S-1/A 1 d673777ds1a.htm S-1/A S-1/A
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As filed with the Securities and Exchange Commission on June 10, 2019

Registration No. 333-231754

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1 to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Prevail Therapeutics Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2836   82-2129632

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

430 East 29th Street, Suite 940

New York, New York 10016

(917) 336-9310

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

 

 

Asa Abeliovich, M.D., Ph.D.

President and Chief Executive Officer

Prevail Therapeutics Inc.

430 East 29th Street, Suite 940

New York, New York 10016

(917) 336-9310

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

 

 

Copies to:

 

Divakar Gupta

Marc Recht

Alison Haggerty

Cooley LLP

55 Hudson Yards

New York, New York 10001

(212) 479-6000

 

Brett Kaplan, M.D.

Chief Financial Officer

Prevail Therapeutics Inc.

430 East 29th Street, Suite 940

New York, New York 10016

(917) 336-9310

 

Nathan Ajiashvili

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

(212) 906-1200

 

 

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

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

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

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

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

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

 

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

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities To Be Registered
 

Amount

to be

Registered(1)

 

Proposed

Maximum

Offering Price

Per Share(2)

 

Proposed
Maximum
Aggregate

Offering Price(2)

 

Amount of

Registration Fee(3)

Common Stock, par value $0.0001 per share

  8,455,950   $18.00   $152,207,100   $18,448

 

 

 

(1)

Includes an additional 1,102,950 shares that the underwriters have the option to purchase.

(2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)

$12,120 of this amount was previously paid.

 

 

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

 

 

 


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

 

SUBJECT TO COMPLETION, DATED JUNE 10, 2019

PRELIMINARY PROSPECTUS

7,353,000 Shares

 

LOGO

Common Stock

 

 

We are offering 7,353,000 shares of our common stock. This is our initial public offering and no public market currently exists for our common stock. We anticipate that the initial public offering price will be between $16.00 and $18.00 per share. We have applied to list our common stock on the Nasdaq Global Market under the symbol “PRVL.”

 

 

We are an “emerging growth company” as defined under the U.S. federal securities laws and, as such, may elect to comply with reduced public company reporting requirements for this and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus.

 

 

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

 

 

 

       PER SHARE        TOTAL  

Initial public offering price

     $                          $                    

Underwriting discounts and commissions (1)

     $                          $                    

Proceeds, before expenses, to us

     $                          $                    

 

(1)

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

We have granted the underwriters an option for a period of 30 days to purchase up to 1,102,950 additional shares of common stock.

The underwriters expect to deliver the shares of common stock against payment in New York, New York on or about                , 2019.

 

 

 

MORGAN STANLEY   BofA MERRILL LYNCH   COWEN

WEDBUSH PACGROW

Prospectus dated                , 2019.


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We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for those purposes is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, this offering of common stock and the distribution of this prospectus outside the United States.

Until                , 2019 (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the section titled “Risk factors” and our financial statements and the related notes appearing elsewhere in this prospectus, before making an investment decision. As used in this prospectus, unless the context otherwise requires, references to “we,” “us,” “our,” “the company” and “Prevail Therapeutics” refer to Prevail Therapeutics Inc.

Overview

We are a gene therapy company leveraging breakthroughs in human genetics with the goal of developing and commercializing disease-modifying AAV-based gene therapies for patients with devastating neurodegenerative diseases. We are applying a precision medicine approach to neurodegeneration by studying our gene therapies in genetically defined patient populations. We believe this will increase the probability of creating disease-modifying therapies that improve patients’ lives. Our lead program is PR001 for the treatment of Parkinson’s disease with GBA1 mutation, or PD-GBA, and neuronopathic Gaucher disease. We are focused on developing a broad pipeline of gene therapies for a range of neurodegenerative diseases, including PR006 for the treatment of frontotemporal dementia with GRN mutation and PR004 for the treatment of synucleinopathies.

Our differentiated approach to developing gene therapies for neurodegenerative diseases is designed to mitigate challenges faced by others in the development of therapeutics for the central nervous system, or CNS. We select targets for diseases that correspond to patient populations with particular genetic mutations whom we believe can be treated by increasing or decreasing the expression of a particular gene, which makes them well-suited for gene therapy. We apply our deep understanding of human genetics to design our gene therapy product candidates, each of which is intended to be a one-time treatment to address the key underlying genetic mutation that we believe drives disease progression.

We are developing our lead program, PR001, to treat patients with PD-GBA and neuronopathic Gaucher disease. PD-GBA affects 7% to 10% of the total Parkinson’s disease population worldwide and an estimated 90,000 individuals in the United States alone. Gaucher disease is among the most common lysosomal storage disorders, with an estimated global prevalence of one per 30,000 to one per 100,000. Neuronopathic Gaucher disease patients exhibit neurological manifestations in addition to the non-CNS manifestations of Gaucher disease, and represent approximately 6% of all Gaucher disease cases in the United States.

PD-GBA and Gaucher disease share the same underlying genetic mechanism, and we believe they represent a continuum of pathology. The symptoms and severity of the CNS disease in PD-GBA and Gaucher disease depend on the level of enzyme deficiency, which is driven by both the severity and number of GBA1 mutations. GBA1 encodes the lysosomal enzyme, beta-glucocerebrosidase, or GCase. PD-GBA patients have a mutation in one chromosomal copy of GBA1 and Gaucher disease patients have mutations in both chromosomal copies of GBA1. These mutations lead to a deficiency of GCase, resulting in the non-CNS manifestations of Gaucher disease as well as lysosomal dysfunction in CNS cells, which we believe leads to the inflammation and neurodegeneration present in PD-GBA and neuronopathic Gaucher disease patients. Approved enzyme replacement therapies, or ERTs, which restore GCase, are effective for the treatment of the non-CNS manifestations of Gaucher disease, but ERTs cannot cross the blood-brain barrier to treat neurodegeneration. Based on the common genetically driven mechanism of PD-GBA and Gaucher disease, we have designed PR001 to express GBA1 in patients’ CNS cells. We believe that restoring GBA1 in the CNS will slow or stop disease progression in PD-GBA and neuronopathic Gaucher disease patients.

In our comprehensive preclinical program in both mouse models and non-human primates, PR001 was observed to be well tolerated and demonstrated robust and widespread biodistribution. Additionally, in mouse



 

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models, we observed significant increases in enzyme activity, reductions in lipid accumulation and improvements in motor function. We submitted an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or FDA, for PR001 for the treatment of PD-GBA in May 2019, and the FDA has notified us that our trial may proceed. We intend to initiate our Phase 1/2 clinical trial for PR001 in PD-GBA in 2019. We plan to submit an IND to the FDA for PR001 for the treatment of neuronopathic Gaucher disease in mid-2019 and, subject to feedback from the FDA, we intend to initiate a Phase 1/2 clinical trial for PR001 in neuronopathic Gaucher disease in 2019. Our Phase 1/2 clinical trials in these patients will investigate the safety and tolerability of PR001, and will also measure key biomarkers and exploratory efficacy endpoints.

In addition to our lead program, we are developing PR006 for the treatment of frontotemporal dementia with GRN mutation, or FTD-GRN. We intend to submit an IND to the FDA for PR006 for the treatment of FTD-GRN in 2019. We are also currently conducting preclinical studies of PR004 for the treatment of synucleinopathies.

All of our current programs utilize adeno-associated virus, or AAV, gene therapy technology, which we believe is particularly well-suited for the treatment of CNS diseases. AAV-based viral vectors have been observed in third-party clinical trials to be well-tolerated and to have promise in delivering stable, long-lasting transgene expression in a range of tissues, including the CNS. We have initially chosen to use AAV9 based on its transformational biological properties and track record, which we believe will translate into a positive clinical effect in our initial indications. In a third-party Phase 1 clinical trial in Type 1 spinal muscular atrophy, AAV9 was observed to enable gene delivery in the CNS and broad brain-wide biodistribution with a single administration. We have entered into license agreements with REGENXBIO Inc., or REGENXBIO, pursuant to which they granted us an exclusive, worldwide license to use AAV9 delivering the gene encoding for GBA1 for the treatment of disease, as well as three distinct exclusive options for specified genes for the treatment of disease. In April 2019, we exercised all three options, including for AAV9 delivering the genes encoding for progranulin and a-Synuclein. For our initial programs, we plan to deliver directly to the cerebrospinal fluid via a minimally invasive non-surgical procedure.

Our company was founded through a collaborative effort by Asa Abeliovich, M.D., Ph.D., our Chief Executive Officer, OrbiMed and The Silverstein Foundation for Parkinson’s with GBA, who shared a common vision: to cure Parkinson’s disease and other neurodegenerative disorders. Dr. Abeliovich and our other scientific leaders bring a deep understanding of the human genetics of neurodegenerative diseases, the underlying molecular mechanisms by which genetic mutations cause these diseases, and how to optimally design potential therapies to restore the function impaired by these genetic mutations. We intend to apply our expertise to developing therapies that have potential to slow or stop disease progression for neurodegenerative disease patients.



 

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Our Pipeline

Our initial AAV9 gene therapy programs are summarized in the table below. We hold worldwide commercial rights to all of our programs.

 

LOGO

We are focused on developing a broad pipeline of disease-modifying AAV gene therapies for the treatment of a range of neurodegenerative diseases with high unmet medical need, including Parkinson’s disease, frontotemporal dementia, or FTD, Alzheimer’s disease, amyotrophic lateral sclerosis, or ALS, dementia with Lewy bodies, or DLB, and related lysosomal disorders. Our goal is to use the capabilities we have established for our other product candidates to rapidly advance these programs towards clinical testing.

Our Strategy

We are leveraging breakthroughs in human genetics with the goal of developing and commercializing disease-modifying gene therapies for patients with neurodegenerative diseases with high unmet medical need. Key elements of our strategy to achieve this goal include:

 

   

Build a patient-focused gene therapy company.

 

   

Apply precision medicine to developing gene therapies for the treatment of neurodegenerative diseases.

 

   

Leverage the transformational potential of AAV gene therapy technology.

 

   

Rapidly advance PR001 through clinical trials.

 

   

Continue to develop our innovative pipeline of gene therapies.

 

   

Continue to develop our manufacturing processes to meet clinical and commercial needs.

Private Financings

To date, we have raised approximately $129.0 million in aggregate gross proceeds, primarily through convertible preferred stock financings. Our investors include OrbiMed, The Silverstein Foundation for Parkinson’s with GBA, Pontifax, RA Capital Management, EcoR1 Capital, Omega Funds, BVF Partners, Boxer Capital, Adage Capital Management, Alexandria Venture Investments, and Surveyor Capital (a Citadel company).



 

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Risks Affecting Our Business

Our business is subject to a number of risks. These risks are discussed more fully in the section titled “Risk Factors” immediately following this prospectus summary. You should read these risks before you invest in our common stock. In particular, risks associated with our business include, but are not limited to, the following:

 

   

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

 

   

We will require additional capital to fund our operations, which may not be available on acceptable terms, if at all.

 

   

We are heavily dependent on the success of PR001, which is still in early development, and if we are unable to progress PR001 through clinical testing, receive regulatory approval for PR001 or successfully commercialize PR001, our business may be harmed.

 

   

We intend to identify and develop product candidates based on our novel approach to gene therapy, which makes it difficult to predict the time, cost and potential success of product candidate development.

 

   

Gene therapies are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in delays in the development or commercialization of our product candidates or otherwise harm our business.

 

   

Because gene therapy is novel and the regulatory landscape that governs any product candidates we may develop is rigorous, complex, uncertain and subject to change, we cannot predict the time and cost of obtaining regulatory approval, if we receive it at all, for any product candidates we may develop.

 

   

Clinical trials are expensive, time-consuming, difficult to design and implement, and involve an uncertain outcome. Further, we may encounter substantial delays in our clinical trials.

 

   

Our gene therapy product candidates rely on AAV to efficiently transmit a therapeutic gene, and the mechanism of action by which AAV targets particular tissues is novel and still not well understood. We cannot assure you that our viral vectors will be able to meet safety and efficacy levels needed to be therapeutic in humans or that they will not cause significant adverse events or toxicity, including the risk of immunogenicity attendant to any gene therapy product based on viral vectors.

 

   

Negative public opinion of gene therapy and increased regulatory scrutiny of gene therapy and genetic research may adversely impact the development or commercial success of our current and future product candidates.

 

   

Compassionate use or expanded access of our unapproved therapies could negatively affect our reputation, our development timelines and our business, including as a result of the existence of clinical holds, such as the clinical hold placed on the investigator-sponsored IND initiated by the University of Florida for PR001 for the treatment of Type 2 Gaucher disease.

 

   

The affected populations for our other product candidates may be smaller than we or third parties currently project, which may affect the addressable markets for our product candidates.

 

   

We and our contract manufacturers for plasmids and viruses are subject to significant regulation. The third-party manufacturing facilities on which we rely, and any manufacturing facility that we may have in the future, may have limited capacity or fail to continue to meet the applicable stringent regulatory requirements.

 

   

We depend on proprietary technology licensed from others. If we lose our existing licenses or are unable to acquire or license additional proprietary rights from third parties, we may not be able to continue developing our product candidates.

 

   

We may be subject to third party claims arising from consulting agreements entered into by our officers, employees, independent contractors and/or consultants, including for example, the letter we received in June 2019 on behalf of Alector, Inc., or Alector, alleging, among other things, that certain



 

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confidential information of Alector was used by our company and that Alector has certain rights to our patents and patent applications.

 

   

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

Our Corporate Information

We were incorporated under the laws of the State of Delaware in July 2017. Our principal executive offices are located at 430 East 29th Street, Suite 940, New York, New York 10016, and our telephone number is (917) 336-9310. Our website address is www.prevailtherapeutics.com. The information contained on, or accessible through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained in, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock.

We own a U.S. federal trademark application for PREVAIL THERAPEUTICS. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the symbols ® and ™, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

Implications of Being an Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the prior June 30th; (3) the issuance, in any three-year period, by us of more than $1 billion in non-convertible debt securities; and (4) December 31, 2024. An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

   

reduced obligations with respect to financial data, including presenting only two years of audited financial statements and only two years of selected financial data in this prospectus;

 

   

an exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;

 

   

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

 

   

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

We have elected to take advantage of certain of the reduced disclosure obligations in this prospectus and may elect to take advantage of other reduced reporting requirements in our future filings with the U.S. Securities and Exchange Commission, or the SEC. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements.



 

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THE OFFERING

 

Common stock offered by us

     7,353,000 shares.

Option to purchase additional shares

     We have granted the underwriters an option for a period of 30 days to purchase up to 1,102,950 additional shares of common stock.

Common stock to be outstanding after this offering

     33,997,131 shares (or 35,100,081 shares if the underwriters exercise their option to purchase additional shares in full).

Use of proceeds

    

We estimate that the net proceeds to us from this offering will be approximately $113.4 million, or approximately $130.8 million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents: to advance the development of PR001, including to fund our planned Phase 1/2 trials for PR001 for the treatment of PD-GBA and neuronopathic Gaucher disease; to advance the development of PR006, including our ongoing preclinical studies for PR006 for the treatment of FTD-GRN; to advance the development of PR004, including our ongoing preclinical studies for PR004 for the treatment of synucleinopathies; and for working capital and general corporate purposes. See the section titled “Use of Proceeds.”

Risk factors

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

Proposed Nasdaq Global Market symbol

     “PRVL”

The number of shares of our common stock to be outstanding after this offering is based on 26,644,131 shares of our common stock outstanding as of March 31, 2019, and excludes:

 

   

4,376,161 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2019, with a weighted-average exercise price of $1.00 per share;

 

   

485,862 shares of common stock reserved for future issuance pursuant to our 2017 Equity Incentive Plan, or the 2017 Plan;

 

   

2,773,562 shares of common stock reserved for future issuance pursuant to our 2019 Equity Incentive Plan, or the 2019 Plan, as well as any automatic increases in the number of common shares reserved for future issuance under the 2019 Plan; and



 

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330,000 shares of common stock reserved for future issuance pursuant to our 2019 Employee Stock Purchase Plan, or 2019 ESPP, as well as any automatic increases in the number of common shares reserved for future issuance under the 2019 ESPP.

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

 

   

a 1.62-for-one stock split of our common stock, effected June 7, 2019;

 

   

the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 19,435,131 shares of our common stock immediately prior to the closing of this offering;

 

   

no exercise of the outstanding options described above;

 

   

no exercise by the underwriters of their option to purchase up to 1,102,950 additional shares of our common stock; and

 

   

the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior the closing of this offering.



 

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SUMMARY FINANCIAL DATA

The following tables summarize our financial data for the periods indicated. We have derived the summary statements of operations data for the period from July 6, 2017 (date of inception) through December 31, 2017 and the year ended December 31, 2018 from our audited financial statements included elsewhere in this prospectus. We have derived our balance sheet data as of December 31, 2018 from our audited financial statements included elsewhere in this prospectus. The summary statements of operations data for the three months ended March 31, 2018 and 2019 and the summary balance sheet data as of March 31, 2019 have been derived from our unaudited interim financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on the same basis as the audited financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations.

Our interim and historical results are not necessarily indicative of the results that may be expected for the full year or any other future period. The following summary financial data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

    Period from
July 6, 2017 (Date of
Inception) through
December 31, 2017
    Year Ended
December 31, 2018
    Three Months Ended March 31,  
    2018     2019  
                (unaudited)  
    (in thousands, except share and per share data)  

Statement of Operations Data:

       

Operating expenses:

       

Research and development

  $ 995     $ 14,127     $ 1,304     $ 8,411  

General and administrative

    804       4,682       641       1,885  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    1,799       18,809       1,945       10,296  
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (1,799     (18,809     (1,945     (10,296

Change in fair value of derivative liabilities

          (781     (781      

Other income

          87              

Interest (expense) income, net

    (27     416       (471     351  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (1,826   $ (19,088   $ (3,197   $ (9,945
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (0.45   $ (3.71   $ (0.66   $ (1.73
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding, basic and diluted(1)

    4,050,000       5,145,469       4,860,000       5,740,874  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    $ (1.21     $ (0.51
   

 

 

     

 

 

 

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

      15,748,039         19,957,958  
   

 

 

     

 

 

 

 

(1)

See note 14 to our financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share.



 

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     As of March 31, 2019  
     Actual     Pro Forma(1)     Pro Forma
As Adjusted(2)(3)
 
     (in thousands)  

Balance Sheet Data:

      

Cash and cash equivalents

   $  100,268     $ 100,268     $ 213,619  

Working capital(4)

     98,894       98,894       212,245  

Total assets

     115,194               115,194               228,545  

Convertible preferred stock

             129,544       —         —    

Accumulated deficit

     (30,859     (30,859     (30,859

Total stockholders’ (deficit) equity

     (27,751     101,793       215,144  

 

(1)

Pro forma balance sheet data reflects (a) the automatic conversion of all outstanding shares of convertible preferred stock into common stock as if such conversion had occurred on March 31, 2019 and (b) the filing and effectiveness of our amended and restated certificate of incorporation, each of which will occur immediately prior to the closing of this offering.

(2)

Pro forma as adjusted balance sheet data reflects the pro forma items described immediately above and our sale of 7,353,000 shares of common stock in this offering at an assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

Pro forma as adjusted balance sheet data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $6.8 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. A 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease pro forma as adjusted cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by approximately $15.8 million, assuming that the assumed initial offering price to the public remains the same, and after deducting estimated underwriting discounts and commissions.

(4)

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



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, together with all of the other information contained in this prospectus, including our financial statements and related notes included elsewhere in this prospectus, before making an investment decision. The risks described below are not the only ones facing us. The occurrence of any of the following risks, or of additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could materially and adversely affect our business, financial condition or results of operations. In such case, the trading price of our common stock could decline, and you may lose part or all of your investment.

Risks Related to Our Financial Position and Need for Additional Capital

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

Since our inception in 2017, we have incurred significant operating losses. Our net losses were $1.8 million for the period from July 6, 2017 (date of inception) through December 31, 2017, $19.1 million for the year ended December 31, 2018 and $9.9 million for the three months ended March 31, 2019. As of December 31, 2018 and March 31, 2019, we had an accumulated deficit of $20.9 million and $30.9 million, respectively. Since our inception, we have focused primarily on organizing and staffing our company, raising capital, establishing and protecting our intellectual property portfolio, in-licensing AAV9 in particular fields, developing and progressing our gene therapy product candidates through preclinical studies and preparing for clinical trials, and establishing our manufacturing platform. Consequently, we have no meaningful operations upon which to evaluate our business, and predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing gene therapies.

We have no products approved for commercial sale. We have never been profitable and do not expect to be profitable in the foreseeable future. Our ability to generate revenue and become profitable depends upon our ability to successfully complete the development of our product candidates and to obtain the necessary regulatory approvals for their commercialization. We are developing our lead product candidate, PR001, an AAV9 vector delivering the GBA1 gene, for several related indications, including PD-GBA and neuronopathic Gaucher disease. We submitted an IND to the FDA for PR001 for the treatment of PD-GBA in May 2019, and the FDA has notified us that our trial may proceed. We intend to initiate our Phase 1/2 clinical trial for PR001 in PD-GBA in 2019. We plan to submit an IND to the FDA for PR001 for the treatment of neuronopathic Gaucher disease in mid-2019 and, subject to feedback from the FDA, we intend to initiate a Phase 1/2 clinical trial for PR001 in neuronopathic Gaucher disease in 2019. We have not yet demonstrated an ability to successfully complete a clinical program, including large-scale, pivotal clinical trials, obtain marketing approval, manufacture product at a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization.

We expect to continue to incur significant expenses and additional operating losses for the foreseeable future as we seek to advance our product candidates through preclinical and clinical development, expand our research and development activities, develop new product candidates, complete clinical trials, seek regulatory approval and, if we receive regulatory approval, commercialize our products. Furthermore, the costs of advancing product candidates into each succeeding clinical phase tend to increase substantially over time. The total costs to advance any of our product candidates to marketing approval in even a single jurisdiction would be substantial. Because of the numerous risks and uncertainties associated with gene therapy product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to begin generating revenue from the commercialization of products or achieve or maintain profitability. Our expenses will also increase substantially if and as we operate as a public company and add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public reporting company.

 

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Before we generate any revenue from product sales, each of our programs and product candidates will require additional preclinical and/or clinical development, potential regulatory approval in multiple jurisdictions, manufacturing, building of a commercial organization, substantial investment and significant marketing efforts. Our expenses could increase beyond expectations if we are required by the FDA, European Medicines Agency, or EMA, or other regulatory authorities to perform preclinical studies and clinical trials in addition to those that we currently anticipate. These risks are further described under “—Risks Related to Discovery, Development, Clinical Testing, Manufacturing and Regulatory Approval” and “—Risks Related to Commercialization.” As a result, we expect to continue to incur net losses and negative cash flows for the foreseeable future. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.

As we continue to build our business, we expect our financial condition and operating results may fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any particular quarterly or annual period as indications of future operating performance. If we are unable to develop and commercialize one or more of our product candidates either alone or with collaborators, or if revenues from any product candidate that receives marketing approval are insufficient, we will not achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability. If we are unable to achieve and then maintain profitability, the value of our equity securities will be adversely affected.

We will require additional capital to fund our operations, which may not be available on acceptable terms, if at all.

We expect to spend substantial amounts to advance our product candidates into clinical development and to complete the clinical development of, seek regulatory approvals for and commercialize our product candidates, if approved. We will require additional capital beyond the proceeds of this offering, which we may raise through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources to enable us to complete the development and potential commercialization of our product candidates. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate certain of our research and development programs.

Our operations have consumed significant amounts of cash since inception. As of December 31, 2018, our cash and cash equivalents were $63.0 million. In March 2019, we raised an aggregate of $50.0 million of gross proceeds from our Series B convertible preferred stock financing. Based on our planned use of the net proceeds of this offering and our current cash and cash equivalents, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements at least through the first half of 2021. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently expected because of circumstances beyond our control. Because the length of time and activities associated with successful development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

 

   

the initiation, progress, timing, costs and results of our planned clinical trials for PR001;

 

   

continuing our current research programs and our preclinical development of product candidates, including PR001, PR006 and PR004, from our current research programs;

 

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seeking to identify, assess, acquire and/or develop additional research programs and additional product candidates;

 

   

the preclinical testing and clinical trials for any product candidates we identify and develop;

 

   

the cost of establishing a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval;

 

   

the outcome, timing and cost of meeting regulatory requirements established by the FDA, EMA and other regulatory authorities;

 

   

the cost of expanding and protecting our intellectual property portfolio, including filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;

 

   

the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or any of our product candidates;

 

   

the effect of competing technological and market developments;

 

   

the cost of further developing and scaling our potential manufacturing facility and processes;

 

   

the cost and timing of completion of commercial-scale manufacturing activities;

 

   

the cost of making royalty, milestone or other payments under current and any future in-license agreements;

 

   

the extent to which we in-license or acquire other products and technologies; and

 

   

the initiation, progress, timing and results of our commercialization of our product candidates, if approved for commercial sale.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of common stock. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

We are heavily dependent on the success of our most advanced product candidate, PR001, which is still in early development. If PR001 does not progress to the next phase of clinical testing or receive regulatory approval, or if we are unable to successfully commercialize PR001, our business may be harmed.

To date, we have invested a significant portion of our efforts and financial resources in the development of PR001. Our future success and ability to generate product revenue is substantially dependent on our ability to successfully develop, obtain regulatory approval for and successfully commercialize this product candidate.

We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We expect to invest a meaningful portion of our efforts and expenditures over the next few years in PR001, which will require clinical development, management of clinical and manufacturing activities, regulatory approval in multiple jurisdictions, manufacturing sufficient supply, building of a commercial organization, substantial investment and significant marketing efforts before we can generate any revenues from any commercial sales. Accordingly, our business currently depends heavily on the successful development,

 

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regulatory approval and commercialization of PR001, which may never occur. We cannot be certain that PR001 will be successful in clinical trials or receive regulatory approval. Even if we receive regulatory approval to market PR001 from the FDA, EMA or other regulatory bodies, we cannot be certain that our product candidate will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available therapies. We also cannot be certain that third-party payors will adequately reimburse for treatments involving our product candidate. Additionally, the research, testing, manufacturing, labeling, approval, sale, marketing and distribution of gene therapy products are and will remain subject to extensive and evolving regulation by the FDA, EMA and other regulatory authorities. We are not permitted to market PR001 in the United States until it receives approval of a biologics license application, or BLA, from the FDA, and we cannot market it in the European Union until we receive approval for a Marketing Authorization Application, or MAA, from the EMA, or other required regulatory approval in other countries.

PR001 is our most advanced product candidate, and because some of our other product candidates are based on similar technology, if PR001 shows unexpected adverse events or a lack of efficacy in the indications we intend to treat, or if we experience other regulatory or developmental issues, our development plans and business could be significantly harmed. Further, competitors may be developing products with similar technology and may experience problems with their products that could identify problems that would potentially harm our business.

We may not be successful in our efforts to identify additional product candidates.

Part of our strategy involves identifying novel product candidates based on our deep understanding of human genetics. The process by which we identify product candidates may fail to yield product candidates for clinical development for a number of reasons, including those discussed in these risk factors and also:

 

   

we may be unable to develop programs that have a clearly defined and genetically driven disease mechanism, are well suited to gene therapy, have compelling preclinical data, are in genetically defined populations, have biomarkers that may provide early clinical proof-of-mechanism or that have a large potential market opportunity;

 

   

we may not be able to assemble sufficient resources to acquire or discover additional product candidates;

 

   

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

 

   

potential product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

 

   

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

 

   

potential product candidates may not be effective in treating their targeted diseases;

 

   

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

 

   

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

 

   

the regulatory pathway for a potential product candidate may be too complex and difficult to navigate successfully or economically.

In addition, we may choose to focus our efforts and resources on a potential product candidate that ultimately proves to be unsuccessful. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product

 

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candidates or other diseases that may later prove to have greater commercial potential, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights. If we are unable to identify additional suitable product candidates for clinical development, this would adversely impact our business strategy, our financial position and share price and could potentially cause us to cease operations.

Risks Related to Discovery, Development, Clinical Testing, Manufacturing and Regulatory Approval

We intend to identify and develop product candidates based on our novel approach to gene therapy, which makes it difficult to predict the time, cost and potential success of product candidate development.

We have concentrated our research and development efforts on our gene therapy product candidates. Our future success depends on the successful development of these novel therapeutic approaches. To date, very few products that utilize gene transfer have been approved in the United States or Europe. There have been a limited number of clinical trials of gene transduction technologies, with only two product candidates ever approved by the FDA.

Our gene therapy product candidates are based on a viral vector which we can deploy with gene therapy constructs, which relies on the ability of AAV to efficiently transmit a therapeutic gene to certain kinds of cells. The mechanism of action by which this vector targets particular tissues is still not completely understood. Therefore, it is difficult for us to determine that our vectors will be able to properly deliver gene transfer constructs to enough tissue cells to reach therapeutic levels. We cannot be certain that our viral vectors will be able to meet safety and efficacy levels needed to be therapeutic in humans or that they will not cause significant adverse events or toxicities. We cannot be certain that we will be able to avoid triggering toxicities in our future preclinical studies or clinical trials. Any such results could impact our ability to develop a product candidate, including our ability to enroll patients in our clinical trials. As a result of these factors, it is more difficult for us to predict the time and cost of product candidate development, and we cannot predict whether the application of our approach to gene therapy, or any similar or competitive programs, will result in the identification, development, and regulatory approval of any product candidates, or that other gene therapy programs will not be considered better or more attractive. There can be no assurance that any development problems we experience in the future related to our current gene therapy product candidates or any of our research programs will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays and challenges in achieving sustainable, reproducible, and scalable production. Any of these factors may prevent us from completing our preclinical studies or clinical trials or commercializing any product candidates we may develop on a timely or profitable basis, if at all.

Gene therapies are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in delays in the development or commercialization of our product candidates or otherwise harm our business.

The manufacture of gene therapy products is technically complex and necessitates substantial expertise and capital investment. Production difficulties caused by unforeseen events may delay the availability of material for our clinical studies.

We presently contract with third parties for the manufacturing of our program materials and are working to develop commercial-scale manufacturing capabilities with these third parties. We currently have no plans to build our own clinical or commercial-scale manufacturing facilities. The use of contracted manufacturing and reliance on collaboration partners is relatively cost efficient and has eliminated the need for our direct investment in manufacturing facilities and additional staff early in development. Although we rely on contract manufacturers, we have personnel with manufacturing and quality experience to oversee our contract manufacturers.

 

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To date, our third-party manufacturers have met our manufacturing requirements for our program materials. We expect third-party manufacturers to be capable of providing sufficient quantities of our program materials to meet anticipated clinical trial scale demands. To meet our projected needs for additional clinical trials and commercial manufacturing, we will need to secure multiple suppliers. We believe that there are alternate sources of supply for our program materials that can satisfy our clinical and commercial requirements, although we cannot be certain that identifying and establishing relationships with such sources, if necessary, would not result in significant delay or material additional costs.

To date, our third-party manufacturers have met our quality standards for our program materials. The manufacturers of pharmaceutical products must comply with strictly enforced current good manufacturing practices, or cGMP, requirements, state and federal regulations, as well as foreign requirements when applicable. Any failure of us or our contract manufacturing organizations to adhere to or document compliance to such regulatory requirements could lead to a delay or interruption in the availability of our program materials for clinical study or enforcement action from the FDA or foreign regulatory authorities. If we or our manufacturers were to fail to comply with the FDA, EMA, or other regulatory authority, it could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates. Our potential future dependence upon others for the manufacture of our product candidates may also adversely affect our future profit margins and our ability to commercialize any product candidates that receive regulatory approval on a timely and competitive basis.

Biological products are inherently difficult to manufacture. Our program materials are manufactured using technically complex processes requiring specialized equipment and facilities, highly specific raw materials, cells, and reagents, and other production constraints. Our production process requires a number of highly specific raw materials, cells and reagents with limited suppliers. Even though we aim to have backup supplies of raw materials, cells and reagents whenever possible, we cannot be certain they will be sufficient if our primary sources are unavailable. A shortage of a critical raw material, cell line, or reagent, or a technical issue during manufacturing may lead to delays in clinical development or commercialization plans. Any changes in the manufacturing of components of the raw materials we use could result in unanticipated or unfavorable effects in our manufacturing processes, resulting in delays.

We are developing a scalable baculovirus production system for our gene therapy pipeline. If we are not able to successfully develop or transition to this new manufacturing process, we may be unable to meet our supply needs, which could adversely affect our future profit margins and our ability to progress our clinical development programs or commercialize any product candidates that receive regulatory approval on a timely and competitive basis.

Because gene therapy is novel and the regulatory landscape that governs any product candidates we may develop is rigorous, complex, uncertain and subject to change, we cannot predict the time and cost of obtaining regulatory approval, if we receive it at all, for any product candidates we may develop.

The regulatory requirements that will govern any novel gene therapy product candidates we develop are not entirely clear and are subject to change. Within the broader genetic medicine field, very few therapeutic products have received marketing authorization from the FDA or EMA. Even with respect to more established products that fit into the categories of gene therapies or cell therapies, the regulatory landscape is still developing. Regulatory requirements governing gene therapy products and cell therapy products have changed frequently and will likely continue to change in the future. Moreover, there is substantial, and sometimes uncoordinated, overlap in those responsible for regulation of existing gene therapy products and cell therapy products. For example, in the United States, the FDA has established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Our product

 

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candidates will need to meet safety and efficacy standards applicable to any new biologic under the regulatory framework administered by the FDA. In addition to FDA oversight and oversight by institutional review boards, or IRBs, under guidelines promulgated by the National Institutes of Health, or NIH, gene therapy clinical trials are also subject to review and oversight by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment. While the NIH guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Although the FDA decides whether individual gene therapy protocols may proceed, the review process and determinations of other reviewing bodies can impede or delay the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation.

The same applies in the European Union. The EMA’s Committee for Advanced Therapies, or CAT, is responsible for assessing the quality, safety, and efficacy of advanced-therapy medicinal products. Advanced-therapy medicinal products include gene therapy medicines, somatic-cell therapy medicines and tissue-engineered medicines. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the EMA. In the European Union, the development and evaluation of a gene therapy product must be considered in the context of the relevant EU guidelines. The EMA may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines. As a result, the procedures and standards applied to gene therapy products and cell therapy products may be applied to any gene therapy product candidate we may develop, but that remains uncertain at this point.

Adverse developments in preclinical studies or clinical trials conducted by others in the field of gene therapy and gene regulation products may cause the FDA, the EMA, and other regulatory bodies to revise the requirements for approval of any product candidates we may develop or limit the use of products utilizing gene regulation technologies, either of which could harm our business. In addition, the clinical trial requirements of the FDA, the EMA, and other regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty, and intended use and market of the potential products. The regulatory approval process for product candidates such as ours can be more expensive and take longer than for other, better known, or more extensively studied pharmaceutical or other product candidates. Further, as we are developing novel potential treatments for diseases in which, in some cases, there is little clinical experience with potential new endpoints and methodologies, there is heightened risk that the FDA, the EMA or other regulatory bodies may not consider the clinical trial endpoints to provide clinically meaningful results, and the resulting clinical data and results may be more difficult to analyze. Any natural history studies that we may conduct or rely upon in our clinical development may not be accepted by the FDA, EMA or other regulatory authorities. Regulatory agencies administering existing or future regulations or legislation may not allow production and marketing of products utilizing gene regulation technology in a timely manner or under technically or commercially feasible conditions. In addition, regulatory action or private litigation could result in expenses, delays, or other impediments to our research programs or the commercialization of resulting products.

The regulatory review committees and advisory groups described above and the new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates, or lead to significant post-approval limitations or restrictions. As we advance our research programs and develop future product candidates, we will be required to consult with these regulatory and advisory groups and to comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of any product candidates we identify and develop.

 

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Clinical trials are expensive, time-consuming, difficult to design and implement, and involve an uncertain outcome. Further, we may encounter substantial delays in our clinical trials.

The clinical trials and manufacturing of our product candidates are, and the manufacturing and marketing of our products, if approved, will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. In particular, because our product candidates are subject to regulation as biological drug products, we will need to demonstrate that they are safe, pure and potent for use in their target indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use.

Clinical testing is expensive and can take many years to complete, and is subject to uncertainty. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Failure can occur at any time during the clinical trial process. Even if our future clinical trials are completed as planned, we cannot be certain that their results will support the safety and effectiveness of our product candidates for their targeted indications or support continued clinical development of such product candidates. Our future clinical trial results may not be successful.

In addition, even if such trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

To date, we have not completed any clinical trials required for the approval of our product candidates. We may experience delays in conducting any clinical trials and we do not know whether our clinical trials will begin on time, need to be redesigned, recruit and enroll patients on time or be completed on schedule, or at all. Events that may prevent successful or timely completion of clinical development include:

 

   

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

 

   

delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for advanced clinical trials;

 

   

delays in developing suitable assays for screening patients for eligibility for trials with respect to certain product candidates;

 

   

delays in reaching agreement with the FDA, EMA or other regulatory authorities as to the design or implementation of our clinical trials;

 

   

obtaining regulatory approval to commence a clinical trial;

 

   

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

 

   

obtaining IRB approval at each site;

 

   

recruiting suitable patients to participate in a clinical trial;

 

   

developing and validating the companion diagnostic to be used in a clinical trial, if applicable;

 

   

having patients complete a clinical trial or return for post-treatment follow-up;

 

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clinical sites, CROs or other third parties deviating from trial protocol or dropping out of a trial;

 

   

failure to perform in accordance with the FDA’s good clinical practice, or GCP, requirements, or applicable regulatory guidelines in other countries;

 

   

addressing patient safety concerns that arise during the course of a trial, including occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

 

   

adding a sufficient number of clinical trial sites; or

 

   

manufacturing sufficient quantities of product candidate for use in clinical trials.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates or significantly increase the cost of such trials, including:

 

   

we may experience changes in regulatory requirements or guidance, or receive feedback from regulatory authorities that requires us to modify the design of our clinical trials;

 

   

clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon development programs;

 

   

the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

 

   

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

   

we or our investigators might have to suspend or terminate clinical trials of our product candidates for various reasons, including non-compliance with regulatory requirements, a finding that our product candidates have undesirable side effects or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks;

 

   

the cost of clinical trials of our product candidates may be greater than we anticipate and we may not have funds to cover the costs;

 

   

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

 

   

regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate; and

 

   

any future collaborators that conduct clinical trials may face any of the above issues, and may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

   

incur unplanned costs;

 

   

be delayed in obtaining marketing approval for our product candidates or not obtain marketing approval at all;

 

   

obtain marketing approval in some countries and not in others;

 

   

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

 

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

 

   

be subject to additional post-marketing testing requirements; or

 

   

have the product removed from the market after obtaining marketing approval.

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA, EMA or other regulatory authorities. Such authorities may impose such a suspension or termination 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, EMA 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.

Our most advanced product candidates, PR001, PR006 and PR004, will require extensive clinical testing before we are prepared to submit a BLA or MAA for regulatory approval. We cannot predict with any certainty if or when we might complete the clinical development for our product candidates and submit a BLA or MAA for regulatory approval of any of our product candidates or whether any such BLA or MAA will be approved. We may also seek feedback from the FDA, EMA or other regulatory authorities on our clinical development program, and the FDA, EMA or such regulatory authorities may not provide such feedback on a timely basis, or such feedback may not be favorable, which could further delay our development programs.

We cannot predict with any certainty whether or when we might complete a given clinical trial. If we experience delays in the commencement or completion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects of our product candidates could be harmed, and our ability to generate revenues from our product candidates may be delayed. In addition, any delays in our clinical trials could increase our costs, slow down the 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 results of operations. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

The affected populations for our other product candidates may be smaller than we or third parties currently project, which may affect the addressable markets for our product candidates.

We select the targets for development of our product candidates based on genetically defined patient populations where we believe there is a large addressable market opportunity. However, our projections of the number of people who have the diseases we are seeking to treat, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are estimates based on our knowledge and understanding of these diseases. The total addressable market opportunity for our product candidates will ultimately depend upon a number of factors including the diagnosis and treatment criteria included in the final label, if approved for sale in specified indications, acceptance by the medical community, patient access and product pricing and reimbursement. Incidence and prevalence estimates are frequently based on information and assumptions that are not exact and may not be appropriate, and the methodology is forward-looking and speculative. The process we have used in developing an estimated incidence and prevalence range for the indications we are targeting has involved collating limited data from multiple sources. Accordingly, the incidence and prevalence estimates included in this prospectus should be viewed with caution. Further, the data and statistical information used in this prospectus, including estimates derived from them, may differ from information and estimates made by our competitors or from current or future studies conducted by independent sources.

 

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The use of such data involves risks and uncertainties and is subject to change based on various factors. Our estimates may prove to be incorrect and new studies may change the estimated incidence or prevalence of the diseases we seek to address. The number of patients with the diseases we are targeting in the United States, the European Union, Israel and elsewhere may turn out to be lower than expected or may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or access, all of which would harm our results of operations and our business.

Negative public opinion of gene therapy and increased regulatory scrutiny of gene therapy and genetic research may adversely impact the development or commercial success of our current and future product candidates.

Our potential therapeutic products involve introducing genetic material into a patient’s cells. The clinical and commercial success of our potential products will depend in part on public acceptance of the use of gene therapy and gene regulation for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene therapy and gene regulation are unsafe, unethical or immoral, and consequently, our products may not gain the acceptance of the public or the medical community. Adverse public attitudes may adversely impact our ability to enroll clinical trials. Moreover, our success will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of product candidates we may develop in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available.

More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates or demand for any products once approved. For example, in 2003, trials using early versions of murine gamma-retroviral vectors, which integrate with, and thereby alter, the host cell’s DNA, have led to several well-publicized adverse events, including reported cases of leukemia. Although none of our current product candidates utilize murine gamma-retroviral vectors, our product candidates use AAV viral vectors. Among the risks in any gene therapy product based on viral vectors are the risks of immunogenicity, elevated liver enzymes, and insertional oncogenesis, which is the process whereby the insertion of a functional gene near a gene that is important in cell growth or division results in uncontrolled cell division, which could potentially enhance the risk of malignant transformation. If our vectors demonstrate a similar effect we may decide or be required to halt or delay further clinical development of PR001. Adverse events in our or others’ clinical trials, even if not ultimately attributable to our product candidates, and the resulting publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates. The risk of cancer remains a concern for gene therapy and we cannot assure that it will not occur in any of our planned or future clinical trials or in any clinical trials conducted by other companies. In addition, there is the potential risk of delayed adverse events following exposure to gene therapy products due to persistent biological activity of the genetic material or other components of products used to carry the genetic material. If any such adverse events occur, commercialization of our product candidates or further advancement of our clinical trials could be halted or delayed, which would have a negative impact on our business and operations.

Compassionate use or expanded access of our unapproved therapies could negatively affect our reputation, our development timelines and our business.

Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. In April 2019, University of Florida submitted an investigator-sponsored IND to the FDA requesting an expanded access study in which infants with Type 2 Gaucher disease could receive PR001. This IND has been placed on clinical hold by the FDA. We do not have control over the University of Florida’s communications with the FDA or the timing of any resolution of

 

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this clinical hold. We do not expect this clinical hold to affect the development timeline for our currently active IND for PR001 for the treatment of PD-GBA or our anticipated IND submission for PR001 for the treatment of neuronopathic Gaucher disease, however, the existence of this clinical hold could negatively impact public opinion of PR001.

In addition, patients who receive access to unapproved drugs through compassionate use or expanded access programs have life-threatening illnesses and often have exhausted all other available therapies. The risk for serious adverse events in this patient population is high which could have a negative impact on the safety profile of our product candidates, including PR001, which could cause significant delays or an inability to successfully commercialize our product candidates, which could materially harm our business. Further, we may in the future need to restructure or pause ongoing compassionate use and/or expanded access programs, which could prompt adverse publicity or other disruptions related to current or potential participants in such programs.

Other companies have been the target of disruptive social media campaigns related to a request for access to unapproved drugs for patients with significant unmet medical need. If we experience a similar social media campaign regarding our decision to provide or not provide our product candidates under an expanded access corporate policy, our reputation may be negatively affected and our business may be harmed.

Recent media attention to individual patients’ expanded access requests has resulted in the introduction of legislation at the local and national level referred to as “Right to Try” laws, such as the Right to Try Act, which are intended to give patients access to unapproved therapies. New and emerging legislation regarding expanded access to unapproved drugs for life-threatening illnesses could negatively impact our business in the future.

A possible consequence of both activism and legislation in this area is the need for us to initiate an unanticipated expanded access program or to make our product candidates more widely available sooner than anticipated. We are a small company with limited resources and unanticipated trials or access programs could result in diversion of resources from our primary goals.

We and our contract manufacturers for plasmids and viruses are subject to significant regulation with respect to manufacturing our products. The third-party manufacturing facilities on which we rely, and any manufacturing facility that we may have in the future, may have limited capacity or fail to meet the applicable stringent regulatory requirements.

We currently have relationships with a limited number of suppliers for the manufacturing of plasmids and viruses, components of our product candidates. However, if we experience slowdowns or problems with our facility or those of our manufacturing partners and are unable to establish or scale our internal manufacturing capabilities, we will need to continue to contract with manufacturers that can produce the preclinical, clinical and commercial supply of our products. Each supplier may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain and we may be unable to license such intellectual property rights on reasonable commercial terms or to transfer or sublicense the intellectual property rights we may have with respect to such activities.

All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for components our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials in the European Union must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA or MAA on a timely basis. Our facilities and quality systems and the facilities and quality systems of some or all of our third-

 

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party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted, and they could put a hold on one or more of our clinical trials if the facilities of our contract development and manufacturing organizations, or CDMOs, do not pass such audit or inspections. If these facilities do not pass a pre-approval plant inspection, FDA approval of the products will not be granted.

The regulatory authorities also may, at any time following approval of a product for sale, inspect or audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could harm our business. If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product, or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be harmed. Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. An alternative manufacturer would need to be qualified through a BLA and/or MAA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully, if approved. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.

Any contamination or interruption in our manufacturing process, shortages of raw materials or failure of our suppliers of plasmids and viruses to deliver necessary components could result in delays in our clinical development or marketing schedules.

Given the nature of gene therapy manufacturing, there is a risk of contamination. Any contamination could adversely affect our ability to produce product candidates on schedule and could, therefore, harm our results of operations and cause reputational damage. Some of the raw materials required in our manufacturing process are derived from biologic sources. Such raw materials are difficult to procure and may be subject to contamination or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture of our product candidates could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could adversely affect our development timelines and our business, financial condition, results of operations and prospects.

If we or our collaborators encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. Any natural history studies that we may conduct may fail to provide us with patients for our clinical trials because patients enrolled in the natural history studies may not be good candidates for our clinical trials, or may choose to not

 

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enroll in our clinical trials. We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials. The enrollment of patients depends on many factors, including:

 

   

perceived risks and benefits of AAV-based gene therapy approaches for the potential treatment of neurological diseases;

 

   

perceived risks of the delivery procedures;

 

   

the size and nature of the patient population, and the severity and difficulty of diagnosing the disease under investigation;

 

   

the patient eligibility criteria defined in the protocol;

 

   

the size of the patient population required for analysis of the trial’s primary endpoints;

 

   

the proximity of patients to study sites;

 

   

the design of the trial;

 

   

our ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

   

clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating;

 

   

patients with preexisting antibodies to the gene therapy vector that preclude their participation in the trial;

 

   

our ability to obtain and maintain patient consents; and

 

   

the risk that patients enrolled in clinical trials will drop out of the trials before completion.

In addition, our clinical trials may compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates or approved products for the same clinical indications, and this competition may reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which may reduce the number of patients who are available for our clinical trials in such clinical trial site.

Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop our product candidates, or could render further development impossible. If we or our collaborators have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which may have an adverse effect on our results of operations and prospects.

Our product candidates may cause serious adverse events or undesirable side effects or have other properties which may delay or prevent their regulatory approval, cause us to suspend or discontinue clinical trials, limit the commercial profile of an approved label, or, result in significant negative consequences following marketing approval, if any.

Serious adverse events or undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA or other authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects, toxicities or unexpected characteristics, including death. Among the risks in any gene therapy product based on viral vectors are the risks of immunogenicity, elevated liver enzymes, and insertional oncogenesis, which is the process whereby the insertion of a functional gene near a gene that is important in cell growth or division results in uncontrolled cell division, which could potentially enhance the risk of malignant transformation.

 

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If unacceptable side effects or deaths arise in the development of our product candidates, we, the FDA, the IRBs at the institutions in which our studies are conducted, DSMB, EMA or CAT could suspend or terminate our clinical trials or the FDA, EMA or other regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Undesirable side effects or deaths in clinical trials with our product candidates may cause the FDA or comparable foreign regulatory authorities to place a clinical hold on the associated clinical trials, to require additional studies, or otherwise to delay or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in patient injury or death. Any of these occurrences may harm our business, financial condition and prospects significantly.

If any of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by any such product, including during any long-term follow-up observation period recommended or required for patients who receive treatment using our products, a number of potentially significant negative consequences could result, including:

 

   

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

 

   

we may be required to recall a product or change the way such product is administered to patients;

 

   

additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product;

 

   

regulatory authorities may require additional warnings on the label, such as a boxed warning or contraindication, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product;

 

   

we may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a medication guide outlining the risks of such side effects for distribution to patients;

 

   

the products could become less competitive;

 

   

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

 

   

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

 

   

our reputation may suffer.

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

Potential product liability lawsuits against us could cause us to incur substantial liabilities and limit commercialization of any products that we may develop.

The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated adverse effects. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 

   

impairment of our business reputation and significant negative media attention;

 

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withdrawal of participants from our clinical trials;

 

   

significant costs to defend the related litigation and related litigation;

 

   

distraction of management’s attention from our primary business;

 

   

substantial monetary awards to patients or other claimants;

 

   

inability to commercialize our product candidates;

 

   

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

 

   

decreased demand for our product candidates, if approved for commercial sale; and

 

   

loss of revenue.

Positive results, if any, obtained in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials or other studies, and failure to replicate positive results from early studies may inhibit our ability to progress our clinical programs and develop and commercialize product candidates.

Results from previous preclinical studies or clinical trials are not necessarily predictive of future clinical trial results, and interim results of a clinical trial are not necessarily indicative of final results. Our product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through initial clinical trials.

Positive results in preclinical testing and early clinical trials do not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Frequently, product candidates that have shown promising results in early clinical trials have subsequently suffered significant setbacks in later clinical trials. In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience designing clinical trials and may be unable to design and execute a clinical trial to support regulatory approval. There is a high failure rate for drugs and biologic products proceeding through clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including previously unreported adverse events.

Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including due to changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.

The regulatory approval processes of the FDA, EMA and other regulatory authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, on a timely basis or at all, our business will be substantially harmed.

The time required to obtain approval by the FDA, EMA and other regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our product candidates in clinical programs or any other product candidates we may seek to develop in the future will ever obtain regulatory approval. Neither we nor any

 

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future collaborator is permitted to market any of our product candidates in the United States or the European Union until we receive regulatory approval of a BLA from the FDA or a MAA from the EMA, respectively. It is possible that the FDA may refuse to accept for substantive review any BLAs or the EMA any of our MAAs, that we submit for our product candidates or may conclude after review of our data that our application is insufficient to obtain marketing approval of our product candidates.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

   

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

 

   

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

 

   

the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

the FDA or comparable foreign regulatory authorities may fail to approve the companion diagnostics we contemplate developing with partners; and

 

   

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

Prior to obtaining approval to commercialize a product candidate in the United States, the European Union or elsewhere, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA, EMA or foreign regulatory agencies, that such product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA, EMA or other regulatory authorities. The FDA or EMA may also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program. Depending on the extent of these or any other FDA or EMA required studies, approval of any regulatory approval applications that we submit may be delayed by several years, or may require us to expend significantly more resources than we have available.

Of the large number of potential products in development, only a small percentage successfully complete the FDA, EMA or other foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations and prospects.

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may impose significant limitations in the form

 

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of narrow indications, warnings, or a REMS. Regulatory authorities may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

Even if we obtain FDA or EMA approval for PR001 or any other product candidates in the United States or European Union, we may never obtain approval for or commercialize any of them in any other jurisdiction, which would limit our ability to realize their full market potential.

In order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy.

Approval by the FDA in the United States or the EMA in the European Union does not ensure approval by regulatory authorities in other countries or jurisdictions. However, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country.

Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and increased costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of any product we develop will be unrealized.

Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

Any product candidate for which we obtain marketing approval will be subject to ongoing regulatory requirements for, among other things, manufacturing processes, submission of post-approval clinical data and safety information, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities. These requirements include submissions of safety and other post-marketing information and reports, establishment registration and drug listing requirements, continued compliance with cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping and GCP requirements for any clinical trials that we conduct post-approval.

The FDA and EMA closely regulate the post-approval marketing and promotion of genetic therapy medicines to ensure they are marketed only for the approved indications and in accordance with the provisions of the approved labeling. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. The FDA and EMA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we market our products for uses beyond their approved indications, we may be subject to enforcement action for off-label marketing. Violations of the U.S. federal Food, Drug, and Cosmetic Act, or FDCA, relating to the promotion of prescription drugs for unapproved uses may lead to enforcement actions and investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.

 

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In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

 

   

restrictions on manufacturing such products;

 

   

restrictions on the labeling or marketing of a product;

 

   

restrictions on product distribution or use;

 

   

requirements to conduct post-marketing studies or clinical trials;

 

   

warning or untitled letters, or holds on clinical trials;

 

   

withdrawal of the products from the market;

 

   

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

 

   

recall of products;

 

   

fines, restitution or disgorgement of profits or revenues;

 

   

suspension or withdrawal of marketing approvals;

 

   

refusal to permit the import or export of our products;

 

   

product seizure or detention; or

 

   

injunctions or the imposition of civil or criminal penalties.

The FDA’s policies, and the policies of foreign regulatory agencies, may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of biologics and spur innovation, but its ultimate implementation is unclear.

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

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

From time to time, we may publish interim “top-line” or preliminary data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or

 

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“top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects.

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

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

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. Our business depends upon the ability of the FDA to accept and review our potential regulatory filings. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our ability to advance clinical development of our product candidates.

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

Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

Risks Related to Healthcare Laws and Other Legal Compliance Matters

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

In the United States, the European Union and other jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, was enacted, which substantially

 

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changed the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA, those of greatest importance to the pharmaceutical and biotechnology industries include the following:

 

   

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

 

   

a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

 

   

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

 

   

a licensure framework for follow on biologic products;

 

   

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

 

   

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

Since its enactment, there have been judicial, Congressional and executive branch challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing penalties, starting January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance, delaying the implementation of certain ACA-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D. On December 14, 2018, a U.S. District Court Judge in Texas ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, or the Tax Act. While such U.S. District Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA and our business.

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

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed and enacted federal legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, and review the relationship between pricing and manufacturer patient programs. The Trump administration’s budget proposal for fiscal year 2019 contains further drug price

 

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control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, on May 11, 2018, President Trump laid out his administration’s “Blueprint” to lower drug prices and reduce out-of-pocket costs of prescription drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. On January 31, 2019, the HHS Office of Inspector General proposed modifications to U.S. federal Anti-Kickback Statute safe harbors which, among other things, will affect rebates paid by manufacturers to Medicare Part D plan sponsors, Medicaid managed care organizations and those entities’ pharmacy benefit managers, the purpose of which is to further reduce the cost of drug products to consumers. Although some of these, and other, proposals may require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our product candidates or put pressure on our product pricing.

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

In markets outside of the United States and the European Union, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.

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

 

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product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability.

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

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

 

   

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

 

   

the U.S. federal civil and criminal false claims and civil monetary penalties laws, including the civil False Claims Act, which can be enforced by private individuals on behalf of the government through civil whistleblower or qui tam actions, prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

 

   

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

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their implementing regulations, which impose certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers as well as their business associates, independent contractors of a covered entity that perform certain services involving the use or disclosure of individually identifiable health information;

 

   

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

 

   

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

 

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

 

   

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

 

   

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

 

   

similar healthcare laws and regulations in the European Union and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and laws governing the privacy and security of personal data, including the General Data Protection Regulation, which imposes obligations and restrictions on the collection and use of personal data relating to individuals located in the E.U. and E.E.A. (including with regard to health data).

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

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

U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations, or collectively, Trade Laws, prohibit, among other things, companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and other partners from

 

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

We are subject to environmental, health and safety laws and regulations, and we may become exposed to liability and substantial expenses in connection with environmental compliance or remediation activities.

Our operations, including our development, testing and manufacturing activities, are subject to numerous environmental, health and safety laws and regulations. These laws and regulations govern, among other things, the controlled use, handling, release and disposal of and the maintenance of a registry for, hazardous materials and biological materials, such as chemical solvents, human cells, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-borne pathogens. If we fail to comply with such laws and regulations, we could be subject to fines or other sanctions.

As with other companies engaged in activities similar to ours, we face a risk of environmental liability inherent in our current and historical activities, including liability relating to releases of or exposure to hazardous or biological materials. Environmental, health and safety laws and regulations are becoming more stringent. We may be required to incur substantial expenses in connection with future environmental compliance or remediation activities, in which case, the production efforts of our third-party manufacturers or our development efforts may be interrupted or delayed.

Risks Related to Commercialization

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

Drug development, particularly in the gene therapy field, is highly competitive and subject to rapid and significant technological advancements. As a significant unmet medical need exists in the neurology field, particularly for the treatment of Parkinson’s disease and other neurodegenerative diseases, there are several large and small pharmaceutical companies focused on delivering therapeutics for the treatment of these diseases. Further, it is likely that additional drugs will become available in the future for the treatment of our target indications.

We consider our most direct competitors with respect to PR001 to be companies developing GCase pathway-targeting therapies, including Sanofi Genzyme, a unit of Sanofi S.A., and Lysosomal Therapeutics, Inc. Sanofi Genzyme is developing SAR402671, a small molecule GluCer synthase inhibitor for the treatment of Parkinson’s disease with a GBA mutation and for the treatment of Type 3 Gaucher disease in adult patients. In addition, Lysosomal Therapeutics, Inc. is developing LTI-291, a small molecule activator of the GCase enzyme, for the treatment of Parkinson’s patients with a heterozygous mutation in the GBA gene. In addition to these investigational programs, there are several products targeting the GCase pathway that are approved or in development for Type 1 Gaucher disease, including approved enzyme replacement therapies, or ERTs, and substrate reduction therapies, or SRTs, but these ERTs and SRTs are not approved for neuronopathic Gaucher disease in the United States. There are other gene therapy companies that are attempting to use both AAV and lentiviral gene therapy approaches to treat Gaucher disease, but to our knowledge, none of those companies has

 

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disclosed plans to pursue PD-GBA. Several companies are also developing therapies designed to prevent the progression of Parkinson’s disease and FTD. Examples include therapies in development by Alector, Biogen Inc., Denali Therapeutics Inc., Prothena Corporation plc and Roche Holding AG.

Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, as well as in obtaining regulatory approvals of those product candidates in the United States and in foreign countries. Our current and potential future competitors may also have significantly more experience commercializing drugs, particularly gene therapy and other biological products, that have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being concentrated among a small number of our competitors.

We will face competition from other drugs or from other non-drug products currently approved or that will be approved in the future in the neurology field, including for the treatment of Parkinson’s disease. Therefore, our ability to compete successfully will depend largely on our ability to:

 

   

develop and commercialize drugs that are superior to other products in the market;

 

   

demonstrate through our clinical trials that our product candidates are differentiated from existing and future therapies;

 

   

attract qualified scientific, product development and commercial personnel;

 

   

obtain patent or other proprietary protection for our medicines;

 

   

obtain required regulatory approvals;

 

   

obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payors; and

 

   

successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new medicines.

The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any product candidate we develop. The inability to compete with existing or subsequently introduced drugs would have an adverse impact on our business, financial condition and prospects. In addition, the reimbursement structure of approved gene therapies by other companies could impact the anticipated reimbursement structure of our gene therapies, if approved, and our business, financial condition, results of operations and prospects.

Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving regulatory and marketing approval for or commercializing drugs before we do, which would have an adverse impact on our business and results of operations.

The successful commercialization of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish coverage, adequate reimbursement levels and pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.

The availability of coverage and adequacy of reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford medical services and pharmaceutical products such as our product candidates, assuming FDA

 

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approval. Our ability to achieve acceptable levels of coverage and reimbursement for our products or procedures using our products by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize our product candidates. Obtaining coverage and adequate reimbursement for our products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. Separate reimbursement for the product itself or the treatment or procedure in which our product is used may not be available. A decision by a third-party payor not to cover or separately reimburse for our products or procedures using our products, could reduce physician utilization of our products once approved. Assuming there is coverage for our product candidates or procedures using our product candidates by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, the European Union or elsewhere will be available for our product candidates or any product that we may develop, and any reimbursement that may become available may not be adequate or may be decreased or eliminated in the future.

Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs or biologics when an equivalent generic drug, biosimilar or a less expensive therapy is available. It is possible that a third-party payor may consider our product candidates as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidates, pricing of existing third-party therapeutics may limit the amount we will be able to charge for our product candidates. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in our product candidates. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates, and may not be able to obtain a satisfactory financial return on our product candidates.

There is significant uncertainty related to the insurance 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 and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models in the United States for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. We cannot predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.

No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases on short notice, and we believe that changes in these rules and regulations are likely.

Our product candidates and other gene therapies are designed to be single-dose treatments. Historically, chronic conditions such as Parkinson’s disease and Gaucher disease have not had single-dose treatment options. Given the novelty of this treatment approach, significant uncertainty exists with respect to the pricing structure of gene therapies and the business model of pharmaceutical companies that do not have product candidates that require recurring purchases. If other companies establish a new pricing structure or business model, including payment based on demonstration of long term efficacy, our ability to price or obtain reimbursement for our products may be adversely affected. If such pricing structure or business model do not adequately fund the costs of our research and development, manufacturing and commercialization efforts, our business may be adversely affected.

 

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Additionally, we or our collaborators may develop companion diagnostic tests for use with our product candidates as we are targeting certain genetically defined populations for our treatments. We, or our collaborators, will be required to obtain coverage and reimbursement for these tests separate and apart from the coverage and reimbursement we seek for our product candidates, once approved. While we, or our collaborators, have not yet developed any companion diagnostic test for our product candidates, if we do, there is significant uncertainty regarding our ability to obtain coverage and adequate reimbursement for the same reasons applicable to our product candidates.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries have and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our product candidates may be reduced compared with the United States and may be insufficient to generate commercially-reasonable revenue and profits.

Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and biologics and surgical procedures and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products.

Even if our product candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

If our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If they do not achieve an adequate level of acceptance, we may not generate significant product revenues or become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to:

 

   

the efficacy and potential advantages compared to alternative treatments;

 

   

effectiveness of sales and marketing efforts;

 

   

the cost of treatment in relation to alternative treatments, including any similar generic treatments;

 

   

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

 

   

the convenience and ease of administration;

 

   

the availability of centers and medical professionals that can and will perform the applicable procedure;

 

   

the frequency of genotyping in medical practice;

 

   

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

 

   

the strength of marketing and distribution support;

 

   

the timing of market introduction of competitive products;

 

   

the availability of third-party payor coverage and adequate reimbursement;

 

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

 

   

the incidence and severity of any side effects; and

 

   

any restrictions on the use of our product together with other medications.

Because we expect sales of our product candidates, if approved, to generate substantially all of our product revenues, the failure of our product candidates to find market acceptance would harm our business and could require us to seek additional financing.

If we are unable to establish sales, marketing and distribution capabilities either on our own or in collaboration with third parties, we may not be successful in commercializing our product candidates or realizing the synergies in the target indications of our programs, even if they are approved.

We do not have any infrastructure for the sales, marketing or distribution of our products, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. We expect to build a focused sales, distribution and marketing infrastructure to market our product candidates in the United States and European Union, if approved. There are significant expenses and risks involved with establishing our own sales, marketing and distribution capabilities, including our ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities could delay any product launch, which would adversely impact the commercialization of our product candidates. Additionally, if the commercial launch of our product candidates for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

We may not have the resources in the foreseeable future to allocate to the sales and marketing of our product candidates in certain international markets. Therefore, our future sales in these markets will largely depend on our ability to enter into and maintain collaborative relationships for such capabilities, the collaborator’s strategic interest in the product and such collaborator’s ability to successfully market and sell the product. We may pursue collaborative arrangements regarding the sale and marketing of PR001, PR006 and PR004, if approved, for certain markets overseas; however, we cannot assure that we will be able to establish or maintain such collaborative arrangements, or if able to do so, that they will have effective sales forces.

If we are unable to build our own sales force or negotiate a collaborative relationship for the commercialization of PR001 or any of our other product candidates, if approved, we may be forced to delay the potential commercialization of PR001 or any of our other product candidatesor reduce the scope of our sales or marketing activities for PR001 or any of our other product candidates. If we elect to increase our expenditures to fund commercialization activities internationally, we will need to obtain additional capital, which may not be available to us on acceptable terms, or at all. We could enter into arrangements with collaborative partners at an earlier stage than otherwise would be ideal and we may be required to relinquish rights to PR001 or any of our other product candidates or otherwise agree to terms unfavorable to us, any of which may have an adverse effect on our business, operating results and prospects.

If we are unable to establish adequate sales, marketing and distribution capabilities, either on our own or in collaboration with third parties, we will not be successful in commercializing PR001 or any of our other product candidates, if approved, and may not become profitable and may incur significant additional losses. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

 

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If we obtain approval to commercialize any products outside of the United States or the European Union, a variety of risks associated with international operations could adversely affect our business.

If PR001 or any of our other product candidates are approved for commercialization, we may seek to enter into agreements with third parties to market them in certain jurisdictions outside the United States and the European Union. We expect that we would be subject to additional risks related to international pharmaceutical operations, including:

 

   

different regulatory requirements for drug and biologic approvals and rules governing drug and biologic commercialization in foreign countries;

 

   

reduced protection for intellectual property rights;

 

   

foreign reimbursement, pricing and insurance regimes;

 

   

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

   

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

   

business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires, or from economic or political instability;

 

   

greater difficulty with enforcing our contracts;

 

   

potential noncompliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar anti-bribery and anticorruption laws in other jurisdictions; and

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad.

We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by individual countries in Europe with which we will need to comply. If we are unable to successfully manage the challenges of international expansion and operations, our business and operating results could be harmed.

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

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

There is a risk that any of our product candidates approved as a biological product under a BLA would not qualify for the 12-year period of exclusivity or that this exclusivity could be shortened due to congressional

 

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action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. If competitors are able to obtain marketing approval for biosimilars referencing our candidates, if approved, our products may become subject to competition from such biosimilars, with the attendant competitive pressure and potential adverse consequences.

Risks Related to Our Dependence on Third Parties

We currently contract with third parties for the manufacture of plasmids and viruses used in producing our product candidates. Relying on third parties increases the risk that we will not have sufficient quantities of such materials, product candidates, or any therapeutics that we may develop and commercialize, or that such supply will not be available to us at an acceptable cost, which could delay, prevent, or impair our clinical development or commercialization efforts.

We currently rely on third-party manufacturers for the manufacture of plasmids and viruses used in the production of our product candidates. We do not have a long term supply agreement with any of the third-party manufacturers, and we purchase our required supply on a purchase order basis.

We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

   

the possible breach of the manufacturing agreement by the third party;

 

   

the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us;

 

   

delays due to limited supply or capacity of production facilities and/or failure to meet standards for quality; and

 

   

reliance on the third party for regulatory compliance, quality assurance, safety, and pharmacovigilance and related reporting.

Third-party manufacturers may not be able to comply with cGMP regulations or other regulatory requirements that might be required by the FDA or EMA. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocations, seizures or recalls of product candidates or medicines, operating restrictions, and criminal prosecutions, any of which could adversely affect supplies of our candidates and harm our business, financial condition, results of operations and prospects.

Any therapies that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.

Our current and anticipated future dependence upon others for the manufacture of any product candidates we may develop or any components required for the manufacture of our product candidates may adversely affect our ability to meet our clinical timelines, our future profit margins and our ability to commercialize any product candidates that receive marketing approval on a timely and competitive basis.

 

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We may collaborate with third parties for the development and commercialization of our product candidates. We may not succeed in establishing and maintaining collaborative relationships, and our collaborators may fail to perform satisfactorily, which may significantly limit our ability to develop and commercialize our product candidates successfully, if at all.

We may seek collaborative relationships for the development and commercialization of our product candidates. Failure to establish collaborative relationships for our product candidates may significantly impair their commercial potential. We also may need to enter into collaborative relationships to provide funding to support our other research and development programs. The process of establishing and maintaining collaborative relationships is difficult, time-consuming and involves significant uncertainty, such as:

 

   

a collaboration partner may shift its priorities and resources away from our product candidates due to a change in business strategies, or a merger, acquisition, sale or downsizing;

 

   

a collaboration partner may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results, manufacturing issues, a change in business strategy, a change of control or other reasons;

 

   

a collaboration partner may cease development in therapeutic areas which are the subject of our strategic collaboration;

 

   

a collaboration partner may not devote sufficient capital or resources towards our product candidates;

 

   

a collaboration partner may change the success criteria for a product candidate thereby delaying or ceasing development of such candidate;

 

   

a significant delay in initiation of certain development activities by a collaboration partner will also delay payment of milestones tied to such activities, thereby impacting our ability to fund our own activities;

 

   

a collaboration partner may fail to comply with applicable regulatory requirements, thereby jeopardizing our ability to successfully develop and seek approval for our product candidates, on a timely basis or at all, or otherwise exposing us to potential liability;

 

   

a collaboration partner could develop a product that competes, either directly or indirectly, with our product candidate;

 

   

a collaboration partner with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution or sale of a product;

 

   

a collaboration partner with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable to meet demand requirements;

 

   

a collaboration partner may terminate a strategic alliance;

 

   

a dispute may arise between us and a partner concerning the research, development or commercialization of a product candidate resulting in a delay in milestones, royalty payments or termination of an alliance and possibly resulting in costly litigation or arbitration which may divert management attention and resources; and

 

   

a partner may use our products or technology in such a way as to make us subject to litigation with a third party.

If any collaborator fails to fulfill its responsibilities in a timely manner, or at all, our research, clinical development, manufacturing or commercialization efforts related to that collaboration could be delayed or terminated, or it may be necessary for us to assume responsibility for expenses or activities that would otherwise have been the responsibility of our collaborator. If we are unable to establish and maintain collaborative relationships on acceptable terms or to successfully transition terminated collaborative agreements, we may have to delay or discontinue further development of one or more of our product candidates, undertake development

 

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and commercialization activities at our own expense or find alternative sources of capital. Moreover, any collaborative partners we enter into agreements with in the future may shift their priorities and resources away from our product candidates or seek to renegotiate or terminate their relationships with us.

We have relied, and we expect to continue to rely on third parties to conduct, supervise and monitor our clinical trials, and if these third parties perform in an unsatisfactory manner or are unable to perform in a timely manner, our business could be harmed.

We expect to rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. We may also engage third parties such as clinical data management organizations, medical institutions and clinical investigators to conduct or assist in our clinical trials or other clinical development work. While we will have agreements governing their activities, we will have limited influence over their actual performance. We will control only certain aspects of our third-party service providers’ activities. Nevertheless, we will be responsible for ensuring that each of our clinical studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards. Our reliance on these third-parties does not relieve us of our regulatory responsibilities. If any locations terminate the clinical trial, we would be required to find another party to conduct any new trials. We may be unable to find a new party to conduct new trials of our product candidates or obtain clinical supply of our product candidates or AAV vectors for such trials.

We and our third-party service providers are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of IND-enabling studies and clinical studies to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. We are also required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. The FDA enforces these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites at which the FDA may determine that our clinical trials did not comply with GCPs. If we or our third-party service providers fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving any marketing applications. In addition, our future clinical trials will require a sufficient number of patients to evaluate the safety and effectiveness of our product candidates. Accordingly, if we or our third-party service providers fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process. Failure to comply can also result in fines, adverse publicity, and civil and criminal sanctions.

Our third-party service providers are not our employees, and we are therefore unable to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical programs. These third-party service providers may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive position. If our third-party service providers do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines or comply with applicable regulatory requirements, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our 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 our product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

 

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Risks Related to Intellectual Property

We depend on proprietary technology licensed from others. If we lose our existing licenses or are unable to acquire or license additional proprietary rights from third parties, we may not be able to continue developing our product candidates.

We currently in-license certain intellectual property from REGENXBIO. We are a party to agreements with REGENXBIO for certain technology and AAV9 vector-related patents, and we may enter into additional agreements, including license agreements, with other parties in the future that impose diligence, development and commercialization timelines, milestone payments, royalties, insurance and other obligations on us. For example, in exchange for the rights granted to us by REGENXBIO, we are obligated to pay an annual fee, certain royalty percentages on net sales of licensed products, and certain percentages of proceeds on sublicensing fees. We are also obligated to achieve certain development milestones with respect to licensed products in our fields of use within specified time periods. If we fail to comply with our obligations to REGENXBIO or any of our other current or future collaborators, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product candidate that is covered by these agreements, which could adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in us having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.

We may rely on third parties from whom we license proprietary technology to file and prosecute patent applications and maintain patents and otherwise protect the intellectual property we license from them. We may have limited control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we cannot be certain that such activities by these licensors will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We may have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual property that may be licensed to us. It is possible that the licensors’ infringement proceeding or defense activities may be less vigorous than if we conduct them ourselves. The licensing and acquisition of third-party intellectual property rights is a competitive practice, and companies that may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their larger size and cash resources or greater clinical development and commercialization capabilities. There can be no assurance that we will be able to successfully complete such negotiations and ultimately acquire the rights to the intellectual property surrounding the additional product candidates that we may seek to acquire. Furthermore, we may be unable to in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties, which we identify as necessary for our product candidates.

If we are unable to obtain and maintain patent protection for our technology and product candidates or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.

We rely, and will continue to rely, upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our proprietary technologies, product candidate development programs and product candidates. Our success depends in large part on our ability to secure and maintain patent protection in the United States and other countries with respect to our current product candidates and any future product candidates we may develop. We seek to protect our proprietary position by filing or collaborating with our licensors to file patent applications in the United States and abroad related to our proprietary technologies, development programs and product candidates. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent

 

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applications at a reasonable cost or in a timely manner. Moreover, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.

It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. We may not have the right to control the preparation, filing, and prosecution of patent applications, or to maintain the rights to patents licensed to third parties. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our proprietary products and technology, including current product candidates, any future product candidates we may develop, and our gene regulation technology in the United States or in other foreign countries, in whole or in part. Alternately, our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technology or from developing competing products and technologies. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can prevent a patent from issuing from a pending patent application or later invalidate or narrow the scope of an issued patent. For example, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Even if patents do successfully issue and even if such patents cover our current product candidates, any future product candidates we may develop and our gene regulation technology, third parties may challenge their validity, ownership, enforceability or scope thereof, which may result in such patents being narrowed, invalidated, or held unenforceable or circumvented. Any successful challenge to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any of our product candidates or gene regulation technology. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our product candidate, if approved, or practicing our own patented technology. Our competitors may be able to circumvent our patents by developing similar or alternative product candidates in a non-infringing manner. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate and our gene regulation technology under patent protection could be reduced. If any of our patents expire or are challenged, invalidated, circumvented or otherwise limited by third parties prior to the commercialization of our product candidate, and if we do not own or have exclusive rights to other enforceable patents protecting our product candidate or technologies, competitors and other third parties could market products and use processes that are substantially similar, or superior, to ours and our business would suffer.

If the patent applications we hold or have in-licensed with respect to our development programs and product candidates fail to issue, if their validity, breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for any of our current or future product candidates or technology, it could dissuade companies from collaborating with us to develop product candidates, encourage competitors to develop competing products or technologies and threaten our ability to commercialize future product candidates. Any such outcome could harm our business.

We are a party to intellectual property license agreements with REGENXBIO which are important to our business, and we expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, royalties and other obligations on us. See “Business—Licensing Agreements.” If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, or, in some cases, under other circumstances, the licensor may have the right to terminate the license, in which event we would not be able to market product candidate(s) covered by the license. In addition, certain of these license agreements are not assignable by us without the consent of the respective licensor, which may have an adverse effect on our ability to engage in certain transactions.

 

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The patent position of biotechnology and pharmaceutical companies is generally highly uncertain, involves complex legal, scientific and factual questions, and is characterized by the existence of large numbers of patents and frequent litigation based on allegations of patent or other intellectual property infringement or violation. The standards that the U.S. Patent and Trademarks Office, or the USPTO, and its foreign counterparts use to grant patents are not always applied predictably or uniformly. In addition, the laws of jurisdictions outside the United States may not protect our rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. Since patent applications in the United States and other jurisdictions are confidential for a period of time after filing, we cannot be certain that we were the first to file for patents covering our inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in the issuance of patents, or may result in the issuance of patents which fail to protect our technology or products, in whole or in part, or which fail to effectively prevent others from commercializing competitive technologies and products.

The issuance of a patent is not conclusive as to its inventorship, ownership, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. We may become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our owned or licensed patent rights. For example, with respect to our licensed patents and patent applications from REGENXBIO, competitors may claim that they invented the inventions claimed in our issued patents or patent applications prior to the inventors of our licensed patents, or may have filed patent applications before the Trustees of the University of Pennsylvania, or UPenn, as owner of the patent rights licensed by us from REGENXBIO. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Thus, even if our patent applications issue as patents, they may not issue in a form that will provide us with meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Moreover, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for our current or future product candidates, we may be open to competition from generic versions of such products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

Third parties may assert claims against us alleging infringement of their patents and proprietary rights, or we may need to become involved in lawsuits to defend or enforce our patents, either of which could result in substantial costs or loss of productivity, delay or prevent the development and commercialization of our product candidates, prohibit our use of proprietary technology or sale of products or put our patents and other proprietary rights at risk.

Our commercial success depends, in part, upon our ability to develop, manufacture, market and sell our product candidates without alleged or actual infringement, misappropriation or other violation of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. Litigation relating to infringement or misappropriation of patent and other intellectual

 

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property rights in the pharmaceutical and biotechnology industries is common, including patent infringement lawsuits, interferences, derivation and administrative law proceedings, inter partes review and post-grant review before the USPTO, as well as oppositions and similar processes in foreign jurisdictions. The various markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for or obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell, if approved, our product candidates. In addition, many companies in intellectual property-dependent industries, including the biotechnology and pharmaceutical industries, have employed intellectual property litigation as a means to gain an advantage over their competitors. Numerous U.S., EU and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates, and as the biotechnology and pharmaceutical industries expand and more patents are issued, and as we gain greater visibility and market exposure as a public company, the risk increases that our product candidates may be subject to claims of infringement of the intellectual property rights of third parties. Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us.

We may be subject to third-party claims including patent infringement, interference or derivation proceedings, post-grant review and inter partes review before the USPTO or similar adversarial proceedings or litigation in other jurisdictions. Even if such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and the holders of any such patents may be able to block our ability to commercialize the applicable product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. There may be third-party patents or patent applications with claims to compositions, formulations, or methods of treatment, prevention use, or manufacture of our product candidates or technologies. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover aspects of our compositions, formulations, or methods of treatment, prevention or use, the holders of any such patents may be able to prohibit our use of those compositions, formulations, methods of treatment, prevention or use or other technologies, effectively blocking our ability to progress the clinical development of or commercialize the applicable product candidate until such patent expires or is finally determined to be invalid or unenforceable or unless we obtained a license.

We also may be subject to third party claims arising from consulting agreements entered into by our officers, employees, independent contractors and/or consultants. Claims may include breach of nondisclosure, nonuse, noncompetition and non-solicitation provisions, intellectual property assignment and ownership, and misuse or misappropriation of intellectual property, trade secrets and other confidential information, among others. If a court of competent jurisdiction finds that we breached the provisions of third party consulting agreements, we may be prohibited from using certain intellectual property, trade secrets and confidential information, effectively blocking our ability to seek patent protection for our inventions and halting the progress of our clinical development and commercialization efforts.

For example, on June 7, 2019, we received a letter on behalf of Alector, a biopharmaceutical company employing antibodies for the treatment of neurodegeneration, stating concerns regarding whether confidential information of Alector was used in connection with work on behalf of our company and patents and patent applications filed on behalf of our company, as well as alleging that Alector has certain rights to our patents and patent applications. We believe these allegations of wrongdoing and Alector’s claims of rights to any of our intellectual property are without basis or merit, as our gene therapy programs and underlying patents and patent applications were based on work done by Dr. Abeliovich derived from publicly available information or from work outside of and wholly separate from any matters on which he consulted for Alector or information he

 

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received while consulting for Alector. We intend to vigorously defend any claim or lawsuit making allegations relating to these matters, however, there can be no assurance regarding any resolution or the outcome of these matters.

In addition, defending such claims would cause us to incur substantial expenses and, if successful, could cause us to pay substantial damages if we are found to be infringing a third party’s intellectual property rights. These damages potentially include increased damages and attorneys’ fees if we are found to have infringed such rights willfully. Further, if a patent infringement suit is brought against us or our third-party service providers, our development, manufacturing or sales activities relating to the product or product candidate that is the subject of the suit may be delayed or terminated, as parties making claims against us may obtain injunctive or other equitable relief. As a result of patent infringement claims, or in order to avoid potential infringement claims, we may choose to seek, or be required to seek, a license from the third party, which may require payment of substantial royalties or fees, or require us to grant a cross-license under our intellectual property rights. These licenses may not be available on reasonable terms or at all. Even if a license can be obtained on reasonable terms, the rights may be nonexclusive, which would give our competitors access to the same intellectual property rights. If we are unable to enter into a license on acceptable terms, we could be prevented from commercializing one or more of our product candidates, or forced to modify such product candidates, or to cease some aspect of our business operations, which could harm our business significantly. We might also be forced to redesign or modify our product candidates so that we no longer infringe the third-party intellectual property rights, which may result in significant cost or delay to us, or which redesign or modification could be impossible or technically infeasible. Even if we were ultimately to prevail, any of these events could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business. Intellectual property litigation, regardless of its outcome, may cause negative publicity, adversely impact prospective customers, cause product shipment delays, or prohibit us from manufacturing, importing, marketing or otherwise commercializing our products, services and technology. In addition, if the breadth or strength of protection provided the patents and patent applications we own or in-license is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Competitors may infringe our patents or other intellectual property. If we or one of our licensors were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States and in Europe, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness lack of written description, or non-enablement. Third parties might allege unenforceability of our patents because during prosecution of the patent an individual connected with such prosecution withheld relevant information, or made a misleading statement. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. The outcome of proceedings involving assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity of patents, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution, but that an adverse third party may identify and submit in support of such assertions of invalidity. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Our patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without infringing our patents or other intellectual property rights.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors view these announcements in a negative light, the price of our common stock could be adversely affected. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or

 

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other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.

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

We cannot guarantee that any of our or our licensors’ patent searches or analyses, including but not limited to the identification of relevant patents, analysis of the scope of relevant patent claims or determination of the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending application in the United States, Europe and elsewhere that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction. For example, in the United States, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States, the European Union and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidates could be filed by others without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our product candidates or the use of our product candidates. After issuance, the scope of patent claims remains subject to construction as determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our product candidates. We may incorrectly determine that our product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States, the European Union or elsewhere that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our product candidates, if approved.

If we fail to identify or correctly interpret relevant patents, we may be subject to infringement claims. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we fail in any such dispute, in addition to being forced to pay monetary damages, we may be temporarily or permanently prohibited from commercializing our product candidates. We might, if possible, also be forced to redesign our product candidates in a manner that no longer infringes third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.

Our intellectual property licenses with third parties may be subject to disagreements over contract interpretation, which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.

We currently depend, and will continue to depend, on our license agreements, including our agreements with REGENXBIO, whereby we obtain rights in certain patents and patent applications owned by UPenn. Further development and commercialization of our current or any future product candidates may require us to enter into additional license or collaboration agreements, including, potentially, additional agreements with REGENXBIO or any of our other licensors. The agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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If any of our licenses or material relationships or any in-licenses upon which our licenses are based including the underlying agreements between REGENXBIO and UPenn are terminated or breached, we may:

 

   

lose our rights to develop and market our products;

 

   

lose patent protection for our products;

 

   

experience significant delays in the development or commercialization of our products;

 

   

not be able to obtain any other licenses on acceptable terms, if at all; or

 

   

incur liability for damages.

These risks apply to any agreements that we may enter into in the future for our products or for any future product candidates. If we experience any of the foregoing, it could have a material adverse effect on our business, financial condition, results or operations and prospects.

Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology and genetic medicine industries involve both technological and legal complexity. Therefore, obtaining and enforcing biotechnology and genetic medicine patents is costly, time-consuming and inherently uncertain. In addition, the Leahy-Smith America Invents Act, or the AIA, which was passed in September 2011, resulted in significant changes to the U.S. patent system.

An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned from a “first-to-invent” to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application and be diligent in filing patent applications, but circumstances could prevent us from promptly filing patent applications on our inventions.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action.

Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. It is not clear what, if any, impact the AIA will have on the operation of our business. However, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents.

We may become involved in opposition, interference, derivation, inter partes review or other proceedings challenging our or our licensors’ patent rights, and the outcome of any proceedings are highly uncertain. An adverse determination in any such proceeding could reduce the scope of, or invalidate, our owned or in-licensed patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.

 

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In addition, the United States federal government retains certain rights in inventions produced with its financial assistance under the Bayh-Dole Act. The federal government retains a “nonexclusive, nontransferable, irrevocable, paid-up license” for its own benefit. The Bayh-Dole Act also provides federal agencies with “march-in rights”. March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a “nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.” If the patent owner refuses to do so, the government may grant the license itself. Some of our licensed patents are subject to the provisions of the Bayh-Dole Act. If our licensors fail to comply with the regulations of the Bayh-Dole Act, they could lose title to any patents subject to such regulations, which could affect our license rights under the patents and our ability to stop others from using or commercializing similar or identical technology and products, or limit patent protection for our technology and products.

Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations, and there are other open questions under patent law that courts have yet to decisively address. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways and could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. In addition, the European patent system is relatively stringent in the type of amendments that are allowed during prosecution, but, the complexity and uncertainty of European patent laws has also increased in recent years. Complying with these laws and regulations could limit our ability to obtain new patents in the future that may be important for our business.

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

The USPTO, European and other patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO, European and other patent agencies over the lifetime of the patent. While an inadvertent failure to make payment of such fees or to comply with such provisions can in many cases be cured by additional payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance with such provisions will result in the abandonment or lapse of the patent or patent application, and the partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents within prescribed time limits. If we or our licensors fail to maintain the patents and patent applications covering our product candidates or if we or our licensors otherwise allow our patents or patent applications to be abandoned or lapse, it can create opportunities for competitors to enter the market, which would hurt our competitive position and could impair our ability to successfully progress clinical development of or commercialize our product candidates in any indication for which they may be approved.

We enjoy only limited geographical protection with respect to certain patents and we may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents covering our product candidates in all countries throughout the world would be prohibitively expensive, and even in countries where we have sought protection for our intellectual property, such protection can be less extensive than those in the United States. The requirements for patentability may differ in certain countries, particularly developing countries, and the breadth of patent claims allowed can be inconsistent. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. In-licensing patents covering our product

 

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candidates in all countries throughout the world may similarly be prohibitively expensive, if such opportunities are available at all. And in-licensing or filing, prosecuting and defending patents even in only those jurisdictions in which we develop or commercialize our product candidates may be prohibitively expensive or impractical. Competitors may use our and our licensors’ technologies in jurisdictions where we have not obtained patent protection or licensed patents to develop their own products and, further, may export otherwise infringing products to territories where we and our licensors have patent protection, but where enforcement is not as strong as that in the United States or the European Union. These products may compete with our product candidates, and our or our licensors’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

In addition, we may decide to abandon national and regional patent applications while they are still pending. The grant proceeding of each national or regional patent is an independent proceeding which may lead to situations in which applications may be rejected by the relevant patent office, while substantively similar applications are granted by others. For example, relative to other countries, China has a heightened requirement for patentability and specifically requires a detailed description of medical uses of a claimed drug. Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’ patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may develop, seek approval for and launch generic versions of our products. It is also quite common that depending on the country, the scope of patent protection may vary for the same product candidate or technology.

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or regulations in the United States and the European Union, and many companies have encountered significant difficulties in protecting and defending proprietary rights in such jurisdictions. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets or other forms of intellectual property, particularly those relating to biotechnology products, which could make it difficult for us to prevent competitors in some jurisdictions from marketing competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, are likely to result in substantial costs and divert our efforts and attention from other aspects of our business, and additionally could put at risk our or our licensors’ patents of being invalidated or interpreted narrowly, could increase the risk of our or our licensors’ patent applications not issuing, or could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, while damages or other remedies may be awarded to the adverse party, which may be commercially significant. If we prevail, damages or other remedies awarded to us, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize our product candidates in all of our expected significant foreign markets. If we or our licensors encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition in those jurisdictions.

In some jurisdictions including European Union countries, compulsory licensing laws compel patent owners to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors are forced to grant a license to third parties under patents relevant to our business, or if we or our licensors are prevented from enforcing patent rights against third parties, our competitive position may be substantially impaired in such jurisdictions.

 

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

The term of any individual patent depends on applicable law in the country where the patent is granted. In the United States, provided all maintenance fees are timely paid, a patent generally has a term of 20 years from its application filing date or earliest claimed non-provisional filing date. Extensions may be available under certain circumstances, but the life of a patent and, correspondingly, the protection it affords is limited. Even if we or our licensors obtain patents covering our product candidates, when the terms of all patents covering a product expire, our business may become subject to competition from competitive medications, including generic medications. Given the amount of time required for the development, testing and regulatory review and approval of new product candidates, patents protecting such candidates may expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

If we do not obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the term of marketing exclusivity for our product candidates, our business may be harmed.

In the United States, a patent that covers an FDA-approved drug or biologic may be eligible for a term extension designed to restore the period of the patent term that is lost during the premarket regulatory review process conducted by the FDA. Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, and only claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended. In the European Union, our product candidates may be eligible for term extensions based on similar legislation. In either jurisdiction, however, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Even if we are granted such extension, the duration of such extension may be less than our request. If we are unable to obtain a patent term extension, or if the term of any such extension is less than our request, the period during which we can enforce our patent rights for that product will be in effect shortened and our competitors may obtain approval to market competing products sooner. The resulting reduction of years of revenue from applicable products could be substantial.

Our proprietary rights may not adequately protect our technologies and product candidates, and do not necessarily address all potential threats to our competitive advantage.

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

 

   

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

 

   

others, including inventors or developers of our owned or in-licensed patented technologies who may become involved with competitors, may independently develop similar technologies that function as alternatives or replacements for any of our technologies without infringing our intellectual property rights;

 

   

we or our licensors or our other collaboration partners might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we own, license or will own or license;

 

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we or our licensors or our other collaboration partners might not have been the first to file patent applications covering certain of the patents or patent applications that we or they own or have obtained a license, or will own or will have obtained a license;

 

   

we or our licensors may fail to meet obligations to the U.S. government with respect to in-licensed patents and patent applications funded by U.S. government grants, leading to the loss of patent rights;

 

   

it is possible that our pending patent applications will not result in issued patents;

 

   

it is possible that there are prior public disclosures that could invalidate our or our licensors’ patents;

 

   

issued patents that we own or exclusively license may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;

 

   

we may not exclusively license our patents and, therefore, may not have a competitive advantage if such patents are licensed to others, including for example, under our license agreements with REGENXBIO, pursuant to which REGENXBIO and its upstream licensors (SmithKline Beecham Corporation, or GSK, and UPenn) retain the exclusive right over certain antibodies expressed by AAV9 and GSK and UPenn retain a non-exclusive right over products that deliver RNA interference and antisense drugs using AAV9;

 

   

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

 

   

ownership, validity or enforceability of our or our licensors’ patents or patent applications may be challenged by third parties; and

 

   

the patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.

Our reliance on third parties may require us to share our trade secrets, which increases the possibility that our trade secrets will be misappropriated or disclosed, and confidentiality agreements with employees and third parties may not adequately prevent disclosure of trade secrets and protect other proprietary information.

We consider proprietary trade secrets, confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and confidential know-how are difficult to protect, and we have limited control over the protection of trade secrets and confidential know-how used by our licensors, collaborators and suppliers. Because we have relied in the past on third parties to manufacture our product candidates, because we may continue to do so in the future, and because we expect to collaborate with third parties on the development of our current product candidates and any future product candidates we develop, we may, at times, share trade secrets with them. We also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. Under such circumstances, trade secrets and confidential know-how can be difficult to maintain as confidential.

To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with us prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. The need to share trade secrets and other confidential

 

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information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our competitive position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business and results of operations. Enforcing a claim that a third party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable, and the enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Courts outside the United States are sometimes less willing to protect proprietary information, technology and know-how.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

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

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Over the long term, if we are unable to successfully register our trademarks and trade names and establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.

We may need to license additional intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

The growth of our business may depend in part on our ability to acquire or in-license additional proprietary rights. For example, our programs may involve product candidates that may require the use of additional proprietary rights held by third parties. Our product candidates may also require specific formulations to work effectively and efficiently. These formulations may be covered by intellectual property rights held by others. We may develop products containing our compositions and pre-existing pharmaceutical compositions. These pharmaceutical products may be covered by intellectual property rights held by others. We may be required by the FDA, EMA or other foreign regulatory authorities to provide a companion diagnostic test or tests with our product candidates. These diagnostic test or tests may be covered by intellectual property rights held by others. We may be unable to acquire or in-license any relevant third-party intellectual property rights that we identify as necessary or important to our business operations. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all, which would harm our business. We may need to cease use of the compositions or methods covered by such third-party intellectual property rights, and may need to seek to develop alternative approaches that do not infringe on such intellectual property rights which may entail additional costs and development delays, even if we were able to develop such alternatives, which may not be feasible. Even if we are able to obtain a license under such intellectual property rights, any such license may be non-exclusive, which may allow our competitors access to the same technologies licensed to us.

 

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

We do and may employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our licensors, competitors or potential competitors. Although we seek to protect our ownership of intellectual property rights by ensuring that our agreements with our employees, consultants, collaborators, independent contractors and other third parties with whom we do business include provisions requiring such parties to assign rights in inventions to us and to not use the know-how or confidential information of their former employer or other third parties, we may be subject to claims that we or our employees, consultants, collaborators or independent contractors have inadvertently or otherwise used or disclosed know-how or confidential information of their former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel or intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property, which could result in customers seeking other sources for the technology, or in ceasing from doing business with us. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to progress our clinical development programs or commercialize our technology or product candidate. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful, litigation could result in substantial cost and reputational loss and be a distraction to our management and other employees. Moreover, any such litigation or the threat thereof may adversely affect our reputation, our ability to form strategic alliances or sublicense our rights to collaborators, engage with scientific advisors or hire employees or consultants, each of which would have an adverse effect on our business, results of operations and financial condition.

Risks Related to Employee Matters and Managing Growth

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

As of June 6, 2019, we had 43 full-time employees. We will need to significantly expand our organization, and we may have difficulty identifying, hiring and integrating new personnel. Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need 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. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our potential ability to generate revenue could be reduced and we may not be able to implement our business strategy. Many of the biotechnology companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than we do. If we are unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can discover and develop product candidates and operate our business will be limited.

 

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Our future success depends on our ability to retain our key personnel and to attract, retain and motivate qualified personnel.

Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development, regulatory, commercialization and business development expertise of Asa Abeliovich, M.D., Ph.D., our founder and Chief Executive Officer, as well as the other principal members of our management, scientific and clinical teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time and, for certain of our executive officers, entitle them to receive severance payments in connection with their voluntary resignation of employment. Additional details regarding these arrangements can be found in the section “Executive Compensation—Executive Compensation Arrangements.”

If we lose one or more of our executive officers or key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize product candidates successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be engaged by entities other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to advance the clinical development of and commercialize product candidates will be limited.

Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, clinical trial liability, employment practices liability, property, auto, workers’ compensation, umbrella, and directors’ and officers’ insurance.

Any additional product liability insurance coverage we acquire in the future, may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we obtain marketing approval for our product candidates, we intend to acquire insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. A successful product liability claim or series of claims brought against us could cause our share price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business, including preventing or limiting the commercialization of any product candidates we develop. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.

We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more

 

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difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

Our employees and independent contractors, including consultants, vendors, and any third parties we may engage in connection with development and commercialization may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could harm our business.

 

Misconduct by our employees and independent contractors, including consultants, vendors, and any third parties we may engage in connection with development and commercialization, could include intentional, reckless or negligent conduct or unauthorized activities that violate: (1) the laws and regulations of the FDA, EMA and other similar regulatory authorities, including those laws that require the reporting of true, complete and accurate information to such authorities; (2) manufacturing standards; (3) data privacy, security, fraud and abuse and other healthcare laws and regulations; or (4) other laws that require the reporting of true, complete and accurate financial information and data. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creation of fraudulent data in preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and 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 regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, other U.S. federal healthcare programs or healthcare programs in other jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations.

Our business and operations would suffer in the event of system failures.

Our computer systems, as well as those of our contractors and consultants, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product candidate development programs. For example, the loss of preclinical study or clinical trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, clinical trial data, proprietary business information, personal data and personally identifiable information of our clinical trial subjects and employees, in our data centers and on our networks. The secure processing,

 

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maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or internal bad actors, or breached due to employee error, a technical vulnerability, malfeasance or other disruptions. Although, to our knowledge, we have not experienced any such material security breach to date, any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, significant regulatory penalties, and such an event could disrupt our operations, damage our reputation, and cause a loss of confidence in us and our ability to conduct clinical trials, which could adversely affect our reputation and delay clinical development of our product candidates.

We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders or reduce our financial resources.

In the future, we may enter into transactions to acquire other businesses, products or technologies. If we do identify suitable candidates, we may not be able to make such acquisitions on favorable terms, or at all. Any acquisitions we make may not strengthen our competitive position, and these transactions may be viewed negatively by patients, collaborators, third party payors or investors. We may decide to incur debt in connection with an acquisition or issue our common stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We could incur losses resulting from undiscovered liabilities of the acquired business that are not covered by the indemnification we may obtain from the seller. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and non-disruptive manner. Acquisitions may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our business, financial position or operating results.

Risks Related to Our Common Stock and this Offering

An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock, and an active trading market for our shares may never develop or be sustained following this offering. Any delay in the commencement of trading of our common stock on The Nasdaq Global Select Market, or Nasdaq, would impair the liquidity of the market for our common stock and make it more difficult for holders to sell their shares. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our common stock following this offering. If an active market for our common stock does not develop, or it is not sustained, it may be difficult for you to sell your shares without depressing the market price for our common stock, or at all.

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

Our share price is likely to be volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

 

   

timing and results of our preclinical studies and clinical trials or those of our competitors;

 

   

the success of existing or new competitive therapies, products or technologies;

 

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development of new product candidates that may address our markets and make our product candidates less attractive;

 

   

failure or discontinuation of any of our research or development programs;

 

   

changes in the level of expenses related to any of our research or development programs;

 

   

developments related to any existing or future collaborations;

 

   

the recruitment or departure of key personnel;

 

   

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

 

   

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

 

   

changes in the structure of healthcare payment systems;

 

   

the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;

 

   

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

 

   

changes in failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;

 

   

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

 

   

announcement or expectation of additional financing efforts;

 

   

sales of common stock by us, our executive officers, directors or principal stockholders, or others;

 

   

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

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

general economic, industry and market conditions;

 

   

changes in accounting principles; and

 

   

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

In addition, the stock market in general, and Nasdaq and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In the past, when the market price of a security has been volatile, holders of that security have sometimes instituted securities class action litigation against the issuer. If any of the holders of our common stock were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our senior management would be diverted from the operation of our business. Any adverse determination in litigation could also subject us to significant liabilities. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Further, a decline in the financial markets and related factors beyond our control may cause the price of our common stock to decline rapidly and unexpectedly. If the market price of our common stock after the completion of this offering does not exceed the initial public offering price, you may not realize any return on, or you may lose some or all of your investment in us.

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 common stock, our share 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 do not currently have, and may never obtain, research

 

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coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our shares could be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our share performance, or if any of our preclinical studies or 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 ceases coverage of us or fails 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.

After this offering, our executive officers, directors and principal stockholders, if they choose to act together, will continue to have the ability to control or significantly influence all matters submitted to stockholders for approval.

 

Upon the closing of this offering, based on the number of common stock outstanding as of March 31, 2019, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock before this offering and their respective affiliates will, in the aggregate, hold common stock representing approximately 51.0% of our outstanding common stock. As a result, if these stockholders choose to act together, they would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors, the composition of our management and approval of any merger, consolidation, sale of all or substantially all of our assets or other business combination that other stockholders may desire. Any of these actions could adversely affect the market price of our common stock.

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

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. We expect that we will use the net proceeds of this offering as set forth in the section titled “Use of Proceeds.” However, our use of these proceeds may differ substantially from our current plans. The failure by our management to apply these funds effectively could result in financial losses that could have a negative impact on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

If you purchase common stock in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent shares subsequently are issued under outstanding options or warrants or to executive officers in connection with this offering, you will incur further dilution. Based on an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $10.67 per share as of March 31, 2019, representing the difference between our pro forma as adjusted net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price. See the section titled “Dilution” for additional information.

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

Additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell

 

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common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner, we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

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

A significant portion of our total outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of stockholders intend to sell shares of our common stock, could reduce the market price of our common stock. After this offering, we will have 33,997,131 shares of common stock outstanding, based on 26,644,131 shares of our common stock outstanding as of March 31, 2019. This includes the shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Substantially all of the remaining 26,644,131 shares of common stock initially will be restricted as a result of securities laws, market standoff provisions or lock-up agreements, but will become eligible to be sold after this offering as described in the section titled “Shares Eligible for Future Sale.”

Moreover, after this offering, holders of an aggregate of 24,295,131 shares of common stock will have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders, until such shares can otherwise be sold without restriction under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, or until the rights terminate pursuant to the terms of the stockholders agreement between us and such holders. We also intend to register all shares of common stock subject to equity awards issued or reserved for future issuance under our equity compensation plans on a registration statement on Form S-8. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates under Rule 144 under the Securities Act and the market standoff provisions and lock-up agreements described above. Any sales of securities by these stockholders could have a negative impact on the trading price of our common stock.

We are an emerging growth company and a smaller reporting company and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the closing of this offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For so long as we remain an emerging growth company, we are permitted and intend to

 

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rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

   

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

 

   

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

 

   

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

 

   

reduced disclosure obligations regarding executive compensation; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

As a result, the information we provide to stockholders will be different than the information that is available with respect to other public companies that are not emerging growth companies. For example, in this prospectus we have only included two years of audited financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. We cannot predict whether this will cause investors to find our common stock less attractive. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be reduced or more volatile.

Even following the termination of our status as an emerging growth company, we will be able to take advantage of the reduced disclosure requirements applicable to “smaller reporting companies,” as that term is defined in Rule 12b-2 of the Exchange Act of 1934, as amended, or the Exchange Act, and, in particular, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. To the extent that we are no longer eligible to use exemptions from various reporting requirements, we may be unable to realize our anticipated cost savings from these exemptions, which could have a material adverse impact on our operating results.

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

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Nasdaq listing requirements and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.

We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

 

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Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an Annual Report on Form 10-K with the SEC after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing whether such controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. In addition, if we identify one or more material weaknesses as a result of this implementation and evaluation process, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Section 404(a) of the Sarbanes-Oxley Act, or Section 404(a), requires that beginning with our second annual report following our initial public offering, management assess and report annually on the effectiveness of our internal control over financial reporting and identify any material weaknesses in our internal control over financial reporting. Although Section 404(b) of the Sarbanes-Oxley Act, or Section 404(b), requires our independent registered public accounting firm to issue an annual report that addresses the effectiveness of our internal control over financial reporting, we have opted to rely on the exemptions provided in the JOBS Act, and consequently will not be required to comply with SEC rules that implement Section 404(b) until such time as we are no longer an emerging growth company.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

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

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

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. For example, our directors or executive officers could inadvertently fail to disclose a new relationship or arrangement causing us to fail to make any related party

 

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transaction disclosures. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

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

Future changes in financial accounting standards may cause adverse, unexpected revenue fluctuations and affect our reported financial position or results of operations. Financial accounting standards in the United States are constantly under review and new pronouncements and varying interpretations of pronouncements have occurred with frequency in the past and are expected to occur again in the future. As a result, we may be required to make changes in our accounting policies. Those changes could affect our financial condition and results of operations or the way in which such financial condition and results of operations are reported. Compliance with new accounting standards may also result in additional expenses. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from business activities to compliance activities. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recently Adopted Accounting Standards.” As an emerging growth company, the JOBS Act allows us to delay adoption of new or revised accounting standards applicable to public companies until such pronouncements are made applicable to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, would be your sole source of gain.

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of our common stock would be your sole source of gain on an investment in our common stock for the foreseeable future. See the section titled “Dividend Policy” for additional information.

We could be subject to securities class action litigation.

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

We have significant net operating losses which we may not be able to realize or which may be restricted following any future change of control. We also benefit from certain tax incentive regimes, such as research and development tax credits, in the jurisdictions in which we operate and any adverse change to these regimes, the application thereof or challenges to the tax position we have adopted under these regimes could adversely affect our results of operations and financial condition.

As of December 31, 2018, we had $12.8 million of U.S. federal and $25.5 million of state net operating loss, or NOL, carryforwards. Our U.S. federal NOL carryforwards generated prior to 2018 will expire if not utilized prior to 2038. Under the Tax Act, federal NOLs incurred in tax years ending after December 31, 2017, may be carried forward indefinitely, but the deductibility of federal NOLs generated in tax years beginning after December 31, 2017, is limited.

Our NOL carryforwards are subject to review and possible adjustment by the U.S. and state tax authorities. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of

 

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state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and R&D credits to offset its post-change income may be limited. This could limit the amount of NOLs or R&D credit carryforwards that we can utilize annually to offset future taxable income or tax liabilities. Subsequent ownership changes and changes to the U.S. tax rules in respect of the utilization of NOLs and R&D credits carried forward may further affect the limitation in future years. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

Additionally, we have not undertaken a study on our determination of our U.S. R&D credits. Consequently, our U.S. R&D credits may change, and in any event are subject to review and adjustment by the tax authorities.

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

On December 22, 2017, President Trump signed into law the Tax Act, which significantly revises the Internal Revenue Code. The Tax Act, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted taxable income (except for certain small businesses), limitation of the deduction for NOLs carried forward from taxable years beginning after December 31, 2017 to 80% of current year taxable income and elimination of most NOL carrybacks, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. We do not expect changes under the Tax Act to have a material impact on our tax liabilities in the near future. However, we continue to examine the impact that the Tax Act may have on our business in the longer term. Accordingly, notwithstanding the reduction in the U.S. federal corporate income tax rate, the overall impact of the Tax Act is uncertain and our business and financial condition could be adversely affected by the Tax Act. The Tax Act may also have an impact on holders of our common stock. We urge prospective investors to consult with their legal and tax advisors with respect to the Tax Act and the potential tax consequences of investing in or holding our common stock.

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

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

 

   

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

 

   

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

 

   

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

 

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

 

   

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

 

   

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

 

   

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

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

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

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

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

Our amended and restated certificate of incorporation that will become effective upon the closing of this offering provides that, to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, any state court located within the State of Delaware, or if all such state courts lack jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (1) any derivative action or proceeding brought on our behalf; (2) any action or proceeding asserting a claim of breach of fiduciary duty owed by any current or former director, officer or other employee, to us or our stockholders; (3) any action or proceeding asserting a claim against us or any of our current or former directors, officers or other employees, arising out of or pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws; (4) any action or proceeding to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; (5) any action or proceeding as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or (6) any action asserting a claim against us, or any of our directors, officers or other employees, that is governed

 

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by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. For the avoidance of doubt, these choice of forum provisions will not apply to suits brought to enforce a duty or liability created by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.

These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. Furthermore, if a court were to find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

 

   

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

 

   

the timing of and plans for regulatory filings;

 

   

our plans to obtain and maintain regulatory approvals of our product candidates in any of the indications for which we plan to develop them;

 

   

the potential benefits of our product candidates and technologies;

 

   

our expectations regarding our ability to identify additional gene therapy product candidates;

 

   

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

 

   

our business strategies and goals;

 

   

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

 

   

our expectations regarding potentially establishing manufacturing capabilities;

 

   

the performance of our third-party suppliers and manufacturers,

 

   

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

 

   

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

 

   

our ability to identify, recruit and retain key personnel;

 

   

regulatory development in the United States and foreign countries; and

 

   

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

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target” or “will” or the negative of these terms or other similar expressions intended to identify statements about the future. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read the section titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Moreover,

 

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we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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INDUSTRY AND OTHER DATA

We obtained the industry, statistical and market data in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. All of the market data used in this prospectus involves a number of assumptions and limitations. While we believe that each of these studies and publications is reliable, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us.

 

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DIVIDEND POLICY

We have never declared or paid, and do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $113.4 million (or $130.8 million if the underwriters exercise their option to purchase additional shares in full), assuming an initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us from this offering by approximately $6.8 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. A 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease the net proceeds to us from this offering by approximately $15.8 million, assuming that the assumed initial offering price to the public remains the same, and after deducting estimated underwriting discounts and commissions. We do not expect that a change in the initial price to the public or the number of shares by these amounts would have a material effect on the uses of the proceeds from this offering, although it may accelerate the time at which we will need to seek additional capital.

We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, as follows:

 

   

approximately $50.0 million to $60.0 million to advance the development of PR001, including to fund our planned Phase 1/2 trials for PR001 for the treatment of PD-GBA and neuronopathic Gaucher disease;

 

   

approximately $18.0 million to $25.0 million to advance the development of PR006, including our ongoing preclinical studies for PR006 for the treatment of FTD-GRN; and

 

   

approximately $20.0 million to $25.0 million to advance the development of PR004, including our ongoing preclinical studies for PR004 for the treatment of synucleinopathies.

 

   

the remainder for working capital and other general corporate purposes.

Based on our planned use of the net proceeds from this offering and our existing cash and cash equivalents, we estimate that such funds will be sufficient to fund our operating expenses and capital expenditure requirements at least through the first half of 2021, and through initial expected data release from our Phase 1/2 clinical trials for PR001 for the treatment of PD-GBA and Type 2 Gaucher disease, the initiation of our anticipated Phase 1/2 clinical trials for PR001 for the treatment of Type 3 Gaucher disease and PR006 for the treatment of FTD-GRN and the completion of our IND-enabling studies for PR004 for the treatment of synucleinopathies. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. The expected net proceeds from this offering, together with our existing cash and cash equivalents, will not be sufficient for us to fund any of our drug candidates through regulatory approval, and we will need to raise additional capital to complete the development and commercialization of our drug candidates.

This expected use of existing cash and cash equivalents and our net proceeds from this offering represent our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. Predicting the costs necessary to develop product candidates can be difficult and we will need additional funds to complete our clinical development of any of our product candidates. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from clinical trials, as well as any collaborations that we may enter into with third parties for our product candidates, and any unforeseen cash needs.

Our management will have broad discretion in the application of the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of those net proceeds. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending these uses, we plan to invest these net proceeds in short-term, interest bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2019:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect (1) the automatic conversion of all outstanding shares of convertible preferred stock into common stock as if such conversion had occurred on March 31, 2019, and (2) the filing and effectiveness of our amended and restated certificate of incorporation, each of which will occur immediately prior to the closing of this offering; and

 

   

on a pro forma as adjusted basis to reflect (1) the pro forma adjustments set forth above and (2) our sale of 7,353,000 shares of common stock in this offering at an assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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

 

     As of March 31, 2019  
     Actual     Pro Forma     Pro Forma
As Adjusted(1)
 
     (in thousands, except share and per share data)  

Cash and cash equivalents

   $ 100,268     $ 100,268     $ 213,619  
  

 

 

   

 

 

   

 

 

 

Convertible preferred stock, par value $0.0001 per share, 20,000,000 shares authorized, 19,435,131 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

   $ 129,544     $     $  

Stockholders’ (deficit) equity:

      

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

                  

Common stock, par value $0.0001 per share; 35,640,000 shares authorized, 7,209,000 shares issued and outstanding, actual; 200,000,000 shares authorized, 26,644,131 shares issued and outstanding, pro forma; and 33,997,131 shares issued and outstanding, pro forma as adjusted

           3       3  

Additional paid-in capital

     3,108       132,652       246,001  

Accumulated deficit

     (30,859     (30,859     (30,859
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (27,751     101,793       215,145  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $       101,793     $       101,793     $       215,145  
  

 

 

   

 

 

   

 

 

 

 

(1)

The pro forma as adjusted information set forth above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $6.8 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. A 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $15.8 million, assuming that the assumed initial offering price to the public remains the same, and after deducting estimated underwriting discounts and commissions.

 

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The number of shares of our common stock to be outstanding after this offering is based on 26,644,131 shares of our common stock outstanding as of March 31, 2019, and excludes:

 

   

4,376,161 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2019, with a weighted-average exercise price of $1.00 per share;

 

   

485,862 shares of common stock reserved for future issuance pursuant to the 2017 Plan;

 

   

2,773,562 shares of common stock reserved for future issuance pursuant to the 2019 Plan, as well as any automatic increases in the number of common shares reserved for future issuance under the 2019 Plan; and

 

   

330,000 shares of common stock reserved for future issuance pursuant to our 2019 ESPP, as well as any automatic increases in the number of common shares reserved for future issuance under the 2019 ESPP.

 

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DILUTION

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

As of March 31, 2019, we had a historical net tangible book value (deficit) of $(27.8) million, or $(3.85) per share of common stock. Our historical net tangible book value (deficit) per share represents total tangible assets less total liabilities and convertible preferred stock, divided by the number of shares of our common stock outstanding as of March 31, 2019.

Our pro forma net tangible book value as of March 31, 2019 was $101.8 million, or $3.82 per share, after giving effect to (1) the automatic conversion of all outstanding shares of convertible preferred stock into common stock as if such conversion had occurred on March 31, 2019, and (2) the filing and effectiveness of our amended and restated certificate of incorporation, each of which will occur immediately prior to the closing of this offering

After giving further effect to the sale of 7,353,000 shares of common stock in this offering at an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2019 would have been approximately $215.1 million, or approximately $6.33 per share. This amount represents an immediate increase in pro forma net tangible book value of $2.51 per share to our existing stockholders and immediate dilution of approximately $10.67 per share to new investors in this offering. We determine dilution by subtracting the as pro forma adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of common stock in this offering.

The following table illustrates this dilution:

 

Assumed initial public offering price per share

     $ 17.00  

Historical net tangible book value (deficit) per share as of March 31, 2019

   $ (3.85  

Increase per share attributable to the pro forma adjustments described above

     7.67    
  

 

 

   

Pro forma net tangible book value per share as of March 31, 2019

     3.82    

Increase per share attributable to this offering

     2.51    
  

 

 

   

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

       6.33  
    

 

 

 

Dilution per share to new investors in this offering

     $ 10.67  
    

 

 

 

The pro forma as adjusted dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted net tangible book value per share by $0.20 per share and the dilution per share to investors participating in this offering by $0.80 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. We may also increase or decrease the number of shares we are offering. A 1,000,000 share increase in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share by $0.27 and decrease the dilution per share to investors participating in this offering by $0.27, assuming the assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions. A 1,000,000 share decrease in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible

 

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book value per share after this offering by $0.29 and increase the dilution per share to new investors participating in this offering by $0.29, assuming the assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions.

If the underwriters exercise their over-allotment option to purchase an additional 1,102,950 shares of our common stock in full, the pro forma as adjusted net tangible book value of our common stock would increase to $6.63 per share, representing an immediate increase in the pro forma net tangible book value per share to existing stockholders of $2.81 per share and an immediate dilution of $10.37 per share to investors participating in this offering.

The following table summarizes as of March 31, 2019, on the pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (1) paid to us by our existing stockholders and (2) to be paid by investors purchasing our common stock in this offering at an assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Weighted-Average  
     Number      Percent     Amount      Percent     Price Per Share  

Existing stockholders

     26,644,131        78.4   $ 130,279,670        51.0   $ 4.89  

New investors

     7,353,000        21.6       125,001,000        49.0     $               17.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     33,997,131        100.0   $ 255,280,670        100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

The number of shares of our common stock to be outstanding after this offering is based on 26,644,131 shares of our common stock outstanding as of March 31, 2019, and excludes:

 

   

4,376,161 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2019, with a weighted-average exercise price of $1.00 per share;

 

   

485,862 shares of common stock reserved for future issuance pursuant to the 2017 Plan as of March 31, 2019;

 

   

2,773,562 shares of common stock reserved for future issuance pursuant to the 2019 Plan, as well as any automatic increases in the number of common shares reserved for future issuance under this plan; and

 

   

330,000 shares of common stock reserved for future issuance pursuant to our 2019 ESPP, as well as any automatic increases in the number of common shares reserved for future issuance under the 2019 ESPP.

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

 

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SELECTED FINANCIAL DATA

The following tables set forth selected financial data for the periods indicated. We have derived the selected statements of operations data for the period from July 6, 2017 (date of inception) through December 31, 2017 and the year ended December 31, 2018 from our audited financial statements included elsewhere in this prospectus. We have derived our balance sheet data as of December 31, 2017 and 2018 from our audited financial statements included elsewhere in this prospectus. The selected statements of operations data for the three months ended March 31, 2018 and 2019 and the selected balance sheet data as of March 31, 2019 have been derived from our unaudited interim financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on the same basis as the audited financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations.

Our interim and historical results are not necessarily indicative of the results that may be expected for the full year or any other future period. The following selected financial data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

     Period from
July 6, 2017 (Date of
Inception) through
December 31, 2017
    Year Ended
December 31, 2018
    Three Months Ended March 31,  
    2018     2019  
                 (unaudited)  
     (in thousands, except share and per share data)  

Statement of Operations Data:

        

Operating expenses:

        

Research and development

   $ 995     $ 14,127     $ 1,304     $ 8,411  

General and administrative

     804       4,682       641       1,885  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,799       18,809       1,945       10,296  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (1,799     (18,809     (1,945     (10,296

Change in fair value of derivative liabilities

           (781     (781      

Other income

           87              

Interest (expense) income, net

     (27     416       (471)       351  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (1,826   $ (19,088   $ (3,197   $ (9,945
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (0.45   $ (3.71   $ (0.66   $ (1.73
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding, basic and diluted(1)

     4,050,000       5,145,469       4,860,000       5,740,874  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     $ (1.21     $ (0.51
    

 

 

     

 

 

 

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

       15,748,039         19,597,958  
    

 

 

     

 

 

 

 

(1)

See note 14 to our financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share.

     As of December 31,     As of March 31,
2019
 
     2017     2018  
     (in thousands)  

Balance Sheet Data:

      

Cash and cash equivalents

   $                 12,744     $                 63,014     $               100,268  

Working capital(1)

     2,134       59,941       98,894  

Total assets

     14,326       72,881       115,194  

Convertible preferred stock

     3,524       79,710       129,544  

Accumulated deficit

     (1,827     (20,914     (30,859

Total stockholders’ deficit

     (940     (18,417     (27,751

 

(1)

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

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial Data” and our financial statements and related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Risk Factors” section of this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a gene therapy company leveraging breakthroughs in human genetics with the goal of developing and commercializing disease-modifying AAV-based gene therapies for patients with devastating neurodegenerative diseases. We are applying a precision medicine approach to neurodegeneration by studying our gene therapies in genetically defined patient populations. We believe this will increase the probability of creating disease-modifying therapies that improve patients’ lives. Our lead program is PR001 for the treatment of PD-GBA and neuronopathic Gaucher disease. We are focused on developing a broad pipeline of gene therapies for a range of neurodegenerative diseases, including PR006 for the treatment of FTD-GRN and PR004 for the treatment of synucleinopathies.

Since our inception in 2017, we have focused primarily on organizing and staffing our company, raising capital, establishing and protecting our intellectual property portfolio, in-licensing AAV9 in particular fields, developing and progressing our gene therapy product candidates through preclinical studies and preparing for clinical trials, and establishing our manufacturing capabilities. We do not have any product candidates approved for sale and have not generated any revenue from product sales. Since our inception, we have funded our operations primarily through equity and convertible debt financings, and have raised an aggregate of approximately $129.0 million of gross proceeds through these offerings which includes our Series B convertible preferred stock financing in March 2019. As of December 31, 2018 and March 31, 2019, we had cash and cash equivalents of $63.0 million and $100.3 million, respectively.

Since our inception, we have incurred significant operating losses. Our net losses were $1.8 million and $19.1 million for the period from July 6, 2017 (date of inception) through December 31, 2017 and the year ended December 31, 2018, respectively and were $3.2 million and $9.9 million for the three months ended March 31, 2018 and March, 31 2019, respectively. As of December 31, 2018 and March 31, 2019, we had an accumulated deficit of $20.9 million and $30.9 million, respectively. We expect our expenses and losses to increase substantially for the foreseeable future as we continue our development of, and seek regulatory approvals for, our product candidates, including PR001, PR006 and PR004, as well as hire additional personnel, pay for accounting, audit, legal, regulatory and consulting services, and pay costs associated with maintaining compliance with Nasdaq listing rules and SEC requirements, director and officer liability insurance, investor and public relations activities and other expenses associated with operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

We do not have any products approved for sale. We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time as we can generate substantial product revenues to

 

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support our cost structure, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate our product candidate development or future commercialization efforts or grant rights to third parties to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

License Agreements

License Agreement with REGENXBIO Inc. for GBA1

In August 2017, we entered into a license agreement, or the REGENXBIO GBA1 License, with REGENXBIO. Under the REGENXBIO GBA1 License, REGENXBIO granted us an exclusive, worldwide license under certain patents and patent applications to make, have made, use, import, sell and offer for sale products for the treatment of disease, including but not limited to Parkinson’s disease and Gaucher disease, whether or not caused by mutations in the gene that produces the GBA1 enzyme in humans by in vivo gene therapy using AAV9 delivering the gene (or any portion thereof) encoding for GBA1.

As consideration for the licensed rights under the REGENXBIO GBA1 License, we issued 2,430,000 shares of our common stock in a concurrent private placement to REGENXBIO. We are also obligated, pursuant to the REGENXBIO GBA1 License, to pay REGENXBIO: (1) an annual maintenance fee; (2) mid- to high-single digit royalty percentages on net sales of licensed products, subject to reduction in specified circumstances; and (3) mid-teen to low-twenties royalty percentages of any sublicense fees we receive from sublicensees for the licensed intellectual property rights. See the section titled “Business—License Agreements—License Agreement with REGENXBIO Inc. for GBA1” and note 3 to our financial statements appearing elsewhere in this prospectus for additional information regarding this license.

License Agreement with REGENXBIO Inc. for Option Genes

In May 2018, we entered into a license agreement, or the REGENXBIO Option Genes License, with REGENXBIO pursuant to which REGENXBIO granted us three distinct exclusive options for specified genes, or the Option Genes, exercisable at our sole discretion through May 10, 2019. Each option represents the right to obtain an exclusive, worldwide license under certain patents and patent applications to make, have made, use, import, sell and offer for sale products for the treatment or prevention of disease, including but not limited to Parkinson’s disease, whether or not caused by mutations in any Option Gene that is the subject of the applicable license, in humans by in vivo gene therapy using AAV9 delivering the applicable licensed Option Gene and/or RNA interference or antisense modalities that target the applicable licensed Option Gene.

Under the terms of the REGENXBIO Option Genes License, we paid REGENXBIO an initial fee of $0.6 million. In connection with the exercise of each option, we are required to pay REGENXBIO: (1) an additional up-front fee of $0.6 million; (2) an annual maintenance fee; (3) mid- to high-single digit royalty percentages on net sales of the licensed product, subject to reduction in specified circumstances; and (4) mid-teen to low-twenties royalty percentages of any sublicense fees we receive from sublicensees for the licensed intellectual property rights. If a licensed product includes the GBA1 gene and otherwise would be subject to royalties under the REGENXBIO GBA1 License, then royalties for that licensed product will only be due under the REGENXBIO Option Genes License. See the section titled “Business—License Agreements—License Agreement with REGENXBIO Inc. for Option Genes” and note 3 to our financial statements appearing elsewhere in this prospectus for additional information regarding this license.

 

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Financial Operations Overview

Research and Development Expenses

Research and development expenses have related primarily to preclinical development of our gene therapy product candidates and discovery efforts, including conducting preclinical studies, manufacturing development efforts, preparing for clinical trials and activities related to regulatory filings for our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Our direct research and development expenses are not currently tracked on a program-by-program basis. Research and development expenses include or could include:

 

   

employee related expenses, including salaries, bonuses, benefits, stock-based compensation, other related costs for those employees involved in research and development efforts;

 

   

external research and development expenses incurred under agreements with CROs, investigative sites and consultants to conduct our preclinical studies;

 

   

costs related to manufacturing material for our preclinical studies and clinical trials, including fees paid to CDMOs;

 

   

laboratory supplies and research materials;

 

   

costs related to compliance with regulatory requirements; and

 

   

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

We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and manufacturing processes and conduct discovery and research activities for our preclinical programs. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. Our clinical development costs are expected to increase significantly as we commence clinical trials. Our future expenses may vary significantly each period based on factors such as:

 

   

per patient trial costs;

 

   

the number of patients who enroll in each trial;

 

   

the number of trials required for approval;

 

   

the number of sites included in the trials;

 

   

the countries in which the trials are conducted;

 

   

the length of time required to enroll eligible patients;

 

   

the drop-out or discontinuation rates of patients;

 

   

potential additional safety monitoring requested by regulatory agencies;

 

   

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

 

   

the phase of development of the product candidate; and

 

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the efficacy and safety profile of the product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of costs related to third-party services, such as human resources, legal, patent, consulting, finance, accounting and audit services. It also includes employee-related expenses, including salaries, bonuses, benefits, stock-based compensation, other related costs, for those employees that support general and administrative functions.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our expanded infrastructure and begin to commercialize any approved products. We also anticipate that our general and administrative expenses will increase as a result of payments for accounting, audit, legal, consulting services, as well as costs associated with maintaining compliance with Nasdaq listing rules and SEC requirements, director and officer liability insurance, investor and public relations activities and other expenses associated with operating as a public company.

Change in Fair Value of Derivative Liability

To derive the fair value of the derivative liabilities embedded within a convertible note issued to one of our investors, we estimated the fair value of the convertible note with and without the derivative liabilities using a discounted cash flow approach. The difference between the “with” and “without” convertible note prices determined the fair value of the derivative liabilities at issuance and immediately prior to conversion. This convertible note converted into shares of our Series A convertible preferred stock in March 2018.

Other Income

In 2018, we received a New York City Biotechnology Tax Credit. Tax credits are recorded when funds are received and are included in other income on the statement of operations.

Interest (Expense) Income

We have institutional money market accounts that generate interest on a monthly basis.

In connection with the issuance of the convertible note, we incurred interest expense at 8% per annum. In addition, we incurred debt issuance costs, recorded as a discount on the debt and presented net of the principal balance on the balance sheet. These costs are amortized to interest expense over the life of the debt using the effective interest method. In addition, we recorded amortization of the debt issuance cost.

 

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Results of Operations

Comparison of the Three Months Ended March 31, 2018 and the Three Months Ended March 31, 2019

The following table summarizes our results of operations for the three months ended March 31, 2018 and the three months ended March 31, 2019:

 

     Three Months Ended
March 31, 2018
    Three Months Ended
March 31, 2019
    Change  
   (in thousands, unaudited)  

Operating expenses:

      

Research and development

   $ 1,304     $ 8,411     $ 7,107  

General and administrative

     641       1,885       1,244  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,945       10,296       8,351  
  

 

 

   

 

 

   

 

 

 

Operating loss

     (1,945             (10,296     (8,351

Change in fair value of derivative liabilities

     (781           781  

Interest (expense) income, net

     (471     351       822  
  

 

 

   

 

 

   

 

 

 

Net loss

   $         (3,197   $ (9,945   $         (6,748
  

 

 

   

 

 

   

 

 

 

Research and Development Expenses

Research and development expenses increased by $7.1 million to $8.4 million for the three months ended March 31, 2019 as compared to $1.3 million for the same period in 2018. The increase was primarily due to increased headcount resulting in a $1.5 million increase in personnel costs and a $0.5 million increase for stock-based compensation, and a $5.1 million increase in external research and development expenses related to our research programs, as we conducted additional preclinical studies, incurred additional manufacturing costs, incurred costs for clinical start up activities, and incurred increased costs for study and lab materials, research consulting, rent and other professional fees. We expect our research and development expenses will continue to increase as we advance development of our programs and expect to commence clinical activities in 2019.

General and Administrative Expenses

General and administrative expenses increased by $1.2 million to $1.9 million for the three months ended March 31, 2019, as compared to $0.6 million for the same period in 2018. The increase was primarily due to a $0.8 million increase in rent expense, consulting and professional services fees, $0.3 million increase in personnel costs and a $0.1 million increase in stock-based compensation expense. We anticipate that our general and administrative expenses will increase in the future as we increase our general and administrative staff to support the increased research and development operations as well as increases in expense to establish and maintain public company compliant standards.

Change in Fair Value of Derivative Liability

We recorded a loss in the amount of $0.8 million attributable to changes in fair value of the derivative liability during the three months ended March 31, 2018. No such loss was incurred for the three months ended March 31, 2019.

Interest (Expense) Income

During the three months ended March 31, 2019, we generated $0.4 million in interest income from our institutional money market accounts. These accounts were opened in April 2018, and therefore no interest income was generated for the three months ended March 31, 2018. During the three months ended March 31, 2018, interest expense incurred of $0.4 million was related to a convertible note issued to one of our investors, which converted into shares of our Series A convertible preferred stock in March 2018. No such interest expense was incurred during the three months ended March 31, 2019.

 

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Comparison of the Period from July 6, 2017 (date of inception) through December 31, 2017 and the Year Ended December 31, 2018:

The following table summarizes our results of operations for the period from July 6, 2017 (date of inception) through December 31, 2017 and the year ended December 31, 2018:

 

     Period from
July 6, 2017 (Date of
Inception) through
December 31, 2017
    Year Ended
December 31, 2018
    Change  
     (in thousands)  

Operating expenses:

      

Research and development

   $ 995     $  14,127     $  13,132  

General and administrative

     804       4,682       3,878  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,799       18,809       17,010  
  

 

 

   

 

 

   

 

 

 

Operating loss

     (1,799     (18,809     (17,010

Change in fair value of derivative liabilities

           (781     (781

Other income

           87       87  

Interest (expense) income, net

     (27     416       389  
  

 

 

   

 

 

   

 

 

 

Net loss

   $               (1,826   $               (19,088   $  (17,261
  

 

 

   

 

 

   

 

 

 

Research and Development Expenses

Research and development expenses increased by $13.1 million to $14.1 million for the year ended December 31, 2018. Expenses in 2017 were for the period from July 6, 2017 (date of inception) through December 31, 2017 whereas expenses in 2018 were for a full year. The increase was primarily due to increased headcount causing a $3.6 million increase in personnel costs and a $1.4 million increase for stock-based compensation, a $3.3 million increase in external research and development expenses related to our research programs, as we conducted additional preclinical studies, a $ 3.0 million increase in manufacturing costs for study materials and a $1.8 million increase for lab materials, research consulting and other professional fees. We anticipate our research and development expenses will continue to increase as we advance development of all our programs and commence clinical activities in 2019.

General and Administrative Expenses

General and administrative expenses increased by $3.9 million to $4.7 million for the year ended December 31, 2018. Expenses in 2017 were for the period from July 6, 2017 (date of inception) through December 31, 2017 whereas expenses in 2018 were for a full year. The increase was primarily due to a $3.1 million increase in rent, consulting and professional services costs, a $0.6 million increase in employee and related costs and a $0.2 million increase in stock-based compensation expense. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our expanded operations as well as increases in costs related to our public company compliance efforts.

Change in Fair Value of Derivative Liability

We recorded a loss in the amount of $0.8 million attributable to changes in fair value of the derivative liability during the year ended December 31, 2018. No such loss was incurred for the period from July 6, 2017 (date of inception) through December 31, 2017.

Other Income

In 2018, we received a New York City Biotechnology Tax Credit. This program allows investors and owners of emerging technology companies focused on biotechnology to claim a refundable tax credit for

 

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amounts paid or incurred for certain facilities, operations and employee training in New York City. We recognized $0.1 million in 2018 when these funds were received.

Interest (Expense) Income

In 2018, we generated $0.9 million in interest income from our institutional money market accounts partially offset by the interest expenses incurred related to a convertible note issued to one of our investors, which converted into shares of our Series A convertible preferred stock in March 2018. These accounts were opened in 2018, and therefore no interest income was generated in the period from July 6, 2017 (date of inception) through December 31, 2017.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. Our net losses were $1.8 million and $19.1 million for the period from July 6, 2017 (date of inception) through December 31, 2017 and the year ended December 31, 2018, respectively and were $3.2 million and $9.9 million for the three months ended March 31, 2018 and March 31, 2019, respectively. As of December 31, 2018 and March, 31, 2019, we had an accumulated deficit of $20.9 million and $30.9 million, respectively. To date, we have focused primarily on organizing and staffing our company, raising capital, establishing and protecting our intellectual property portfolio, in-licensing AAV9, developing and progressing our gene therapy product candidates through preclinical studies and preparing for clinical trials, and establishing our manufacturing platform. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures.

We do not have any products approved for sale. We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. Since our inception, we have funded our operations primarily through equity and convertible debt financings, and have raised an aggregate of approximately $129.0 million of gross proceeds through these offerings which includes our Series B convertible preferred stock financing in March 2019. As of December 31, 2018 and March 31, 2019, we had cash and cash equivalents of $63.0 million and $100.3 million, respectively. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation and liquidity.

Cash Flows

Historical Cash Flows

The following table shows a summary of our cash flows for the periods presented:

 

    Period from
July 6, 2017 (Date of
Inception) through
December 31, 2017
    Year Ended
December 31, 2018
    Three Months Ended
March 31, 2018
    Three Months Ended
March 31, 2019
 

Net cash used in operating activities

  $ (987   $ (14,011   $ (1,227   $ (12,324

Net cash used in investing activities

    (108     (627     (21     (256

Net cash provided by financing activities

    13,931       64,907       56,910       49,834  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

  $               12,836     $               50,269     $               55,662     $               37,254  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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Operating Activities

Cash used in operating activities for the period from July 6, 2017 (date of inception) through December 31, 2017 was $1.0 million. Our net loss was $1.8 million which included noncash charges of $0.6 million, consisting primarily of the stock issuance to REGENXBIO in exchange for the licensing of AAV9, with an aggregate fair value of $0.4 million. The change in our net operating assets was primarily the result of a less than $0.1 million increase in prepaid expenses and other current assets, a $0.4 million increase in accounts payable and accrued liabilities primarily associated with research and development expenses and a decrease in operating lease liabilities of $0.1 million.

Cash used in operating activities for the year ended December 31, 2018 was $14.0 million. Our net loss was $19.1 million, which included noncash charges of $3.4 million, consisting primarily of $0.8 million attributable to changes in fair value of the derivative liabilities associated with the convertible note, $0.6 million related to the amortization of the convertible note issuance costs, discount, and other non-cash interest, $1.6 million of stock-based compensation expense, $0.5 million related to the right-of-use-asset derived from our lease for office and lab space and $0.1 million of depreciation and amortization expense. The change in our net operating assets was primarily the result of a $0.5 million increase in prepaid expenses and other current assets and a $2.3 million increase in accounts payable and accrued expenses primarily associated with research and development expenses and a decrease in operating lease liabilities of $0.2 million.

Cash used in operating activities for the three months ended March 31, 2019 was $12.3 million as compared to $1.2 million for the three months ended March 31, 2018. The increase in cash used was primarily the result of increased operating expenses for research and development type activities, rent and headcount.

Investing Activities

Cash used for investing activities was $0.1 million for the period from July 6, 2017 (date of inception) through December 31, 2017, primarily due to purchases of property and equipment.

Cash used for investing activities was $0.6 million for the year ended December 31, 2018, primarily due to purchases of property and equipment.

Cash used for investing activities was $0.3 million for the three months ended March 31, 2019 as compared to less than $0.1 million for the three months ended March 31, 2018, primarily due to the increase in purchases of property and equipment.

Financing Activities

Cash provided by financing activities during the period from July 6, 2017 (date of inception) through December 31, 2017 was $13.9 million. The inflow was related to net proceeds from the issuance of convertible preferred stock of $3.9 million, net of issuance costs, and convertible debt of $10.0 million, net of issuance costs.

Cash provided by financing activities during the year ended December 31, 2018 was $64.9 million. The inflow was related to net proceeds from the issuance of convertible preferred stock of $64.9 million, net of issuance costs.

Cash provided by financing activities for the three months ended March 31, 2019 was $49.8 million as compared to $56.9 million for the three months ended March 31, 2018, primarily due to the decrease in funds received from the Series B financing in March 2019, which generated $49.8 million of net proceeds, as compared to the Series A financing in March 2018, which generated $56.9 million of net proceeds.

 

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Funding Requirements

We believe our existing cash and cash equivalents, together with the estimated net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements at least through the first half of 2021. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.

Our future capital requirements will depend on many factors, including:

 

   

the scope and rate of progress of our preclinical and toxicology studies, and clinical trials for PR001, PR006 and PR004 and any future product candidates;

 

   

the scope and costs of manufacturing study materials and manufacturing development, both internally and externally, and clinical and commercial manufacturing activities;

 

   

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

 

   

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

 

   

the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;

 

   

our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;

 

   

the costs associated with being a public company;

 

   

the timing of any milestone and royalty payments to current and future licensors, if any;

 

   

the extent to which we acquire or in-license other best-in-class AAV-based viral vectors, product candidates or technologies; and

 

   

the cost associated with commercializing any product candidates, if they receive marketing approval.

Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

 

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Contractual Obligations and Commitments

The following table summarizes our commitments to settle contractual obligations at December 31, 2018:

     Payments Due By Period(1)  
     Total      Less than
1 Year
     1-3 Years      3-5 Years      More than
5 Years
 
     (in thousands)  

Operating Lease commitments

   $ 8,874      $ 1,647      $ 3,699      $ 3,963      $ 2,265  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,874      $ 1,647      $ 3,699      $ 3,963      $ 2,265  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Total payments due by period is subject to a present value adjustment of $2.7 million. See note 10 to our financial statements appearing elsewhere in this prospectus.

We enter into contracts in the normal course of business with CROs, CDMOs and other third parties for preclinical studies, clinical trials and testing and manufacturing services. Most contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers up to one year after the date of cancellation. These payments are not included in the table above as the amount and timing and such payments are not known. One contract with a CDMO does include cancellations fees for batches within 180 days of a statement of work.

We have also entered into license agreements under which we are obligated to make royalty payments and incur annual maintenance fees. We have not included future royalty payments under these agreements in the table above since the payment obligations are contingent upon future events, such as generating product sales. As of December 31, 2018 or March 31, 2019, we were unable to estimate the timing or likelihood of generating future product sales. See the section titled “—License Agreements” above as well as note 3 and note 17 to our financial statements appearing elsewhere in this prospectus for a description of our license agreements.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.

We believe that the accounting policies described below involve a high degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of our operations.

Research and Development Costs, Accrued Research and Development Costs and Related Prepaid Expenses

Research and development costs are expensed as incurred. Research and development expenses consist principally of personnel costs, including salaries, stock-based compensation, and benefits for employees, third-party license fees and other operational costs related to our research and development activities, including allocated facility-related expenses and external costs of outside vendors, and other direct and indirect costs. Non-refundable research and development advance payments are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or services are performed.

 

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Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use, or ROU, assets, operating lease liabilities, and long-term operating lease liabilities in our balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide a readily determinable implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives.

Our facilities operating leases have lease and non-lease components for which we have elected to apply the practical expedient and account for each lease component and related non-lease component as one single component. Operating lease cost is recognized on a straight-line basis over the lease term.

Stock-Based Compensation

We measure all stock options and other stock-based awards granted to our employees, directors, consultants and other non-employee service providers based on the fair value on the date of the grant, and we recognize compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. We recognize forfeitures at the time forfeitures occur.

We classify stock-based compensation expense in our statement of operations in the same way the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.

We use the Black-Scholes option pricing model to estimate the fair value of stock options on the date of grant. Using the Black-Scholes pricing model requires management to make significant assumptions and judgments. We determined these assumptions for the Black-Scholes option-pricing valuation model as discussed below.

 

   

Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the stock option awards granted, we based our expected term for awards issued to employees and non-employees using the simplified method which is presumed to be the midpoint between the vesting date and the end of the contracted term.

 

   

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury constant maturity notes with terms approximately equal to the stock-based awards’ expected term.

 

   

Expected Volatility—Since we do not have a trading history of common stock, the expected volatility was derived from the average historical stock volatilities of the common stock of several public companies within the industry that we consider to be comparable to our business over a period equivalent to the expected term of the stock-based awards.

 

   

Dividend Rate—The expected dividend rate is zero as we have not paid and do not anticipate paying any dividends in the foreseeable future.

 

   

Fair Value of Common Stock—Prior to this offering, the fair value of the shares of common stock underlying the stock-based awards has been determined by our board of directors with input from management. Because there has been no public market for our common stock, our board of directors has determined the fair value of our common stock at the time of grant of the stock-based award by considering a number of objective and subjective factors, including having valuations of the common stock performed by a third-party valuation specialist, as further described below.

 

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The following table summarizes the assumptions for the Black-Scholes option-pricing valuation model used to estimate the fair value of stock options granted during the periods presented:

 

     Period from
July 6, 2017 (Date of
Inception) through
December 31, 2017
    Year Ended
December 31, 2018
    Three Months Ended
March 31, 2018
    Three Months Ended
March 31, 2019
 

Expected term

     6.1       6.1       6.1       6.0  

Risk-free interest rate

     2.15     2.75     2.72     2.52

Expected volatility

     74.67     74.57     73.72     78.50

Dividend rate

                        

Weighted-average grant date fair value of stock options

   $             0.13     $             2.39     $             2.54     $             1.94  

As of December 31, 2018, the total unrecognized compensation expense related to unvested employee and non-employee options was $7.1 million, which we expect to recognize over an estimated weighted-average period of 3.3 years. As of March 31, 2019, the total unrecognized compensation expense related to unvested employee and non-employee options was $7.2 million which we expect to recognize over an estimated weighted-average period of 3.1 years. Based upon the assumed initial public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, the aggregate intrinsic value of options outstanding as of March 31, 2019 was $41.6 million, of which $10.8 million related to vested options and $30.8 million related to unvested options.

Common Stock Valuations

The fair value of the shares of common stock underlying our stock-based awards has historically been determined by our board of directors with input from management and contemporaneous third-party valuations. We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:

 

   

contemporaneous valuations of our common stock performed by independent third-party specialists;

 

   

the prices, rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;

 

   

the prices of common or convertible preferred stock sold to third-party investors by us and in secondary transactions or repurchased by us in arms-length transactions;

 

   

lack of marketability of our common stock;

 

   

our actual operating and financial performance;

 

   

current business conditions and projections;

 

   

hiring of key personnel and the experience of our management;

 

   

the history of the company and the in-license of our viral vector technology;

 

   

our stage of development;

 

   

likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our company given prevailing market conditions;

 

   

the market performance of comparable publicly traded companies; and

 

   

the U.S. and global capital market conditions.

 

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In valuing our common stock, our board of directors determined the equity value of our business using the option pricing method, or OPM, with input from management. The OPM is based upon the concept that the securities of a firm’s capital structure can be thought of as call options on the value of a firm. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts.

In addition, we also considered any secondary transactions involving our capital stock. In our evaluation of those transactions, we considered the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange. Factors considered include transaction volume, timing, whether the transactions occurred among willing and unrelated parties, and whether the transactions involved investors with access to our financial information.

Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding the time to the liquidation event and volatility. Changes in these estimates and assumptions or the relationships between these assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of common stock.

For valuations after the completion of this offering, our board of directors will determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported by Nasdaq on the date of grant. Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.

Income Taxes

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or our tax returns. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of the assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. If management determines that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

We provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions. These reserves are based on a determination of whether and how much of a tax benefit taken by us in our tax filings or positions is more likely than not to be realized following resolution of any potential contingencies related to the tax benefit. Potential interest related to the underpayment of income taxes will be classified as a component of interest expense and any related penalties will be classified in operating expenses in the statement of operations.

 

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Emerging Growth Company Status

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Recently Adopted Accounting Pronouncements

Descriptions of recently issued accounting pronouncements that may potentially impact our financial position, result of operations or cash flows are disclosed in note 2 to our financial statements included elsewhere in this prospectus.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined by applicable SEC rules and regulations.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates.

Interest Rate Risk

As of December 31, 2018 and March 31, 2019, we had cash and cash equivalents of $63.0 million and $100.3 million, respectively. Interest-earning instruments carry a degree of interest rate risk. However, due to the nature of these investments, the primary aim of which is capital preservation and liquidity, a hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements included elsewhere in this prospectus. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure, although we may choose to do so in the future.

 

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BUSINESS

Overview

We are a gene therapy company leveraging breakthroughs in human genetics with the goal of developing and commercializing disease-modifying AAV-based gene therapies for patients with devastating neurodegenerative diseases. We are applying a precision medicine approach to neurodegeneration by studying our gene therapies in genetically defined patient populations. We believe this will increase the probability of creating disease-modifying therapies that improve patients’ lives. Our lead program is PR001 for the treatment of Parkinson’s disease with GBA1 mutation, or PD-GBA, and neuronopathic Gaucher disease. We are focused on developing a broad pipeline of gene therapies for a range of neurodegenerative diseases, including PR006 for the treatment of frontotemporal dementia with GRN mutation and PR004 for the treatment of synucleinopathies.

Our differentiated approach to developing gene therapies for neurodegenerative diseases is designed to mitigate challenges faced by others in the development of therapeutics for the central nervous system, or CNS. We select targets for diseases that correspond to patient populations with particular genetic mutations whom we believe can be treated by increasing or decreasing the expression of a particular gene, which makes them well-suited for gene therapy. We apply our deep understanding of human genetics to design our gene therapy product candidates, each of which is intended to be a one-time treatment to address the key underlying genetic mutation that we believe drives disease progression.

We are developing our lead program, PR001, to treat patients with PD-GBA and neuronopathic Gaucher disease. PD-GBA affects 7% to 10% of the total Parkinson’s disease population worldwide and an estimated 90,000 individuals in the United States alone. Gaucher disease is among the most common lysosomal storage disorders, with an estimated global prevalence of one per 30,000 to one per 100,000. Neuronopathic Gaucher disease patients exhibit neurological manifestations in addition to the non-CNS manifestations of Gaucher disease, and represent approximately 6% of all Gaucher disease cases in the United States.

PD-GBA and Gaucher disease share the same underlying genetic mechanism, and we believe they represent a continuum of pathology. The symptoms and severity of the CNS disease in PD-GBA and Gaucher disease depend on the level of enzyme deficiency, which is driven by both the severity and number of GBA1 mutations. GBA1 encodes the lysosomal enzyme, beta-glucocerebrosidase, or GCase. PD-GBA patients have a mutation in one chromosomal copy of GBA1 and Gaucher disease patients have mutations in both chromosomal copies of GBA1. These mutations lead to a deficiency of GCase, resulting in the non-CNS manifestations of Gaucher disease as well as lysosomal dysfunction in CNS cells, which we believe leads to the inflammation and neurodegeneration present in PD-GBA and neuronopathic Gaucher disease patients. Approved enzyme replacement therapies, or ERTs, which restore GCase, are effective for the treatment of the non-CNS manifestations of Gaucher disease, but ERTs cannot cross the blood-brain barrier to treat neurodegeneration. Based on the common genetically driven mechanism of PD-GBA and Gaucher disease, we have designed PR001 to express GBA1 in patients’ CNS cells. We believe that restoring GBA1 in the CNS will slow or stop disease progression in PD-GBA and neuronopathic Gaucher disease patients.

In our comprehensive preclinical program in both mouse models and non-human primates, PR001 was observed to be well tolerated and demonstrated robust and widespread biodistribution. Additionally, in mouse models, we observed significant increases in enzyme activity, reductions in lipid accumulation and improvements in motor function. We submitted an IND to the FDA for PR001 for the treatment of PD-GBA in May 2019, and the FDA has notified us that our trial may proceed. We intend to initiate our Phase 1/2 clinical trial for PR001 in PD-GBA in 2019. We plan to submit an IND to the FDA for PR001 for the treatment of neuronopathic Gaucher disease in mid-2019 and, subject to feedback from the FDA, we intend to initiate a Phase 1/2 clinical trial for PR001 in neuronopathic Gaucher disease in 2019. Our Phase 1/2 clinical trials in these patients will investigate the safety and tolerability of PR001, and will also measure key biomarkers and exploratory efficacy endpoints.

 

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In addition to our lead program, we are developing PR006 for the treatment of frontotemporal dementia with GRN mutation, or FTD-GRN. We intend to submit an IND to the FDA for PR006 for the treatment of FTD-GRN in 2019. We are also currently conducting preclinical studies of PR004 for the treatment of synucleinopathies.

All of our current programs utilize adeno-associated virus, or AAV, gene therapy technology, which we believe is particularly well-suited for the treatment of CNS diseases. AAV-based viral vectors have been observed in third-party clinical trials to be well-tolerated and to have promise in delivering stable, long-lasting transgene expression in a range of tissues, including the CNS. We have initially chosen to use AAV9 based on its transformational biological properties and track record, which we believe will translate into a positive clinical effect in our initial indications. In a third-party Phase 1 clinical trial in Type 1 spinal muscular atrophy, AAV9 was observed to enable gene delivery in the CNS and broad brain-wide biodistribution with a single administration. We have entered into license agreements with REGENXBIO Inc., or REGENXBIO, pursuant to which they granted us an exclusive, worldwide license to use AAV9 delivering the gene encoding for GBA1 for the treatment of disease, as well as three distinct exclusive options for specified genes for the treatment of disease. In April 2019, we exercised all three options, including for AAV9 delivering the genes encoding for progranulin and a-Synuclein. For our initial programs, we plan to deliver directly to the cerebrospinal fluid via a minimally invasive non-surgical procedure.

Our company was founded through a collaborative effort by Asa Abeliovich, M.D., Ph.D., our Chief Executive Officer, OrbiMed and The Silverstein Foundation for Parkinson’s with GBA, who shared a common vision: to cure Parkinson’s disease and other neurodegenerative disorders. Dr. Abeliovich and our other scientific leaders bring a deep understanding of the human genetics of neurodegenerative diseases, the underlying molecular mechanisms by which genetic mutations cause these diseases, and how to optimally design potential therapies to restore the function impaired by these genetic mutations. We intend to apply our expertise to developing therapies that have potential to slow or stop disease progression for patients.

Our Pipeline

Our initial AAV9 gene therapy programs are summarized in the table below. We hold worldwide commercial rights to all of our programs.

 

LOGO

We are focused on developing a broad pipeline of disease-modifying AAV gene therapies for the treatment of a range of neurodegenerative diseases with high unmet medical need, including Parkinson’s disease, frontotemporal dementia, or FTD, Alzheimer’s disease, amyotrophic lateral sclerosis, or ALS, dementia with Lewy bodies, or DLB, and related lysosomal disorders. Our goal is to use the capabilities we have established for our other product candidates to rapidly advance these programs towards clinical testing.

 

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Our Strategy

We are leveraging breakthroughs in human genetics with the goal of developing and commercializing disease-modifying gene therapies for patients with neurodegenerative diseases with high unmet medical need. Key elements of our strategy to achieve this goal include:

 

   

Build a patient-focused gene therapy company. Our company was founded through a collaborative effort by Asa Abeliovich, M.D., Ph.D., OrbiMed and The Silverstein Foundation for Parkinson’s with GBA, who shared a common vision: to cure Parkinson’s disease and other neurodegenerative disorders. We believe we are uniquely positioned to discover and rapidly develop potential gene therapies for patients. We continue to work closely with the neurodegenerative disease community, including scientists and patients and their caretakers, to accomplish this goal.

 

   

Apply precision medicine to developing gene therapies for the treatment of neurodegenerative diseases. We select our targets based on our deep understanding of human genetics. By studying our gene therapies in genetically defined patient populations, we are applying a precision medicine approach to neurodegeneration, which we believe will increase the probability of creating disease-modifying therapies that improve patients’ lives.

 

   

Leverage the transformational potential of AAV gene therapy technology. AAV-based viral vectors have been observed in third-party clinical trials to be well-tolerated and to have promise in delivering stable, long-lasting transgene expression in a range of tissues, including the CNS. We have chosen to use AAV9 for our initial programs and will continue to evaluate the latest scientific understanding of capsid technology for each of our future programs.

 

   

Rapidly advance PR001 through clinical trials. In 2019, we intend to initiate a Phase 1/2 clinical trial for PR001 in PD-GBA and a Phase 1/2 clinical trial for PR001 in neuronopathic Gaucher disease. We believe we have established the capabilities to efficiently advance PR001 and our future product candidates through clinical testing.

 

   

Continue to develop our innovative pipeline of gene therapies. We are focused on developing a broad pipeline of disease-modifying AAV gene therapies for the treatment of a range of neurodegenerative diseases with high unmet medical need, including Parkinson’s disease, FTD, Alzheimer’s disease, ALS, DLB, and related lysosomal disorders. We are rapidly advancing two of our additional gene therapy product candidates, PR006 and PR004, toward clinical development.

 

   

Continue to develop our manufacturing processes to meet clinical and commercial needs. We believe our manufacturing expertise is critical for successfully treating patients with gene therapies, and we have established high-yield, high-potency manufacturing capabilities. In addition, we are actively developing our processes for commercial-scale manufacturing of our gene therapy product candidates.

Our Approach

Our Precision Medicine Approach to Neurodegeneration

Major degenerative disorders of the CNS, including Parkinson’s disease, FTD, Alzheimer’s disease, ALS and DLB, are characterized by their relentless and devastating courses. Patients who suffer from these diseases currently have no therapies available to them that slow or reverse disease progression.

In the past, attempts to identify potential drug targets for neurodegenerative diseases have largely focused on addressing pathological manifestations instead of the underlying genetic cause of disease. Clinical trials have often enrolled patients diagnosed by symptoms only, leading to heterogeneity of the patient populations studied, which can confound trial results. Further, many clinical studies have lacked meaningful early clinical or biomarker endpoints to provide timely proof-of-concept data. As a result of these challenges, the vast majority of potential therapeutics developed to modify or cure neurodegenerative diseases have failed.

 

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Our differentiated approach to developing therapies for neurodegenerative diseases is designed to mitigate these challenges. We select our targets based on our deep understanding of human genetics. By studying our gene therapies in genetically defined patient populations, we are applying a precision medicine approach to neurodegeneration, which we believe will increase the probability of creating disease-modifying therapies that improve patients’ lives.

Our founder and Chief Executive Officer, Dr. Abeliovich, and our other scientific leaders bring a deep understanding of the human genetics of neurodegenerative diseases, the underlying molecular mechanisms by which genetic mutations cause these diseases, and how to optimally design potential therapies to restore the function impaired by these genetic mutations. Dr. Abeliovich has spent more than 25 years researching the genetics of neurodegenerative diseases and the molecular mechanisms that translate risk-associated gene variants into disease-causing pathology. In recent years, human genetic studies, including genome-wide association and deep sequencing studies that compare patients with a particular neurodegenerative disease to healthy controls, have identified a number of genes that are directly associated with neurodegenerative diseases, including Parkinson’s disease, FTD, Alzheimer’s disease, ALS and DLB. Many of these identified risk genes are known to play a role in lysosomal function and lysosomal trafficking, and Dr. Abeliovich has been a pioneer in investigating and explaining how these identified genetic mutations, and the resulting lysosomal dysfunction, can cause neurodegeneration. Our team is at the forefront of scientific discovery in the areas of human genetics of neurodegenerative disease, and we intend to apply our expertise to developing therapies that have potential to slow or stop disease progression for patients.

Human Genetics and the Role of Lysosomal Dysfunction in Neurodegeneration

Lysosomes are membrane-bound organelles found in all cells and serve as the cell’s “recycling center.” Enzymes within the lysosome act to degrade proteins, lipids and sugars, as well as entire organelles such as mitochondria, that come in from the cell’s cytoplasm (through autophagic trafficking) or its exterior (through endosomal trafficking). Lysosomes play an especially critical role in long-lived cells, such as neurons, and in the aging process.

 

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Genetic mutations in lysosomal genes alter the function of key lysosomal components, such as enzymes, which leads to the accumulation of macromolecules, such as glycolipids and toxic proteins. This in turn leads to insufficient lysosomal function, resulting in toxicity and inflammation, which we believe causes neurodegenerative disease, as shown in the figure below.

Mutations in Lysosomal Genes Cause Lysosomal Dysfunction

Leading to Toxicity, Inflammation and Neurodegenerative Disease

 

LOGO

Severe lysosomal deficiencies lead to rare childhood illnesses, called lysosomal storage disorders. More modest lysosomal deficiencies can lead to the gradual accumulation of toxic substrates in long-lived cells, particularly in the CNS, and present as neurodegenerative diseases of aging. Enzyme replacement therapy, or ERT, has been shown to be efficacious in treating certain lysosomal storage disorders, but ERTs cannot cross the blood-brain barrier to treat neurodegenerative diseases or the neurological manifestations of lysosomal storage disorders, such as neuronopathic Gaucher disease.

Numerous studies have elucidated the molecular mechanisms by which lysosomal dysfunction causes the pathology observed in neurodegenerative diseases. For example, PD-GBA patients have reduced levels of the lysosomal acid beta-glucocerebrosidase, or GCase, the lysosomal enzyme encoded by the GBA1 gene that catalyzes the conversion of the glycosphingolipid substrate glucosylceramide, or GluCer, into glucose and ceramide. In these patients the accumulation of toxic glycolipids induces further lysosomal dysfunction as well as aggregation of a-Synuclein, a pathological hallmark of Parkinson’s disease. Lysosomal dysfunction is also an important feature of FTD in patients with reduced levels of progranulin, caused by GRN mutations. Progranulin is required for the maintenance of lysosomes. Other genes associated with Parkinson’s disease, FTD, Alzheimer’s disease, ALS and DLB are also known to encode components of lysosomes or components of the machinery that traffic protein cargo to lysosomes.

We believe that restoring or enhancing lysosomal function will improve the health of CNS cells and slow or stop the progression of neurodegenerative diseases.

 

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Indication and Target Selection

We are applying a precision medicine approach to developing gene therapies for the treatment of neurodegenerative diseases by leveraging our deep understanding of human genetics. We select the indications and targets for our pipeline programs based on the following criteria:

 

   

Patient populations with high unmet need. We aim to help patient populations with devastating neurodegenerative diseases where gene therapy could have a transformational impact.

 

   

Clearly defined and genetically driven disease mechanism. We believe our deep understanding of human genetics and neurodegenerative disease biology allows us to effectively select targets.

 

   

Well-suited for gene therapy. We select targets for diseases that we believe can be treated by increasing or decreasing the expression of a particular gene, which makes them well-suited for gene therapy.

 

   

Compelling preclinical data. When possible, we leverage existing preclinical or clinical evidence suggesting that modulating the target will be safe and will modify or cure the underlying pathology.

 

   

Genetically defined patient populations. We select targets that correspond to patient populations with a particular genetic mutation, increasing the homogeneity of our studied patient populations and potentially increasing the likelihood of demonstrating efficacy.

 

   

Biomarkers that may provide early clinical proof-of-mechanism. We plan to measure biomarkers of target engagement at an early time point in each of our clinical trials, potentially enabling us to establish proof-of-mechanism.

 

   

Targets with large potential market opportunity. We plan to pursue targets that have application in at least one sizeable patient population with high unmet need. For example, our lead indication for PR001 is PD-GBA, which affects more than 90,000 individuals in the United States alone.

Our Technological Approach

We are leveraging breakthroughs in human genetics and the transformational potential of AAV gene therapy with the goal of developing and commercializing disease-modifying gene therapies for patients with neurodegenerative diseases with high unmet medical need. AAV-based viral vectors have been observed in third-party clinical trials to be well-tolerated and to have promise in delivering stable, long-lasting transgene expression in a range of tissues, including in the CNS. Many clinical trials of AAV-based gene therapies are currently ongoing, and one AAV-based gene therapy has been approved in the United States.

We believe AAV gene therapy is a technology particularly well-suited for treating CNS diseases. Long-term gene expression and durable results may be achievable in the CNS following one-time dosing with an AAV vector, because most CNS cells typically do not divide or turn over. The CNS is an immune privileged site, which increases the likelihood of efficacy and reduces the risk of harmful immune response when delivery is localized. Targeted delivery to the CNS potentially requires a lower dose than systemic delivery, thereby lowering manufacturing requirements. Further, AAV is not known to cause any disease in humans and AAV gene therapies do not readily integrate into the genome of the target cell, reducing the potential for developing cancer as a result of treatment.

We have chosen to use AAV9 as the capsid, or the outer viral protein shell that encloses the DNA cargo, for our initial programs based on its transformational biological properties and track record, which we believe will translate into a positive clinical effect in our initial target indications. In a third-party Phase 1 clinical trial in Type 1 spinal muscular atrophy, AAV9 was observed to enable gene delivery in the CNS and broad brain-wide biodistribution with a single administration. Once the therapeutic gene is transduced to cells of the CNS, we believe the cells will be able to continue to produce the therapeutic protein for years and, potentially, the rest of the patient’s life.

 

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By developing our AAV9-based gene therapies for genetically defined patient populations, we are applying a precision medicine approach to neurodegeneration, which we believe will increase the probability of creating disease-modifying therapies that improve patient outcomes. We are seeking to replace deficient proteins in genetically defined patient populations where CNS disease is driven by a loss-of-function mutation, and inhibit expression of toxic proteins in the context of a gain-of-function mutation. We have entered into a license agreement with REGENXBIO pursuant to which REGENXBIO granted us an exclusive, worldwide license to use AAV9 delivering the gene encoding for GBA1 for the treatment of disease. We have also entered into a license agreement with REGENXBIO pursuant to which REGENXBIO granted us three distinct exclusive options for specified genes for the treatment of disease. In April 2019, we exercised all three options, including for AAV9 delivering the genes encoding for progranulin and a-Synuclein.

We are engineering and optimizing AAV gene therapies that we believe are best suited for each of our target indications. The key components of an AAV gene therapy include: (1) the capsid, or the outer viral protein shell that encloses the DNA cargo; (2) the therapeutic gene, or transgene; and (3) the regulatory elements that drive the ultimate level of expression of the transgene.

To design the optimal gene therapy for a target patient population, we focus on optimizing each element in order to improve therapeutic outcomes:

 

   

Selection of capsid. We believe AAV viral vectors are uniquely well-suited to deliver genetic material to the CNS. We have initially selected AAV9 because it has demonstrated efficacy, an acceptable safety profile, efficient gene delivery in the CNS, broad brain-wide biodistribution and manufacturability in third-party clinical trials in other indications. We will continue to evaluate the latest scientific understanding of capsid technology to select the optimal capsid for each of our future programs.

 

   

Selection of transgenes. We design gene therapies with transgenes that express and/or knock down one or more genes that have been identified as potentially disease-modifying based on human genetic studies of neurodegenerative diseases. In the case of diseases caused by loss-of-function mutations, we design codon-optimized DNA encoding wild-type protein, in order to minimize safety risk. In the case of diseases caused by gain-of-function mutations, we design DNA encoding RNA molecules that inhibit expression of the target gene based on RNA interference, or RNAi, technology. We also have a unique approach that combines overexpression and RNAi.

 

   

Optimization of regulatory elements. We select the other elements of our vectors, including promotors and enhancers, to optimize expression level, localization, manufacturability and safety. For our initial programs, we have chosen elements that have been validated via inclusion in other gene therapy programs that have been tested in humans.

 

   

Route of administration. Our goal is to utilize vectors that can achieve the desired therapeutic effect efficiently following a one-time treatment via a minimally invasive route of administration. For our initial programs, we have chosen to deliver our gene therapies directly to the cerebrospinal fluid, or CSF, via a non-surgical procedure. In preclinical studies, CSF administration of AAV9 has demonstrated effective biodistribution broadly across the CNS and limited toxicity. Intra-CSF delivery typically requires less drug product than systemic delivery.

 

   

Feasibility of manufacturing. We seek to utilize vectors that can be produced in a cost-effective, reliable and scalable manner. We selected AAV9 for our initial programs in part due to its well-characterized manufacturing process.

We will continue to evaluate the optimal vector technology for the biology we are addressing and expect that our current and future product candidates will make use of technological advances.

 

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Our Manufacturing Approach

Our strategy is to advance potential therapies into clinical trials as efficiently and safely as possible. To accomplish this goal, we have established our own internal process development capabilities, and we are working with one of our experienced contract development and manufacturing organizations, or CDMOs, to produce material compliant with current good manufacturing practices, or cGMPs, in a robust, state-of-the-art process based on adherent HEK293 cells. This approach is designed to increase our speed of development, ensure consistent product quality and regulatory compliance, ensure predictable production costs, and produce sufficient quantities of virus for our planned Phase 1/2 clinical trials in PD-GBA and neuronopathic Gaucher disease.

Since our goal is to develop therapies that may benefit patient populations of significant size, we are investing in developing a late stage and commercial manufacturing process that can scale to supply a large market. We are working with another CDMO to develop a scalable baculovirus production system for our pipeline in close collaboration with our internal process development team. In this baculovirus production system, AAV vectors are produced by infection of insect cells with recombinant baculoviruses. This scalable suspension production system, using single-use bioreactors, is designed to produce higher yields of vectors more cost-effectively and efficiently than current mammalian cell-based approaches. Other gene therapy companies have used baculovirus production systems to produce AAV material that has been used in human clinical trials and have demonstrated consistent process yields and product qualities. We believe the baculovirus production system will maximize our ability to ensure cost-efficient, safe and scalable supply at the higher quantities required for late-stage clinical development and commercialization.

PR001 for the Treatment of PD-GBA and Neuronopathic Gaucher Disease

We are currently developing PR001, our gene therapy candidate which utilizes an AAV9 vector to deliver codon-optimized DNA encoding wild-type GCase, for PD-GBA and neuronopathic Gaucher disease. We submitted an IND to the FDA for PR001 for the treatment of PD-GBA in May 2019, and the FDA has notified us that our trial may proceed. We intend to initiate our Phase 1/2 clinical trial for PR001 in PD-GBA in 2019. We plan to submit an IND to the FDA for PR001 for the treatment of neuronopathic Gaucher disease in mid-2019 and, subject to feedback from the FDA, we intend to initiate a Phase 1/2 clinical trial for PR001 in neuronopathic Gaucher disease in 2019.

The close causal link between PD-GBA and Gaucher disease has been established by both human genetic and clinical studies, supporting our strategy of developing PR001 for both indications. We believe Parkinson’s and Gaucher diseases represent a continuum of pathology with the same underlying mechanism. The symptoms and severity of the CNS disease depend on the level of enzyme deficiency, which is driven by both the type and number of GBA1 mutations.

Overview of Parkinson’s Disease and Gaucher Disease

Parkinson’s Disease

Parkinson’s disease is a progressive neurodegenerative disorder most commonly characterized by resting tremor, bradykinesia (slow movement), rigidity and gait difficulty. While Parkinson’s disease is generally thought of as a disease of motor function, it is now well-recognized that it broadly affects the peripheral and central nervous system. Patients suffer from a range of non-motor symptoms, including loss of sense of smell, difficulty swallowing, urinary symptoms, constipation, sleep behavior disorders, hypotension, depression, psychosis, dementia and cognitive impairment. We estimate that Parkinson’s disease affects up to one million people in the United States and seven million people worldwide.

Parkinson’s disease pathology involves loss of certain neuronal populations (including dopamine neurons), the presence of intraneuronal protein aggregates and other lysosomal abnormalities. These are a consequence of ineffective lysosome-mediated degradation and recycling of defective proteins and other cellular components.

 

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This lysosomal dysfunction leads to toxicity and inflammation as well as the accumulation of a-Synuclein. Alpha-Synuclein is a protein that, in Parkinson’s disease patients, forms toxic aggregates in the brain. Lewy bodies, which characterize Parkinson’s disease, are intraneuronal structures composed in part of these a-Synuclein aggregates.

The scientific and medical communities now acknowledge that Parkinson’s disease is a brain-wide disorder. The progression of Lewy body pathology occurs in a predictable, anatomical sequence called Braak stages, with the clinical manifestations generally reflecting the areas of the nervous system involved. At the onset of motor symptoms, patients typically display abundant Lewy body pathology in the ventral midbrain, within the brain stem. However, as the disease progresses, Lewy bodies accumulate more broadly throughout the brain. Such progression can manifest as severe motor symptoms with gait impairment, neuropsychiatric symptoms, and dementia. We believe that disease-modifying therapeutic approaches for Parkinson’s disease should address this brain-wide pathology.

Human genetic studies have identified over 40 potentially causative and risk genes for Parkinson’s disease. Many of these genes are implicated in lysosomal function or lysosomal trafficking, indicating that lysosome dysfunction is the common denominator that underlies Parkinson’s disease pathology. We believe that these genetic mutations cause lysosomal defects, which lead to the neuropathological hallmarks of Parkinson’s disease including a-Synuclein aggregate accumulation, inflammation and further lysosomal abnormalities.

Among these Parkinson’s-associated genes, the GBA1 gene is considered to be highly clinically relevant. Individuals with a single mutated copy of the GBA1 gene have a three to ten times higher risk of developing Parkinson’s disease than individuals with no mutations in the GBA1 gene. Seven to ten percent of Parkinson’s disease patients worldwide and 9% to 10% of Parkinson’s disease patients in the United States have a GBA1 mutation, yielding an estimated prevalence of an estimated 90,000 to 100,000 PD-GBA patients in the United States alone. GBA1 mutations impact the risk of developing Parkinson’s disease as well as many other aspects of the disease course, including the severity, age of onset and rate of progression of disease and the likelihood of dementia.

The GBA1 gene encodes the lysosomal enzyme GCase, which catalyzes the conversion of GluCer into glucose and ceramide. Reduced levels of GCase activity in PD-GBA patients may lead to accumulation of glycolipid substrates including GluCer and glucosylsphingosine, or GluSph, as well as altered production of ceramide and secondary changes in other lipids. The glycolipid substrate accumulation is toxic and pro-inflammatory, leading to lysosomal dysfunction and accumulation and aggregation of a-Synuclein in cells. The reduction in ceramide has also been linked to neurodegeneration and a-Synuclein pathology in model systems, and has been observed in Parkinson’s disease brains. The mechanism by which GBA1 mutation causes Parkinson’s disease is depicted in the figure below.

 

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Parkinson’s Disease with GBA1 Mutation

 

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Alpha-Synuclein aggregation and GCase deficiency are thought to act in a “vicious cycle.” GCase deficiency causes the accumulation of GluSph substrate, which has been reported to directly affect the accumulation and aggregation of a-Synuclein. In addition, increased a-Synuclein levels lead to less GCase activity, which in turn leads to more a-Synuclein accumulation.

The genetics of GBA1 mutations and the function of GCase are well-studied and characterized as a result of the study of Gaucher disease, a lysosomal storage disorder caused by deficient levels of active GCase enzyme due to mutations in both copies of the GBA1 gene.

Gaucher Disease

Gaucher disease is a heterogeneous lysosomal storage disorder characterized by multi-organ pathology. It impacts the liver, spleen, hematopoietic system, bones, lungs and CNS. Gaucher disease pathology in these organs is characterized by accumulation of lipid substrate and degenerative and inflammatory changes. Gaucher disease is among the most common lysosomal storage disorders, with an estimated global prevalence of one per 30,000 to one per 100,000, with a substantially higher incidence in certain populations, such as in individuals of Ashkenazi Jewish descent, who have a prevalence of 118 per 100,000.

Gaucher disease has three subtypes, which are distinguished by the presence or absence of neurological symptoms, severity of symptoms, age at onset and age at death. Type 1, or non-neuronopathic, Gaucher disease is the most common form of the disease. It can occur at any age and involves symptoms including enlarged liver, enlarged spleen, anemia, bone pathology and lung disease. Historically, Type 1 Gaucher disease was distinguished by the absence of neurological symptoms, although it is now recognized that these patients are at elevated risk of developing Parkinson’s disease. Type 2 Gaucher disease represents approximately 1% of Gaucher disease cases in the United States, presents in infancy, affects the CNS and involves rapidly progressing neurodegeneration leading to death in infancy or early childhood. Type 3 Gaucher represents approximately 5% of Gaucher disease cases in the United States, presents in childhood or adulthood, affects the CNS, and involves neurological symptoms such as gaze and motor abnormalities, ataxia, spasticity, myoclonus (involuntary muscle jerks) and seizures. Both Type 2 and Type 3 Gaucher disease, together referred to as neuronopathic Gaucher disease, also result in severe systemic manifestations of the type seen in Type 1 Gaucher disease patients. Although relatively rare in the United States, neuronopathic Gaucher makes up a higher percentage of Gaucher patients in certain non-Western countries, including Japan, Korea, Egypt, India and China. We estimate that there are at least 1,000 neuronopathic Gaucher patients across North America, Europe and Japan.

 

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The relationship between Gaucher disease and PD-GBA has been established by both human genetic and clinical studies, supporting our strategy of developing PR001 for both indications. We believe Gaucher disease and PD-GBA represent a continuum of pathology with the same underlying genetic mechanism. The symptoms and severity of the CNS disease depend on the level of enzyme deficiency, which is driven by both the type and number of GBA1 mutations, as depicted in the figure below.

 

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Gaucher disease patients have mutations in both chromosomal copies of GBA1. Patients with the most severe GBA1 mutations, which cause severe enzyme deficiency, present with severe neuronopathic (Type 2) Gaucher disease. Patients with less severe mutations generally present with less severe neuronopathic (Type 3) Gaucher, although patients with more severe mutations can also present with Type 3 Gaucher disease. Patients with moderate GBA1 mutations present with Type 1 non-neuronopathic Gaucher disease, and are at elevated risk of developing Parkinson’s disease. Individuals with a mutation in a single chromosomal copy of GBA1 do not present with Gaucher disease, but have an elevated risk of developing Parkinson’s disease. In these PD-GBA patients, the severity of the mutation correlates with the severity of the symptoms and the rate of progression of the disease. In addition, clinical studies of Parkinson’s disease patients who do not carry GBA1 or other known Parkinson’s disease mutations, referred to as “sporadic” Parkinson’s disease patients, also display reduced GCase activity.

Limitations of Current Therapies for Parkinson’s Disease and Gaucher Disease

Parkinson’s Disease

There are no treatments that modify the progressive underlying disease process of Parkinson’s disease. Current approved therapies for Parkinson’s disease are limited to symptomatic treatments and include levodopa, dopaminergic receptor agonists and inhibitors of enzymes related to dopamine metabolism such as monoamine oxidase inhibitors and catechol-O-methyltransferase inhibitors. These therapies aim to improve overall dopaminergic function. Deep brain stimulation, a procedure in which electrodes are surgically placed in the basal ganglia, either in the subthalamic nucleus or internal globus pallidus, is another option for the treatment of advanced Parkinson’s disease. The benefits of each of these treatments diminishes over time as the disease progresses, and they do not impact the non-motor symptoms or the progression of the disease. As the disease progresses, the non-motor symptoms, such as dementia and cognitive impairment, can lead to severe morbidity and mortality.

Gaucher Disease

There are no therapies approved by the FDA for the treatment of neuronopathic (Type 2 or Type 3) Gaucher disease.

 

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In the United States, several ERTs that consist of recombinant GCase have been approved for the treatment of Type 1 Gaucher disease, including Cerezyme (marketed by Genzyme Corporation, a Sanofi company, or Sanofi Genzyme), Vpriv (marketed by Shire plc, an operating subsidiary of Takeda Pharmaceutical Company Limited) and Elelyso (marketed by Pfizer Inc.). ERTs are sometimes used off-label for the non-neurological manifestations of neuronopathic Gaucher patients; however, ERTs cannot cross the blood-brain barrier to treat the neurological manifestations. ERTs have further limitations, as some patients continue to experience bone pain, lung pathology, thrombocytopenia and enlargement of spleen following long-term ERT treatment. In addition, ERTs are dosed by intravenous infusion approximately once every two weeks, impacting patients’ and caregivers’ quality of life and productivity.

The FDA has approved several oral substrate reduction therapies, or SRTs, for the treatment of adults with Type 1 Gaucher disease, including Zavesca (marketed by Actelion) and Cerdelga (marketed by Sanofi Genzyme). These therapies are not approved for neuronopathic Gaucher disease.

As a result, we believe there is still significant unmet need among patients with Gaucher disease.

Our Solution

We are developing PR001 as a potentially disease-modifying, single-dose treatment for PD-GBA and neuronopathic Gaucher disease. PR001 is a gene therapy that utilizes an AAV9 viral vector to deliver codon-optimized DNA encoding wild-type GCase to a patient’s cells. Our growing understanding that the pathological process in Parkinson’s disease is brain-wide led us to select AAV9 for gene delivery because of its potential to broadly transduce the CNS. These properties are also important for neuronopathic Gaucher disease, which affects many regions of the CNS. Our intended route of administration for PR001 is via injection into the intra cisterna magna, or ICM, a ventricular space above the spinal canal containing CSF. We believe that PR001, when administered via injection into the CSF, will broadly transduce the cells of a patient’s CNS and produce sufficient GCase to restore healthy lysosomal function and neuronal survival, thereby slowing the progression of disease.

Preclinical Studies

Our comprehensive preclinical program for PR001 was designed to inform efficacy, biodistribution, dosing and safety.

Mouse Models of PD-GBA and Neuronopathic Gaucher Disease

GBA1 mutations are associated with a spectrum of disorders that include PD-GBA and Gaucher disease. Because PD-GBA and Gaucher disease result from the same core biochemical mechanism, many preclinical models are relevant for both diseases. We utilized three mouse models to study the amelioration of GCase deficiency and the associated phenotypes with PR001:

 

   

Pharmacological model: Conduritol-ß-epoxide, or CBE, is a pharmacological inhibitor of GCase, and mice treated with CBE display phenotypes consistent with GCase loss-of-function, including lipid accumulation, motor behavior abnormalities and widespread neuropathology, which is a signal of CNS injury. By varying CBE dosage and thus the degree of GCase inhibition in vivo, it is possible to recapitulate the degrees of enzyme deficiency seen in PD-GBA and different Gaucher disease types. In our experiments using this model, mice were dosed daily with CBE treatment to create and maintain GCase deficiency and associated phenotypes.

 

   

Genetic model: The 4L/PS-NA model of PD-GBA and Gaucher disease combines Gba1 mutations with mutations in the gene encoding saposin C, an essential activator of GCase. This combination is designed to lead to a more severe reduction in GCase enzyme activity and phenotypes relevant to both PD-GBA and Gaucher disease, including motor behavior abnormalities, a-Synuclein accumulation, neuropathology and visceral involvement.

 

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a-Synuclein model: A53T-SNCA mice, or A53T mice, express a human a-Synuclein A53T mutant transgene and are deficient in murine a-Synuclein. The A53T mutation is associated with familial PD in humans. However, A53T mice display relatively subtle phenotypes, including reduced gastrointestinal motility and variable motor abnormalities between six and 12 months of age. This mouse model does not exhibit widespread a-Synuclein pathology in the brain. Reduction of GCase activity by CBE can lead to changes in the levels of aggregated and toxic forms of a-Synuclein.

Review of Preclinical Data in CBE-Treated Mice

In a dose-finding study, three separate doses of PR001 were administered to CBE mice by intracerebroventricular, or ICV, injection, as ICM injection is not possible in mice. Viral vector doses are denoted by the number of vector genomes, or vg, delivered. For example, our low dose in this study was 3,200,000,000 vector genomes, or 3.2 x 109 vg; our medium dose in this study was 10,000,000,000 vector genomes, or 1.0 x 1010 vg; and our high dose in this study was 32,000,000,000 vector genomes, or 3.2 x 1010 vg. At all three doses, vector genomes were detected in the brain and spinal cord five weeks after administration. GCase activity was reduced in CBE-treated mice and was increased by the highest dose of PR001 in the brain and spinal cord at five weeks. CBE-treated mice also exhibited accumulation of the toxic glycolipids, GluCer and GluSph, in the brain, which was reduced by PR001 administration in a dose-dependent manner.

PR001 Observed to Increase GCase Activity and Reduce Lipid Accumulation

in the Cerebral Cortex of CBE-Treated Mice

 

        GCase Activity               GluSph    GluCer

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No PR001, no CBE: vehicle only, n = 10; No PR001 + CBE: vehicle only + CBE, n = 9; Low dose: 3.2 x 109 vg PR001 + CBE, n = 6; Medium dose: 1.0 x 1010 vg PR001 + CBE, n = 10; High dose: 3.2 x 1010 vg PR001 + CBE, n = 7.

Each bar represents the mean ± standard error of the mean, or SEM.

P-value: *p<0.05; **p<0.01; ***p<0.001 by analysis of variance followed by Tukey HSD, a standard post-hoc analysis. P-value is a conventional statistical method for measuring the statistical significance of results. A p-value of 0.05 or less represents statistical significance, meaning there is a less than 1-in-20 likelihood that the observed results occurred by chance.

In this study, PR001 demonstrated impact on behavior. CBE-treated mice exhibited reduced performance on tests of motor function (rotarod and tapered beam). The highest dose of PR001 resulted in a statistically significant improvement in motor function.

 

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PR001 Observed to Improve Motor Function in CBE-Treated Mice

 

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No PR001, no CBE: vehicle only, n = 10; No PR001 + CBE: vehicle only + CBE, n = 9; Low dose: 3.2 x 109 vg PR001 + CBE, n = 6; Medium dose: 1.0 x 1010 vg PR001 + CBE, n = 10; High dose: 3.2 x 1010 vg PR001 + CBE, n = 7.

Each bar represents the mean ± SEM.

P-value: *p<0.05 by analysis of variance followed by Tukey HSD.

Additionally, GCase activity in the brain was positively correlated with performance on the rotarod test and negatively correlated with glycolipid levels in the brain in a statistically significant manner.

Lysosomal dysfunction in PD-GBA is thought to lead to neuroinflammation, a process which includes an abnormal increase in astrocytes, or reactive astrogliosis, and microglia, or microgliosis. In CBE-treated mice, CBE induced reactive astrogliosis (evidenced by glial scarring) and microgliosis (evidenced by Iba1 immunoreactivity). In this study, PR001 was observed to reduce reactive astrogliosis and microgliosis in a dose-dependent manner, as shown in the graphs below.

PR001 Observed to Reduce Reactive Astrogliosis and Microgliosis

in the Cerebral Cortex of CBE-Treated Mice

 

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No PR001, no CBE: vehicle only, n = 10; No PR001 + CBE: vehicle only + CBE, n = 9; Low dose: 3.2 x 109 vg PR001 + CBE, n = 6; Medium dose: 1.0 x 1010 vg PR001 + CBE, n = 10; High dose: 3.2 x 1010 vg PR001 + CBE, n = 7.

Each bar represents the mean ± SEM.

P-value: *p<0.05; **p<0.01; ***p<0.001 by one-way ANOVA test, or ANalysis Of VAriance, a statistical test used to compare two or more means, followed by the Sidak correction, a method used to control error in making multiple comparisons (for Iba1 immunoreactivity), or by Fischer’s exact test, a test used to compare two categorical variables (for glial scarring).

In a second, longer-term study of PR001 in CBE-treated mice, we observed persistent and durable effects. Six months following ICV administration of a single PR001 dose, GCase activity levels remained significantly increased in the cerebral cortex and a corresponding reduction of lipid accumulation was observed, as shown in the graphs below.

PR001 Observed to Increase GCase Activity and Reduce Lipid Accumulation

in the Cerebral Cortex of CBE-Treated Mice at Six Months

 

GCase Activity

  

GluSph

  

GluCer

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No PR001, no CBE: vehicle only, n = 10; No PR001 + CBE: vehicle only + CBE, n = 11; High dose: 3.2 x 1010 vg PR001 + CBE, n = 10.

Each bar represents the mean ± SEM.

P-value: *p<0.05; ***p<0.001 by analysis of variance followed by Tukey HSD.

Review of Preclinical Data in Genetic Mouse Model

In a study using the 4L/PS-NA genetic mouse model, we observed vector genome presence and statistically significant increases in GCase activity in the cerebral cortex 14 weeks following PR001 administered via ICV injection, as shown in the graphs below.

 

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PR001 Resulted in Biodistribution and

Increased GCase Activity in the Cerebral Cortex in Genetic Mouse Model

 

Biodistribution

  GCase Activity

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No PR001, Control: vehicle only, n = 10; No PR001, 4L/PS-NA: vehicle only, n = 10; Dose 1: 4.3 x 109 vg PR001, n = 10; Dose 2: 4.3 x 1010 vg PR001, n = 10; Dose 3: 1.3 x 1011 vg PR001, n = 7; Dose 4: 4.3 x 1011 vg PR001, n = 8.

Each bar represents the mean ± SEM.

Values obtained in vehicle only injections without PR001 were indistinguishable from background.

P-value: ***p<0.001 by one-way analysis of variance followed by Tukey HSD.

We also observed a dose-dependent trend toward reduced GluSph and GluCer accumulation in the cerebellum 14 weeks following PR001 administered via ICV injection, as shown in the graphs below.

PR001 Observed to Reduce Lipid Accumulation

in the Cerebellum in Genetic Mouse Model

 

GluSph

  

GluCer

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No PR001, Control: vehicle only, n = 10; No PR001, 4L/PS-NA: vehicle only, n = 10; Dose 1: 4.3 x 109 vg PR001, n = 10; Dose 2: 4.3 x 1010 vg PR001, n = 10; Dose 3: 1.3 x 1011 vg PR001, n = 7; Dose 4: 4.3 x 1011 vg PR001, n = 8.

Each bar represents the mean ± SEM.

P-value: ***p<0.001 by one-way analysis of variance followed by Tukey HSD; †p<0.05 for effect of PR001 injected dose by multiple linear regression for genotype and dose across all animals; (†)p<0.1 for effect of PR001 injected dose by multiple linear regression for genotype and dose across all animals.

 

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In this study, administration of PR001 resulted in statistically significant improvement in performance on a beam walk test, a test of motor function, at all doses tested except the second lowest, as shown in the graph below.

PR001 Observed to Improve Motor Function in Genetic Mouse Model

 

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No PR001, Control: vehicle only, n = 10; No PR001, 4L/PS-NA: vehicle only, n = 10; Dose 1: 4.3 x 109 vg PR001, n = 10; Dose 2: 4.3 x 1010 vg PR001, n = 10; Dose 3: 1.3 x 1011 vg PR001, n = 7; Dose 4: 4.3 x 1011 vg PR001, n = 8.

Each bar represents the mean ± SEM.

P-value: *p<0.05; ***p<0.001 by analysis of variance followed by Tukey HSD.

These models display phenotypes representative of PD-GBA and neuronopathic Gaucher disease. Because of known limitations of these preclinical mouse models, we believe that data from both mouse models may not fully reflect the potential efficacy of PR001. In the pharmacological model, CBE administered to mice is known to inhibit GCase. In the genetic model, mutations in an activator of GCase, saposin C, reduce GCase activity. Despite the limitations of these animal models, we observed strong evidence of increased GCase activity, reduced glycolipid accumulation and attenuation of behavioral phenotypes, which support our ongoing development of PR001.

There were no negative histopathologic findings and no evidence of toxicity in either mouse model due to treatment with PR001.

Preclinical a-Synuclein Data

Defects in lysosomal recycling resulting from GCase deficiency are known to result in the accumulation of a-Synuclein protein, a hallmark of Parkinson’s disease. It has been reported that the glycolipid substrates that accumulate in the context of GCase insufficiency may interact directly with a-Synuclein, leading to increased aggregation and toxicity.

 

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Published third-party studies using the 4L/PS-NA genetic mouse model have described the accumulation of insoluble, high molecular weight, or HMW, aggregates of a-Synuclein protein in brain samples. In a study we conducted, we observed a trend toward increased levels of insoluble a-Synuclein protein in the cerebral cortex of 4L/PS-NA mice. In this study, PR001 administration via ICV injection was observed to suppress the accumulation of insoluble a-Synuclein at 14 weeks after PR001 administration, as depicted in the graph below.

PR001 Observed to Reduce Insoluble a-Synuclein

in Genetic Mouse Model

 

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No PR001, Control: vehicle only, n = 5; No PR001, 4L/PS-NA mice: vehicle only, n = 5; PR001, 4L/PS-NA: 2.4 x 1010 vg PR001, n = 4.

Each bar represents the mean ± SEM.

Levels of insoluble a-Synuclein in the 4L/PS-NA genetic mouse model were quantified by enzyme-linked immunosorbent assays, or ELISAs, an analytical biochemistry assay.

We also studied the levels of HMW a-Synuclein in another mouse model, A53T mice treated with CBE. We observed a reduction in HMW a-Synuclein aggregates with PR001 treatment of CBE-dosed A53T mice, as depicted in the graph below.

PR001 Observed to Reduce HMW a-Synuclein Aggregates in a-Synuclein Mouse Model

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No PR001, no CBE: vehicle only, n = 4; No PR001 + CBE: vehicle only + 100 mg/kg CBE, n = 4; PR001 + CBE: 100 mg/kg CBE + 4.3 x 1011 vg PR001, n = 5. All experiments were performed in A53T mice.

Each bar represents the mean ± SEM.

P value: *p<0.05 by ANOVA followed by Tukey’s HSD multiple tests correction.

Published third-party studies have reported that, in cell lines, increased levels of GCase activity lead to a reduction in the accumulation of a-Synuclein protein. We conducted in vitro studies of PR001 in HeLa cells, a

 

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widely studied human cell line, and in mouse hippocampal neuron cultures. In these studies, we observed that administration of PR001 in vitro resulted in increased GCase activity and reduced a-Synuclein accumulation, as depicted in the graphs below.

PR001 In Vitro Resulted in Reduced a-Synuclein

in HeLa Cells

 

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No PR001: vehicle only; Low dose: 2 × 105 vg/cell PR001; High dose: 2 × 106 vg/cell PR001.

Each bar represents the mean ± SEM.

PR001 In Vitro Resulted in Reduced a-Synuclein

in Hippocampal Neurons

 

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No PR001: vehicle only; Low dose: 1.3 × 105 vg/cell PR001; High dose: 1.3 × 106 vg/cell PR001.

Each bar represents the mean ± SEM.

Safety and Biodistribution in Non-Human Primates

We conducted PR001 safety and biodistribution testing in healthy non-human primates, or NHPs. NHPs were selected for this Good Laboratory Practice, or GLP, study because of their similarity to humans and because it is possible to deliver PR001 via ICM injection, which is the intended route of administration for our planned clinical trials. There are no NHP models for either PD-GBA or Gaucher disease that are suitable for efficacy measurements. This study included a total of 19 NHPs receiving one of three treatments: vehicle only, PR001 low dose (2.1 x 1010 vg/g brain, or vector genomes per gram of brain mass), or PR001 high dose (8.0 x 1010 vg/g brain). Pursuant to our pre-determined study design, the NHPs were sacrificed at three timepoints as follows: one NHP receiving PR001 high dose was sacrificed at Day 7 and nine NHPs, three receiving vehicle only, three receiving PR001 low dose and three receiving PR001 high dose, were sacrificed at each of Day 30 and Day 183. Biodistribution and safety were measured in all animals at each timepoint. We plan to use the safety and biodistribution results from these studies to inform dose selection in our clinical trials.

 

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Safety

To characterize the safety profile of PR001, we analyzed multiple time points from the mouse efficacy studies described above and from the GLP toxicology study in NHPs described above. We did not observe any adverse histopathology or evidence of toxicity attributable to PR001 treatment in any of these studies. In the GLP toxicology study in NHPs, PR001 administered via ICM injection was well tolerated, and no toxicity was observed up to six months post-injection at any of the PR001 doses tested.

Biodistribution

To characterize the biodistribution of PR001, we measured the levels of PR001 vector genome copies present in different NHP brain regions at 30 days and six months after ICM injection of vehicle only, a low dose of PR001 or a high dose of PR001. In the NHPs that received PR001, we observed robust and widespread levels of PR001 vector genome copies throughout the CNS as well as peripheral organs at both time points measured, consistent with published studies of the biodistribution of other AAV9-based gene therapy programs with similar routes of administration. The levels of PR001 vector genome copies present in NHPs observed 30 days after dosing are depicted in the graph below.

PR001 Biodistribution Observed at 30 Days After Dosing

 

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No PR001: vehicle only; Low dose: 2.1×1010 vg/g brain PR001; High dose: 8.0×1010 vg/g brain PR001

Each bar represents the mean ± SEM of three NHPs per group. Values for the No PR001 (vehicle only) group are below the detection limit of the vector genome copy assay.

The vector genome copy levels, or “brain exposure levels,” of PR001 observed in the NHP CNS at 30 days were comparable to the levels that achieved efficacy in our mouse models. Consistent with widespread vector genome copy distribution, we observed widespread expression of the GCase enzyme encoded by PR001. GCase levels were quantified using an antibody-based automated assay, SimpleWestern. Results from cortex, hippocampus and midbrain samples were obtained from NHPs dosed with ICM injection of vehicle only, a low dose of PR001 or a high dose of PR001. NHPs that received either the low dose or high dose of PR001 exhibited consistently elevated levels of GCase six months after ICM injection, compared to samples from NHPs that received vehicle only. The graph below depicts the data across the cortex, hippocampus and midbrain regions, analyzed in aggregate.

 

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PR001 GCase Expression Observed at Six Months After Dosing

 

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No PR001: vehicle only; Low dose: 2.1×1010 vg/g brain PR001; High dose: 8.0×1010 vg/g brain PR001

Each bar represents the mean ± SEM of three NHPs per group.

P-value: ** p < 0.01 by analysis of variance followed by Tukey HSD.

We also observed the presence of anti-human GCase antibodies in the NHPs following PR001 administration, consistent with previous third-party studies that evaluated human proteins in NHPs. The presence of these antibodies provided further evidence of the expression of human GCase protein in PR001-treated NHPs.

Overall, this study demonstrated enduring and broad GCase protein expression in NHPs treated with PR001 via ICM injection.

Based on the biodistribution and efficacy data observed in our NHP and mouse studies, we believe that PR001 administered via ICM injection has the potential to increase GCase to non-pathological levels in the CNS of our target patient populations.

Dose Selection

The above studies have informed our proposed dose selection for our first-in-human clinical studies. The efficacy studies in mice helped us identify the level of biodistribution throughout the brain that we predict would translate to efficacy in humans. Our NHP toxicology studies helped us identify the dose that, when delivered by the intended clinical route of administration (ICM injection) in an NHP, corresponds to the same brain exposure level as the optimal dose in mice. We then scaled this NHP ICM dose to humans based on brain weight. This proposed human dose is lower than the highest dose that was observed to be well tolerated in both mouse and NHP studies.

PR001 Planned Clinical Development

Planned Clinical Development of PR001 for the Treatment of PD-GBA

We plan to initiate a randomized, double-blind, sham procedure-controlled, ascending dose Phase 1/2 clinical trial of PR001 in moderate-to-severe PD-GBA patients in 2019. This trial will include up to 16 patients with at least one GBA1 mutation who are receiving a stable regimen of standard-of-care treatment. Two escalating dose cohorts are planned: 1×1014 vg and 2×1014 vg of PR001. In each cohort, six patients will receive PR001 and two patients will receive a sham procedure as control. We plan to investigate the effect of PR001 administered as a single injection into the ICM.

The primary outcomes of the trial will include safety and tolerability. Secondary outcomes will include biomarkers including GCase, GluCer and GluSph in the blood and CSF. Exploratory outcomes will include clinical efficacy endpoints used in Parkinson’s disease and additional biomarkers. Change from baseline in

 

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GluCer, GluSph, and GCase enzyme activity will be measured in CSF and blood at three and 12 months, and in blood at additional timepoints. An unblinded interim analysis will be performed once all patients in the first cohort complete 12 months of treatment, and a second unblinded interim analysis will be performed once all patients in the second cohort complete 12 months of treatment. Provided that the safety and tolerability profile of PR001 is acceptable at the time of each of these interim analyses, we will consider rolling over patients who received the sham procedure to a separate protocol under which they would be administered PR001. Additional interim analyses may be performed. All patients will be followed for a total of five years to monitor safety and selected biomarker and efficacy measures.

Based on the results from this initial trial, we plan to obtain input from regulatory agencies and plan additional trials to obtain regulatory approvals for commercialization in geographies worldwide.

Planned Clinical Development of PR001 for the Treatment of Neuronopathic Gaucher Disease

We plan to initiate an open-label Phase 1/2 clinical trial of PR001 in patients with Type 2 Gaucher disease in 2019. This trial will include up to 15 patients who are infants with two GBA1 mutations and a diagnosis of Type 2 Gaucher disease. We plan to investigate the effect of PR001 administered as a single injection into the ICM. The primary outcomes of the trial will include safety and tolerability. Secondary outcomes will include biomarkers, including GCase, GluCer and GluSph in the blood and CSF, as well as clinical efficacy endpoints appropriate for neuronopathic Gaucher disease. Exploratory outcomes will include additional biomarkers. Change from baseline in GluCer, GluSph, and GCase enzyme activity will be measured in CSF at six (initial interim analysis) and 12 months, and in blood at additional timepoints. An additional interim analysis including clinical endpoints will be performed at 12 months. All patients will be followed for a total of five years to monitor safety and selected biomarker and efficacy measures.

We plan to initiate a Phase 1/2 clinical trial of PR001 in patients with Type 3 Gaucher disease in 2020. This trial will include up to 20 patients with two GBA1 mutations and a diagnosis of Type 3 Gaucher disease. We plan to investigate the effect of PR001 administered as a single injection into the ICM. The primary outcomes of the trial will include safety and tolerability. Secondary outcomes will include biomarkers, including GCase, GluCer and GluSph in the blood and CSF, as well as clinical efficacy endpoints appropriate for neuronopathic Gaucher disease. Exploratory outcomes will include additional biomarkers. Change from baseline in GluCer, GluSph, and GCase enzyme activity will be measured in CSF at three and 12 months, and in blood at additional timepoints. An analysis of clinical endpoints will be performed at 12 months. All patients will be followed for a total of five years to monitor safety and selected biomarker and efficacy measures.

Based on the results from this initial trial, we plan to obtain input from regulatory agencies on the requirements to file for regulatory approval for commercialization in geographies worldwide.

PR001 Life Cycle Planning

We are continuing to evaluate the opportunity to further develop PR001 in other diseases caused by a deficiency in GCase activity.

PR006, Our Gene Therapy Product Candidate for the Treatment of FTD-GRN

We are developing PR006, our gene therapy candidate which utilizes an AAV9 vector to deliver codon-optimized DNA encoding wild-type progranulin for patients with FTD-GRN. We intend to submit an IND to the FDA for PR006 for the treatment of FTD-GRN in 2019.

Overview of FTD and FTD-GRN

FTD is the most common cause of dementia in people under age 60 and results from the progressive degeneration of the frontal and temporal lobes of the brain. These areas of the brain control decision-making,

 

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behavior, emotion and language. FTD patients present with a spectrum of symptoms, which have been broadly subdivided into behavioral, language and motor manifestations. Patients can experience personality changes, disinhibition, apathy, slow speech production, misuse of grammar, impaired word comprehension, memory loss and, in some cases, motor alterations. Although the clinical presentation of FTD is heterogeneous, FTD is rapidly progressive and invariably devastating.

The age of onset of FTD is typically between 45 and 64 years and death typically occurs three to 10 years after symptom onset. Prevalence of FTD is estimated to be 50,000 to 60,000 individuals in the United States and 80,000 to 110,000 individuals in the European Union.

There are currently no approved therapies for FTD.

There are multiple forms of FTD that are caused by genetic mutations, including FTD-GRN. FTD-GRN represents 5% to 10% of all patients with FTD, and approximately 22% of heritable FTD cases. Healthy individuals carry two normal copies of the GRN gene that function together to produce sufficient levels of progranulin protein throughout the body. Loss-of-function mutations in a single copy of GRN lead to a 50% or greater decrease in the level of progranulin and a greater than 90% probability of developing FTD-GRN. Neuronal ceroid lipofucinosis, a very rare and severe lysosomal storage disorder, results from mutations in both copies of GRN and is characterized by childhood dementia, vision loss and epilepsy.

Progranulin is a glycoprotein encoded in humans by the GRN gene. Progranulin is found both extracellularly and in lysosomes. It is highly expressed by astroglia and microglia, which are immune cells that reside in the brain. Healthy levels of progranulin are necessary for cellular processes such as lysosomal function, neuronal survival and normal microglial activities. In FTD-GRN patients, reduced levels of progranulin lead to lysosomal dysfunction and ineffective protein degradation and recycling. Consistent with this, FTD-GRN pathology is characterized by aggregates of ubiquitin and TDP-43 proteins, which are believed to be toxic and inflammatory.

Role of Progranulin in FTD-GRN

 

LOGO

Our Solution

We are developing PR006 as a potentially disease-modifying, single-dose treatment for FTD-GRN. PR006 is a gene therapy that utilizes an AAV9 viral vector to deliver codon-optimized DNA encoding wild-type

 

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progranulin to a patient’s cells. We believe that PR006, when administered via injection into the CSF, will broadly transduce the cells of a patient’s CNS. Our goal is to produce sufficient progranulin to restore healthy lysosomal function and neuronal survival, thereby slowing or stopping the progression of disease.

Preclinical Studies

Our preclinical program for PR006 is designed to inform efficacy, biodistribution, dosing and safety. Our program includes several studies conducted in the mouse model of disease, induced pluripotent stem cells, or iPSCs, derived from FTD-GRN patients, and healthy NHPs. Preclinical studies of PR006 are ongoing.

Review of Preclinical Data in GRN Knockout Mice

GRN homozygous knockout, or Grn-/-, mice, which completely lack progranulin, are used to study progranulin function. Grn-/- mice develop age-dependent pathologies that overlap with FTD-GRN and are consistent with loss of progranulin function, including lysosomal alterations, microgliosis and neuroinflammation. However, these mice do not fully recapitulate FTD-GRN as they do not exhibit FTD-GRN-like neurodegeneration, TDP-43 pathology or cortical atrophy. We are using these mice to study the ability of PR006 to restore progranulin function. FTD-GRN patients have mutations in only one of the two chromosomal copies of GRN, in contrast to Grn-/- mice, but mice with mutations in only one copy of Grn do not display robust phenotypes that resemble FTD-GRN and thus are not useful as disease models.

In a study using 14-month old Grn-/- mice, we observed a statistically significant increase in secreted and intracellular progranulin protein in CSF, and plasma two months following ICV administration of 1.46 x 1011 vg PR006, as shown in the graphs below.

PR006 Observed to Increase Progranulin Levels in Knockout Mouse Model

LOGO

 

PR006 dose: 1.46 x 1011 vg. N = 4 per group.

Each bar represents the mean ± SEM.

P-value: *p < 0.05 by two-tailed Kruskal-Wallis test, a nonparametric statistical test used instead of an ANOVA to compare two or more means.

Chronic CNS inflammation is a hallmark phenotype of FTD-GRN, and Grn-/- mice also exhibit age-dependent neuroinflammation. We observed a significant reduction in the cerebrocortical expression of the proinflammatory markers TNF-a and IL-6 two months following ICV administration of PR006, as shown in the graphs below.

 

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PR006 Observed to Suppress Proinflammatory Marker Expression in the Cerebral Cortex of Knockout Mouse Model

LOGO

 

PR006 dose: 1.46 x 1011 vg. N = 4 per group.

Each bar represents the mean ± SEM.

P-value: *p < 0.05 by two-tailed ANOVA test.

Review of Preclinical Data in Neurons from FTD-GRN Patients

To examine the activity of PR006 in a human model of FTD-GRN, iPSCs from two heterozygous GRN mutation carriers, FTD-GRN #1 and FTD-GRN #2, and a wild-type age-matched control were differentiated into neurons. We observed robust levels of secreted progranulin after transducing either control or FTD-GRN neurons with PR006.

PR006 Observed to Increase Levels of Progranulin Secreted in the Cell Media in Both Control and FTD-GRN Patient Neurons

LOGO

 

n = 3 or 4 per group.

Each bar represents the mean ± SEM. Values for the untreated group (0 vg/cell PR006) are below the detection limit of the progranulin assay.

Progranulin has been reported to regulate the lysosomal protease Cathepsin D, or CTSD. Loss of CTSD function has also been implicated in lysosomal storage disorders and neurodegeneration. CTSD is expressed as an inactive full-length protein, or proCTSD, that is processed into an enzymatically active mature protease, or matCTSD. Progranulin has been reported to act as a molecular chaperone that binds to proCTSD to enhance its maturation into the matCTSD protease, and absence of progranulin has been reported to decrease CTSD activity by reducing proCTSD processing.

 

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In this study, FTD-GRN neurons displayed reduced maturation of CTSD, quantified as the ratio of matCTSD to proCTSD, compared to controls. We observed a significant increase in this ratio in FTD-GRN neurons after transduction with PR006, indicating a potential role for PR006 in promoting lysosomal function in FTD-GRN neurons, as shown in the graphs below.

PR006 Observed to Promote Maturation of a Key Lysosomal Protease, CTSD, in FTD-GRN Patient iPSC-Derived Neurons

LOGO

  

 

PR006 dose: 1.46 x 105 vg/cell.

Each bar represents the mean ± SEM; n = 3 per group.

P-value: *p < 0.05 by a paired t-test, a statistical test comparing two population means.

Safety

We are conducting an ongoing GLP toxicology study in healthy NHPs. NHPs were selected for this GLP study because of their similarity to humans and because it is possible to deliver PR006 via ICM injection, which is the intended route of administration for our planned clinical trials. There are no NHP models for FTD that are suitable for efficacy measurements. When completed, this study will include a total of 19 NHPs receiving one of three treatments: vehicle only, PR006 low dose (1.8 x 1010 vg/g brain), or PR006 high dose (1.8 x 1011 vg/g brain). Pursuant to our pre-determined study design, one NHP receiving PR006 high dose was sacrificed at Day 7 and nine NHPs, three receiving vehicle only, three receiving PR006 low dose and three receiving PR006 high dose, were sacrificed at Day 30. A further nine NHPs, three receiving vehicle only, three receiving PR006 low dose and three receiving PR006 high dose, will be sacrificed at Day 183. Biodistribution and safety are being measured in all animals at each time point. At the current time, no in-life toxicity has been observed up to 90 days post-injection and no pathological findings have been made up to 30 days post-injection.

PR004, Our Gene Therapy Product Candidate for the Treatment of Synucleinopathies

We are developing PR004 as a potentially disease-modifying, single-dose treatment for certain synucleinopathies. PR004 utilizes an AAV9 vector to deliver codon-optimized DNA encoding wild-type GCase and a molecule that suppresses expression of, or knocks down, a-Synuclein. Our goal is to create an effective therapeutic for patients with neurodegenerative diseases where disease is driven by both synucleinopathy and GCase deficiency.

Overview of Synucleinopathies

Lewy bodies are the main component of brain pathology in synucleinopathies, including Parkinson’s disease and DLB. Genetic mutations in the a-Synuclein gene, including gene multiplications, cause rare familial types of synucleinopathy, demonstrating the relationship between the level of a-Synuclein and disease. The precise

 

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pathological form of a-Synuclein remains to be determined. Various presentations of a-Synuclein have been implicated in disease pathology, including large insoluble neuronal aggregates, small soluble neuronal forms and extracellular forms.

Published third-party studies have highlighted the relationship between synucleinopathy pathology and GCase deficiency. GCase has been shown to directly suppress the accumulation of a-Synuclein and protect from synucleinopathy-related neuronal degeneration in animal models. Both a-Synuclein and GCase are directly implicated in lysosomal function, and abnormal levels of these proteins are thought to synergistically contribute to synucleinopathy pathology.

Our Solution

PR004 is designed to both reduce expression of a-Synuclein and increase expression of GCase. We believe that PR004 is distinct from other potential a-Synuclein-targeted therapies in that it is designed to reduce the expression of all pathological forms of a-Synuclein. In published third-party studies of mouse and cell models of synucleinopathy, it has been observed that higher than normal expression of GCase is protective against disease. We believe our dual-acting approach could have broad applicability across synucleinopathies.

Our preclinical program for PR004 is designed to inform efficacy, biodistribution, dosing and safety. Preclinical studies of PR004 in animal models are ongoing.

Additional Program Opportunities

We are focused on developing a broad pipeline of disease-modifying AAV gene therapies for the treatment of a range of neurodegenerative diseases with high unmet medical need. Beyond PR001, PR006 and PR004, we are studying a number of additional targets. Each of our programs uses AAV vector technology to deliver nucleic acids designed to express and/or knock down one or more genes that have been identified as causal based on human genetic studies of neurodegenerative diseases, including Parkinson’s disease, FTD, Alzheimer’s disease, ALS, DLB and related lysosomal disorders. We believe we have established the capabilities to rapidly advance these programs towards clinical testing.

License Agreements

License Agreement with REGENXBIO Inc. for GBA1

In August 2017, we entered into a license agreement, or the REGENXBIO GBA1 License, with REGENXBIO. Under the REGENXBIO GBA1 License, REGENXBIO granted us an exclusive, worldwide license under certain patents and patent applications to make, have made, use, import, sell and offer for sale products for the treatment of disease, including but not limited to Parkinson’s disease and Gaucher disease, whether or not caused by mutations in the gene that produces the GBA1 enzyme in humans by in vivo gene therapy using AAV9 delivering the gene (or any portion thereof) encoding for GBA1.

We have the right to sublicense the licensed technology to third parties subject to certain conditions as specified in the REGENXBIO GBA1 License. Under the REGENXBIO GBA1 License we granted a non-exclusive, worldwide, royalty-free, transferable, sublicenseable, irrevocable, perpetual license back to REGENXBIO to (1) use any patentable modifications or improvements to the licensed technology that we or our affiliates or sublicensees develop, or licensed back improvements, consummate in scope to REGENXBIO’s retained rights, and (2) to practice the licensed back improvements in connection with AAV9 outside of our field of use.

REGENXBIO and its upstream licensors (SmithKline Beecham Corporation, or GSK, and the Trustees of the University of Pennsylvania, or UPenn) retain the exclusive right over certain antibodies expressed by AAV9

 

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and a nonexclusive right over products delivering RNA interference and antisense drugs using AAV9. GSK and UPenn also retain a non-exclusive right to use the licensed technology for non-commercial research purposes and discovery research efforts with non-profit organizations and collaborators. We do not expect the retention of these rights to affect our intellectual property rights licensed under the REGENXBIO GBA1 License or our ability to develop and commercialize PR001, our product candidate designed to express GBA1.

As consideration for the licensed rights under the REGENXBIO GBA1 License, we issued 2,430,000 shares of our common stock in a concurrent private placement to REGENXBIO. In addition, REGENXBIO has the option, at its sole discretion, to participate in any future financing in accordance with the terms of that certain Amended and Restated Investors Rights Agreement, dated as of March 19, 2019, by and among us, REGENXBIO and the other investors party thereto. We are also obligated, pursuant to the REGENXBIO GBA1 License, to pay REGENXBIO: (1) an annual maintenance fee; (2) mid- to high-single digit royalty percentages on net sales of licensed products, subject to reduction in specified circumstances; and (3) mid-teen to low-twenties royalty percentages of any sublicense fees we receive from sublicensees for the licensed intellectual property rights.

The REGENXBIO GBA1 License requires us to use commercially reasonable efforts to develop, commercialize, market, promote and sell a licensed product in our field of use. We are also obligated to achieve a certain development milestone with respect to a licensed product in our field of use within a specified time period. We do not have the right to control prosecution or undertake prosecution of any infringement of the in-licensed patent applications.

In May 2018, we entered into an amendment to the REGENXBIO GBA1 License pursuant to which we are permitted, under certain circumstances, to qualify royalty and diligence obligations that are fulfilled under the REGENGBIO Option Genes License (described below) toward fulfillment of our obligations under the REGENXBIO GBA1 License.

The REGENXBIO GBA1 License will expire on a country-by-country, licensed product-by-licensed product basis upon the later of (1) the expiration, lapse, abandonment or invalidation of the last valid claim of the licensed intellectual property and (2) seven years from the first commercial sale of each licensed product. The licensed patents under the REGENXBIO GBA1 License have expiration dates ranging from 2024 to 2026 in the United States and in 2024 outside of the United States in the absence of any regulatory extension. In addition, patents issuing in the future from any licensed patent applications are expected to have expiration dates in 2024 both inside and outside of the United States in the absence of any regulatory extension. We have the right to terminate the REGENXBIO GBA1 License upon a specified period of prior written notice. REGENXBIO may terminate the REGENXBIO GBA1 License immediately if we become insolvent, if we are late by a specified number of days in paying money due under the REGENXBIO GBA1 License, or if we or our affiliates commence any action against REGENXBIO or its licensors to declare or render any claim of the licensed patent rights invalid or unenforceable. Either party may terminate the REGENXBIO GBA1 License for material breach if such breach is not cured within a specified number of days.

License Agreement with REGENXBIO Inc. for Option Genes

In May 2018, we entered into a license agreement, or the REGENXBIO Option Genes License, with REGENXBIO pursuant to which REGENXBIO granted us three distinct exclusive options for specified genes, or the Option Genes, exercisable at our sole discretion through May 10, 2019. Each option represents the right to obtain an exclusive, worldwide license under certain patents and patent applications to make, have made, use, import, sell and offer for sale products for the treatment or prevention of disease, including but not limited to Parkinson’s disease, whether or not caused by mutations in any Option Gene that is the subject of the applicable license, in humans by in vivo gene therapy using AAV9 delivering the applicable licensed Option Gene and/or RNA interference or antisense modalities that target the applicable licensed Option Gene. In addition, we have the right to combine any licensed Option Gene with GBA1 or any other genes with respect to which we have

 

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acquired a license from REGENXBIO. We also received a non-exclusive, royalty-free, worldwide research license to perform research and development activities for each Option Gene solely for purposes of evaluating whether to exercise the applicable option.

We have the right to sublicense the licensed technology to third parties subject to certain conditions as specified in the REGENXBIO Option Genes License. Under the REGENXBIO Option Genes License we granted a non-exclusive, worldwide, royalty- free, transferable, sublicenseable, irrevocable, perpetual license back to REGENXBIO to (1) use any patentable modifications or improvements to the licensed technology that we or our affiliates or sublicensees develop, or licensed back improvements, consummate in scope to REGENXBIO’s retained rights, and (2) to practice the licensed back improvements in connection with AAV9 outside of our field of use.

REGENXBIO and its upstream licensors (GSK and UPenn) retain the exclusive right over certain antibodies expressed by AAV9. GSK and UPenn retain a non-exclusive right over products that deliver RNA interference and antisense drugs using AAV9, and a non-exclusive right to use the licensed technology for non-commercial research purposes and discovery research efforts with non-profit organizations and collaborators. We do not expect the retention of these rights to affect our intellectual property rights licensed under the REGENXBIO Option Genes License or our ability to develop and commercialize any product candidate that we may choose to pursue, however, the license of these technologies by GSK and UPenn to others could potentially lead to increased competition.

Under the terms of the REGENXBIO Option Genes License, we paid REGENXBIO an initial fee of $0.6 million. In connection with the exercise of each option, we are required to pay REGENXBIO: (1) an additional up-front fee of $0.6 million; (2) an annual maintenance fee; (3) mid- to high-single digit royalty percentages on net sales of the licensed product, subject to reduction in specified circumstances; and (4) mid-teen to low-twenties royalty percentages of any sublicense fees we receive from sublicensees for the licensed intellectual property rights. If a licensed product includes the GBA1 gene and otherwise would be subject to royalties under the REGENXBIO GBA1 License, then royalties for that licensed product will only be due under the REGENXBIO Option Genes License.

In April 2019, we exercised all three options under the REGENXBIO Option Genes License, including for AAV9 delivering the genes encoding for progranulin and a-Synuclein, and paid the additional up-front fee of $0.6 million per option, or an aggregate of $1.8 million, to REGENXBIO.

The REGENXBIO Option Genes License requires us to use commercially reasonable efforts to develop, commercialize, market, promote and sell a licensed product for each licensed Option Gene in our field of use. We are also obligated to achieve a certain development milestone with respect to a licensed product for each licensed Option Gene in our field of use within a specified time period. We do not have the right to control prosecution or undertake prosecution of any infringement of the in- licensed patent applications.

The REGENXBIO Option Genes License will expire on a country-by-country, licensed product-by-licensed product basis upon the later of (1) the expiration, lapse, abandonment or invalidation of the last valid claim of the licensed intellectual property and (2) seven years from the first commercial sale of each licensed product. The licensed patents under the REGENXBIO Option Genes License have expiration dates ranging from 2024 to 2026 in the United States and in 2024 outside of the United States in the absence of regulatory extension. In addition, patents issuing in the future from any licensed patent applications are expected to have expiration dates in 2024 both inside and outside of the United States in the absence of regulatory extension. We have the right to terminate the REGENXBIO Option Genes License upon a specified period of prior written notice. REGENXBIO may terminate the REGENXBIO Option Genes License immediately if we become insolvent, if we are late by a specified number of days in paying money due under the REGENXBIO Option Genes License, or if we or our affiliates commence any action against REGENXBIO or its licensors to declare or render any claim of the licensed patent rights invalid or unenforceable. Either party may terminate the REGENXBIO Option Genes License for material breach if such breach is not cured within a specified number of days.

 

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Manufacturing

The ability to consistently produce cGMP-quality AAV vectors at a sufficient scale is a critical success factor for a gene therapy company. We have established our own internal process development capabilities, and we are working with CDMOs to supply our clinical trials with drug product. We intend to supply our first-in-human PR001 clinical trials with cGMP-compliant drug product produced at one of our experienced CDMOs, using a robust, state-of-the-art process based on adherent HEK293 cells. Our team has developed the analytical testing methods needed to support consistency and strict standards of quality and potency. This approach is designed to increase our speed of development, ensure consistent quality and regulatory compliance, ensure predictable production costs, and produce quantities of virus appropriate for our planned Phase 1/2 clinical trials in PD-GBA and neuronopathic Gaucher disease.

In parallel, we are developing the capability to produce PR001 and our other product candidates at a commercial scale. We are working with another CDMO to develop a scalable baculovirus production system for our pipeline in close collaboration with our internal process development team. In this baculovirus production system, AAV vectors are produced by infection of insect cells with recombinant baculoviruses. This scalable suspension production system, using single-use bioreactors, is designed to produce higher yields of vectors more cost-effectively and efficiently than mammalian cell-based approaches. We plan to have the baculovirus-based process developed and producing cGMP-compliant batches in time to support our pivotal clinical trials for each of our programs. We believe the baculovirus production system will maximize our ability to ensure cost-efficient, safe and scalable supply at the higher quantities required for late-stage clinical development and commercialization.

At each stage, we will continually work together with our CDMOs to improve our manufacturing processes and to optimize productivity, efficiency, yield, purity and scalability, and to meet the standards of global regulatory authorities. We will own or license the intellectual property created by our process development activities and will maintain the ability to transfer the process to other third-party CDMOs and/or to our own potential facility to ensure ongoing redundancy and reliability.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. This is also true for the development and commercialization of treatments for Parkinson’s disease and other neurodegenerative diseases, Gaucher disease, and broadly across gene therapies. While we believe that our focus, strength of team, expertise in gene therapy, scientific knowledge and intellectual property provide us with competitive advantages, we face competition from several different sources, including large and small biopharmaceutical companies, academic research institutions, government agencies and public and private research institutions. Not only must we compete with other companies that are focused on gene transfer technology, but any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, clinical trials, regulatory approvals and product marketing than we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

We consider our most direct competitors with respect to PR001 to be companies developing GCase pathway-targeting therapies, including Sanofi Genzyme and Lysosomal Therapeutics, Inc. Sanofi Genzyme is

 

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developing SAR402671, a small molecule GluCer synthase inhibitor for the treatment of Parkinson’s disease with a GBA mutation and for the treatment of Type 3 Gaucher disease in adult patients. Lysosomal Therapeutics, Inc. is developing LTI-291, a small molecule activator of the GCase enzyme, for the treatment of Parkinson’s patients with a heterozygous mutation in the GBA gene. In addition to these investigational programs, there are several products targeting the GCase pathway that are approved or in development for Type 1 Gaucher disease, including approved ERTs and SRTs, but these ERTs and SRTs are not approved for neuronopathic Gaucher disease in the United States. There are other gene therapy companies that are attempting to use both AAV and lentiviral gene therapy approaches to treat Gaucher disease, but to our knowledge, none of those companies has noted plans to pursue PD-GBA.

Several companies are also developing therapies designed to prevent the progression of Parkinson’s disease and FTD. Examples include therapies in development by Alector, Inc., Biogen Inc., Denali Therapeutics Inc., Prothena Corporation plc and Roche Holding AG.

Intellectual Property

Overview

We actively seek to protect our proprietary technology, inventions, and other intellectual property that is commercially important to the development of our business by a variety of means, for example seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties. We also may rely on trade secrets and know-how relating to our proprietary technology platform, on continuing technological innovation and on in-licensing opportunities to develop, strengthen and maintain the strength of our position in the field of gene therapy that may be important for the development of our business. Additional regulatory protection may also be afforded through data exclusivity, market exclusivity and patent term extensions where available.

We have fourteen patent applications pending in the United States and foreign jurisdictions, of which six are international patent applications and eight are United States provisional patent applications. Of these, three international patent applications and three United States provisional patent applications relate to PR001, PR006 and PR004, and three international patent applications and five United States provisional patent applications relate to other technologies, in each case as described in more detail below. Each of our pending international patent applications has been filed under the Patent Cooperation Treaty and has not yet entered any national jurisdictions. Our policy is to file patent applications to protect technology, inventions and improvements to inventions that may be commercially important to the development of our business.

We seek United States and international patent protection for a variety of technologies, and own patent applications with claims directed to compositions of matter that relate to our gene therapy products, PR001, PR006 and PR004, and methods for treating diseases of interest using our gene therapy products. We also intend to seek patent protection or rely upon trade secret rights to protect other technologies that may be used to discover and validate targets, and that may be used to manufacture and develop novel gene therapy products. We are a party to license agreements that give us rights to use specific technologies in our gene therapy products and in manufacturing our products.

Patent applications directed to our most advanced programs are summarized below.

PR001

PR001 is an AAV-based gene product configured to express a codon-optimized, human beta-glucocerebrosidase (GBA1) gene, which encodes a wild-type GCase therapeutic protein. We own one pending international patent application and one pending United States provisional patent application that contain claims or supporting disclosure directed to the PR001 composition of matter and to methods of treating diseases of interest using PR001. Patents issuing from this application, if any, will have standard expiration dates in 2038.

 

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PR006

PR006 is an AAV-based gene product configured to express a codon-optimized, human progranulin gene, which encodes a wild-type progranulin therapeutic protein. We own one pending international patent application and one pending United States provisional patent application that contain claims or supporting disclosure directed to the PR006 composition of matter and to methods of treating diseases of interest using PR006. Patents issuing from this application, if any, will have standard expiration dates in 2038.

PR004

PR004 is an AAV-based gene product configured to express a codon-optimized, human beta-glucocerebrosidase (GBA1) gene, which encodes a wild-type GCase therapeutic protein and a molecule that suppresses expression of a-Synuclein. We own one pending international patent application and one pending United States provisional patent application that contain claims or supporting disclosure directed to the PR004 composition of matter and to methods of treating diseases of interest using PR004. Patents issuing from these applications, if any, will have standard expiration dates in 2038.

Other

We plan to seek United States and international patent protection for a variety of additional technologies.

We own two pending international patent applications and four pending United States provisional patent applications that include claims directed to other AAV-based therapeutic transgenes and methods of treating diseases of interest. Patents issuing from these applications, if any, will have standard expiration dates between 2038 and 2039.

We own one pending international patent application that includes claims directed to compositions and methods for medical imaging. Patents issuing from this application, if any, will have standard expiration dates in 2039.

We own one pending United States provisional patent application that include claims directed to methods of delivering therapeutic molecules. Patents issuing from this application, if any, will have standard expiration dates in 2039.

Trade Secrets

We also rely on trade secrets, know-how, continuing technological innovation and confidential information to develop and maintain our proprietary position and protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and others who may have access to proprietary information, under which they are bound to assign to us inventions made during the term of their employment or term of service. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

Government Regulation

The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring and post-approval reporting of biologics such as those we are developing.

 

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Biological products are subject to regulation under the Food, Drug, and Cosmetic Act, or FDCA, and the Public Health Service Act, or PHSA, and other federal, state, local and foreign statutes and regulations. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.

U.S. Biologics Regulation

The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following:

 

   

completion of extensive preclinical laboratory tests and animal studies performed in accordance with applicable regulations, including the FDA’s Good Laboratory Practice, or GLP, regulations;

 

   

submission to the FDA of an investigational new drug application, IND, which must become effective before clinical trials may begin;

 

   

approval by an independent institutional review board, or IRB, or ethics committee at each clinical site before the trial is commenced;

 

   

performance of adequate and well-controlled human clinical trials to establish the safety, purity and potency of the proposed biologic product candidate for its intended purpose;

 

   

preparation of and submission to the FDA of a biologics license application, or BLA, after completion of all pivotal clinical trials;

 

   

satisfactory completion of an FDA Advisory Committee review, if applicable;

 

   

a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;

 

   

satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with current Good Manufacturing Practice requirements, or cGMPs, and to assure that the facilities, methods and controls are adequate to preserve the biological product’s continued safety, purity and potency, and of selected clinical investigation sites to assess compliance with the FDA’s good clinical practices, or GCPs; and

 

   

FDA review and approval, or licensure, of a BLA to permit commercial marketing of the product for particular indications for use in the United States.

Preclinical and Clinical Development

Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol or protocols for preclinical studies and clinical trials. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product, chemistry, manufacturing and controls information, and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human clinical trials involving recombinant or synthetic nucleic acid molecules are subject to oversight at

 

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the local level as set forth in the NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an Institutional Biosafety Committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing preclinical studies and clinical trials and clinical study results to public registries.

For purposes of BLA approval of a product candidate, human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

 

   

Phase 1. The investigational gene therapy product is initially introduced into patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.

 

   

Phase 2. The investigational product is administered to a limited patient population to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks.

 

   

Phase 3. The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

When these phases overlap or are combined, the trials may be referred to as Phase 1/2 or Phase 2/3. A Phase 1/2 clinical trial is a first-in-human trial that investigates both safety and preliminary efficacy of an investigational therapy. A Phase 2/3 clinical trial is a human trial that investigates both preliminary and confirmatory efficacy and safety to potentially support submission of a marketing application with the applicable regulatory authorities.

In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies may be made a

 

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condition to approval of the BLA. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical study investigators. The FDA or the sponsor or its data safety monitoring board may suspend a clinical study at any time on various grounds, including a finding that the research patients or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical study at its institution if the clinical study is not being conducted in accordance with the IRB’s requirements or if the biological product candidate has been associated with unexpected serious harm to patients. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov.

BLA Submission and Review

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. The submission of a BLA requires payment of a substantial application user fee to the FDA, unless a waiver or exemption applies. The FDA has sixty days from the applicant’s submission of a BLA to either issue a refusal to file letter or accept the BLA for filing, indicating that it is sufficiently complete to permit substantive review.

Once a BLA has been accepted for filing, the FDA’s goal is to review standard applications within ten months after it accepts the application for filing, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In both standard and priority reviews, the review process is often significantly extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent for its intended use, and whether the facility in which it is manufactured, processed, packed or held meets standards designed to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be manufactured, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of the product with specific

 

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prescribing information for specific indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification, which may include the potential requirement for additional clinical studies. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and 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 also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

Expedited Development and Review Programs

The FDA offers a number of expedited development and review programs for qualifying product candidates. The fast track program is intended to expedite or facilitate the process for reviewing new products that meet certain criteria. Specifically, new products are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a fast track product has opportunities for frequent interactions with the review team during product development and, once a BLA is submitted, the product may be eligible for priority review. A fast track product may also be eligible for rolling review, where the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.

A product intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product, including involvement of senior managers.

Any marketing application for a biologic submitted to the FDA for approval, including a product with a fast track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide a significant improvement in the treatment,

 

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diagnosis or prevention of a serious disease or condition. For original BLAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date.

Additionally, products studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

Fast track designation, breakthrough therapy designation and priority review do not change the standards for approval but may expedite the development or approval process. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for this type of disease or condition will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.

If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusive approval (or exclusivity), which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application fee.

A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Post-Approval Requirements

Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and

 

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promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing user fee requirements, under which the FDA assesses an annual program fee for each product identified in an approved BLA. Biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance.

The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

 

   

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

 

   

fines, warning or untitled letters or holds on post-approval clinical studies;

 

   

refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of existing product approvals;

 

   

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

 

   

consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;

 

   

mandated modification of promotional materials and labeling and the issuance of corrective information;

 

   

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

 

   

injunctions or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

 

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Biosimilars and Reference Product Exclusivity

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, includes a subtitle called the Biologics Price Competition and Innovation Act, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-approved reference biological product. To date, a number of biosimilars have been licensed under the BPCIA, and numerous biosimilars have been approved in Europe. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.

Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. Complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.

The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation, and impact of the BPCIA is subject to significant uncertainty.

Foreign Regulation

In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety, and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

Other Healthcare Laws and Compliance Requirements

Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business. Such laws

 

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include, without limitation: the U.S. federal Anti-Kickback Statute, the civil False Claims Act, HIPAA and similar foreign, federal and state fraud and abuse, transparency and privacy laws.

The U.S. federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration, to induce, or in return for, either the referral of an individual, or the purchase or recommendation of an item or service for which payment may be made under any federal healthcare program. The term remuneration has been interpreted broadly to include anything of value, including stock options. The U.S. federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and others on the other hand. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, but they are drawn narrowly, and practices that involve remuneration, such as consulting agreements, that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the U.S. federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.

Civil and criminal false claims laws, and civil monetary penalty laws, including the civil False Claims Act, which can be enforced through civil whistleblower or qui tam actions, prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment to the federal government, including federal healthcare programs, that are false or fraudulent. For example, the civil False Claims Act prohibits any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.

HIPAA created additional federal civil and criminal liability for, among other things, executing a scheme to defraud any healthcare benefit program, including private third-party payors, and making false statements relating to healthcare matters. In addition, HIPAA, as amended by HITECH, and their implementing regulations, impose certain requirements on HIPAA covered entities, which include certain healthcare providers, healthcare clearing houses and health plans, and individuals and entities that provide services on their behalf that involve individually identifiable health information, known as business associates, relating to the privacy, security and transmission of individually identifiable health information.

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

We are also subject to additional similar U.S. state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors, including private insurers, or that apply regardless of payor, state laws which require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance

 

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promulgated by the federal government, state and local laws which require pharmaceutical companies to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, state laws which require the reporting of information related to drug pricing, state and local laws requiring the registration of pharmaceutical sales and medical representatives, and state and foreign laws governing the privacy and security of health information which, in some cases, differ from each other in significant ways, and may not have the same effect, thus complicating compliance efforts. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply, we may be subject to penalties, including, without limitation, significant civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations.

Coverage and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical or biological product for which we obtain regulatory approval. Sales of any product, if approved, depend, in part, on the extent to which such product will be covered by third-party payors, such as federal, state, and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and the level of reimbursement, if any, for such product by third-party payors. Decisions regarding whether to cover any of our product candidates, if approved, the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. Further, no uniform policy for coverage and reimbursement exists in the United States, and coverage and reimbursement can differ significantly from payor to payor. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization. In addition, companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical or biological products, will apply to companion diagnostics.

In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost effectiveness of pharmaceutical or biological products, medical devices and medical services, in addition to questioning safety and efficacy. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product that receives approval. Decreases in third-party reimbursement for any product or a decision by a third-party not to cover a product could reduce physician usage and patient demand for the product. No regulatory authority has granted approval for a personalized cancer immunotherapy based on a vaccine approach, and there is no model for reimbursement of this type of product.

Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of reform proposals to change the healthcare system. There is significant interest in promoting changes in healthcare

 

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systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by federal and state legislative initiatives, including those designed to limit the pricing, coverage, and reimbursement of pharmaceutical and biopharmaceutical products, e