S-1 1 d636583ds1.htm FORM S-1 Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on June 3, 2019.

Registration No. 333-                    

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

INHIBRX, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2836   82-4257312

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

11025 N. Torrey Pines Road, Suite 200

La Jolla, CA 92037

(858) 795-4220

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

 

 

Mark Lappe

Chief Executive Officer

Inhibrx, Inc.

11025 N. Torrey Pines Road, Suite 200

La Jolla, CA 92037

(858) 795-4220

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

Copies to:

 

Jeremy Glaser

Megan Gates

Melanie Ruthrauff Levy

Mintz, Levin, Cohn, Ferris, Glovsky &

Popeo, P.C.

3580 Carmel Mountain Road, Suite 300

San Diego, CA 92130

(858) 314-1500

 

Charles S. Kim

Sean Clayton

Richard Segal

David Peinsipp

Will H. Cai

Cooley LLP

4401 Eastgate Mall

San Diego, CA 92121

(858) 550-6000

 

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

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

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please 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  

Proposed

Maximum
Aggregate

Offering Price(1)

  Amount of
Registration Fee(2)

Common stock, $0.0001 par value per share

  $ 74,750,000   $ 9,060

 

 

(1)

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

(2)

Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate initial public offering price.

 

 

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

 

Subject to Completion, Dated June 3, 2019

            Shares

 

LOGO

Common Stock

 

 

Inhibrx, Inc. is offering                 shares of its common stock. The initial public offering price of our common stock is expected to be between $                and $                per share. This is our initial public offering and no public market currently exists for our common stock. We have applied to list our common stock on the Nasdaq Global Market under the symbol “INBX.”

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 13 to read about factors you should consider before buying shares of our common stock.

We are an “emerging growth company” as defined under the U.S. federal securities laws and, as such, intend to comply with certain reduced public company reporting requirements for this and future filings.

 

     Per Share      Total  

Initial public offering price

    $                         $                    

Underwriting discounts and commissions(1)

    $                 $                

Proceeds, before expenses, to Inhibrx, Inc.

    $                 $                

 

  (1) 

We have agreed to reimburse the underwriters for certain expenses. We refer you to the section titled “Underwriting” for additional disclosure regarding total underwriting compensation.

The underwriters have an option to purchase a maximum of                 additional shares.

Chiesi Farmaceutici S.p.A. has agreed to purchase from us, in a separate private placement concurrent with the completion of this offering, shares of our common stock with an aggregate purchase price of $10.0 million at a price per share equal to the initial public offering price. The sale of shares in the concurrent private placement is being conducted pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended. The closing of this offering is not conditioned upon the closing of the concurrent private placement. The shares of common stock purchased in the concurrent private placement will not be subject to any underwriting discounts or commissions.

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.

Delivery of the shares of common stock is expected to be made on or about                , 2019.

Joint Bookrunners:

 

Evercore ISI    Barclays

Nomura

Co-Manager:

Raymond James

 

 

The date of this prospectus is                     , 2019


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TABLE OF CONTENTS

 

Prospectus Summary

     1  

Risk Factors

     13  

Special Note Regarding Forward-Looking Statements

     61  

Market and Other Industry Data

     63  

Use of Proceeds

     64  

Dividend Policy

     66  

Merger and Financings

     67  

Capitalization

     69  

Dilution

     71  

Selected Consolidated Financial Data

     74  

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

     76  

Business

     96  

Management

     134  

Executive and Director Compensation

     140  

Certain Relationships and Related Party Transactions

     148  

Principal Stockholders

     157  

Description of Capital Stock

     160  

Shares Eligible for Future Sale

     165  

Material U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders

     168  

Underwriting

     172  

Legal Matters

     179  

Experts

     179  

Where You Can Find More Information

     179  

Index to Consolidated Financial Statements

     F-1  

 

 

We 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 take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

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

Through and including                , 2019 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus and the information set forth under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Unless the context otherwise requires, we use the terms “Inhibrx,” “Company,” “we,” “us” and “our” in this prospectus to refer to Inhibrx, Inc. and its wholly owned subsidiary, INBRX 103, LLC, taken as a whole.

Overview

We are a clinical-stage biotechnology company focused on developing a broad pipeline of novel biologic therapeutic candidates. We combine a deep understanding of target biology with innovative protein engineering, proprietary discovery technologies, and an integrative approach to research and development to design highly differentiated therapeutic candidates. Central to these efforts is our proprietary single domain antibody, or sdAb, platform. Our culture empowers data-driven decision making with the aim of eliminating candidate-selection bias in discovery and development. Initially, we are pursuing therapeutic candidates directed to validated targets, where we believe our protein engineering technologies can overcome prior therapeutic limitations. We currently have three oncology programs in human clinical trials as well as a rare disease program for which we expect to initiate a clinical trial in the third quarter of 2019. We also have a preclinical program for which we expect to submit an Investigational New Drug application, or IND, to the United States Food and Drug Administration, or FDA, in 2019 and a preclinical program for which we submitted an IND to the FDA in May 2019. We retain worldwide rights to all of our programs, except for our INBRX-103 therapeutic candidate, for which worldwide rights have been licensed to Celgene Corporation, or Celgene, our INBRX-101 therapeutic candidate, for which we have entered into an option agreement with Chiesi Farmaceutici S.p.A., or Chiesi, for development and commercialization rights outside of the United States and Canada, and certain other therapeutic candidates for which we licensed limited commercial and development rights in certain Asian regions to key collaborators.

We utilize diverse methods of protein engineering to address the specific requirements of complex target and disease biology. We believe our sdAb platform can enable the development of therapeutic candidates with unique mechanisms of action and attributes superior to current monoclonal antibody, or mAb, and fusion protein approaches. sdAbs are highly modular and can be combined to create therapeutic candidates with defined valencies and multiple specificities, enabling enhanced cell signaling and conditional activation. Importantly, our sdAb-based therapeutic candidates are manufactured by established processes used to produce therapeutic proteins.



 

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Our Pipeline

We have developed a broad and diverse therapeutic candidate pipeline, as shown below:

 

LOGO

*

Third party partnerships with Chinese biotechnology companies currently in place for development and commercialization in China, Hong Kong, Macau and/or Taiwan.

+

Global rights for this therapeutic candidate have been licensed to Celgene.

D

Commercialization and development rights outside of the United States and Canada subject to option agreement with Chiesi.

INBRX-109

INBRX-109 is a multivalent agonist of death receptor 5, or DR5, which we developed utilizing our sdAb platform. Agonism, or clustering, of DR5 receptors initiates a signaling pathway within the cell leading to tumor cell specific apoptosis, or programmed cell death. The process of clustering multiple cell surface receptors in close proximity to one another is essential to induce efficient signaling within a cell. Previously explored approaches using conventional mAbs or a recombinant tumor necrosis factor-related apoptosis-inducing ligand to target DR5 showed limited clinical efficacy, which we believe was due to an inability to effectively cluster multiple receptors together. To enhance clustering, a first-generation tetravalent DR5 agonist, TAS266, was developed by a third party and showed more potency in multiple preclinical models. Despite promising preclinical data, dose-limiting human toxicities were observed, which may have resulted from pre-existing anti-drug antibodies to TAS266. To overcome the limitations of ineffective clustering, we designed INBRX-109 as a tetravalent DR5 agonist capable of binding and clustering exactly four receptors per molecule. Additionally, INBRX-109 was designed to avoid recognition by pre-existing anti-sdAb antibodies commonly present in humans. In preclinical testing, DR5 signaling activated programmed cell death has been observed to be directly proportionally to the number of DR5 molecules clustered. We believe INBRX-109 has the potential to show clinical activity across multiple tumor types, including difficult-to-treat gastrointestinal tumors and mesothelioma. In addition, we believe INBRX-109 has the potential to act as both a single agent and in combination with apoptotic pathway modulators or chemotherapy. INBRX-109 is currently being investigated in a Phase 1 clinical trial in patients with solid tumors including sarcomas. We expect to announce data from the Phase 1 dose escalation portion of this trial in the second half of 2019, and treatment cohort efficacy data in the middle of 2020.

INBRX-105

INBRX-105 is both an antagonist of programmed death ligand 1, or PD-L1, and a conditional agonist of 4-1BB that we developed with our sdAb platform. The approval of checkpoint inhibitors that block the



 

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interaction between programmed cell death protein 1, or PD-1, and PD-L1 has caused a paradigm shift in oncology treatment due to their substantial response rates and overall survival benefit across numerous cancers. These therapeutics, however, achieve a lasting benefit only for a minority of patients and therefore additional therapeutic candidates have been tested clinically with the goal of further activating tumor reactive T-cells. These additional therapeutic candidates include agonist antibodies targeting 4-1BB. 4-1BB is a receptor belonging to the tumor necrosis factor receptor superfamily that has been shown to provide co-stimulatory function to T-cells. While a 4-1BB agonist has shown clinical promise, systemic activation of 4-1BB led to toxicities that ultimately restricted the dose level administered and, in turn, limited efficacy. To overcome these limitations, we designed INBRX-105 to block PD-1 binding and to conditionally agonize 4-1BB only in the presence of PD-L1, which is typically only found in the tumor microenvironment and associated lymphoid tissues. We believe this unique mechanism of action has the potential to enhance the anti-tumor response and limit systemic toxicity. INBRX-105 has exhibited promising T-cell co-stimulatory activity in our preclinical studies through activation of antigen specific T-cells to levels in excess of those achieved with a combination of separate PD-L1 and 4-1BB targeting agents. We believe INBRX-105 has the potential to treat patients with PD-L1 expressing tumors, including those refractory to or relapsed from approved checkpoint inhibitor therapies. The IND for INBRX-105 became effective in October 2018, and we initiated a Phase 1 clinical trial in February 2019. We expect to announce dose escalation data from this trial in the second half of 2020.

INBRX-101

INBRX-101 is an Fc-fusion protein-based therapeutic candidate comprising a modified recombinant version of human alpha-1 antitrypsin, or AAT, that we are developing for the treatment of patients with alpha-1 antitrypsin deficiency, or AATD. AATD is a genetically defined rare respiratory disease characterized by progressive destruction of lung tissue that has an FDA approved diagnostic. According to the Alpha-1 Foundation, this disease affects roughly 100,000 people in the United States and approximately the same number of people in Europe. The current standard of care for patients with AATD has been unchanged for decades and relies on weekly infusions of plasma derived AAT, or pdAAT, therapeutics. According to the American Journal of Respiratory and Critical Care Medicine, there are currently approximately 10,000 AATD patients worldwide receiving plasma-derived augmentation therapies, and according to Transparency Market Research, the worldwide market for AATD treatment is expected to grow from $1.2 billion in 2016 to $2.9 billion in 2025. AAT has proven difficult to develop recombinantly, often displaying loss of activity and experiencing accelerated degradation. INBRX-101 is designed to offer superior clinical activity to pdAAT by providing sustained enhanced plasma concentration with a less frequent, monthly dosing regimen. The IND for INBRX-101 became effective in November 2018, and we expect to initiate a Phase 1 dose escalation clinical trial in the third quarter of 2019. In May 2019, we entered into an option agreement, or the Chiesi Option Agreement, with Chiesi, pursuant to which we granted Chiesi an option to obtain an exclusive license to develop and commercialize INBRX-101 outside of the United States and Canada following completion of the contemplated Phase 1 trial. We expect to announce interim data from this trial in the second half of 2020.

INBRX-103

INBRX-103 is a mAb that targets cluster of differentiation 47, or CD47, which blocks a tumor protective pathway. CD47 is co-opted by many tumor types to protect tumor cells from being engulfed by macrophages. Despite promising activity, anti-CD47 antibody therapeutics are known to cause anemia and infusion reactions. To our knowledge, INBRX-103 was the first anti-CD47 antibody observed preclinically to block the interaction of CD47 and signal regulatory protein alpha, or SIRPa, without causing agglutination, or clumping, of red blood cells. In preclinical studies, administration of INBRX-103 was not associated with red blood cell or platelet depletion and exhibited a favorable toxicity profile in primates. We believe this lack of red blood cell agglutination could result in a differentiated clinical profile with a lower probability for anemia and infusion reactions. We believe this program has broad therapeutic potential in combination with tumor-targeting



 

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antibodies that can engage activating Fc receptors. We licensed worldwide development and commercialization rights to INBRX-103 to Celgene, which refers to the therapeutic candidate as CC-90002, in 2013, and Celgene is currently conducting a Phase 1 clinical trial of this therapeutic candidate in combination with rituximab.

Preclinical Programs

We are also developing a portfolio of preclinical therapeutic candidates leveraging our sdAb platform. In May 2019, we submitted an IND to the FDA for INBRX-106, our OX40 agonist therapeutic candidate for the treatment of various oncology indications, and we expect to submit an IND to the FDA for an additional therapeutic candidate in the second half of 2019. We have the full rights to develop and commercialize our preclinical pipeline and platform in all major markets, with the exception of third-party partnerships in place for the development and commercialization of INBRX-106 in China, Hong Kong, Macau and Taiwan.

Our Leadership Team and Board of Directors

We have carefully assembled a team with deep scientific and clinical experience in discovering and developing protein therapeutics. Our in-house capabilities span the disciplines of discovery, protein engineering, cell biology, translational research, chemistry, manufacturing and controls, or CMC, and clinical development. Members of our team bring experience from multiple organizations including Genentech, Inc., Gilead Sciences, Inc., Merck & Co. and Novartis AG. Our board of directors is comprised of individuals with proven business and scientific accomplishments and significant operating knowledge of our company.

Our Strategy

At Inhibrx, our mission is to discover and develop effective biologic treatments for people with life-threatening conditions and to evolve Inhibrx into a commercial-stage biotechnology company with a differentiated and sustainable product portfolio by focusing on the following:

 

   

Rapidly advancing and optimizing the clinical development of our lead programs.

We have built an experienced translational research, CMC and clinical development team to streamline the advancement of our lead therapeutic candidates both internally and by leveraging external relationships. To augment our U.S.-centric clinical strategy for our oncology therapeutic candidates, we have formed collaborations in China designed to provide access to patient populations for clinical trials not readily available in the United States, including treatment-naïve patients, and to facilitate rapid patient enrollment with the goal of generating more robust early clinical data. We believe this harmonized clinical strategy may allow us to accelerate our development timelines.

 

   

Applying our sdAb platform and other protein technologies to create differentiated therapeutics in multiple disease areas.

We have developed an sdAb platform and other protein technologies that we believe can be applied to meet the specific challenges of complex target biology. Our current pipeline is focused on oncology, orphan diseases and infectious diseases. We plan to expand to additional therapeutic areas where we believe we can create solutions to address challenges of both validated and novel targets and generate differentiated therapeutics.

 

   

Continuing our culture of innovation, execution and efficiency.

Over the last nine years we have carefully built an innovative culture that encourages scientific risk-taking within the bounds of our data-driven philosophy. This enables our research and development team to discover numerous promising preclinical candidates cost effectively, from which we select what we believe are highly differentiated programs for clinical development. We also utilize licensing of non-core assets and restricted geographic rights as well as grants to reduce the capital required from investors.



 

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Scaling our capabilities to support the commercialization of our pipeline.

When appropriate, we intend to develop the commercial infrastructure required for bringing any approved products to patients in the United States and to evaluate options for delivering any approved products to patients in other key markets, such as Europe, Japan, and China, which may include strategic partnering, to maximize commercial opportunities.

Convertible Note Financing

In May 2019, we sold and issued a convertible promissory note in the aggregate principal amount of $40.0 million, or the Viking Note, to DRAGSA 50 LLC, an entity affiliated with Viking Global Investors LP, in a private placement transaction. The Viking Note will not accrue interest until February 15, 2020. The aggregate principal of the Viking Note will automatically convert and settle into shares of our common stock immediately prior to the completion of this offering at a conversion price equal to 90% of the initial public offering price per share. Viking will own approximately         % of the total number of shares of our common stock outstanding after the completion of this offering, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

Concurrent Private Placement and Chiesi Option Agreement

In May 2019, we entered into the Chiesi Option Agreement with Chiesi, pursuant to which we granted Chiesi an option to obtain an exclusive license to develop and commercialize INBRX-101 outside of the United States and Canada following completion of the contemplated Phase 1 trial for INBRX-101 and pursuant to which Chiesi is required to pay us $10.0 million within five days of completion of this offering as an option initiation payment provided this offering closes on or prior to February 15, 2020. Additionally, independent and separable from the Chiesi Option Agreement, Chiesi agreed to purchase shares of our common stock with an aggregate purchase price of $10.0 million in a separate private placement concurrent with the completion of this offering at a price per share equal to the initial public offering price. The sale of shares in the concurrent private placement is being conducted pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, or the Securities Act. The closing of this offering is not conditioned upon the closing of the concurrent private placement. The shares of common stock purchased in the concurrent private placement will not be subject to underwriting discounts or commissions. Chiesi will own approximately         % of the total number of shares of our common stock outstanding after the completion of this offering, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus. If Chiesi exercises its option under the Chiesi Option Agreement, then Chiesi must pay us a one-time, non-refundable fee of $12.5 million upon the effective date of the definitive agreement granting Chiesi the exclusive license.

Risk Factors

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary. These risks include, among others, the following:

 

   

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

 

   

Biotechnology product development is a highly speculative undertaking and involves a substantial degree of uncertainty. We have never generated any revenue from product sales and may never be profitable.

 

   

Our therapeutic candidates are in early stages of development and may fail or suffer delays that materially and adversely affect their commercial viability, and the results of any preclinical studies or



 

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early stage clinical trials may not be predictive of the results of later clinical trials. If we, or our collaboration partners, are unable to advance our therapeutic candidates through clinical development, obtain regulatory approval and ultimately commercialize our therapeutic candidates, or experience significant delays in doing so, our business will be materially harmed.

 

   

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our therapeutic candidates, our business will be substantially harmed.

 

   

We will need substantial additional funding in order to complete the development and commercialization of our therapeutic candidates.

 

   

We and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting. 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 statements and other public reporting, which would harm our business and the trading price of our common stock.

 

   

We rely on third parties to conduct all of our clinical trials, certain of our preclinical studies and for the manufacture of our therapeutic candidates and intend to continue to do so. If these third parties do not perform as contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development programs could be delayed with material and adverse effects on our business, financial condition, results of operations and prospects.

 

   

If we are not able to obtain and enforce patent protection for our technologies or therapeutic candidates, development and commercialization of our therapeutic candidates may be adversely affected.

 

   

We face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than the therapeutic candidates we develop, our commercial opportunities will be negatively impacted.

 

   

The report of our independent registered public accounting firm expresses substantial doubt about our ability to continue as a going concern.

Corporate and Other Information

We were incorporated under the laws of the State of Delaware on November 17, 2017 under the name Tenium Therapeutics, Inc. In April 2018, we changed our name to Inhibrx, Inc. Our principal executive offices are located at 11025 N. Torrey Pines Road, Suite 200, La Jolla, CA 92037, and our telephone number is (858) 795-4220. Our website address is www.inhibrx.com. The information contained on, or that can be accessed through, our website is not part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock.

The mark “Inhibrx” is our registered trademark. All other service marks, trademarks and trade names appearing in this prospectus are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

Implications of Being an Emerging Growth Company and a Smaller Reporting Company

We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, as amended. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year



 

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following the fifth anniversary of the completion of this offering, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such fiscal year or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company,

 

   

we have presented in this prospectus only two years of audited financial statements, in addition to any required unaudited condensed financial statements for any interim period, with correspondingly reduced Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

 

   

we may avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;

 

   

we may provide reduced disclosure about our executive compensation arrangements; and

 

   

we may not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.

We are also a “smaller reporting company” as defined in Regulation S-K under the Securities Act of 1933, as amended, and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies. We may be a smaller reporting company even after we are no longer an emerging growth company.



 

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The Offering

 

Common stock offered by us

                 shares

 

Option to purchase additional shares

The underwriters have an option, exercisable within 30 days of the date of this prospectus, to purchase up to             additional shares of our common stock.

 

Concurrent private placement

Chiesi Farmaceutici S.p.A. has agreed to purchase, in a separate private placement concurrent with the completion of this offering, shares of our common stock with an aggregate purchase price of $10.0 million at a price per share equal to the initial public offering price or approximately                  shares of common stock assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus. The sale of shares in the concurrent private placement is being conducted pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended. The closing of this offering is not conditioned upon the closing of the concurrent private placement. The shares of common stock purchased in the concurrent private placement will not be subject to any underwriting discounts or commissions.

 

Common stock to be outstanding immediately after this offering, the concurrent private placement and the conversion and settlement of the aggregate outstanding principal amount under the Viking Note

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

 

Use of proceeds

We estimate the net proceeds from this offering will be approximately $        million (or $        million if the underwriters exercise their option to purchase additional shares in full), assuming an initial public offering price of $        per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We expect that the gross proceeds from the concurrent private placement will be approximately $10.0 million.

 

  We intend to use the net proceeds from this offering and the concurrent private placement to complete the ongoing Phase 1 clinical trials of INBRX-109 and INBRX-105, to complete the contemplated Phase 1 trial for INBRX-101 and to fund our research and development activities, as well as for working capital and other general corporate purposes. See the section titled “Use of Proceeds” for additional information.


 

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Risk factors

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

 

Proposed Nasdaq Global Market symbol

“INBX”

The number of shares of our common stock to be outstanding after this offering and the concurrent private placement is based on 31,555,556 shares of our common stock outstanding as of March 31, 2019, and gives further effect to (i) the conversion of all of our outstanding shares of convertible preferred stock as of March 31, 2019 into 12,534,331 shares of common stock immediately prior to the completion of this offering and (ii) the conversion and settlement of the aggregate outstanding principal amount under the Viking Note into                      shares of our common stock, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, in connection with the closing of this offering, and excludes:

 

   

3,221,000 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2019 at a weighted average exercise price of $6.14 per share;

 

   

334,555 shares of common stock reserved for issuance pursuant to future awards under our 2017 Employee, Director and Consultant Equity Incentive Plan, or the 2017 Plan, as of March 31, 2019; and

 

   

444,445 additional shares of our common stock that will become available for future issuance under the 2017 Plan in connection with the completion of this offering, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan.

Except as otherwise indicated, all information contained in this prospectus assumes or gives effect to:

 

   

the conversion of all of our outstanding shares of convertible preferred stock as of March 31, 2019 into 12,534,331 shares of common stock immediately prior to the completion of this offering;

 

   

the conversion and settlement of the aggregate outstanding principal amount under the Viking Note into             shares of our common stock, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, in connection with the closing of this offering;

 

   

the issuance and sale by us of             shares of common stock to Chiesi in the concurrent private placement, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus;

 

   

no exercise of the outstanding options described above;

 

   

no exercise by the underwriters of their option to purchase up to an additional                  shares of our common stock;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation and amended and restated bylaws prior to the completion of this offering; and

 

   

a one-for-                reverse stock split of our common stock effected on                 , 2019.

Common Stock Outstanding

The actual number of shares of our common stock to be issued upon conversion of the Viking Note and to Chiesi in the concurrent private placement depends on the initial public offering price of our common stock.



 

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Based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, we will issue             shares of our common stock upon settlement and conversion of the aggregate principal amount under the Viking Note and         shares of common stock to Chiesi in the concurrent private placement. For illustrative purposes only, the table below shows the number of shares of our common stock issuable to Chiesi in the concurrent private placement and to Viking upon conversion and settlement of the Viking Note at various initial public offering prices, as well as the total number of shares of our common stock that would be outstanding after this offering:

 

Assumed Initial Public Offering Price ($)

   Common Stock Issuable
Upon Conversion of
Viking Note
     Common Stock
Issuable to Chiesi in
the Concurrent
Private Placement
     Estimated
Total Common Stock
Outstanding
 

                             

                                                           


 

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Summary Consolidated Financial Data

We have derived the summary consolidated statements of operations data for the years ended December 31, 2017 and 2018 and the summary consolidated balance sheet data as of December 31, 2018 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary condensed consolidated statement of operations data for the three months ended March 31, 2018 and 2019 and the summary condensed consolidated balance sheet data as of March 31, 2019 from our unaudited interim financial statements included elsewhere in this prospectus. Our unaudited interim financial statements were prepared on the same basis as our audited financial statements and, in our opinion, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for the fair presentation of the financial information in those statements. The summary consolidated financial data included in this section are not intended to replace the consolidated financial statements and the related notes included elsewhere in this prospectus. You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of results that should be expected in the future and our results for the three months ended March 31, 2019 are not necessarily indicative of results that should be expected for the year ending December 31, 2019.

 

    Year Ended
December 31,
    Three Months Ended
March 31,
 
    2017     2018     2018     2019  
(in thousands, except per share data)               (unaudited)  

Consolidated Statements of Operations Data:

       

Revenue:

       

License fee revenue

  $ 7,950     $ 7,500     $  2,500     $  7,032  

Grant revenue

    441       1,095       293       1,488  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    8,391       8,595       2,793       8,520  

Operating expenses:

       

Research and development

    25,510       33,454       10,779       10,665  

General and administrative

    2,609       4,654       911       1,467  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    28,119       38,108       11,690       12,132  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    (2,102     (1,412     (423     (235

Provision for income taxes

    250       96       —         —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (22,080     (31,021     (9,320     (3,847

Accretion to redemption value of redeemable non-controlling interest

    (1,235     (737     (488     —    

Less: net loss attributable to non-controlling interest

    3,873       595       453       —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Inhibrx, Inc.

  $ (19,442   $ (31,163   $ (9,355   $ (3,847
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to Inhibrx, Inc., basic and diluted(1)

  $ (0.62   $ (0.99   $ (0.30   $ (0.12
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    31,556       31,556       31,556       31,556  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    $ (0.82     $ (0.09
   

 

 

     

 

 

 

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

      38,183         44,052  
   

 

 

     

 

 

 

 

(1)

See Note 1 to our consolidated financial statements included elsewhere in this prospectus for a description of how we compute basic and diluted net loss per share, basic and diluted unaudited pro forma net loss per share, and the weighted-average number of shares used in the computation of these per share amounts.



 

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

Consolidated Balance Sheet Data:

  

Cash

   $ 6,244     $        $                

Total assets

     24,025       

Debt

     8,085       

Total liabilities

     25,102       

Convertible preferred stock

     59,507       

Total stockholders’ (deficit) equity

     (60,584     

 

(1)

The pro forma consolidated balance sheet data gives effect to (i) the conversion of all outstanding shares of our convertible preferred stock into shares of common stock prior to the completion of this offering, (ii) the receipt of $40.0 million in gross proceeds from the sale of the Viking Note in May 2019, (iii) the conversion and settlement of the aggregate outstanding principal amount under the Viking Note into             shares of our common stock, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, immediately prior to completion of this offering, (iv) the receipt of approximately $10.0 million in gross proceeds from the sale and issuance by us of             shares of common stock to Chiesi in the concurrent private placement, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, (v) the receipt of $10.0 million from Chiesi as an option initiation payment pursuant to the Chiesi Option Agreement, and (vi) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering.

(2)

The pro forma consolidated as adjusted balance sheet data gives effect to (i) the pro forma adjustments set forth in footnote (1) above and (ii) the issuance and sale of                  shares of our common stock in this offering at the assumed initial public offering price of $        per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the pro forma as adjusted amount of each of cash, total assets and total stockholders’ (deficit) equity by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1.0 million shares in the number of shares we are offering at the assumed initial public offering price of $        per share would increase (decrease) the pro forma as adjusted amounts of each of cash, total assets and total stockholders’ (deficit) equity by approximately $        , after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering and the concurrent private placement determined at pricing.



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, operating results and prospects could be materially harmed. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

We are a clinical-stage biotechnology company. To date, we have financed our operations through equity and debt financings, license and milestone revenue and grants. We have incurred significant recurring operating losses since our inception. For the years ended December 31, 2017 and 2018, our net loss was $22.1 million and $31.0 million, respectively. Our net loss for the three months ended March 31, 2019 was $3.8 million. As of December 31, 2018 and March 31, 2019, we had an accumulated deficit of $17.9 million and $21.7 million, respectively. We expect to incur additional losses in future years as we execute our plan to continue our discovery, research and development activities, including the ongoing and planned preclinical and clinical development of our therapeutic candidates, and as we incur the additional costs of operating as a public company. We are unable to predict the extent of any future losses or when we will become profitable, if ever. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

As a result of the above, management concluded that there is substantial doubt about our ability to continue as a going concern. Management’s plans to address this uncertainty are discussed in Note 1 to our consolidated financial statements. The report of our independent registered public accountant on our financial statements as of and for the years ended December 31, 2017 and December 31, 2018 also includes explanatory language describing the existence of substantial doubt about our ability to continue as a going concern. There have been no adjustments to the accompanying financial statements to reflect this uncertainty.

Biotechnology product development is a highly speculative undertaking and involves a substantial degree of uncertainty. We have never generated any revenue from product sales and may never be profitable.

We have devoted substantially all of our financial resources and efforts to developing our therapeutic candidates, identifying potential therapeutic candidates and conducting preclinical studies and clinical trials. We are still in the early stages of developing our therapeutic candidates, and we have not yet demonstrated an ability to successfully conduct or complete any clinical trials, including large-scale, pivotal clinical trials, obtain marketing approval, manufacture a clinical or commercial scale product or arrange for a third party to do so on our behalf or conduct sales and marketing activities necessary for successful product commercialization. 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 more experience developing therapeutic candidates. Our ability to generate revenue and achieve profitability, including any revenue we may receive pursuant to the license agreement we entered into with Celgene Corporation, or Celgene, as amended on November 23, 2018, or the Celgene Agreement, depends in large part on our ability, alone or with license partners, to achieve milestones and to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize, our therapeutic candidates. Even if we achieve development or commercial

 

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milestones, generate product royalties or generate product sales, including any milestones and royalties we may be eligible to receive pursuant to the Celgene Agreement, we may never achieve or sustain profitability on a quarterly or annual basis. We do not anticipate generating revenue from sales of products for the foreseeable future. Our ability to generate future revenue from product sales depends heavily on our and our collaborators’ success in:

 

   

completing clinical trials through all phases of clinical development of our current therapeutic candidates, including INBRX-109, INBRX-105 and INBRX-101, as well as INBRX-103, which is currently in a Phase 1 trial pursuant to the Celgene Agreement;

 

   

advancing into clinical development our preclinical therapeutic candidates, including INBRX-106 and INBRX-111;

 

   

seeking and obtaining marketing approvals for our therapeutic candidates that successfully complete clinical trials;

 

   

obtaining satisfactory acceptance, formulary placement coverage and adequate reimbursement for our approved products from third-party payors, including private health insurers, managed care providers and governmental payor programs, including Medicare and Medicaid;

 

   

launching and commercializing products for which we obtain marketing approval, with a collaborator or, if launched independently, successfully establishing a sales force, marketing and distribution infrastructure;

 

   

establishing and maintaining supply and manufacturing relationships with third parties;

 

   

obtaining market acceptance of any approved products by physicians, patients, third-party payors and the medical community;

 

   

maintaining, protecting, expanding and enforcing our intellectual property portfolio;

 

   

implementing additional internal systems and infrastructure, as needed; and

 

   

attracting, hiring and retaining qualified personnel.

Because of the numerous risks and uncertainties associated with biological product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the United States Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, or other comparable foreign authorities to perform preclinical studies or clinical trials in addition to those we currently anticipate, or if there are any delays in completing our clinical trials or the development of any of our therapeutic candidates, our expenses could increase and revenue could be further delayed.

We expect we will need to raise substantial additional funds to advance development of our therapeutic candidates, and we cannot guarantee this additional funding will be available on acceptable terms or at all. Failure to obtain this funding when needed may force us to delay, limit or terminate our development efforts and, if any of our therapeutic candidates are approved, our commercialization efforts.

As of March 31, 2019, we had $6.2 million in cash. Additionally, in May 2019, we received gross proceeds of $40.0 million from the sale and issuance of the Viking Note. We expect our expenses to increase in future years as we execute our plan to continue our discovery, research and development activities, including the ongoing and planned preclinical and clinical development of our therapeutic candidates, and as we incur the additional costs of operating as a public company. Identifying potential therapeutic candidates and conducting preclinical testing and clinical trials are time consuming, expensive and uncertain processes that take years to complete, and we, or our collaborators, may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our therapeutic candidates, if approved, may not achieve commercial success.

 

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We believe that the net proceeds from this offering and the concurrent private placement, together with our existing cash, will be sufficient to fund our planned operations through                . However, changing circumstances or inaccurate estimates by us may cause us to use capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. For example, our current and our planned preclinical studies and clinical trials for our current therapeutic candidates or other therapeutic candidates we may seek to develop may encounter technical, enrollment or other issues that could cause our development costs to increase more than we expect. Because successful development of our therapeutic candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and commercialize our therapeutic candidates. Our ability to raise additional funds will depend on financial, economic and market conditions and other factors, over which we may have no or limited control. If adequate funds are not available on commercially acceptable terms when needed, we may be forced to delay, reduce or terminate the development or commercialization of all or part of our research programs or therapeutic candidates or we may be unable to take advantage of future business opportunities. In addition, any additional capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future therapeutic candidates.

Raising additional capital by issuing equity or debt securities may cause dilution to existing stockholders, and raising funds through lending and licensing or collaboration arrangements may restrict our operations or require us to relinquish proprietary rights.

Until such time as we can generate substantial revenue from product sales, if ever, we expect to finance our cash needs through a combination of equity and debt financings, strategic collaborations and license and development agreements. We do not have any committed external source of funds. To the extent that we raise additional capital by issuing equity securities, our existing stockholders’ ownership may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Equity and debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as redeeming our shares, making investments, incurring additional debt, making capital expenditures or declaring dividends.

The incurrence of indebtedness could result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants therein, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business. Additionally, under our existing debt financing agreement, we are subject to a variety of affirmative and negative covenants, including covenants that restrict our ability to declare dividends or incur additional indebtedness.

If we raise additional capital through collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or therapeutics candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional capital 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 therapeutic candidates that we would otherwise develop and market ourselves.

The report of our independent registered public accounting firm expresses substantial doubt about our ability to continue as a going concern.

Our audited consolidated financial statements as of and for the years ended December 31, 2017 and December 31, 2018 and unaudited consolidated financial statements as of and for the three months ended March 31, 2018 and 2019 were prepared assuming that we will continue as a going concern. However, we made a determination as of May 31, 2019 that there was substantial doubt about our ability to continue as a going concern for the 12 month period following May 31, 2019. Although we received an additional $40.0 million from the Viking Note transaction in May 2019, without the proceeds from this offering and the concurrent private

 

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placement, our history of recurring losses and anticipated expenditures for clinical development raises substantial doubt about our ability to continue as a going concern. Similarly, the report of our independent registered public accounting firm on our consolidated financial statements as of and for the years ended December 31, 2017 and December 31, 2018 includes explanatory language describing the existence of substantial doubt about our ability to continue as a going concern.

Such an opinion could materially limit our ability to raise additional funds through the issuance of new equity or debt securities or otherwise. There is no assurance that sufficient financing will be available when needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may also make it more difficult to operate our business due to concerns about our ability to meet our contractual obligations. Our ability to continue as a going concern is contingent upon, among other factors, the sale of the shares of our common stock in this offering or obtaining alternate financing. We cannot provide any assurance that we will be able to raise additional capital.

If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause significant delays in our clinical and regulatory efforts, which are critical to the realization of our business plan.

The accompanying consolidated financial statements do not include any adjustments that may be necessary should we be unable to continue as a going concern. If we cannot continue as a viable entity, you may lose some or all of your investment.

Risks Related to the Development, Clinical Testing and Commercialization of Our Therapeutic Candidates

Our therapeutic candidates are in early stages of development and may fail or suffer delays that materially and adversely affect their commercial viability. If we, or our collaborators, are unable to advance our therapeutic candidates through clinical development, obtain regulatory approval and ultimately commercialize our therapeutic candidates, or experience significant delays in doing so, our business will be materially harmed.

We are very early in our development efforts, with only three therapeutic candidates currently in clinical trials (INBRX-109, INBRX-105 and INBRX-103). We have no products on the market and our ability to achieve and sustain profitability depends on obtaining regulatory approvals for and successfully commercializing our therapeutic candidates, either alone or with our collaborators. Before obtaining regulatory approval for the commercial distribution of our therapeutic candidates, we, or our collaborators, must conduct extensive preclinical tests and clinical trials to demonstrate sufficient safety and efficacy of our therapeutic candidates in patients. Failure can occur at any time during the clinical trial process and our future clinical trial results may not be successful. As a result, we may not have the financial resources to continue development of, or to modify existing or enter into new license or collaboration for, a therapeutic candidate if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, therapeutic candidates, including:

 

   

negative or inconclusive results from our clinical trials, the clinical trials of our collaborators or the clinical trials of others for therapeutic candidates similar to ours, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program;

 

   

therapeutic-related side effects experienced by participants in our clinical trials, the clinical trials of our collaborators or by individuals using drugs or therapeutic biologics similar to our therapeutic candidates;

 

   

delays in submitting Investigational New Drug applications, or INDs, or comparable foreign applications or delays or failure in obtaining the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;

 

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conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

 

   

delays in enrolling research subjects or high drop-out rates of research subjects enrolled in clinical trials;

 

   

unfavorable FDA or other regulatory agency inspection and review of a clinical trial site;

 

   

inadequate supply or quality of therapeutic candidate components or materials or other supplies necessary for the conduct of our clinical trials or the clinical trials of our collaborators;

 

   

delay in the development or approval of companion diagnostic tests for our therapeutic candidates;

 

   

failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;

 

   

delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to our technology in particular; or

 

   

varying interpretations of data by the FDA and similar foreign regulatory agencies.

The therapeutic candidates we or our collaborators pursue may not demonstrate the necessary safety or efficacy requirements for regulatory approval. Further, a clinical trial may be suspended or terminated by us, our collaborators, the Institutional Review Boards of the institutions in which such trials are being conducted, the Data Safety Monitoring Board for such trial or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or 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 or therapeutic biologic, changes in governmental regulations, administrative actions or lack of adequate funding to continue the clinical trial. Clinical holds may be placed prior to a clinical trial even beginning, in order to address potential safety and risk concerns of regulatory authorities. Furthermore, we expect to rely on contract research organizations, or CROs, and clinical trial sites to ensure proper and timely conduct of our clinical trials and while we expect to enter into and have entered into agreements governing their committed activities, we have limited influence over their actual performance.

If we or our collaborators experience delays in the completion of, or termination of, any clinical trial of our therapeutic candidates, the commercial prospects of our therapeutic candidates will be harmed, and our ability to generate product revenue or receive royalties from any of these therapeutic candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue. Our approach to protein engineering is novel and unproven, and as such, the cost, time needed to develop and likelihood of success of our therapeutic candidates may be more uncertain than if we employed more established drug development approaches. Any of these occurrences may materially and adversely affect our business, financial condition, results of operations and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our therapeutic candidates.

The results of preclinical studies and early stage clinical trials of our therapeutic candidates may not be predictive of the results of later stage clinical trials. Initial success in our ongoing clinical trials may not be indicative of results obtained when these trials are completed or in later stage trials.

Success in preclinical studies and early clinical trials does not ensure that later and pivotal clinical trials will generate the same results, or otherwise provide adequate data to demonstrate the safety and efficacy of a therapeutic candidate. Frequently, therapeutic candidates that have shown promising results in preclinical studies

 

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or early clinical trials have subsequently suffered significant setbacks in later or pivotal clinical trials. Our therapeutic candidates in clinical trials, including INBRX-109, INBRX-105 and INBRX-103, may fail to show the desired safety and efficacy in clinical trials despite having progressed through preclinical studies and there can be no assurance that any of our clinical trials will ultimately be successful or support further clinical development of any of our therapeutic candidates. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any of these setbacks in our clinical development could have a material adverse effect on our business and operating results.

Our therapeutic candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our therapeutic candidates could cause us, our collaborators or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. Results of our clinical trials or the clinical trials of our collaborators could reveal a high and unacceptable severity of adverse side effects and it is possible that patients enrolled in these clinical trials could respond in unexpected ways. For instance, INBRX-109, INBRX-105 and INBRX-103 are all therapeutic candidates targeting oncology indications that are clinically evaluated in very sick populations, and INBRX-101 is a therapeutic candidate focused on an orphan disease (alpha-1 antitrypsin deficiency, or AATD), and as such, it may be difficult to establish safety and efficacy in these types of patient populations. Further, we intend to develop certain of our therapeutic candidates in combination with one or more cancer therapies. This combination may have additional side effects that were not present in preclinical studies or clinical trials of our therapeutic candidates conducted as a monotherapy or in combination with other cancer therapies. The uncertainty resulting from the use of our therapeutic candidates in combination with other cancer therapies may make it difficult to accurately predict side effects in future clinical trials.

If our clinical trials or the clinical trials of our collaborators reveal adverse side effects, our trials or the clinical trials of our collaborators could be suspended or terminated and the FDA or comparable foreign regulatory authorities could impose a clinical hold, order us to cease further development of or deny approval of our therapeutic candidates for any or all targeted indications. Such side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Further, clinical trials by their nature utilize a sample of the potential patient population. Rare and severe side effects of our therapeutic candidates may only be uncovered with a significantly larger number of patients exposed to our therapeutic candidates.

In the event that any of our therapeutic candidates receives regulatory approval and we, our collaborators or others identify undesirable side effects caused by a product or any other similar therapeutics, any of the following adverse events could occur:

 

   

regulatory authorities may withdraw their approval of the product or seize the product;

 

   

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

 

   

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

 

   

regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;

 

   

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

 

   

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

 

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the product may become less competitive; and

 

   

our reputation may suffer.

In addition, adverse side effects caused by any therapeutics that may be similar in nature to our therapeutic candidates could delay or prevent regulatory approval of our therapeutic candidates, limit the commercial profile of an approved label for our therapeutic candidates, or result in significant negative consequences for our therapeutic candidates following marketing approval.

We believe that any of the above described events could prevent us from achieving or maintaining market acceptance of our therapeutic candidates, if approved, and could delay, impede and/or substantially increase the costs of commercializing our therapeutic candidates thus significantly impacting our ability to successfully commercialize our therapeutic candidates and generate revenue. Any of the above described occurrences may materially and adversely affect our business, financial condition, results of operations and prospects.

We expect to develop certain of our therapeutic candidates in combination with other therapies, and safety or supply issues with combination use products may delay or prevent development and approval of our therapeutic candidates.

We intend to develop certain of our therapeutic candidates in combination with one or more approved or investigational cancer therapies. Even if any therapeutic candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product or that safety, efficacy, manufacturing or supply issues could arise with any of those existing therapies. If the therapies we use in combination with our therapeutic candidates are replaced as the standard of care for the indications we choose for any of our therapeutic candidates, the FDA or similar regulatory authorities outside of the United States may require us to conduct additional clinical trials. The occurrence of any of these risks could result in our own products, if approved, being removed from the market or being less successful commercially.

We also may evaluate our therapeutic candidates in combination with one or more cancer therapies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United States. We will not be able to market and sell any therapeutic candidate we develop in combination with an unapproved cancer therapy if that unapproved cancer therapy does not ultimately obtain marketing approval. In addition, unapproved cancer therapies face the same risks described with respect to our therapeutic candidates currently in development and clinical trials, including the potential for serious adverse effects, delay in their clinical trials and lack of FDA approval.

If the FDA or similar regulatory authorities outside of the United States do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing, or supply issues arise with, the drugs we choose to evaluate in combination our therapeutic candidates, we may be unable to obtain approval of or market any such therapeutic candidate.

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

We may not be able to initiate or continue clinical trials for our therapeutic candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. We may have particular difficulty enrolling patients for our future clinical trials for INBRX-101 as AATD is a rare disease with a relatively small patient population. Should any competitors have ongoing clinical trials for therapeutic candidates treating the same indications as our therapeutic candidates, patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ therapeutic candidates.

 

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Patient enrollment is affected by other factors including:

 

   

the severity of the disease under investigation;

 

   

the patient eligibility criteria for the study in question;

 

   

the perceived risks and benefits of the therapeutic candidate under study;

 

   

our payments for conducting clinical trials;

 

   

the patient referral practices of physicians; and

 

   

the proximity and availability of clinical trial sites for prospective patients.

Our inability to enroll a sufficient number of patients for any of our clinical trials could result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our therapeutic candidates and in delays to commercially launching our therapeutic candidates, if approved, which would materially harm our business.

If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, the commercialization of any of our therapeutic candidates may be delayed, and our business will be harmed.

Elsewhere in this prospectus we have provided a number of timing estimates regarding the submission of INDs, initiation of clinical trials and clinical development milestones, and the expected availability of data and topline data resulting from these trials for certain of our therapeutic candidates. We expect to continue to estimate the timing of these types of development milestones and our expected timing for the accomplishment of various other scientific, clinical, regulatory and other product development objectives. From time to time following the completion of this offering, we may publicly announce the expected timing of some of these events. However, the achievement of many of these milestones and events may be outside of our control. All of these timing estimations are based on a variety of assumptions we make which may cause the actual timing of these events to differ from the timing we expect, including

 

   

our available capital resources and our ability to obtain additional funding as needed;

 

   

the rate of progress, costs and results of our clinical trials and research and development activities;

 

   

our ability to identify and enroll patients who meet clinical trial eligibility criteria;

 

   

our receipt of approvals by the FDA, EMA and other regulatory authorities and the timing of these approvals;

 

   

our ability to access sufficient, reliable and affordable supplies of materials used in the manufacture of our therapeutic candidates;

 

   

the efforts of our collaborators and licensees, including Celgene, with respect to the commercialization of our therapeutics; and

 

   

the securing of, costs related to, and timing issues associated with, product manufacturing as well as sales and marketing activities if any of our therapeutic candidates are approved.

If we fail to achieve announced milestones in the timeframes we expect, the commercialization of any of our therapeutic candidates may be delayed, and our business and results of operations may be harmed and our stock price may decline.

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

As noted in this prospectus, we expect from time to time, to publish interim, topline or preliminary data from our clinical trials. This preliminary and interim data in our clinical trials may change as more patient data

 

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becomes available and are not necessarily predictive of final results. Preliminary and interim data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues, more patient data become available and we issue our final clinical trial report. Interim, topline and preliminary data also remains 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, preliminary and interim data should be viewed with caution until the final data are available. Material adverse changes in the final data compared to the interim data could significantly harm our business prospects.

The market opportunities for any current or future therapeutic candidate we develop, if and when approved, may be limited to those patients who are ineligible for established therapies or for whom prior therapies have failed, and may be small.

Cancer therapies are sometimes characterized as first-, second-, or third-line, and the FDA often approves new therapies initially only for third-line use. When cancer is detected early enough, first-line therapy, usually chemotherapy, hormone therapy, surgery, radiation therapy or a combination of these, is sometimes adequate to cure the cancer or prolong life without a cure. Second- and third-line therapies are administered to patients when prior therapy is not effective. We expect to initially seek approval of certain of our therapeutic candidates as a therapy for patients who have received one or more prior treatments. Subsequently, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval potentially as a first-line therapy, but there is no guarantee that therapeutic candidates we develop, even if approved, would be approved for first-line therapy, and, prior to any such approvals, we may have to conduct additional clinical trials.

The number of patients who have the cancers we are targeting may turn out to be lower than expected. Additionally, the potentially addressable patient population for our current programs or future therapeutic candidates may be limited, if and when approved. Even if we obtain significant market share for any therapeutic candidate, if and when approved, if the potential target populations are small, we may never achieve profitability without obtaining marketing approval for additional indications, including to be used as first- or second-line therapy.

We rely on third parties to conduct all of our clinical trials and certain of our preclinical studies and intend to continue to do so. If these third parties do not perform as contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development programs could be delayed with material and adverse effects on our business, financial condition, results of operations and prospects.

While we expect to continue our current clinical trials and expect to initiate clinical trials in the near term for many of our therapeutic candidates, we do not have the ability to independently conduct clinical trials. As such, we currently rely and intend to continue to rely on third-party clinical investigators, CROs, clinical data management organizations and consultants to help us design, conduct, supervise and monitor clinical trials of our therapeutic candidates. As a result, we will have less control over the timing, quality and other aspects of our clinical trials than we would have had we conducted them on our own. There is a limited number of third party service providers that specialize or have the expertise required to achieve our business objectives. If any of our relationships with these third party CROs or clinical investigators terminate, we may not be able to enter into arrangements with alternative CROs or investigators or to do so on commercially reasonable terms. Further, these investigators, CROs and consultants are not our employees and we have limited control over the amount of time and resources that they dedicate to our programs. These third parties may have contractual relationships with other entities, some of which may be our competitors, which may draw time and resources from our programs. The third parties with which we contract might not be diligent, careful or timely in conducting our preclinical studies or clinical trials, resulting in the preclinical studies or clinical trials being delayed or unsuccessful.

If we cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out their contractual duties, satisfy legal and regulatory requirements for the conduct of

 

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preclinical studies or clinical trials or meet expected deadlines, our clinical development programs could be delayed and otherwise adversely affected. In all events, we will be responsible for ensuring that each of our preclinical studies and clinical trials are conducted in accordance with the general investigational plan and protocols for the trial. The FDA requires preclinical studies to be conducted in accordance with good laboratory practices and clinical trials to be conducted in accordance with good clinical practices, or GCPs, including for designing, conducting, recording and reporting the results of preclinical studies and clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. Our reliance on third parties we do not control will not relieve us of these responsibilities and requirements. Any adverse development or delay in our clinical trials could have a material and adverse effect on our business, financial condition, results of operations and prospects.

We are dependent on Celgene for the successful development, manufacture and commercialization of INBRX-103. If Celgene does not devote sufficient resources to the development, manufacture and commercialization of INBRX-103, is unsuccessful in its efforts, or chooses to terminate the Celgene Agreement with us, we may not receive any further proceeds from the Celgene Agreement and our business will be materially harmed.

Pursuant to the terms of the Celgene Agreement, we have exclusively licensed (even as to us) to Celgene the right to develop, manufacture and commercialize INBRX-103. Celgene is obligated to use commercially reasonable efforts to clinically develop and commercialize INBRX-103. However, Celgene may ultimately determine it is not commercially reasonable to continue development of INBRX-103. This outcome could occur for many reasons, including internal business reasons or because of unfavorable regulatory feedback. Further, on review of any safety and efficacy data then available for INBRX-103, the FDA may impose requirements on a clinical trial program that would render the program commercially nonviable. In the event of any such decision, we would be unable to advance such program ourselves.

Per the terms of the Celgene Agreement, Celgene has full control and authority over the development and commercialization of INBRX-103. We may disagree with Celgene about the development strategy it employs, but we will have limited rights to impose our preferred development strategy on Celgene. More broadly, if Celgene elects to discontinue the development of INBRX-103, we may be unable to advance its development.

INBRX-103 may not be scientifically or commercially successful for us due to a number of important factors, including the following:

 

   

Celgene has wide discretion in determining the efforts and resources that it will apply to its development, manufacture and commercialization of INBRX-103. The timing and amount of any development milestones, regulatory milestones and royalties that we may receive under the Celgene Agreement will depend on, among other things, Celgene’s efforts, allocation of resources and successful development and commercialization of INBRX-103 and the other antibodies that are the subject of the Celgene Agreement;

 

   

Celgene may terminate the Celgene Agreement without cause and for circumstances outside of our control, which could make it difficult for us to attract new strategic partners or adversely affect how we are perceived in scientific and financial communities;

 

   

Celgene may develop or commercialize INBRX-103 in such a way as to elicit litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability; and

 

   

Celgene may not comply with all applicable regulatory requirements, or may fail to report safety data in accordance with all applicable regulatory requirements.

If Celgene were to breach the Celgene Agreement, we may need to enforce our right to terminate the Celgene Agreement in legal proceedings, which could be costly and cause delay in our ability to receive our rights back to develop and commercialize INBRX-103. If we were to terminate the Celgene Agreement due to

 

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Celgene’s breach or if Celgene terminated the Celgene Agreement without cause upon 30 days’ written notice, the development and commercialization of INBRX-103 could be delayed, curtailed or terminated. Additionally, even if the Celgene Agreement is terminated, we may not be able to dispose of INBRX-103 in a strategic transaction without Celgene’s consent.

Celgene may enter into one or more transactions with third parties, including a merger, consolidation, reorganization, sale of substantial assets, sale of substantial stock or other change in control, which could divert the attention of its management and adversely affect Celgene’s ability to retain and motivate key personnel who are important to the continued development of INBRX-103 and the other antibodies under the Celgene Agreement. In addition, the third party to any such transaction could determine to reprioritize Celgene’s development programs such that Celgene ceases to diligently pursue the development of INBRX-103 and/or cause the Celgene Agreement to terminate.

We may in the future enter into additional collaborations with third parties to develop our therapeutic candidates, including collaborations with Chiesi if Chiesi exercises its option pursuant to the Chiesi Option Agreement. If these collaborations are not successful, our business could be harmed.

We may enter into additional collaborations with third parties in the future, including collaborations with Chiesi if Chiesi exercises its option pursuant to the Chiesi Option Agreement. Any collaborations that we are party to may pose several risks, including the following:

 

   

collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

   

collaborators may not perform their obligations as expected;

 

   

the clinical trials conducted as part of these collaborations may not be successful;

 

   

collaborators may not pursue development and commercialization of any therapeutic candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results;

 

   

changes in the collaborators’ strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities;

 

   

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

 

   

we may not have access to, or may be restricted from disclosing, certain information regarding therapeutic candidates being developed or commercialized under a collaboration and, consequently, may have limited ability to inform our stockholders about the status of such therapeutic candidates;

 

   

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

 

   

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

 

   

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

 

   

disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development of any therapeutic candidates, may cause delays

 

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or termination of the research, development or commercialization of such therapeutic candidates, may lead to additional responsibilities for us with respect to such therapeutic candidates or may result in litigation or arbitration, any of which would be time-consuming and expensive;

 

   

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

 

   

disputes may arise with respect to the ownership of intellectual property developed pursuant to our collaborations;

 

   

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

 

   

collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable therapeutic candidates.

The manufacture of biotechnology products is complex, and manufacturers often encounter difficulties in production. If we or any of our third party manufacturers encounter any loss of our master cell banks or if any of our third party manufacturers encounter other difficulties, or otherwise fail to comply with their contractual obligations, the development or commercialization of our therapeutic candidates could be delayed or stopped.

While we believe our therapeutic candidates are highly developable, the manufacture of biotechnology products is generally complex and requires significant expertise and capital investment. We and our contract manufacturers must comply with current Good Manufacturing Practices, or cGMP, regulations and guidelines for certain stages of clinical trial product manufacture and for commercial product manufacture. Manufacturers of biotechnology products often encounter difficulties in production, particularly in scaling up and validating initial production and contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our therapeutics or in the manufacturing facilities in which our therapeutics are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.

Our engineered proteins are manufactured by starting with cells which are stored in a cell bank. It is possible that in a catastrophic event we could lose multiple cell banks and have our manufacturing severely impacted by the need to replace the cell banks. We cannot assure you that any stability or other issues relating to the manufacture of any of our therapeutic candidates or products will not occur in the future. Any delay or interruption in the supply of preclinical or clinical trial supplies could delay the completion of these trials, increase the costs associated with maintaining these trial programs and, depending upon the period of delay, require us to commence new trials at additional expense or terminate trials completely.

If we were to experience an unexpected loss of supply of or if any supplier were unable to meet our demand for any of our therapeutic candidates or future approved products, if any, we seek to commercialize, we could experience delays in our research or planned clinical studies or commercialization or be forced to stop our development or commercialization efforts. We could be unable to find alternative suppliers of acceptable quality, in the appropriate volumes and at an acceptable cost. Moreover, our suppliers are often subject to strict manufacturing requirements and rigorous testing requirements, which could limit or delay production. The long transition periods necessary to switch manufacturers and suppliers, if necessary, would significantly delay our clinical studies and the commercialization of our therapeutics, if approved, which would materially adversely affect our business, prospects, financial condition and results of operation.

 

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We rely on third parties to supply and manufacture our therapeutic candidates, and we expect to continue to rely on third parties to manufacture and supply our therapeutics, if approved. The development of therapeutic candidates and the commercialization of any therapeutic candidates, if approved, could be stopped, delayed or made less profitable if any of these third parties fail to provide us with sufficient quantities of therapeutic candidates or therapeutics, fail to do so at acceptable quality levels or prices, or fail to maintain or achieve satisfactory regulatory compliance.

We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our therapeutic candidates for use in the conduct of our trials or for commercial supply, if our therapeutics are approved. Instead, we rely on, and expect to continue to rely on third-party providers for the manufacturing of the supplies for our preclinical studies and clinical trials. On August 28, 2018, we entered into an Amended and Restated Master Services Agreement, or the WuXi Agreement, with WuXi Biologics (Hong Kong) Limited, or WuXi, pursuant to which we agreed, subject to certain exceptions, to use WuXi as our exclusive clinical trial manufacturing partner. To the extent WuXi is unable to fulfill these obligations in a timely manner per the terms of the WuXi Agreement, our trials may be delayed and our business may be adversely affected. In general, reliance on third party providers may expose us to more risk than if we were to manufacture our therapeutic candidates ourselves. We do not control the manufacturing processes of the contract manufacturing organizations with whom we contract, including WuXi, and are dependent on these third parties for the production of our therapeutic candidates in accordance with relevant regulations (such as cGMP), which includes, among other things, quality control, quality assurance and the maintenance of records and documentation.

Our third-party manufacturers may be unable to successfully scale up manufacturing of our therapeutic candidates in sufficient quality and quantity, which would delay or prevent us from developing our therapeutic candidates and commercializing any approved therapeutic candidates.

Our manufacturing partners may be unable to successfully increase the manufacturing capacity for our therapeutic candidates in a timely or cost-effective manner, or at all, as needed for our development efforts or, if our therapeutic candidates are approved, our commercialization efforts. Quality issues may also arise during scale-up activities. If we, or any manufacturing partners, are unable to successfully scale up the manufacture of our therapeutic candidates in sufficient quality and quantity, the development, testing, and clinical trials of our therapeutic candidates may be delayed or infeasible, and regulatory approval or commercial launch of any resulting therapeutic may be delayed or not obtained, which could significantly harm our business.

Failure to successfully identify, develop and commercialize additional therapeutics or therapeutic candidates could impair our ability to grow.

Although a substantial amount of our efforts will focus on the continued preclinical and clinical testing and potential approval of our therapeutic candidates in our current pipeline, we expect to continue to innovate and potentially expand our portfolio. Because we have limited financial and managerial resources, research programs to identify therapeutic candidates may require substantial additional technical, financial and human resources, whether or not any new potential therapeutic candidates are ultimately identified. Our success may depend in part upon our ability to identify, select and develop promising therapeutic candidates and therapeutics. We may expend resources and ultimately fail to discover and generate additional therapeutic candidates suitable for further development. All therapeutic candidates are prone to risks of failure typical of biotechnology product development, including the possibility that a therapeutic candidate may not be suitable for clinical development as a result of its harmful side effects, limited efficacy or other characteristics indicating that it is unlikely to receive approval by the FDA, the EMA and other comparable foreign regulatory authorities and achieve market acceptance. If we do not successfully develop and commercialize new therapeutic candidates we have identified and explored, our business, prospects, financial condition and results of operations could be adversely affected.

 

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Our business entails a significant risk of product liability and our ability to obtain sufficient insurance coverage could have a material and adverse effect on our business, financial condition, results of operations and prospects.

We are exposed to significant product liability risks inherent in the development, testing, manufacturing and marketing of biotechnology treatments of any therapeutic candidates for which we or our collaborators may conduct clinical trials. Product liability claims could delay or prevent completion of our development programs. If we succeed in marketing any approved products, these claims could result in an FDA investigation of the safety and effectiveness of our products, our manufacturing processes and facilities (or the manufacturing processes and facilities of our third-party manufacturer) or our marketing programs, a recall of our products or more serious enforcement action, limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion of management’s time and our resources, substantial monetary awards to trial participants or patients and a decline in our stock price. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have a material and adverse effect on our business, financial condition, results of operations and prospects.

If our therapeutic candidates are approved for marketing and commercialization and we are unable to develop sales, marketing and distribution capabilities on our own or enter into agreements with third parties to perform these functions on acceptable terms, we will be unable to commercialize successfully any such therapeutic candidates.

We currently have no sales, marketing or distribution capabilities. While, per the Celgene Agreement, Celgene presently has the responsibility to market and commercialize INBRX-103 if it is approved, we will need to develop our internal sales, marketing and distribution capabilities to commercialize our other therapeutic candidates, if approved, or will need to enter into collaborations with third parties to perform these services. Any internal effort would be expensive and time-consuming, and we would need to commit significant financial and managerial resources to develop an internal marketing and sales force with technical expertise and the related supporting distribution, administration and compliance capabilities. If we were to rely on additional third parties with these capabilities to market our therapeutics or were to decide to co-promote products with any of our current or future collaborators, we would need to establish and maintain or revise existing marketing and distribution arrangements with these partners, and there can be no assurance that we will be able to enter into such arrangements on acceptable terms or at all. Any revenue we receive in connection with third-party license, marketing or distribution arrangements, including the Celgene Agreement and license agreements with our China license partners, will depend upon the efforts of these third parties, and there can be no assurance these third parties will establish adequate sales and distribution capabilities or be successful in gaining market acceptance of any approved product. If we are not successful in commercializing any product approved in the future, either on our own or through third parties, our business, financial condition, results of operations and prospects could be materially and adversely affected.

The future commercial success of our therapeutic candidates will depend on the degree of market acceptance of our potential therapeutics among physicians, patients, healthcare payors and the medical community.

Our therapeutic candidates are in early stages of development, and many of our therapeutic candidates are still in preclinical development; we may never have an approved product that is commercially successful. Due to the inherent risk in the development of biotechnology products, it is probable that not all or none of the therapeutic candidates in our pipeline, including any that are or may be licensed to third parties, will successfully complete development and be commercialized. Furthermore, even when available on the market, our products may not achieve an adequate level of acceptance by physicians, patients and the medical community, and we may

 

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not become profitable. In addition, efforts to educate the medical community and third party payors on the benefits of our products may require significant resources and may never be successful which would prevent us from generating significant revenue or becoming profitable. Market acceptance of any approved products by physicians, patients and healthcare payors will depend on a number of factors, many of which are beyond our control, including, but not limited to:

 

   

changes in the standard of care for the targeted indications for any approved product;

 

   

wording in the product label;

 

   

sales, marketing and distribution support;

 

   

potential product liability claims;

 

   

acceptance by physicians, patients and healthcare payors of each product as safe, effective and cost-effective;

 

   

relative convenience, ease of use, ease of administration and other perceived advantages over alternative products;

 

   

prevalence and severity of adverse events or publicity;

 

   

limitations, precautions or warnings listed in the summary of product characteristics, patient information leaflet, package labeling or instructions for use;

 

   

the cost of treatment with our therapeutics in relation to alternative treatments;

 

   

the extent to which products are approved for inclusion and adequately reimbursed on formularies of hospitals and third-party payors, including managed care organizations; and

 

   

whether our products are designated in the label, under physician treatment guidelines or under reimbursement guidelines as a first, second, third or last line therapy.

Risks Related to Our Organization and Operations

We face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than the therapeutic candidates we develop, our commercial opportunities will be negatively impacted.

The life sciences industry is highly competitive. We are currently developing therapeutic candidates that will compete, if approved, with other products and therapies that currently exist or are being developed. Our primary competitors fall into the following groups:

 

   

Companies developing novel therapeutics based on single domain antibody or alternative scaffold product candidates, including GlaxoSmithKline plc, Sanofi S.A., Crescendo Biologics Ltd., VHSquared Ltd., Molecular Partners AG, Pieris Pharmaceuticals, Inc., Alligator Bioscience AB and Camel-IDS SV;

 

   

Programs in development targeting CD47 or SIRPa, including those by ALX Oncology Limited, Arch Oncology, Aurigene, Inc., BliNK Biomedical, Inc., Surface Oncology, Inc., Forty Seven, Inc., Novimmune, S.A., OSE Immunotherapeutics S.A., Sorrento Therapeutics, Inc., Synthon Holding B.V. and Trillium Therapeutics, Inc.;

 

   

Antibody drug discovery companies that may compete with us in the search for novel therapeutic antibody targets, including Adimab LLC, Numab Therapeutics AG, Merus N.V., Regeneron Pharmaceuticals, Inc., Xencor Inc., MorphoSys AG and Macrogenics, Inc.; and

 

   

Therapeutics designed to treat human AAT, including those by Grifols, S.A., Shire plc, CSL Limited and Kamada Ltd.

 

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Our competitors also include large pharmaceutical and biotechnology companies, such as Roche Pharmaceuticals and AstraZeneca, who may have development programs seeking to develop therapeutic candidates with mechanisms similar to or targeting the same indications as our therapeutic candidates.

Products we may develop in the future are also likely to face competition from other products and therapies, some of which we may not currently be aware. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, product development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining marketing approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the therapeutic candidates that we develop obsolete. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or marketing approval or discovering, developing and commercializing products in our field before we do.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe effects, are more convenient, have a broader label, are marketed more effectively, are reimbursed or are less expensive than any products that we may develop. Our competitors also may obtain FDA, EMA or other marketing approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Even if the therapeutic candidates we develop achieve marketing approval, they may be priced at a significant premium over competitive products if any have been approved by then, resulting in reduced competitiveness.

Smaller and other early stage companies may also prove to be significant competitors. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our therapeutic candidates obsolete, less competitive or not economical.

Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business plan.

Our success largely depends on the continued service of key management, advisors and other specialized personnel, including Mark Lappe, our Chief Executive Officer and Chief Financial Officer, Brendan Eckelman, Ph.D., our Chief Scientific Officer, and Klaus Wagner, M.D., Ph.D., our Chief Medical Officer, who are all employed at will and for whom we do not have “key man” insurance coverage. The loss of one or more members of our management team or other key employees or advisors could delay our research and development programs and have a material and adverse effect on our business, financial condition, results of operations and prospects. We are dependent on the continued service of our technical personnel because of the highly technical nature of our therapeutic candidates and technologies and the specialized nature of the regulatory approval process. Our future success will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, manufacturing, governmental regulation and commercialization. We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations

 

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(many of whom have substantially greater financial resources than us), and we might not be able to attract or retain these key employees on conditions that are economically acceptable. Our inability to attract and retain these key employees could prevent us from achieving our objectives and implementing our business strategy, which could have a material adverse effect on our business and prospects.

We do not have a full-time Chief Financial Officer.

We do not have a full-time Chief Financial Officer. Mark Lappe, our Chief Executive Officer, currently also serves as our Chief Financial Officer. Until we hire a full-time Chief Financial Officer, Mr. Lappe will be required to divide his attention between both functions, which could have an adverse impact on our operations.

Further, during the course of preparing for this offering, management determined that material adjustments to our financial statements were necessary, which required us to restate one of the Target Parties (as defined in the section entitled “Merger and Financing–Merger” in this prospectus), Inhibrx, LP for the year ended December 31, 2017. This led us and our independent registered public accounting firm to conclude that there were material weaknesses in our internal control over financial reporting that could result in misstatements that may or may not be prevented or detected. The material weaknesses identified resulted from ineffective internal controls in the financial reporting process, including accounting for cut-off and accruals and non-recurring or complex transactions. Specifically, we did not maintain a sufficient complement of resources with a level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements. See “Risks Related to Our Common Stock and this Offering–We and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting. 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.”

We have a significant amount of debt, which may affect our ability to operate our business and secure additional financing in the future.

As of March 31, 2019, we had approximately $8.1 million of principal outstanding under our loan and security agreement, as amended, or the Loan Agreement, with Oxford Finance LLC, or Oxford. In May 2019, we issued the Viking Note with an aggregate principal amount of $40.0 million. The aggregate outstanding principal under the Viking Note will be settled and converted into             shares of our common stock in connection with the completion of this offering, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, Our obligations under the Loan Agreement are secured by substantially all of our assets, other than our intellectual property. The Loan Agreement requires us, and any debt instruments we may enter into in the future may require us, to comply with various covenants that limit our ability to, among other things:

 

   

dispose of assets;

 

   

complete mergers or acquisitions;

 

   

incur or guarantee indebtedness;

 

   

sell or encumber certain assets;

 

   

pay dividends or make other distributions to holders of our capital stock, including by way of certain stock buybacks;

 

   

make specified investments;

 

   

engage in different lines of business;

 

   

change certain key management personnel; and

 

   

engage in certain transactions with our affiliates.

 

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These covenants may make it difficult to operate our business. A failure by us to comply with the covenants contained in our Loan Agreement could result in an event of default, which could adversely affect our ability to respond to changes in our business and manage our operations. Upon the occurrence of an event of default, including the occurrence of a material adverse change, the lender could elect to declare all amounts outstanding to be due and payable and exercise other remedies as set forth in the Loan Agreement. If the indebtedness under the Loan Agreement were to be accelerated, our future financial condition could be materially adversely affected.

We may incur additional indebtedness in the future. The instruments governing such indebtedness could contain provisions that are as, or more, restrictive than our existing debt instruments. If we are unable to repay, refinance or restructure our indebtedness when payment is due, the lenders could proceed against any collateral granted to them to secure such indebtedness or force us into bankruptcy or liquidation.

Our employees and independent contractors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

We are exposed to the risk of fraud or other misconduct by our employees or independent contractors. Misconduct by these parties could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we may establish, comply with federal and state data privacy, security, fraud and abuse, and other healthcare laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, 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, 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 be in compliance 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 material and adverse effect on our business, financial condition, results of operations and prospects, including the imposition of significant civil, criminal and administrative penalties, monetary damages, fines, disgorgement, imprisonment, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, reputational harm, diminished profits and future earnings, additional reporting requirements if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with any of these laws, and the curtailment or restructuring of our operations.

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.

Certain of our employees, consultants or advisors are currently, or were previously, employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

 

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

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development and regulatory affairs, as well as sales and marketing to the extent any of our therapeutic candidates approach receipt of marketing authorization. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We may not be able to integrate efficiently or achieve the expected benefits of any acquisitions of complementary businesses, therapeutic candidates or technologies.

Should we in the future acquire any complementary business, therapeutic candidates or technologies, our ability to integrate and manage acquired businesses, therapeutic candidates or technologies effectively will depend upon a number of factors including the size of the acquired business, the complexity of any therapeutic candidate or technology and the resulting difficulty of integrating the acquired business’s operations, if any. Our relationship with current employees or employees of any acquired business may become impaired. We may also be subject to unexpected claims and liabilities arising from such acquisitions. These claims and liabilities could be costly to defend, could be material to our financial position and might exceed either the limitations of any applicable indemnification provisions or the financial resources of the indemnifying parties. There can also be no assurance that we will be able to assess ongoing profitability and identify all actual or potential liabilities of a business, therapeutic candidate or technology prior to its acquisition. If we acquire businesses, therapeutic candidates or technologies that result in assuming unforeseen liabilities in respect of which it has not obtained contractual protections or for which protection is not available, this could materially adversely affect our business, prospects, financial condition and results of operations.

Our business may be adversely affected as a result of computer system failures.

Any of the internal computer systems belonging to us or our third party service providers are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failure. Any system failure, accident or security breach that causes interruptions in our own or in third party service vendors’ operations could result in a material disruption of our development programs. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our or our partners’ or collaborators’ regulatory approval efforts and significantly increase our costs in order to recover or reproduce the lost data. To the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur liability, our development programs and competitive position may be adversely affected and the further development of our therapeutic candidates may be delayed. Furthermore, we may incur additional costs to remedy the damage caused by these disruptions or security breaches.

Cybersecurity breaches could expose us to liability, damage our reputation, compromise our confidential information or otherwise adversely affect our business.

We maintain sensitive company data on our computer networks, including our intellectual property and proprietary business information. We face a number of threats to our networks from unauthorized access, security breaches and other system disruptions. Despite our security measures, our infrastructure may be vulnerable to attacks by hackers or other disruptive problems.

The United States federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security, and storage of personally identifiable information and other

 

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data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the collection, use, and dissemination of data. Some of these federal, state and foreign government requirements include obligations of companies to notify individuals and others of security breaches involving particular personally identifiable information, which could result from breaches experienced by us or by our vendors, contractors, or organizations with which we have formed strategic relationships. Even though we may have contractual protections with such vendors, contractors, or other organizations, notifications and follow-up actions related to a security breach could impact our reputation, cause us to incur significant costs, including legal expenses, harm customer confidence, hurt our expansion into new markets, cause us to incur remediation costs, or cause us to lose existing customers.

Any such security breach may compromise information stored on our networks and may result in significant data losses or theft of our intellectual property or proprietary business information, it may also subject us to significant fines, penalties or liabilities for any noncompliance with certain privacy and security laws. A cybersecurity breach could adversely affect our reputation and could result in other negative consequences, including disruption of our internal operations, increased cyber security protection costs, lost revenue or litigation.

Our current operations are concentrated in one location, and we or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters.

Our current operations are located in our facilities in La Jolla, California. Any unplanned event, such as flood, fire, explosion, earthquake, extreme weather condition, medical epidemics, power shortage, telecommunication failure or other natural or manmade accidents or incidents that result in us being unable to fully utilize our facilities, or the manufacturing facilities of our third-party contract manufacturers, may have a material and adverse effect on our ability to operate our business, particularly on a daily basis, and have significant negative consequences on our financial and operating conditions. Loss of access to these facilities may result in increased costs, delays in the development of our therapeutic candidates or interruption of our business operations. Earthquakes or other natural disasters could further disrupt our operations, and have a material and adverse effect on our business, financial condition, results of operations and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our research facilities or if similar events occurred elsewhere effecting the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, could have a material and adverse effect on our business. As part of our risk management policy, we maintain insurance coverage at levels that we believe are appropriate for our business. However, in the event of an accident or incident at these facilities, we cannot assure you that the amounts of insurance will be sufficient to satisfy any damages and losses. If our facilities, or the manufacturing facilities of our third-party contract manufacturers, are unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of our research and development programs may be harmed. Any business interruption may have a material and adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Intellectual Property

If we are not able to obtain and enforce patent protection for our technologies or therapeutic candidates, development and commercialization of our therapeutic candidates may be adversely affected.

Our success depends in part on our ability to obtain and maintain patents and other forms of intellectual property rights, including in-licenses of intellectual property rights of others, patents and patent applications protecting, or seeking to protect, our therapeutic candidates and methods for treating patients using our therapeutic candidates, as well as our ability to preserve our trade secrets, to prevent third parties from infringing

 

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upon our proprietary rights and to operate without infringing upon the proprietary rights of others. As of April 30, 2019, our patent estate included seven issued United States patents, 15 United States pending non-provisional patent applications, 16 United States pending provisional applications, two pending Patent Cooperation Treaty, or PCT, applications, 15 issued foreign patents and 175 foreign patent applications currently pending in various foreign jurisdictions. Our patent estate consists of 28 patent families generally directed to polypeptide therapeutics, including fusion proteins, monoclonal antibodies, single chain antibodies and multivalent antibodies. We currently have two patent families directed to anti-CD47 monoclonal antibodies, licensed to Celgene, and two United States and ten foreign patents have been granted in these families. See the section titled “Business—Intellectual Property”.

While we will endeavor to protect our therapeutic candidates with intellectual property rights such as patents, as appropriate, the process of obtaining, maintaining, and enforcing patents is time-consuming, expensive and sometimes unpredictable, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintain, enforce and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development 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 any patents we may license to or from third parties. Therefore, such patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

Our existing issued and granted 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 technology. There is no guarantee that any of our pending patent applications will result in issued or granted patents, that any of our issued or granted patents will not later be found to be invalid or unenforceable or that any issued or granted patents will include claims that are sufficiently broad to provide meaningful protection from any competitors. Our competitors may be able to circumvent our patents by developing similar or alternative product candidates in a non-infringing manner. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our current and future proprietary technology and therapeutic candidates are covered by valid and enforceable patents or are effectively maintained as trade secrets. If third parties disclose or misappropriate our proprietary rights, it may materially and adversely affect our business.

The United States Patent and Trademark Office, or USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which non-compliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case. The standards applied by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology patents. As such, we do not know the degree of future protection that we will have on our proprietary therapeutics and technology.

 

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The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal, technological and factual questions and has in recent years been the subject of much litigation. Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such initial grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked, or may lose the allowed or granted claims altogether, e.g., due to a determination that the claims are invalid or unenforceable. In addition, there can be no assurance that:

 

   

Others will not or will not be able to legally make, use or sell products or therapeutic candidates that are the same as or similar to our therapeutic candidates despite the claims of the patents that we own or license.

 

   

We or our licensors, or our collaborators are the first to make the inventions covered by each of our issued patents and pending patent applications that we own or license.

 

   

We or our licensors, or our collaborators are the first to file patent applications covering certain aspects of our inventions.

 

   

Others will not independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.

 

   

Any issued patents that we own or have licensed will provide us with any competitive advantage.

 

   

The patents of others will not have a material or adverse effect on our business, financial condition, results of operations and prospects.

As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.

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

Obtaining a valid and enforceable issued or granted patents covering our therapeutic candidates in the United States and worldwide can be extremely costly. In jurisdictions where we have not obtained patent protection, competitors or third parties may use our technology to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but where it is more difficult to enforce a patent as compared to the United States. Third-party or competitor products may compete with our future products in jurisdictions where we do not have issued or granted patents or where our issued or granted patent claims or other intellectual property rights are not sufficient to prevent competitor activities in these jurisdictions. The legal systems of certain countries, particularly certain developing countries, make it difficult to enforce patents and such countries may not recognize other types of intellectual property protection, particularly that relating to biotechnology. This could make it difficult for us to prevent the infringement of our patents or marketing of competing products in violation of our proprietary rights generally in certain jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, could provoke third parties to assert claims against us, and, whether or not successful, could result in substantial cost and divert our efforts and attention from other aspects of our business.

We generally file a provisional patent application first (a priority filing) at the USPTO. An international application under the PCT is usually filed within 12 months after the priority filing. Based on the PCT filing, national and regional patent applications may be filed in the United States, Europe, Japan, Australia and Canada and, depending on the individual case, also in one, several or all of, inter alia, Brazil, China, India, Israel, Mexico, New Zealand, Russia or Eurasian Patent Organization, Singapore, South Africa, South Korea and other jurisdictions. We have so far not filed for patent protection in all national and regional jurisdictions where such

 

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protection may be available. In addition, we may decide to abandon national and regional patent applications before grant. Finally, the grant proceeding of each national or regional patent is an independent proceeding which may lead to situations in which applications might in some jurisdictions be refused by the relevant registration authorities, while granted by others. It is also quite common that, depending on the country, various scopes of patent protection may be granted on the same therapeutic candidate or technology.

When a patent is granted by a regional patent office (e.g., Europe or Eurasia), the patent must be validated in individual countries in order to be in effect in those countries. We may decide not to validate regional patents in every available country or at all in any country in the region. In addition, we may decide to abandon national and regional patent applications before or after grant.

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or any 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 from others in those jurisdictions. Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position in the relevant jurisdiction may be impaired and our business and results of operations may be adversely affected.

Changes in patent laws could diminish the value of patents in general, thereby impairing our ability to protect our products.

Changes in either the patent laws or interpretation of the patent laws in the United States and other jurisdictions in which we file patent applications could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. For example, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application is entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. In contrast, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, assuming that other requirements for patentability were met. Furthermore, United States patent law under the America Invents Act allows for post issuance challenges to United States patents, including ex parte reexaminations, inter parte reviews and post grant oppositions. If our United States patents are challenged using such procedures, we may not prevail, possibly resulting in altered or diminished claim scope or loss of patent rights altogether. Similarly, some countries, notably members of the European Union, also have post grant opposition proceedings that can result in changes in scope and/or cancellation of patent claims.

The United States Supreme Court has also 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. 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 the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

 

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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, the European Patent Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. For example, periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO, the European Patent Office and foreign patent agencies in several stages over the lifetime of the patent. Some jurisdictions also require payment of annuity fees during pendency of a patent application. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non payment of fees and failure to properly legalize and submit formal documents. If we or our licensors or collaboration partners fail to maintain the patents and patent applications covering our therapeutic candidates, our competitors might better be able to enter the market, which would have an adverse effect on our business.

We may be required to reduce the scope of our intellectual property due to intellectual property claims included in the patents or patent applications of others.

Third parties may have filed, and may in the future file, patent applications covering technology similar to ours. It is also possible that we have failed to identify relevant third-party patents or applications. For example, United States applications filed before November 29, 2000 and certain United States 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 and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with this earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our therapeutic candidates could have been 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 any future approved products or our therapeutic candidates. Any such patent application may have priority over our patent applications, which could further require us to obtain rights to issued patents covering such technologies, if possible, or block us from practicing certain aspects of our technology if we are unable to successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned.

If another party has filed a United States patent application on inventions similar to ours that claims priority to an application filed prior to March 16, 2013, we may have to participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. Similarly, if another party has filed a United States patent application on inventions similar to ours that claims priority to an application filed after March 16, 2013, we may have to participate in a derivation proceeding to determine whether that party derived the claimed invention from an inventor listed on our application and then filed the third-party application without authorization. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our United States patent position with respect to such inventions. In addition, an unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Further, changes enacted on March 15, 2013 to the United States patent laws under the America Invents Act resulted in the United States changing from a “first to invent” country to a “first to file” country. As a result, we may lose the ability to obtain a patent if a third party files with the USPTO first and could become involved in proceedings before the USPTO to resolve disputes related to inventorship. We may also become involved in similar proceedings in other jurisdictions.

 

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We or our licensors, licensees or any future strategic partners may become subject to third-party claims or litigation alleging infringement of patents or other proprietary rights or seeking to invalidate patents or other proprietary rights, and we may need to resort to litigation to protect or enforce our patents or other proprietary rights, all of which could be costly, time consuming, delay or prevent the development and commercialization of our therapeutic candidates, or put our patents and other proprietary rights at risk.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. We or our licensors, licensees or any future strategic partners may be subject to third-party claims for infringement or misappropriation of patent or other proprietary rights. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries including patent infringement lawsuits, interferences, derivations, oppositions and inter partes review proceedings before the USPTO, and corresponding foreign patent offices. Numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that we may be subject to claims of infringement of the patent rights of third parties. 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 current or future therapeutic 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 we, our licensees or our licensors, or any future strategic partners are found to infringe a third-party patent or other intellectual property rights, we could be required to pay damages, potentially including treble damages, if we are found to have willfully infringed. In addition, we, our licensees or our licensors, or any future strategic partners may choose to seek, or be required to seek, a license from a third party, which may not be available on acceptable terms, if at all. Even if a license can be obtained on acceptable terms, the rights may be non-exclusive, which could give any competitors access to the same technology or intellectual property rights licensed to us. If we fail to obtain a required license, the holders of any such patents may be able to block us, our licensees or our collaborators from marketing therapeutic candidates based on our technology until such patents expire, which could limit our ability to generate revenue or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations.

In addition, we may find it necessary to pursue claims or initiate lawsuits to protect or enforce our patent or other intellectual property rights. The cost to us in defending or initiating any litigation or other proceeding relating to patent or other proprietary rights, even if resolved in our favor, could be substantial, and litigation would divert our management’s attention. Competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our research and development efforts and limit our ability to continue our operations.

If we were to initiate legal proceedings against a third party to enforce a patent covering one of our products or our technology, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States, 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 or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. 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. 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 one or more of our products or certain aspects of our technology. This loss of patent protection could have a material and adverse effect on our business, financial condition, results of operations and prospects. Patents and other intellectual

 

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property rights also will not protect our technology if competitors design around our protected technology without legally infringing our patents or other intellectual property rights.

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

We are a party to license agreements under which we are granted rights to third-party intellectual property, and we expect that we may need to enter into additional license agreements in the future. License agreements may impose various development obligations, payment of royalties and fees based on achieving certain milestones, as well as other obligations. If we fail to comply with our obligations under these agreements, the licensor may have the right to terminate the license. The termination of any license agreements or failure to adequately protect such license agreements could prevent us from commercializing therapeutic candidates covered by the licensed intellectual property or otherwise adversely affect our business. Our license agreements may involve sublicenses from third parties which are not the original licensor of the intellectual property at issue. Under these agreements, we would rely on our licensor to comply with its obligations under the primary license agreements, where we may have no relationship with the original licensor of such rights. If the licensors fail to comply with their obligations under these upstream license agreements, the original third-party licensor may have the right to terminate the original license, which may terminate the sublicense. If this were to occur, we would no longer have rights to the applicable intellectual property and, in the case of a sublicense, if we were not able to secure our own direct license with the owner of the relevant rights, which we may not be able to do at a reasonable cost or on reasonable terms, it may adversely affect our ability to continue to develop and commercialize any of our therapeutic candidates incorporating the relevant intellectual property.

Disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

   

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

 

   

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

 

   

the sublicensing of patent and other rights under any collaboration relationships we might enter into in the future;

 

   

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

 

   

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

 

   

the priority of invention of patented technology.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain any licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected therapeutic candidates.

Our intellectual property agreements with our licensors, licensees, collaborators and third parties may be subject to disagreements over contract interpretation, which could narrow the scope of, or result in termination of, our rights to the relevant intellectual property or technology or increase our financial or other obligations to such third parties, or reduce the financial or other obligations our licensees have to us.

Certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. For example, we may disagree with our licensors, licensees or collaborators regarding whether, when and to what extent various obligations under these agreements apply to certain of our/their therapeutic candidates and products, including various payment, development, commercialization, funding, diligence, sublicensing,

 

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insurance, patent prosecution and enforcement and/or other obligations. The resolution of any contract interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual property or technology, or affect financial or other obligations under the relevant agreement. In either case, such disagreement could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops intellectual property that we regard as our own. Our assignment agreements may not be self executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Litigation or other legal proceedings relating to intellectual property claims, with or without merit, are unpredictable, generally expensive, time consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.

We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material and adverse effect on our ability to compete in the marketplace.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patent protection for certain aspects of our therapeutic candidates, we also consider trade secrets, including confidential and unpatented know-how important to our business. We may rely on trade secrets or confidential know how to protect our technology, especially where patent protection is believed to be of limited value. Trade secrets and confidential know-how are difficult to maintain as confidential. We seek to protect trade secrets and confidential and unpatented know-how, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as our employees, partners, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops intellectual property that we regard as our own. Our assignment agreements may not be self executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

 

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Moreover, even if relevant agreements are entered into, despite these efforts, any of these parties may breach the agreements and unintentionally or willfully disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts in the United States and certain foreign jurisdictions are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us. Moreover, a competitor who independently develops substantially equivalent proprietary information may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets or confidential know how. Under certain circumstances, we may also decide to publish some know how to attempt to prevent others from obtaining patent rights covering such know how. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.

We may be subject to claims that we or our employees or consultants have wrongfully used or disclosed alleged trade secrets of our employees’ or consultants’ former employers or their clients. These claims may be costly to defend and if we do not successfully do so, we may be required to pay monetary damages and may lose valuable intellectual property rights or personnel.

Many of our employees were previously employed at universities or biotechnology or biotechnology companies, including potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper our ability to commercialize, or prevent us from commercializing, our therapeutic candidates, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

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

Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. Our trademarks may not be approved by one or more governmental trademark offices or may not be approved for use on our products by regulatory agencies, such as the FDA. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.

If our patent terms expire before or soon after our therapeutic candidates are approved, or if manufacturers of generic or biosimilar drugs successfully challenge our patents, our business may be materially harmed.

Patents have a limited duration. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest United States non provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our therapeutic candidates, their manufacture, or use are obtained, once the patent life has expired, we may be open to competition from competitive medications, including biosimilar medications.

 

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Depending upon the timing, duration and conditions of FDA marketing approval of our therapeutic candidates, one or more of our United States patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act and similar legislation in the European Union. The Hatch-Waxman Act 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. The 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 one patent applicable to an approved drug may be extended. 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. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner than we expect. Also, the scope of our right to exclude during any patent term extension period may be limited or may not cover a competitor’s product or product use. As a result, our revenue from applicable therapeutic candidates, if approved, could be reduced, possibly materially.

Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such drug candidates might expire before or shortly after such drug candidates are commercialized. As a result, our patents and patent applications may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

Manufacturers of generic or biosimilar drugs may challenge the scope, validity, or enforceability of our patents in court or before a patent office, and we may not be successful in enforcing or defending those intellectual property rights and, as a result, may not be able to develop or market the relevant product exclusively, which would have a material adverse effect on any potential sales of that product. Upon the expiration of our issued patents or patents that may issue from our pending patent applications, we will not be able to assert such patent rights against potential competitors and our business and results of operations may be adversely affected.

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

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business nor permit us to maintain our competitive advantage. The following examples are illustrative:

 

   

Others may be able to make therapeutic candidates that are the same as or similar to our therapeutic candidates but that are not covered by the claims of the patents that we own or may have exclusively licensed.

 

   

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

 

   

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

 

   

We may not develop additional technologies that are patentable.

 

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Risks Related to Government Regulation

We or our collaborators may be unable to obtain regulatory approval for any product that we or a collaborator may develop.

Any product that we or our collaborators may attempt to develop, manufacture or market in the United States will be subject to extensive regulation by the FDA, including regulations relating to development, preclinical testing, performance of clinical trials, manufacturing and post-approval commercialization. Preclinical testing, clinical trials and manufacturing, among other activities, will be subjected to an extensive review process before a new therapeutic product may be sold in the United States. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. The time required to obtain FDA approval, and any other required approvals for biologic products is unpredictable but typically requires several years and may never be obtained.

Any product that we or our collaborators may wish to develop, manufacture or market in countries other than the United States will also be subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing, pricing and third-party reimbursement among other things in such countries. The foreign regulatory approval process includes all of the risks and uncertainties associated with FDA approval described above as well as risks attributable to the satisfaction of local regulations in such foreign jurisdictions.

It is possible that none of the therapeutic candidates we or our collaborators may develop will obtain the approvals necessary for us or our collaborators to sell them either in the United States or any other country. Furthermore, approval by the FDA of a therapeutic product does not assure approval by regulatory authorities outside the United States or vice versa. Even if approval for a therapeutic product is obtained, such approval may be subject to limitations on the indicated uses or appropriate patient population that could result in a significantly reduced potential market size for the product.

If we or our collaborators fail to obtain the appropriate regulatory approvals necessary for us or our collaborators to sell our therapeutic candidates, or if the approvals are more limited than those that we intend to seek, our business, financial condition and results of operations would be materially harmed.

We will be subject to stringent domestic and foreign therapeutic and drug regulation in respect of any potential products. The regulatory approval processes of the FDA and other comparable regulatory authorities outside the United States are lengthy, time-consuming and inherently unpredictable. Even if we receive regulatory approval for any of our therapeutic candidates, we will still be subject to ongoing regulatory obligations and continued review, which may result in significant additional expense. If we fail to comply with United States and foreign regulatory requirements, regulatory authorities could limit or withdraw any marketing or commercialization approvals we may receive and subject us to other penalties. Any unfavorable regulatory action may materially and adversely affect our future financial condition and business operations.

Even if we receive marketing and commercialization approval of a therapeutic candidate, we will be subject to continuing regulatory requirements. Our potential products, further development activities and manufacturing and distribution, once developed and determined, will be subject to extensive and rigorous regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing, distribution, and the safety and effectiveness of our therapeutic candidates and, if approved, our products. The process of obtaining marketing approval or clearance from the FDA and comparable foreign bodies for new products, or for enhancements, expansion of the indications or modifications to existing products, could:

 

   

take a significant, indeterminate amount of time;

 

   

require the expenditure of substantial resources;

 

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involve rigorous preclinical and clinical testing, and possibly post-market surveillance;

 

   

involve modifications, repairs or replacements of our potential products;

 

   

require design changes of our potential products; or

 

   

result in our never being granted the regulatory approval we seek.

Any of these occurrences may cause our operations or potential for success to suffer, harm our competitive standing and result in further losses that adversely affect our financial condition.

The FDA also has significant post-market authority, including the authority to require labeling changes based on new safety information and to require post-market studies or clinical trials to evaluate safety risks related to the use of a product or to require withdrawal of the product from the market. Additionally, the FDA regulates the promotional claims that may be made about prescription products, such as our products, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. However, we may share truthful and not misleading information that is otherwise consistent with the product’s FDA approved labeling.

We will have ongoing responsibilities under these and other FDA and international regulations, both before and after a product is approved and commercially released. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA. If we or our collaborators, manufacturers or service providers fail to comply with applicable continuing regulatory requirements in the United States or foreign jurisdictions in which we seek to market our products, we or they may be subject to, among other things, fines, warning letters, adverse regulatory inspection finding, holds on clinical trials, delay of approval or refusal by the FDA or applicable authorities to approve pending applications or supplements to approved applications, suspension or withdrawal of regulatory approval, product recalls and seizures, administrative detention of products, refusal to permit the import or export of products, operating restrictions, exclusion of eligibility from government contracts, injunction, civil penalties and criminal prosecution. The FDA has increased its scrutiny of the biopharmaceutical industry and United States and foreign governments are expected to continue to scrutinize the industry closely with inspections and possibly enforcement actions by the FDA or other agencies. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively commercializing our potential products and harm our business. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could have a material adverse effect on our financial condition and results of operations.

The FDA, EMA and other comparable foreign regulatory authorities may not accept data from trials conducted outside of their respective jurisdictions. While we currently have China partnerships designed to provide access to patient populations outside of the United States and in the future may conduct clinical trials in other foreign jurisdictions, there can be no assurance this data will be accepted by the FDA or EMA as a basis for regulatory approval.

To augment our U.S.-centric clinical strategy, we have formed partnerships in China designed to provide access patient populations for clinical trials not readily available in the United States and to facilitate rapid patient enrollment with the goal of generating more robust early clinical data from patients in China. We may in the future pursue partnerships to conduct other clinical trials outside of the United States. The acceptance of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA, EMA or applicable foreign regulatory authority may be subject to certain conditions. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory

 

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bodies have similar approval requirements. In addition, any foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA, EMA or any applicable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction, including any trials conducted in China.

Our partnerships in China subject us to risks and uncertainties relating to the laws and regulations of China and the changes in relations between the United States and China.

Under its current leadership, the government of China has been pursuing economic reform policies, including by encouraging foreign trade and investment. However, there is no assurance that the Chinese government will continue to pursue such policies, that such policies will be successfully implemented, that such policies will not be significantly altered, or that such policies will be beneficial to our partnerships in China. China’s system of laws can be unpredictable, especially with respect to foreign investment and foreign trade. The United States government has called for substantial changes to foreign trade policy with China and has recently raised, and has proposed to further raise in the future, tariffs on several Chinese goods. China has retaliated with increased tariffs on United States goods. Any further changes in United States trade policy could trigger retaliatory actions by affected countries, including China, resulting in trade wars. Additionally, the biopharmaceutical industry in particular in China is strictly regulated by the Chinese government. Changes to Chinese regulations affecting biopharmaceutical companies are unpredictable and may have a material adverse effect on our partnerships in China which could material harm our business and financial condition.

Unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives could harm our business in the future.

There is increasing pressure on biotechnology companies to reduce healthcare costs. In the United States, these pressures come from a variety of sources, such as managed care groups and institutional and government purchasers. Increased purchasing power of entities that negotiate on behalf of federal healthcare programs and private sector beneficiaries could increase pricing pressures in the future. Such pressures may also increase the risk of litigation or investigation by the government regarding pricing calculations. The biotechnology industry will likely face greater regulation and political and legal actions in the future.

Adverse pricing limitations may hinder our ability to recoup our investment in one or more future therapeutic candidates, even if our future therapeutic candidates obtain regulatory approval. Adverse pricing limitations prior to approval will also adversely affect us by reducing our commercial potential. Our ability to commercialize any potential products successfully also will depend in part on the extent to which coverage and reimbursement for these products and related treatments becomes available from third-party payors, including government health administration authorities, private health insurers and other organizations. Third-party payors decide which medications they will pay for and establish reimbursement levels. 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.

A significant trend in the U.S. healthcare industry and elsewhere is cost containment. Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize in the future and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval in the future. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any therapeutic candidate that we successfully develop.

 

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There may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by third-party payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies, but also have their own methods and approval process apart from Medicare coverage and reimbursement determinations. As such, one third-party payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Our inability to promptly obtain coverage and adequate reimbursement from third-party payors for approved products could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize potential products and our overall financial condition.

Healthcare legislative reform measures may have a material and adverse effect on our business and results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or together, the ACA, was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the United States pharmaceutical industry. The ACA, among other things, subjected therapeutic biologics to potential competition by lower-cost biosimilars, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and therapeutic biologics that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established an annual fees on manufacturers of certain branded prescription drugs and therapeutic biologics, created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts, which, through subsequent legislative amendments, increased to 70% starting January 1, 2019, off negotiated prices of applicable brand drugs and therapeutic biologics to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs and therapeutic biologics to be covered under Medicare Part D, established a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, and established a Center for Medicare Innovation at the Centers for Medicare and Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or repeal and replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. For example, on October 12, 2017, President Trump issued an executive order that expands the use of association health plans and allows anyone to purchase short-term health plans that provide temporary, limited insurance. This executive order also calls for the halt of federal payments to health insurers for cost-sharing reductions previously available to lower-income Americans to afford coverage. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act, or the TCJA, was enacted,

 

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which, among other things, removed penalties, starting January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance, commonly referred to as the “individual mandate.” On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In July 2018, CMS published a final rule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well. While the Texas District Court Judge, as well as the Trump Administration and CMS, have stated that the ruling will have no immediate effect, 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 to reduce healthcare expenditures. The Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2027 unless additional Congressional action is taken. On January 2, 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. If federal spending is further reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability of relevant agencies to timely review and approve research and development, manufacturing, and marketing activities, which may delay our ability to develop, market and sell any products we may develop.

Recently there has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, at the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The United States Department of Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and, at the same, is immediately implementing others under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2019, and on January 31, 2019, the HHS Office Inspector General proposed modifications to the U.S. federal Anti-Kickback Statute discount safe harbor for the purpose of reducing the cost of drug products to consumers which, among other things, if finalized, will affect discounts paid by manufacturers to Medicare Part D plans, Medicaid managed care organizations and pharmacy benefit managers

 

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working with these organizations. In addition, CMS issued a final rule, effective on July 9, 2019, that requires direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product if it is equal to or greater than $35 for a monthly supply or usual course of treatment. Prescription drugs and biological products that are in violation of these requirements will be included on a public list. Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical 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.

Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our therapeutic candidates or companion diagnostics or additional pricing pressures.

If we or our partners, manufacturers or service providers fail to comply with healthcare laws and regulations, we or they could be subject to enforcement actions, which could affect our ability to develop, market and sell our products and may harm our reputation.

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any therapeutic candidates for which we obtain marketing approval. Our current and future arrangements with healthcare providers, third-party payors and customers expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our therapeutic candidates for which we obtain marketing approval. In addition, we may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which we conduct our business. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

 

   

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

 

   

the federal civil and criminal false claims laws and the civil monetary penalties laws, including the U.S. federal False Claims Act, which can be enforced through civil whistleblower or qui tam actions, which prohibits individuals or entities from knowingly presenting, or causing to be presented, to the federal government, claims for payment 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 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 U.S. federal False Claims Act;

 

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the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil 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 and their implementing regulations, which imposes obligations on certain healthcare providers, health plans, and healthcare clearinghouse, known as covered entities, as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of individually identifiable health information;

 

   

the U.S. federal legislation commonly referred to as the Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members; and

 

   

analogous state laws and regulations, such as state anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug and therapeutic biologics manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and pricing information; state and local laws that require the registration of pharmaceutical sales 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.

Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations could 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 such requirements, we may be subject to significant civil, criminal and administrative penalties, including monetary damages, fines, disgorgements, imprisonment, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, reputational harm, diminished profits and future earnings, additional reporting requirements if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with any of these laws, and the curtailment or restructuring of our operations, any of which could adversely our financial results. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.

 

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We may seek orphan drug status for one or more of our therapeutic candidates, but even if it is granted, we may be unable to maintain any benefits associated with orphan drug status, including market exclusivity.

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition or for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for a disease or condition will be recovered from sales in the United States for that drug or biologic. 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 product exclusivity, which means that the FDA may not approve any other applications, including a full Biologics License Application, to market the same drug or 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.

We may seek orphan drug status for one or more of our therapeutic candidates, but the FDA may not approve any such request. Even if the FDA grants orphan drug status to one or more of our therapeutic candidates, exclusive marketing rights in the United States may be limited if we seek FDA marketing approval for an indication broader than the orphan designated indication. Additionally, any therapeutic candidate that initially receives orphan drug status designation, may lose such designation 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. In addition, others may obtain orphan drug status for products addressing the same diseases or conditions as products we are developing, thus limiting our ability to compete in the markets addressing such diseases or conditions for a significant period of time.

We may seek fast-track designation for our therapeutic candidates. Even if received, fast-track designation may not actually lead to a faster review process.

We aim to benefit from the FDA’s fast track and accelerated approval processes. However, our therapeutic candidates may not receive an FDA fast-track designation or priority review. Without fast-track designation, submitting a New Drug Application, or NDA, and getting through the regulatory process to gain marketing approval is a lengthy process. Under fast-track designation, the FDA may initiate review of sections of a fast-track drug’s NDA before the application is complete. However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the fast-track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process. Under the FDA policies, a drug candidate is eligible for priority review, or review within a six-month time frame from the time a complete NDA is accepted for filing, if the drug candidate provides a significant improvement compared to marketed drugs in the treatment, diagnosis or prevention of a disease. A fast-track designated drug candidate would ordinarily meet the FDA’s criteria for priority review.

The fast-track designation for our therapeutic candidates, if obtained, may not actually lead to a faster review process and a delay in the review process or in the approval of our potential products will delay revenue from their potential sales and will increase the capital necessary to fund these product development programs.

We face regulation and potential liability related to the privacy, data protection and information security which may require significant resources and may adversely affect our business, operations and financial performance.

The regulatory environment surrounding information security, data collection and privacy is increasingly demanding. We are subject to numerous U.S. federal and state laws and non-U.S. regulations governing the protection of personal and confidential information of our clinical subjects, clinical investigators, employees and vendors/business contacts, including in relation to medical records, credit card data and financial information. For example, on May 25, 2018, the European General Data Protection Regulation, or GDPR, went into effect, implementing more stringent requirements in relation to our use of personal data relating to individuals located in the European Union. The GDPR repeals the Data Protection Directive (95/46/EC) and will be directly applicable

 

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in all European Union member states starting on May 25, 2018. The GDPR significantly increases fining levels of up to 4% total worldwide annual turnover or up to €20 million (whichever is higher) for non-compliance with its requirements. We will be subject to the GDPR where we have an European Union presence or “establishment” (e.g. European Union based subsidiary or operations), when conducting clinical trials with European Union based data subjects (whether the trials are conducted directly by us or through a clinical vendor or partner) or offering approved products or services (if relevant) to European Union based data subjects (regardless of whether involving our European Union based subsidiary or operations).

The GDPR sets out a number of requirements that must be complied with when handling the personal data of such European Union based data subjects including: providing expanded disclosures about how their personal data will be used; higher standards for organizations to demonstrate that they have obtained valid consent or have another legal basis in place to justify their data processing activities; the obligation to appoint data protection officers in certain circumstances; new rights for individuals to be “forgotten” and rights to data portability, as well as enhanced current rights (e.g. access requests); the principal of accountability and demonstrating compliance through policies, procedures, training and audit; the new mandatory data breach regime. In particular, medical or health data, genetic data and biometric data where the latter is used to uniquely identify an individual are all classified as “special category” data under GDPR and afford greater protection and require additional compliance obligations. Further, European Union member states have a broad right to impose additional conditions – including restrictions – on these data categories. This is because the GDPR allows European Union member states to derogate from the requirements of the GDPR mainly in regard to specific processing situations (including special category data and processing for scientific or statistical purposes). As the European Union states reframe their national legislation to prepare for and harmonize with the GDPR, we will need to monitor compliance with all relevant European Union member states’ laws and regulations, including where permitted derogations from the GDPR are introduced.

We will also be subject to evolving European Union laws on data export, where we transfer data outside the European Union to group companies or third parties. The GDPR only permits exports of data outside the European Union where there is a suitable data transfer solution in place to safeguard personal data (e.g. the European Union Commission approved Standard Contractual Clauses). Some of the approved current data transfer mechanisms are under review in the European Union courts and by the European Union Commission and therefore we recommend monitoring this space for any future changes.

Where we rely on third parties to carry out a number of services for us, including processing personal data on our behalf, we are required under GDPR to enter into contractual arrangements to help ensure that these third parties only process such data according to our instructions and have sufficient security measures in place. Any security breach or non-compliance with our contractual terms or breach of applicable law by such third parties could result in enforcement actions, litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have an adverse impact on our reputation and business.

In recent years, U.S. and European lawmakers and regulators have expressed concern over electronic marketing. In the European Union, marketing is defined broadly to include any promotional material and the rules specifically on e-marketing are currently set out in the ePrivacy Directive which will be replaced by a new ePrivacy Regulation. While the ePrivacy Regulation was originally intended to be adopted on May 25, 2018 (alongside the GDPR), it is still going through the European legislative process and commentators now expect it to be adopted during the middle or second half of 2019. The current draft of the ePrivacy Regulation imposes strict opt-in e-marketing rules with limited exceptions to business to business communications and significantly increases fining powers to the same levels as GDPR (see above).

We may find it necessary or desirable to join self-regulatory bodies or other privacy-related organizations, particularly relating to biopharmacy and/or scientific research that may require compliance with their rules pertaining to privacy and data security.

 

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The introduction of the GDPR, and any resultant changes in European Union member states’ national laws and regulations and the ePrivacy Regulation, will increase our compliance obligations and will necessitate the review and implementation of policies and processes relating to our collection and use of data. This increase in compliance obligations could also lead to an increase in compliance costs which may have an adverse impact on our business, financial condition or results of operations.

If any person, including any of our employees, clinical vendors or partners or those with whom we share such information, negligently disregards or intentionally breaches our established controls with respect to our clinical subject, clinical investigator or employee data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions. As above, under the GDPR there are significant new punishments for non-compliance which could result in a penalty of up to 4% of a firm’s global annual revenue. In addition, a data breach could result in negative publicity which could damage our reputation and have an adverse effect on our business, financial condition or results of operations.

Applicable laws may conflict with each other, and by complying with the laws or regulations of one jurisdiction, we may find that we are violating the laws or regulations of another jurisdiction. Despite our efforts, we may not have fully complied in the past and may not in the future. If we become liable under laws or regulations applicable to us, we could be required to pay significant fines and penalties, our reputation may be harmed and we may be forced to change the way we operate. That could require us to incur significant expenses or to discontinue certain services, which could negatively affect our business.

We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations, which can harm our business.

We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties to sell our products sell our products outside the United States, to conduct clinical trials, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.

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

In December 2017, U.S. federal tax legislation, commonly referred to as the TCJA was signed into law, significantly reforming the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, reduces the maximum deduction allowed for net operating losses generated in tax years after December 31, 2017, allows for the expensing of capital expenditures, puts into effect the migration from a “worldwide” system of

 

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taxation to a territorial system and modifies or repeals many business deductions and credits. The overall impact of this tax reform is uncertain, and our business and financial condition could be adversely affected.

New legislation or regulation which could affect our tax burden could be enacted by any governmental authority. We cannot predict the timing or extent of such tax-related developments which could have a negative impact on our financial results. Additionally, we use our best judgment in attempting to quantify and reserve for these tax obligations. However, a challenge by a taxing authority, our ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions may cause actual financial results to deviate from previous estimates.

If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

We maintain quantities of various flammable and toxic chemicals in our facilities in La Jolla, California required for our research and development activities. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. We believe our procedures for storing, handling and disposing these hazardous materials in our La Jolla facilities comply with the relevant guidelines of La Jolla, the state of California and the Occupational Safety and Health Administration of the U.S. Department of Labor. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by applicable regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of animals and biohazardous materials. Any insurance coverage we have may not be sufficient to cover these liabilities. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations which would adversely affect our business.

Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future growth may depend, in part, on our ability to develop and commercialize our therapeutic candidates, if approved, in foreign markets for which we may rely on collaboration with third parties. We are not permitted to market or promote any of our therapeutic candidates before we receive regulatory approval from the applicable regulatory authority in that foreign market, and we may never receive such regulatory approval for any of our therapeutic candidates. To obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our therapeutic candidates, and we cannot predict success in these jurisdictions. If we obtain approval of our therapeutic candidates and ultimately commercialize our therapeutic candidates in foreign markets, we would be subject to the risks and uncertainties, including the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements and the reduced protection of intellectual property rights in some foreign countries. We may need to rely on third parties to market, distribute and sell our products in foreign markets.

Risks Related to Our Common Stock and This Offering

We expect that our stock price may fluctuate significantly and investors may not be able to resell their shares at or above the initial public offering price. An active trading market for our common stock may never develop.

Prior to this offering, you could not buy or sell our common stock publicly. Although we have applied to have our common stock listed on the Nasdaq Global Market, an active trading market for our shares may never

 

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develop or be sustained following this offering. If an active market for our common stock does not develop or is not maintained, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares or at all. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our common stock as consideration.

The initial public offering price for our common stock will be determined through negotiations with the underwriters. This determined price may not reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. You may be unable to sell your shares of common stock at or above the initial offering price. The market price of shares of our common stock following this offering could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

 

   

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

 

   

the success of competitive products or technologies;

 

   

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

 

   

the level of expenses related to our therapeutic candidates or development programs;

 

   

changes in the structure of healthcare payment systems; actual or anticipated fluctuations in our financial condition and operating results;

 

   

announcements by us, our partners or our competitors of new therapeutics or therapeutic candidates, significant contracts, strategic partnerships, joint ventures, collaborations, commercial relationships or capital commitments;

 

   

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

 

   

issuance of new or updated research or reports by securities analysts or recommendations for our stock;

 

   

disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies;

 

   

commencement of, or our involvement in, litigation;

 

   

fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

   

manufacturing disputes or delays;

 

   

any future sales of our common stock or other securities;

 

   

any change to the composition of the board of directors or key personnel;

 

   

expiration of contractual lock-up agreements with our executive officers, directors and security holders;

 

   

general economic conditions and slow or negative growth of our markets;

 

   

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

   

announcement or expectation of additional debt or equity financing efforts; and

 

   

other factors described in this section of the prospectus.

These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance. In addition, the stock market in general, and life science 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

 

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price of a stock has been volatile, holders of that stock have on occasion instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

Our management team has broad discretion to use the net proceeds from this offering and the concurrent private placement and its investment of these proceeds may not yield a favorable return. We may invest the proceeds of this offering in ways with which investors disagree.

We have broad discretion as to how to spend and invest the proceeds from this offering and the concurrent private placement, and we may spend or invest these proceeds in a way with which our stockholders disagree. Accordingly, investors will need to rely on our judgment with respect to the use of these proceeds. We currently intend to use the proceeds from this offering and the concurrent private placement to complete the Phase 1 clinical trials of INBRX-109, INBRX-105 and INBRX-101 and for our other research and development activities, as well as working capital and other general corporate purposes. These uses may not yield a favorable return to our stockholders.

We cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering and the concurrent private placement. In addition, the amount, allocation and timing of our actual expenditures will depend upon numerous factors, many of which are beyond our control. Accordingly, we will have broad discretion in using these proceeds. In addition, until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

Investors in this offering will pay a higher price than the book value of our common stock.

The initial public offering price of our common stock is substantially higher than the pro forma as adjusted net tangible book value per share of our common stock after giving effect to this offering and the concurrent private placement. If you purchase common stock in this offering, you will pay more for your shares than the amounts paid by existing stockholders for their shares. You will incur immediate and substantial dilution of $        per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering and the concurrent private placement and the assumed initial public offering price of $        per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus. In the past, we issued options and warrants to acquire capital stock at prices significantly below the initial public offering price. To the extent the underwriters exercise their option to purchase additional shares or any outstanding options or warrants are ultimately exercised, you will sustain further dilution. For a further description of the dilution that you will experience immediately after the offering and the concurrent private placement, see the section titled “Dilution”.

Our executive officers, directors and holders of more than 5% of our capital stock own a significant percentage of our stock and will be able to exercise significant control over matters subject to stockholder approval.

Our executive officers, directors and holders of more than 5% of our capital stock listed in the table in the section titled “Principal Stockholders” beneficially owned approximately         % of our shares of common stock outstanding as of April 30, 2019, which reflects the assumed conversion of all outstanding shares of our convertible preferred stock prior to the completion of this offering, the conversion of the Viking Note in connection with this offering at a price per share of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the issuance of             shares of our common stock to Chiesi in the concurrent private placement, assuming an initial public offering price of $            per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and we expect that upon the completion of this offering and the concurrent private placement, that same group will beneficially own at least     % of our common stock, which excludes shares of common stock, if any, purchased by our executive officers, directors

 

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and holders of more than 5% of our capital stock in this offering. Accordingly, after this offering and the concurrent private placement, our executive officers, directors and holders of more than 5% of our capital stock will continue to have significant control over our operations. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on our stock price and may prevent attempts by our stockholders to replace or remove the board of directors or management.

Future sales of our common stock in the public market could cause our stock price to fall.

Our stock price could decline as a result of sales of a large number of shares of our common stock after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon the completion of this offering, conversion of the Viking Note and completion of the concurrent private placement,                  shares of our common stock will be outstanding (or                  shares assuming full exercise of the underwriters’ option to purchase additional shares) based on our shares outstanding as of March 31, 2019 and assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, for purposes of determining the number of shares that will be issued upon the conversion and settlement of the aggregate outstanding principal amount under the Viking Note in connection with the closing of this offering and the number of shares that will be issued upon the closing of the concurrent private placement with Chiesi. All shares of common stock expected to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act unless held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, or Rule 144. The resale of the remaining                  shares common stock, or     % of our outstanding shares of common stock after this offering assuming that we sell the number of shares set forth on the cover of this prospectus, are currently prohibited or otherwise restricted as a result of securities law provisions, market standoff agreements entered into by our stockholders with us or lock-up agreements entered into by our stockholders with the underwriters, but will be able to be resold after this offering as described in the “Shares eligible for future sale” section of this prospectus. The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus, subject to earlier release of all or a portion of the shares subject to such agreements by Evercore Group L.L.C. and Barclays Capital Inc. in their sole discretion. After the lock-up agreements expire, based upon the number of shares of common stock, on an as-converted basis (including the full conversion and settlement of the aggregate outstanding principal amount under the Viking Note and issuance of shares to Chiesi in the concurrent private placement as described above), outstanding as of March 31, 2019,                 of the shares of common stock outstanding prior to this offering will be eligible for sale in the public market. Approximately     % of these shares are held by our executive officers, directors and their affiliates and will be subject to certain limitations of Rule 144.

In addition, the                  shares of common stock subject to outstanding options, of which options to purchase                  shares of common stock were exercisable as of March 31, 2019, and the shares reserved for future issuance under our stock option and equity incentive plans will become available for sale immediately upon the exercise of such options and the expiration of any applicable market stand-off or lock-up agreements. We intend to register the offer and sale of all shares of common stock that we may issue under our equity compensation plans.

Holders of approximately                  shares of our common stock outstanding upon completion of this offering, the conversion of the Viking Note and the concurrent private placement, or     % of our common stock outstanding after the completion of this offering assuming we sell the number of shares set forth on the cover of this prospectus, plus                  shares of our common stock issuable upon the exercise of options outstanding as of March 31, 2019, will have rights, subject to certain conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves

 

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or other stockholders. If and when we register the offer and sale of shares for the holders of registration rights and option holders, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the section of this prospectus titled “Underwriting.”

In addition, in the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline.

If securities or industry analysts do not publish research reports about our business, or if they issue an adverse opinion about our business, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us issues an adverse opinion about our company, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the public markets, which could cause our stock price or trading volume to decline.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our 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. Moreover, certain of our debt financing agreements require us to have the lender’s permission before declaring dividends on our common stock. Any return to stockholders will therefore be limited to the appreciation of their stock.

We and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting. 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 statements and other public reporting, which would harm our business and the trading price of our common stock.

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. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, our management will be required to report upon the effectiveness of our internal control over financial reporting beginning in the year following the first required annual report.

The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we will need to implement additional financial and management controls, reporting systems and procedures and we hired additional accounting and finance staff during the fourth quarter of 2018 to implement these.

Prior to this offering, we were a private company with no internal accounting personnel or other resources with which to address our internal controls and procedures. During the course of preparing for this offering, we made certain adjustments to our previously presented consolidated financial statements of one of our Inhibrx Parties, Inhibrx, LP, for the year ended December 31, 2017. Although management concluded that our

 

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consolidated financial statements for the years ended December 31, 2017 and 2018 are fairly stated in all material respects in accordance with United States generally accepted accounting principles, management also concluded that there were material weaknesses in our internal control over financial reporting due to a lack of controls in the financial reporting process. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements may not be prevented or detected on a timely basis. The material weaknesses identified resulted from a lack of internal controls over the financial reporting process, including accounting for cut-off and accruals, as well as ineffective internal controls over the accounting for and disclosure of technical accounting. Specifically, we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements.

In an attempt to remediate these material weaknesses we have taken the following specific actions and made the following changes in our internal control environment:

 

   

hired internal accounting staff with skills and experience to support our structure and financial reporting requirements, including employees with technical accounting experience;

 

   

retained additional outside financial consultants, where necessary, to support us in complex technical accounting matters; and

 

   

created additional internal control procedures and engaged an outside consulting firm to assist with this process.

We cannot assure you that these efforts will remediate our material weaknesses in a timely manner, or at all, or prevent restatements of our financial statements in the future.

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

When we lose our status as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, our independent registered public accounting firm will be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an “emerging growth company” for up to five years from the closing of our initial public offering. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

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

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Exchange Act, which will require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business

 

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and financial condition. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of this offering. We intend to take advantage of this legislation, but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.

We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

We are an “emerging growth company” and a “smaller reporting company”, and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies, which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and a “smaller reporting company” under SEC regulations. For so long as we remain an emerging growth company or smaller reporting company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” or “smaller reporting companies.” These include an exemption from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act for so long as we are an emerging growth company, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, 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 take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result of our emerging growth company election and smaller reporting company status, investors may view our financial statements as not comparable to other public companies. We cannot predict if investors will find our common stock less attractive because we may rely on certain of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company or a smaller reporting company. We

 

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will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. In addition, we will continue to be a smaller reporting company as long as we (a) have less than $250 million in public float (based on our common equity) measured as of the last business day of our most recently completed second fiscal quarter, or (b) have annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available and have no public float or public float of less than $700 million (based on our common equity).

Anti-takeover provisions contained in our restated certificate of incorporation and restated bylaws to be effective upon the closing of the offering, as well as provisions of Delaware law, could impair a takeover attempt.

Our restated certificate of incorporation, restated bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include or will, upon completion of this offering, include provisions:

 

   

authorizing our board of directors to issue up to                  shares of preferred stock without stockholder approval upon the terms and conditions and with the rights, privileges and preferences as our board of directors may determine;

 

   

specifying that special meetings of our stockholders can be called only by our board of directors, the chairman of our board of directors or our Chief Executive Officer and that our stockholders may not act by written consent;

 

   

establishing an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;

 

   

providing that our board of directors may create new directorships and that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

   

establishing that our board of directors is divided into three classes—Class I, Class II, and Class III—with each class serving staggered three-year terms;

 

   

providing that our board of directors may amend our restated bylaws without stockholder approval; and

 

   

requiring a super-majority of votes to amend certain of the above-mentioned provisions.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

Any provision of our restated certificate of incorporation, restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

 

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Our amended and restated certificate of incorporation, to be in effect upon the completion of this offering, will designate the Court of Chancery of the State of Delaware, or the Chancery Court, or the federal district court for the District of Delaware, or the District Court of Delaware, as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation, to be in effect upon the completion of this offering, will require, unless we otherwise consent, that the Chancery Court will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf, (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers and employees to us or our stockholders, (iii) any action or proceeding asserting a claim against us or any of our current or former directors, officers or employees, arising out of or pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation to be in effect following the completion of this offering or our amended and restated bylaws to be in effect following the completion of this offering, (iv) any action or proceeding to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws to be in effect upon the completion of this offering, (v) any action or proceeding as to which the Delaware General Corporate Law confers jurisdiction to the Chancery Court, or (vi) any action or proceeding asserting a claim against us, or our directors, officers or employees, relating to certain internal affairs matters. If the Chancery Court does not have jurisdiction for these actions or proceedings, then the actions or proceedings must be brought in a state court located in the State of Delaware. If these state courts also do not have jurisdiction, these actions or proceedings must be brought in the District Court of Delaware. These limitations in our amended and restated certificate of incorporation to be in effect upon the completion of this offering will not apply to actions brought to enforce a duty or liability created by the Securities Act, the Exchange Act or to any claim for which the federal courts have exclusive jurisdiction. In addition, any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended and restated certificate of incorporation. 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 employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. Stockholders who do bring a claim in the Chancery Court or the District Court of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the jurisdiction. The Chancery Court or the District Court of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation to be in effect upon the completion of this offering inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs, which could have a material adverse effect on our business, financial condition or results of operations.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

   

our use of the net proceeds from this offering;

 

   

the initiation, timing, progress and results of our preclinical studies and early-stage clinical trials, and our research and development programs;

 

   

our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

 

   

our ability to advance therapeutic candidates into, and successfully complete, clinical trials;

 

   

the timing or likelihood of regulatory filings and approvals;

 

   

the commercialization of our therapeutic candidates, if approved;

 

   

the pricing, coverage and reimbursement of our therapeutic candidates, if approved;

 

   

the implementation of our business model, strategic plans for our business and therapeutic candidates;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights covering our therapeutic candidates;

 

   

our ability to enter into strategic arrangements and/or collaborations and the potential benefits of such arrangements and/or collaborations;

 

   

our estimates regarding expenses, capital requirements and needs for additional financing;

 

   

our financial performance; and

 

   

developments relating to our competitors and our industry.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied 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 not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to new information, actual results or to changes in our expectations, except as required by law.

 

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

 

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MARKET AND OTHER INDUSTRY DATA

Unless otherwise indicated, market data and certain industry forecasts used throughout this prospectus were obtained from various sources, including internal surveys, market research, consultant surveys, publicly available information and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based upon our management’s knowledge of the industry, have not been independently verified. The future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in above, in the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in these publications and reports.

 

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USE OF PROCEEDS

We estimate that the net proceeds from this offering will be approximately $             million assuming an initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We expect that the gross proceeds from the concurrent private placement will be approximately $10.0 million.

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1.0 million shares in the number of shares we are offering at the assumed initial public offering price of $             per share would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $             million, assuming the assumed initial public offering price stays the same.

Chiesi Farmaceutici S.p.A. has agreed to purchase, in a separate private placement concurrent with the completion of this offering, shares of our common stock with an aggregate purchase price of $10.0 million at a price per share equal to the initial public offering price. The sale of shares in the concurrent private placement is being conducted pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended. The closing of this offering is not conditioned upon the closing of the concurrent private placement. The shares of common stock purchased in the concurrent private placement will not be subject to any underwriting discounts or commissions.

The principal purposes of this offering and the concurrent private placement are to increase our financial flexibility, create a public market for our common stock and to facilitate our access to the public equity markets. We intend to use the net proceeds from this offering and the concurrent private placement, together with our existing cash, as follows:

 

   

approximately $             million to $             million to complete the ongoing Phase 1 clinical trial of INBRX-109;

 

   

approximately $             million to $             million to complete the ongoing Phase 1 clinical trial of INBRX-105;

 

   

approximately $             million to $             million to complete the contemplated Phase 1 clinical trial of INBRX-101; and

 

   

the remainder for our research and development activities, as well as for working capital and other general corporate purposes.

We believe opportunities may exist from time to time to expand our current business through acquisitions or in-licenses of complementary businesses, technologies, products or assets. While we have no current agreements, commitments or understandings for any specific acquisitions or in-licenses at this time, we may use a portion of the net proceeds and our existing cash for these purposes.

Based on our current plan, we believe that our existing cash, together with the net proceeds from this offering and the concurrent private placement, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements for at least the next              months. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. We do not expect the net proceeds from this offering, the concurrent private placement and our existing cash to be sufficient to fund the development of our therapeutic candidates through regulatory approval and commercialization, and we will need to raise additional capital to complete the development and commercialization of all of our therapeutic candidates.

 

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Although we currently anticipate that we will use the net proceeds from this offering and the concurrent private placement as described above, there may be circumstances where a reallocation of funds is necessary. Due to the uncertainties inherent in the product development process, it is difficult to estimate with certainty the exact amounts of the net proceeds from this offering and the concurrent private placement that may be used for the above purposes. The amounts and timing of our actual expenditures will depend upon numerous factors, including our sales and marketing and commercialization efforts, demand for our drugs, our operating costs and the other factors described under “Risk Factors” in this prospectus. Accordingly, our management will have flexibility in applying the net proceeds from this offering and the concurrent private placement. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.

Pending their use as described above, we plan to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to declare and pay dividends will be made at the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, our financial condition, our capital requirements, general business conditions, our future prospects and other factors that our board of directors may deem relevant. In addition, the terms of the Loan Agreement restrict our ability to pay dividends without the prior written consent of Oxford. Investors should not purchase our common stock with the expectation of receiving cash dividends.

 

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MERGER AND FINANCINGS

Merger

On April 30, 2018, we entered into an agreement and plan of merger with the Target Parties (as defined below), or the Merger Agreement, whereby we completed a series of transactions pursuant to which multiple entities previously operating our business merged with and into Inhibrx with Inhibrx continuing as the surviving corporation. These entities consisted of Inhibrx, LP, Inhibrx 101, LP, Inhibrx 104, LP, INBRX 105, LP, INBRX 106, LP, INBRX 107, LP, INBRX 108, LP, INBRX 109, LP, INBRX 110, LP, INBRX 111, LP, INBRX 112, LP, each a limited partnership organized under the laws of the State of Delaware, and Inhibrx BioPharma, LLC, a limited liability company organized under the laws of the State of Delaware. We refer to each of these entities as a “Target Party”, and collectively as the “Target Parties” throughout this prospectus. In connection with the Merger (as defined below), by operation of law, we acquired all of the assets of the Target Parties and assumed all of the liabilities and obligations of the Target Parties. The issued and outstanding partnership or membership interest units held by all partners and members of the Target Parties other than LAV Summit Limited, or LAV SL, and entities affiliated with RA Capital Healthcare Fund, L.P., or RA Capital Fund, of each Target Party, outstanding immediately prior to the Merger were converted into and exchanged for shares of our common stock. The partnership or membership interests held by LAV SL of each Target Party were converted into and exchanged for shares of our Series Mezzanine 1 Preferred Stock, par value $0.0001 per share, or the Series Mezzanine 1 Preferred Stock, and, together with the Series Mezzanine 2 Preferred Stock, the Preferred Stock. The partnership interests of Inhibrx 101, LP held by RA Capital Fund and one other investor were converted into and exchanged for shares of our Series Mezzanine 2 Preferred Stock. Further, in connection with the Merger, we entered into an Exchange Agreement, dated April 30, 2018, with INBRX 103, LLC whereby the issued and outstanding membership units held by all members of INBRX 103, LLC, other than LAV SL, were converted into and exchanged for shares of our common stock. The issued and outstanding membership units of INBRX 103, LLC held by LAV SL were converted into and exchanged for shares of our Series Mezzanine 1 Preferred Stock. These transactions are collectively referred to in this prospectus as the “Merger.” The purpose of the Merger was to reorganize our corporate structure so that Inhibrx would continue as a consolidated corporation and so that the existing investors in the Target Parties and INBRX 10, LLC would own our capital stock rather than equity interests in the Target Parties and INBRX 103, LLC. Our corporate structure presently consists of Inhibrx and our wholly owned subsidiary, INBRX 103, LLC. Except as context otherwise requires, all information included in this prospectus is presented after giving effect to the Merger.

In connection with the Merger, we entered into an investors’ rights agreement, dated April 30, 2018, with certain recipients of our common stock, LAV SL and RA Capital Fund, as subsequently amended and restated, or the Investors’ Rights Agreement. See the section titled “Description of Capital Stock — Registration Rights” for additional information about the Investors’ Rights Agreement.

Mezzanine Financings

In May 2018, after the consummation of the Merger, we entered into a Series Mezzanine 2 Preferred Stock Purchase Agreement with certain accredited investors, or the Prior Investors, pursuant to which we issued an aggregate of 804,439 shares of our Series Mezzanine 2 Preferred Stock to the Prior Investors for an aggregate purchase price of approximately $9.1 million (or $11.25 per share).

In September 2018, we amended the Series Mezzanine 2 Preferred Stock Purchase Agreement to reduce the price per share of the Series Mezzanine 2 Preferred Stock from $11.25 to $6.98 and issued additional shares of Series Mezzanine 2 Preferred Stock at this lower price. Pursuant to an Amended and Restated Series Mezzanine 2 Preferred Stock Purchase Agreement, as amended, dated September 28, 2018, that we entered into with certain accredited investors, or the Restated Purchase Agreement, from September 2018 through October 2018, we issued an aggregate of 2,933,049 shares of our Series Mezzanine 2 Preferred Stock (which includes the original 804,439 shares of Series Mezzanine 2 Preferred Stock issued to the Prior Investors in May 2018 and an

 

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additional 492,118 shares issued as a result of the reduction in the purchase price) at $6.98 per share for an aggregate purchase price of approximately $20.5 million. As contemplated by the Restated Purchase Agreement and in connection with the Series Mezzanine 2 Preferred Stock price reduction, we issued additional shares of Series Mezzanine 2 Preferred Stock to each Prior Investor such that each Prior Investor received the aggregate number of shares of Series Mezzanine 2 Preferred Stock had he or she purchased the Series Mezzanine 2 Preferred Stock at the reduced price per share. These transactions are collectively referred to in this prospectus as the “Mezzanine Financing.”

Further, in September 2018, in connection with the Series Mezzanine 2 Preferred Stock price reduction, and pursuant to the Merger Agreement, we issued additional shares of our Series Mezzanine 1 Preferred Stock to LAV SL and additional shares of Series Mezzanine 2 Preferred Stock to RA Capital Fund and one other investor. Pursuant to the Merger Agreement, in the event that we sold shares of either series of Mezzanine Preferred Stock at a price per share less than $11.25 after the effective date of the Merger, we agreed to issue additional shares of Series Mezzanine 1 Preferred Stock to LAV SL and shares of Series Mezzanine 2 Preferred Stock to each of RA Capital Fund and one other investor. As a result, we issued an additional 1,632,652 shares of Series Mezzanine 1 Preferred Stock to LAV SL and 1,108,843 and 251,701 shares of Series Mezzanine 2 Preferred Stock to RA Capital Fund and one other investor, respectively. As of March 31, 2019, and upon closing of the Merger, LAV SL and RA Capital Fund each owned more than 5% of our issued and outstanding capital stock.

In December 2018, we amended the Restated Purchase Agreement to extend the deadline for additional closings from November 15, 2018 to the earlier of (i) February 28, 2019 or (ii) immediately prior to the closing of an underwritten initial public offering including this offering. In January 2019, we issued 1.7 million shares of our Series Mezzanine 2 Preferred Stock at $6.98 per share for a purchase price of $12.0 million. The securities issued in the Mezzanine Financing were issued in reliance upon exemptions from registration requirements pursuant to Section 4(a)(2) under the Securities Act and Regulation D as promulgated thereunder.

Each share of our Preferred Stock will convert automatically into one share of our common stock immediately prior to the completion of this offering.

Viking Note Transaction

In May 2019, we sold and issued the Viking Note in the aggregate principal amount of $40.0 million to DRAGSA 50, LLC, an entity affiliated with Viking Global Investors LP, in a private placement transaction. The Viking Note will not accrue interest until February 15, 2020. The aggregate principal amount of the Viking Note will automatically convert and settle into shares of our common stock immediately prior to the completion of this offering at a conversion price equal to 90% of the initial public offering price per share.

Concurrent Private Placement and Chiesi Option Agreement

In May 2019, we entered into the Chiesi Option Agreement with Chiesi, pursuant to which we granted to Chiesi an option to obtain an exclusive license to develop and commercialize INBRX-101 outside of the United States and Canada following completion of the contemplated Phase 1 trial for INBRX-101 and pursuant to which Chiesi is required to pay us $10.0 million within five days of the completion of this offering as an option initiation payment provided that this offering closes prior to February 15, 2020. Additionally, independent and separable from the Chiesi Option Agreement, Chiesi agreed to purchase in a separate private placement concurrent with the completion of this offering, shares of our common stock with an aggregate purchase price of $10.0 million at a price per share equal to the initial public offering price. If Chiesi exercises its option under the Chiesi Option Agreement, then Chiesi must pay us a one-time, non-refundable fee of $12.5 million upon the effective date of the definitive agreement granting Chiesi the exclusive license. See the section titled “Business—Chiesi Option Agreement” for additional information about the Chiesi Option Agreement.

 

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CAPITALIZATION

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

 

   

on an actual basis;

 

   

on a pro forma basis to reflect (i) the conversion of all outstanding shares of our convertible preferred stock into shares of common stock prior to the completion of this offering, (ii) the receipt of $40.0 in million in gross proceeds from the sale of the Viking Note in May 2019 (which is reflected in cash and additional paid-in capital below), (iii) the conversion and settlement of the aggregate outstanding principal amount under the Viking Note into             shares of our common stock, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, immediately prior to completion of this offering, (iv) the receipt of approximately $10.0 million in gross proceeds from the issuance and sale by us of             shares of common stock to Chiesi in the concurrent private placement, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, (v) the receipt of $10.0 million from Chiesi as an option initiation payment pursuant to the Chiesi Option Agreement, and (vi) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering; and

 

   

on a pro forma as adjusted basis to give further effect to the issuance and sale of              shares of our common stock in this offering and the concurrent private placement at the assumed initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information discussed below is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information together with our consolidated financial statements and the related notes included elsewhere in this prospectus and in the sections titled “Selected Consolidated Financial 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 amounts)          (unaudited)  

Cash

   $ 6,244     $                    $                
  

 

 

   

 

 

    

 

 

 

Long-term debt (excluding current maturities)

     —         

Convertible preferred stock, $0.0001 par value; 15,765,000 shares authorized, 12,534,331 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted (unaudited)

     59,507       

Stockholders’ (deficit) equity:

       

Preferred stock, $0.0001 par value; no shares authorized, issued or outstanding, actual; no shares authorized, no shares issued or outstanding, pro forma (unaudited);              shares authorized,              shares issued and outstanding, pro forma as adjusted (unaudited)

     —         

Common stock, $0.0001 par value, 55,000,000 shares authorized, 31,555,556 shares issued and outstanding, actual; 55,000,000 shares authorized,             shares issued and outstanding, pro forma (unaudited);              shares authorized,              shares issued and outstanding, pro forma as adjusted (unaudited)

     3       

Additional paid in capital

     (38,885     

Accumulated deficit

     (21,702     
  

 

 

   

 

 

    

 

 

 

Total stockholders’ (deficit) equity

     (60,584     
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ (1,077   $                    $                
  

 

 

   

 

 

    

 

 

 

 

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(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amounts of each of cash, total stockholders’ (deficit) equity and total capitalization by approximately $             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 the estimated underwriting discounts and commissions and estimated expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, total stockholders’ (deficit) equity and total capitalization by approximately $             million assuming that the assumed initial public offering price of $         per share remains the same after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares of common stock issued and outstanding, pro forma and pro forma as adjusted in the table above is based on 31,555,556 shares of common stock outstanding as of March 31, 2019, and excludes:

 

   

3,221,000 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2019 at a weighted average exercise price of $6.14 per share;

 

   

334,555 shares of common stock reserved for issuance pursuant to future awards under our 2017 Plan, as of March 31, 2019; and

 

   

444,445 additional shares of our common stock that will become available for future issuance under the 2017 Plan in connection with the completion of this offering, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan.

 

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DILUTION

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

As of March 31, 2019, our historical net tangible book deficit was $(60.6) million, or $(1.92) per share of common stock, based on 31,555,556 shares of our common stock outstanding. Our historical net tangible book deficit per share is equal to our total tangible assets, less total liabilities and convertible preferred stock, divided by the number of outstanding shares of our common stock as of March 31, 2019.

On a pro forma basis, to reflect (i) the conversion of all outstanding shares of our convertible preferred stock into shares of common stock prior to the completion of this offering, (ii) the receipt of $40.0 million in gross proceeds from the sale of the Viking Note in May 2019, (iii) the conversion and settlement of the aggregate outstanding principal amount under the Viking Note into             shares of our common stock, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, in connection with the closing of this offering, (iv) the receipt of approximately $10.0 million in gross proceeds from the issuance and sale by us of             shares of common stock to Chiesi in the concurrent private placement, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, our pro forma net tangible book deficit as of March 31, 2019 would have been approximately $         million, or $         per share of our common stock, (v) the receipt of $10.0 million from Chiesi as an option initiation payment pursuant to the Chiesi Agreement, and (vi) the filing and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering.

After giving further effect to the sale of                 shares of common stock in this offering and the concurrent private placement at the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2019, would have been approximately $         million, or approximately $         per share. This amount represents an immediate increase in pro forma net tangible book value of $         per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $         per share to new investors purchasing shares of common stock in this offering and the concurrent private placement.

Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution (without giving effect to any exercise by the underwriters of their option to purchase additional shares):

 

Assumed initial public offering price per share

     $            

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

   $ (1.92  

Pro forma increase in historical net tangible value per share as of March 31, 2019 attributable to the pro forma adjustments

    
  

 

 

   

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

    

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

    
  

 

 

   

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

    
    

 

 

 

Dilution per share to new investors participating in this offering

     $    
    

 

 

 

 

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The dilution information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) our pro forma as adjusted net tangible book value by $         per share and the dilution to new investors by $        per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of 1.0 million shares in the number of shares offered by us would increase the pro forma as adjusted net tangible book value by $         per share and decrease the dilution to new investors by $         per share, assuming the assumed initial public offering price of $        per share remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. Similarly, each decrease of 1.0 million shares offered by us would decrease the pro forma as adjusted net tangible book value by $        per share and increase the dilution to new investors by $         per share, assuming the assumed initial public offering price of $        per share remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

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

The following table summarizes as of March 31, 2019, on the pro forma as adjusted basis as described above, the differences between the number of shares of common stock purchased from us, the total consideration and the weighted-average price per share paid by existing stockholders (giving effect to the conversion of all outstanding shares of our convertible preferred stock into shares of common stock prior to the completion of this offering, the conversion and settlement of the aggregate outstanding principal amount under the Viking Note into             shares of our common stock, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and the issuance of             shares of common stock to Chiesi in the concurrent private placement, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and by investors participating in this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses, at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus).

 

     Shares Purchased     Total Consideration     Weighted-Average
Price Per

Share
 
     Number      Percent     Amount      Percent  

Existing stockholders

                                $                         $            

Concurrent private placement investor

            

New public investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100   $          100  
  

 

 

    

 

 

   

 

 

    

 

 

   

The table above assumes no exercise of the underwriters’ option to purchase                  additional shares in this offering. If the underwriters exercise their option to purchase additional shares in full, the number of shares of our common stock held by existing stockholders would be reduced to    % of the total number of shares of our common stock outstanding after this offering and the concurrent private placement, and the number of shares of common stock held by new investors participating in the offering would be increased to    % of the total number of shares of our common stock outstanding after this offering and the concurrent private placement.

 

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The foregoing tables and calculations (other than historical net tangible book value calculation) are based on 31,555,556 shares of common stock outstanding as of March 31, 2019, and exclude:

 

   

3,221,000 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2019 at a weighted average an exercise price of $6.14 per share;

 

   

334,555 shares of common stock reserved for issuance pursuant to future awards under our 2017 Plan as of March 31, 2019; and

 

   

444,445 additional shares of our common stock that will become available for future issuance under the 2017 Plan in connection with the completion of this offering, as well as any automatic increases in the number of shares of our common stock reserved for future issuance under this plan.

To the extent that any options are exercised or other securities are issued under our equity incentive plans, 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 such securities could result in further dilution to our stockholders.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

We have derived the selected consolidated statements of operations data for the years ended December 31, 2017 and 2018 and the selected consolidated balance sheet data as of December 31, 2017 and 2018 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the selected condensed consolidated statements of operations data for the three months ended March 31, 2018 and 2019 and the selected condensed consolidated balance sheet data as of March 31, 2019 from our unaudited interim consolidated financial statements included elsewhere in this prospectus. Our unaudited interim financial statements have been prepared on the same basis as our audited financial statements and, in our opinion, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair presentation of our unaudited interim financial statements. The selected consolidated financial data included in this section are not intended to replace the consolidated financial statements and the related notes included elsewhere in this prospectus. You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of results that should be expected in the future and our results for the three months ended March 31, 2019 are not necessarily indicative of results that should be expected for the year ending December 31, 2019.

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2017     2018     2018     2019  
(in thousands, except per share data)                (unaudited)  

Consolidated Statements of Operations Data:

        

Revenue:

        

License fee revenue

   $ 7,950     $ 7,500     $ 2,500     $ 7,032  

Grant revenue

     441       1,095       293       1,488  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     8,391       8,595       2,793       8,520  

Operating expenses:

        

Research and development

     25,510       33,454       10,779       10,665  

General and administrative

     2,609       4,654       911       1,467  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     28,119       38,108       11,690       12,132  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (2,102     (1,412     (423     (235

Provision for income taxes

     250       96       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (22,080     (31,021     (9,320     (3,847

Accretion to redemption value of redeemable non-controlling interest

     (1,235     (737     (488     —    

Less: net loss attributable to non-controlling interest

     3,873       595       453       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to Inhibrx, Inc.

   $ (19,442   $ (31,163   $ (9,355)     $  (3,847
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to Inhibrx, Inc., basic and diluted(1)

   $ (0.62   $ (0.99   $  (0.30)     $  (0.12
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     31,556       31,556       31,556       31,556  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     $ (0.82     $ (0.09
  

 

 

   

 

 

     

 

 

 

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

       38,183         44,052  
    

 

 

     

 

 

 

 

(1)

See Note 1 to our consolidated financial statements included elsewhere in this prospectus for a description of how we compute basic and diluted net loss per share, basic and diluted unaudited pro forma net loss per share, and the weighted-average number of shares used in the computation of these per share amounts.

 

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

Consolidated Balance Sheet Data:

      

Cash

   $ 13,470     $ 2,103     $  6,244  

Total assets

     17,246       9,984       24,025  

Debt

     14,660       9,494       8,085  

Total liabilities

     18,615       20,108       25,102  

Convertible preferred stock

     —         47,519       59,507  

Redeemable non-controlling interest

     21,051       —         —    

Total predecessor’s/stockholders’ (deficit) equity

     (22,420     (57,643     (60,584

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section of this prospectus titled “Selected Consolidated Financial Data” and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. 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.

Overview

We are a clinical-stage biotechnology company focused on developing a broad pipeline of novel biologic therapeutic candidates. We combine a deep understanding of target biology with innovative protein engineering, proprietary discovery technologies, and an integrative approach to research and development to design highly differentiated therapeutic candidates. Central to these efforts is our proprietary single domain antibody, or sdAb, platform. Our culture empowers data-driven decision making with the aim of eliminating candidate-selection bias in discovery and development. Initially, we are pursuing therapeutic candidates directed to validated targets, where we believe our protein engineering technologies can overcome prior therapeutic limitations. We currently have three oncology programs in human clinical trials as well as a rare disease program for which we expect to initiate a clinical trial in the third quarter of 2019. We also have a preclinical program for which we expect to submit an Investigational New Drug application, or IND, to the United States Food and Drug Administration, or FDA, in 2019 and a preclinical program for which we submitted an IND to the FDA in May 2019. We retain worldwide rights to all of our programs, except for our INBRX-103 therapeutic candidate, for which worldwide rights have been licensed to Celgene Corporation, or Celgene, our INBRX-101 therapeutic candidate, for which we have entered into an option agreement with Chiesi Farmaceutici S.p.A., or Chiesi, for development and commercialization rights outside of the United States and Canada, and certain other therapeutic candidates for which we licensed limited commercial and development rights in certain Asian regions to key collaborators.

We utilize diverse methods of protein engineering to address the specific requirements of complex target and disease biology. We believe our sdAb platform can enable the development of therapeutic candidates with unique mechanisms of action and attributes superior to current monoclonal antibody and fusion protein approaches. sdAbs are highly modular and can be combined to create therapeutic candidates with defined valencies and multiple specificities, enabling enhanced cell signaling and conditional activation. Importantly, our sdAb-based therapeutic candidates are manufactured by established processes used to produce therapeutic proteins.

 

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We have developed a broad and diverse therapeutic candidate pipeline, as shown below:

 

LOGO

 

*

Third party partnerships with Chinese biotechnology companies currently in place for development and commercialization in China, Hong Kong, Macau and/or Taiwan.

+

Global rights to this therapeutic candidate have been licensed to Celgene.

D

Commercialization and development rights outside of the United States and Canada subject to option agreement with Chiesi.

Since our inception, we have had significant operating losses. Our net loss was $3.8 million for the three months ended March 31, 2019, and as of March 31, 2019, we had an accumulated deficit of $21.7 million. Through March 31, 2019, we have principally been financed through the sale of equity securities, borrowings under our loan and security agreement, as amended, or the Loan Agreement, with Oxford Finance, LLC, or Oxford, payments received from commercial partners for licensing rights to our therapeutic candidates under development and grants. We have devoted substantially all of our efforts to drug discovery and development and conducting preclinical studies. Our primary use of cash has been to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative, or G&A, expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, G&A expenses and capital expenditures will continue to increase. In particular, we expect our expenses and losses to increase as we continue our development of, and seek regulatory approvals for, our therapeutic candidates (especially as we move more candidates from preclinical to clinical development as well as study candidates in later stages of clinical development), and begin to commercialize any approved products, if ever. We also expect our expenses and losses to increase as we hire additional personnel and incur increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs and as we incur increased costs from investor and public relations expenses associated with operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

Based upon our current operating plan, we believe that the net proceeds from this offering and the concurrent private placement, together with our existing cash as of March 31, 2019 and the $40.0 million received in May 2019 from the sale and issuance of the Viking Note, will enable us to fund our operating expenses and capital expenditure requirements through the                month period following the date of completion of this offering. To date, we have not had any therapeutics approved for sale and have not generated any revenue from the commercial sale of approved therapeutic products. We do not expect to generate any revenue from therapeutic product sales unless and until we, or our collaboration partners, successfully complete development and obtain regulatory approval for one or more of our therapeutic candidates, which we expect will

 

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take a number of years. If we obtain regulatory approval for any of our therapeutic candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses and other similar arrangements. However, there can be no assurance as to the availability or terms upon which such finances or capital might be available in the future. If we are unable to secure adequate additional funding, we will need to reevaluate our operating plan and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, delay, scale back or eliminate some or all of our development programs, or relinquish rights to our technology on less favorable terms than we would otherwise choose. These actions could materially impact our business, results of operations and future prospects.

We do not own or operate manufacturing facilities for the production of any of our therapeutic candidates. We currently rely on a limited number of third-party contract manufacturers for all of our required raw materials, antibodies and other biologics for our preclinical research and clinical trials. We currently employ internal resources to manage our manufacturing relationships with these third parties. We presently have relationships with three suppliers for the manufacture of supplies for our therapeutic candidates.

Merger

We were incorporated under the laws of the State of Delaware on November 17, 2017 under the name “Tenium Therapeutics, Inc.” In April 2018, we changed our name to “Inhibrx, Inc.” As further described in the section of this prospectus titled “Merger and Financing—Merger,” we completed a series of transactions on April 30, 2018 pursuant to which multiple Delaware limited partnerships and limited liability companies merged with and into Inhibrx, Inc. with Inhibrx, Inc. continuing as the surviving corporation, or the Merger. We refer to each of these entities as a Target Party, and collectively as the Target Parties. As appropriate for entities under common control, the historical consolidated financial statements of the Target Parties prior to the Merger became those of Inhibrx, Inc. Our corporate structure presently consists of Inhibrx, Inc. and our wholly owned subsidiary, INBRX 103, LLC, which relates to the development of INBRX-103 licensed to Celgene.

Collaboration Agreements

Celgene Agreement

On July 1, 2013, we entered into a license agreement with Celgene, as amended on November 23, 2018, or the Celgene Agreement, pursuant to which we granted Celgene an exclusive, global license for the development, manufacture and commercialization of INBRX-103. Per the terms of the Celgene Agreement, Celgene is operationally and financially responsible for the development, manufacturing and commercialization activities of INBRX-103 and any additional related antibodies covered by the Celgene Agreement.

As payment for the license granted in the Celgene Agreement, we may be eligible to receive development and regulatory milestones of an aggregate of $934.1 million, assuming the achievement of all potential milestones in the Celgene Agreement, as well as percentage tiered royalties based on future worldwide sales, with rates ranging between the high single-digits and low teens, subject to potential reduction when and if comparable third party products attain certain levels of competitive market share (on a country-by-country basis) and, subject to certain limitations, payments to third parties for third-party intellectual property rights. We are obligated to pay 2% of future amounts received under the Celgene Agreement to advisors who assisted us with the negotiations and other matters in connection with the Celgene Agreement.

WuXi Agreement

On August 28, 2018, we entered into the Amended and Restated Master Services Agreement, or the WuXi Agreement, with WuXi Biologics (Hong Kong) Limited, or WuXi, pursuant to which we agreed, for three years and subject to certain conditions, to exclusively use WuXi to manufacture our therapeutic candidates for which we plan to first initiate clinical studies outside of China. Under the WuXi Agreement, WuXi and certain of its affiliates will provide biologics development and manufacturing services on a project-by-project basis.

Per the terms of the WuXi Agreement, we will own all intellectual property created, developed or reduced to practice by WuXi in the course of providing services to us; provided that, certain intellectual property created or

 

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developed by WuXi may be owned exclusively by WuXi if this intellectual property (i) relates to generally applicable experimental methods, (ii) relates to generally applicable manufacturing processes, developed solely at WuXi’s expense, or (iii) is derivative of WuXi’s pre-existing intellectual property.

Per the terms of the WuXi Agreement, fees will be mutually agreed upon on a project-by-project basis. We also may be eligible to receive discounts in the low- to mid-single digits for certain projects and services per the terms of the WuXi Agreement.

bluebird bio Agreement

On December 20, 2018, we entered into an exclusive license agreement with bluebird bio, Inc., or bluebird, to research, develop and commercialize chimeric antigen receptor, or CAR, T-cell therapies using our proprietary sdAb platform. Under the terms of this license agreement we will provide bluebird the exclusive worldwide rights to develop, manufacture and commercialize certain cell therapy products containing sdAbs directed to various cancer targets. In January 2019, we received a $7.0 million payment and pursuant to the license agreement, we are entitled to receive developmental milestone payments of up to an aggregate of $51.5 million per therapeutic, as well as percentage tiered royalties on future product sales with rates in the mid-single digits.

Other Collaborative Arrangements

In addition to these contracts, we have entered into strategic collaborations with other third parties, including Hangzhou Just Biotherapeutics Co., Ltd., or Just, and Elpiscience Biopharmaceuticals, Inc., or Elpiscience.

Financial Operations Overview

Revenue

To date, all of our revenue has been derived from grant awards and licenses with collaboration partners. To date, we have been awarded five grants from governmental agencies including three grants from the National Institutes of Health, or NIH, a government agency, and one from the Congressionally Directed Medical Research Programs, or CDMRP, funded through the Department of Defense, or DoD, by the U.S. Army Medical Research Acquisition Activity, or USAMRAA, as well as one grant from Combat Antibiotic Resistant Bacteria Accelerator, or CARB-X, a non-profit public-private partnership.

Additionally, we have not generated any revenue from the commercial sale of approved therapeutic products, and we expect our revenue for the next several years will be derived primarily from payments under our current and any future grant awards and agreements with our collaboration partners.

Effective January 1, 2018, we adopted the Financial Accounting Standards Board, Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or ASC Topic 606. We adopted ASC Topic 606 utilizing the modified retrospective method resulting in no impact to our contracts that were not complete as of the date of adoption therefore no cumulative-effect adjustment was required to opening accumulated deficit. Accordingly, while results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, all prior period amounts are not adjusted and continue to be reported under the accounting standards in effect during these prior periods.

Operating Expenses

Research and Development

To date, our research and development expenses have related primarily to research activities, including our discovery efforts, and preclinical and clinical development of our therapeutic candidates. Research and

 

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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. We do not track our internal research and development expenses on a program-by-program basis as they primarily relate to personnel, early research and consumable costs, which are deployed across multiple projects under development.

Research and development expenses consist primarily of:

 

   

salaries, benefits and other related costs, including stock-based compensation, for personnel engaged in research and development functions;

 

   

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

 

   

expenses for manufacturing our therapeutic candidates;

 

   

laboratory supplies; and

 

   

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

We expect that research and development expense will continue to increase over the next several years as we continue development of our therapeutic candidates currently in clinical stage development, support our preclinical programs, including those for which we expect to submit an IND to the FDA in the second half of 2019, and continue to discover new therapeutic candidates, as well as increase our headcount. In particular, clinical development of our therapeutic candidates, as opposed to preclinical development, generally has higher development costs, primarily due to the increased size and duration of later-stage clinical trials. 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 therapeutic candidates due to the inherently unpredictable nature of preclinical and clinical development. Preclinical and clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which therapeutic candidates to pursue and how much funding to direct to each therapeutic 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 therapeutic candidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which therapeutic candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Our clinical development costs may vary significantly based on factors such as:

 

   

per patient trial costs;

 

   

the number of trials required for approval;

 

   

the number of sites included in the trials;

 

   

the countries in which the trials are conducted

 

   

the length of time required to enroll eligible patients;

 

   

the number of patients that participate in the trials;

 

   

the number of doses that patients receive;

 

   

the drop-out or discontinuation rates of patients;

 

   

potential additional safety monitoring requested by regulatory agencies;

 

   

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

 

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the cost and timing of manufacturing of our therapeutic candidates;

 

   

the phase and development of our therapeutic candidates; and

 

   

the efficacy and safety profile of our therapeutic candidates.

General and Administrative

G&A expenses consist primarily of:

 

   

salaries, benefits and other related costs, including stock-based compensation, for personnel engaged in G&A functions;

 

   

expenses incurred in connection with accounting and audit services, legal services, business development and investor relations as well as consulting expense under agreements with third parties, such as consultants and contractors; and

 

   

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

We expect our G&A expenses will continue to increase over the next several years as we incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company and as we increase our headcount.

Other Income (Expense)

Other income (expense) consists primarily of interest expense on our debt from Oxford.

Net Loss Attributable to Non-Controlling Interest

A minority shareholder in certain of our subsidiaries had the right to require us to acquire their ownership interest in those entities at a stated rate in the future. The non-controlling interest subject to these arrangements was accreted to its future redemption amount each reporting period with a corresponding adjustment to predecessor’s equity. After the Merger and as of March 31, 2019, the redeemable non-controlling interest no longer exists and therefore there will be no net loss attributable to non-controlling interest in future periods.

 

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Results of Operations

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

The following table summarizes our results of operations for each of the periods indicated (in thousands, except percentages):

 

     Three Months Ended
March 31,
     Change  
     2018      2019      ($)      (%)
     (unaudited)              

Revenue:

           

License fee revenue

   $ 2,500      $ 7,032      $ 4,532        181

Grant revenue

     293        1,488        1,195        408
  

 

 

    

 

 

    

 

 

    

Total revenue

     2,793        8,520        5,727        205

Operating expense:

           

Research and development

     10,779        10,665        (114      (1 )% 

General and administrative

     911        1,467        556        61
  

 

 

    

 

 

    

 

 

    

Total operating expense

     11,690        12,132        442        4

Loss from operations

     (8,897      (3,612      5,285        (59 )% 

Other income (expense):

           

Interest expense, net

     (451      (247      204        (45 )% 

Other income, net

     28        12        (16      (57 )% 
  

 

 

    

 

 

    

 

 

    

Total other expense

   $ (423    $ (235    $ 188        (44 )% 
  

 

 

    

 

 

    

 

 

    

Provision for income taxes

     —          —          —          —    

Net loss

     (9,320      (3,847      5,473        (59 )% 

Accretion to redemption value of redeemable non-controlling interest

     (488      —          488        (100 )% 

Less: net loss attributable to non-controlling interest

     453        —          453        100

Net loss attributable to Inhibrx, Inc.

     (9,355      (3,847      5,508        (59 )% 

License fee revenue. License fee revenue increased by $4.5 million from $2.5 million during the three months ended March 31, 2018 to $7.0 million during the three months ended March 31, 2019. The $7.0 million of license fee revenue during the three months ended March 31, 2019 was earned primarily under our agreement with bluebird, which consisted of a $7.0 million payment received and recognized during the first quarter of 2019. The $2.5 million of license fee revenue during the three months ended March 31, 2018 consisted of a $2.5 million payment for the license of INBRX-105 under our agreements with Elpiscience.

Grant revenue. Grant revenue increased by $1.2 million from $0.3 million during the three months ended March 31, 2018 to $1.5 million during the three months ended March 31, 2019. Grant revenue during the three months ended March 31, 2019 consisted primarily of $0.7 million from the NIH and $0.8 million from CARB-X. Grant revenue during the three months ended March 31, 2018 consisted of $0.1 million from the NIH and $0.2 million from CARB-X. The increase in grant revenue recognized during the three months ended March 31, 2019 was due to the timing of revenue recognition as revenue is recognized when we incur the covered expenses related to a grants’ continued progression.

Research and development expense. Research and development expense decreased by $0.1 million from $10.8 million during the three months ended March 31, 2018 to $10.7 million during the three months ended March 31, 2019. In 2019, as compared to 2018, CRO expenses decreased by $2.3 million due to cost sharing agreements put in place following the first quarter of 2018. Additionally, lab supplies expenses increased by $0.3 million over this period, while facilities allocation increased by $0.3 million due to the increased rent in our new building lease. During this period in 2019, personnel-related expenses increased by $1.1 million as a result of increased headcount, while stock-based compensation increased by $0.5 million.

 

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G&A expense. G&A expense increased by $0.6 million from $0.9 million during the three months ended March 31, 2018 to $1.5 million during the three months ended March 31, 2019. This increase was primarily due to a $0.4 million increase in personnel-related expenses due to increased accounting and finance expenses, and a $0.1 million increase in stock-based compensation expenses.

Other income (expense). Interest expense, net decreased by $0.2 million from $0.4 million for the three months ended March 31, 2018 to $0.2 million for the three months ended March 31, 2019. This decrease was due to lower average debt balances during the three months ended March 31, 2019 as a result of the repayment of principal. Other income, net, was comparable for the three months ended March 31, 2019 as compared to the same period in the prior year.

Net loss. Net loss decreased by $5.5 million from $9.3 million during the three months ended March 31, 2018 to $3.8 million during the three months ended March 31, 2019. The decrease in net loss is attributable to the overall increase in total revenue due to increases of $4.5 million of license revenue from bluebird bio and of $1.2 million of grant revenue from increased activities with the NIH and CARB-X grants. These increases were offset by an overall increase to operating expenses by $0.4 million due to increases of $1.5 million in personnel-related expenses related to increased headcount, $0.6 million in stock compensation, $0.3 million in facilities for our new building lease, and decreased expenses of $2.0 million in lab supplies and service due to cost sharing agreements put in place following the first quarter of 2018.

Net loss attributable to non-controlling interest. There was no net loss attributable to non-controlling interest, which is related to pre-Merger activity only and is net of the accretion to the redemption value of the redeemable non-controlling interest during the three months ended March 31, 2019 and 2018. Following the Merger, the redeemable non-controlling interest no longer exists and therefore there is no net loss attributable to non-controlling interest during the three months ended March 31, 2019.

 

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Comparison of Years Ended December 31, 2017 and 2018

The following table summarizes our results of operations for each of the periods indicated (in thousands, except percentages):

 

     Year Ended
December 31,
     Change  
     2017      2018      ($)      (%)

Revenue:

           

License fee revenue

   $ 7,950      $ 7,500      $ (450      (6 )% 

Grant revenue

     441        1,095        654        148
  

 

 

    

 

 

    

 

 

    

Total revenue

     8,391        8,595        204        2

Operating expense:

           

Research and development

     25,510        33,454        7,944        31

General and administrative

     2,609        4,654        2,045        78
  

 

 

    

 

 

    

 

 

    

Total operating expense

     28,119        38,108        9,989        36

Loss from operations

     (19,728      (29,513      (9,785      50

Other income (expense):

           

Interest expense, net

     (2,126      (1,480      646        (30 )% 

Other income, net

     24        68        44        183
  

 

 

    

 

 

    

 

 

    

Total other expense

     (2,102      (1,412      690        (33 )% 
  

 

 

    

 

 

    

 

 

    

Provision for income taxes

     250        96        (154      (62 )% 

Net loss

     (22,080      (31,021      (8,941      40

Accretion to redemption value of redeemable non-controlling interest

     (1,235      (737      498        (40 )% 

Less: net loss attributable to non-controlling interest

     3,873        595        (3,278      (84 )% 

Net loss attributable to Inhibrx, Inc.

   $ (19,442    $ (31,163    $ (11,721      60

License fee revenue. License fee revenue decreased by $0.5 million from $8.0 million during the year ended December 31, 2017 to $7.5 million during the year ended December 31, 2018. The $7.5 million of license fee revenue in the year ended December 31, 2018 was earned primarily under our agreements with Elpiscience, which primarily consisted of a $2.5 million payment received in the first quarter of 2018 for the license of INBRX-105, $2.5 million in payments received in the second and third quarters of 2018 for the license of INBRX-106 and $2.0 million from the achievement of a milestone payment upon receipt of IND acceptance for INBRX-105. The $8.0 million of license fee revenue during the year ended December 31, 2017 consisted of a $5.0 million payment from Five Prime Therapeutics, Inc., or Five Prime, upon achievement of a developmental milestone related to our INBRX-110 program and a $2.5 million payment from Just upon delivery of a license and certain know-how for our INBRX-109 program.

Grant revenue. Grant revenue increased by $0.7 million from $0.4 million during the year ended December 31, 2017 to $1.1 million during the year ended December 31, 2018. Grant revenue during the year ended December 31, 2018 consisted of $0.2 million from the NIH, and $0.9 million from CARB-X. Grant revenue during the year ended December 31, 2017 consisted of $0.3 million from the NIH and $0.1 million from CARB-X. The increase in grant revenue recognized during the year ended December 31, 2018 was due to the timing of revenue recognition as revenue is recognized when we incur the covered expenses related to a grants’ continued progression.

Research and development expense. Research and development expense increased by $7.9 million from $25.5 million during the year ended December 31, 2017 to $33.5 million during the year ended December 31, 2018. This increase was primarily due to a $2.0 million increase in expense related to payments for CRO

 

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expenditures as certain of our therapeutic programs moved through development and a $0.9 million increase in expenses related to lab supplies and consumables utilized in on-going research and development efforts. Additionally, personnel-related expenses increased by $2.0 million during the year ended December 31, 2018 as we continued to expand our internal research and development team, stock-based compensation expense increased by $1.3 million due primarily to acceleration of vesting of our profit interest units, or PIUs, and facility-related expense increased by $0.9 million, due to the relocation of our headquarters.

G&A expense. G&A expense increased by $2.1 million from $2.6 million during the year ended December 31, 2017 to $4.7 million during the year ended December 31, 2018. This increase was primarily due to a $1.3 million increase in professional services expenses, such as increased accounting, legal and patent expenses. Personnel-related expenses increased by $0.3 million during the year ended December 31, 2018, due to the addition of an internal accounting team and facility-related expense increased by $0.1 million, due to the relocation of our headquarters.

Other income (expense). Interest expense, net decreased by $0.7 million from $2.1 million for the year ended December 31, 2017 to $1.4 million for the year ended December 31, 2018. This decrease was due to lower average debt balances in the year ended December 31, 2018 as a result of the repayment of principal. Other income, net, was comparable for the year ended December 31, 2018 as compared to the prior year.

Income taxes. Upon the Merger, we became subject to U.S. federal and state income taxes at the entity level. Since the Merger, we have incurred net operating losses and for the year ended December 31, 2018, we have applied a 100% valuation allowance against our federal deferred tax asset as we believe that it is more likely than not that the deferred tax asset will not be realized. Prior to the Merger, we were organized as multiple partnerships for U.S. federal and state income tax purposes. Accordingly, all income and deductions of the partnerships were reported on the partners’ separate income tax returns. We were subject only to certain immaterial state income taxes as well as foreign income taxes withheld on payments received in connection with license agreements. Income tax expense decreased by $0.2 million from $0.3 million for the year ended December 31, 2017 to $0.1 million for the year ended December 31, 2018. This decrease was due to a reduction in foreign income tax expenses during 2018.

Net loss. Net loss increased by $8.9 million from $22.1 million during the year ended December 31, 2017 to $31.0 million during the year ended December 31, 2018. The increase in net loss is attributable to the overall increase in operating expenses by $10.0 million primarily due to increases of $2.9 million in lab supplies and services due to therapeutic programs moved through research and development efforts, $2.3 million in personnel-related expenses related to increased headcount, $1.3 million in stock-based compensation, $1.0 million in facilities for our new building lease, and $1.3 million of professional services expenses. The increases were offset by a decrease of $0.7 million in interest expense, a decrease of $0.2 million in foreign income tax expense, and an increase of $0.2 million in total revenue due to a decrease of $0.5 million of license revenue and an increase of $0.7 million of grant revenue from increased activities with the CARB-X grant.

Net loss attributable to non-controlling interest. Net loss attributable to non-controlling interest, which is related to pre-Merger activity only and is net of the accretion to the redemption value of the redeemable non-controlling interest, decreased by $2.7 million from $2.6 million during the year ended December 31, 2017 to $(0.1) million during the year ended December 31, 2018. This decrease was due to a decrease in net loss within the allocated entity. After the Merger, the redeemable non-controlling interest no longer exists and therefore there will be no net loss attributable to non-controlling interest in future periods.

Liquidity, Capital Resources and Financial Condition

From our inception through March 31, 2019, we have devoted substantially all of our efforts to drug discovery and development and conducting preclinical studies. Our primary use of cash has been to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent,

 

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G&A expenditures. We have principally been financed through the sale of equity securities, borrowings under our Loan Agreement with Oxford and payments received from commercial partners for licensing rights to our therapeutic candidates under development and grants. We have a limited operating history and do not expect to receive any revenue from commercial sales for several years, if ever, making the sales and income potential of our business and market unproven. As of March 31, 2019, we had an accumulated deficit of $21.7 million and cash of $6.2 million. Although we received an additional $40.0 million from the Viking Note transaction in May 2019, without the proceeds from this offering and the concurrent private placement, our history of recurring losses and anticipated expenditures for clinical development raise substantial doubt about our ability to continue as a going concern. See Note 1 to our consolidated financial statements appearing at the end of this prospectus for additional information on our assessment. Similarly, the report of our independent registered public accounting firm on our consolidated financial statements as of and for the year ended December 31, 2018 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. See “Risk Factors—The report of our independent registered public accounting firm expresses substantial doubt about our ability to continue as a going concern.”

The accompanying consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern.

Our future liquidity and capital funding requirements will depend on numerous factors, including:

 

   

our ability to raise additional funds, either through this offering and the concurrent private placement or through other means;

 

   

the outcome, costs and timing of preclinical studies and clinical trials for our current or future therapeutic candidates;

 

   

whether and when we are able to obtain regulatory approval to market any of our therapeutic candidates;

 

   

our ability to successfully commercialize any therapeutic candidates that receive regulatory approval;

 

   

the emergence and effect of competing or complementary therapeutics or therapeutic candidates;

 

   

our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

 

   

our ability to retain our current employees and the need and ability to hire additional management and scientific and medical personnel;

 

   

the terms and timing of any collaboration, licensing or other arrangements that we have or may establish;

 

   

our ability to remain a going concern in light of our history of recurring losses and anticipated expenditures for clinical development needed to obtain regulatory approval and commercialize our therapeutic candidates; and

 

   

the valuation of our capital stock.

Until such time, if ever, in which we can generate substantial product revenue, we expect to continue to fund our operations and capital funding needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If we are unable to secure adequate additional funding, we will need to reevaluate our operating plan and may be forced to make

 

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reductions in spending, extend payment terms with suppliers, liquidate assets where possible, delay, scale back or eliminate some or all of our development programs, or relinquish rights to our technology on less favorable terms than we would otherwise choose. These actions could materially impact our business, results of operations and future prospects.

Cash Flow Summary

The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):

 

     Year Ended
December 31,
    Three Months Ended
March 31,
 
     2017     2018     2018     2019  
                 (unaudited)  

Net cash provided by (used in):

        

Net cash used in operating activities

   $ (18,752   $ (23,092   $ (2,114   $ (5,577

Net cash used in investing activities

     (1,340     (1,429     (75     (77

Net cash provided by (used in) financing activities

     13,537       13,154       (1,755     9,795  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

   $ (6,555   $ (11,367   $ (3,944   $ 4,141  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Activities

Cash used in operating activities of $5.6 million during the three months ended March 31, 2019 was primarily due to a net loss of $3.8 million, adjusted for non-cash items such as stock-based compensation expense of $0.9 million, depreciation and amortization of $0.2 million, amortization of operating lease right-of-use asset of $0.6 million, accretion of operating lease liability of $0.2 million, and accretion on our debt discount and non-cash interest of $0.1 million. Changes in operating assets and liabilities also contributed to the cash used in operating activities, such as decreases in accounts payable of $3.0 million, payments decreasing the operating lease liability by $0.4 million, offset by increases to accrued expenses and other current liabilities of $1.1 million due to an overall higher volume of preclinical and clinical activity.

Cash used in operating activities of $2.1 million during the three months ended March 31, 2018 was primarily due to a net loss of $9.3 million, adjusted for non-cash items such as stock-based compensation of $0.3 million, the accretion of the discount and the non-cash portion of interest expense related to our debt of $0.2 million and depreciation expense of $0.2 million. Changes in operating assets and liabilities also contributed to the cash used in operating activities, such as increases in our accounts payable of $6.1 million due to an overall higher volume of preclinical activity.

Cash used in operating activities of $23.1 million in 2018 was primarily due to a net loss of $31.0 million, adjusted for non-cash items such as stock-based compensation expense of $2.5 million, depreciation and amortization of $0.7 million and accretion on our debt discount and non-cash interest of $0.5 million. Changes in operating assets and liabilities also contributed to the cash used in operating activities, such as increases in accounts payable of $4.9 million and accrued expenses and other current liabilities of $0.8 million due to an overall higher volume of preclinical and clinical activity.

Cash used in operating activities of $18.8 million in 2017 was primarily due to a net loss of $22.1 million, adjusted for non-cash items such as stock-based compensation of $1.2 million, the accretion of the discount and the non-cash portion of interest expense related to our debt of $0.7 million and depreciation expense of $0.4 million. Changes in operating assets and liabilities also contributed to the cash used in operating activities, such as increases in our accounts payable and accrued expense and other current liabilities balances in 2017 due to an overall higher volume of preclinical activity.

 

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Investing Activities

Cash used in investing activities of $0.1 million and $0.1 million during the three months ended March 31, 2019 and 2018, respectively, was due to fixed asset purchases.

Cash used in investing activities of $1.3 million and $1.4 million in 2017 and 2018, respectively, was due to fixed asset purchases.

Financing Activities

Cash provided by financing activities of $9.8 million during the three months ended March 31, 2019 was primarily attributable to the gross proceeds of $12.0 million from the issuance of convertible preferred stock, partially offset by the repayment of debt principal of $1.5 million.

Cash used in financing activities of $1.8 million during the three months ended March 31, 2018 was attributable to predecessor distributions of $0.4 million and the repayment of debt principal of $1.4 million.

Cash provided by financing activities of $13.2 million during 2018 was primarily attributable to the gross proceeds of $20.5 million from the issuance of convertible preferred stock, partially offset by the repayment of debt principal of $5.7 million.

Cash provided by financing activities of $13.5 million during 2017 was primarily attributable to predecessor contributions of $20.0 million, partially offset by distributions of $1.4 million as well as the repayment of debt principal of $5.0 million.

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 in the rules and regulations of the Securities and Exchange Commission.

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency

We currently make payments to our cell line developers in euros. Our transactions payable in euros are subject to changes in currency exchange rates from the time the transactions are originated until settlement in cash. As such, our primary exposure to market risk arises when transacting with these developers and other service providers who require us to satisfy our obligations to them in currencies other than in U.S. dollars. We have concluded that we do not have a material foreign currency risk.

Interest Rate Risk

All of our cash is in cash accounts and highly liquid. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates. If a 10% change in interest rates were to have occurred on March 31, 2019, this change would not have had a material effect on the fair value of our cash accounts as of that date nor our net loss for the years then ended. Due to the highly-liquid nature of our cash holdings, we have concluded that we do not have a material financial market risk exposure.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during the periods presented.

 

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JOBS Act: Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to take advantage of this extended transition period and, as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

For so long as we are an emerging growth company we expect:

 

   

we will present no more than two years of audited financial statements and no more than two years of related management’s discussion and analysis of financial condition and results of operations;

 

   

we will avail ourselves of the exemption from the requirement 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;

 

   

we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and

 

   

we will provide less extensive disclosure about our executive compensation arrangements.

We will remain an emerging growth company for up to five years, although we will cease to be an “emerging growth company” upon the earliest of: (i) the last day of the fiscal year following the fifth anniversary of this offering; (ii) the last day of the first fiscal year in which our annual revenue is $1.07 billion or more; (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, as amended.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements included elsewhere in this prospectus for a discussion of recent accounting pronouncements and their effect, if any, on us.

Contractual Obligations

As of December 31, 2018, future minimum payments due under our contractual obligations are as follows (in thousands):

 

     Payments Due by Period  
     Total      Less Than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 

Operating lease obligations(1)

   $ 11,381      $ 1,673      $ 3,413      $ 3,547      $ 2,748  

Debt, including interest(2)

     9,776        6,192        3,584        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 21,157      $ 7,865      $ 6,997      $ 3,547      $ 2,748  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The expected timing of payments above are based on contractual obligations.

(2)

On March 15, 2015, we entered into the Loan Agreement, pursuant to which Oxford agreed, subject to certain conditions, to make term loans to us in four $5.0 million installments for an aggregate of $20.0 million. The term loans were made on the following dates: Term A: March 31, 2015; Term B: September 9, 2016; Term C: December 22, 2016, and Term D: December 22, 2016. Each term loan bears

 

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  interest at the following annual rate: Term A: 8.0%, Term B: 8.6%, Term C: 8.7%, and Term D: 8.7%. The repayment schedule provided for interest-only payments in arrears until May 2016, followed by consecutive equal monthly payments of principal and interest in arrears through the maturity date, which is March 31, 2020 for all four term loans.

We also have significant contractual obligations related to our development programs. These payments are generally cancellable upon notice without penalty and therefore these obligations are not included in the table above.

Critical Accounting Estimates and Policies

The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Management bases its estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, the estimation process is, by its nature, uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our consolidated financial statements may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material effect in our consolidated financial statements. We review our estimates, judgments, and assumptions used in our accounting practices periodically and reflect the effects of revisions in the period in which they are deemed to be necessary. We believe that these estimates are reasonable; however, our actual results may differ from these estimates.

We believe that the following critical accounting policies and estimates have a higher degree of inherent uncertainty and require our most significant judgments:

Revenue Recognition

To date, we have generated revenue from our collaboration and licensing agreements with partners, as well as from grants from the NIH, the CDMRP funded through the DoD, and from private not-for-profit organizations including CARB-X. Billings to customers or payments received from customers are included in deferred revenue on the balance sheet until all revenue recognition criteria are met.

Effective January 1, 2018, we adopted ASC Topic 606 utilizing the modified retrospective method. Accordingly, while results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, all prior period amounts are not adjusted and continue to be reported under the accounting standards in effect during these prior periods.

Subsequent to the Adoption of ASC Topic 606 on January 1, 2018

Under ASC Topic 606, we recognize revenue when, or as, the promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those services. To determine revenue recognition for arrangements we conclude are within the scope of ASC Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the performance obligation(s) are satisfied. At contract inception, we assess the goods or services promised within each contract, assess whether each promised good or service is distinct and identifies those that are performance obligations. We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied.

 

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Collaboration and License Agreements

We enter into collaborative agreements with partners that typically include one or more of the following: (i) license fees; (ii) nonrefundable up-front fees; (iii) payments for reimbursement of research costs; (iv) payments associated with achieving specific development, regulatory, or commercial milestones; and (v) royalties based on specified percentages of net product sales, if any. At the initiation of an agreement, we analyze each unit of account within the contract to determine if the counterparty is a customer in the context of the unit of account, in which case we apply the recognition, measurement, presentation, and disclosure requirements of ASC Topic 606. If a unit of account does not represent a transaction with a customer, it represents an arrangement with a collaborator subject to guidance under ASC Topic 808, Collaborative Arrangements, or ASC Topic 808. We early adopted ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 upon implementation of ASC Topic 606. The standard did not have a material effect on our consolidated financial statements.

In applying the principles of ASC Topic 606, we consider a variety of factors in determining the appropriate estimates and assumptions under these arrangements, such as whether the elements are distinct performance obligations, whether there are observable stand-alone prices, and whether any licenses are functional or symbolic. We evaluate each performance obligation to determine if it can be satisfied and recognized as revenue at a point in time or over time. Typically, license fees and non-refundable upfront fees are considered fixed, while milestone payments are identified as variable consideration which must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

Our existing collaborative license agreements that were not complete on January 1, 2018 were considered under the implementation of ASC Topic 606 and consisted of research collaboration and licenses. As of December 31, 2018, all collaboration and license revenue was within the scope of ASC Topic 808 and/or ASC Topic 606 and recognized accordingly.

See Note 6 to our consolidated financial statements, included elsewhere in this prospectus for more information on our collaboration and license agreements.

Grant Revenue

We have been awarded three grants from the NIH, one grant from the CDMRP funded through the DoD, as well as one grant from CARB-X. With respect to revenue derived from reimbursement of direct, out-of-pocket expenses for research and development costs associated with these grants, where we act as a principal with discretion to choose suppliers, bears credit risk, and performs part of the services required in the transaction, we record revenue for the gross amount of the reimbursement. The costs associated with these reimbursements are reflected as a component of research and development expense in our consolidated statements of operations.

Since there is no transfer of control of goods or services to the granting entities, the granting entities do not meet the definition of a “customer” as defined by ASC Topic 606 and therefore, these government grants and private not-for-profit institution grants are not within the scope of ASC Topic 606. Therefore, the adoption of ASC Topic 606 had no impact on our accounting for grant revenue since we are a business entity and the grants are with governmental agencies or private institutions and are not considered customers.

Revenue from these grants are based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for overhead expenses. Revenue is recognized as we incur expenses related to the grant which is consistent with the concept of transfer of control of a service over time under ASC Topic 606.

Prior to the Adoption of ASC Topic 606 on January 1, 2018

Prior to January 1, 2018, we recognized revenue in accordance with ASC Topic 605, Revenue Recognition, or ASC Topic 605. We recognized revenue when all four of the following criteria were met: (i) there was

 

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persuasive evidence that an arrangement existed; (ii) delivery of the products and/or services had occurred; (iii) the selling price was fixed or determinable; and (iv) collectability was reasonably assured. Amounts received prior to satisfying the revenue recognition criteria were recorded as deferred revenue.

Collaboration Agreements with Multiple Deliverables

We evaluated arrangements with multiple deliverables in accordance with ASC Topic 605-25, Revenue Recognition—Multiple-Element Arrangements. We would determine: (i) the deliverables included in the arrangement and (ii) whether the individual deliverables represented separate units of accounting or whether they had to be accounted for as a combined unit of accounting. Deliverables were considered separate units of accounting provided that: (a) the delivered items had value to the customer on a standalone basis and (b) if the arrangement included a general right of return relative to the delivered items, delivery or performance of the undelivered items was considered probable and substantially in our control. In assessing whether an item had standalone value, we considered factors such as the research, manufacturing and commercialization capabilities of the partner and the availability of the associated expertise in the general marketplace. In addition, we considered whether the partner could use the other deliverables for their intended purpose without the receipt of the remaining elements, whether the value of the deliverable was dependent on the undelivered items and whether there were other vendors that could provide the undelivered elements.

Arrangement consideration that was fixed or determinable was allocated among the separate units of accounting using the relative selling price method. We used the following hierarchy of values to estimate the selling price of each deliverable: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling price; and (iii) best estimate of selling price.

We would then apply the applicable revenue recognition criteria to each of the separate units of accounting in determining the appropriate period and pattern of recognition. If there was no discernible pattern of performance and/or objectively measurable performance measures did not exist, then we recognized revenue under the arrangement on a straight-line basis over the period we expected to perform according to the contract.

Licenses

If our license to our intellectual property was determined to be a separate unit of account, we recognized revenue allocated to the license when the license was delivered to the customer and the customer was able to use and benefit from the license. For licenses that were bundled with deliverables, we utilized judgment to identify the deliverables and appropriate unit of account as well as to determine the pattern and timing of revenue recognition whether the combined deliverables were satisfied over the period of performance or at a point in time and, if over the period of performance, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluated the measure of progress each reporting period and, if necessary, adjusted the measure of performance and related revenue recognition.

Research and Development and Clinical Trial Accruals

Research and development costs are expensed as incurred and include the cost of compensation and related expenses, as well as expenses for third parties who conduct research and development on our behalf, pursuant to development and consulting agreements in place. Clinical trial costs, including costs associated with third-party contractors, are a significant component of research and development expense. We expense research and development costs based on work performed. In determining the amount to expense, management relies on estimates of total costs based on contract components completed, the enrollment of subjects, the completion of trials and other events. If applicable, costs incurred related to the purchase of in-process research and development for early-stage products or products that are not commercially viable and ready for use, or have no alternative future use, are charged to expense in the period incurred. Costs incurred related to the licensing of products that have not yet received regulatory approval to be marketed, or that are not commercially viable and ready for use, or have no alternative future use, are charged to expense in the period incurred.

 

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Fair Value of Stock-Based Awards

Historically, prior to the Merger on April 30, 2018 and becoming a Delaware corporation, we issued PIUs to employees and certain other non-employees. Unit-based compensation for our PIUs was recorded based upon estimated fair value on the date of the grant and recognized as unit-based compensation expense over the expected service period, which was typically approximated by the vesting period. All of the PIUs were accelerated upon the Merger during the second quarter of 2018, which resulted in additional unit-based compensation expense of approximately $1.1 million. For the year ended December 31, 2018, total stock-based compensation related to PIUs was $2.1 million.

Post-Merger as a Delaware corporation, we recognize compensation costs related to stock-based awards, including stock options, based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting stock-based compensation, using the Black-Scholes option pricing model. The grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. In November 2018, we issued our first stock options post-Merger. To date, we have granted options to purchase up to an aggregate of approximately 3.2 million shares of our common stock under our 2017 Employee, Director and Consultant Equity Incentive Plan to certain of our employees and certain members of our board of directors.

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

 

   

Fair Value of Common Stock—The fair value of the shares of common stock underlying our stock-based awards was estimated on each grant date by our board of directors. In order to determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

 

   

Expected Term—We estimate the expected term of our stock options granted to employees and non-employee directors using the simplified method, whereby, the expected term equals the average of the vesting term and the original contractual term of the option. We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

 

   

Expected Volatility— Due to the lack of company specific historical and implied volatility data, we based our estimate of expected volatility on the estimate and expected volatilities of a guideline group of publicly traded companies. For these analyses, we select companies with comparable characteristics to ours including enterprise value, risk profiles, and with historical share price information sufficient to meet the expected life of the stock-based awards. We compute the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

 

   

Risk-Free Interest Rate—For the determination of the risk-free interest rates we utilize the U.S. Treasury yield curve for instruments in effect at the time of measurement with a term commensurate with the expected term assumption.

 

   

Expected Dividend—The expected dividend yield is assumed to be zero as we have never paid dividends and do not have current plans to pay any dividends on our common stock.

For our valuation performed in connection with our November 2018 option grant, we used a hybrid method of the Option Pricing Method, or OPM, and the Probability-Weighted Expected Return Method, or PWERM. PWERM considers various potential liquidity outcomes. Our approach included the use of different timing of initial public offering scenarios and a scenario assuming continued operation as a private entity. Under the hybrid

 

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OPM and PWERM method, the per share value calculated under the OPM and PWERM are weighted based on expected exit outcomes and the quality of the information specific to each allocation methodology to arrive at a final estimated fair value per share value of the common stock before a discount for lack of marketability is applied. Given the absence of a public trading market for our common stock, our board of directors exercised their judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including contemporaneous valuations performed by an independent third party, our stage of development, important developments in our operations, the prices at which we sold shares of our convertible preferred stock, the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock, actual operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of our common stock, among other factors.

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 on the date of the grant. Our board of directors intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the grant date.

For the three months ended March 31, 2019, stock-based compensation related to stock options was $0.9 million. As of March 31, 2019, we had $13.6 million of total unrecognized stock-based compensation which we expect to recognize over a weighted-average period of 3.7 years. The aggregate intrinsic value of options outstanding as of March 31, 2019 was $6.3 million, all of which were unvested.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized.

We follow the provisions of accounting for uncertainty in income taxes which prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition.

Leases

Effective January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases, using the modified retrospective transition option applying the new standard at the adoption date. As such, we did not adjust prior period amounts. For the long-term operating lease of our corporate headquarters, we recognized a right-of-use asset and lease liability on our condensed consolidated balance sheet. The lease liability is determined as the present value of future lease payments using an estimated rate of interest that we would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent. The lease term at the commencement date is determined by considering whether renewal options and termination options are reasonably assured of exercise.

We elected to exclude from our balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for our long-term operating lease.

Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses on the consolidated statements of operations.

 

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Periods prior to January 1, 2019, we accounted for our long-term operating lease recording the excess of expense over the amounts paid as deferred rent. The adoption of the new lease standard did not have any impact to prior period information.

Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. In connection with the audit of our 2017 and 2018 consolidated financial statements, we and our independent registered public accounting firm identified a material weakness in our internal controls due to a lack of controls in the financial reporting process, including accounting for accruals and non-recurring or complex transactions. The material weaknesses identified resulted from a lack of internal controls in the financial reporting process, including accounting for cut-off and accruals, as well as ineffective internal controls over the accounting for and disclosure of technical accounting matters. Specifically, we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements. Beginning in the fourth quarter of 2018, we began to take steps to address the material weakness and we continue to implement our remediation plan, which includes the hiring of additional personnel with requisite skills in both technical accounting and internal control over financial reporting. In addition, we have engaged external advisors to provide financial accounting assistance in the short term and to evaluate and document the design and operating effectiveness of our internal controls and assist with the remediation and implementation of our internal controls as required. We are evaluating the longer-term resource needs of our various financial functions. See the section titled “Risk Factors–We have identified material weaknesses in our internal control over financial reporting. 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.”

 

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BUSINESS

Overview

We are a clinical-stage biotechnology company focused on developing a broad pipeline of novel biologic therapeutic candidates. We combine a deep understanding of target biology with innovative protein engineering, proprietary discovery technologies, and an integrative approach to research and development to design highly differentiated therapeutic candidates. Central to these efforts is our proprietary single domain antibody, or sdAb, platform. Our culture empowers data-driven decision making with the aim of eliminating candidate-selection bias in discovery and development. Initially, we are pursuing therapeutic candidates directed to validated targets, where we believe our protein engineering technologies can overcome prior therapeutic limitations. We currently have three oncology programs in human clinical trials as well as a rare disease program for which we expect to initiate a clinical trial in the third quarter of 2019. We also have a preclinical program for which we expect to submit an Investigational New Drug application, or IND, to the United States Food and Drug Administration, or FDA, in 2019 and a preclinical program for which we submitted an IND to the FDA in May 2019. We retain worldwide rights to all of our programs, except for our INBRX-103 therapeutic candidate, for which worldwide rights have been licensed to Celgene Corporation, or Celgene, our INBRX-101 therapeutic candidate, for which we have entered into an option agreement with Chiesi Farmaceutici S.p.A., or Chiesi, for development and commercialization rights outside of the United States and Canada, and certain other therapeutic candidates for which we licensed limited commercial and development rights in certain Asian regions to key collaborators.

We utilize diverse methods of protein engineering to address the specific requirements of complex target and disease biology. We believe our sdAb platform can enable the development of therapeutic candidates with unique mechanisms of action and attributes superior to current monoclonal antibody, or mAb, and fusion protein approaches. sdAbs are small proteins derived from heavy-chain only antibodies naturally produced be the camelid family of animals, which includes camels, alpacas and llamas. sdAbs are highly modular and can be combined to create therapeutic candidates with defined valencies and multiple specificities, enabling enhanced cell signaling and conditional activation. Valency refers to the number of identical antigens bound be a given antibody, and multiple specificities refers to the process of engaging more than one distinct antigen. Importantly, our sdAb-based therapeutic candidates are manufactured by established processes used to produce therapeutic proteins.

Our Pipeline

We have developed a broad and diverse therapeutic candidate pipeline, as shown below:

 

LOGO

 

*

Third party partnerships with Chinese biotechnology companies currently in place for development and commercialization in China, Hong Kong, Macau and/or Taiwan.

 

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+

Global rights for this therapeutic candidate have been licensed to Celgene.

D

Commercialization and development rights subject to option agreement with Chiesi.

INBRX-109

INBRX-109 is a multivalent agonist of death receptor 5, or DR5, which we developed utilizing our sdAb platform. Agonism, or clustering, of DR5 receptors initiates a signaling pathway within the cell leading to tumor cell specific apoptosis, or programmed cell death. The process of clustering multiple cell surface receptors in close proximity to one another is essential to induce efficient signaling within a cell. Previously explored approaches using conventional mAbs or a recombinant tumor necrosis factor-related apoptosis-inducing ligand, or TRAIL, to target DR5 showed limited clinical efficacy, which we believe was due to an inability to effectively cluster multiple receptors together. To enhance clustering, a first-generation tetravalent DR5 agonist, TAS266, was developed by a third party and showed more potency in multiple preclinical models. Despite promising preclinical data, dose-limiting human toxicities were observed, which may have resulted from pre-existing anti-drug antibodies to TAS266. To overcome the limitations of ineffective clustering, we designed INBRX-109 as a tetravalent DR5 agonist capable of binding and clustering exactly four receptors per molecule. Additionally, INBRX-109 was designed to avoid recognition by pre-existing anti-sdAb antibodies commonly present in humans. In preclinical testing, DR5 signaling activated programmed cell death has been observed to be directly proportionally to the number of DR5 molecules clustered. We believe INBRX-109 has the potential to show clinical activity across multiple tumor types, including difficult-to-treat gastrointestinal tumors and mesothelioma. In addition, we believe INBRX-109 has the potential to act as both a single agent and in combination with apoptotic pathway modulators or chemotherapy. INBRX-109 is currently being investigated in a Phase 1 clinical trial in patients with solid tumors including sarcomas. We expect to announce data from the Phase 1 dose escalation portion of this trial in the second half of 2019, and treatment cohort efficacy data in the middle of 2020.

INBRX-105

INBRX-105 is both an antagonist of programmed death ligand 1, or PD-L1, and a conditional agonist of 4-1BB that we developed with our sdAb platform. The approval of checkpoint inhibitors that block the interaction between programmed cell death protein 1, or PD-1, and PD-L1 has caused a paradigm shift in oncology treatment due to their substantial response rates and overall survival benefit across numerous cancers. These therapeutics, however, achieve a lasting benefit only for a minority of patients and therefore additional therapeutic candidates have been tested clinically with the goal of further activating tumor reactive T-cells. These additional therapeutic candidates include agonist antibodies targeting 4-1BB. 4-1BB is a receptor belonging to the tumor necrosis factor receptor superfamily, or TNFRSF, that has been shown to provide co-stimulatory function to T-cells. While a 4-1BB agonist has shown clinical promise, systemic activation of 4-1BB led to toxicities that ultimately restricted the dose level administered and, in turn, limited efficacy. To overcome these limitations, we designed INBRX-105 to block PD-1 binding and to conditionally agonize 4-1BB only in the presence of PD-L1, which is typically only found in the tumor microenvironment and associated lymphoid tissues. We believe this unique mechanism of action has the potential to enhance the anti-tumor response and limit systemic toxicity. INBRX-105 has exhibited promising T-cell co-stimulatory activity in our preclinical studies through activation of antigen specific T-cells to levels in excess of those achieved with a combination of separate PD-L1 and 4-1BB targeting agents. We believe INBRX-105 has the potential to treat patients with PD-L1 expressing tumors, including those refractory to or relapsed from approved checkpoint inhibitor therapies. The IND for INBRX-105 became effective in October 2018, and we initiated a Phase 1 clinical trial in February 2019. We expect to announce dose escalation data from this trial in the second half of 2020.

INBRX-101

INBRX-101 is an Fc-fusion protein-based therapeutic candidate comprising a modified recombinant version of human alpha-1 antitrypsin, or AAT, that we are developing for the treatment of patients with alpha-1

 

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antitrypsin deficiency, or AATD. AATD is a genetically defined rare respiratory disease characterized by progressive destruction of lung tissue that has an FDA approved diagnostic. According to the Alpha-1 Foundation, this disease affects roughly 100,000 people in the United States and approximately the same number of people in Europe. The current standard of care for patients with AATD has been unchanged for decades and relies on weekly infusions of plasma derived AAT, or pdAAT, therapeutics. According to the American Journal of Respiratory and Critical Care Medicine, there are currently approximately 10,000 AATD patients worldwide receiving plasma-derived augmentation therapies, and according to Transparency Market Research, the worldwide market for AATD treatment is expected to grow from $1.2 billion in 2016 to $2.9 billion in 2025. AAT has proven difficult to develop recombinantly, often displaying loss of activity and experiencing accelerated degradation. INBRX-101 is designed to offer superior clinical activity to pdAAT by providing sustained enhanced plasma concentration with a less frequent, monthly dosing regimen. The IND for INBRX-101 became effective in November 2018, and we expect to initiate a Phase 1 dose escalation clinical trial in the third quarter of 2019. In May 2019, we entered into the Chiesi Option Agreement with Chiesi, pursuant to which we granted Chiesi an option to obtain an exclusive license to develop and commercialize INBRX-101 outside of the United States and Canada following completion of the contemplated Phase 1 trial. We expect to announce interim data from this trial in the second half of 2020.

INBRX-103

INBRX-103 is a mAb that targets cluster of differentiation 47, or CD47, which blocks a tumor protective pathway. CD47 is co-opted by many tumor types to protect tumor cells from being engulfed by macrophages. Despite promising activity, anti-CD47 antibody therapeutics are known to cause anemia and infusion reactions. To our knowledge, INBRX-103 was the first anti-CD47 antibody observed preclinically to block the interaction of CD47 and signal regulatory protein alpha, or SIRPa, without causing agglutination, or clumping, of red blood cells. In preclinical studies, administration of INBRX-103 was not associated with red blood cell or platelet depletion and exhibited a favorable toxicity profile in primates. We believe this lack of red blood cell agglutination could result in a differentiated clinical profile with a lower probability for anemia and infusion reactions. We believe this program has broad therapeutic potential in combination with tumor-targeting antibodies that can engage activating Fc receptors. We licensed worldwide development and commercialization rights to INBRX-103 to Celgene, which refers to the therapeutic candidate as CC-90002, in 2013, and Celgene is currently conducting a Phase 1 clinical trial of this therapeutic candidate in combination with rituximab.

Preclinical Programs

We are also developing a portfolio of preclinical therapeutic candidates leveraging our sdAb platform. In May 2019, we submitted an IND to the FDA for INBRX-106, our OX40 agnostic therapeutic candidate for the treatment of various oncology indications, and we expect to submit an IND to the FDA for an additional therapeutic candidate in the second half of 2019. We have the full rights to develop and commercialize our preclinical pipeline and platform in all major markets, with the exception of third-party partnerships in place for the development and commercialization of INBRX-106 in China, Hong Kong, Macau and Taiwan.

Our Leadership Team and Investors

We have carefully assembled a team with deep scientific and clinical experience in discovering and developing protein therapeutics. Our in-house capabilities span the disciplines of discovery, protein engineering, cell biology, translational research, chemistry, manufacturing and controls, or CMC, and clinical development. Members of our team bring experience from multiple organizations including Genentech, Inc., Gilead Sciences, Inc., Merck & Co. and Novartis AG. Our board of directors is comprised of individuals with proven business and scientific accomplishments and significant operating knowledge of our company.

We have raised capital through equity and debt financings and licensing and collaboration arrangements, including our CD47 mAb licensing arrangement with Celgene. We have also secured sources of funding through

 

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non-dilutive grants from Combating Antibiotic Resistant Bacteria Accelerator, or CARB-X, the National Institute of Allergy and Infectious Diseases, or NIAID, National Institutes of Health and the Department of Defense. Our investors include RA Capital Healthcare Fund, L.P., Lilly Asia Ventures, ArrowMark Partners, WuXi Biologics Healthcare Venture and Alexandria Venture Investments, among others.

Our Strategy

At Inhibrx, our mission is to discover and develop effective biologic treatments for people with life-threatening conditions and to evolve Inhibrx into a commercial-stage biotechnology company with a differentiated and sustainable product portfolio by focusing on the following:

Rapidly advancing and optimizing the clinical development of our lead programs.

We have built an experienced translational research, CMC and clinical development team to streamline the advancement of our lead therapeutic candidates both internally and by leveraging external relationships. To augment our U.S.-centric clinical strategy for our oncology therapeutic candidates, we have formed collaborations in China designed to provide access to patient populations for clinical trials not readily available in the United States, including treatment-naïve patients, and to facilitate rapid patient enrollment with the goal of generating more robust early clinical data. We believe this harmonized clinical strategy may allow us to accelerate our development timelines.

Applying our sdAb platform and other protein technologies to create differentiated therapeutics in multiple disease areas.

We have developed an sdAb platform and other protein technologies that we believe can be applied to meet the specific challenges of complex target biology. Our current pipeline is focused on oncology, orphan diseases and infectious diseases. We plan to expand to additional therapeutic areas where we believe we can create solutions to address challenges of both validated and novel targets and generate differentiated therapeutics.

Continuing our culture of innovation, execution and efficiency.

Over the last nine years we have carefully built an innovative culture that encourages scientific risk-taking within the bounds of our data-driven philosophy. This enables our research and development team to discover numerous promising preclinical candidates cost effectively, from which we select what we believe are highly differentiated programs for clinical development. We also utilize licensing of non-core assets and restricted geographic rights as well as grants to reduce the capital required from investors.

Scaling our capabilities to support the commercialization of our pipeline.

When appropriate, we intend to develop the commercial infrastructure required for bringing any approved products to patients in the United States and plan to evaluate options for delivering any approved products to patients in other key markets, such as Europe, Japan, and China, which may include strategic partnering, to maximize commercial opportunities.

Background

Our Approach

Inhibrx combines a deep understanding of target biology with innovative protein engineering, proprietary discovery technologies, and an integrative approach to research and development to design highly differentiated therapeutic candidates with unique mechanisms of action. We have grown our company with a science-first culture and have built a collaborative research, CMC and clinical development team empowered to investigate and select therapeutic programs based on patient need and promising data.

 

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Since our inception, we have developed and refined our suite of protein engineering capabilities. We initially focused our scientific expertise towards developing monoclonal antibodies and fusion proteins with unique properties. While these efforts successfully led to the discovery of INBRX-101 and INBRX-103, other desirable targets required novel therapeutic formats to address their complex biology. This led us to develop our sdAb platform, which we believe may lead to the development of therapeutic candidates that provide significant clinical benefits.

Conventional Antibodies and Their Limitations

Antibodies are multifunctional, Y-shaped proteins containing two identical antigen binding regions and constant domains. The arms of an antibody are symmetrical and contain the antigen binding regions (also referred to as the variable fragment, or Fv), which are each made up of a heavy, or VH, and light, or VL, domain allowing specific binding to target antigens. The constant domains serve to hold together the VH and VL domains. The Fc portion of the heavy-chain constant domain extends the half-life of the antibody in circulation and has the potential to modulate the function of immune cells through interaction with various Fc receptors, which are found on the surface of cells and interact with components of the immune system.

We believe that antibody Fv domains are not optimal building blocks for multispecific and multivalent therapeutics due to the extensive protein engineering required to ensure the correct pairing of the appropriate VH and VL domains to construct Fvs that are able to bind to antigens, as shown in the image below.

One common approach used to achieve correct pairing is the production of single chain variable fragments, or scFvs, which are generated by combining the VH and VL domain antigen binding domains using a flexible linker. The linker is required to stabilize the weak association of the VH and VL domains. Despite the addition of this linker, VH or VL sequences with a scFv have the propensity to errantly pair with a neighboring scFv. This can lead to disruption of proper Fv formation and/or aggregation, which can be exacerbated in constructs that contain multiple scFvs. Therefore, the formatting options for therapeutic constructs utilizing scFvs is often limited, requiring significant up-front optimization, which restricts broad applicability.

To address these limitations, we have developed our sdAb platform to enable the streamlined production of protein formats with multiple antigen specificities. sdAbs are conceptually similar to the VH domain of a conventional antibody but do not contain a VL domain, as shown in the image below, and are therefore denoted as heavy-chain only antibodies. The sdAb maintains target binding specificity with affinities that are comparable to conventional antibodies. Modular in nature, they can be linked to a constant domain to capture the half-life extending and immune cell modulating functions of an antibody. In addition, an sdAb is half the molecular weight of an scFv. We believe that the small size of sdAbs, along with their stable nature and simple structure, make them ideal building blocks to construct novel biologics with multiple specificities and functions.

COMPARISON OF CONVENTIONAL ANTIBODY AND SINGLE DOMAIN ANTIBODY STRUCTURE

 

 

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Overview of Our sdAb Platform Technology

sdAbs provide a small, simple, modular target binding domain that can be combined in a variety of ways to meet specific needs of unique biological targets. Our sdAb-based therapeutic candidates have been designed to interface with the biology of each target antigen, and can be readily manufactured at high yields with established processes. We have created various multivalent and multispecific therapeutic formats that are each designed to achieve unique functions, including the ability to:

 

   

effectively cluster receptors with precisely defined valency;

 

   

simultaneously engage multiple antigens or epitopes;

 

   

combine synergistic functions in a single molecule; and

 

   

restrict therapeutic activity to the tumor microenvironment or other biologically distinct tissue.

sdAbs are derived from heavy-chain only antibodies that are naturally produced by animals in the camelid family, which includes camels, alpacas and llamas. Unlike the antibody systems of other mammals, a subset of the camelid antibody repertoire is composed of heavy-chain only antibodies that can be miniaturized into sdAbs. Camelid derived sdAbs can be humanized to contain sequences with high similarity to human germline derived antibodies, similar to the humanization process applied to the development of mouse derived antibodies.

While the benefits of sdAb proteins are well documented, the presence of pre-existing anti-drug antibodies in human serum may limit the broad use of these agents as therapeutics. We have developed a series of proprietary modifications to our humanized sdAb scaffold that are designed to eliminate recognition by these pre-existing anti-drug antibodies. We believe this improvement, combined with our structural knowledge and curated sequence data from tens of thousands of sdAbs generated through camelid immunization, could result in sdAb-based therapeutics that retain optimal biophysical properties suitable for production with established antibody manufacturing processes.

Overview of Multivalent Constitutive Agonists

Often cell surface receptors require clustering to induce activation and effect downstream signaling. Receptors that require clustering are inherently difficult targets for conventional bivalent therapeutic antibodies, which are limited to interaction with no more than two receptors per molecule. In preclinical studies, we and third parties have observed that increased valency enhances receptor clustering and achieves the desired agonism of a target. We believe our ability to build multivalent therapeutic candidates will increase the potential to achieve clinical benefit by targeting these clustering-dependent receptors. Using our sdAb platform, we have developed higher order, multivalent antibodies that target TNFRSF agonists, as described below, that contain four (tetravalent) or six (hexavalent) antigen binding domains. Our multivalent therapeutic candidates are generally still smaller than conventional antibodies and other multivalent formats that utilize fusions of natural ligands or immunoglobulin M-based constant regions.

INBRX-109

INBRX-109 is a tetravalent sdAb-based therapeutic candidate targeting DR5, which, when activated, is designed to induce tumor specific programmed cell death. INBRX-109 is our most clinically-advanced multivalent constitutive agonist therapeutic candidate.

Background on DR5

Apoptosis is a critical process for maintaining healthy tissue homeostasis, but this process is frequently altered in cancer patients leading to the accumulation of malignant cells. Apoptotic signaling pathways are tightly regulated by the balance of pro- and anti-apoptotic factors, and their therapeutic modulation has the potential to

 

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be exploited for the treatment of cancer. Targeting anti-apoptotic proteins has been a clinically successful strategy. For example, venetoclax, an inhibitor of B-cell lymphoma 2, or Bcl-2, was approved by the FDA for the treatment of chronic lymphocytic leukemia in 2016.

Alternatively, we believe therapeutically targeting pro-apoptotic proteins such as DR5, a TNFRSF member, also known as TRAIL receptor 2, is a promising oncology treatment strategy. DR5 signaling is induced by clustering of multiple receptors, which initiates an apoptotic signaling pathway resulting in cell death. The strength of apoptotic signaling is proportional to the degree of DR5 clustering. Importantly, although DR5 is expressed throughout the body, cancer cells have been shown to be more sensitive to DR5 signaling compared to cells of healthy tissues.

The promise of inducing cancer-specific cell death has led to extensive efforts by pharmaceutical and biotechnology companies to therapeutically exploit the DR5 pathway for the treatment of cancer. These efforts have centered around developing recombinant versions of the DR5 ligand, or TRAIL, and agonistic bivalent DR5 antibodies. Despite demonstrated clinical safety as single agents and in combination with chemotherapies, these first generation DR5 agonists failed to meet clinical efficacy endpoints. We believe these failures were caused by insufficient clustering of DR5, which is necessary for activation of this pathway.

To prevent toxicities, agonism must be tightly controlled because hyper-clustering can initiate apoptosis of noncancerous cells. The prospect of improved efficacy through enhanced DR5 clustering led to the development of TAS266, a tetravalent DR5 agonist developed by a third party and comprised of four DR5 binding sdAbs. This therapeutic candidate showed significantly more potency as compared to the previous generations of DR5 agonists. TAS266 was evaluated preclinically in over 600 human cancer cell lines and demonstrated the greatest activity for mesothelioma, gastric cancer, colorectal cancer, pancreatic cancer and non-small cell lung cancer. Despite this promising preclinical data, human clinical data indicated that TAS266 caused dose-limiting liver toxicity, or hepatotoxicity. Subsequent analysis suggested the hepatotoxicity may have resulted from pre-existing anti-drug antibodies to TAS266, greatly enhancing effective valency and leading to the hyper-clustering of DR5 and apoptosis of liver cells.

Our Solution – INBRX-109

INBRX-109 is a tetravalent agonist of DR5 that we designed with our sdAb platform to drive cancer-specific programmed cell death. We believe INBRX-109 has the potential to overcome the limitations of previous DR5 agonists by utilizing higher valency to mediate anti-tumor activity, while limiting toxicity. INBRX-109 is comprised of four DR5 targeted sdAbs fused to an Fc region that has been modified to prevent Fc receptor interactions. Preclinically, we have observed that INBRX-109 has the ability to potently agonize DR5 through efficient receptor clustering, causing cancer cell death without affecting human liver cells, or hepatocytes. Based upon the observation that TAS266 induced hepatotoxicity in a Phase 1 clinical trial, hepatocytes appear to be a particularly sensitive non-cancerous cell type. We have engineered INBRX-109 with our proprietary sdAb modifications to reduce recognition by pre-existing anti-drug antibodies in humans, which we believe lessens the potential for hyper-clustering and associated toxicities.

We measured the ability of INBRX-109 to kill cancer cells at various antibody concentrations, and compared INBRX-109 to other DR5 binding test articles including a bivalent DR5 antibody, a trivalent TRAIL protein, and a tetravalent analog of TAS266 that we generated based on publicly available information. The figure below shows the viability of the cancer cell line Colo-205 on the vertical Y-axis, and a range of test article concentration on the horizontal X-axis in nanomolar, or nM, units. This assay was used to measure whether these test articles kill cancer cells by reducing the viability from approximately 100% down toward 0%, and also to measure the minimal concentration of test article needed to kill these cancer cells. We observed that only test articles that bound three or more DR5 molecules killed this cancer cell line, while the bivalent conventional antibody did not have any effect. Additionally, we found that the tetravalent DR5 test articles INBRX-109 and TAS266 analog had comparable activity to each other and killed Colo-205 cells at concentrations over 100 times

 

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lower than trivalent TRAIL. Our preclinical data indicates INBRX-109 may be substantially more potent than recombinant TRAIL or conventional DR5 antibodies previously studied in clinical trials.

Impact of Valency on DR5 Induced Tumor Cell Death

 

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The anti-tumor activity of INBRX-109 was further assessed in multiple in vivo xenograft models using primary patient-derived tumors or cancer cell lines. In these models, immunodeficient mice were engrafted with either human primary tumor cells or the tumor cell line Colo-205, which grows as a measurable tumor in mice, modeling human cancer progression. These tumor bearing mice were treated with different doses of INBRX-109 when their tumors reached an average size of about 300 mm3. As shown in the image below, we observed that tumor volume was reduced in mice treated with a single dose of INBRX-109 as low as 0.1mg/kg, administered intravenously, as compared to vehicle-treated mice.

Colo-205 Dose Response

 

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We also observed preclinical activity of INBRX-109 in other models of human cancers including mesothelioma, gastric cancer, colorectal cancer, pancreatic cancer, and non-small cell lung cancer. These indications represent some of the most aggressive and prevalent diseases and many of these cancer subtypes do not respond well to currently approved immunotherapies and represent a significant unmet need.

 

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INBRX-109 incorporates our proprietary modifications to the sdAb scaffold that are designed to reduce recognition by pre-existing anti-drug antibodies. Anti-drug antibody recognition likely resulted in toxicity issues for TAS266. To model potential toxicity for INBRX-109 as compared to TAS266, we developed an in vitro human hepatocyte assay. Shown below as percentage viability, in this assay, an analog of TAS266 caused the death of human hepatocytes in the presence of intravenous immunoglobulin, or IVIG, while meaningful hepatocyte death with INBRX-109 was not observed. IVIG, which is pooled from human donors, contains pre-existing anti-drug antibodies to sdAbs and is therefore useful in modeling toxicity.

Human Hepatocyte Toxicity Assay

 

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Additionally, we observed that INBRX-109 did not induce toxicities in cynomolgus monkeys after up to five weekly INBRX-109 administrations of doses up to 100 mg/kg. We believe the preclinical data, including in vitro and in vivo anti-tumor activity and lack of observed in vitro hepatocyte toxicity strongly support the clinical investigation of INBRX-109 as a potential DR5 agonist.

Clinical Development Plans

INBRX-109 is currently being investigated in a Phase 1 clinical trial in the United States in patients with solid tumors pursuant to an IND became effective in August 2018. This trial is a two-part open-label, dose escalation trial in patients with locally advanced or metastatic solid tumors, including sarcomas, whose disease has progressed despite standard therapy or for whom no standard therapy exists. Part 1 of this trial is a 3+3 dose escalation among five cohorts at dosages of 0.3 mg/kg, 1 mg/kg, 3 mg/kg, 10 mg/kg and 30 mg/kg. We have completed dosing of patients at the fourth dose level (10 mg/kg) and have not observed evidence of hepatotoxicity. We plan to investigate INBRX-109 in Part 2 of this trial in expansion cohorts in each of pleural mesothelioma, gastric cancer and colorectal cancer. We expect the trial to be conducted in up to 10 clinical sites and enroll approximately 80 patients. Dose escalation data from this trial are expected in the second half of 2019. Treatment cohort efficacy data from this trial are expected in the middle of 2020.

Primary endpoints of the trial are safety and tolerability, and the determination of the maximum tolerated dose and recommended Phase 2 dose. Secondary endpoints are serum exposure and immunogenicity, as measured by frequency of anti-drug antibodies. Exploratory endpoints include clinical anti-tumor efficacy, based on response rate, disease control rate, duration of response, median progression-free survival and overall survival, as well as evaluation of potential predictive diagnostic and pharmaco-dynamic biomarkers. Preliminary Phase 1 clinical data from Part 1 of this trial indicated no significant liver toxicities had been observed at the highest dosage administered to date of 10 mg/kg.

 

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Subsequent to the Phase 1 trial we are planning to investigate INBRX-109 as monotherapy and potentially in combination with chemotherapies, Bcl-2 and Bcl-2/XL inhibitors or antagonists of the class of proteins known as Inhibitors of Apoptosis Proteins in selected solid tumors and hematologic malignancies.

Overview of Conditional Agonists

Our pipeline includes conditional agonist therapeutic candidates designed to restrict functional activity to the specific site where a given antigen is expressed; for example, restricting the co-stimulation of T-cells to the tumor microenvironment. By agonizing receptors that function to promote an anti-tumor immune response in a manner that is dependent on a tumor-biased target, conditional agonists have the potential to induce anti-tumor activity without generating systemic toxicities. Our sdAb platform allows for careful selection of the affinity and valency of targeting domains, which we believe may provide optimal biologic activity and systemic exposure, potentially achieving a superior therapeutic index.

INBRX-105

INBRX-105 is a multispecific PD-L1 antagonist and conditional 4-1BB agonist that we developed with our sdAb platform. INBRX-105 is our most clinically-advanced conditional agonist therapeutic candidate.

Background on Immunotherapy

A notable recent success in cancer is the approval of checkpoint inhibitor immunotherapies as therapeutic agents. Immune checkpoints are key mechanisms that fine tune and control the body’s immune response. In the cancer setting, tumors have developed strategies for hijacking these checkpoints, preventing an immune response to the cancer and allowing the tumor cells to proliferate unchecked. Checkpoint inhibitor immunotherapies were developed to overcome this phenomenon by relieving immune cell inhibition, resulting in a potentially long-lasting amplification of the anti-tumor immune response. Therapies against checkpoint proteins, such as PD-1 and PD-L1, produced impressive results in clinical development, resulting in regulatory approvals in a number of malignancies.

Despite unprecedented clinical response rates, the majority of patients fail to respond to therapies targeting PD-1 and PD-L1. We believe this is in part because T-cells require co-stimulation for full functionality. Thus, checkpoint inhibition alone is likely insufficient to fully enable the immune system to attack a tumor, and we believe further benefit could be derived by the addition of immune co-stimulatory agents.

We believe a promising co-stimulatory receptor is 4-1BB, also known as TNFRSF9 or cluster of differentiation 137, which has been identified on T-cells isolated from primary tumors. 4-1BB is a member of the TNFRSF and is expressed on recently activated T-cells, but is largely absent from circulating T-cells under normal conditions. Agonistic 4-1BB antibodies have exhibited anti-tumor activity in mouse models of cancer, especially in combination with other immunomodulatory or tumor targeted therapeutics. These observations motivated the clinical advancement of antibodies designed to agonize 4-1BB and co-stimulate tumor reactive T-cells. Most recently, urelumab, a 4-1BB agonist, showed initial signs of single agent therapeutic efficacy, but clinical investigation was halted due to dose-limiting liver toxicities. The resulting data suggest there is potential for 4-1BB agonists to exert anti-cancer function, but also suggest a potential significant safety advantage for therapeutics able to achieve 4-1BB activation only in the tumor microenvironment. This is the balance we aim to strike with our PD-L1 by 4-1BB therapeutic candidate, INBRX-105.

Our Solution – INBRX-105

INBRX-105 is a tetravalent sdAb-based therapeutic candidate that is designed to concurrently inhibit the interaction of PD-L1 with PD-1 and agonize 4-1BB only in the presence of PD-L1, which is typically only found in the tumor microenvironment and associated lymphoid tissues. INBRX-105 is composed of four sdAbs: two

 

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targeting PD-L1 and two targeting 4-1BB. We believe the unique format of INBRX-105 can provide PD-L1/PD-1 inhibition while simultaneously and selectively activating 4-1BB only within the tumor, based on its ability to switch the binding partner of PD-L1 from its natural partner, PD-1, to 4-1BB, and to thereby convert the PD-L1-mediated immune-suppressive signal into an immune-stimulatory response. Based on the enrichment of PD-L1 expression in the tumor microenvironment, we believe INBRX-105 has the potential to selectively activate 4-1BB in the tumor while remaining inactive in the periphery, thus overcoming the toxicity issues that have limited prior 4-1BB agonists. The image below illustrates INBRX-105’s unique structure.

INBRX-105 STRUCTURE, A MULTISPECIFIC PD-L1 ANTAGONIST AND CONDITIONAL

4-1BB AGONIST

 

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INBRX-105 acts to block the interaction of PD-L1 with PD-1. We have tested this ability directly in various preclinical studies. The figure below depicts the results of one such study in which an artificial antigen presenting cell displaying PD-L1 and a T-cell receptor, or TCR, agonist on the surface was mixed with a TCR reporter cell that displays PD-1 and a TCR on the surface. If the PD-1/PD-L1 interaction is blocked then the reporter cell expresses luciferase, an enzyme that produces luminescence, which is measured by relative luminescence units, or RLU, as shown on the vertical Y-axis. As shown below, when compared to the FDA approved PD-L1 antibody atezolizumab (Tecentriq) and the FDA approved PD-1 antibody pembrolizumab (Keytruda), INBRX-105 demonstrated a similar PD-1/PD-L1 blocking capability to these therapeutics.

Cell Based Reversal PD-1/PD-L1 Suppression

 

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A second critical component of the function of INBRX-105 is its ability to mediate conditional 4-1BB agonism when bound to PD-L1. In this regard, INBRX-105 is not a constitutive 4-1BB agonist, meaning that in

 

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the absence of co-engagement with PD-L1, this therapeutic candidate would not be expected to mediate 4-1BB signaling. It is this functionality of INBRX-105 that we believe differentiates it from approved PD-1 and PD-L1 blocking agents and 4-1BB agonists under development.

We tested INBRX-105 in a variety of in vitro assays to evaluate its ability to mediate PD-L1-dependent 4-1BB agonism. In some assays, we compared the 4-1BB agonistic activity of INBRX-105 to analogs of comparator conventional 4-1BB antibodies urelumab and utomilumab. The figure below shows the results of a study in which reporter cells expressing 4-1BB on the surface were mixed with other cells that either expressed PD-L1 on their surface or other cells that do not. Clustering of 4-1BB receptors drives signaling in the reporter cell and drives luciferase expression that is read as relative luminescence units as shown on the vertical Y-axis. We observed that INBRX-105 activated 4-1BB signaling only in the presence of PD-L1 expressing cells, while INBRX-105 had no effect on 4-1BB signaling in the presence of cells lacking PD-L1. Furthermore, these assays revealed that the analog of urelumab was a constitutive agonist of 4-1BB signaling, whereas utomilumab did not display agonistic activity, demonstrating distinct mechanisms of action among the three therapeutic candidates.

INBRX-105 PD-L1-Dependent 4-1BB Agonism

 

 

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+PD-L1 Negative Cells

 

 

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+PD-L1 Positive Cells

 

 

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To assess the ability of INBRX-105 to modulate TCR-driven T-cell responses, we conducted various in vitro assays using primary human immune cells. Activated T-cells secrete interferon gamma, or IFNg, when they are activated through TCR clustering, and this effect is enhanced when co-stimulatory receptors such as 4-1BB are activated. One of these assays, an allogeneic mixed lymphocyte reaction, is commonly used to evaluate the propensity of immunomodulatory agents to provide T-cell co-stimulation. We observed that INBRX-105 elicited superior T-cell activation, as evidenced by an increase of IFNg production shown on the vertical Y-axis in the figure below, when compared to Keytruda, Tecentriq and the combination of these therapeutics with an analog of the 4-1BB antibody, utomilumab. Based on these findings, we believe INBRX-105’s dual mechanisms of action of PD-L1 checkpoint inhibition as well as conditional 4-1BB co-stimulation has the potential to drive more potent anti-tumor T-cell responses than the combination of PD-1/PD-L1 inhibition with a 4-1BB agonist.

 

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Mixed Lymphocyte Reaction: IFN gELISA

 

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Syngeneic tumor models are a commonly used tool to investigate the anti-tumor activity of immunomodulatory agents. However, INBRX-105 does not interact with mouse PD-L1 or 4-1BB. Therefore, in order to investigate the potential to mediate anti-tumor immunity preclinically, we developed an analog of INBRX-105, mu105, with the same therapeutic format comprised of sdAbs that bind the mouse antigens with similar affinities to those of INBRX-105 relative to the human target proteins. We tested mu105 in numerous syngeneic tumor models and observed robust single agent anti-tumor activity as indicated by decreased tumor growth, as shown in the images labeled “MC38: Tumor Growth” and “B16-F10: Tumor Growth” below, or increased mouse survival, as shown in the images labeled “MC38: Survival” and “B16-F10: Survival” below. The images below show the findings from our B16-F10 melanoma and MC38 colorectal tumor models. Many mu105 treated mice demonstrated tumor shrinkage and complete regression, leading to 50% survival in the B16-F10 model and 80% survival in the MC38 model at day 40. It is generally accepted that PD-1/PD-L1 blocking agents display minimal anti-tumor activity in B16-F10 models. We believe the potent single agent activity of mu105 in challenging tumor models such as B16-F10 suggests that INBRX-105 may also have strong single agent activity in human cancer patients.

 

B16-F10: Tumor Growth    MC38: Tumor Growth
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B16-F10: Survival    MC38: Survival
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To determine whether INBRX-105 might induce cytokine related toxicities in human subjects, blood from normal human donors was incubated with INBRX-105 and assessed for the production of multiple cytokines. In all samples treated with INBRX-105 at concentrations representative of our expected maximum clinical exposure, no significant production of cytokines was observed. Similarly, no immune-related adverse events were observed in cynomolgus monkey toxicology studies.

Clinical Development Plans

We initiated a Phase 1 clinical trial in the United States in February 2019 pursuant to an IND that became effective in October 2018. We expect to report dose escalation data in the second half of 2020. This trial will be an open-label, two-part trial in patients with locally advanced or metastatic solid tumors, including Hodgkin or non-Hodgkin lymphoma, followed by an expansion cohort in each of non-small cell lung cancer and melanoma, as well as a PD-L1 basket cohort of head and neck squamous cell carcinoma, gastric or gastro-esophageal junction adenocarcinoma, renal cell carcinoma, and urothelial (transitional) cell carcinoma. Patients in the expansion cohorts will have to be positive for PD-L1 expression, as determined by immunohistochemistry, to qualify for enrollment. We expect the trial will be conducted in 10 clinical sites in the United States and enroll approximately 100 patients. We anticipate initiating the expansion cohorts for this trial in the second half of 2020.

Primary endpoints of the trial are safety and tolerability, and the determination of the maximum tolerated dose and recommended Phase 2 dose. Secondary endpoints are serum exposure and immunogenicity, as measured by frequency of anti-drug antibodies. Exploratory endpoints include clinical anti-tumor efficacy per Response Evaluation Criteria in Solid Tumors, or RECIST, version 1.1 and immune RECIST or the International Working Group consensus response evaluation criteria in lymphoma based on response rate, disease control rate, duration of response, median progression-free survival and overall survival, as well as evaluation of potential predictive diagnostic and pharmaco-dynamic biomarkers.

We are pursuing a global clinical development strategy to generate an early comprehensive clinical data set. This data set will include patients in the United States that are PD-L1 positive and refractory or relapsed to commercially available anti-PD-1/PD-L1 checkpoint inhibitor therapeutics, and patients in China that were not previously treated with anti-PD-1/PD-L1 therapies. We will access this second patient population through our strategic partnership with Elpiscience Biopharmaceuticals, Inc., or Elpiscience, who we expect will execute the clinical studies in China, Hong Kong, Macau and Taiwan.

Our Therapeutic Candidates Utilizing Unique Protein Engineering

INBRX-101

INBRX-101 is a recombinant human AAT-Fc fusion protein therapeutic candidate that we are developing for the treatment of patients with AATD. Leveraging our proprietary engineering capabilities, we were able to overcome certain challenges of producing AAT recombinantly, while potentially optimizing its functionality.

Overview of Alpha-1 Antitrypsin Deficiency

AATD is an inherited disease that causes an increased risk of developing pulmonary disease, emphysema, progressive loss of lung tissue and function, and is associated with decreased life expectancy. The pulmonary manifestations of AATD include the entire spectrum of disorders associated with chronic obstructive pulmonary disease. Patients with AATD harbor mutations in the AAT-encoding gene Serpin family A member 1, or SERPINA1, which causes AAT protein misfolding, loss of activity and retention in the liver. AAT is a protease inhibitor that primarily targets human neutrophil elastase, or NE, an enzyme that is released by white blood cells in response to infections and has the capacity to degrade normal tissues, especially in the lung, if not tightly controlled by AAT.

 

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According to the Alpha-1 Foundation, the disease affects roughly 100,000 people in the United States, with a similar number of patients in Europe. Since AATD must be diagnosed using genetic testing and cannot be diagnosed by symptoms or by a medical examination alone, it is believed that many individuals with AATD are likely undiagnosed or misdiagnosed. In April 2017, the FDA allowed for the marketing of direct-to-consumer, or DTC, tests that provide genetic risk information for certain conditions, including AATD. We believe this will allow for earlier diagnosis, which is significant to the advancement of treating patients with AATD.

The approved standard of care for AATD has been augmentation therapy using pdAAT and has not been substantially improved since 1987. Plasma-derived treatments are highly dependent on human donor blood supply, which is costly and can be limited. Due to the short half-life of pdAAT therapeutics, patients require weekly infusions to achieve and maintain serum concentration above the protective threshold, presumed to be 11 µM. However, even with frequent treatments, the AAT serum concentration following treatment remains considerably below the normal range of 20 to 50 µM. There is clinical evidence suggesting that maintenance of higher AAT serum trough levels may better protect against lung function decline. Additionally, there are other significant barriers to treatment for patients with AATD, including under-diagnosis, high cost of chronic augmentation therapy, and difficulties associated with administering intravenous infusions on a weekly basis. According to the American Journal of Respiratory and Critical Care Medicine, there are currently approximately 10,000 AATD patients worldwide receiving plasma-derived augmentation therapies, and according to Transparency Market Research, the worldwide market for AATD treatment is expected to grow from $1.2 billion in 2016 to $2.9 billion in 2025.

Our Solution – INBRX-101

INBRX-101 is a recombinant AAT protein that is comprised of two human AAT molecules covalently linked to the Fc region of human immunoglobulin G4. AAT has proven difficult to develop recombinantly, often displaying loss of activity and experiencing accelerated degradation. We believe our novel approach has overcome these challenges. Fusion of AAT to the Fc region allows for production using a standard antibody expression system, which, when combined with our proprietary AAT-function preserving purification process, generates substantial and potentially scalable yields of active recombinant AAT protein. In preclinical studies, we have observed the Fc region to significantly improve pharmacokinetic properties for INBRX-101 as compared to pdAAT therapeutics. This extended exposure supports the potential for monthly dosing, which we believe may significantly improve patient quality of life and has been developed with the support of the Alpha-1 Foundation.

In addition to potentially providing a therapy that may achieve more effective AAT serum concentrations with fewer administrations, our preclinical studies have shown INBRX-101 may be superior to pdAAT therapeutics across several parameters. INBRX-101 is optimized to maximize the functional activity of AAT, particularly in the lung. Our preclinical data in mice that are transgenic for the human neonatal Fc receptor, or hFcRn, a protein that is critical for maintaining an extended serum half-life of Fc containing proteins and also has the ability to transfer Fc containing proteins from the blood into the lung, suggests that the addition of an Fc-domain to INBRX-101 may facilitate more efficient transport into the lung compared to pdAAT therapeutics. Furthermore, it is known that AAT is inactivated by oxidation, which can occur from the oxidative burst of neutrophils or inhalation of pollutants. Therefore, we designed INBRX-101 with amino acid changes in the AAT sequence to mitigate oxidation-induced inactivation, with the intention of preventing loss of activity at the desired site of action.

The primary mechanism of action of INBRX-101 is to inhibit NE. In a preclinical assay, we measured the ability of INBRX-101 to inhibit NE by comparing INBRX-101 to the FDA-approved pdAAT, Prolastin-C, in the presence of NE and a substrate that becomes florescent when it is cleaved by NE. The vertical Y-axis shows the activity of NE as the rate of relative fluorescence units over time (RFU/sec), while the X-axis shows the concentration of either INBRX-101 or Prolastin-C. The figure below shows that as the concentration of INBRX-101 or Prolastin-C increases, the RFU/sec decreases indicating that NE is being inhibited by both test articles with equivalent potency.

 

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INBRX-101 vs. Prolastin-C:

Neutrophil Elastase Inhibition

 

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The primary pathology of AATD is lung density decline due to NE degradation of elastin in the lung. Therefore it is critical that INBRX-101 get to the physiological site where NE is degrading elastin, which is inside the lung. We performed a lung drug distribution study to measure the concentration of INBRX-101 and Prolastin-C in mice expressing human FcRn treated with either test article. The figure below shows the concentration of both INBRX-101 and Prolastin-C in the broncheoalveolar lavage fluid, or BALF (fluid in the lungs), of hFcRn transgenic mice 48 hours after intravenous treatment, with each circle representing an individually dosed animal. We observed that INBRX-101 had superior distribution into the lung as compared to Prolastin-C.

INBRX-101 vs. Prolastin-C:

Lung Exposure huFcRN Tg Mice

 

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In addition, we evaluated INBRX-101’s ability to inhibit NE in cynomolgus monkeys as compared to Prolastin-C. The figure below shows that INBRX-101 displayed enhanced exposure and a reduced rate of clearance compared to Prolastin-C. Based on these results, we believe INBRX-101 may provide superior protection against NE-mediated lung damage in patients with AATD.

 

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Prolonged Exposure in Cynomolgus Monkey

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Clinical Development Plans

Our IND for INBRX-101 became effective in November 2018 and we expect to initiate a Phase 1 clinical trial in the third quarter of 2019. This open-label, dose escalating trial will start with single ascending dose administrations followed by multiple ascending dose administrations of INBRX-101 with doses of 40 mg/kg, 80 mg/kg and 120 mg/kg, administered to patients diagnosed with AATD who are either treatment naïve or previously treated with pdAAT therapeutics. We expect the trial to be conducted in 10 clinical sites in the United States and the United Kingdom and enroll approximately 36 patients. Based on preclinical pharmacokinetic data, we have designed the dose escalation trial to administer INBRX-101 by intravenous infusion every three to four weeks with the intent to select a dosage necessary to achieve sustained, near-normal, serum levels of AAT within this dosing interval.

Primary endpoints of the trial are safety and tolerability, and the determination of the maximum tolerated dose and recommended Phase 2 dose. Secondary endpoints are serum exposure and immunogenicity, as measured by frequency of anti-drug antibodies. Exploratory endpoints include NE activity and its biomarkers. In addition, we will measure pharmacokinetic and pharmacodynamic biomarkers in BALF. In May 2019, we entered into the Chiesi Option Agreement with Chiesi, pursuant to which we granted Chiesi an option to obtain an exclusive license to develop and commercialize INBRX-101 outside of the United States and Canada following completion of the contemplated Phase 1 trial. We expect interim data from this trial to be available in the second half of 2020.

INBRX-103

INBRX-103 is an anti-CD47 mAb therapeutic candidate that we licensed to Celgene.

Overview of CD47

Tumor cells have shown the ability to exploit normal mechanisms of immune system evasion to prevent their eradication by the adaptive and innate immune systems. Macrophages are a first line of defense with the capacity to engulf and dispose of cells that appear foreign or abnormal. Macrophages can then present this acquired foreign material as antigens to activate cells of the adaptive immune system, leading to a coordinated and effective immune response. Normal cells express CD47, an immune checkpoint receptor that binds to SIRPa on macrophages, to inhibit their function. CD47 is co-opted by many tumor types to evade destruction by macrophages and its expression is thereby correlated with poor clinical prognosis. Preclinical and early clinical studies have demonstrated the promise of blocking the CD47/SIRPa interaction for treatment of cancer. To be effective as a therapeutic agent, an antibody must block CD47’s interaction with SIRPa. The bivalent nature of antibodies commonly enables them to bind to their specific antigen on two neighboring cells, which, in the case of CD47, expressed on red blood cells, causes agglutination. This agglutination is a significant toxicity concern and a limitation for certain CD47 antagonists.

 

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Our Solution – INBRX-103

INBRX-103 is a mAb therapeutic candidate designed to antagonize CD47/SIRPa interactions without causing red blood cell agglutination. We believe INBRX-103 may have broad therapeutic potential in combination with tumor targeting effector enabled antibodies, such as rituximab, cetuximab and/or checkpoint inhibitors. We observed that INBRX-103 exhibited superior anti-tumor activity and therapeutic index compared to other anti-CD47 antibodies in preclinical studies. Additionally, we observed that INBRX-103 did not deplete red blood cells or platelets in vivo and exhibited a favorable toxicity profile in primates.

The primary mechanism of action for INBRX-103 is to bind CD47 and to block SIRPa. Flow cytometry is a typical method to measure cell surface binding of antibodies like INBRX-103 or recombinant proteins such as SIRPa-Fc to cell populations one cell at a time. Each cell’s fluorescence is measured, which corresponds to the amount of antibody or protein bound to the cell surface, and is displayed as the median fluorescence intensity, or MFI, as shown below on the vertical Y-axis. The lower left figure shows the binding profile of INBRX-103 to cell surface CD47 at various concentrations. The lower right figure shows the ability of INBRX-103 to block SIRPa at various concentrations.

 

INBRX-103 Binding    INBRX-103: SIRPa Blocking

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As shown in the figure below, INBRX-103 did not cause agglutination of red blood cells in preclinical assays, whereas other CD47 antagonists, CC2C6, an anti-CD47 antibody, and SIRPa-Fc, caused agglutination. Agglutination is evidenced below by the inability of red blood cells to settle in a well and form punctate dots and the appearance of a diffuse haze of cross-linked red blood cells.

RBC Agglutination

 

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Clinical Development Plans

We licensed INBRX-103 to Celgene, and Celgene is currently conducting a Phase 1 clinical trial of this therapeutic candidate in subjects with advanced, refractory solid and hematologic cancers, with an expansion cohort in combination with Rituxan in subjects with CD20-positive non-Hodgkin’s lymphoma. Based on publicly available information, this trial is planned to be conducted in numerous sites in the United States and Europe, including seven additional sites added in the fourth quarter of 2018, and estimated enrollment increased for this trial from 65 patients to 110 patients in January 2019. The primary endpoints are safety and tolerability, and the determination of the maximum tolerated dose and recommended Phase 2 dose. Secondary endpoints are serum exposure and immunogenicity, as measured by frequency of anti-drug antibodies, and efficacy determined by response rates of each tumor type using RECIST v1.1 and other tumor-appropriate response criteria. More information on our agreement with Celgene can be found in the section titled “—Celgene Agreement” below.

Other sdAb Development Programs

We are developing numerous additional multivalent therapeutic candidates, based on the concept that agonism of cell surface receptors requires higher order clustering, beyond what can be achieved with bivalent antibodies. In addition, we have developed a suite of therapeutic formats that allow conditional agonism of various important immunomodulatory pathways. These therapeutic candidates are designed to enhance therapeutic activity and limit systemic toxicities. Furthermore, we believe our sdAb platform has the ability to address the complexity of targeting cellular pathogens by incorporating multiple complementary functions in a single molecule to maximize therapeutic benefit.

INBRX-106

INBRX-106 is an optimized, sdAb-based hexavalent agonist of OX40 in development for a range of oncology indications. OX40 is a member of the TNFRSF and functions as a T-cell co-stimulatory molecule. In preclinical studies, OX40 signaling has been observed to mediate or enhance anti-tumor immunity. Importantly, like most TNFRSF members, clustering of cell surface OX40 is required to elicit downstream signaling. Bivalent

 

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OX40 antibodies are ill suited for receptor clustering and are generally unable to elicit OX40 agonism. In preclinical studies, we have observed that INBRX-106 mediated T-cell co-stimulation and reversed the suppressive activity of regulatory T-cells. We submitted an IND to the FDA for INBRX-106 in May 2019 and aim to conduct clinical studies in therapeutic indications such as melanoma, non-small cell lung cancer and other tumor types as a single agent and in combination with anti-PD-1 or anti-PD-L1 blocking therapeutics.

INBRX-111

INBRX-111 is a multi-functional antibody that targets Pseudomonas aeruginosa, a drug resistant bacterium capable of causing serious human illness. INBRX-111 was designed to simultaneously block Pseudomonas aeruginosa mediated cytotoxicity and bind to the bacterial surface for phagocytosis, the process by which certain cells called phagocytes ingest or engulf other cells or particles. INBRX-111 exhibits broad strain recognition and potent in vivo activity in preclinical models of Pseudomonas aeruginosa infection. Pseudomonas aeruginosa is denoted as a critical priority by the World Health Organization and a serious threat by the Centers for Disease Control. These infections are most prevalent in people with weakened immune systems and are becoming increasingly difficult to treat due to antibiotic resistance. Based on the potential of our novel approach, we received grants and program support from the NIAID and CARB-X to advance INBRX-111 into clinical development. We expect to submit an IND to the FDA for INBRX-111 in the second half of 2019 and to commence a Phase 1 clinical trial in healthy adult volunteers shortly thereafter.

Celgene Agreement

On July 1, 2013, we entered into a license agreement with Celgene, as amended on November 23, 2018, or the Celgene Agreement, pursuant to which we granted Celgene an exclusive, global license for the development, manufacture and commercialization of INBRX-103. Per the terms of the Celgene Agreement, Celgene is operationally and financially responsible for the development, manufacturing and commercialization activities of INBRX-103 and any additional related antibodies covered by the Celgene Agreement.

As payment for the license granted in the Celgene Agreement, we may be eligible to receive development and regulatory milestones of up to an aggregate of $934.1 million, assuming the achievement of all potential milestones in the Celgene Agreement, as well as percentage tiered royalties based on future worldwide sales, with rates ranging from between the high single-digits to the low teens, subject to potential reduction when and if comparable third-party products attain certain levels of competitive market share (on a country-by-country basis) and, subject to certain limitations, payments to third parties for third-party intellectual property rights. Celgene’s royalty obligations expire (on a country-by-country basis) upon the later of (i) the expiration of the last valid patent claim for the applicable INBRX-103 or related product in a country, and (ii) 12 years following that date of the first commercial sale of the applicable INBRX-103 or related product in a country. We are obligated to pay 2% of future amounts received under the Celgene Agreement to advisors who assisted us with the negotiations and other matters in connection with the Celgene Agreement.

The Celgene Agreement contains representations and warranties, insurance, indemnification and confidentiality provisions customary for similar agreements and arrangements. In addition, Celgene has the sole right, but not the obligation, to enforce the intellectual property included in the Celgene Agreement.

The term of the Celgene Agreement commenced on July 1, 2013 and expires on a licensed product-by-licensed product and country-by-country basis on the date of expiration of Celgene’s applicable royalty obligations. As of April 30, 2019, the last to expire issued patent licensed under the Celgene Agreement is projected to expire in 2033, absent any extension of term. The Celgene Agreement may be terminated by (i) either party for the uncured material breach of the other party, (ii) either party for bankruptcy or other insolvency proceedings of the other party, (iii) Celgene at any time upon 30 days’ written notice to us, and (iv) us, upon Celgene’s, or any of its affiliates’, legal challenge to the validity or enforceability of a licensed patent.

 

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WuXi Agreement

On August 28, 2018, we entered into an Amended and Restated Master Services Agreement, or the WuXi Agreement, with WuXi Biologics (Hong Kong) Limited, or WuXi, pursuant to which we agreed, for three years and subject to certain conditions, to exclusively use WuXi to manufacture our therapeutic candidates for which we plan to first initiate clinical studies outside of China. Under the WuXi Agreement, WuXi and certain of its affiliates will provide biologics development and manufacturing services on a project-by-project basis.

Per the terms of the WuXi Agreement, we will own all intellectual property created, developed or reduced to practice by WuXi in the course of providing services to us; provided that, certain intellectual property created or developed by WuXi may be owned exclusively by WuXi if this intellectual property (i) relates to generally applicable experimental methods, (ii) relates to generally applicable manufacturing processes, or (iii) is derivative of WuXi’s pre-existing intellectual property.

Per the terms of the WuXi Agreement, fees will be mutually agreed upon on a project-by-project basis. We also may be eligible to receive discounts in the low- to mid-single digits for certain projects and services per the terms of the WuXi Agreement.

The WuXi Agreement contains representations and warranties, insurance, indemnification and confidentiality provisions customary for similar agreements and arrangements.

The term of the WuXi Agreement commenced on August 28, 2018 and ends on the date that either party elects to terminate it by providing 30-day written notice to the other party, provided that the WuXi Agreement may only be terminated in this manner if all services requested by pending work orders under the WuXi Agreement have been completed. Work orders commence on the date indicated in each such work order and will terminate upon completion of the services requested therein. Work orders may be terminated by (i) us at any time upon three months’ written notice to WuXi, and (ii) either party for the uncured material breach of the other party, provided that the material breach was not caused by the party terminating the work order.

bluebird bio Agreement

On December 20, 2018, we entered into a license agreement, or the bluebird Agreement, with bluebird bio, Inc., or bluebird, pursuant to which we granted to bluebird an exclusive license to use our proprietary sdAb platform to research, develop and commercialize chimeric antigen receptor, or CAR, T-cell therapies. Under the terms of the bluebird Agreement, we provided bluebird the exclusive worldwide rights to develop, manufacture and commercialize certain cell therapy products containing sdAbs directed to various cancer targets. As payment for the license granted in the bluebird Agreement, we received a non-refundable upfront payment of $7.0 million. We are also entitled to receive certain developmental milestone payments of up to an aggregate of $51.5 million per therapeutic, as well as percentage tiered royalties on future product sales with rates in the mid-single-digits.

The bluebird Agreement contains representations and warranties, indemnification and confidentiality provisions customary for similar agreements and arrangements. The term of the bluebird Agreement commenced on December 20, 2018, and expires on a product-by-product and country-by-country basis upon the full expiration of bluebird’s milestone- and royalty-based payment obligations under the bluebird Agreement. The royalty obligations under the bluebird Agreement expire on a product-by-product and country-by-country basis on the later of (i) the expiration of the last valid patent claim for the applicable product in the relevant jurisdiction; (ii) the date on which any applicable regulatory, pediatric, orphan drug or data exclusivity, which provides bluebird with the exclusive right to market the applicable product in the relevant jurisdiction, expires; and (iii) 12 years following that date of the first commercial sale of the applicable product in a country. The bluebird Agreement may be terminated by (i) either party for the uncured material breach of the other party, (ii) either party for bankruptcy or other insolvency proceedings of the other party, and (iii) bluebird at any time upon 30 days’ written notice to us.

 

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Just License Agreement and Technical Services Agreements

On June 21, 2017, we entered into a license agreement, or the Just License Agreement, with Hangzhou Just Biotherapeutics Co., Ltd., or Just, pursuant to which we granted to Just exclusive, non-transferable rights to develop, manufacture, and sell its products containing our mono-specific protein therapeutic candidate, designed to target DR5, or INBRX-109, or a derivative thereof, within China, Hong Kong, Macau and Taiwan. We also agreed to provide Just with the know-how and materials, including assays and cell lines, necessary to develop the therapeutic candidate. Additionally, pursuant to the Just License Agreement, Just granted to us a royalty-free, worldwide, non-exclusive research license to intellectual property created by Just that incorporates intellectual property we licensed to Just. As payment for the license we granted in the Just License Agreement, we received a non-refundable upfront payment of $2.5 million. Additionally, we are eligible to receive certain developmental and commercial milestone payments of up to an aggregate of approximately $100.0 million, as well as percentage tiered royalties on future product sales with rates ranging between the high single-digits to the low teens.

The Just License Agreement contains representations and warranties, insurance, indemnification and confidentiality provisions customary for similar agreements and arrangements. The term of the Just License Agreement commenced on June 21, 2017, and expires on a country-by-country basis upon the full expiration of Just’s milestone- and royalty-based payment obligations under the Just License Agreement. The royalty payment obligations expire on a product-by-product and country-by-country basis at such time that there is (i) no valid patent claim for the applicable product in the relevant jurisdiction, and (ii) no Generic Product (as defined in this Just License Agreement) of an applicable product available in the relevant jurisdiction. The Just License Agreement may be terminated by (i) either party for the uncured material breach of the other party, (ii) either party for bankruptcy or other insolvency proceedings of the other party, and (iii) Just at any time upon 90 days’ written notice to us.

On March 19, 2018, we also entered into a technical services agreement, or the March TSA, with Just pursuant to which we provided reasonable assistance with the drug substance transfer between our contract manufacturer and Just. We received a payment of $0.7 million as compensation under the March TSA. The March TSA had a six (6) month term and expired in September 2018. On October 6, 2018, we entered into a second technical services agreement, or the October TSA, to provide reasonable assistance pertaining to the transfer of the drug substance between our contract manufacturer and Just. We received a $0.4 million payment as compensation under the October TSA. The October TSA also had a six (6) month term and expired in April 2019.

Elpiscience Agreements

We have entered into two different license agreements with Elpiscience Biopharmaceuticals, Inc., or Elpiscience. Each agreement is a standalone license of a distinct and differentiated protein therapeutic candidate with a separate biological target.

On February 28, 2018, we entered into a license agreement, or the PD-L1 and 4-1BB License Agreement, with Elpiscience, pursuant to which we granted Elpiscience an exclusive license to our bi-specific therapeutic candidate designed to target PD-L1 and 4-1BB, also referred to as INBRX-105. On April 30, 2018, we entered into a license agreement, or the OX40 License Agreement, with Elpiscience, pursuant to which we granted Elpiscience an exclusive license to our multivalent protein therapeutic directed to the biological target OX40, or INBRX-106. Each of the PD-L1 and 4-1BB License Agreement and OX40 License Agreement provides Elpiscience with the right to further advance the respective therapeutic candidates through clinical trials, as well as to manufacture and commercialize these therapeutic candidates. The PD-L1 and 4-1BB License Agreement and OX40 License Agreement also require us to provide Elpiscience with know-how and materials specific to INBRX-105 and INBRX-106, respectively, including process development and manufacturing data and information necessary to develop INBRX-105 and INBRX-106. Additionally, pursuant to each of the license

 

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agreements, Elpiscience granted to us a royalty-free, worldwide, non-exclusive research license to intellectual property created by Elpiscience that incorporates intellectual property we licensed to Elpiscience. In the PD-L1 and 4-1BB License Agreement and OX40 License Agreement, we also agreed to negotiate an agreement to supply Elpiscience with INBRX-105 and INBRX-106, respectively, for their development in China, Hong Kong, Macau and Taiwan.

As payment for the license granted in the PD-L1 and 4-1BB License Agreement, we received a non-refundable upfront payment of $2.5 million and reimbursement of $3.0 million for certain costs we incurred. As payment for the license granted in the OX40 License Agreement, we received a non-refundable fee of $2.5 million, payable in two installments, and reimbursement of $3.4 million for certain toxicology study costs and chemistry, manufacturing and controls costs. We are also eligible to receive specified developmental and commercial milestone payments of up to an aggregate of $100.0 million under each of the PD-L1 and 4-1BB License Agreement and the OX40 License Agreement. Additionally, we received reimbursement for specific supply-related costs in the amounts of $1.7 million and $1.5 million related to the PD-L1 and 4-1BB License Agreement and the OX40 License Agreement, respectively. Further, each license agreement provides us with the right to receive percentage tiered royalties on future product sales with rates in the high single-digits.

Each of the PD-L1 and 4-1BB License Agreement and the OX40 License Agreement contains representations and warranties, insurance, indemnification and confidentiality provisions customary for similar agreements and arrangements. The terms of the PD-L1 and 4-1BB License Agreement and the OX40 License Agreement commenced on February 28, 2018 and April 30, 2018, respectively, and expire on a country-by-country basis upon the full expiration of Elpiscience’s milestone- and royalty-based payment obligations under each license agreement. The royalty obligations expire upon the later of (i) the expiration of the last valid patent claim for the applicable product in the relevant jurisdiction, and (ii) 12 years following that date of the first commercial sale of the applicable product in the relevant jurisdiction. Each license agreement may be terminated by (i) either party for the uncured material breach of the other party, (ii) either party for bankruptcy or other insolvency proceedings of the other party, and (iii) Elpiscience at any time upon 90 days’ written notice to us.

Chiesi Option Agreement

In May 2019, we entered into the Chiesi Option Agreement with Chiesi, pursuant to which we granted Chiesi an exclusive option to obtain an exclusive license to develop and commercialize INBRX-101 outside of the United States and Canada. Under the terms of the Chiesi Option Agreement, we are entitled to receive a one-time option initiation payment of $10.0 million within five (5) days of the completion of this offering, provided that this offering closes prior to February 15, 2020. Additionally, independent and separable from the Chiesi Option Agreement, Chiesi agreed to purchase shares of our common stock with an aggregate purchase price of $10.0 million in a separate private placement concurrent with the completion of this offering at a price per share equal to the initial public offering price. If Chiesi exercises its option under the Chiesi Option Agreement, then Chiesi must pay us a one-time, non-refundable fee of $12.5 million upon the effective date of the definitive agreement granting Chiesi the exclusive license.

The option period under the Chiesi Option Agreement begins upon the satisfaction of all conditions to the option, which include closing of this offering, the payment by Chiesi of the option initiation payment, and the closing of the concurrent private placement, provided that all such conditions are met prior to February 15, 2020. The option period under the Chiesi Option Agreement expires 60 days following the last-to-occur of (a) our delivery to Chiesi of trial phase data for the first Phase I Clinical Trial for INBRX-101; (b) our delivery to Chiesi of the finalized minutes from the definitive FDA scientific advice meeting conducted following completion of such Phase I Clinical Trial; and (c) our delivery to Chiesi of the finalized minutes from the definitive parallel EMA-HTA scientific advice meeting conducted following completion of such Phase I Clinical Trial. The Chiesi Option Agreement may be terminated by (i) Chiesi upon 30 days’ written notice to us, (ii) either party for the uncured material breach of the other party, and (iii) either party for bankruptcy or other insolvency proceedings of the other party. The Chiesi Option Agreement contains representations, warranties and indemnification provisions customary for similar agreements and arrangements.

 

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Intellectual Property

We strive to protect the proprietary technology and information commercially or strategically important to our business. We seek to obtain and maintain, patent rights intended to cover the technologies incorporated into, or used to produce, our therapeutic candidates, the compositions of matter of our therapeutic candidates and their methods of use and manufacture, as well as other inventions that are important to our business. We also seek to obtain strategic or commercially valuable patent rights in the United States and other jurisdictions.

To cover our proprietary technologies and our current pipeline of proprietary products and related methods, such as methods of use, we have filed patent applications representing 28 patent families. As of April 30, 2019, our patent estate, which is solely owned, included seven issued United States patents, 15 United States pending non-provisional patent applications, 16 United States pending provisional patent applications, two pending Patent Cooperation Treaty, or PCT, applications, 15 issued foreign patents and 175 foreign patent applications currently pending in various foreign jurisdictions.

Specifically, we own more than seven patent families with claims directed to various single domain antibodies and/or multivalent therapeutic antibodies including, for example, our INBRX-105, INBRX-106, INBRX-109, and INBRX-111 therapeutic candidates, and related methods of using the same to treat diseases, e.g., cancer, inflammatory disease, or infectious disease. Patent applications in these families are pending in multiple jurisdictions, including, for example, the United States, Australia, European Patent Organization, Canada, China, Japan, Korea, and Russia; as well as PCT applications and several U.S. provisional applications. Patents in these patent families, if granted, are expected to expire between 2036 and 2039, depending upon their respective filing dates and absent any patent term adjustments or extensions.

We also own two patent families directed to protease inhibitor fusion proteins including, for example, our INBRX-101 therapeutic candidate. Two United States and four foreign patents (Australia, Mexico, New Zealand, and Russia) were granted in these families. These patents are expected to expire in 2032, absent any patent term extension. Additional patents in this patent family, if granted, are expected to expire in 2032 or 2035, depending upon their respective filing dates and absent any patent term adjustments or extensions.

Additionally, we own two patent families relating to INBRX-103 that are licensed to Celgene. Two United States and ten foreign patents (Australia, Colombia, China, Japan, Mexico, New Zealand, Philippines, Singapore, South Africa and Ukraine) have been granted in these families and include claims directed to anti-CD47 monoclonal antibodies and/or methods of using the same to treat cancer. These patents are expected to expire in 2033, absent any patent term extension. Patent applications in these families are pending in multiple jurisdictions, including, for example, the United States, Australia, European Patent Organization, Canada, China, Japan, Korea, and the Eurasian Patent Organization. Additional patents in these patent families, if granted, are expected to expire in 2033, depending upon their respective filing dates and absent any patent term adjustments or extensions.

We continually assess and refine our intellectual property strategy as we develop new technologies and therapeutic candidates. As our business evolves, we may, among other activities, file additional patent applications in pursuit of our intellectual property strategy, to adapt to competition or to seize potential opportunities.

The term of individual patents depends upon the laws of the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing of a non-provisional patent application. However, the term of United States patents may be extended for delays incurred due to compliance with the FDA requirements or by delays encountered during prosecution that are caused by the United States Patent and Trademark Office, or USPTO. For example, the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension for FDA-approved drugs of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time

 

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the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our therapeutic candidates receive FDA approval, we expect to apply for patent term extensions on patents covering those therapeutic candidates. We intend to seek patent term extensions in any jurisdiction where these are available and where we also have a patent that may be eligible; however there is no guarantee that the applicable authorities, including the USPTO and FDA, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions.

We also rely on trade secrets to protect aspects of our technology and business not amenable to, or that we do not consider appropriate for, patent protection. We seek to protect this intellectual property, in part, by requiring our employees, consultants, outside scientific collaborators, sponsored researchers and other service providers and advisors to execute confidentiality agreements upon the commencement of employment or other relationship with us. In general, these agreements provide that confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements further provide that inventions and discoveries conceived or reduced to practice by the individual that are related to our business, or actual, or demonstrably anticipated, research or development, or made during normal working hours, on our premises or using our equipment, supplies, or proprietary information, are our exclusive property. In many cases our agreements with consultants, outside scientific collaborators, sponsored researchers and other service providers and advisors require them to assign, or grant us licenses to, inventions resulting from the work or services they render under such agreements or grant us an option to negotiate a license to use such inventions.

Further, we expect to rely on data exclusivity, market exclusivity, patent term adjustment and patent term extensions when available.

We seek trademark protection in the United States and in certain other jurisdictions where available and when we deem appropriate. We currently have a registration for “Inhibrx” in the United States. We intend to file applications for trademark registrations in connection with our therapeutic candidates in various jurisdictions, including the United States.

Competition

The biotechnology industry is characterized by rapid evolution of technologies, fierce competition and strong defense of intellectual property. While we believe that our platforms, technology, knowledge, experience, and scientific resources provide us with competitive advantages, we face competition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others.

Any therapeutic candidates that we successfully develop and commercialize will compete with currently approved therapies and new therapies that may become available in the future. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy, safety and convenience of our therapeutics and the ease of use and effectiveness of any complementary diagnostics and/or companion diagnostics. Our primary competitors fall into the following groups:

 

   

Companies developing novel therapeutics based on sdAb or alternative scaffold therapeutic candidates, including GlaxoSmithKline plc, Sanofi S.A., Crescendo Biologics Ltd., VHSquared Ltd., Molecular Partners AG, Pieris Pharmaceuticals, Inc., Alligator Bioscience AB and Camel-IDS SV;

 

   

Programs in development targeting CD47 or SIRPa, including ALX Oncology Limited, Arch Oncology, Aurigene, Inc., BliNK Biomedical, Inc., Surface Oncology, Inc., Forty Seven, Inc.,

 

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Novimmune, S.A., OSE Immunotherapeutics S.A., Sorrento Therapeutics, Inc., Synthon Holding B.V. and Trillium Therapeutics, Inc.;

 

   

Antibody drug discovery companies that may compete with us in the search for novel therapeutic antibody targets, including Adimab LLC, Numab Therapeutics AG, Merus N.V., Regeneron Pharmaceuticals, Inc., Xencor Inc., MorphoSys AG, Macrogenics, Inc. Genmab A/S; and

 

   

Therapeutics designed to treat AAT, including those by Grifols, S.A., Shire plc, CSL Limited and Kamada Ltd.

Our competitors also include large pharmaceutical and biotechnology companies, such as Roche Pharmaceuticals and AstraZeneca, who may have development programs seeking to develop therapeutic candidates with mechanisms similar to or targeting the same indications as our therapeutic candidates.

The availability of reimbursement from government and other third-party payors will also significantly affect the pricing and competitiveness of our therapeutic candidates. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

Many of the companies against which we may compete have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These early stage and more established 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.

Government Regulation

Governmental authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and export and import of products such as those we are developing. Our therapeutic candidates must be approved by the FDA through the Biologics License Application, or BLA, process before they may be legally marketed in the United States and will be subject to similar requirements in other countries prior to marketing in those countries. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

United States Government Regulation

In the United States, the FDA regulates biopharmaceutical products under the Federal Food, Drug, and Cosmetic Act and the Public Health Services Act, or PHSA, and implementing regulations. Failure to comply with the applicable U.S. requirements at any time during the product development or approval process, or after approval, may subject an applicant to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:

 

   

refusal to approve pending applications;

 

   

withdrawal of an approval;

 

   

imposition of a clinical hold;

 

   

warning or untitled letters;

 

   

seizures or administrative detention of product;

 

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total or partial suspension of production or distribution; or

 

   

injunctions, fines, disgorgement, or civil or criminal penalties.

BLA approval processes

The process required by the FDA before a therapeutic biologic may be marketed in the United States generally involves the following:

 

   

completion of nonclinical laboratory tests, animal studies and formulation studies conducted according to good laboratory practices and other applicable regulations;

 

   

submission to the FDA of an IND, which must become effective before human clinical trials may begin;

 

   

performance of adequate and well-controlled human clinical trials according to good clinical practices, or GCPs, to establish the safety and efficacy of the therapeutic candidate for its intended use;

 

   

submission to the FDA of a BLA;

 

   

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the therapeutic candidate is produced to assess readiness for commercial manufacturing and conformance to the manufacturing-related elements of the application, to conduct a data integrity audit, and to assess compliance with current Good Manufacturing Practices, or cGMPs, to assure that the facilities, methods and controls are adequate to preserve the therapeutic candidate’s identity, strength, quality and purity; and

 

   

FDA review and approval of the BLA.

Once a biopharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results of the nonclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND on clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an IND and may affect one or more specific studies or all studies conducted under the IND.

All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol, and any subsequent material amendment to the protocol, must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must report to the FDA serious and unexpected adverse reactions in a timely manner, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the product candidate. An institutional review board, or IRB, at each institution participating in the clinical trial must review and approve the protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the study until completed and otherwise comply with IRB regulations. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.

 

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Human clinical trials are typically conducted in three sequential phases that may overlap or be combined.

 

   

Phase 1—The product candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and elimination. In the case of some therapeutic candidates for severe or life-threatening diseases, such as cancer, especially when the product candidate may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.

 

   

Phase 2—Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

 

   

Phase 3—Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product labeling.

A pivotal study is a clinical study that adequately meets regulatory agency requirements for the evaluation of a product candidate’s efficacy and safety such that it can be used to justify the approval of the product. Generally, pivotal studies are also Phase 3 studies but may be Phase 2 studies if the trial design provides a reliable assessment of clinical benefit, particularly in situations where there is an unmet medical need. Human clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.

During the development of a new product candidate, sponsors are given opportunities to meet with the FDA at certain points; specifically, prior to the submission of an IND, at the end of Phase 2 and before a BLA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval of the new therapeutic.

Post-approval trials, sometimes referred to as “Phase 4” clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the performance of “Phase 4” clinical trials.

Concurrent with clinical trials, sponsors usually complete additional animal safety studies, develop additional information about the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing commercial quantities of the product candidate in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and the manufacturer must develop methods for testing the quality, purity and potency of the product candidate. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHSA emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other criteria, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life. 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 proposed shelf-life.

 

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The results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part of a BLA requesting approval to market the product.

Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual program fee for prescription biological or drug products. Fee waivers or reductions are available in certain circumstances, such as where a waiver is necessary to protect the public health, where the fee would present a significant barrier to innovation, or where the applicant is a small business submitting its first human therapeutic application for review.

Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially complete before the agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission, and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, potent, and/or effective for its intended use, and has an acceptable purity profile and whether the product is being manufactured in accordance with cGMP. The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers these recommendations carefully when making decisions.

During the product approval process, the FDA also will determine whether a risk evaluation and mitigation strategies, or REMS, plan is necessary to assure the safe use of the product. If the FDA concludes a REMS plan is needed, the sponsor of the BLA must submit a proposed REMS plan. The FDA will not approve a BLA without a REMS plan, if required.

Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product 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 that the clinical trials were conducted in compliance with IND trial requirements and GCP requirements. To assure cGMP and GCP compliance, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control.

Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.

Even if a product receives regulatory approval, the approval may be significantly limited to specific indications and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution,

 

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prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as “Phase 4” clinical trials, designed to further assess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

Companion Diagnostics

The FDA issued a final guidance document in July 2014 addressing agency policy in relation to in vitro companion diagnostic tests. The guidance explains that for some drugs and therapeutic biologics, the use of a companion diagnostic test is essential for the safe and effective use of the product, such as when the use of a product is limited to a specific patient subpopulation that can be identified by using the test. According to the guidance, the FDA generally will not approve such a product if the companion diagnostic is not also approved or cleared for the appropriate indication, and accordingly the therapeutic product and the companion diagnostic should be developed and approved or cleared contemporaneously. However, the FDA may decide that it is appropriate to approve such a product without an approved or cleared in vitro companion diagnostic device when the drug or therapeutic biologic is intended to treat a serious or life-threatening condition for which no satisfactory alternative treatment exists and the FDA determines that the benefits from the use of a product with an unapproved or uncleared in vitro companion diagnostic device are so pronounced as to outweigh the risks from the lack of an approved or cleared in vitro companion diagnostic device. The FDA encourages sponsors considering developing a therapeutic product that requires a companion diagnostic to request a meeting with both relevant device and therapeutic product review divisions to ensure that the product development plan will produce sufficient data to establish the safety and effectiveness of both the therapeutic product and the companion diagnostic. Because the FDA’s policy on companion diagnostics is set forth only in guidance, this policy is subject to change and is not legally binding.

Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of FDA approval of the use of our therapeutic candidates, some of our United States patents may be eligible for limited patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product candidate’s approval date. The patent term restoration period is generally one half of the time between the effective date of an IND and the submission date of a BLA, plus the time between the submission date of a BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved product candidate is eligible for the extension and the application for extension must be made prior to expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant BLA.

The Biologics Price Competition and Innovation Act, or the BPCIA, amended the PHSA to authorize the FDA to approve similar versions of innovative biologics, commonly known as biosimilars. A competitor seeking approval of a biosimilar must file an application to establish its molecule as highly similar to an approved innovator biologic, among other requirements. The BPCIA, however, bars the FDA from approving biosimilar applications for 12 years after an innovator biological product receives initial marketing approval.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant Orphan Drug Designation to therapeutic candidates intended to treat a rare disease or condition, which is generally a disease or condition that affects either (i) fewer

 

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than 200,000 individuals in the United States, or (ii) more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a product candidate for this type of disease or condition will be recovered from sales in the United States for that product candidate. Orphan Drug Designation must be requested before submitting a NDA. After the FDA grants Orphan Drug Designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan Drug Designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product candidate that has Orphan Drug Designation subsequently receives the first FDA approval for the disease for which it has such designation, the product candidate is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same product candidate for the same indication, except under limited circumstances, for seven years. Orphan drug exclusivity, however, could also block the approval of one of our therapeutic candidates for seven years if a competitor obtains approval of the same product candidate as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product candidate for the same indication or disease.

In addition, the orphan drug credit is available for qualifying costs incurred between the date the FDA designates a drug as an orphan drug and the date the FDA approves the drug.

Pediatric Exclusivity and Pediatric Use

Under the Best Pharmaceuticals for Children Act, or BPCA, certain therapeutic candidates may obtain an additional six months of exclusivity if the sponsor submits information requested in writing by the FDA, referred to as a Written Request, relating to the use of the active moiety of the product candidate in children. The data do not need to show the product to be effective in the pediatric population studied; rather, the additional protection is granted if the pediatric clinical study is deemed to have fairly responded to the FDA’s Written Request. Although the FDA may issue a Written Request for studies on either approved or unapproved indications, it may only do so where it determines that information relating to that use of a product candidate in a pediatric population, or part of the pediatric population, may produce health benefits in that population.

In addition, the Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric studies for most therapeutic candidates and biologics, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs, BLAs and supplements thereto must contain a pediatric assessment unless the sponsor has received a deferral or waiver, and with enactment of the FDA Safety and Innovation Act, or FDASIA, in 2012, sponsors must also submit Pediatric Study Plans to the agency for review prior to initiating the study or submitting the assessment data. The required assessment must assess the safety and effectiveness of the product candidate for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product candidate is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the product candidate or biologic is ready for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness data needs to be collected before the pediatric studies begin. The law now requires the FDA to send a PREA Non-Compliance letter to sponsors who have failed to submit their pediatric assessments required under PREA, have failed to seek or obtain a deferral or deferral extension or have failed to request approval for a required pediatric formulation. It further requires the FDA to publicly post the PREA Non-Compliance letter and sponsor’s response. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation, although FDA has recently taken steps to limit what it considers abuse of this statutory exemption in PREA by announcing that it does not intend to grant any additional orphan drug designations for rare pediatric subpopulations of what is otherwise a common disease.

As part of the FDASIA, the United States Congress made several changes to the BPCA and PREA, and permanently reauthorized both laws.

 

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Post-Approval Requirements

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the product candidate reaches the market. Later discovery of previously unknown problems with a product candidate may result in restrictions on the product candidate or even complete withdrawal of the product candidate from the market. After approval, some types of changes to the approved product candidate, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may under some circumstances require testing and surveillance programs to monitor the effect of approved therapeutic candidates that have been commercialized, and the FDA under some circumstances has the power to prevent or limit further marketing of a product candidate based on the results of these post-marketing programs.

Any therapeutic candidates manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:

 

   

record-keeping requirements;

 

   

reporting of adverse experiences with the product candidate;

 

   

providing the FDA with updated safety and efficacy information;

 

   

product sampling and distribution requirements;

 

   

notifying the FDA and gaining its approval of specified manufacturing or labeling changes;

 

   

complying with FDA promotion and advertising requirements, which include, among other things, standards for DTC advertising, restrictions on promoting products for uses or in-patient populations that are not described in the product’s approved labeling, limitations on industry-sponsored scientific and educational activities and requirements for promotional activities involving the internet; and

 

   

Therapeutic manufacturers and other entities involved in the manufacture and distribution of approved therapeutic products are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMPs and other laws. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural, substantive and record-keeping requirements. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require FDA approval before being implemented. FDA regulations would also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use if our therapeutic candidates are approved. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

Regulation Outside of the United States

In addition to regulations in the United States, we will be subject to regulations of other jurisdictions governing any clinical trials and commercial sales and distribution of our therapeutic candidates. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Under European Union regulatory systems, a company can consider applying for marketing authorization in several European Union member states by submitting its marketing authorization application(s) under a

 

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centralized, decentralized or mutual recognition procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The centralized procedure is compulsory for medicines derived from biotechnology, orphan medicinal products, or those medicines with an active substance not authorized in the European Union on or before May 20, 2004 intended to treat acquired immune deficiency syndrome, cancer, neurodegenerative disorders or diabetes and optional for those medicines containing a new active substance not authorized in the European Union on or before May 20, 2004, medicines which are highly innovative, or medicines to which the granting of a marketing authorization under the centralized procedure would be in the interest of patients at the European Union-level. The decentralized procedure provides for recognition by European Union national authorities of a first assessment performed by one of the member states. Under this procedure, an identical application for marketing authorization is submitted simultaneously to the national authorities of several European Union member states, one of them being chosen as the “Reference Member State”, and the remaining being the “Concerned Member States.” The Reference Member State must prepare and send drafts of an assessment report, summary of product characteristics and the labelling and package leaflet within 120 days after receipt of a valid marketing authorization application to the Concerned Member States, which must decide within 90 days whether to recognize approval. If any Concerned Member State does not recognize the marketing authorization on the grounds of potential serious risk to public health, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states. The mutual recognition procedure is similar to the decentralized procedure except that a medicine must have already received a marketing authorization in at least one of the member states, and that member state acts as the Reference Member State.

As in the United States, we may apply for designation of a therapeutic candidate as an orphan drug for the treatment of a specific indication in the European Union before the application for marketing authorization is made.

Orphan drugs in the European Union enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan-designated product, the marketing authorization holder is unable to supply sufficient quantity of the medicinal product or the marketing authorization holder has given its consent.

Coverage and Reimbursement

Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. There may be significant delays in obtaining coverage and reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by third-party payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies, but also have their own methods and approval process apart from Medicare coverage and reimbursement determinations. As such, one third-party payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product.

Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of therapeutics have been a focus in this effort. The United States government, state legislatures

 

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and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis. 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.

Moreover, in some foreign countries, the proposed pricing for a product candidate must be approved before it may be lawfully marketed. The requirements governing therapeutic pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our therapeutic candidates. Historically, therapeutic candidates launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.

Healthcare Reform

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably sell product candidates that obtain marketing approval. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access.

For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or together, the ACA, has had a significant impact on the health care industry. The ACA expanded coverage for the uninsured while at the same time containing overall healthcare costs. With regard to biopharmaceutical products, the ACA, among other things, addressed 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, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees on manufacturers of certain branded prescription drugs, and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts, which, through subsequent legislative amendments, increased to 70% starting in 2019, off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or repeal and replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act, or TCJA, was enacted, which, among other things, removed penalties, starting January 1, 2019, for not complying with

 

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the ACA’s individual mandate to carry health insurance, commonly referred to as the “individual mandate.” On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In July 2018, Centers for Medicare & Medicaid Services, or CMS, published a final rule permitting further collections and payments to and from certain ACA-qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well. While the Texas District Court Judge, as well as the Trump Administration and CMS, have stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted that impact payment methodologies and reimbursement amounts. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress, which led to aggregate reductions to Medicare payments to providers of 2% per fiscal year starting in April 2013, and, due to subsequent legislative amendments, including the BBA, will stay in effect through 2027 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 which, among other things, also 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.

Recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The United States Department of Health and Human Services, or HHS, has already started the process of soliciting feedback on some of these measures and, at the same, is immediately implementing others under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018 President Trump announced a Medicare Part B payment proposal that will use CMS authority to test three new drug pricing measures (i) to use international pricing as a metric, (ii) to develop a new competitive acquisition program, and (iii) to alter the average sales price model already in effect. On January 31, 2019, the HHS Office of Inspector General proposed modifications to the federal Anti-Kickback Statute discount safe harbor for the purpose of reducing the cost of drug products to consumers which, among other things, if finalized, will affect discounts paid by manufacturers to Medicare Part D plans, Medicaid managed care organizations and pharmacy benefit managers working with these organizations. In addition, CMS issued a final rule, effective on July 9, 2019, that requires direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the

 

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advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product if it is equal to or greater than $35 for a monthly supply or usual course of treatment. Prescription drugs and biological products that are in violation of these requirements will be included on a public list. Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.

Individual states in the United States have also increasingly passed legislation and implemented regulations designed to control pharmaceutical 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.

Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

Other Healthcare Laws

Our current and future business operations are subject to healthcare regulation and enforcement by the federal government and the states and foreign governments where we research, and, if approved, market, sell and distribute our therapeutic candidates. These laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security, physician sunshine and drug pricing transparency laws and regulations such as:

 

   

The federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. The federal Anti-Kickback Statute is subject to evolving interpretations. In the past, the government has enforced the federal Anti-Kickback Statute to reach large settlements with healthcare companies based on sham consulting and other financial arrangements with physicians. 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, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

 

   

The federal civil and criminal false claims laws and civil monetary penalty laws, including, the civil False Claims Act prohibits, among other things, knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the U.S. government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the U.S. government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. government. Actions under these laws may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. The federal government is using these laws, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the U.S., for example, in connection with the promotion of products for unapproved uses and other sales and marketing practices;

 

   

The U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created new federal, civil and criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including

 

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private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the 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;

 

   

The Physician Payments Sunshine Act, enacted as part of the ACA, among other things, imposes reporting requirements on drug manufacturers for payments made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities, which include certain healthcare providers, health plans, and healthcare clearinghouses, that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions; and

 

   

Analogous state laws and regulations, such as state 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; state laws which require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug and therapeutic biologics manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and pricing information; state and local laws which require the registration of pharmaceutical sales representatives; and state laws and non-United States laws and regulations (particularly European Union laws regarding personal data relating to individuals based in Europe) that govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.

Ensuring that our current and future business arrangements with third parties comply with applicable healthcare laws and regulations could 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 such requirements, we may be subject to significant civil, criminal and administrative penalties, including monetary damages, fines, disgorgement, imprisonment, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, reputational harm, diminished profits and future earnings, additional reporting requirements if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with any of these laws, and the curtailment or restructuring of our operations.