIBITS
+ Compensation Related Contract.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PROVENTION BIO, INC. | ||
| Date: November 3, 2022 | By: | /s/ Thierry Chauche |
| Thierry Chauche | ||
| Chief Financial Officer | ||
| (Authorized Officer and Principal Financial Officer) | ||
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