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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-239938

 

PROSPECTUS

DATED AUGUST 6, 2020

 

LOGO

8,823,529 American Depositary Shares

Freeline Therapeutics Holdings plc

(incorporated in England and Wales)

Representing 8,823,529 Ordinary Shares

We are offering 8,823,529 American Depositary Shares, or ADSs. Each ADS represents one ordinary share. The ADSs may be evidenced by American Depositary Receipts, or ADRs. This is the initial public offering of our ADSs. All of the ADSs are being sold by us.

Prior to this offering, there has been no public market for our ADSs or ordinary shares. The initial public offering price per ADS is $18.00. Our ADSs have been approved for listing on The Nasdaq Global Select Market under the symbol “FRLN”.

Neither the U.S. 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.

Investing in our ADSs involves a high degree of risk. Before buying any ADSs, you should carefully read the discussion of material risks of investing in our ADSs in “Risk Factors” beginning on page 18 of this prospectus.

We are an “emerging growth company” and a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, will be subject to reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer” for additional information.

 

     Per
ADS
     Total  

Public offering price

   $ 18.00      $ 158,823,522  

Underwriting discounts and commissions(1)

   $ 1.26      $ 11,117,647  

Proceeds, before expenses, to us

   $ 16.74      $ 147,705,875  

 

(1)

We have agreed to reimburse the underwriters for certain expenses. See “Underwriting” for additional information regarding underwriting compensation.

We have granted the underwriters an option to purchase up to 1,323,529 additional ADSs from us at the initial public offering price less the underwriting discount. The underwriters may exercise this option at any time within 30 days after the date of the final prospectus. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $12,785,293, and the total proceeds to us, before expenses, will be $169,861,751.

The underwriters expect to deliver the ADSs to purchasers on or about August 11, 2020.

At our request, the underwriters have reserved up to 441,176 ADSs, or 5% of the ADSs offered pursuant to this prospectus, for sale at the initial public offering price per ADS through a directed share program to directors, officers, employees and certain other individuals associated with us. See “Underwriting” for additional information.

 

J.P. Morgan   Morgan Stanley   Evercore ISI
    Wedbush PacGrow    

The date of this prospectus is August 6, 2020.


Table of Contents

TABLE OF CONTENTS

 

     Page  

Presentation of Financial and Other Information

     ii  

Summary

     1  

The Offering

     13  

Summary Financial and Other Information

     16  

Risk Factors

     18  

Special Note Regarding Forward-Looking Statements

     101  

Use of Proceeds

     103  

Dividend Policy

     104  

Corporate Reorganization

     105  

Capitalization

     110  

Dilution

     112  

Selected Financial and Other Information

     114  

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

     116  

Business

     135  

Management

     206  

Principal Shareholders

     219  

Related Party Transactions

     221  

Description of Share Capital and Articles of Association

     226  

Description of American Depositary Shares

     244  

Ordinary Shares and ADSs Eligible for Future Sale

     255  

Material Income Tax Considerations

     258  

Underwriting

     266  

Expenses of the Offering

     273  

Legal Matters

     274  

Experts

     274  

Enforcement of Judgments

     275  

Where You Can Find More Information

     277  

Index to Financial Statements

     F-1  

 

 

We and the underwriters have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the underwriters are making an offer to sell the ADSs in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the ADSs. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

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

We are incorporated under the laws of England and Wales. Under the rules of the U.S. Securities and Exchange Commission, or the SEC, we are currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

All references in this prospectus to “U.S. dollars,” “dollars” or “$” are to the U.S. dollar. All references to “pounds” or “£” are to pounds sterling.

Financial Statements

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting and include the accounts of the Company and its subsidiaries. On April 3, 2020, Freeline Therapeutics Holdings plc was incorporated under the laws of England and Wales to become the ultimate holding company for Freeline Therapeutics Limited pursuant to our corporate reorganization. See “Corporate Reorganization.” The accompanying historical financial statements have not been retroactively adjusted to reflect our corporate reorganization. Prior to this offering, Freeline Therapeutics Holdings plc has only engaged in activities incidental to its formation, the corporate reorganization and this offering. Accordingly, a discussion and analysis of the results of operations and financial condition of Freeline Therapeutics Holdings plc for the period of its operations prior to the corporate reorganization would not be meaningful and are not presented. We have historically conducted our business through Freeline Therapeutics Limited and its subsidiaries, and therefore our historical consolidated financial statements present the consolidated results of operations of Freeline Therapeutics Limited. All significant intercompany balances and transactions have been eliminated in consolidation. Following the corporate reorganization, the historical consolidated financial statements of Freeline Therapeutics Holdings plc will be retrospectively adjusted to include the historical financial results of Freeline Therapeutics Limited for all periods presented.

We maintain our books and records in pounds sterling, our results are subsequently converted to U.S. dollars and we prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, as issued by the Financial Accounting Standards Board, or FASB. Unless otherwise indicated, certain pounds sterling amounts contained in this prospectus have been translated into U.S. dollars at the rate of $1.3269 to £1.00, which was the noon buying rate of the Federal Reserve Bank of New York on December 31, 2019, the last business day of the year ended December 31, 2019.

The financial information contained in this prospectus includes our consolidated financial statements at and for the years ended December 31, 2018 and 2019 and consolidated financial statements for Freeline Therapeutics Holdings Limited (which subsequently re-registered as Freeline Therapeutics Holdings plc), each of which have been audited by Deloitte LLP, as stated in their reports included elsewhere in this prospectus.

Our fiscal year ends December 31. References in this prospectus to a fiscal year, such as “fiscal year 2019,” relate to our fiscal year ended on December 31 of that calendar year.

This financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.

Market, Industry and Other Data

Market data and certain industry forecast data used in this prospectus were obtained from internal reports and studies, where appropriate, as well as estimates, market research, publicly available information (including information available from the U.S. Securities and Exchange Commission website) and industry publications. Industry publications generally state that the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal reports and studies, estimates and market research, which we believe to be reliable and accurately extracted by us for use in this prospectus, have not been independently verified. However, we believe such data is accurate and agree that we are responsible for the accurate extraction of such information from such sources and its correct reproduction in this prospectus.

 

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This prospectus also contains estimates, projections and other information concerning our industry, our business, and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. See “Special Note Regarding Forward-Looking Statements” for more information.

In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates.

Rounding

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

Trademarks, Service Marks and Trade Names

We own various trademark registrations and applications, and unregistered trademarks, including “Freeline” and our corporate logo. All other trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Corporate Reorganization

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to the terms “Freeline,” “Freeline Therapeutics,” “the company,” “we,” “us” and “our” refer to (i) Freeline Therapeutics Limited and its subsidiaries, prior to the execution of the Share Exchange Agreement dated June 27, 2020 between (among others) Freeline Therapeutics Holdings Limited and Freeline Therapeutics Limited, (ii) Freeline Therapeutics Holdings Limited and its subsidiaries after the execution of the Share Exchange Agreement dated June 27, 2020 between (among others) Freeline Therapeutics Holdings Limited and Freeline Therapeutics Limited and prior to the re-registration of Freeline Therapeutics Holdings Limited as a public limited company and (iii) Freeline Therapeutics Holdings plc and its subsidiaries after the re-registration of Freeline Therapeutics Holdings Limited as a public limited company. We refer to the transactions comprising such corporate reorganization as described under “Corporate Reorganization” as our “corporate reorganization.” See “Corporate Reorganization” for more information.

 

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SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in our ADSs, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements and notes to those statements, included elsewhere in this prospectus, before making an investment decision.

Our Business

Overview

We are a clinical-stage, fully integrated, next generation, systemic AAV-based gene therapy company with the ambition of transforming the lives of patients suffering from inherited systemic debilitating diseases. We aim to deliver one-time gene therapy treatments that provide functional cures through permanently sustained physiological protein levels, leveraging the high expression enabled by our proprietary gene therapy platform. Our initial focus is on developing treatments for monogenic diseases with high unmet need. We are a fully-integrated biotechnology company with internal expertise and capability across the value chain in gene therapy, including expression platform, research, manufacturing, clinical development and commercialization. Our pipeline includes two programs in the clinic and two late-stage preclinical product candidates, as well as research programs targeting novel applications for systemic gene therapy, for which we have, through owned and in-licensed intellectual property rights, development and worldwide commercial rights.

Our differentiated platform uses our proprietary, rationally designed adeno-associated virus, or AAV, capsid, which we refer to as AAVS3. We have optimized our capsid to preferentially deliver a therapeutic gene of interest to the human liver, and thereby to cause the expression of the necessary protein to address a targeted disease. AAVS3 was developed at University College London, or UCL, by a team led by our founder, Prof. Amit Nathwani. In preclinical settings, the AAVS3 capsid has been observed to have significantly higher transduction efficiency in human liver cells as compared to wild-type AAV serotypes used in many other gene therapy programs, including AAV5, AAV6, AAV8 and others. We are able to further enhance the potency of our AAVS3 vector platform through our advanced chemistry, manufacturing and controls, or CMC, capabilities, which include proprietary manufacturing processes and analytic methods. We believe the combination of our proprietary capsid and our powerful CMC platform allows us to produce gene therapy product candidates that have the potential to drive higher levels of protein expression than comparable programs have demonstrated in the clinic to date.

We have invested a significant amount of time and resources in developing proprietary and optimized assays and CMC processes that we believe help us to produce high quality product candidates. Today, we have a scaled manufacturing process which we believe has the ability to consistently and efficiently produce gene therapy product candidates at commercial scale and competitive cost. As a result of the differentiated potency of our platform, we are able to administer our product candidates at lower doses for a given level of protein expression, with potential benefits in safety and cost of goods. This advantage also gives us the opportunity to address conditions that are not currently amenable to gene therapy because of the high levels of protein expression required to treat such diseases. Our current pipeline programs target hemophilia A and hemophilia B as well as the lysosomal storage disorders, or LSDs, Fabry disease and Gaucher disease. Our most advanced product candidate, FLT180a for the treatment of hemophilia B, is being evaluated in a Phase 1/2 dose-finding clinical trial in adult males, and preliminary clinical data to date has shown its potential to provide patients with sustained normal Factor IX, or FIX, activity levels following a one-off treatment. We recently reported updated data as of June 15, 2020 from the Phase 1/2 B-AMAZE clinical trial of FLT180a for the treatment of hemophilia B at the 2020 International Society on Thrombosis and Hemostasis Congress, or ISTH 2020. We plan to report



 

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further data from this trial in due course, and to commence a planned pivotal clinical trial in 2021, subject to agreement with regulatory authorities.

The diseases we address in our first four programs are all currently primarily managed with factor replacement therapies, or FRTs, or enzyme replacement therapies, or ERTs. These current methods of treatment do not provide sustained normalization of protein levels and, as a result, require burdensome lifelong recurrent intravenous infusions. We believe that our gene therapy product candidates, which are designed to deliver permanently sustained protein levels that constitute functional cures, have the potential over time to generate improved clinical outcomes for patients with these diseases. If achieved, this would provide us clear differentiation from existing therapies as well as from other gene therapies currently in development for these indications. Our gene therapy product candidates target the liver in order to cause the production of proteins that are released in the bloodstream at levels sufficient to have a therapeutic benefit. Since we use our proprietary AAVS3 capsid in all of our current programs, we believe that the modularity of our platform will allow the development of each product candidate to inform the next one, and that our preclinical programs for Gaucher disease and hemophilia A will therefore benefit from the learnings of our more advanced product candidates.

We believe that each of our first four programs represents an attractive commercial opportunity and, taken together, provide the basis for a strategic platform in gene therapy for rare diseases. Our candidates cover markets which are already developed, yet have established unmet medical needs, thus minimizing the need for expensive market development activities and potentially facilitating the adoption of our product candidates, if approved. We believe the potential of our platform to provide functional cures could deliver a differentiated value proposition for health care providers and payors by eliminating the need to pay for continued FRT or ERT in our treated patients. Our indications are treated by highly specialized physicians, requiring a relatively small and efficient sales and medical affairs infrastructure. Hemophilia A and hemophilia B are often treated by the same physicians, and there is also significant overlap in the physicians and centers addressing hemophilia as well as Fabry disease and Gaucher disease.

Our founders and senior executives are leaders in gene therapy, rare diseases and AAV biology, and we are affiliated with leading scientific and medical institutions in the field of gene therapy for rare diseases, including UCL and The Royal Free Hospital, or the RFH. Our founder, Clinical and Scientific Adviser and board director, Prof. Amit Nathwani, is a senior faculty member and clinical investigator at UCL and director of the hemophilia center at the RFH. He developed the first successful liver-directed AAV gene therapy for hemophilia B, which led to two New England Journal of Medicine publications (published in 2011 and 2014) and has produced sustained and durable FIX levels in patients that have lasted over nine years. Prof. Nathwani’s research team at UCL developed our proprietary AAVS3 capsid, as well as other critical elements of our gene therapy platform. We were founded by Syncona Limited, or Syncona, a leading healthcare investment company focused on founding, building and funding global leaders in life sciences. Chris Hollowood, the Chief Investment Officer of Syncona Investment Management Limited, part of the Syncona group, and founder of all four of Syncona’s gene therapy companies, also serves as the Chairman of our board of directors. Our international team of over 200 employees has relevant expertise from prior experience in gene therapy and rare disease companies, academic research laboratories, global contract research organizations and professional services organizations. With operations in key biotechnology centers in the U.S., the U.K. and Germany, we have access to the global talent pool necessary to continue to grow and develop our organization.

Our Platform

Our modular, liver-directed AAV gene therapy platform is designed to address many of the limitations commonly seen in AAV gene therapies, including insufficient efficacy, protein expression levels below the normal range, and limited durability. We aim to address these limitations through our enhanced product construct, underpinned by AAVS3, our rationally designed capsid with heightened efficiency in transducing hepatocytes, as well as our proprietary promoters and expression cassettes, which seek to optimize each element of the transgene.



 

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The three main elements of our platform include:

 

   

Capsid and Promoter: Our proprietary, rationally designed capsid, AAVS3, is more efficient in the transduction of liver cells as compared to wild-type AAV serotypes. We believe the expression capability of our platform will allow us to address diseases that require relatively high protein levels such as Fabry disease and Gaucher disease, as well as systemic inflammatory and immune disorders, in a way that may not be possible to achieve through simple dose escalation with wild-type AAV capsids. In addition, for a given level of required expression, we believe the potency of our product candidates allows for a lower dose, which we believe can enhance the tolerability of our product candidates.

 

   

Research tools and capabilities: Expression cassettes utilized in our product candidates are tailor-made to meet each defined clinical need, taking into account vector quality, tissue targeting, stability, and specific activity requirements. Our vector design team uses our extensive in-house research and analytic capabilities, as well as protein engineering approaches, to generate libraries of codon optimized sequences and novel promoters and enhancers. These can be combined to produce expression cassette candidates that drive the necessary protein levels and optimized protein activity, and can be efficiently manufactured by our CMC platform.

 

   

Manufacturing: Our CMC platform, which includes our proprietary manufacturing processes and related analytics, contributes to the potency and the safety profile of our product candidates. We manufacture all of our product candidates using our proprietary split-plasmid system running in the iCELLis® adherent mammalian cell production system. This has, in our view, the potential to provide higher quality constructs than insect cell or mammalian suspension systems by packaging less unwanted host-cell DNA into the capsids and allowing better control of the so-called “full/empty ratio.” We use a set of proprietary analytic methods, including long-read next generation sequencing, or LR-NGS, to provide what we believe to be an industry-leading capability to visualize and quantify the actual contents of our capsids to ensure optimization of the vector integrity and safety of our product candidates.

We believe that our liver-directed AAV gene therapy platform has the potential to develop functional cures for the diseases addressed by our clinical programs. In addition, the transduction efficiency of our AAVS3 vector observed to date in our hemophilia B and Fabry disease human studies suggests that our gene therapy platform may be able to address indications that require high levels of protein expression to achieve a therapeutic benefit. As a result, we believe our platform has the potential to expand the current reach of gene therapy and to develop one-time treatments for indications beyond the well-known monogenic diseases targeted by many current gene therapy clinical programs, including our current pipeline.



 

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Our Pipeline

Our current pipeline consists of four gene therapy product candidates as summarized in the table below. Beyond these programs, we also have research programs in novel indications for systemic gene therapy which harness the high expression potential of our platform.

 

LOGO

 

(1)

In the research stage, we conduct in vitro and in vivo preclinical studies to evaluate different product candidates to select those with the best tolerability and potency profiles.

 

(2)

In the IND enabling studies stage, we conduct preclinical in vivo studies in disease-specific mouse models and good laboratory practice, or GLP, toxicity studies and generate the CMC information and analytical data required for an investigational new drug, or IND, submission to the FDA or for a clinical trial authorization, or CTA, submission to the EMA.

 

(3)

Owned and in-licensed intellectual property rights.

Our Lead Gene Therapy Product Candidate: FLT180a for the Treatment of Hemophilia B

FLT180a is an investigational gene therapy medicinal product candidate, or GTMP, intended for the treatment of patients with moderate or severe hemophilia B. Hemophilia B is caused by a deficiency of functional clotting Factor IX, or FIX, which is an essential protein for normal coagulation or clotting of the blood. By using our high-transducing AAVS3 capsid, our goal is to give patients over time FIX activity levels within the normal range and which exceed those recommended by the World Federation of Hemophilia for surgery and trauma, thus providing patients with a functional cure, including significant reduction or even elimination of spontaneous bleeds, and thereby freedom from the use of factor replacement concentrates.

We are the first company to have reported clinical trial results demonstrating FIX activity levels well into the clinically normal FIX activity level range of 50% to 150%. As of June 15, 2020, ten patients have been dosed with FLT180a in our Phase 1/2 dose-finding trial, known as B-AMAZE, in four different dose cohorts: 4.5e11, 7.5e11, 9.75e11 and 1.5e12 vg/kg. Of these ten patients, seven of them have FIX activity levels above the lower limit of the normal range of 50%, and the mean FIX response of the four patients in the most recent cohort of 9.75e11 vg/kg, is 99% at the three-week time point. FLT180a also has induced stable expression of FIX for over two years in the first dose cohort of 4.5e11 vg/kg. The mean FIX expression in this two patient cohort was 38% at 52 weeks, and as of June 15, 2020, more than two years after infusion, we have continued to observe a durable response of 38% mean FIX activity in this cohort. Based on the responses observed, we believe that a dose between 7.5e11 and 9.75e11 vg/kg will durably bring the majority of patients within the normal range of 50% to



 

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150% FIX activity and thereby eliminate patients’ need for supplemental FRT. We believe this in turn could lead to improvements in clinical outcomes such as joint function, as well as significantly better quality of life through enabling an active lifestyle comparable to the non-hemophiliac population. Providing normal factor levels could also reduce ongoing annual cost burdens on the healthcare system given the high cost of FRT, which can be several hundred thousand dollars per year in developed markets, depending on location and amount of factor usage.

To date, FLT180a has been generally well-tolerated, with adverse events, or AEs, consistent with those observed in other liver-directed gene therapies. The most commonly reported AE is transaminitis, a dose-dependent asymptomatic transient increase in serum alanine aminotransferase, or ALT, levels which, if left untreated, has been shown to negatively impact protein expression levels and durability. To mitigate the risk of transaminitis in the B-AMAZE clinical trial, all subjects are now given a prophylactic immune management regimen consisting of tacrolimus and a tapering course of prednisolone and close patient monitoring, followed by annual monitoring of FIX activity levels. Based on our experience to date, we believe this regimen will avoid loss of expression and we intend to employ it across our programs.

FLT180a has received orphan drug designation and regenerative medicine advanced therapy, or RMAT, designation from the FDA and PRIority MEdicines, or PRIME, designation from the EMA. We plan to report further data from the B-AMAZE clinical trial, which is sponsored by UCL, in the second half of 2020, and to commence a planned pivotal clinical trial in 2021, subject to agreement with regulatory authorities.

FLT190 for the Treatment of Fabry Disease

We are developing FLT190 for the treatment of Fabry disease. Fabry disease is a rare, X-linked disease characterized by a congenital error of glycosphingolipid metabolism caused by an abnormal gene encoding the α-galactosidase A, or αGLA, enzyme, responsible for the breakdown of glycosphingolipids. We believe FLT190 is the first AAV gene therapy program for the treatment of Fabry disease to enter human trials. By using our high-transducing AAVS3 capsid, our goal is to bring αGLA activity in patients into the normal range of five to nine nmol/hr/ml, and potentially to a level that is above the normal range, thereby providing a treatment for Fabry disease that has the potential to be more efficacious and less burdensome than ERT. Our FLT190 program builds on our experience in developing FLT180a. Both product candidates utilize the same manufacturing process, and the capsid and promoter are identical. As a result, we believe we can leverage findings, including dose response, and clinical experience with FLT180a in hemophilia B to help inform and advance development of FLT190 as a potential treatment for patients with Fabry disease.

Preclinical results from the 13-week GLP-compliant toxicology studies showed that administration of FLT190 was effective in producing significantly increased GLA activity, indicating that stable bioactive GLA can be expressed from the liver in non-human primates, or NHPs, and that the resulting enzyme secreted in an active form can be readily detected in circulation. In July 2019, we began recruiting patients for our MARVEL-1 clinical trial, which is a Phase 1/2 dose-finding clinical trial to evaluate the safety and efficacy of FLT190 for the treatment of Fabry disease, with our first patient dosed in August 2019. We have experienced a delay in dosing our next patient due to COVID-19, but continue to recruit patients for our ECLIPSE study, through which we screen patients for eligibility and possible participation in our Phase 1/2 dose-finding clinical trial. For more information regarding risks associated with COVID-19 and a discussion of its impact on our business, see “Risk Factors—Risks Related to the Discovery, Development and Regulatory Approval of our Product Candidates.”

As of June 15, 2020, one patient has been dosed with FLT190 in our MARVEL-1 clinical trial at a dose of 7.5e11 vg/kg, and no infusion-related reaction or dose-limiting toxicity events, or DLTs, have been observed as of such date. We observed two serious adverse events, or SAEs, related to FLT190 in the one patient treated in our clinical trial, namely an increase in ALT levels and a grade two myocarditis marked by mild chest pain, a



 

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change in electrocardiogram and an elevated troponin level, each observed eight weeks after the FLT190 infusion. No specific treatment was administered for the myocarditis, and a repeat cardiac MRI showed no significant changes compared to baseline. The patient’s troponin elevation resolved within two days, and the ALT elevation within three weeks, after starting intravenous methylprednisolone and tacrolimus treatment per the trial protocol. In response to these events, and in consultation with Fabry disease experts, we have modified the protocol to align the prophylactic immune management regimen with the regimen currently used in our hemophilia B program, which to date has allowed us to preserve expression in the normal range. In addition, ERT therapy will continue after patient dosing and until trough measurement of the GLA provided by FLT190 indicates the ability to withdraw ERT.

FLT190 has received orphan drug designation from the FDA and from the EMA. We plan to submit an IND in 2020 to report further data from this trial in due course, and to commence a planned pivotal clinical trial thereafter, subject to agreement with regulatory authorities.

FLT201 for the Treatment of Gaucher Disease

We are developing FLT201 for the treatment of type 1 Gaucher disease, an ultra-rare autosomal recessive condition which manifests as multiple morbidities including enlargement of the spleen and liver, low red blood cells, or anemia, low platelet count, or thrombocytopenia, and bone abnormalities including bone pain, fractures and arthritis. Type 1 Gaucher disease is caused by a mutation in the GBA1 gene which leads to a reduction in glucosylceramidase beta enzyme, or GBA, activity. By using our high-transducing AAVS3 capsid, our goal is to deliver GBA endogenously at normal levels with a one-time treatment. FLT201 contains a liver-specific promoter and a GBA sequence which expresses our novel, proprietary GBA variant with a greater than 20-fold longer half-life than wild-type GBA protein in purified systems. To our knowledge, we are the only company to date that has announced a program for the development of an AAV gene therapy for the treatment of type 1 Gaucher disease. We plan to file the IND and initiate the Phase 1/2 clinical trial for this program in 2021.

FLT210 for the Treatment of Hemophilia A

We are developing our liver-directed gene therapy product candidate, FLT210, for the treatment of hemophilia A, an X-chromosome linked inherited disease caused by a mutation in the gene coding for coagulation of Factor VIII, or FVIII, in the F8 gene. Through proprietary and novel modifications to the promoter and the F8 gene, we have designed FLT210 to fit within the length of the nucleic acid sequence of wild type AAV. We believe this will address one of the major challenges in developing a gene therapy for hemophilia A, namely that the modified F8 gene used in several other gene therapy programs is too large to be efficiently and completely encapsidated into AAV. We believe this has been a major contributing factor to the issues of loss of expression and high intersubject variability seen in some other AAV gene therapy programs for this indication. We believe that the smaller expression cassette of FLT210 will enable more efficient and complete packaging of the F8 gene, thus allowing for delivery of more intact and functional transgenes, a higher level of successful gene transfer to the target cells, and therefore more stable expression than is possible with oversized constructs.

Our Strengths

Our ambition is to create better lives for patients by delivering one-time functionally curative treatments for inherited systemic debilitating diseases. We focus on developing liver-directed AAV-based gene therapy in order to provide treatments for diseases with high unmet need.



 

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We believe the following strengths will allow us to continue to build upon our success in developing potential treatments for inherited systemic diseases and achieve our longer-term goal of commercializing our product candidates:

 

   

Proprietary, rationally designed, next generation capsid designed to enable high levels of transduction efficiency and protein expression within the liver. Our proprietary AAVS3 capsid, developed by our founder Prof. Amit Nathwani, is the result of a robust and highly tailored process built around DNA shuffling of capsid segments from numerous genetically and functionally diverse parental AAV serotypes to create a capsid with a tolerable and potent profile. AAVS3 has demonstrated significantly higher transduction efficiency in human liver cells compared to wild-type AAV capsids. We believe this will enable us to develop therapeutic solutions that, if approved, have the potential to treat certain monogenic recessive disorders as well as for certain systemic diseases previously beyond the reach of AAV gene therapy due to limited expression.

 

   

Highly modular and potent liver-targeted gene therapy platform, with potential to facilitate efficient development timelines for future product candidates. Our proprietary capsid coupled with our cutting-edge end-to-end research, manufacturing and analytical capabilities have allowed us to create an integrated, modular gene therapy platform that we believe has the potential to facilitate the efficient development of new liver-directed AAV gene therapy product candidates.

 

   

Advanced pipeline focused on prioritizing development of gene therapy candidates initially targeting monogenic orphan diseases, with a path to expand to more prevalent chronic systemic diseases. We currently have two product candidates in the clinic and expect to complete the Phase 1/2 B-AMAZE clinical trial of FLT180a for the treatment of hemophilia B by the end of 2020. We recently reported updated data as of June 15, 2020 from the Phase 1/2 B-AMAZE clinical trial at ISTH 2020. In parallel, we are also advancing FLT190 for the treatment of adults with Fabry disease, which is currently in our MARVEL-1 Phase 1/2 dose-finding clinical trial. Our preclinical program, FLT201 for the treatment of Gaucher disease, achieved candidate selection in 2019 and IND-enabling studies are currently underway. Our other preclinical program, FLT210 for the treatment of hemophilia A, has achieved preliminary lead candidate selection.

 

   

Established commercial-scale cGMP manufacturing technology. Our focus on developing and actively managing our manufacturing platform means that we can leverage much of the manufacturing know-how from our lead program for the other product candidates in our pipeline. In addition to our internal CMC development capability, we have established relationships with leading CMOs who have demonstrated the ability to successfully run our manufacturing process at scale. We have established our manufacturing process in four locations in three countries, including our own current good manufacturing practice, or cGMP, suite at the Cell and Gene Therapy Catapult Manufacturing Centre in Stevenage, U.K., or Catapult, as well as with two leading global CMOs, Brammer Bio, LLC, or Brammer, a wholly-owned subsidiary of Thermo Fisher Scientific Inc., and Novasep Holding SAS, or Novasep.

 

   

Deep and specialized expertise in gene therapy drug development, manufacturing and rare disease product commercialization. We have assembled a talented and experienced team with the goal of becoming a vertically integrated gene therapy company with market-leading research, clinical, development and manufacturing capabilities. For example, our Chief Executive Officer, Theresa Heggie, has extensive experience in the commercialization of treatments for rare diseases, through her prior roles leading Alnylam Pharmaceuticals Inc’s Europe, Middle East, Africa and Canada operations, as well as serving as CEO of Jerini AG following its acquisition by Shire plc, or Shire. She also served as Global Head of Commercial Operations for Shire Human Genetic Therapies, with responsibility for the commercialization of Shire’s treatments for rare diseases, including Fabry disease and Gaucher disease.



 

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Broad and engaged network of experts and patient advocacy groups. We believe our strong relationships with hemophilia and LSD key opinion leaders, or KOLs, and patient advocacy groups position us well to support our product development efforts and our potential for future commercial success. Furthermore, we believe that leveraging our continuously growing network of hemophilia B and Fabry disease clinicians and experts, as well as our respected position in the hematology and LSD community, will allow us to better understand the other diseases we target, including hemophilia A and Gaucher disease, and enable us to optimize our research, clinical development and commercial plans.

Our Strategy

Our goal is to become the leading commercial-stage AAV-based gene therapy company delivering one-time functionally curative treatments for inherited systemic debilitating diseases with high unmet need.

The key elements of our strategy to achieve this goal are to:

 

   

Complete the clinical development and obtain regulatory approval and reimbursement for FLT180a for the treatment of hemophilia B. Subject to the completion of and satisfactory results from the ongoing B-AMAZE Phase 1/2 clinical trial, we plan to initiate a pivotal clinical trial to demonstrate the safety and efficacy of FLT180a for the treatment of hemophilia B. In March 2020, we met with the FDA pursuant to our RMAT designation to discuss the approval pathway for FLT180a in the United States, including the potential ability to pursue accelerated approval based on FIX activity levels. If the results of our planned pivotal clinical trial confirm the activity and safety profile observed to date, we intend to submit a biologics license application, or BLA, and a Marketing Authorization Application, or MAA, for approval of FLT180a for the treatment of hemophilia B in the second half of 2023.

 

   

Advance the clinical development of FLT190 as a potential treatment, if approved, for Fabry disease to pivotal stage and through to approval. We are evaluating our second liver-directed gene therapy product candidate, FLT190 for the treatment of Fabry disease, in our ongoing MARVEL-1 Phase 1/2 clinical trial. We reported preliminary data from this trial in early 2020 and expect to continue the dose escalation portion of the study in previously treated patients and submit an IND in 2020.

 

   

Leverage our modular platform to facilitate efficient development of our earlier stage products and further expand our pipeline. We are currently conducting preclinical studies designed to support the initiation of clinical development of our third and fourth product candidates, FLT201 and FLT210, for the treatment of Gaucher disease and hemophilia A, respectively. FLT201 is expected to enter the clinic in 2021 and FLT210 is expected to enter the clinic thereafter, subject to further preclinical development and agreement with regulatory authorities. We plan to apply the experience we have gained in developing our most advanced programs to help facilitate efficient development of our product candidates where possible.

 

   

Continue to build our own commercial manufacturing capabilities and infrastructure to streamline clinical development and enable scale. We currently have agreements with established CMOs to support our current program requirements. In order to complement our mid- to long-term commercial needs for our most advanced pipeline candidates, meet near-term clinical supply needs for our other product candidates and optimize our supply chain, we intend to design and build an in-house commercial manufacturing facility which we currently expect to be operational in 2023. We are currently advancing engineering plans for such a facility, where we intend to use a proven modular cleanroom manufacturing system, which we believe will be faster and more efficient than conventional manufacturing technology.

 

   

Establish a global commercial infrastructure. We have development and worldwide commercial rights, through owned and in-licensed intellectual property rights, to all of our liver-directed gene therapy product candidates and intend to build a commercial infrastructure to be able to reach and treat patients in



 

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need of our product candidates. Due to the rare incidence and prevalence of hemophilia and LSDs, the market for these indications is driven by KOLs and concentrated around specialist centers experienced in gene therapy treatment. We will focus the build-out of our commercial organization on these centers, leveraging the established relationships we are building with KOLs and patient advocacy organizations.

 

   

Continue to expand our pipeline of gene therapy candidates beyond monogenic diseases, to address chronic multifactorial systemic conditions. We believe that the ability of our platform to deliver durable and high protein levels positions us to pioneer the use of gene therapy beyond monogenic disorders and expand the scope of gene therapy to treat chronic multifactorial systemic inflammatory diseases with higher incidence. We believe that early clinical success of our initial product candidates validates our modular platform and could facilitate more efficient expansion into other programs beyond monogenic genetic diseases. We are currently assessing safety and initial indication validation in preclinical disease models, and expect to provide further information on our first program in this area in due course.

Recent Developments

On June 29, 2020, we entered into a subscription agreement, pursuant to which we sold 46,515,834 of our Series C preferred shares to certain investors for a total of approximately $79.0 million (net of transaction expenses), which we refer to as the Series C Financing, which closed on July 1, 2020. See “Related Party Transactions.”

As of July 1, 2020, after giving effect to the Series C Financing and our receipt of the net proceeds therefrom, we had cash and cash equivalents of approximately $117.0 million after translating our cash and cash equivalents denominated in pounds sterling into U.S. dollars at a rate of $1.23868 to £1.00, and our cash and cash equivalents denominated in Euro into U.S. dollars at a rate of $1.102907 to €1.00, in each case, the noon buying rate of the Federal Reserve Bank of New York on July 1, 2020.

Risks Associated with Our Business

Our business is subject to a number of risks of which you should be aware before making an investment decision. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth in the section titled “Risk Factors” before deciding whether to invest in our ordinary shares. Among these important risks are, but such risks are not limited to, the following:

 

   

We are a clinical-stage gene therapy company and have incurred significant losses in every year since our inception. We expect to continue to incur losses over the next several years and may never achieve or maintain profitability.

 

   

We will need additional funding to complete the development of our product candidates, which may not be available on acceptable terms, if at all.

 

   

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

 

   

Our gene therapy product candidates are based on a novel technology, which makes it difficult to predict the timing and costs of development and of subsequently obtaining regulatory approval.

 

   

All of our product candidates are in clinical development or in preclinical development. If we are unable to advance our product candidates through clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

 

   

A pandemic, epidemic or outbreak of an infectious disease in the U.S., U.K. or the European Union, or EU, including COVID-19, may adversely affect our ability to successfully complete our planned clinical trials and receive regulatory approval for our product candidates.



 

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If the clinical trials of any of our product candidates fail to demonstrate safety and efficacy to the satisfaction of the regulatory authorities, or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

 

   

Our product candidates and the process for administering our product candidates may cause serious adverse, undesirable or unacceptable side effects or have other properties that could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval.

 

   

We rely, and expect to continue to rely, on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

 

   

We may not be able to successfully create our own manufacturing infrastructure for supply of our product candidates for use in clinical trials and for commercial sale.

 

   

We are dependent on a limited number of suppliers and, in some instances, a sole supplier, for some of our components and materials used in our product candidates.

 

   

We currently have no marketing and sales force and if we are unable to develop effective marketing and sales capabilities or enter into agreements with third parties to market and sell any of our product candidates that may be approved, we may not be successful in commercializing our product candidates if and when approved, and we may be unable to generate any product revenue.

 

   

We face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve regulatory approval before us or develop therapies that are more advanced or effective than ours.

 

   

Our success depends on our ability to obtain and protect our intellectual property and to maintain patent protection for our current product candidates, any future product candidates we may develop and our technology and the failure to do so may impair our ability to successfully commercialize any of our product candidates.

 

   

Third-party claims of intellectual property infringement may prevent or delay our product discovery and development efforts.

 

   

In connection with the audit of our financial statements as of and for the years ended December 31, 2018 and 2019 in preparation for this offering, we and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. If we are not able to remediate the material weaknesses or if we otherwise fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial statements in a timely manner, which may adversely affect our business, investor confidence in our company and the market value of our ordinary shares.

 

   

As an English public limited company, certain capital structure decisions will require shareholder approval, which may limit our flexibility to manage our capital structure.

Corporate Information

Freeline Therapeutics Holdings Limited was incorporated under the laws of England and Wales in April 2020 as a private limited company with nominal assets and liabilities to become the ultimate holding company of Freeline Therapeutics Limited, and we re-registered as a public limited company and changed our name to Freeline Therapeutics Holdings plc in July 2020. Freeline Therapeutics Limited was incorporated under the laws of



 

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England and Wales in March 2015. Our registered office is located at Stevenage Bioscience Catalyst, Gunnels Wood Road, Stevenage, Hertfordshire, SG1 2FX, United Kingdom and our telephone number is +44 (0)1438 906870. Our website address is www.freeline.life. The information contained on or accessible through our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our ADSs. We have included our website address as an inactive textual reference only.

Corporate Reorganization

Prior to the completion of this offering (i) the shareholders of Freeline Therapeutics Limited exchanged each of the shares held by them in Freeline Therapeutics Limited for the same number and class of newly issued shares of Freeline Therapeutics Holdings Limited pursuant to a share exchange agreement and, as a result, Freeline Therapeutics Holdings Limited will become the sole shareholder of Freeline Therapeutics Limited, (ii) we incorporated Freeline Holdings (UK) Limited, a new wholly owned subsidiary that will ultimately become the direct holding company of Freeline Therapeutics Limited and (iii) we re-registered as a public limited company and changed our name to Freeline Therapeutics Holdings plc.

After the date of this prospectus but prior to the closing of this offering, each class of shares of Freeline Therapeutics Holdings plc outstanding on the date of this prospectus (excluding the deferred shares) will be converted into a single class of ordinary shares of Freeline Therapeutics Holdings plc at the ratios set forth under the section of this prospectus titled “Corporate Reorganization,” and will then be consolidated and subdivided to reflect an approximately 1-for-0.159 reverse split prior to completion of this offering. Please see “Corporate Reorganization” in this prospectus for more information.

After the completion of our corporate reorganization and this offering, (i) Freeline Holdings (UK) Limited (wholly owned by Freeline Therapeutics Holdings plc) will acquire the entire issued share capital of Freeline Therapeutics Limited in exchange for an issue of shares in Freeline Holdings (UK) Limited and, as a result, Freeline Therapeutics Limited will become a wholly owned subsidiary of Freeline Holdings (UK) Limited and (ii) subject to completion of a capital reduction, it is presently expected that Freeline Therapeutics Limited will transfer, by way of a dividend in specie, the entire issued share capital of its wholly owned subsidiaries (i) Freeline Therapeutics, Inc. a corporation incorporated under the laws of the State of Delaware in October 2018, (ii) Freeline Therapeutics GmbH, a limited liability company incorporated under the laws of Germany in April 2015 and (iii) Freeline Therapeutics (Ireland) Limited, a limited liability company incorporated under the laws of Ireland in March 2019 to its immediate parent, Freeline Holdings (UK) Limited. Following this dividend in specie, each of Freeline Therapeutics Limited, Freeline Therapeutics, Inc., Freeline Therapeutics GmbH and Freeline Therapeutics (Ireland) Limited will be repositioned as a direct wholly owned subsidiary of Freeline Holdings (UK) Limited.

Implications of Being an Emerging Growth Company and a Foreign Private Issuer

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

 

   

a requirement to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure in this prospectus;

 

   

reduced executive compensation disclosure; and

 

   

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



 

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We may choose to take advantage of some but not all of these reduced disclosure requirements. We may take advantage of these provisions until we are no longer an emerging growth company. We will remain an emerging growth company until the earliest to occur of: (1) (a) the last day of the fiscal year following the fifth anniversary of the closing of this offering, (b) the last day of the fiscal year in which our annual gross revenue is $1.07 billion or more, or (c) the date on which we are deemed to be a “large accelerated filer,” under the rules of the SEC, which means the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the end of our second quarter and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Emerging Growth Company Status.” We have elected to use the extended transition period under the JOBS Act. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

Upon the completion of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations with respect to a security registered under the Exchange Act;

 

   

the requirement to comply with Regulation Fair Disclosure, or Regulation FD, which regulates selective disclosure of material information;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

   

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events.

Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules. Thus, even if we no longer qualify as an emerging growth company, but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer. As a result, we do not know if some investors will find our ADSs less attractive, which may result in a less active trading market for our ADSs or more volatility in the price of our ADSs.

As a result of the above, the information contained in this prospectus may be different from the information you receive from other public companies in which you hold shares.



 

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THE OFFERING

This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our ADSs. You should carefully read this entire prospectus before investing in our ADSs including “Risk Factors” and our consolidated financial statements.

 

Issuer

Freeline Therapeutics Holdings plc

 

Offering

We are offering 8,823,529 ADSs, each ADS representing one ordinary share.

 

Option to purchase additional ADSs

We have granted the underwriters the right to purchase up to an additional 1,323,529 ADSs from us within 30 days of the date of this prospectus.

 

American Depositary Shares

Each ADS represents one ordinary share, nominal value £0.00001 per share. The ADSs may be evidenced by American Depositary Receipts, or ADRs. The depositary will hold the ordinary shares underlying the ADSs in a custody account with the custodian, and you will have the rights of an ADS holder or beneficial owner (as applicable) as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time. To better understand the terms of our ADSs, see “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part.

 

Depositary

Citibank, N.A.

 

Custodian

Citibank, N.A. (London Branch)

 

Listing

Our ADSs have been approved on The Nasdaq Global Select Market under the symbol “FRLN”.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, to be approximately $143.1 million, or $165.2 million if the underwriters exercise their option to purchase additional ADSs in full, based on the initial public offering price of $18.00 per ADS.

 

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

 

   

approximately $95.0 million to $105.0 million to fund further clinical and CMC development of our product candidates, including (i) the completion of our ongoing Phase 1/2 B-AMAZE clinical trial of our lead product candidate, FLT180a as well as the enrollment of at least an additional 20



 

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patients in our planned Phase 2b/3 pivotal clinical trial of FLT180a, (ii) the completion of the dose escalation portion of our ongoing Phase 1/2 MARVEL-1 clinical trial of FLT190, and (iii) further progressing our FLT201 program, including commencing clinical trials to study the efficacy and safety of this product candidate; and

 

   

the balance for other general corporate purposes, including general and administrative expenses and working capital.

 

  See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

 

Dividend policy

The amount of any distributions will depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors. We do not anticipate paying any cash dividends in the foreseeable future. See “Dividend Policy” for more information.

 

Directed Share Program

At our request, the underwriters have reserved up to 441,176 ADSs, or 5% of the ADSs offered pursuant to this prospectus, for sale at the initial public offering price per ADS through a directed share program, to directors, officers, employees and certain other individuals associated with us. The number of ADSs available for sale to the general public will be reduced by the number of reserved ADSs sold to these individuals. Any reserved ADSs not purchased by these individuals will be offered by the underwriters to the general public on the same basis as the other ADSs offered pursuant to this prospectus. See “Underwriting—Directed Share Program.”

 

Risk factors

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

Unless otherwise stated in this prospectus, the number of our ordinary shares to be outstanding after this offering is based on 25,921,158 ordinary shares outstanding as of August 1, 2020, after giving effect to the issuance of an aggregate of 46,515,834 of our series C preferred shares in June 2020 pursuant to the Series C Financing and the corporate reorganization, and after giving effect to the issuance of the ordinary shares in the form of ADSs to be issued and sold by us in this offering, and excludes:

 

   

2,249,258 ordinary shares issuable upon the exercise of options granted on July 13, 2020 in connection with our Series C Financing, with an exercise price of $12.82 per share;

 

   

1,152,432 ordinary shares underlying the number of grants we will issue at a strike price of $18.00, the initial public offering price per ADS, in connection with this offering to certain of our employees, or the IPO Grants;

 

   

3,474,469 ordinary shares authorized for future issuance under our 2020 Omnibus Incentive Plan, or the 2020 Plan, adopted in connection with this offering (inclusive of shares reserved in respect of the IPO Grants); and

 

   

347,447 ordinary shares authorized for future issuance under our 2020 Employee Share Purchase Plan, or the 2020 ESPP, adopted in connection with this offering.



 

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Unless otherwise indicated, all information contained in this prospectus also reflects and assumes:

 

   

the consummation of the Series C Financing, including the issuance of 46,515,834 of our series C preferred shares in June 2020 and the receipt of the net proceeds therefrom;

 

   

the consummation of the transactions described under “Corporate Reorganization” prior to the closing of this offering (including the approximately 1-for-0.159 reverse split of all our ordinary shares prior to completion of this offering);

 

   

the initial public offering price of $18.00 per ADS;

 

   

no exercise of the option granted to the underwriters to purchase up to an additional 1,323,529 ADSs in connection with this offering; and

 

   

no purchase of ADSs by directors, officers, employees or certain other individuals through our directed share program.

Following the reorganization into a single class of ordinary shares as described above, such ordinary shares will be consolidated and subdivided to reflect an approximately 1-for-0.159 reverse split of such ordinary shares and the balance of any ordinary shares will be redesignated as deferred shares prior to completion of this offering.

Such reorganization will involve (without limitation) the redesignation of classes of shares, the consolidation and/or the subdivision of shares pursuant to the terms of the articles of association of the Company in effect at such time as described above. The number of ordinary shares that each current shareholder of Freeline Therapeutics Holdings plc receives will be rounded up or down to the nearest whole share. Therefore, upon consummation of the corporate reorganization and prior to the completion of this offering, the current shareholders of Freeline Therapeutics Holdings plc will hold an aggregate of approximately 25,921,158 ordinary shares of Freeline Therapeutics Holdings plc.



 

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SUMMARY FINANCIAL AND OTHER INFORMATION

The following tables present our summary financial data. We derived the summary statement of operations and comprehensive loss data for the fiscal years ended December 31, 2018 and 2019 and the summary balance sheet data as of December 31, 2019 from our audited financial statements included elsewhere in this prospectus. We prepare our financial statements in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, as issued by the Financial Accounting Standards Board, or FASB.

We maintain the financial statements of each entity within the group in its local currency, which is also the entity’s functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in other expense, net in the consolidated statement of comprehensive loss. For financial reporting purposes our financial statements have been presented in U.S. dollars, the reporting currency. The financial statements of entities are translated from their functional currency into the reporting currency as follows: assets and liabilities are translated at the exchange rates at the balance sheet dates, revenue and expenses are translated at the average exchange rates and shareholders’ equity is translated based on historical exchange rates. Translation adjustments are not included in determining net loss but are included as a foreign exchange adjustment to other comprehensive loss, a component of shareholders’ equity.

As of December 31, 2019, the last business day of the year ended December 31, 2019, the representative exchange rate was £1.00 = $1.3269.

This financial information should be read in conjunction with “Presentation of Financial and Other Information,” “Corporate Reorganization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.

 

     Year Ended December 31,  
     2018     2019  
    

(in thousands of U.S. dollars, except

share and per share data)

 

Statement of Operations and Comprehensive Loss Data:

    

Operating expenses:

    

Research and development

   $ 34,191     $ 47,043  

General and administrative

     6,558       16,057  

General and administrative - fees due to related parties

     232       544  
  

 

 

   

 

 

 

Total operating expenses

     40,981       63,644  
  

 

 

   

 

 

 

Loss from operations

     (40,981     (63,644
  

 

 

   

 

 

 

Other income, net:

    

Other expense, net

     (390     (793

Interest (expense) income, net

     (151     74  

Benefit from R&D tax credit

     8,266       10,595  
  

 

 

   

 

 

 

Total other income, net

     7,725       9,876  
  

 

 

   

 

 

 

Loss before income taxes

     (33,256     (53,768

Income tax expense

     (27     (141
  

 

 

   

 

 

 

Net loss

   $ (33,283   $ (53,909
  

 

 

   

 

 

 

Other comprehensive income (loss):

    

Foreign currency translation adjustment

     (835     (154
  

 

 

   

 

 

 

Total comprehensive loss

   $ (34,118   $ (54,063
  

 

 

   

 

 

 

Net loss per share attributable to ordinary shareholders—basic and diluted

   $ (7.20   $ (8.49
  

 

 

   

 

 

 

Weighted average ordinary shares outstanding—basic and diluted

     4,621,495       6,347,818  
  

 

 

   

 

 

 
    

Pro forma for corporate reorganization—net loss per share attributable to ordinary shareholders—basic and diluted (unaudited)(1)

     $ (3.86
    

 

 

 

Pro forma for corporate reorganization—weighted average ordinary shares outstanding—basic and diluted (unaudited)(1)

       13,950,736  
    

 

 

 

Pro forma net loss per share attributable to ordinary shareholders—basic and diluted (unaudited)(2)

     $ (2.52
    

 

 

 

Pro forma weighted average ordinary shares outstanding—basic and diluted (unaudited)(2)

       21,351,152  
    

 

 

 


 

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    As of December 31, 2019  
    Actual     Pro Forma
For Corporate
Reorganization(3)
    Pro Forma(4)     Pro Forma As Adjusted(5)  
    (in thousands of U.S. dollars, except share data)  

Balance Sheet Data:

       

Cash and cash equivalents

  $ 73,702       73,702     $ 152,702     $ 295,667  

Working capital(6)

    76,612       76,612       155,612       303,318  

Total assets

    97,390       97,390       176,390       314,614  

Preferred shares

    1       —         —         —    

Ordinary shares

    —         1       1       1  

Additional paid-in capital

    207,622       207,622       286,622       429,587  

Accumulated deficit

    (119,668     (119,668     (119,668     (119,668

Total shareholders’ equity

    84,956       84,956       163,956       306,921  

 

(1)

Pro forma for corporate reorganization—net loss per share attributable to ordinary shareholders—basic and diluted and pro forma for corporate reorganization—weighted average ordinary shares outstanding—basic and diluted (unaudited) gives effect to our corporate reorganization (including the approximately 1-for-0.159 reverse split of all our ordinary shares prior to completion of this offering) as described under “Corporate Reorganization” (and excludes the 46,515,834 series C preferred shares issued in June 2020 in connection with the Series C Financing which will be redesignated as approximately 7,387,809 ordinary shares following our corporate reorganization) as if the corporate reorganization had occurred on January 1, 2019. The pro forma for corporate reorganization information above reflects the initial offering price of $18.00 per ADS, as described under “Corporate Reorganization.” Such reorganization will involve (without limitation) the redesignation of classes of shares, the consolidation and/or the subdivision of shares pursuant to the terms of the articles of association of the Company in effect at such time as described above. The number of ordinary shares that each current shareholder of Freeline Therapeutics Holdings plc receives will be rounded up or down to the nearest whole share. Therefore, upon consummation of the corporate reorganization and prior to the completion of this offering, the current shareholders of Freeline Therapeutics Holdings plc will hold an aggregate of approximately 25,921,158 ordinary shares of Freeline Therapeutics Holdings plc.

(2)

Pro forma net loss per share attributable to ordinary shareholders—basic and diluted (unaudited) and pro forma weighted average ordinary shares outstanding—basic and diluted (unaudited) gives effect to (i) the Series C Financing and (ii) our corporate reorganization (including the approximately 1-for-0.159 reverse split of all our ordinary shares prior to completion of this offering) as described under “Corporate Reorganization” as if such transactions had occurred on January 1, 2019.

(3)

The unaudited pro forma for corporate reorganization balance sheet data gives effect to our corporate reorganization (including the approximately 1-for-0.159 reverse split of all our ordinary shares prior to completion of this offering) as described under “Corporate Reorganization.”

(4)

The unaudited pro forma balance sheet data gives effect to (i) the Series C Financing and (ii) our corporate reorganization (including the approximately 1-for-0.159 reverse split of all our ordinary shares prior to completion of this offering) as described under “Corporate Reorganization.”

(5)

The unaudited pro forma as adjusted balance sheet data gives effect to (i) the Series C Financing, (ii) our proposed corporate reorganization and (iii) the issuance and sale of 8,823,529 ADSs in this offering by us at the initial public offering price of $18.00 per ADS, and the application of the net proceeds of the offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, as set forth under “Use of Proceeds.”

(6)

We define working capital as current assets less current liabilities.



 

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RISK FACTORS

Investing in our ADSs involves a high degree of risk. Before deciding whether to invest in the ADSs, you should carefully consider the risks described below and all other information contained in this prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. We believe the risks described below are the risks that are material to us as of the date of this prospectus. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In these circumstances, the market price of our ADSs could decline and you may lose all or part of your investment. You should also carefully review the cautionary statements referred to under “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in this prospectus.

Risks Related to Our Financial Position and Need For Additional Capital

We are a clinical stage gene therapy company and have incurred significant net losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

We are a clinical stage gene therapy company with a limited operating history. Since our inception in 2015, we have incurred significant net losses. Our net losses were $33.3 million and $53.9 million for the years ended December 31, 2018 and 2019, respectively. As of December 31, 2019, we had an accumulated deficit of $119.7 million. We have financed our operations primarily through private placements of preferred shares, a substantial portion of which have been issued to Syncona. To date, we have devoted substantially all of our efforts to research and development of our product candidates, including clinical development of our lead product candidates, FLT180a and FLT190, as well as to building out our management team and clinical manufacturing infrastructure. We do not currently have any approved products and have never generated any revenue from product sales. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we continue our research and development efforts and seek to obtain regulatory approval and commercialization of our product candidates and we do not know if or when we will become profitable. These net losses will adversely impact our shareholders’ equity and net assets and may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially if, and as, we:

 

   

continue research and development of our gene therapy product candidates, including our ongoing Phase 1/2 clinical trial and our planned pivotal clinical trial for FLT180a, our ongoing Phase 1/2 clinical trial for FLT190, and our planned Phase 1/2 clinical trials for FLT201 and FLT210;

 

   

initiate clinical trials and preclinical studies for any additional product candidates that we may pursue in the future and further develop our pipeline of gene therapy product candidates;

 

   

invest in our gene therapy platform;

 

   

prepare our biologics license application, or BLA, and marketing authorization application, or MAA, for each of our systemic gene therapy product candidates and otherwise seek regulatory approval for any product candidates that successfully complete clinical trials;

 

   

manufacture our product candidates in accordance with current good manufacturing practices, or cGMP, for clinical trials or potential commercial sales;

 

   

establish and validate in-house and contracted commercial-scale cGMP manufacturing facilities;

 

   

establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval;

 

   

develop, maintain, expand, protect and enforce our intellectual property portfolio;

 

   

acquire or in-license other product candidates and technologies;

 

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add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product candidate and platform development and potential future commercialization efforts;

 

   

secure, maintain or obtain freedom to operate for any of our owned or licensed technologies and product candidates;

 

   

expand our operations in the United States, the United Kingdom and Europe;

 

   

incur additional legal, accounting and other expenses associated with operating as a public company;

 

   

incur additional setbacks or delays to the initiation or completion of preclinical studies, product development and/or clinical trials due to COVID-19; and

 

   

incur any disruption or delays to the supply of our product candidates due to COVID-19.

We may never succeed in any or all of these activities and, even if we do, we may never generate revenues that are significant or large enough to achieve profitability. Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond our current expectations if we are required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies to perform clinical trials or studies in addition to those that we currently anticipate.

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 ADSs 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 ADSs also could cause you to lose all or part of your investment.

Even if we consummate this offering, we will need substantial additional funding to complete the development and commence commercialization of our product candidates, which may not be available on acceptable terms, if at all. Failure to obtain additional funding when required may force us to delay, limit or terminate our product development efforts or other operations.

Our audited consolidated financial statements for the year ended December 31, 2019, included elsewhere in this prospectus, note that there is substantial doubt about our ability to continue as a going concern, absent sources of additional liquidity. In order to fund further operations, we will need to raise capital in addition to the net proceeds of this offering. We may seek these funds through a combination of private and public equity offerings, debt financings, government grants, strategic collaborations and licensing arrangements. Additional financing may not be available when we need it or may not be available on terms that are favorable to us. These conditions raise substantial doubt about our ability to continue as a going concern, and we will be required to raise additional funds, seek alternative means of financial support, or both, in order to continue operations. The accompanying audited consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. If we are unable to raise the requisite funds, we will need to curtail or cease operations.

As of July 1, 2020, after giving effect to the Series C Financing and our receipt of the net proceeds therefrom, we had approximately $117.0 million in cash and cash equivalents after translating our cash and cash equivalents denominated in pounds sterling into U.S. dollars at a rate of $1.23868 to £1.00, and our cash and cash equivalents denominated in Euro into U.S. dollars at a rate of $1.102907 to €1.00, in each case, the noon buying rate of the Federal Reserve Bank of New York on July 1, 2020. We estimate that our net proceeds from this offering will be $143.1 million, based on the initial public offering price of $18.00 per ADS, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We believe that, based on our current operating plan, the net proceeds from this offering, together with our existing capital

 

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resources, will be sufficient to fund our anticipated operations into the second half of 2022. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate further clinical trials of and seek marketing approval for our most advanced product candidate, FLT180a and our second most advanced product candidate, FLT190, and commence clinical development of our preclinical assets, FLT201 and FLT210. In addition, if we obtain marketing approval for our product candidates, we expect to incur significant expenses related to product sales, medical affairs, marketing, manufacturing and distribution. Furthermore, upon the completion of this offering, we expect to incur additional costs associated with operating as a public company. Additionally, any additional COVID-19-related program setbacks or delays due to changes in federal or state laws or clinical site policies could impact our programs and increase our expenditures. Our future capital requirements will depend on many factors, including:

 

   

the scope, progress, results and costs of laboratory testing, manufacturing and clinical development for our most advanced product candidate, FLT180a, and our second most advanced product candidate, FLT190;

 

   

the scope, progress, results and costs of laboratory testing, manufacturing, preclinical and clinical development of our current preclinical assets, FLT201 and FLT210, and any future product candidates;

 

   

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

 

   

the number of potential new product candidates we may identify and decide to develop;

 

   

successful development of companion diagnostics for use with our product candidates;

 

   

our ability to establish and maintain collaborations and license agreements on favorable terms, if at all;

 

   

the costs, timing and outcome of potential future commercialization activities, including manufacturing, marketing, sales and distribution for our product candidates, for which we receive marketing approval;

 

   

the impact of COVID-19 on the initiation or completion of preclinical studies or clinical trials and the supply of our product candidates;

 

   

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

 

   

the sales price and availability of adequate third-party coverage and reimbursement for our product candidates, if and when approved; and

 

   

the costs of operating as a public company.

Developing product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our product revenues, if any, will be derived from or based on sales of product candidates that may not be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, if at all.

If we are unable to obtain adequate funding on a timely basis, we may be required to significantly curtail, delay or discontinue our research and development programs of our product candidates or any commercialization efforts, be unable to expand our operations or be unable to otherwise capitalize on our business opportunities, any of which could harm our business and potentially cause us to discontinue operations.

 

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

Since our inception, we have devoted substantially all of our resources to developing FLT180a, FLT190 and our other product candidates, developing our manufacturing platform, building our intellectual property portfolio and providing general and administrative support for these operations. Our most advanced product candidate, FLT180a, is in a Phase 1/2 clinical trial for the treatment of patients with moderate or severe hemophilia B. We have not yet demonstrated our ability to successfully complete Phase 2 or Phase 3 clinical trials or other pivotal clinical trials, obtain regulatory approvals, manufacture a 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. In addition, given our limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors in achieving our business objectives. Additionally, we expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control, such as delays and disruptions at clinical sites due to COVID-19. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or more experience developing product candidates.

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

Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our product candidates. We do not anticipate generating revenues from product sales for the next several years, if ever. Our ability to generate future revenues from product sales depends heavily on our, or our collaborators’, ability to successfully:

 

   

complete research and preclinical and clinical development of our product candidates;

 

   

seek and obtain regulatory and marketing approvals for any of our product candidates for which we successfully complete clinical trials;

 

   

launch and commercialize any of our product candidates for which we obtain regulatory and marketing approval by establishing a sales force, marketing, and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

 

   

qualify for adequate coverage and reimbursement by government and third-party payors for any our product candidates for which we obtain regulatory and marketing approval;

 

   

develop, maintain, and enhance a sustainable, scalable, reproducible and transferable manufacturing process for the product candidates we may develop;

 

   

establish and maintain supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for any of our product candidates for which we obtain regulatory and marketing approval;

 

   

obtain market acceptance of any product candidates we may develop as viable treatment options;

 

   

address competing technological and market developments;

 

   

implement internal systems and infrastructure, as needed;

 

   

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

 

   

maintain, protect, expand, and enforce our portfolio of intellectual property rights, including patents, trade secrets, and know-how;

 

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avoid and defend against third-party interference, infringement, misappropriation or other violation claims; and

 

   

attract, hire, and retain qualified personnel.

Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA or the EMA, or other regulatory authorities to perform clinical trials and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.

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

Our gene therapy product candidates are based on a novel technology, which makes it difficult to predict the timing and costs of development and of subsequently obtaining regulatory approval. Very few adeno-associated virus-based, or AAV-based, in vivo gene therapy products have been approved by the FDA or the EMA to date.

We have concentrated our research and development efforts on FLT180a for the treatment of hemophilia B, and FLT190 for the treatment of Fabry disease, our two most advanced product candidates.

Because we are developing product candidates using a gene therapy technology for which there is little clinical trial experience, there is an increased risk that the FDA, EMA or other regulatory authorities may not consider the endpoints of our clinical trials to be sufficient for marketing approval. The product specifications and the clinical trial requirements of the FDA, EMA and other regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of such product candidate. The regulatory approval process for novel product candidates such as ours is unclear and may be lengthier and more expensive than the process for other, better-known or more extensively studied product candidates. For example, the FDA generally requires multiple well-controlled clinical trials to provide the evidence of effectiveness necessary to support a BLA, although FDA guidance provides that reliance on a single pivotal trial may be appropriate if the trial has demonstrated a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potential serious outcome, and where confirmation of the result in a second trial would be practically or ethically impossible. We expect that our planned pivotal clinical trial for FLT180a will be the only pivotal trial necessary to support a BLA for FLT180a, but there can be no assurance that the FDA will accept this single trial as sufficient to demonstrate substantial evidence of effectiveness of FLT180a.

Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. The FDA has established the Office of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and has established the Cellular, Tissue and Gene Therapies Advisory Committee to advise the CBER in its review. In addition, the FDA, EMA and the National Institutes of Health, or NIH, have each expressed interest in further regulating biotechnology, including gene therapy and genetic testing. For example, the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at both the federal and state level in the United States, as well as U.S. congressional committees and other governments and governing agencies, have also expressed interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of our product candidates.

These regulatory review committees and advisory groups, and the new guidelines they promulgate, may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our current or future product candidates or lead to significant post-approval

 

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limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of our product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results of operations and prospects would be harmed. Even if our product candidates are approved, we expect that the FDA will require us to submit follow-up data regarding our clinical trial subjects for a number of years after approval. In January 2020, the FDA released a final guidance with recommendations for long-term follow-up studies of patients following human gene therapy administration due to the increased risk of undesirable and unpredictable outcomes with gene therapies that may present as delayed adverse events. If this follow-up data shows negative long-term safety or efficacy outcomes for these patients, the FDA may revoke its approval or change the label of our products in a manner that could have an adverse impact on our business.

In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of our product candidates. Similarly, the EMA may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines. Although numerous companies are currently advancing gene therapy products through clinical trials, to our knowledge, only a very few AAV based in vitro gene therapy products have received marketing authorization from the FDA to date.

As a result of these factors, it is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for FLT180a in either the United States or the European Union or how long it will take to commercialize our other product candidates. Additionally, approvals by the EMA may not be indicative of what the FDA may require for approval, and vice versa.

All of our product candidates are in preclinical or clinical development. Clinical trials are difficult to design and implement, and they involve a lengthy and expensive process with uncertain outcomes. We may encounter substantial delays in completing, or ultimately be unable to complete, the development of our current and future product candidates.

Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates. Clinical testing is expensive, time-consuming and uncertain as to outcome. To date, we have not completed any clinical trials required for the approval of any of our product candidates. We expect to complete our Phase 1/2 B-AMAZE clinical trial of FLT180a for hemophilia B in due course and are targeting the commencement of our planned pivotal clinical trial in 2021, subject to agreement with regulatory authorities. In parallel, we are also advancing FLT190 for the treatment of Fabry disease, which is currently in a Phase 1/2 dose-finding clinical trial. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. In addition, our drug development programs contemplate the development of companion diagnostics, which are assays or tests to identify an appropriate patient population. Companion diagnostics are subject to regulation as medical devices and must themselves be cleared or approved for marketing by the FDA or certain other foreign regulatory agencies before we may commercialize our product candidates. Events that may prevent successful or timely completion of clinical development include:

 

   

delays in reaching a consensus with the FDA, EMA or other regulatory authorities on trial design;

 

   

delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites;

 

   

delays in opening clinical trial sites or obtaining required institutional review board or independent ethics committee approval at each clinical trial site;

 

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

 

   

additional delays to clinical trials or to the supply of our or our collaborators’ candidates due to COVID-19;

 

   

successful development of companion diagnostics for use with our product candidates;

 

   

imposition of a clinical hold by regulatory authorities as a result of a serious adverse event or after an inspection of our clinical trial operations or clinical trial sites;

 

   

failure by us, any CROs we engage or any other third parties to adhere to clinical trial requirements;

 

   

failure to perform in accordance with good clinical practice, or GCP, or applicable regulatory guidelines in Europe and other international markets;

 

   

delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical trial sites, including delays by third parties with whom we have contracted to perform certain of those functions;

 

   

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

 

   

clinical trial sites or patients dropping out of a clinical trial;

 

   

selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data;

 

   

occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

 

   

occurrence of serious adverse events in clinical trials of the same class of agents conducted by other sponsors;

 

   

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

 

   

business interruptions resulting from geopolitical actions, including war and terrorism, global pandemics or natural disasters, including earthquakes, typhoons, floods and fires.

In particular, all of the clinical trials for our product candidates conducted to date have been conducted at a single site in the United Kingdom, the Royal Free Hospital in London. We anticipate expanding our ongoing and future clinical trials to new trial sites as we continue to enroll patients in our ongoing trials and commence future trials. However, there can be no assurance that we will successfully open new clinical trial sites and obtain any required approvals for such trial sites on a timely basis, or at all. Any failure to successfully open new clinical trial sites on a timely basis could delay or prevent the successful completion of our clinical trials. Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business, financial condition, results of operations and prospects.

A pandemic, epidemic or outbreak of an infectious disease in the U.S., U.K. or EU may adversely affect our business.

If a pandemic, epidemic or outbreak of an infectious disease occurs in the U.S., U.K., EU or worldwide, our business may be adversely affected. For example, in December 2019, a novel strain of coronavirus, COVID-19,

 

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was identified in Wuhan, China. This virus continues to spread globally and, as of April 2020, has spread to over 150 countries, including the United States. The spread of COVID-19 has impacted the global economy and has impacted our operations, including the interruption of our preclinical and clinical trial activities and potential interruption to our supply chain. For example, the COVID-19 pandemic has delayed enrollment in our clinical trials, including our ongoing Phase 1/2 clinical trial and our planned pivotal clinical trial for FLT180a, our ongoing Phase 1/2 clinical trial for FLT190. Our planned Phase 1/2 clinical trials for FLT201 and FLT210, also could be delayed due to government orders and site policies on account of the pandemic, and some patients may be unwilling or unable to travel to study sites, enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to conduct preclinical studies and clinical trials or release clinical trial results and could delay our ability to obtain regulatory approval and commercialize our product candidates. The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to source or deliver components or raw materials necessary for our clinical supply on a timely basis or at all. In addition, hospitals may reduce staffing and reduce or postpone certain treatments in response to the spread of an infectious disease. Such events may result in a period of business disruption, and in reduced operations, or doctors and medical providers may be unwilling to participate in our clinical trials, any of which could materially affect our business, financial condition and results of operations.

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. A significant pandemic as with COVID-19, or any other infectious disease, could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, resulting in an economic downturn that could impact our business, financial condition and results of operations.

We may fail to demonstrate safety and efficacy of our product candidates to the satisfaction of applicable regulatory authorities.

Before obtaining marketing approval from regulatory authorities for the sale of any product candidates, including FLT180a and FLT190, we may identify and develop, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy in humans of any such product candidates. Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial, such as the interim results for our ongoing Phase 1/2 clinical trials for FLT180a and FLT190, do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates.

If the results of our ongoing Phase 1/2 clinical trials and planned pivotal clinical trial for FLT180a, our ongoing Phase 1/2 clinical trial for FLT190, our planned Phase 1/2 clinical trials for FLT201 and FLT210, or future clinical trials for our other product candidates do not demonstrate the efficacy of our product candidates, or if there are safety concerns or serious adverse events associated with our product candidates, we may:

 

   

be delayed in obtaining marketing approval for our product candidates and clearance or approval for any companion diagnostics from applicable regulatory authorities, if at all;

 

   

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

 

   

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

 

   

be subject to additional post-marketing testing requirements;

 

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

 

   

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

 

   

have regulatory authorities suspend and/or revoke their approval of the product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy, or REMS;

 

   

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

 

   

be sued; or

 

   

experience damage to our reputation.

Our development costs will increase if we experience delays in testing or marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates.

Success in preclinical studies or clinical trials may not be indicative of results in future clinical trials for the same or other product candidates.

Results from previous preclinical studies or clinical trials are not necessarily predictive of future clinical trial results, and interim results of a clinical trial are not necessarily indicative of final results. Our product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through initial clinical trials. For example, the clinical trial process may fail to demonstrate that FLT180a is safe for humans and effective for indicated uses. This failure would cause us to abandon further clinical development of FLT180a, which is our lead product candidate.

Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Frequently, product candidates that have shown promising results in early clinical trials have subsequently suffered significant setbacks in later clinical trials. To date, our clinical trials have involved small patient populations and because of the small sample size, the interim results of these clinical trials may be subject to substantial variability and may not be indicative of either future interim or final results. In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. There is a high failure rate for drugs and biologic products proceeding through clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including due to changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.

Additionally, some of our trials may be open-label studies, where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. Therefore, it is possible that positive results observed in open-label trials, such as those we have conducted, will not be replicated in later placebo-controlled trials.

 

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Furthermore, while we believe that success in the preclinical and clinical development of our lead product candidates, FLT180a and FLT190, will help advance the development timelines for future product candidates, there can be no assurance that we will be able to do so. Promising results for the use of our proprietary capsid and CMC platform to develop product candidates for the treatment of hemophilia B and Fabry disease do not guarantee that our gene therapy platform will be effective in generating gene therapy candidates for the treatment of other diseases. There is a high failure rate for drugs and biologic products succeeding through clinical trials, and even if we are successful in developing our lead product candidates, we may not be able to replicate those results for the treatment of other diseases with our gene therapy product candidates.

We may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates.

Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends on our ability to recruit patients to participate, as well as completion of required follow-up periods. If patients are unwilling to enroll in our gene therapy clinical trials because of the COVID-19 pandemic and restrictions on travel or healthcare institution policies, negative publicity from adverse events related to the biotechnology or gene therapy fields, competitive clinical trials for similar patient populations, clinical trials in products employing AAV vectors, the impact of the global coronavirus pandemic or for other reasons, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of our product candidates may be delayed. These delays could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of clinical trials altogether.

Our current product candidates are being developed to treat rare conditions, which are generally defined as having a patient population of fewer than 200,000 individuals in the United States and less than one in 2,000 individuals in the European Union. For example, the incidence of hemophilia B is estimated to be approximately one in 30,000 male live births, implying a total population of approximately 9,000 males in the United States and the five major European markets (U.K., Germany, France, Italy and Spain). The incidence of Fabry disease is approximately one in 40,000 males and one in 20,000 females, implying a total population of approximately 9,000 diagnosed Fabry patients. Further, under current technology, AAV-based gene therapies can only be administered once to any given patient. As a result, if a patient has been treated with an AAV-based gene therapy by a competitor, that patient will no longer be eligible to participate in our clinical trials, which could cause delays in our patient enrollment by further limiting the size of our eligible patient population. In addition, patients may be unwilling to enroll until a product candidate has been broadly tested given the therapy can only be administered once. We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by the FDA, EMA or other regulatory authorities. As a result, we may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics, to complete our clinical trials in a timely manner.

Patient enrollment can be affected by many factors, including:

 

   

size of the patient population and process for identifying patients;

 

   

eligibility and exclusion criteria for our clinical trials;

 

   

perceived risks and benefits of our product candidates or gene therapy treatment in general, including that patients can currently only be dosed with an AAV once in their lifetime;

 

   

severity of the disease under investigation;

 

   

the impacts of the COVID-19 pandemic;

 

   

proximity and availability of clinical trial sites for prospective patients;

 

   

ability to obtain and maintain patient consent;

 

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patient dropouts prior to completion of clinical trials;

 

   

patient referral practices of physicians; and

 

   

ability to monitor patients adequately during and after treatment.

Our ability to successfully initiate, enroll and complete clinical trials in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:

 

   

difficulty in establishing or managing relationships with CROs and physicians;

 

   

different standards for the conduct of clinical trials;

 

   

absence in some countries of established groups with sufficient regulatory expertise for review of gene therapy protocols;

 

   

inability to locate qualified local consultants, physicians and partners; and

 

   

the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment.

If we have difficulty enrolling a sufficient number of patients or finding additional clinical trial sites to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which could have an adverse effect on our business, financial condition, results of operations and prospects. In addition, it is possible that the COVID-19 pandemic may have an impact on the workforce of the third parties and CROs on which we rely, which could adversely impact our ability to conduct preclinical studies and clinical trials of our product candidates on expected timeframes or to complete such studies and trials.

All of the clinical trials for our product candidates conducted to date were conducted at a single site outside the United States, and the FDA may not accept data from trials conducted in such locations.

To date, all of the clinical trials conducted on our product candidates were conducted in the United Kingdom. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of such data is subject to conditions imposed by the FDA. For example, the clinical trial must be well-designed and conducted and performed by qualified investigators in accordance with ethical principles. The trial population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will depend on its determination that the trials also complied with all applicable U.S. laws and regulations. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and would delay or permanently halt our development of the applicable product candidates.

In addition, in order to commence a clinical trial in the United States, we are required to seek FDA acceptance of an investigational new drug, or IND, for each of our product candidates. While we have an active IND for our lead product, FLT180a for the treatment of hemophilia B, we do not yet have an IND open in the United States for FLT190 for the treatment of Fabry disease. We cannot provide assurance that any future IND we submit to the FDA, or any similar clinical trial approvals we submit in other countries, will be accepted. Additionally, delays in submitting an IND may occur as a result of the COVID-19 pandemic, including as a result of the impact of the COVID-19 pandemic on preclinical testing and clinical trial sites. We may also be required to conduct additional preclinical testing prior to submitting an IND for any of our product candidates, and the results of any such testing may not be positive. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to a BLA submission and approval of our product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay us in commercializing our product candidates.

 

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Our product candidates and the process for administering our product candidates may cause serious adverse, undesirable or unacceptable side effects or have other properties that could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval.

Undesirable side effects that may be caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EMA or other comparable foreign regulatory authorities. During the conduct of clinical trials, patients may report changes in their health, including illnesses, injuries and discomforts, to their study doctor. Often, it is not possible to determine whether the product candidate being studied caused these conditions. Various illnesses, injuries and discomforts have been reported from time to time during clinical trials of our product candidates. Regulatory authorities may draw different conclusions or require additional testing to confirm these determinations.

In addition, it is possible that as we test our product candidates in larger, longer and more extensive clinical programs, or as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by patients. Many times, side effects are only detectable after investigational products are tested in large-scale, Phase 3 clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. If additional clinical experience indicates that our product candidates cause serious or life-threatening side effects, the development of our product candidates may fail or be delayed, or, if the product candidate has received regulatory approval, such approval may be suspended and/or revoked, which would harm our business, prospects, operating results and financial condition.

There have been several significant adverse side effects in gene therapy treatments in the past. While new recombinant vectors have been developed to reduce these side effects, gene therapy is still a relatively new approach to disease treatment and additional adverse side effects could develop. There also is the potential risk of delayed and longer-term adverse events following exposure to gene therapy products due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material.

Possible adverse side effects that could occur with treatment with gene therapy products include an immunologic reaction early after administration that, while not necessarily adverse to the patient’s health, could substantially limit the effectiveness of the treatment. In many clinical trials involving AAV vectors for gene therapy, including ours, some patients experienced what is thought to be the development of a T-cell response, whereby after the vector is within the target cell, the cellular immune response system triggers the removal of transduced cells by activated T-cell. This immune response, which is indicated by an asymptomatic increase in alanine aminotransferase, or ALT, levels, could result following gene transfer. Additionally, other potential adverse events may occur in our FLT180a and FLT190 clinical trials, including thrombogenicity when FIX activity exceeds normal physiological levels as a result of dosing with FLT180a, myocarditis as a result of dosing with FLT190 in Fabry disease patients, who may have underlying cardiac involvement, and other potential adverse events. Any such adverse events could also occur in any clinical trials we may conduct in the future for any of our other product candidates.

If we are unable to modulate or avoid one or more of the adverse effects described above or any other adverse effects, we may decide or be required to halt or delay further clinical development of our product candidates. In addition to any potential side effects caused by our product candidates themselves, the process of administering them or related procedures could also result in adverse side effects. If any such adverse events occur, our clinical trials could be suspended or terminated.

 

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In particular, as of June 15, 2020, of the ten patients treated in our B-AMAZE clinical trial, we observed the following serious adverse events, or SAEs, all of which have resolved without any ongoing clinical impact to the patients involved:

 

   

six drug-related SAEs (in four different patients) relating to elevated ALT levels that required additional treatment with corticosteroids and tacrolimus in accordance with the trial protocol, one of which was a Common Terminology Criteria for Adverse Events, or CTCAE, Grade 3 event, and the others of which were CTCAE Grade 1 (one event) or Grade 2 (four events);

 

   

three other drug-related SAEs including pulmonary sepsis, reduced coagulation FIX level due to ALT increase, and right arm AV fistula thrombosis, the latter of which occurred in a patient with underlying risk factors for thrombosis and was treated with prophylactic anticoagulation therapy per protocol, and which will continue for as long as the treating physician deems necessary; and

 

   

five SAEs deemed unrelated to FLT180a, including elevated troponin, elevated amylase, epigastric pain, and acute appendicitis and tacrolimus-related toxicity occurring in one patient.

Furthermore, four of the five patients that experienced the elevated ALT SAEs also experienced immune reactions which permanently reduced their FIX levels, in the case of three patients, two dosed at 1.5e12 vg/kg and one dosed at 9.75e11 vg/kg, to levels still within the normal FIX activity level range of 50% to 150%, and in the fourth patient, dosed at 7.5e11 vg/kg, to a FIX level below 5%.

In addition, as of June 15, 2020, we observed two SAEs considered related to FLT190 in the one patient treated in our FLT190 clinical trial, namely an increase in ALT levels and a grade 2 myocarditis marked by mild chest pain, a change in electrocardiogram and a transient elevation in troponin levels. Each of these SAEs was observed eight weeks after the FLT190 infusion.

While we have addressed the serious adverse events in our FLT180a and FLT190 clinical trials through adjusting dose levels, using oral prednisolone and tacrolimus as prophylactic therapy to control immune response, and implementing additional safety measures, or in some cases those serious adverse events resolved without additional treatment, there is no assurance that we will be able to demonstrate to the FDA, EMA or other regulatory authorities that we have adequately addressed those serious adverse events. Similarly, we may observe other adverse events or serious adverse events in our FLT180a and FLT190 clinical trials, or in any other clinical trials that we may conduct in the future. If we are unable to demonstrate that such adverse events and serious adverse events have been adequately addressed or that they were caused by the administration process or related procedures, the FDA, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, FLT180a, FLT190 or any of such other product candidates.

Even if we are able to demonstrate that any serious adverse events are not product-related or have otherwise been adequately addressed, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the clinical trial. Moreover, if we elect or are required to delay, suspend or terminate any clinical trial of any of our product candidates, the commercial prospects of such product candidate may be harmed and our ability to generate product revenues from such product candidate may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may harm our business, financial condition and prospects.

Additionally, if we or others later identify undesirable side effects caused by any of our product candidates, several potentially significant negative consequences could result, including:

 

   

regulatory authorities may suspend and/or revoke approvals of such product candidate;

 

   

regulatory authorities may require additional warnings on the label;

 

   

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

 

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

 

   

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates.

Even if we complete the necessary preclinical studies and clinical trials, we cannot predict when or if we will obtain regulatory approval to commercialize a product candidate and the approval may be for a narrower indication than we seek.

We cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if our product candidates demonstrate safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee, the EMA or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. Regulatory agencies also may approve a treatment candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. If we are unable to obtain necessary regulatory approvals, our business, prospects, financial condition and results of operations may suffer.

Gene therapies are novel, complex and difficult to manufacture. We have a limited manufacturing history and could experience production problems that result in delays in our development or commercialization programs or otherwise adversely affect our business.

Our product candidates require processing steps that are more complex than those required for most chemical pharmaceuticals. Moreover, unlike chemical pharmaceuticals, the physical and chemical properties of a biologic such as our modified virus generally cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that the product will perform in the intended manner. Accordingly, we employ multiple steps to control our manufacturing process to assure that the process works and that our product candidates are made strictly and consistently in compliance with applicable regulatory protocols. Problems with the manufacturing process, including even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims or insufficient inventory. We may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet FDA, EMA or other applicable standards or specifications with consistent and acceptable production yields and costs.

In addition, the FDA, EMA and other regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, EMA or other regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects.

We have a limited history of manufacturing our product candidates. The manufacturing process we use to produce FLT180a and FLT190 is complex and there are no assurances that we will be able to produce sufficient quantities of FLT180a or FLT190, or any other product candidates we may seek to develop, due to several factors, including equipment malfunctions, facility contamination, raw material shortages or contamination,

 

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natural disasters, disruption in utility services, human error, COVID-19 or disruptions in the operations of our suppliers. Although we plan to build and operate our own manufacturing facility in the medium term, we plan to continue to use one or more qualified CMOs, for the supply of product for our clinical trials, and one or more qualified CROs for product release assays. As a result, the supply of product for our clinical trials is reliant upon the performance of these outsourced organizations. See “—Risks Related to Our Reliance on Third Parties—Although we intend to eventually develop an in-house commercial manufacturing facility, we currently utilize, and expect to continue to utilize, third parties to conduct our product manufacturing for the foreseeable future, and these third parties may not perform satisfactorily.” Any failure to produce commercial materials or meet demand to support a commercial launch of our product candidates could delay or prevent the development of our product candidates and would have a negative impact on our business, financial condition and results of operations.

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

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

We may not be successful in our efforts to identify or discover additional product candidates and may fail to capitalize on programs or product candidates that may be a greater commercial opportunity or for which there is a greater likelihood of success.

The success of our business depends upon our ability to identify, develop and commercialize a pipeline of gene therapy treatments for well-known monogenic recessive diseases, such as hemophilia and lysosomal storage disorders, or LSDs, like Fabry disease and Gaucher disease, as well as more novel gene therapy targets in areas such as inflammatory disease. Research programs to identify new product candidates require substantial technical, financial and human resources. Although certain of our product candidates are currently in clinical or preclinical development, we may fail to identify other potential product candidates for clinical development for several reasons. For example, our research may be unsuccessful in identifying additional potential product candidates, or our potential product candidates may be shown to have harmful side effects, may be commercially impracticable to manufacture or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval.

Additionally, because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential. Our spending on current and future research and development programs may not yield any commercially viable products. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. Alternatively, we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

 

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If any of these events occur, we may be forced to abandon our development efforts with respect to a particular product candidate or fail to develop a potentially successful product candidate, which could have a negative impact on our business, financial condition, results of operations and prospects.

If we are unable to successfully identify patients who are likely to benefit from therapy with any product candidates we develop, or experience significant delays in doing so, we may not realize the full commercial potential of any medicines we may develop.

Our success may depend, in part, on our ability to identify patients who are likely to benefit from therapy with any medicines we may develop, which requires those potential patients to be tested to determine the level of pre-existing antibodies they may have to our AAVS3 capsid. If we, or any third parties that we engage to assist us, are unable to successfully identify such patients, or experience delays in doing so, then:

 

   

our ability to develop any product candidates may be adversely affected if we are unable to appropriately select patients for enrollment in our clinical trials; and

 

   

we may not realize the full commercial potential of any product candidates we develop that receive marketing approval if, among other reasons, we are unable to appropriately select patients who are likely to benefit from therapy with our medicines.

Failure to successfully validate, develop and obtain regulatory clearance or approval for companion diagnostics for our product candidates could harm our drug development strategy and operational results.

Any product candidates we develop may require use of a companion diagnostic to identify patients who are likely to benefit from therapy. For example, we have developed a proprietary, cell-based transduction inhibition assay, or TIA, to assess patients for pre-existing neutralizing antibodies to our AAVS3 capsid, which we plan to continue to develop and seek regulatory approval for in parallel with our FLT180a program. If safe and effective use of any of our product candidates we may develop depends on a companion diagnostic, we may not receive marketing approval, or marketing approval may be delayed, if we are unable to or are delayed in developing, identifying, or obtaining regulatory approval or clearance for the companion diagnostic product for use with our product candidate. The clearance or approval of a companion diagnostic as part of the product label will also limit the use of the product candidate to patients who have met the screening criteria tested for by the companion diagnostic.

Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as medical devices and require separate clearance or approval prior to their commercialization. We may encounter difficulties in developing and obtaining clearance or approval for these companion diagnostics. Any delay or failure by us or third- party collaborators to develop or obtain regulatory clearance or approval of a companion diagnostic could delay or prevent approval of our related product candidates. Identifying a manufacturer of the companion diagnostic and entering into an agreement with the manufacturer could also delay the development of our product candidates. As a result of these factors, we may be unable to successfully develop and realize the commercial potential of any product candidates we may identify and develop which would negatively impact on business, financial condition and results of operations.

Risks Related to Our Reliance on Third Parties

We rely, and expect to continue to rely, on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third parties, including independent clinical investigators and third-party CROs, to conduct some of our preclinical studies and our clinical trials in

 

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accordance with applicable regulatory requirements and to monitor and manage data for our ongoing preclinical and clinical programs. We rely on these parties for execution of our preclinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our third-party contractors and CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we fail to exercise adequate oversight over any of our CROs or if we or any of our CROs fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or other regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon a regulatory inspection of us or our CROs or other third parties performing services in connection with our clinical trials, such regulatory authority will determine that any of our clinical trials complies with GCP regulations. In addition, our clinical trials must be conducted with product produced under applicable cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

Further, these investigators and CROs are not our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devote sufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization of our product candidates. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.

Our existing and future CROs have or may have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the patients participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they cannot perform their contractual duties or obligations due to the impacts of COVID-19 on their operations or at the sites they are overseeing, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and commercial prospects would be harmed, our costs could increase and our ability to generate revenues could be delayed.

Switching or engaging additional CROs involves additional cost and requires our management’s time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays could occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our contracted laboratories and CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and results of operations.

In addition, investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services, including equity awards and option

 

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grants, and may have other financial interests in our company. We are required to collect and provide financial disclosure notifications or certifications for our clinical investigators to the FDA and EMA. If the FDA or EMA concludes that a financial relationship between us and a clinical investigator has created a conflict of interest or otherwise affected interpretation of the trial, the FDA or EMA may question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or EMA and may ultimately lead to the denial of marketing approval of our current and future product candidates.

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

We have engaged CMOs to manufacture our lead product candidates, FLT180a and FLT190, and to perform quality testing, and because we collaborate with various organizations and academic institutions for the advancement of our gene therapy platform, we must, at times, share our proprietary technology and confidential information, including trade secrets. We seek to protect our proprietary technology, in part, by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements and other similar agreements with our collaborators, advisors, employees, consultants and contractors (including CMOs) prior to beginning research or disclosing any proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors or other third parties, are inadvertently incorporated into the technology of others or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s or other third party’s discovery of our proprietary technology and confidential information or other unauthorized use or disclosure of such technology or information would impair our competitive position and may have an adverse effect on our business, financial condition, results of operations and prospects. For more information on risks relating to our reliance on trade secrets see “—Risks Related to Our Intellectual Property.”

Though we intend to eventually develop an in-house commercial manufacturing facility, we currently utilize, and expect to continue to utilize, third parties to conduct our product manufacturing for the foreseeable future, and these third parties may not perform satisfactorily.

We currently rely on CMOs for the manufacturing of clinical batches and intend to continue to rely on third parties to manufacture our preclinical study and clinical trial product supplies. Supply requirements for our planned pivotal clinical trial for FLT180a as well as current and future clinical requirements for FLT190 and our other product candidates will be manufactured by cGMP compliant third-party manufacturers or in-house. For example, we are party to a development and manufacturing services agreement and a dedicated manufacturing and commercial supply agreement with Brammer Bio, pursuant to which we plan to manufacture FLT180a for our ongoing and planned clinical studies and, if approved, for commercialization, and a services agreement with Novasep, pursuant to which we plan to manufacture FLT190 for our ongoing and planned clinical studies. Both Brammer and Novasep are full service CMOs that provide services to a number of other companies in addition to us, and as a result, may experience competing customer demands.

If these third-party manufacturers do not successfully carry out their contractual obligations, meet expected deadlines, experience capacity issues with respect to producing FLT180a or FLT190 as a result of competing demands on their manufacturing capacity or as a result of impacts of COVID-19, or manufacture FLT180a and FLT190 in accordance with regulatory requirements or if there are disagreements between us and these third-party manufacturers, we will not be able to supply the material needed in order to complete clinical studies, or may be delayed in completing these studies. In addition, the preclinical studies required to support future IND submissions and the future clinical trials required for regulatory approval of FLT180a, FLT190 or any other

 

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product candidates we may develop, to the extent that we rely on CMOs for manufacturing capabilities for these programs, may similarly be impacted by the same factors. In such instances, we may need to enter into an appropriate replacement third-party relationship, which may not be readily available or available on acceptable terms, which would cause additional delay or increased expense prior to the approval of FLT180a, FLT190 or any of our other product candidates we may develop, and would thereby have a negative impact on our business, financial condition, results of operations and prospects. We also plan to develop an in-house commercial manufacturing facility and infrastructure, which will require significant expenses, diversion of management resources and time. There can be no assurance that we will successfully develop this in-house manufacturing facility or that, in doing so, we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and results of operations.

Under certain circumstances, our current CMOs are entitled to terminate their engagements with us. If we need to enter into alternative arrangements, it could delay our development activities. Our reliance on our CMOs for certain manufacturing activities will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations. If our current CMOs, or any future third-party manufacturers, do not successfully carry out their contractual duties, meet expected deadlines or manufacture our product candidates in accordance with regulatory requirements, or if there are disagreements between us and our CMOs or any future third-party manufacturers, we will not be able to complete, or may be delayed in completing, the preclinical studies required to support future IND submissions and the clinical trials required for approval of our product candidates.

In addition to our current CMOs, we may rely on additional third parties to manufacture components of our product candidates in the future and to perform quality testing, and reliance on these third parties entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:

 

   

reduced control for certain aspects of manufacturing activities;

 

   

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

 

   

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

Any of these events could lead to clinical trial delays or failure to obtain regulatory approval or impact our ability to successfully commercialize any of our product candidates. Some of these events could be the basis for FDA, EMA or other regulatory authority action, including injunction, recall, seizure or total or partial suspension of product manufacture.

To the extent we rely on a third-party manufacturing facility for commercial supply, that third party will be subject to significant regulatory oversight with respect to manufacturing our product candidates.

The preparation of therapeutics for clinical trials or commercial sale is subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in later stage clinical trials must be manufactured in accordance with cGMP requirements. These regulations govern manufacturing processes and procedures, including record keeping, and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of outside agents or other contaminants, or to inadvertent changes in the properties or stability of a product candidate that may not be detectable in final product testing. We must supply all necessary documentation in support of a BLA or MAA on a timely basis and must adhere to the FDA’s and EMA’s cGMP requirements which are enforced, in the case of the FDA, through its facilities inspection program. To the extent that we utilize third-party facilities for commercial supply, the third party’s facilities and quality systems must pass an inspection for compliance with the applicable regulations as a

 

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condition of regulatory approval. In addition, the regulatory authorities may, at any time, audit or inspect the third-party manufacturing facility or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a plant inspection, the FDA will not approve the BLA.

If our CMOs cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, EMA or other regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no direct control over the ability of our CMOs to maintain adequate quality control, quality assurance and qualified personnel. Furthermore, all of our CMOs are engaged with other companies to supply and/or manufacture materials or products for such companies, which exposes our CMOs to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may generally affect the regulatory clearance of our CMOs’ facilities. Our failure, or the failure of third parties, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or revocation of approvals, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products and product candidates.

Our potential future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to commercialize any products that receive regulatory approval on a timely and competitive basis.

We are dependent on a limited number of suppliers and, in some instances, a sole supplier, for some of our components and materials used in our product candidates.

We currently depend on a limited number of suppliers and, in some instances, a sole supplier, for some of the components and equipment necessary for the production of our viral vectors and drug product. In particular, we are dependent on Aldevron LLC for plasmids, and on Pall Corporation for iCELLis® bioreactors used in our current cGMP production process. We may not be able to enter into longer-term supply agreements to assure supply of these components and equipment. Moreover, we cannot be sure that these suppliers will remain in business, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to produce these materials for our intended purpose. Our use of a sole or a limited number of suppliers of raw materials, components and finished goods exposes us to several risks, including disruptions in supply, price increases, late deliveries and an inability to meet customer demand. There are, in general, relatively few alternative sources of supply for these components, and in some cases, no alternatives. These vendors may be unable or unwilling to meet our future demands for our clinical trials or commercial sale. Establishing additional or replacement suppliers for these components could take a substantial amount of time and it may be difficult to establish replacement suppliers who meet regulatory requirements. Any disruption in supply from any supplier or manufacturing location could lead to supply delays or interruptions which would damage our business, financial condition, results of operations and prospects.

If we are required to switch to a replacement supplier, the manufacture and delivery of our viral vectors and product candidates could be interrupted for an extended period, adversely affecting our business. Establishing additional or replacement suppliers may not be accomplished quickly. If we are able to find a replacement supplier, the replacement supplier would need to be qualified and may require additional regulatory authority approval, which could result in further delay. For example, the FDA or EMA could require additional supplemental data, manufacturing data and comparability data up to and including clinical trial data if we rely upon a new supplier. While we seek to maintain adequate inventory of the components and materials used in our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to conduct our clinical trials and, if our product candidates are approved, to meet the demand of our customers and cause them to cancel orders.

 

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In addition, as part of the FDA’s approval of our product candidates, the FDA must review and approve the individual components of our production process, which includes raw materials, the manufacturing processes and facilities of our suppliers. Some of our current suppliers have not undergone this process nor have they had any components included in any product approved by the FDA.

Our reliance on these suppliers subjects us to a number of risks that could harm our reputation, business, and financial condition, including, among other things:

 

   

the interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;

 

   

delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a component;

 

   

delays in performance due to COVID-19;

 

   

a lack of long-term supply arrangements for key components with our suppliers;

 

   

the inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms;

 

   

difficulty and cost associated with locating and qualifying alternative suppliers for our components in a timely manner;

 

   

production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications;

 

   

a delay in delivery due to our suppliers prioritizing other customer orders over ours;

 

   

damage to our reputation caused by defective components produced by our suppliers;

 

   

increased cost of our warranty program due to product repair or replacement based upon defects in components produced by our suppliers;

 

   

fluctuation in delivery by our suppliers due to changes in demand from us or their other customers; and

 

   

an inability to obtain or delay in obtaining supply due to general economic disruptions, including as a result of geopolitical events, global pandemics or natural disasters.

If any of these risks materialize, costs could significantly increase and our ability to conduct our clinical trials and, if our product candidates are approved, to meet demand for our products could be impacted.

Risks Related to Commercialization of Our Product Candidates

We currently have no marketing and sales force. If we are unable to establish effective sales and marketing capabilities or enter into agreements with third parties to market and sell FLT180a or other product candidates that may be approved, we may not be successful in commercializing our product candidates if and when approved, and we may be unable to generate any product revenue.

If our ongoing Phase 1/2 clinical trial for FLT180a and our planned pivotal clinical trial for FLT180a are successful and FLT180a is approved for commercialization, we currently intend to seek to commercialize FLT180a in the United States and Europe directly with a relatively small specialized sales force given the orphan indication. However, we currently do not have an established marketing or sales team for the marketing, sales and distribution of any of our product candidates. In order to commercialize FLT180a, if approved, or any of our other product candidates that may be approved, we must build, on a territory-by-territory basis, marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so.

There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is

 

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expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our product candidates on our own include:

 

   

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

 

   

the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future product that we may develop;

 

   

delays in commercialization due to COVID-19; and

 

   

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

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability to us from these revenue streams is likely to be lower than if we were to market and sell any product candidates that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we may not be successful in commercializing our product candidates.

Our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources given the low incidence and prevalence of hemophilia B and Fabry disease and may never be successful. Such efforts may require more resources than are typically required due to the complexity and uniqueness of our product candidates and the indications we are targeting. Even if our product candidates are approved, if we are unable to successfully market our products, we will not be able to generate significant revenues from such products, if approved.

We face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve regulatory approval before us or develop therapies that are more advanced or effective than ours, which may adversely affect our financial condition and our ability to successfully market or commercialize our product candidates.

The biotechnology and pharmaceutical industries, including the gene therapy field, are characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. We face substantial competition from many different sources, including large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions.

New developments, including the development of other pharmaceutical technologies and methods of treating disease, occur in the pharmaceutical and life sciences industries at a rapid pace. Developments by competitors may render our product candidates obsolete or noncompetitive. We anticipate that we will face intense and increasing competition as new treatments enter the market and advanced technologies become available.

We are aware of a number of companies focused on developing gene therapies in various indications, including BioMarin, 4D Molecular Therapeutics, Sangamo, Takeda, Spark Therapeutics and uniQure as well as several companies addressing other methods for modifying genes and regulating gene expression. See “Business—Competition.”

 

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Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and other resources, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of competitors. Our commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any product candidate that we may develop. Competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly or earlier 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. Additionally, technologies developed by our competitors may render our product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.

In addition, as a result of the expiration or successful challenge of our patent rights, we could face more litigation with respect to the validity and/or scope of patents relating to our competitors’ products. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any product candidate that we may develop and commercialize.

The market opportunities for our product candidates may be smaller than we anticipate.

We focus our primary research and development efforts on treatments for rare diseases. Our understanding of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, is based on estimates. These estimates may prove to be incorrect and new studies may reduce the estimated incidence or prevalence of these diseases. The number of patients in the United States, the European Union and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with our product candidates or patients may become increasingly difficult to identify and access, all of which would adversely affect our business, financial condition, results of operations and prospects.

Further, there are several factors that could contribute to making the actual number of patients who receive our potential products, if and when approved, less than the potentially addressable market. These include the lack of widespread availability of, and limited reimbursement for, new therapies in many underdeveloped markets. Further, the severity of the progression of a disease up to the time of treatment will likely diminish the total potential therapeutic benefit conferred by a gene therapy due to irreversible organ or tissue damage (for example, target joints in the context of hemophilia B and kidney and/or heart failure in the context of Fabry disease). Lastly, certain patients’ immune systems might prohibit the successful delivery of certain gene therapy products to the target tissue, thereby limiting the treatment outcomes.

The commercial success of our product candidates will depend upon its degree of market acceptance by physicians, patients, third-party payors and others in the medical community.

Ethical, social and legal concerns about gene therapy could result in additional regulations restricting or prohibiting our product candidates, if and when approved. Even with the requisite approvals from the FDA, EMA and other regulatory authorities internationally, the commercial success of our product candidates will depend, in part, on the acceptance of physicians, patients and third-party payors of gene therapy products in general, and our product candidates in particular, as medically necessary, cost-effective and safe. Any product that we commercialize may not gain acceptance by physicians, patients, third-party payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of gene therapy products and, in particular, our product candidates, if approved for commercial sale, will depend on several factors, including:

 

   

the efficacy and safety of our product candidates as demonstrated in clinical trials;

 

   

the potential and perceived advantages of our product candidates over alternative treatments;

 

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the need for prophylactic steroid and immune management regimen for a short period of time after vector infusion may be seen as a risk to the patients or disadvantage compared to our competitor’s products that may not need this treatment and may prevent physicians from prescribing our products;

 

   

the availability and cost of treatment relative to alternative treatments;

 

   

patient awareness of, and willingness to seek, genotyping as appropriate and indicated;

 

   

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

 

   

the prevalence and severity of any side effects;

 

   

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

 

   

the timing of market introduction of competitive products;

 

   

patient willingness to undergo invasive medical procedures;

 

   

publicity concerning our product candidates or competing products and treatments;

 

   

any restrictions on the use of our products together with other medications; and

 

   

favorable third-party payor coverage and adequate reimbursement.

Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be fully known until after it is launched.

If we are unable to successfully validate, develop and obtain regulatory clearance or approval for companion diagnostic tests for our drug candidates that are required or experience significant delays in doing so, we may not realize the full commercial potential of these drug candidates.

In connection with the clinical development of our drug candidates for certain indications, we are developing companion diagnostic tests to identify patient subsets within a disease category who may derive selective and meaningful benefit from our drug candidates. Such companion diagnostics would be used during our clinical trials as well as in connection with the FDA approval of our product candidates. To be successful, we will need to address a number of scientific, technical, regulatory and logistical challenges. The FDA regulates in vitro companion diagnostics as medical devices and, under that regulatory framework, will require the test to be analytically validated and used for patient selection in the clinical trial, which we expect will require separate regulatory clearance or approval prior to commercialization if not already cleared or approved.

It may be necessary to resolve issues such as selectivity/ specificity, analytical validation, reproducibility, or clinical validation of companion diagnostics during the development and regulatory approval processes. Moreover, even if data from preclinical studies and early clinical trials appear to support development of a companion diagnostic for a product candidate, data generated in later clinical trials may fail to support the analytical and clinical validation of the companion diagnostic. We may encounter difficulties in developing, obtaining regulatory clearance or approval for, manufacturing and commercializing companion diagnostics similar to those we face with respect to our therapeutic candidates themselves, including issues with achieving regulatory clearance or approval, production of sufficient quantities at commercial scale and with appropriate quality standards, and in gaining market acceptance. If we are unable to successfully develop companion diagnostics for these therapeutic drug candidates, or experience delays in doing so, the development of these therapeutic drug candidates may be adversely affected, these therapeutic drug candidates may not obtain marketing approval, and we may not realize the full commercial potential of any of these therapeutics that obtain marketing approval. As a result, our business, results of operations and financial condition could be materially harmed.

 

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The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate product revenue.

In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors, such as Medicare, Medicaid, TRICARE, the Veterans Administration, managed care organizations, private health insurers, and other organizations, to reimburse all or part of the associated healthcare costs. We expect the cost of a single administration of gene therapy products, such as those we are developing, to be substantial, when and if they achieve regulatory approval. We expect that coverage and adequate reimbursement by government and private payors will be essential for most patients to be able to afford these treatments. Accordingly, sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be reimbursed by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors.

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

 

   

a covered benefit under its health plan;

 

   

safe, effective and medically necessary;

 

   

appropriate for the specific patient;

 

   

cost-effective; and

 

   

neither experimental nor investigational.

There is significant uncertainty related to third-party coverage and reimbursement of newly approved products. Government authorities and other third-party payors decide which drugs and treatments they will cover and the amount of reimbursement. In the United States, the principal decisions about reimbursement for new medicines are typically made by the U.S. Centers for Medicare and Medicaid Services, or CMS, an agency within the Department of Health and Human Services, or HHS. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. However, no uniform policy of coverage and reimbursement exists among third-party payors. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. One payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage, and adequate reimbursement.

Obtaining coverage and reimbursement for a product from third-party payors is a time-consuming and costly process that could require us to provide to the payor supporting scientific, clinical and cost-effectiveness data. In addition to the costs required to obtain FDA or other comparable regulatory approvals, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity. Companies may also need to provide discounts to purchasers, private health plans or government healthcare programs. Nonetheless, product candidates may not be considered medically necessary or cost effective. We also may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If coverage and reimbursement are not available, or are available only at limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be adequate to realize a sufficient return on our investment.

Currently, at least one gene therapy product has been approved for coverage and reimbursement by CMS, the agency responsible for administering the Medicare program, but it is still difficult to predict what the CMS will decide with respect to coverage and reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these types of products. Moreover, reimbursement agencies

 

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in the European Union may be more conservative than the CMS. For example, several cancer drugs have been approved for reimbursement in the United States and have not been approved for reimbursement in certain EU Member States. It is difficult to predict what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures, and foreign governments have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. For example, in the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the PPACA, contains provisions that may reduce the profitability of products, including, for example, increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal healthcare programs. Further, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several recent congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to product pricing, contain the cost of drugs, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products.

Outside the United States, international operations generally are subject to extensive government price controls and other market regulations, and increasing emphasis on cost-containment initiatives in the European Union, Canada and other countries may put pricing pressure on us. For example, two gene therapy products were approved in the European Union but are yet to be widely commercially available. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our product candidates may be reduced compared with the United States and may be insufficient to generate commercially reasonable product revenues.

Additionally, in countries where the pricing of gene therapy products is subject to governmental control, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU Member States and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed.

Moreover, increasing efforts by government and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. Payors increasingly are considering new metrics as the basis for reimbursement rates, such as average sales price, average manufacturer price and actual acquisition cost. The existing data for reimbursement based on some of these metrics is relatively limited, although certain states have begun to survey acquisition cost data for the purpose of setting Medicaid reimbursement rates, and CMS has begun making pharmacy National Average Drug Acquisition Cost publicly available on at least a monthly basis. Therefore, it may be difficult to project the

 

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impact of these evolving reimbursement metrics on the willingness of payors to cover product candidates that we or our partners are able to commercialize. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products such as ours.

Due to the generally limited addressable market for our target orphan indications and the potential for our product candidates to offer therapeutic benefit in a single administration, we face uncertainty related to pricing and reimbursement for these product candidates.

The relatively small market size for orphan indications and the potential for long-term therapeutic benefit from a single administration present particular challenges to pricing review and negotiation for our product candidates for which we may obtain marketing authorization. The patient populations for our product candidates targeted at orphan disease, including hemophilia B and Fabry disease, are relatively small. If we are unable to obtain adequate levels of reimbursement relative to the small market size in our target orphan indications, our ability to support our development and commercial infrastructure and to successfully market and sell our product candidates for which we may obtain marketing approval will be adversely affected.

We also anticipate that many or all of our gene therapy product candidates may provide long-term, and potentially curative benefit with a single administration. This is a different paradigm than that of other pharmaceutical therapies, which often require an extended course of treatment or frequent administration. As a result, governments and other payors may be reluctant to provide the significant level of reimbursement that we seek at the time of administration of our gene therapies or may seek to tie reimbursement to clinical evidence of continuing therapeutic benefit over time. Although we anticipate that our product candidates will need to be administered only once, there may be situations in which we may need to re-administer, which may further complicate the pricing and reimbursement for our product candidates. In addition, in light of the anticipated cost of these therapies, governments and other payors may be particularly restrictive in making coverage decisions. These factors could limit our commercial success and harm our business.

Our gene therapy approach utilizes vectors derived from viruses, which may be perceived as unsafe or may result in unforeseen adverse events. Negative public opinion and increased regulatory scrutiny of gene therapy may damage public perception of the safety of our product candidates and adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.

Gene therapy remains a novel technology, with only a limited number of gene therapy products approved to date. Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians who specialize in the treatment of genetic diseases targeted by our product candidates, prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments with which they are familiar and for which greater clinical data may be available. More restrictive government regulations or negative public opinion, would have an adverse effect on our business, financial condition, results of operations and prospects and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop. Serious adverse events in our clinical trials, or other clinical trials involving gene therapy products or our competitors’ products, even if not ultimately attributable to the relevant product candidates, and the resulting publicity, could result in increased government regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates.

 

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Risks Related to Our Intellectual Property

Our success depends in part on our ability to obtain and protect our intellectual property and to maintain patent protection for our current product candidates, any future product candidates we may develop and our technology. It is difficult and costly to protect our proprietary rights and technology, and we may not be able to ensure their protection.

Our commercial success will depend in large part on us and our licensors obtaining and maintaining patent, trademark, trade secret and other intellectual property protection, as appropriate, of our proprietary technologies, such as our proprietary capsid, gene therapy platform, and product candidates, which include FLT180a, FLT190, FLT201, FLT210 and other programs, their respective components, formulations, therapies, methods used to manufacture them and methods of treatment, as well as successfully defending our owned and licensed patents against third-party challenges. Our current patent portfolio contains a limited number of patent applications, some of which are in-licensed from third parties and relate to components of gene therapy vectors and methods of use of those vectors. Our ability to stop unauthorized third parties from making, using, selling, offering to sell or importing products similar or identical to our product candidates is dependent upon the extent to which we and our licensors have rights under valid and enforceable patents or trade secrets that cover these activities. If we are unable to secure and maintain patent protection for any product or technology we develop, or if the scope of the patent protection secured is not sufficiently broad, subject to any regulatory exclusivity such as orphan drug designation, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to commercialize any product candidates we may develop may be adversely affected.

The patenting process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, we may not pursue or obtain patent protection in all relevant markets. 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 be able to obtain or maintain patent applications and patents due to the subject matter claimed in such patent applications and patents being in the public domain. In some cases, the work of certain academic researchers in the gene therapy field has entered the public domain, which may preclude our ability to obtain patent protection for certain inventions relating to such work. Although we enter into nondisclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach these agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. Consequently, we would not be able to prevent any third party from using any technology that is in the public domain to compete with our product candidates. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license to third parties and are reliant on our licensors or licensees to do so.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has, in recent years, been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of any patent rights are highly uncertain. Our owned and licensed pending and future patent applications may not result in issued patents which protect our technology or product candidates, effectively prevent others from commercializing competitive technologies and product candidates or otherwise provide any competitive advantage. In fact, patent applications may not issue as patents at all. Even if patent applications we license or own currently or in the future issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patents that we hold or in-license may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, we do not know whether any of our platform advances and product candidates will be protectable or remain protected by valid and enforceable patents. In addition, our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technology or from developing competing products and technologies and the coverage claimed in a patent application can be significantly reduced before the patent is

 

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issued, and its scope can be reinterpreted after issuance. Any failure to obtain, maintain or defend our patents and other intellectual property could have a material adverse effect on our business, financial conditions, results of operations and prospects.

We cannot be certain that we are the first to invent the inventions covered by pending patent applications and, if we are not, we may be subject to priority or entitlement disputes. We may be required to disclaim part or all of the term of certain patents or all of the term of certain patent applications. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. Since patent applications in the United States and other countries are confidential for a period of time after filing, at any moment in time, we cannot be certain that we were in the past or will be in the future the first to file any patent application related to our product candidates. For example, some patent applications in the United States may be maintained in secrecy until the patents are issued. Further, publications in the scientific literature often lag behind actual discoveries. Consequently, we cannot be certain that others have not filed patent applications for technology covered by our owned and in-licensed issued patents or our pending applications, or that we or, if applicable, a licensor were the first to invent or first to file an application for the technology.

The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

 

   

others may be able to make or use capsids, nucleic acids (such as codon optimized nucleic acids), and vectors that are similar to the biological compositions of our product candidates but that are not covered by the claims of our patents;

 

   

no patent protection may be available with regard to formulation or method of use;

 

   

we or our licensors may fail to meet obligations to the U.S. government regarding any patents and patent applications funded by U.S. government grants, leading to the loss of patent rights;

 

   

we or our licensors, as the case may be, might not have been the first to file patent applications for certain inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of our technologies;

 

   

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

 

   

it is possible that there are prior public disclosures that could invalidate our or our licensors’ patents, as the case may be, or parts of our or their patents;

 

   

it is possible that others may circumvent our owned or in-licensed patents;

 

   

it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our products or technology similar to ours;

 

   

the laws of other countries may not protect our or our licensors’, as the case may be, proprietary rights to the same extent as the laws of the United States;

 

   

the claims of our owned or in-licensed issued patents or patent applications, if and when issued, may not cover our product candidates;

 

   

our owned or in-licensed issued patents may not provide us with any competitive advantages, may be narrowed in scope, or be held invalid or unenforceable as a result of legal challenges by third parties;

 

   

the inventors of our owned or in-licensed patents or patent applications may become involved with competitors, develop products or processes that design around our patents, or become hostile to us or the patents or patent applications on which they are named as inventors;

 

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it is possible that our owned or in-licensed patents or patent applications omit individual(s) that should be listed as inventor(s) or include individual(s) that should not be listed as inventor(s), which may cause these patents or patents issuing from these patent applications to be held invalid or unenforceable;

 

   

we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or competing products that are outside the scope of our patents;

 

   

we may not develop additional proprietary technologies for which we can obtain patent protection;

 

   

it is possible that product candidates or technologies we develop may be covered by third parties’ patents or other exclusive rights; or

 

   

the patents of others may have an adverse effect on our business.

Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

We heavily depend on intellectual property licensed from third parties, and our licensors may not always act in our best interest. If we fail to comply with our obligations under our intellectual property licenses, if the licenses are terminated, or if disputes regarding these licenses arise, we could lose significant rights that are important to our business.

We are dependent on patents, know-how and proprietary technology licensed from others. As a result, any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our product candidates.

For example, we are a party to license agreements with University College London Business, or UCLB, pursuant to which we in-license key patents and patent applications for our proprietary capsid used in our FLT180a, FLT190, FLT201 and FLT210 product candidates, and possible future product candidates and other technology used in our FLT180a and FLT190 product candidates. For more information regarding these agreements, please see “Business—Collaboration and License Agreements.” Our current license agreements impose, and future agreements may impose, various diligence, commercialization, milestone payment, royalty, insurance and other obligations on us and require us to meet development timelines, or to exercise commercially reasonable efforts to develop and commercialize licensed products, in order to maintain the licenses. If we fail to comply with these obligations, our licensors may have the right to terminate our license, in which event we would not be able to develop or market products containing our proprietary capsid, our FLT180a, FLT190, FLT201 and FLT210 product candidates, or any other technologies or product candidates covered by the intellectual property licensed under these agreements. For example, our license agreement with UCLB imposes various due diligence, development and commercialization obligations, milestone payments, royalties and other obligations on us, including, for example, an obligation to use commercially reasonable efforts to develop, exploit and market products directed to hemophilia B and Fabry disease.

Certain of our licenses, including certain licenses with UCLB may not provide us with exclusive rights to use the licensed intellectual property and technology, or may not provide us with exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and product candidates in the future. In addition, the intellectual property portfolio licensed to us by our licensors, including certain intellectual property licensed by UCLB, at least in some respects, may be used by such licensors or licensed to third parties, and such third parties may have certain enforcement rights with respect to such intellectual property. Thus, patents licensed to us could be put at risk of being invalidated or interpreted narrowly in litigation filed by or against our licensors or another licensee or in administrative proceedings brought by or against our licensors or another licensee in response to such litigation or for other reasons. As a result, we may not be able to prevent competitors or other third parties from developing and commercializing competitive products, including in territories covered by our licenses. For more

 

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information on the terms of the license agreement with UCLB, see “Business—Collaboration and License Agreements.”

In addition, we may need to obtain additional licenses from our existing licensors and others to advance our research or allow commercialization of product candidates we may develop. It is possible that we may be unable to obtain any additional licenses at a reasonable cost or on reasonable terms, if at all. In either event, we may be required to expend significant time and resources to redesign our technology, product candidates, or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected technology or product candidates. Even if we are able to obtain such additional licenses, they may be non-exclusive thereby giving our competitors and other third parties access to the same technology licensed to us.

If we or our licensors fail to adequately protect our licensed intellectual property, our ability to commercialize our product candidates and technology could suffer. While we generally control the maintenance, prosecution and litigation of our exclusively in-licensed patents and patent application from UCLB, in some circumstances we may not have the right to control the maintenance, prosecution, preparation, filing, enforcement, defense and litigation of patents and patent applications that we license from other third parties. For example, St. Jude Children’s Research Hospital, or St. Jude, retains control of such activities for the patents and patent applications we have licensed from them. We thus cannot be certain that activities such as the maintenance and prosecution by our licensors have been or will be conducted consistent with our best interests or in compliance with applicable laws and regulations, or will result in valid and enforceable patents and other intellectual property rights. It is possible that our licensors’ infringement proceedings or defense activities may be less vigorous than had we conducted them ourselves or may not be conducted in accordance with our best interests. If our licensors fail to maintain such patents or patent applications, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize any of our product candidates that are the subject of such licensed rights and our right to exclude third parties from commercializing competing products could be adversely affected. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

In spite of our efforts, our current and future licensors might conclude that we have materially breached our obligations under our license agreements and might therefore terminate such license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including:

 

   

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

 

   

our financial and other obligations under the license agreement;

 

   

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

 

   

our right to sublicense patent and other rights to third parties under collaborative development relationships;

 

   

our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates and what activities satisfy those diligence obligations;

 

   

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

 

   

the priority of invention of patented technology.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and

 

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commercialize the affected technology or product candidates. As a result, any termination of or disputes over our intellectual property licenses could result in the loss of our ability to develop and commercialize our FLT180a, FLT190, FLT201 and FLT210 product candidates, or we could lose other significant rights, experience significant delays in the development and commercialization of our product candidates, or incur liability for damages, any of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. In addition, we may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties, including our competitors, to receive licenses to a portion of the intellectual property that is subject to our existing licenses and to compete with our product candidates.

For example, some of our future agreements with certain of our third-party research partners may provide that improvements developed in the course of our relationship may be owned solely by either us or our third-party research partner. If we determine that rights to such improvements owned solely by a third-party research partner or other third party with whom we collaborate are necessary to commercialize our therapeutic candidates or maintain our competitive advantage, we may need to obtain a license from such third party in order to use the improvements and continue developing, manufacturing or marketing our drug candidates. We may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent us from commercializing our product candidates or allow our competitors or others the chance to access technology that is important to our business.

If our licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek regulatory approval of, and to market, products identical or competitive to ours and we may be required to cease our development and commercialization of certain of our product candidates. Moreover, if disputes over intellectual property that we license prevent or impair our ability to maintain other licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. In addition, certain of these license agreements may not be assignable by us without the consent of the respective licensor, which may have an adverse effect on our ability to engage in certain transactions. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our license agreements are, and future license agreements are likely to be, complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, a third party may in the future bring claims that our performance under our license agreements, including our sponsoring of clinical trials, interferes with such third party’s rights under its agreement with one of our licensors. If any such claim were successful, it may adversely affect our rights and ability to advance our product candidates as clinical candidates or subject us to liability for monetary damages, any of which would have an adverse effect on our business, financial condition, results of operations and prospects.

We are generally also subject to all of the same risks with respect to protection of intellectual property that we license as we are for intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize products could suffer.

 

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We do not currently own or license any issued U.S. composition of matter patents covering the transgene component of our FLT190 product candidate or any issued composition of matter patents covering the transgene component of any of our other product candidates and we cannot be certain that any of our pending patent applications will result in issued patent claims covering such aspects of our product candidates.

Composition-of-matter patents on the active pharmaceutical ingredient, or API, in prescription drug products are generally considered to be the strongest form of intellectual property protection for drug products because those types of patents provide protection without regard to any particular method of use or manufacture or formulation of the API used. We currently license one issued composition of matter U.S. patent that relates to our proprietary capsid, which is present in our FLT180a, FLT190, FLT201 and FLT210 product candidates. We additionally license one issued composition of matter U.S. patent that relates to our FRE1 promoter, which is present in our FLT180a and FLT190 product candidates. However, we do not own or in-license any issued composition of matter patents in the United States or any other jurisdiction with respect to the transgene component of our FLT180a, FLT201 and FLT210 product candidates and do not own or in-license any issued composition-of-matter patents in the United States with respect to the transgene component of our FLT190 product candidate. We further do not own any U.S. or foreign issued patents covering our FLT180a, FLT190, FLT201 and FLT210 product candidates. We are pursuing claims in our pending owned or licensed patent applications that cover the transgene component of FLT180a, FLT190, FLT201, FLT210, and our other pre-candidate products. However, there can be no assurance that any such patent applications will issue as granted patents. We cannot be certain that claims in any future patents issuing from our pending owned or licensed patent applications or our future owned or licensed patent applications will cover our current or future product candidates.

Method-of-use patents protect the use of a product for the specified method and formulation patents cover formulations of the API. These types of patents do not prevent a competitor or other third party from developing or marketing an identical product for an indication that is outside the scope of the patented method or from developing a different formulation that is outside the scope of the patented formulation. Moreover, with respect to method-of-use patents, even if competitors or other third parties do not actively promote their product for our targeted indications or uses for which we may obtain patents, physicians may recommend that patients use these products off-label, or patients may do so themselves. Although off-label use may infringe or contribute to the infringement of method-of-use patents, the practice is common, and this type of infringement is difficult to prevent or prosecute. In addition, there are numerous publications and other prior art that may be relevant to our owned and in-licensed formulation and method-of-use patents and patent applications and may be used to challenge the validity of these owned or in-licensed patents and patent applications in litigation or other intellectual property-related proceedings. If these types of challenges are successful, our owned and in-licensed patents and patent applications may be narrowed or found to be invalid and we may lose valuable intellectual property rights. Any of the foregoing could have a material adverse effect on our business, financial conditions, prospects and results of operations.

The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other countries. Even if patents do successfully issue, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability and third parties may challenge the validity, enforceability or scope of our owned and licensed patents in courts or patent offices in the United States and abroad, which may result in those patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our owned and licensed patents and pending patent applications, if issued, may not adequately protect our intellectual property or prevent competitors or others from designing around our patent claims to circumvent our owned or licensed patents by developing similar or alternative technologies or therapeutics in a non-infringing manner. If the breadth or strength of protection provided by the patents and patent applications we own or license with respect to our product candidates is not sufficient to impede such competition or is otherwise threatened, it could

 

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dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Certain of our in-licensed patents are, and our future owned and in-licensed patents may be, subject to a reservation of rights by one or more third parties, including government march-in rights, that may limit our ability to exclude third parties from commercializing products similar or identical to ours.

In addition, our owned and in-licensed patents may be subject to a reservation of rights by one or more third parties. For example, the U.S. government has certain rights, including march-in rights, to patent rights and technology funded by the U.S. government. When new technologies are developed with government funding, in order to secure ownership of such patent rights, the recipient of such funding is required to comply with certain government regulations, including timely disclosing the inventions claimed in such patent rights to the U.S. government and timely electing title to such inventions. Additionally, the U.S. government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government to use the invention or to have others use the invention on its behalf. If the government decides to exercise these rights, it is not required to engage us as its contractor in connection with doing so. These rights may permit the U.S. government to disclose our confidential information to third parties and to exercise march-in rights to use or allow third parties to use our licensed technology. The U.S. government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any exercise by the government of any of the foregoing rights could have a material adverse effect on our business, financial condition, results of operations and prospects.

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

In addition to patent protection, we rely heavily upon know-how and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants and third-parties, to protect our confidential and proprietary information, especially where we do not believe patent protection is appropriate or obtainable. For example, some elements of manufacturing processes, proprietary assays, analytics techniques and processes, knowledge gained through clinical experience such as approaches to dosing/administration and management of patients, as well as computational-biological algorithms, and related processes and software, are based on unpatented trade secrets and know-how that are not publicly disclosed. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual or entity during the course of the party’s relationship with us is to be kept confidential and not disclosed to third parties, except in certain specified circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual during the course of employment, and which relate to or are reasonably capable or being used in our current or planned business or research and development, are our exclusive property. However, we cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes. Additionally, we may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements. Monitoring unauthorized uses and disclosures is difficult and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the collaborators, scientific advisors, employees and consultants who are parties to these agreements breach or violate the terms of any of these agreements, we may not have adequate remedies for any such breach or violation. As a result, we could lose our trade secrets and third parties could use our trade secrets to compete with our product candidates and technology.

 

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In addition to contractual measures, we try to protect the integrity and confidential nature of our proprietary information through other appropriate precautions, such as maintaining physical security of our premises and electronic security of our information technology systems; however, such systems and security measures may be breached, and we may not have adequate remedies for any breach. These measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor or other third party, and any recourse we might take against this type of misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable.

In addition, our trade secrets may otherwise become known or be independently developed by competitors or other third parties in a manner that could prevent us from receiving legal recourse. Competitors or third parties could purchase our product candidates and attempt to replicate some or all of the competitive advantages we derive from our development efforts, design around our protected technology, develop their own competitive technologies that fall outside the scope of our intellectual property rights or independently develop our technologies without reference to our trade secrets. If any of our confidential or proprietary information, such as our trade secrets, were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them, or those to whom they communicate such trade secrets, from using that technology or information to compete with us and our competitive position could be harmed. If our trade secrets are not adequately protected so as to protect our market against competitors’ products, our business, financial condition, results of operations and prospects could be materially and adversely affected.

In addition, trade secrets can be difficult to protect and some courts inside and outside the United States are sometimes less willing or unwilling to protect trade secrets. If we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs. Even if we are successful, these types of lawsuits may consume our time and other resources. As a result, we may not be able to meaningfully protect our trade secrets. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Third-party claims of intellectual property infringement may prevent or delay our product discovery and development efforts.

Our commercial success depends in part on our ability and the ability of future collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation, inter partes review, post grant review, and reexamination proceedings before the United States Patent and Trademark Office, or the USPTO, or oppositions and other comparable proceedings in foreign jurisdictions. We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product candidates, manufacturing methods, formulations, administration methods and/or proprietary technologies infringe, misappropriate or otherwise violate their intellectual property rights.

Numerous issued patents and pending patent applications that are owned by third parties exist in the fields in which we are developing our product candidates including patents and patent applications relating to, among other things, Factor VIII and Factor IX nucleic acids and AAV vectors comprising such nucleic acids, as well as AAV capsid proteins, AAV formulations and AAV manufacturing and analytical methods. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others. Moreover, it is not always clear to industry participants, including us, the claim scope that may issue from pending patent applications owned by third parties

 

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or which patents cover various types of drugs, products or their methods of use or manufacture. Thus, because of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties, including our competitors, may allege they have patent rights encompassing our product candidates, technologies or methods and that we are employing their proprietary technology without authorization.

If third parties, including our competitors, believe that one or more of our product candidates infringe their patents, including if and when our product candidates are approved by the FDA or other regulatory authorities outside of the United States, such third parties may, to the extent such patents are in force at that time, seek to enforce their patents against us by filing a patent infringement lawsuit against us. For example, we are aware of several patents and pending patent applications owned and/or controlled by one of our competitors, uniQure, which include issued claims directed to Factor IX nucleic acids and peptides, liver-specific transcriptional regulatory elements and expression cassettes and vectors containing the same, and methods of using such vectors for gene therapy. We are also aware that certain of these patents may have been exclusively licensed to CSL Behring by uniQure. We are also aware of patents and pending patent applications owned and/or controlled by another competitor, BioMarin, which include issued claims directed to an AAV vector comprising a Factor VIII nucleic acid, as well as several patents and pending patent applications owned and/or controlled by Children’s Hospital of Philadelphia, which include issued claims directed to Factor VIII variants, nucleic acids for encoding such variants and certain AAV formulations.

If uniQure, BioMarin, Children’s Hospital of Philadelphia or any of their respective licensees (including CSL Behring) were to assert these patents against us, we believe we would have defenses against any such assertion, however there can be no assurance that any such defenses will be successful. If any third party, including uniQure, BioMarin, Children’s Hospital of Philadelphia or any of their respective licensees (including CSL Behring) were to assert these or any other patents against us and we are unable to successfully defend against any such assertion, we may be required, including by court order, to cease the development and commercialization of the infringing product candidate or technology, which may include ceasing the development and commercialization of FLT180a, FLT190, FLT201 and/or FLT210, depending on the patents that are asserted. We could also be required to pay damages, which could be significant, including treble damages and attorneys’ fees if we are found to have willfully infringed such patents. We could also be required to obtain a license to such patents in order to continue the development and commercialization of the infringing product candidate or technology, however such a license may not be available on commercially reasonable terms or at all, including because certain of these patents are held by or may be licensed to our competitors. Even if such license were available, it may require substantial payments and it may only be available on a non-exclusive basis, in which case third parties, including our competitors, could use the same licensed intellectual property to compete with us. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to necessary or useful third-party intellectual property to advance our research or allow commercialization of our product candidates and we may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize our product candidates.

We may choose to challenge, including in connection with any allegation of patent infringement by a third party, the patentability, validity or enforceability of any third-party patent that we believe may have applicability in our field, including the above-mentioned uniQure, BioMarin and Children’s Hospital of Philadelphia patents, and any other third-party patent that may be asserted against us. Such challenges may be brought either in court or by requesting that the USPTO, European Patent Office, or EPO, or other foreign patent offices review the patent claims, such as in an ex-parte re-examination, inter partes review, post-grant review proceeding or opposition proceeding. Third parties may also challenge such patents. For example, we are aware of an inter partes review proceeding instituted by the U.S. Patent Trial and Appeal Board, which was brought by Pfizer Inc. against a patent owned by uniQure related to Factor IX polypeptides. However, there can be no assurance that any such challenge by us or any third party, including the challenge by Pfizer Inc. against the uniQure patent, will be successful. Even if such proceedings are successful, these proceedings are expensive and may consume our time or other resources, distract our management and technical personnel, and the costs of these opposition proceedings could be substantial. If a favorable result in court, at the USPTO, EPO or other patent office is not obtained, we may be exposed to patent litigation by a third party, including uniQure, BioMarin, Children’s Hospital of Philadelphia and/or any of their respective licensees (including CSL

 

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Behring), alleging that their patent rights are infringed by our product candidates or proprietary technologies. We may not have sufficient financial or other resources to adequately conduct these types of litigation or proceedings. There can be no assurance that our defenses of non-infringement, invalidity or unenforceability will succeed. In this regard, patents issued in the United States by law enjoy a presumption of validity that can be rebutted only with evidence that is “clear and convincing,” a heightened standard of proof.

If any third-party patents, including those described above, are held by a court of competent jurisdiction to be valid and enforceable and to cover any of our product candidates or technology, including the manufacturing process of our product candidates, constructs or molecules used in or formed during the manufacturing process, or any final product itself, we may face a number of issues, including:

 

   

substantial damages for infringement and, if the court finds that the infringement was willful, we could be ordered to pay treble damages plus the third-party patent owner’s attorneys’ fees;

 

   

a court prohibiting us from developing, manufacturing, marketing, selling or otherwise commercializing our product candidates, or from using our proprietary technologies, unless the applicable third party licenses its rights to us, which may not be available on commercially reasonable terms or at all;

 

   

if a license is available from the applicable third party, we may have to pay substantial royalties, upfront fees and other amounts, and/or grant cross-licenses under our intellectual property rights, and the license granted to us may be non-exclusive, thereby giving other third parties, including our competitors, access to the same technologies licensed to us; and

 

   

the requirement that we redesign our product candidates or processes so they do not infringe the applicable third-party patents, which may not be possible or may require substantial monetary expenditures and time.

Some third parties, including our competitors, may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. 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. Any of the foregoing, or any uncertainties resulting from the initiation and continuation of any litigation, could have a material adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect on our business, financial condition, results of operations and prospects. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar adverse effect on our business, financial condition, results of operations and prospects.

Third parties may assert that our employees, advisors or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets of their current or former employers or make claims asserting ownership of what we regard as our own intellectual property.

As is common in the biotechnology and pharmaceutical industries, certain of our employees, consultants, contractors or advisors are currently, or were previously, employed at universities or other biopharmaceutical or pharmaceutical companies, including our competitors or potential competitors, as well as our academic partners. Although no misappropriation or improper disclosure claims against us are currently pending, and although we try to ensure that our employees, advisors, contractors and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, advisors, contractors or consultants have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer or other third parties. We may then have to engage in litigation to defend against these claims. If we fail in defending any claims of this nature, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. An inability to incorporate such technologies or features would harm our business and may prevent

 

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us from successfully commercializing our product candidates or at all. Any such litigation or the threat thereof may adversely affect our ability to hire employees or contract with advisors, contractors and consultants. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our product candidates, which would have a material adverse effect on our business, results of operations, financial condition and prospects. Even if we are successful in defending against these types of claims, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, 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, that perception could have a substantial adverse effect on the price of our common stock. This type of litigation or proceeding could substantially increase our operating losses and reduce our resources available for development activities. Some of our competitors may be able to sustain the costs of this type of litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of intellectual property litigation or other intellectual property related proceedings could adversely affect our ability to compete in the marketplace.

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. Moreover, even when we obtain agreements assigning intellectual property to us, the assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Furthermore, individuals executing agreements with us may have pre-existing or competing obligations to a third party, such as an academic institution, and thus an agreement with us may be ineffective in perfecting ownership of inventions developed by that individual. Disputes about the ownership of intellectual property that we may own may have a material adverse effect on our business, financial condition, results of operations and prospects.

Furthermore, we or our licensors may in the future be subject to claims by former employees, consultants or other third parties asserting an ownership right in our owned or licensed patents or patent applications. An adverse determination in any such submission or proceeding may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar technology and therapeutics, without payment to us, or could limit the duration of the patent protection covering our technology and product candidates. Such challenges may also result in our inability to develop, manufacture or commercialize our product candidates without infringing third-party patent rights. Any of the foregoing could have a material adverse effect on our business, financial condition, prospects and results of operations.

We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses.

Presently, we rely on intellectual property rights through licenses from third parties to develop, manufacture and commercialize our FLT180a, FLT190, FLT201 and FLT210 product candidates and other product candidates. Additionally, we are developing companion diagnostic tests, such as our proprietary, cell-based transduction inhibition assay, or TIA, that may be required by the FDA or comparable foreign regulatory authorities to be used with our product candidates, which test or tests may be covered by intellectual property rights held by others. Because the commercialization of our technologies and product candidates may require the use of additional intellectual property rights held by third parties, the growth of our business likely will depend, in part, on our ability to acquire or license these intellectual property rights. Our product candidates may also require specific formulations to work effectively and efficiently and these rights may be held by others.

We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary or important to our business

 

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operations. In addition, even if we are able to obtain necessary or important licenses, we may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, which would harm our business. Were that to happen, we may need to cease use of the product candidates and technologies covered by those third-party intellectual property rights and may need to seek to develop alternative approaches that do not infringe, misappropriate or violate those intellectual property rights, which may entail additional costs and development delays if we are able to develop such alternatives, or which may not be feasible. Even if we are able to obtain a license, it may be non-exclusive, which means that our competitors may also receive access to the same technologies licensed to us. The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies that may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates. More established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. There can be no assurance that we will be able to successfully complete these types of negotiations and ultimately acquire the rights to the intellectual property surrounding the product candidates that we may seek to develop or market. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.

If we are unable to successfully obtain rights to required third-party intellectual property or maintain the existing intellectual property rights we have licensed, we may be required to expend significant time and resources to redesign our product candidates, or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis, and we may have to abandon development of our product candidates, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may be involved in intellectual property related litigations and other proceedings to defend against third party infringement claims and to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.

Litigation or other legal proceedings relating to intellectual property claims, with or without merit, are unpredictable and generally expensive and time-consuming. Competitors or other third parties may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, our patents or the patents of our licensing partners also may in the future become involved in inventorship, priority, or validity disputes. In an infringement proceeding or any other inventorship, priority or validity dispute, a court or patent office may decide that one or more of our patents is not valid or is unenforceable, may interpret the claims of our patents narrowly, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Furthermore, third parties may assert that our product candidates or technologies infringe, misappropriate or otherwise violate their intellectual property rights. Defense of these types of claims, regardless of their merit and regardless of whether we are successful, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.

We or our licensors, as the case may be, may not be able to detect infringement against our owned or in-licensed patents, which may be especially difficult for manufacturing processes or formulation patents. Even if we or our licensors detect infringement by a third party of our owned or in-licensed patents, we or our licensors, as the case may be, may choose not to pursue litigation against or settlement with the third party. If we or our licensors later sue such third party for patent infringement, the third party may have certain legal defenses available to it that otherwise would not be available but for the delay between when the infringement was first detected and when the suit was brought. These legal defenses may make it impossible for us or our licensors to enforce our owned or in-licensed patents, as the case may be, against that third party.

 

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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigations and proceedings, 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. If securities analysts or investors perceive these results to be negative, that perception could have a substantial adverse effect on the price of our common stock. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

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 noncompliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on any issued patent are due to be paid to the USPTO and various government patent agencies outside of the United States in several stages over the lifetime of the patent. Such governmental patent agencies also require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and following the issuance of a patent. In some cases we are dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. Were a noncompliance event to occur, and if the noncompliance event were to lead to loss of rights, our competitors might be able to enter the market with products and technology identical or similar to ours, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.

Our owned and licensed patents and patent applications may be subject to priority, validity, inventorship and enforceability disputes. If we or one of our licensors initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate, as applicable, is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity challenge could include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, lack of written description, non-enablement or failure to claim patent-eligible subject matter. Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld information material to patentability from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies, even outside the context of litigation. For example, we may be subject to a third-party submission of prior art to the USPTO challenging the validity of one or more claims of our owned or licensed patents. Such submissions may also be made prior to a patent’s issuance, precluding the granting of a patent. These types of mechanisms also include re-examination, post grant review, inter partes review, interference proceedings, derivation proceedings and equivalent proceedings in other jurisdictions (e.g., opposition proceedings). These types of proceedings could result in revocation or amendment to our patents such that they no longer cover our product candidates or technologies. The outcome for any particular patent following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity and/or unenforceability, or if we are otherwise

 

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unable to adequately protect our rights, we would lose at least part, and perhaps all, of the patent protection for our product candidates, which could allow third parties to commercialize identical or similar products to ours without payment to us. Such challenges also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us. A loss of patent protection for our product candidates could have a material adverse impact on our ability to commercialize or license our technology and product candidates and on our business, financial condition, prospects and results of operations.

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

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, 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. The America Invents Act also includes a number of significant changes that affect the way patent applications are prosecuted and also may affect patent litigation. These changes include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to challenge the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review and derivation proceedings. The America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

The patent positions of companies engaged in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened 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 U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that may have a material adverse effect on our ability to obtain new patents and to defend and enforce our existing patents and patents that we might obtain in the future. We cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of our patents. Any of the foregoing, including any similar adverse changes in the patent laws of other jurisdictions, could also have a material adverse effect on our business, financial condition, prospects and results of operations.

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

We have intellectual property rights in a number of countries. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries are less extensive than those in the United States and Europe. In addition, the laws of some countries do not protect intellectual property rights to the same extent as federal and state laws in the United States and Europe. Consequently, we may not be able to prevent third parties from practicing our or our licensors’ inventions in all countries, or from selling or importing products made using our or our licensors’ inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may

 

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export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as that in the United States or Europe. These products may compete with our product candidates in jurisdictions where we do not have any issued patents and our or our licensors’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

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

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 of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Certain of our employees and inventions are subject to German law.

Certain of our personnel work in Germany and are subject to German employment law. Inventions which may be the subject of a patent or of protection as a utility model and which are or were made by personnel working in Germany (except for legal representatives of our respective legal entities, for example managing directors) are subject to the provisions of the German Act on Employees’ Inventions (Gesetz über Arbeitnehmererfindungen), or the German Inventions Act, which regulates the ownership of, and compensation for, inventions made by employees. We face the risk that disputes may occur between us and our current or past employees pertaining to the sufficiency of compensation paid by us, allocation of rights to inventions under this act or alleged non-adherence to the provisions of this act, any of which may be costly to resolve and take up our management’s time and efforts whether we prevail or fail in such dispute. Even if we lawfully own all inventions created by our employees who are subject to the German Inventions Act, we are required under German law to reasonably compensate such employees for the use of the inventions and intellectual property rights related thereto. If we are required to pay compensation or face other disputes under the German Inventions Act, our results of operations could be adversely affected. Legal representatives of legal entities, for example managing directors, whose contractual relationships with the respective entity are subject to German law and that are not subject to the German Inventions Act as well as consultants must assign and transfer their interest in inventions and/or patents they invent or co-invent to us in order for us to have any rights to such inventions or patents.

While we believe that all assignments from current and past German employee inventors, legal representatives of our legal entities and consultants have been made, there can be no assurance that all such assignments are fully effective, which may lead to unexpected costs or economic disadvantages and may harm our business, prospects, financial condition and results of operations. If any of our current or past employees, legal representatives of our legal entities or consultants obtain or retain ownership or co-ownership of any

 

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inventions or related intellectual property rights that we believe we own, we may lose valuable intellectual property rights and be required to obtain and maintain licenses from such employees or legal representatives of legal entities or consultants to such inventions or intellectual property rights, which may not be available on commercially reasonable terms or at all, or may be non-exclusive. If we are unable to obtain and maintain a license to any such employee’s, legal representative’s of legal entities or consultant’s interest in such inventions or intellectual property rights, we may need to cease the development, manufacture, and commercialization of one or more of the products or solutions we may develop or may have developed. In addition, any loss of exclusivity of our intellectual property rights could limit our ability to stop others from using or commercializing similar or identical products and solutions. Any of the foregoing events could have a material adverse effect on our business, financial condition, prospects and results of operations.

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

Patents have a limited lifespan. In most countries, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest national filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products. Given the amount of time required for the development, testing and regulatory review of new product candidates, it is possible that patents protecting our product candidates might expire before or shortly after we commercialize those candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

If we do not obtain patent term extension for any product candidates we may develop, our business may be materially harmed.

Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more U.S. patents that we license or may own in the future may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent per product may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. However, even if we were to seek a patent term extension, it may not be granted because of, for example, the failure to exercise due diligence during the testing phase or regulatory review process, the failure to apply within applicable deadlines, the failure to apply prior to expiration of relevant patents, or the failure to otherwise satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded under an extension request could be less than we request. In addition, to the extent we wish to pursue patent term extension based on a patent that we in-license from a third party, we would need the cooperation of that third party. If we are unable to obtain patent term extension or if the term of any requested extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, be able to enter the market sooner, and our revenue could be reduced, and our business, financial condition, prospects and results of operations could be materially harmed.

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.

As of June 15, 2020, we have three registered trademarks relating to the Freeline name and stylized word in the United States, and corresponding trademark registrations have been obtained in some other jurisdictions.

 

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However, our pending and future trademark applications in the United States and other jurisdictions may not be allowed or may subsequently be opposed. Once filed and registered, our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. As a means to enforce our trademark rights and prevent infringement, we may be required to file trademark claims against third parties or initiate trademark opposition proceedings. This can be expensive and time-consuming, particularly for a company of our size. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability

to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively, and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Government Regulation

Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize our product candidates and the approval may be for a narrower indication than we seek.

We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. The FDA must review and approve any new pharmaceutical product before it can be marketed and sold in the United States. The FDA regulatory review and approval process, which includes evaluation of preclinical studies and clinical trials of a product candidate and proposed labeling, as well as the evaluation of the manufacturing process and manufacturers’ facilities, is lengthy, expensive and uncertain. To obtain approval, we must, among other things, demonstrate with substantial evidence from well-controlled clinical trials that the product candidate is both safe and effective for each indication where approval is sought. Even if our product candidates meet the FDA’s safety and efficacy endpoints in clinical trials, the FDA may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. The FDA has substantial discretion in the review and approval process and may refuse to file our application for substantive review or may determine after review of our data that our application is insufficient to allow approval of our product candidates. The FDA may require that we conduct additional preclinical studies, clinical trials or manufacturing validation studies and submit that data before it will reconsider our application. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials and the review process.

The FDA, EMA or other regulatory authorities also may approve a product candidate for more limited indications than requested or may impose significant limitations in the form of narrow indications, warnings or a REMS. These regulatory authorities may require precautions or contraindications with respect to conditions of use or may grant approval subject to the performance of costly post-marketing clinical trials. In addition, the FDA, EMA or other regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. Any of the foregoing scenarios could harm the commercial prospects for our product candidates and negatively impact our business, financial condition, results of operations and prospects.

 

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Delays in obtaining regulatory approval of our manufacturing process and facility or disruptions in our manufacturing process may delay or disrupt our product development and commercialization efforts.

Before we can begin to commercially manufacture our product candidates, whether in a third-party facility or in our own facility, once established, we must obtain regulatory approval from the FDA for our manufacturing process and facility. A manufacturing authorization must also be obtained from the appropriate European Union regulatory authorities. In addition, we or a third-party manufacturer must pass a pre-approval inspection of the manufacturing facility by the FDA before our product candidates can obtain marketing approval. In order to obtain approval, we will need to ensure that all of our processes, methods and equipment are compliant with cGMP, and perform extensive audits of vendors, contract laboratories and suppliers. If any of our vendors, contract laboratories or suppliers are found to be noncompliant with cGMP, we may experience delays or disruptions in manufacturing while we work with these third parties to remedy the violation or while we work to identify suitable replacement vendors. The cGMP requirements govern quality control of the manufacturing process and documentation policies and procedures. In complying with cGMP, we will be obligated to expend time, money and effort in production, record keeping and quality control to assure that the product meets applicable specifications and other requirements. If we fail to comply with these requirements, we would be subject to possible regulatory action and may not be permitted to sell any product candidate that we may develop.

If we or our third-party manufacturers fail to comply with applicable cGMP regulations, the FDA, EMA and other regulatory authorities can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new product candidate or suspension or revocation of a pre-existing approval. Such an occurrence may cause our business, financial condition, results of operations and prospects to be harmed.

Additionally, if the supply from our third-party manufacturers is interrupted, there could be a significant disruption in commercial supply of our product candidates. We do not currently have a backup manufacturer of our product candidate supply for clinical trials or commercial sale. An alternative manufacturer would need to be qualified through a supplement to its regulatory filing, which could result in further delays. The regulatory authorities also may require additional clinical trials if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and could result in a delay in our desired clinical and commercial timelines.

If our competitors are able to obtain orphan drug exclusivity for products that constitute the same drug and treat the same indications as our product candidates, we may not be able to have competing products approved by applicable regulatory authorities for a significant period of time. In addition, even if we obtain orphan drug exclusivity for any of our product candidates, such exclusivity may not protect us from competition.

Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate products for relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, orphan designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biologic product.

We have received orphan drug designation for FLT180a for the treatment of hemophilia from the FDA in the United States and from the EMA in the European Union and for FLT190 from the EMA in the European

 

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Union. The designation of FLT180a or FLT190 as an orphan product does not guarantee that any regulatory agency will accelerate regulatory review of, or ultimately approve, that product candidate, nor does it limit the ability of any regulatory agency to grant orphan drug designation to product candidates of other companies that treat the same indications as our product candidates prior to our product candidates receiving exclusive marketing approval. For example, we are aware that Spark Therapeutics Inc. and uniQure N.V. were also granted orphan product designation by the EMA and FDA for their product candidates for the treatment of hemophilia B. As a result, there can be no assurance that FLT180a will receive marketing approval for the applicable exclusivity period.

Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for a product that constitutes the same drug treating the same indication for that marketing exclusivity period, except in limited circumstances. If another sponsor receives such approval before we do (regardless of our orphan drug designation), we will be precluded from receiving marketing approval for our product candidates for the applicable exclusivity period. The applicable period is seven years in the United States and ten years in the European Union. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be revoked if any regulatory agency determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition. The most common approach to overcoming orphan exclusivity is to prove clinical superiority of the second-to-market therapy to the currently approved first-to-market product, and we may not be able to prove this to the extent necessary to overcome the exclusivity granted to the first-to-market-therapy.

Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition. In the United States, even after an orphan drug is approved, the FDA may subsequently approve another drug for the same condition if the FDA concludes that the latter drug is not the same drug or is clinically superior in that it is shown to be safer in a substantial portion of the target populations, more effective or otherwise makes a major contribution to patient care. In the European Union, marketing authorization may be granted to a similar medicinal product for the same orphan indication if:

 

   

the second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal product already authorized, is safer, more effective or otherwise clinically superior;

 

   

the holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application; or

 

   

the holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of orphan medicinal product.

We may seek priority review designation for one or more of our product candidates, but we might not receive such designation, and even if we do, such designation may not lead to a faster regulatory review or approval process.

If the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. We may request priority review for our product candidates. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, in particular if such product candidate has received a Breakthrough Therapy designation or regenerative

 

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medicine advanced therapy, or RMAT, designation, the FDA may decide not to grant it. Moreover, a priority review designation does not result in expedited development and does not necessarily result in expedited regulatory review or approval process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month review cycle or at all.

Even if we obtain regulatory approval for a product candidate, our product candidates will remain subject to regulatory oversight.

Even if we obtain regulatory approval for our product candidates, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, recordkeeping and submission of safety and other post-market information. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the quality, safety and efficacy of the product. For example, the holder of an approved BLA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. FDA guidance advises that patients treated with some types of gene therapy undergo follow-up observations for potential adverse events for as long as 15 years. The holder of an approved BLA also must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. In addition, the holder of a BLA must comply with the FDA’s advertising and promotion requirements, such as those related to the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling, known as “off-label use.” Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.

In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements and adherence to commitments made in the BLA or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured or if a regulatory authority disagrees with the promotion, marketing or labeling of that product, a regulatory authority may impose restrictions relative to that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

If we fail to comply with applicable regulatory requirements following approval of our product candidates, a regulatory or enforcement authority may:

 

   

issue a warning letter asserting that we are in violation of the law;

 

   

seek an injunction or impose administrative, civil or criminal penalties or monetary fines;

 

   

suspend and/or revoke regulatory approval;

 

   

suspend any ongoing clinical trials;

 

   

refuse to approve a pending BLA or comparable foreign marketing application (or any supplements thereto) submitted by us or our strategic partners;

 

   

restrict the marketing or manufacturing of the product;

 

   

seize or detain the product or otherwise require the withdrawal of the product from the market;

 

   

refuse to permit the import or export of the product; or

 

   

refuse to allow us to enter into supply contracts, including government contracts.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described

 

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above may inhibit our ability to commercialize our product candidates and adversely affect our business, financial condition, results of operations and prospects.

In addition, the FDA’s policies, and those of the EMA and other regulatory authorities, may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would negatively impact our business, financial condition, results of operations and prospects.

In response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products while local, national and international conditions warrant. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and provided guidance regarding the conduct of clinical trials which the FDA continues to update. As of June 23, 2020, the FDA noted it was continuing to ensure timely reviews of applications for medical products during the COVID-19 pandemic in line with its user fee performance goals and conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. However, the FDA may not be able to maintain this pace and delays or setbacks are possible in the future. On July 10, 2020, the FDA announced its goal of restarting domestic on-site inspections during the week of July 20 but such activities will depend on data about the virus’ trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments. The FDA has developed a rating system to assist in determining when and where it is safest to conduct prioritized domestic inspections. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities.

Even if we obtain and maintain approval for our product candidates in a major pharmaceutical market such as the United States, we may never obtain approval for our product candidates in other major markets.

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

 

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The withdrawal of the United Kingdom from the European Union, commonly referred to as “Brexit,” may adversely impact our ability to obtain regulatory approvals of our product candidates in the European Union, result in restrictions or imposition of taxes and duties for importing our product candidates into the European Union, and may require us to incur additional expenses in order to develop, manufacture and commercialize our product candidates in the European Union.

The United Kingdom is a major market for pharmaceutical products. Following the result of a referendum in 2016, the United Kingdom left the European Union on January 31, 2020, commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed to by the United Kingdom and the European Union, the United Kingdom will be subject to a transition period until December 31, 2020, or the Transition Period, during which the United Kingdom will remain within the European Union single market and customs union and European Union rules will continue to apply in the United Kingdom. Negotiations between the United Kingdom and the European Union are expected to continue in relation to the customs and trading relationship between the United Kingdom and the European Union following the expiry of the Transition Period.

As a result of Brexit, the EMA, formerly situated in London, relocated to Amsterdam. Following the Transition Period, there is a risk that the relocation will interrupt current administrative routines and occupy resources, which may generally adversely affect our dealings with the EMA. Further, there is considerable uncertainty resulting from a lack of precedent and the complexity of the United Kingdom and EU’s intertwined legal regimes as to how Brexit (following the Transition Period) will impact the life sciences industry in Europe, including our company, including with respect to ongoing or future clinical trials. Since a significant proportion of the regulatory framework in the United Kingdom applicable to our business and our product candidates is derived from EU directives and regulations, the withdrawal could materially impact the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom or the European Union. The impact will largely depend on the model and means by which the United Kingdom’s relationship with the European Union is governed post-Brexit. For example, following the Transition Period, the United Kingdom will no longer be covered by the centralized procedures for obtaining EU-wide marketing authorization from the EMA and, unless a specific agreement is entered into, a separate process for authorization of drug products, including our product candidates, will be required in the United Kingdom, the potential process for which is currently unclear. As a result, we cannot predict the impact that Brexit will have on (i) the marketing of pharmaceutical products, (ii) the process to obtain regulatory approval in the United Kingdom for product candidates or (iii) the award of exclusivities that are normally part of the EU legal framework (for instance Supplementary Protection Certificates, Pediatric Extensions or Orphan exclusivity). Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom or the European Union and restrict our ability to generate revenue and achieve and sustain profitability.

Brexit may also result in a reduction of funding to the EMA if the United Kingdom no longer makes financial contributions to European institutions, such as the EMA. If U.K. funding is so reduced, it could create delays in the EMA issuing regulatory approvals for our product candidates and, accordingly, have a material adverse effect on our business, financial condition, results of operations or prospects.

In addition, we may be required to pay taxes or duties or be subjected to other hurdles in connection with the importation of our product candidates into the European Union, or we may incur expenses in establishing a manufacturing facility in the European Union in order to circumvent such hurdles. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom or the European Union for our product candidates, or incur significant additional expenses to operate our business, which could significantly and materially harm or delay our ability to generate revenues or achieve profitability of our business.

As a result of Brexit, other European countries may seek to conduct referenda with respect to their continuing membership with the European Union. Given these possibilities and others we may not anticipate, as

 

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well as the absence of comparable precedent, it is unclear what financial, regulatory and legal implications the withdrawal of the United Kingdom from the European Union would have and how such withdrawal would affect us, and the full extent to which our business could be adversely affected.

We may seek a conditional marketing authorization in Europe for some or all of our current product candidates, but we may not be able to obtain or maintain such designation.

As part of its marketing authorization process, the EMA may grant marketing authorizations for certain categories of medicinal products on the basis of less complete data than is normally required, when doing so may meet unmet medical needs of patients and serve the interest of public health. In such cases, it is possible for the Committee for Medicinal Products for Human Use, or CHMP, to recommend the granting of a marketing authorization, subject to certain specific obligations to be reviewed annually, which is referred to as a conditional marketing authorization. This may apply to medicinal products for human use that fall under the jurisdiction of the EMA, including those that aim at the treatment, the prevention, or the medical diagnosis of seriously debilitating or life-threatening diseases and those designated as orphan medicinal products.

A conditional marketing authorization may be granted when the CHMP finds that, although comprehensive clinical data referring to the safety and efficacy of the medicinal product have not been supplied, all the following requirements are met:

 

   

the risk-benefit balance of the medicinal product is positive;

 

   

it is likely that the applicant will be in a position to provide the comprehensive clinical data;

 

   

unmet medical needs will be fulfilled; and

 

   

the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data is still required.

The granting of a conditional marketing authorization is restricted to situations in which only the clinical part of the application is not yet fully complete. Incomplete preclinical or quality data may only be accepted if duly justified and only in the case of a product intended to be used in emergency situations in response to public health threats. Conditional marketing authorizations are valid for one year, on a renewable basis. The holder will be required to complete ongoing trials or to conduct new trials with a view to confirming that the benefit-risk balance is positive. In addition, specific obligations may be imposed in relation to the collection of pharmacovigilance data.

Granting a conditional marketing authorization allows medicines to reach patients with unmet medical needs earlier than might otherwise be the case and will ensure that additional data on a product is generated, submitted, assessed and acted upon. Although we may seek a conditional marketing authorization for one or more of our product candidates by the EMA, the CHMP may ultimately not agree that the requirements for such conditional marketing authorization have been satisfied and hence delay the commercialization of our product candidates.

Healthcare legislative reform measures may have a negative impact on our business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The MMA expanded Medicare

 

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coverage for outpatient drug purchases by adding a new Medicare Part D program and introduced a new reimbursement methodology based on average sales prices for Medicare Part B physician-administered drugs. In addition, the MMA authorized Medicare Part D prescription drug plans to limit the number of drugs that will be covered in any therapeutic class in their formularies. The MMA’s cost reduction initiatives and other provisions could decrease the coverage and price that we receive for any approved products. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors. Similar regulations or reimbursement policies may be enacted in international markets which could similarly impact our business.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the PPACA, was passed, which substantially changes the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The PPACA, among other things: (i) addresses 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; (ii) increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations; (iii) establishes annual fees and taxes on manufacturers of certain branded prescription drugs; (iv) expands the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; and (v) establishes a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (increased to 70% pursuant to the Bipartisan Budget Act of 2018, effective as of January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Additionally, in the United States, the Biologics Price Competition and Innovation Act of 2009 created an abbreviated approval pathway for biologic products that are demonstrated to be “highly similar” (biosimilar) or “interchangeable” with an FDA-approved biologic product. This new pathway could allow competitors to reference data from biologic products already approved after twelve years from the time of approval. This could expose us to potential competition by lower-cost biosimilars even if we commercialize a product candidate faster than our competitors. Moreover, the creation of this abbreviated approval pathway does not preclude or delay a third party from pursuing approval of a competitive product candidate via the traditional approval pathway based on their own clinical trial data.

Additional changes that may affect our business include those governing enrollment in federal healthcare programs, reimbursement changes, rules regarding prescription drug benefits under the health insurance exchanges and fraud and abuse and enforcement. Continued implementation of the PPACA and the passage of additional laws and regulations may result in the expansion of new programs such as Medicare payment for performance initiatives, and may impact existing government healthcare programs, such as by improving the physician quality reporting system and feedback program. For each state that does not choose to expand its Medicaid program, there likely will be fewer insured patients overall, which could impact the sales, business and financial condition of manufacturers of branded prescription drugs. Where patients receive insurance coverage under any of the new options made available through the PPACA, manufacturers may be required to pay Medicaid rebates on that resulting drug utilization. The U.S. federal government also has announced delays in the implementation of key provisions of the PPACA. The implications of these delays for our business and financial condition, if any, are not yet clear.

Since its enactment, some of the provisions of the PPACA have yet to be fully implemented, while certain provisions have been subject to judicial, congressional, and executive challenges. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the PPACA. Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA. On January 20, 2017, President Trump signed the first Executive Order, directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant exemptions from, or delay the

 

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implementation of any provision of the PPACA that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, President Trump signed the second Executive Order terminating the cost-sharing subsidies that reimburse insurers under the Affordable Care Act. The current administration has concluded that cost-sharing reduction, or CSR, payments to insurance companies required under the PPACA have not received necessary appropriations from Congress and announced that it will discontinue these payments immediately until those appropriations are made. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the PPACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. The loss of the cost share reduction payments is expected to increase premiums on certain policies issued by qualified health plans under the PPACA. Further, on June 14, 2018, the U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay to third-party payors more than $12 billion in PPACA risk corridor payments that they argued were owed to them. This decision was appealed to the U.S. Supreme Court, which on April 27, 2020, reversed the U.S. Court of Appeals for the Federal Circuit’s decision and remanded the case to the U.S. Court of Federal Claims, concluding the government has an obligation to pay these risk corridor payments under the relevant formula. It is not clear what effect this result will have on our business, but we will continue to monitor any developments. While Congress has not passed comprehensive repeal legislation to date, it has enacted laws that modify certain provisions of the Affordable Care Act such as the Tax Cuts and Jobs Act of 2017, or TCJA, which decreased, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year, commonly referred to as the “individual mandate,” to $0. On December 14, 2018, a federal district court in Texas ruled the individual mandate is a critical and inseverable feature of the PPACA, and therefore, because it was repealed as part of the TCJA, the remaining provisions of the PPACA are invalid as well. The current administration and CMS have both stated that the ruling will have no immediate effect, and on December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is unconstitutional, and remanded the case to the lower court to reconsider its earlier invalidation of the full PPACA. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall. We cannot predict what affect further changes to the PPACA would have on our business. Pending review, the PPACA remains in effect, but it is unclear at this time what effect the latest ruling will have on the status of the PPACA. Litigation and legislation over the PPACA are likely to continue, with unpredictable and uncertain results.

Other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain PPACA- 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 nonexempt medical devices. However on December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act (H.R. 1865), which repeals the Cadillac tax, the health insurance provider tax, and the medical device excise tax. It is impossible to determine whether similar taxes could be instated in the future. The Bipartisan Budget Act of 2018, also amended the PPACA, effective January 1, 2019, by increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and closing the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” On January 2, 2013, the American Taxpayer Relief Act of 2012, or ATRA, was signed into law, which, among other things, reduced Medicare payments to several 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. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, and, due to subsequent legislative amendments, will

 

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remain in effect through 2030 unless additional Congressional action is taken. However, the Medicare sequester reductions under the Budget Control Act will be suspended from May 1, 2020 through December 31, 2020 due to the COVID-19 pandemic.

Moreover, CMS published a final rule permitting further collections and payments to and from certain PPACA qualified health plans and health insurance issuers under the PPACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. In addition, CMS has recently published a final rule that would give states greater flexibility, starting in 2020, in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the PPACA for plans sold through such marketplaces. Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted.

There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the White House’s budget for fiscal years 2019 and 2020 contain further drug price control measures that could be enacted during the 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 White House 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. HHS has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019.

Further, on May 30, 2018, 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 pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These measures could reduce the ultimate demand for our product candidates, once approved, or put pressure on our product pricing.

Our ability to generate revenue from product candidates could be adversely affected by changes in healthcare spending and policy in the United States and abroad. In the United States, the European Union and other potentially significant markets for our product candidates, government authorities and third-party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which has resulted in lower average selling prices. Furthermore, the

 

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increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the European Union will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

 

   

the demand for our product candidates, if we obtain regulatory approval;

 

   

our ability to set a price that we believe is fair for our product candidates;

 

   

our ability to generate revenue and achieve or maintain profitability;

 

   

the level of taxes that we are required to pay; and

 

   

the availability of capital.

We expect that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product candidates.

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 product candidates or additional pricing pressures.

We are subject to the U.K. Bribery Act, the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations.

Our operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010, or the Bribery Act, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business. The Bribery Act, the FCPA and these other laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage. Under the Bribery Act, we may also be liable for failing to prevent a person associated with us from committing a bribery offense. We and our commercial partners operate in a number of jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we participate in collaborations and relationships with third parties whose corrupt or illegal activities could potentially subject us to liability under the Bribery Act, FCPA or local anti-corruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United Kingdom and the United States, and authorities in the

 

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European Union, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws.

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws by the United Kingdom, United States or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.

Our relationships with healthcare providers and physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products. Arrangements with third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, or FCA, which may constrain the business or financial arrangements and relationships through which such companies sell, market and distribute biopharmaceutical products. In particular, the research of our product candidates, as well as the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed 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, structuring and commissions, certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. The applicable federal, state and foreign healthcare laws and regulations laws that may affect our ability to operate include, but are not limited to:

 

   

the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, in return for either the referral of an individual, or the purchase, lease, order, or recommendation or arrangement for the purchase, lease, order, or recommendation of a good, facility, item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers on the other. The PPACA amended the intent requirement of the federal Anti-Kickback Statute, such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, a claim submitted for payment to any federal health care program that includes items or services that were made as a result of a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution;

 

   

federal civil and criminal false claims laws, including the FCA, and civil monetary penalty laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other government payors that are false, fictitious 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 an obligation to pay or transmit money or

 

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property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. A claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute or certain marketing practices, including off-label promotion, may implicate the FCA. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring qui tam actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery;

 

   

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit, among other things, a person from knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (.e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as health plans, healthcare clearinghouses and healthcare providers, and by their respective business associates, those independent contractors or agents of covered entities that perform certain functions or activities that involve the creation, use, receipt, maintenance or disclosure of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

 

   

federal transparency laws, including the federal Physician Payment Sunshine Act and its implementing regulations, that require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the CMS information related to: (i) payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals and (ii) ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made in the previous year to certain non-physician providers such as physician assistants and nurse practitioners;

 

   

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

 

   

analogous state and foreign 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 third-party payors, including private insurers, and may be broader in scope than their federal equivalents; state and foreign laws that require biopharmaceutical companies to comply with the biopharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing; state and local laws that require the

 

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registration of biopharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant criminal, civil and administrative sanctions including monetary penalties, damages, fines, disgorgement, reputational harm, individual imprisonment, and exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of noncompliance with these laws, reputational harm, and we may be required to curtail or restructure our operations, any of which could adversely affect our ability to operate our business and our results of operations. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Any action for violation of these laws, even if successfully defended, could cause a biopharmaceutical manufacturer to incur significant legal expenses and divert management’s attention from the operation of the business. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect business in an adverse way.

The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the EU. The provision of benefits or advantages to physicians is governed by the national anti-bribery laws of EU Member States. Infringement of these laws could result in substantial fines and imprisonment. Payments made to physicians in certain EU Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual EU Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the EU Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.

The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

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

We are increasingly dependent upon information technology systems, infrastructure, and data to operate our business. In the ordinary course of business, we collect, store, and transmit confidential information (including but not limited to intellectual property, proprietary business information, and personal information). It is critical

 

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that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party vendors and other contractors and consultants who have access to our confidential information.

Despite the implementation of security measures, given the size and complexity of our internal information technology systems and those of our third-party vendors and other contractors and consultants, and the increasing amounts of confidential information that they maintain, such information technology systems are potentially vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war, and telecommunication and electrical failures. Such information technology systems are additionally vulnerable to security breaches from inadvertent or intentional actions by our employees, third-party vendors, contractors, consultants, business partners, and/or other third parties, or from cyberattacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information). Any of the foregoing may compromise our system infrastructure, or that of our third-party vendors and other contractors and consultants or lead to data leakage. The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. We may not be able to anticipate all types of security threats, and we may not be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations, or hostile foreign governments or agencies. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or those of our third-party vendors and other contractors and consultants, or inappropriate disclosure of confidential or proprietary information, we could incur liability and reputational damage and the further development and commercialization of our product candidates could be delayed. The costs related to significant security breaches or disruptions could be material and exceed the limits of the cybersecurity insurance we maintain against such risks. If the information technology systems of our third-party vendors and other contractors and consultants become subject to disruptions or security breaches, we may have insufficient recourse against such third parties and we may have to expend significant resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring.

We cannot assure you that our data protection efforts and our investment in information technology will prevent significant breakdowns, data leakages, breaches in our systems, or those of our third-party vendors and other contractors and consultants, or other cyber incidents that could have a material adverse effect upon our reputation, business, operations, or financial condition. For example, if such an event were to occur and cause interruptions in our operations, or those of our third-party vendors and other contractors and consultants, it could result in a material disruption or delay of the development of our product candidates. Furthermore, significant disruptions of our internal information technology systems or those of our third-party vendors and other contractors and consultants, or security breaches could result in the loss, misappropriation, and/or unauthorized access, use, or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information, and personal information), which could result in financial, legal, business, and reputational harm to us. For example, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal information regarding our customers or employees, could harm our reputation directly, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputational damages that could potentially have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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We are subject to a variety of stringent privacy and data laws, information security laws, regulations, policies and contractual obligations related to data privacy and security and our failure to comply with them, or changes in, such laws, regulations, policies and contractual obligations could adversely affect our business.

We maintain a large quantity of sensitive information, including confidential business and patient health information in connection with our studies, and are subject to privacy and data protection laws and regulations that apply to the collection, transmission, storage and use of personally identifying information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. Failure to comply with any of these laws and regulations could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.

In the United States, there are numerous federal and state privacy and data security laws and regulations governing the collection, use, disclosure, protection and security of personal information, including federal and state health information privacy laws, federal and state security breach notification laws, and federal and state consumer protection laws. Each of these laws is subject to varying interpretations and constantly evolving. In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act, or HIPAA, establish privacy and security standards that limit the use and disclosure of individually identifiable health information, or protected health information, and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information. While we are not currently subject to HIPAA, we may in the future be required to comply with HIPAA, which may increase our compliance costs and potential liability.

If we are unable to properly protect the privacy and security of protected health information, we could be found to have breached our contracts. Further, if we fail to comply with applicable privacy laws, we can suffer financial liability and reputational harm. In addition, responses to enforcement activity can consume significant internal resources. Furthermore, state attorneys general are authorized under certain statutes to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents. We cannot be sure how these regulations will be interpreted, enforced or applied to our operations. In addition to the risks associated with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require ongoing modifications to our policies, procedures and systems.

Data privacy remains an evolving landscape at both the domestic and international level, with new laws and regulations being proposed or coming into effect. For example, in June 2018 the State of California enacted the California Consumer Privacy Act of 2018, or CCPA, which went into effect on January 1, 2020 and requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, allow consumers to opt out of certain data sharing with third parties and provide a new cause of action for data breaches. At this time, we do not collect personal data on residents of California but should we begin to do so, the CCPA will impose new and burdensome privacy compliance obligations on our business and will raise new risks for potential fines and class actions.

In addition, on May 25, 2018, the EU’s General Data Protection Regulation (EU) 2016/679, or the GDPR, became applicable, replacing data protection laws issued by each EU member state based on the Directive 95/46/EC, or the Directive. Unlike the Directive, which needed to be transposed at a national level, the GDPR text is directly applicable in each EU member state, resulting in a more uniform application of data privacy laws across the EU. The GDPR governs the collection, use, disclosure, transfer or other processing of personal data.

 

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Among other things, the GDPR imposes requirements regarding the security of personal data and mandatory data breach notifications, imposes strict rules on the lawful bases on which personal data can be processed, expands the definition of personal data and requires changes to informed consent forms or documentation, as well as more detailed notices for clinical trial subjects, investigators and other individuals. The GDPR imposes onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing activities and policies documenting compliance. It requires data controllers to implement more stringent operational requirements for processors and controllers of personal data, including, for example, transparent and expanded disclosure to data subjects (in a concise, intelligible and easily accessible form) about how their personal information is to be used, imposes limitations on retention of personal data, increases requirements pertaining to health data and pseudonymized (i.e., key-coded) data, and sets higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities, while establishing rights for individuals with respect to their personal data, including rights of access and deletion in certain circumstances. In addition, the GDPR increases the scrutiny of transfers of personal data from clinical trial sites located in the European Economic Area and the United Kingdom to the United States and other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws. The GDPR imposes substantial fines for breaches and violations (the greater of €20 million or 4% of global turnover), and also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR. The GDPR provides that EU member states may introduce further conditions, including limitations, to make their own further laws and regulations limiting the processing of genetic, biometric, or health data, which could limit our ability to collect, use and share European data, or could cause our compliance costs to increase, ultimately having an adverse impact on our business, and harm our business and financial condition. We are required to implement measures and ongoing compliance strategies to comply with the terms of the GDPR and applicable national data protection and privacy laws, which may create additional costs and expenses for our business. In addition, we may have indemnification obligations in respect of, or be required to pay the expenses relating to, any litigation or action as a result of any purported breach of the GDPR. Further, the United Kingdom’s departure from the EU has raised new challenges and questions with respect to the future of data protection regulation in the United Kingdom, including in relation to the lawfulness of transfers of EU personal data to the United Kingdom.

Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. If we fail to comply with any such laws or regulations, we may face significant government-imposed fines and penalties or orders requiring that we change our practices, claims for damages or other liabilities, regulatory investigations and enforcement action, litigation and significant costs for remediation, any of which could adversely affect our business, financial condition and results of operations. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our business, financial condition, results of operations or prospects.

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

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the generation, handling, use, storage, treatment, manufacture, transportation and disposal of, and exposure to, hazardous materials and wastes, as well as laws and regulations relating to occupational health and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and biologic materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes and/or make use of waste disposal

 

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infrastructure at our leased facilities. We cannot completely eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.

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

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations, which have tended to become more stringent over time. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions or liabilities, which could adversely affect our business, financial condition, results of operations and prospects.

Risks Related to our Employee Matters, Managing our Growth and Other Risks Relating to Our Business Operations

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

We are highly dependent on members of our executive team, the loss of whose services may adversely impact the achievement of our objectives. While we have entered into employment agreements with each of our executive officers, any of them could leave our employment at any time. Further, while we expect to engage in an orderly transition process as we integrate newly appointed Chief Executive Officer, Theresa Heggie, we face a variety of risks and uncertainties relating to management transition, including diversion of management attention from business concerns, failure to retain other key personnel or loss of institutional knowledge. In addition, the loss of the services of any of our executive officers, other key employees and other scientific and medical advisors, and an inability to find suitable replacements could result in delays in product development and harm our business.

The unexpected loss of service of one or more of our key employees and the failure to transfer knowledge and effect a smooth transition might impede the achievement of our research, development and commercialization objectives, and may have an adverse impact on our business, resulting from the loss of such person’s knowledge of our business and years of experience in gene therapy research. The inability to effectively manage key employee transitions and management changes in the future may have an adverse effect on our future business and reputation.

Recruiting and retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel, also will be critical to our success. There currently is a shortage of skilled individuals with substantial gene therapy experience, which is likely to continue. As a result, competition for skilled personnel, including in gene therapy research and vector manufacturing, is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies and academic institutions for individuals with similar skill sets. In addition, failure to succeed in preclinical studies or clinical trials or applications for marketing approval may make it more challenging to recruit and retain qualified personnel. The inability to recruit, or loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our

 

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research, development and commercialization objectives and have an adverse effect on our business, financial condition, results of operations and prospects.

We conduct our operations at our facilities in Stevenage (U.K.), Munich (Germany), Boston and New York (U.S.). The U.K., Germany and U.S. are headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. Changes to U.K., German, EU or U.S. immigration and work authorization laws and regulations, including those that restrain the flow of scientific and professional talent, can be significantly affected by political forces and levels of economic activity. Our business may be materially adversely affected if legislative or administrative changes to immigration or visa laws and regulations impair our hiring processes and goals or projects involving personnel who are not U.K., EU or U.S. citizens.

In addition, COVID-19 could affect our employees or the employees of companies with which we do business, including our suppliers and CMOs, thereby disrupting our business operations. Quarantines and travel restrictions imposed by governments in the jurisdictions in which we and the companies with which we do business operate could materially impact the ability of employees to access preclinical and clinical sites, laboratories, manufacturing sites and offices. We have implemented work-at-home policies and may experience limitations in employee resources. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. In addition, this could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations or delay necessary interactions with regulators, research or clinical trial sites, manufacturing sites and our third-party contractors.

If we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer.

If we are successful in executing our business strategy, we will need to expand our managerial, operational, financial and other systems and resources to manage our operations, continue our research and development activities and, in the longer term, build a commercial infrastructure to support commercialization of any of our product candidates that are approved for sale. It is likely that our management, finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and any future product candidates requires that we continue to develop more robust business processes and improve our systems and procedures in each of these areas and to attract and retain sufficient numbers of talented employees. Future growth would impose significant added responsibilities on members of management, including:

 

   

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

 

   

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

 

   

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

Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals.

 

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

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with FDA or EMA regulations or the regulations applicable in other jurisdictions, provide accurate information to the FDA, EMA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA, EMA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation.

We plan to adopt a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations and prospects, including the imposition of significant criminal, civil and administrative sanctions, such as monetary penalties, damages, fines, disgorgement, individual imprisonment, and exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of noncompliance with these laws, reputational harm, and we may be required to curtail or restructure our operations.

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

We face an inherent risk of product liability as a result of the planned clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates that receive marketing approvals, if any. Even successful defenses would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

   

decreased demand for any product candidate that we may develop;

 

   

loss of revenue;

 

   

substantial monetary awards to trial participants or patients;

 

   

initiation of investigations by regulators;

 

   

significant time and costs to defend the related litigation;

 

   

a diversion of management’s time and our resources;

 

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withdrawal of clinical trial participants;

 

   

recalls, withdrawals or labeling, marketing or promotional restrictions of our product candidates that receive marketing approvals, if any;

 

   

the inability to commercialize any product candidates that we may develop;

 

   

exhaustion of any available insurance and our capital resources;

 

   

injury to our reputation and significant negative media attention; or

 

   

a decline in our ADS price.

Although we maintain product liability insurance coverage, such insurance may not be adequate to cover all liabilities that we may incur. We anticipate that we may need to increase our insurance coverage each time we commence a clinical trial and if we successfully commercialize any product candidate. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

As a company based outside of the United States, our business is subject to economic, political, regulatory and other risks associated with international operations.

As a company based in the United Kingdom, our business is subject to risks associated with conducting business outside of the United States. Many of our suppliers and clinical trial relationships are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:

 

   

economic weakness, including inflation, or political instability in particular non-U.S. economies and markets;

 

   

differing and changing regulatory requirements for product approvals;

 

   

differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions;

 

   

potentially reduced protection for intellectual property rights;

 

   

difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations;

 

   

changes in non-U.S. regulations and customs, tariffs and trade barriers;

 

   

changes in non-U.S. currency exchange rates of the pound sterling, U.S. dollar, euro and currency controls;

 

   

changes in a specific country’s or region’s political or economic environment, including the implications of the recent withdrawal of the United Kingdom from the European Union;

 

   

trade protection measures, import or export licensing requirements or other restrictive actions by governments;

 

   

differing reimbursement regimes and price controls in certain non-U.S. markets;

 

   

negative consequences from changes in tax laws;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad, including, for example, the variable tax treatment in different jurisdictions of options granted under our share option schemes or equity incentive plans;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

litigation or administrative actions resulting from claims against us by current or former employees or consultants individually or as part of class actions, including claims of wrongful terminations, discrimination, misclassification or other violations of labor law or other alleged conduct;

 

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difficulties associated with staffing and managing international operations, including differing labor relations;

 

   

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

 

   

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

Exchange rate fluctuations may materially affect our results of operations and financial condition.

Owing to the international scope of our operations, fluctuations in exchange rates, particularly between the pound sterling and the U.S. dollar, may adversely affect us. Although we are based in the United Kingdom, we source research and development, manufacturing, consulting and other services from the United States and the European Union. Further, potential future revenue may be derived from abroad, particularly from the United States. As a result, our business and the price of our ADSs may be affected by fluctuations in foreign exchange rates not only between the pound sterling and the U.S. dollar, but also the euro, which may have a significant impact on our results of operations and cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements in place.

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

Earthquakes or other natural disasters could severely disrupt our operations, and those of our CROs, CMOs and other contractors and consultants, and have a material adverse effect on our business, results of operations, financial condition 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 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 rely on third-party manufacturers to produce our product candidates. Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Legal, political and economic uncertainty surrounding the United Kingdom’s withdrawal from the European Union may be a source of instability in international markets, create significant currency fluctuations and risks of additional taxation, adversely affect our operations in the United Kingdom and pose additional risks to our business, revenue, financial condition, and results of operations.

Since a significant proportion of the regulatory framework in the United Kingdom applicable to our business and our product candidates is derived from European Union directives and regulations, Brexit, following the Transition Period, could materially impact the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom or the European Union. For example, as a result of the uncertainty surrounding Brexit, the EMA relocated to Amsterdam from London. Following the Transition Period, the United Kingdom will no longer be covered by the centralized procedures for obtaining EU-wide marketing and manufacturing authorizations from the EMA and, unless a specific agreement is entered into, a separate process for authorization of drug products will be required in the United Kingdom, the potential process for which is currently unclear. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our

 

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product candidates in the United Kingdom or the European Union and limit our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom or the European Union for our product candidates, or incur significant additional expenses to operate our business, which could significantly and materially harm or delay our ability to generate revenues or achieve profitability of our business. Any further changes in international trade, tariff and import/export regulations as a result of Brexit or otherwise may impose unexpected duty costs or other non-tariff barriers on us. These developments, or the perception that any of them could occur, may significantly reduce global trade and, in particular, trade between the impacted nations and the United Kingdom. It is also possible that Brexit may negatively affect our ability to attract and retain employees, particularly those from the European Union.

The uncertainty concerning the United Kingdom’s legal, political and economic relationship with the European Union following Brexit may be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise). It is possible that following the Transition Period the application of charges to stamp duty and stamp duty reserve tax to issues or transfers of our ordinary shares to depositary receipt systems or clearance services could be affected. See “Material Income Tax Considerations—U.K. Taxation—Stamp Duty and Stamp Duty Reserve Tax.” Although under current law and HMRC published practice it is not expected that any stamp duty or stamp duty reserve tax, or SDRT, would arise in respect of any issue or transfer of our ordinary shares into a clearance service or depositary receipt system, it is possible that following the Transition Period, existing legislation (which is not presently enforceable and which the Government indicated in April 2017 would not be applied following Brexit) could be applied, for example in the event of a change in Government policy, such that stamp duty and/or SDRT would apply in respect of any such issue or transfer of our ordinary shares occurring thereafter. In this event, we may be expected to bear any such stamp duty or SDRT (which, based on the existing legislation would be charged, in effect, at the rate of 1.5% of the value of the ordinary shares so issued or transferred). Any such charge would therefore represent an additional cost of our seeking to raise additional capital through further issuances of our ordinary shares.

Risks Related to this Offering and the ADSs

There has been no prior market for our ordinary shares or the ADSs and an active, liquid and orderly trading market may not develop for our ADSs or be sustained following this offering, which could harm the market price of our ADSs and make it difficult for you to sell your ADSs.

This offering constitutes the initial public offering of our ADSs, and no public market has previously existed for our ADSs or ordinary shares. Our ADSs have been approved for listing on The Nasdaq Global Select Market. Any delay in the commencement of trading of the ADSs on The Nasdaq Global Select Market would impair the liquidity of the market for the ADSs and make it more difficult for holders to sell the ADSs.

Prior to this offering, there was no public trading market for our ordinary shares or ADSs. Although our ADS are listed on The Nasdaq Global Select Market an active trading market for our ADSs may never develop or be sustained following this offering. You may not be able to sell your ADSs quickly or at the market price if trading in our ADSs is not active. The initial offering price was determined by negotiations among the lead underwriters and us. Among the factors considered in determining the initial public offering price were our future prospects and the prospects of our industry in general, our revenue, net income and certain other financial and operating information in recent periods, and the market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. However, there can be no assurance that, following the completion of this offering, the ADSs will trade at a price equal to or greater than the public offering price.

 

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Raising additional capital may cause dilution to our existing shareholders, restrict our operations or cause us to relinquish valuable rights.

We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity, convertible debt securities or other equity-based derivative securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as holder of ADSs. Any indebtedness we incur would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or our shareholders. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our ADSs to decline and existing shareholders may not agree with our financing plans or the terms of such financings. If we raise additional funds through strategic partnerships, collaborations, and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, technologies or our product candidates, or grant licenses on terms unfavorable to us.

The trading price of our ADSs may be volatile, and you could lose all or part of your investment.

The trading price of our ADSs following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, these factors include:

 

   

the commencement, enrollment or results of our planned and future clinical trials;

 

   

the loss of any of our key scientific or management personnel;

 

   

announcements of the failure to obtain regulatory approvals or receipt of warning letters from the FDA, EMA or other regulatory agency;

 

   

announcements of undesirable restricted labeling indications or patient populations, or changes or delays in regulatory review processes;

 

   

announcements of innovations or new products by us or our competitors;

 

   

adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

 

   

changes or developments in laws or regulations applicable to our product candidates;

 

   

any adverse changes to our relationship with licensors, collaborators, manufacturers or suppliers;

 

   

the failure of our testing and clinical trials;

 

   

unanticipated safety concerns;

 

   

the failure to retain our existing, or obtain new, collaboration partners;

 

   

announcements concerning our competitors or the pharmaceutical industry in general;

 

   

the achievement of expected product sales and profitability;

 

   

the failure to obtain reimbursements for our product candidates or price reductions;

 

   

manufacture, supply or distribution shortages;

 

   

actual or anticipated fluctuations in our operating results;

 

   

our cash position;

 

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changes in financial estimates or recommendations by securities analysts;

 

   

potential acquisitions;

 

   

the trading volume of our ADSs on The Nasdaq Global Select Market;

 

   

sales of our ADSs by us, our executive officers and directors or our shareholders in the future;

 

   

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

 

   

changes in accounting principles.

In addition, the stock market in general, and The Nasdaq Global Select Market and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our ADSs, regardless of our actual operating performance. Further, a decline in the financial markets and related factors beyond our control may cause the price of our ADSs to decline rapidly and unexpectedly. If the market price of our ADSs after the completion of this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.

The significant share ownership position of our executive officers, directors and principal shareholders may limit your ability to influence corporate matters.

Following the closing of this offering, our shareholders who owned more than 5% of our outstanding ordinary shares before this offering, including entities affiliated with Syncona, will, in the aggregate, beneficially own ordinary shares representing approximately 72.9% of our outstanding share capital. In particular, entities affiliated with Syncona will, in the aggregate, beneficially own ordinary shares representing approximately 54.2% of our outstanding share capital following closing of this offering.

As a result, if these shareholders, and particularly shareholders affiliated with Syncona, were to choose to act together, they would be able to control all matters submitted to our shareholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control may:

 

   

delay, defer or prevent a change in control;

 

   

entrench our management and the board of directors; or

 

   

impede a merger, consolidation, takeover or other business combination involving us that other shareholders may desire.

The interests of our shareholders who own more than 5% of our ordinary shares, including shareholders associated with Syncona, may not in all cases be aligned with the interests of holders of our ordinary shares. In addition, such shareholders and their affiliates may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment in us, even though such transactions might involve risks to you. Any of these consequences could adversely affect the market price of our ADSs.

Substantial future sales of our ADSs in the public market, or the perception that these sales could occur, could cause the price of the ADSs to decline.

If our existing shareholders sell, or indicate an intention to sell, substantial amounts of our ADSs in the public market after the lockup and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our ADSs could decline. Upon completion of this offering, we will have 34,744,687 ordinary shares outstanding (or 36,068,216 ordinary shares if the underwriters exercise in full their option to purchase additional shares). Of these shares, only the shares represented by ADSs sold in this offering by us, plus any shares represented by ADSs sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable without restriction in the public market immediately following this offering. In connection with this

 

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offering, our officers, directors and substantially all of our shareholders have agreed to be subject to a contractual lock-up with the underwriters, which will expire after the end of a lock-up period, described in the sections titled “Shares and ADSs Eligible for Future Sale” and “Underwriting.” If, upon the expiration of the lock-up period, these shareholders sell substantial amounts of our ADSs in the public market, or the market perceives that such sales may occur, the market price of our ADSs and our ability to raise capital through an issue of equity securities in the future could be adversely affected.

The lock-up agreements contain important exceptions that govern their applicability. Moreover, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and Evercore Group L.L.C. may, in their sole discretion, permit our officers, directors and other shareholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

In addition, ordinary shares or ADSs that are either subject to outstanding options under our Amended and Restated 2020 Share Option Plan or reserved for future issuance under our 2020 Plan and 2020 ESPP, each to be effective upon the day prior to the effectiveness of the registration statement of which this prospectus forms a part, will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities Act. If these additional shares or ADSs are sold, or if it is perceived that they will be sold, in the public market, the trading price of our ADSs could decline.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

We are incorporated under English law. The rights of holders of ordinary shares and, therefore, certain of the rights of holders of ADSs, are governed by English law, including the provisions of the U.K. Companies Act 2006, or the Companies Act, and by our Articles of Association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. See “Description of Share Capital and Articles of Association—Differences in Corporate Law” in this prospectus for a description of the principal differences between the provisions of the Companies Act applicable to us and, for example, the Delaware General Corporation Law relating to shareholders’ rights and protections.

You may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

The depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit distribution on the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have an adverse effect on the value of your ADSs.

Because we do not anticipate paying any cash dividends on our ADSs in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.

Under current English law, a company’s accumulated realized profits, to the extent they have not been previously utilized by distribution or capitalization, must exceed its accumulated realized losses, to the extent that they have not been previously written off in a reduction or reorganization of capital duly made, before dividends can be paid. Therefore, we must have distributable profits before issuing a dividend. In addition, as a

 

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public limited liability company in England, we will only be able to make a distribution if the amount of our net assets is not less than the aggregate of our called-up share capital and undistributable reserves and if, and to the extent that, the distribution does not reduce the amount of those assets to less than that aggregate.

We have not paid dividends in the past on our ordinary shares. We intend to retain earnings, if any, for use in our business and do not anticipate paying any cash dividends in the foreseeable future. As a result, capital appreciation, if any, on our ADSs will be your sole source of gains for the foreseeable future, and you will suffer a loss on your investment if you are unable to sell your ADSs at or above the initial public offering price. Investors seeking cash dividends should not purchase our ADSs in this offering.

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

Our senior management will have broad discretion in the application of the net proceeds from this offering. Because of the number and variability of factors that will determine our use of the net proceeds, their ultimate use may vary substantially from their currently intended use. Our senior management might not apply our net proceeds in ways that ultimately increase the value of your investment. While we expect to use the net proceeds from this offering as set forth in “Use of Proceeds,” we are not obligated to do so. The failure by our management to apply these funds effectively could harm our business. If we do not invest or apply the net proceeds in ways that enhance shareholder value, we may fail to achieve expected financial results, which could adversely affect our business, financial condition and results of operations, and cause the price of our ADSs to decline.

You will experience substantial dilution as a result of this offering.

You will suffer immediate and substantial dilution in the net tangible book value of the ADSs if you purchase ADSs in this offering. Based on the initial public offering price of $18.00 per ADS, after giving effect to this offering, purchasers of ADSs in this offering will experience immediate dilution in net tangible book value of $8.72 per ADS. In addition, after giving effect to this offering, investors purchasing ADSs in this offering will contribute 36.0% of the total amount invested by shareholders since inception but will only own 25.4% of the ordinary shares outstanding. See “Dilution” for a more detailed description of the dilution to new investors in the offering.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

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

The trading market for our ADSs will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by

 

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securities and industry analysts. If no or few analysts commence research coverage of us, or one or more of the analysts who cover us issues an adverse opinion about our company, the price of our ADSs would likely decline. If one or more of these analysts ceases research coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our ADSs or trading volume to decline.

If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.

We intend to continue to evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary drugs, intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

 

   

increased operating expenses and cash requirements;

 

   

the assumption of additional indebtedness or contingent liabilities;

 

   

assimilation of operations, intellectual property and drugs of an acquired company, including difficulties associated with integrating new personnel;

 

   

the diversion of our management’s attention from our existing drug programs and initiatives in pursuing such a strategic partnership, merger or acquisition;

 

   

retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships;

 

   

risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing drugs or drug candidates and regulatory approvals; and

 

   

our inability to generate revenue from acquired technology and/or drugs sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than U.S. public companies.

We are a “foreign private issuer,” as defined in the SEC rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the United States. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.

As a foreign private issuer, we will file an annual report on Form 20-F within four months of the close of each fiscal year ended December 31 and reports on Form 6-K relating to certain material events promptly after we publicly announce these events. However, because of the above exemptions for foreign private issuers, our shareholders will not be afforded the same protections or information generally available to investors holding shares in public companies organized in the United States.

While we are a foreign private issuer, we are not subject to certain Nasdaq corporate governance rules applicable to public companies organized in the U.S.

We are entitled to rely on a provision in Nasdaq’s corporate governance rules that allows us to follow English corporate law with regard to certain aspects of corporate governance. This allows us to follow certain

 

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corporate governance practices that differ in significant respects from the corporate governance requirements applicable to domestic issuers listed on Nasdaq.

We are not subject to Nasdaq Listing Rule 5605(b)(2) because English law does not require that independent directors regularly have scheduled meetings at which only independent directors are present.

Similarly, we have adopted a compensation committee, but English law does not require that we adopt a

compensation committee or that such committee be fully independent. As a result, our practice varies from the requirements of Nasdaq Listing Rule 5605(d), which sets forth certain requirements as to the responsibilities, composition and independence of compensation committees. English law requires that we disclose information regarding compensation of our directors for services as a director of an undertaking that is our subsidiary undertaking and as a director of any other undertaking of which a director is appointed by virtue of our nomination (directly or indirectly) but not other third-party compensation of our directors or director nominees. As a result, our practice varies from the third-party compensation disclosure requirements of Nasdaq Listing Rule 5250(b)(3). In addition, while we have a compensation committee, English law does not require that we adopt a compensation committee or that such committee be fully independent. Additionally, we are not subject to Nasdaq Listing Rule 5605(e) because, under English law, director nominees are not required to be selected or recommended for selection by either a majority of the independent directors or a nominations committee comprised solely of independent directors.

Furthermore, English law does not have a regulatory regime for the solicitation of proxies applicable

to us, thus our practice varies from the requirement of Nasdaq Listing Rule 5620(b), which sets forth

certain requirements regarding the solicitation of proxies. In addition, we have opted out of shareholder

approval requirements for the issuance of securities in connection with certain events such as the acquisition of stock or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of us and certain private placements. To this extent, our practice will vary from the requirements of Nasdaq Listing Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events. In addition, while we have adopted a code of business conduct and ethics, English law does not require us to publicly disclose waivers from this code that have been approved by our board within four business days. We expect to report any such waivers in the subsequent Annual Report on Form 20-F. As a result, our practice varies from the requirements for domestic issuers pursuant to Nasdaq Listing Rule 5610.

In accordance with our Nasdaq listing, our audit committee is required to comply with the provisions of Section 301 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and Rule 10A-3 of the Exchange Act, both of which are also applicable to Nasdaq listed U.S. companies. Because we are a foreign private issuer, however, our audit committee is not subject to additional requirements applicable to Nasdaq listed U.S. companies, including an affirmative determination that all members of the audit committee are “independent,” using more stringent criteria than those applicable to us as a foreign private issuer, subject to certain phase-in requirements permitted by Rule 10A-3 of the Exchange Act.

We may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. We may no longer be a foreign private issuer as early as June 30, 2021 (the end of our second fiscal quarter in the fiscal year after completion of this offering), which would require us to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers as of January 1, 2022. In order to maintain our current status as a foreign private issuer, either (a) a majority of our securities must be either directly or indirectly owned of record by nonresidents of the United States or (b)(i) a majority of our executive officers or directors cannot be U.S. citizens or residents, (ii) more than 50% of our assets must be located outside the United States and (iii) our business must be administered principally outside the United States. If we lose our status as a

 

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foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and is likely to make some activities highly time-consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.

We are an emerging growth company within the meaning of the Securities Act and the reduced disclosure requirements applicable to emerging growth companies may make our ADSs less attractive to investors.

We are an “emerging growth company,” or EGC, as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. We will remain an EGC until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of the 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, which means the first day of the year following the first year in which the market value of our ADSs that are held by non-affiliates exceeds $700 million as of June 30. For so long as we remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

   

the provisions of Section 404(b) of the Sarbanes Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

 

   

being permitted to provide only two years of audited financial statements in this initial registration statement, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s discussion and analysis of financial condition and results of operations” disclosure;

 

   

the “say on pay” provisions (requiring a nonbinding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a nonbinding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and some of the disclosure requirements of the Dodd-Frank Act relating to compensation of our executive officers; and

 

   

the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation.

We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in this prospectus. In particular, we have not included all of the executive compensation information that would be required if we were not an EGC. We cannot predict whether investors will find our ADSs less attractive if we rely on certain or all of these exemptions. If some investors find our ADSs less attractive as a result, there may be a less active trading market for our ADSs and our ADS price may be more volatile.

 

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In addition, the JOBS Act provides that an EGC may take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ADSs.

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

We expect our first Section 404(a) assessment will take place for our annual report for the fiscal year ending December 31, 2021. The presence of material weaknesses could result in financial statement errors which, in turn, could lead to errors in our financial reports, delays in our financial reporting, which could require us to restate our operating results or our auditors may be required to issue a qualified audit report. We might not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404(a). In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we will need to expend significant resources and provide significant management oversight. Implementing any appropriate changes to our internal control may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management’s attention from other business concerns. These changes may not, however, be effective in maintaining the adequacy of our internal control.

If either we are unable to conclude that we have effective internal control over financial reporting or, at the appropriate time, our independent auditors are unwilling or unable to provide us with an unqualified report on the effectiveness of our internal control over financial reporting as required by Section 404(b), investors may lose confidence in our operating results, the price of our ADSs could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404, we may not be able to remain listed on The Nasdaq Global Select Market.

In preparation of this offering, we identified material weaknesses in our internal control over financial reporting. If we are unable to successfully remediate the existing material weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.

Although we are not yet subject to the certification or attestation requirements of Section 404, in the course of reviewing our financial statements in preparation for this offering, our management and independent registered public accounting firm identified deficiencies that we concluded represented material weaknesses in our internal control over financial reporting attributable to our lack of sufficient financial reporting and accounting personnel. SEC guidance regarding management’s report on internal control over financial reporting defines a material weakness as a deficiency or combination of deficiencies in internal control over financial

 

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reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

This finding relates to our internal control infrastructure as of December 31, 2018 and 2019 where we did not design or implement sufficient processes, controls and other procedures, such as the review and approval of manual journal entries and the related supporting journal entry calculations for the periods ended December 31, 2018 and 2019. As a result, there were adjustments required in connection with closing our books and records and preparing our 2018 and 2019 financial statements.

We have commenced measures to remediate the material weaknesses. We have retained an accounting consulting firm to provide additional depth and breadth to our technical accounting and financial reporting capabilities and we intend to hire an additional three finance and accounting personnel with appropriate expertise by the end of 2020 to perform specific functions, design and implement improved processes and internal controls, build our financial management and reporting infrastructure, and further develop and document our accounting policies and financial reporting procedures, including ongoing senior management review and audit committee oversight. There can be no assurance that we will be successful in pursuing these measures or that these measures will significantly improve or remediate the material weaknesses described above. There is also no assurance that we have identified all of our material weaknesses or that we will not in the future have additional material weaknesses. If we fail to remediate the material weaknesses or to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the time frames required by law or The Nasdaq Global Select Market. Failure to comply with Section 404 could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. There is no assurance that we will be able to remediate the material weaknesses in a timely manner, or at all, or that in the future, additional material weaknesses will not exist or otherwise be discovered. If our efforts to remediate the material weaknesses identified are not successful, or if other material weaknesses or other deficiencies occur, our ability to accurately and timely report our financial position could be impaired, which could result in late filings of our required reports under the Exchange Act, restatements of our consolidated financial statements, a decline in the price of our ADSs, suspension or delisting of our ADSs from Nasdaq, and could adversely affect our reputation, results of operations and financial condition. Accordingly, material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting for purposes of our attestation when required by reporting requirements under the Exchange Act or Section 404 after this offering.

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

Upon completion of this offering, we will become subject to certain reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

We will incur significant increased costs as a result of operating as a company whose ADSs are publicly traded in the United States, and our management will be required to devote substantial time to new compliance initiatives.

As a U.S. public company, and particularly after we no longer qualify as an EGC, we will incur significant legal, accounting and other expenses that we did not incur previously. The Sarbanes-Oxley Act, the Dodd-Frank

 

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Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Select Market and other applicable securities rules and regulations impose various requirements on non-U.S. reporting public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our senior management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified senior management personnel or members for our board of directors.

However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404, we will be required to furnish a report by our senior management on our internal control over financial reporting. However, while we remain an EGC, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To prepare for eventual compliance with Section 404, once we no longer qualify as an EGC, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed time frame or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

Our Articles of Association to be effective in connection with this offering will provide that the courts of England and Wales will be the exclusive forum for the resolution of all shareholder complaints other than complaints asserting a cause of action arising under the Securities Act and the Exchange Act, and that the U.S. federal district courts will be the exclusive forum for the resolution of any shareholder complaint asserting a cause of action arising under the Securities Act and the Exchange Act.

Our Articles of Association to be effective in connection with this offering will provide that the courts of England and Wales will be the exclusive forum for resolving all shareholder complaints other than shareholder complaints asserting a cause of action arising under the Securities Act and the Exchange Act, and that the U.S. federal district courts will be the exclusive forum for resolving any shareholder complaint asserting a cause of action arising under the Securities Act and the Exchange Act, including applicable claims arising out of this offering. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits. The enforceability of similar exclusive forum provisions (including exclusive federal forum provisions for actions, suits or proceedings asserting a cause of action arising under the Securities Act) in other companies’ organizational documents has been challenged in legal proceedings, and there is uncertainty as to whether courts would enforce the exclusive forum provisions in our articles of association. Additionally, our shareholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. If a court were to find either choice of forum provision contained in our Articles of Association to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our results of operations and financial condition.

 

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Claims of U.S. civil liabilities may not be enforceable against us.

We are incorporated and have our registered office in, and are currently existing under the laws of, England and Wales. In addition, certain members of our board of directors and senior management are nonresidents of the United States, and all or a substantial portion of our assets and the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce judgments obtained in U.S. courts against them or us, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws.

The United States and the United Kingdom do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in the United Kingdom. In addition, uncertainty exists as to whether English courts would entertain original actions brought in the United Kingdom against us or our directors or senior management predicated upon the securities laws of the United States or any state in the United States. Any final and conclusive monetary judgment for a definite sum obtained against us in U.S. courts would be treated by English courts as a cause of action in itself and sued upon as a debt at common law so that no retrial of the issues would be necessary, provided that certain requirements are met. Whether these requirements are met in respect of a judgment based upon the civil liability provisions of the U.S. securities laws, including whether the award of monetary damages under such laws would constitute a penalty is an issue subject to determination by the court making such decision. If an English court gives judgment for the sum payable under a U.S. judgment, the English judgment will be enforceable by methods generally available for this purpose. These methods generally permit the English court discretion to prescribe the manner of enforcement.

As a result, U.S. investors may not be able to enforce against us or our senior management, board of directors or certain experts named herein who are residents of the United Kingdom or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

If we are a “passive foreign investment company,” or a PFIC, in the year of the offering or in any future year, a U.S. shareholder may be subject to adverse U.S. federal income tax consequences.

Under the Internal Revenue Code of 1986, as amended, or the Code, we will be a PFIC for any taxable year in which, after the application of certain look-through rules with respect to our subsidiaries, either (i) 75% or more of our gross income consists of passive income or (ii) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, passive income. Passive income includes, among other things, dividends, interest, certain non-active rents and royalties, and capital gains. Based on our operations, income, assets and certain estimates and projections, including as to the relative values of our assets and the treatment of our grants received from governmental entities as gross income that is not passive income, we do not believe that we were a PFIC in 2019, and do not expect to be a PFIC for our 2020 taxable year. However, the determination as to whether we are a PFIC is a fact-intensive determination that must be made on an annual basis applying principles and methodologies that are in some circumstances unclear, and whether we will be a PFIC in 2020 or any future taxable year is uncertain because, among other things, (i) we currently own, and will own after the closing of this offering, a substantial amount of passive assets, including cash, (ii) the valuation of our assets that generate non-passive income for PFIC purposes, including our intangible assets, is uncertain and may depend in part of the market price of our ordinary shares or ADSs from time to time, which may fluctuate substantially, (iii) in one or more years, our revenue may consist in whole or in substantial part of grants received from governmental entities, the treatment of which as gross income that is not passive income is uncertain, and (iv) the composition of our income may vary substantially over time. Accordingly, there can be no assurance that we will not be a PFIC for any taxable year, and our U.S. counsel expresses no opinion with respect to our PFIC status, or with respect to our expectations regarding our PFIC status in 2020 or any future taxable year.

 

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If we are a PFIC for any taxable year during which a U.S. investor holds our ordinary shares or ADSs, we would continue to be treated as a PFIC with respect to that U.S. investor for all succeeding years during which the U.S. investor holds our ordinary shares or ADSs, even if we ceased to meet the threshold requirements for PFIC status, unless certain exceptions apply. Such a U.S. investor may be subject to adverse U.S. federal income tax consequences, including (i) the treatment of all or a portion of any gain on the disposition of our ordinary shares or ADSs as ordinary income (and therefore ineligible for the preferential rates that apply to capital gains with respect to some U.S. investors), (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends on our ordinary shares or ADSs and (iii) compliance with certain reporting requirements. We do not intend to provide the information that would enable investors to make a qualified electing fund election, or a QEF election, that could mitigate the adverse U.S. federal income tax consequences should we be classified as a PFIC.

For further discussion, see “Material Income Tax Considerations—Material U.S. Federal Income Considerations for U.S. Holders.”

Because we believe we are currently a controlled foreign corporation for U.S. federal income tax purposes, there could be adverse U.S. federal income tax consequences to certain U.S. holders who own, directly, indirectly or by attribution, ten percent or more of our ADSs or ordinary shares.

Each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a “controlled foreign corporation,” or a CFC, for U.S. federal income tax purposes generally is required to include in income for U.S. federal tax purposes such Ten Percent Shareholder’s pro rata share of the CFC’s “Subpart F income,” investment of earnings in U.S. property, and “global intangible low-taxed income,” even if the CFC has made no distributions to its shareholders. Subpart F income generally includes dividends, interest, rents, royalties, gains from the sale of securities and income from certain transactions with related parties, and “global intangible low-taxed income” generally consists of net income of the CFC, other than Subpart F income and certain other types of income, in excess of certain thresholds. In addition, a Ten Percent Shareholder that realizes gain from the sale or exchange of shares in a CFC may be required to classify a portion of such gain as dividend income rather than capital gain. A non-U.S. corporation generally will be classified as a CFC for U.S. federal income tax purposes if Ten Percent Shareholders own, directly, indirectly or constructively (through attribution), more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a United States person (as defined by the Code) who owns or is considered to own 10% or more of the total combined voting power of all classes of stock entitled to vote of such corporation or 10% or more of the total value of the stock of such corporation. The determination of CFC status is complex and includes attribution rules, the application of which is not entirely certain. In addition, the TCJA repealed Section 958(b)(4) of the Code, which prohibited “downward attribution” from non-United States persons to United States persons for purposes of determining CFC status.

As a result of (i) the ownership of 50% or more of our stock by Syncona, which we understand also owns 50% or more, directly or indirectly, of one or more U.S. corporations, and (ii) the repeal of Section 958(b)(4) of the Code, we believe that we are and each of our non-U.S. subsidiaries that is a corporation for U.S. federal income tax purposes is currently a CFC, and, depending on the future ownership of our stock by Syncona or other shareholders, may continue to be a CFC in the future. While our status as a CFC will generally not have any U.S. federal income tax consequences for U.S. Holders (as defined below under “Material Income Tax considerations—Material U.S. Federal Income Tax Considerations for U.S. Holders”) of our ADSs or ordinary shares who are not Ten Percent Shareholders, U.S. Holders of ADSs or ordinary shares should consult their own tax advisors with respect to the potential adverse tax consequences of becoming a Ten Percent Shareholder in a CFC. If we are classified as both a CFC and a PFIC (as discussed above), we generally will not be treated as a PFIC with respect to those U.S. Holders that meet the definition of a Ten Percent Shareholder during the period in which we are a CFC.

 

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We may be unable to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments or benefit from favorable U.K. tax legislation.

As a U.K. resident trading entity, we are subject to U.K. corporate taxation. Due to the nature of our business, we have generated losses since inception. As of December 31, 2019, we had cumulative carryforward losses of $119.7 million. Subject to any relevant restrictions, we expect these to be available to carry forward and offset against future operating profits. As a company that carries out extensive research and development activities, we benefit from the U.K. research and development tax credit regime for small and medium-sized companies, whereby we are able to surrender the trading losses that arise from our qualifying research and development activities for a payable tax credit of up to 33.35% of eligible research and development expenditures, which includes a 130% enhancement to the standard 14.50% tax credit rate. Qualifying expenditures largely comprise employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects. Certain subcontracted qualifying research expenditures are eligible for a cash rebate at a discounted rate. This is restricted to 65% of total contractor costs and has an effective tax rebate of 21.68% applied to these costs. The majority of our pipeline research, clinical trials management and manufacturing development activities are eligible for inclusion within these tax credit cash rebate claims. We may not be able to continue to claim payable research and development tax credits in the future when we become a public company because we may no longer qualify as a small or medium-sized company.

We may benefit in the future from the United Kingdom’s “patent box” regime, which allows certain profits attributable to revenues from patented products to be taxed at an effective rate of 10%. We are the exclusive licensee or owner of several patent applications which, if issued, would cover our product candidates, and accordingly, future upfront fees, milestone fees, product revenues and royalties could be taxed at this tax rate. When taken in combination with the enhanced relief available on our research and development expenditures, we expect a long-term lower rate of corporation tax to apply to us. If, however, there are unexpected adverse changes to the U.K. research and development tax credit regime or the “patent box” regime, or for any reason we are unable to qualify for such advantageous tax legislation, or we are unable to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments then our business, results of operations and financial condition may be adversely affected.

Shareholder protections found in provisions under the U.K. City Code on Takeovers and Mergers, or the Takeover Code, will not apply if our place of management and control is considered to change to outside the United Kingdom.

Our place of central management and control is, and is expected to continue to be, in the United Kingdom. Accordingly, we are currently subject to the Takeover Code and, as a result, our shareholders are entitled to the benefit of certain takeover offer protections provided under the Takeover Code. The Takeover Code provides a framework within which takeovers of companies are regulated and conducted. If, at the time of a takeover offer, the Panel on Takeovers and Mergers determines that we do not have our place of central management and control in the United Kingdom, then the Takeover Code would not apply to us and our shareholders would not be entitled to the benefit of the various protections that the Takeover Code affords. In particular, we would not be subject to the rules regarding mandatory takeover bids. The following is a brief summary of some of the most important rules of the Takeover Code:

 

   

When a person, (a) acquires, whether by a series of transactions over a period of time or not, interests in shares carrying 30% or more of the voting rights of a company when taken together with shares in which persons acting in concert with that person are interested (which percentage is treated by the Takeover Code as the level at which effective control is obtained), or (b) acquires an interest in any other shares which increases the percentage of shares carrying voting rights in which he is interested when they are already interested in shares which carry not less than 30% of the voting rights but do not hold shares carrying more than 50% of such voting rights, they must make a cash offer to all other shareholders at the highest price paid by them or any person acting in concert with them in the twelve months before the offer was announced.

 

   

When interests in shares carrying 10% or more of the voting rights of a class have been acquired for cash by an offeror (i.e., a bidder) and any person acting in concert with it in the offer period (i.e. before the

 

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shares subject to the offer have been acquired) and the previous twelve months, the offer must be in cash or include a cash alternative for all shareholders of that class at the highest price paid by the offeror or any person acting in concert with it in the relevant period. Further, if an offeror or any person acting in concert with it acquires for cash any interest in shares during the offer period, the offer must be in cash or a cash alternative must be made available at a price at least equal to the highest price paid for such shares.

 

   

If the offeror or any person acting in concert with it acquires an interest in shares in an offeree company (i.e., a target) at a price higher than the value of the offer, the offer must be increased to not less than the highest price paid for the interest in shares so acquired.

 

   

The offeree company must appoint a competent independent adviser whose advice on the financial terms of the offer must be made known to all the shareholders, together with the opinion of the board of directors of the offeree company.

 

   

Favorable deals for selected shareholders are not permitted, except in certain circumstances where independent shareholder approval is given and the arrangements are regarded as fair and reasonable in the opinion of the financial adviser to the offeree.

 

   

All shareholders must be given the same information.

 

   

Those issuing takeover circulars must include statements taking responsibility for the contents thereof.

 

   

Profit forecasts, quantified financial benefits statements and asset valuations must be made to specified standards and must be reported on by professional advisers.

 

   

Misleading, inaccurate or unsubstantiated statements made in documents or to the media must be publicly corrected immediately.

 

   

Actions during the course of an offer by the offeree company, which might frustrate the offer are generally prohibited unless shareholders approve these plans. Frustrating actions would include, for example, lengthening the notice period for directors under their service contract or agreeing to sell off material parts of the target group.

 

   

Stringent requirements are laid down for the disclosure of dealings in relevant securities during an offer, including the prompt disclosure of positions and dealings in relevant securities by the parties to an offer and any person who is interested (directly or indirectly) in 1% or more of any class of relevant securities.

 

   

Employees of both the offeror and the offeree company and the trustees of the offeree company’s pension scheme must be informed about an offer. In addition, the offeree company’s employee representatives and pension scheme trustees have the right to have a separate opinion on the effects of the offer on employment appended to the offeree board of directors’ circular or published on a website.

We could be subject to securities class action litigation.

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

You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

Except as described in this prospectus and the deposit agreement, holders of the ADSs will not be able to exercise voting rights attaching to the ordinary shares represented by the ADSs. Under the terms of the deposit agreement, holders of the ADSs may instruct the depositary to vote the ordinary shares underlying their ADSs. Otherwise, holders of ADSs will not be able to exercise their right to vote unless they withdraw the ordinary shares underlying their ADSs to vote them in person or by proxy in accordance with applicable laws and regulations and our Articles of Association. Even so, ADS holders may not know about a meeting far enough in advance to withdraw those ordinary shares. If we

 

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ask for the instructions of holders of the ADSs, the depositary, upon timely notice from us, will notify ADS holders of the upcoming vote and arrange to deliver our voting materials to them. Upon our request, the depositary will mail to holders a shareholder meeting notice that contains, among other things, a statement as to the manner in which voting instructions may be given. We cannot guarantee that ADS holders will receive the voting materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying their ADSs. A shareholder is only entitled to participate in, and vote at, the meeting of shareholders, provided that it holds our ordinary shares as of the record date set for such meeting and otherwise complies with our Articles of Association. In addition, the depositary’s liability to ADS holders for failing to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement. As a result, holders of ADSs may not be able to exercise their right to give voting instructions or to vote in person or by proxy and they may not have any recourse against the depositary or us if the ordinary shares underlying their ADSs are not voted as they have requested or if such shares cannot be voted.

Holders of ADSs are not treated as holders of our ordinary shares.

By participating in this offering you will become a holder of ADSs with underlying ordinary shares in a company incorporated under English law. Holders of ADSs are not treated as holders of our ordinary shares, unless they withdraw the ordinary shares underlying their ADSs in accordance with the deposit agreement and applicable laws and regulations. The depositary is the holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as holders of our ordinary shares, other than the rights that they have pursuant to the deposit agreement. See “Description of American Depositary Shares.”

Holders of ADSs may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares.

ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason, subject to the right of ADS holders to cancel their ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, ADS holders may not be able to cancel their ADSs and withdraw the underlying ordinary shares when they owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities. See “Description of American Depositary Shares.”

We are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement, or to terminate the deposit agreement, without the prior consent of the ADS holders.

We are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement, without the prior consent of the ADS holders. We and the depositary may agree to amend the deposit agreement in any way we decide is necessary or advantageous to us or to the depositary. Amendments may reflect, among other things, operational changes in the ADS program, legal developments affecting ADSs or changes in the terms of our business relationship with the depositary. In the event that the terms of an amendment are materially disadvantageous to ADS holders, ADS holders will only receive 30 days’ advance notice of the amendment, and no prior consent of the ADS holders is required under the deposit agreement. Furthermore, we may decide to direct the depositary to terminate the ADS facility at any time for any reason. For example, terminations may occur when we decide to list our ordinary shares on a non-U.S. securities exchange and determine not to continue to sponsor an ADS facility or when we become the subject of a takeover or a going-private transaction. If the ADS facility will terminate, ADS holders will receive at least 30 days’ prior notice, but

 

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no prior consent is required from them. Under the circumstances that we decide to make an amendment to the deposit agreement that is disadvantageous to ADS holders or terminate the deposit agreement, the ADS holders may choose to sell their ADSs or surrender their ADSs and become direct holders of the underlying ordinary shares, but will have no right to any compensation whatsoever.

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, holders and beneficial owners of ADSs irrevocably waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs or the deposit agreement.

If this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing.

No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

As an English public limited company, certain capital structure decisions will require shareholder approval, which may limit our flexibility to manage our capital structure.

English law provides that a board of directors may only allot shares (or rights to subscribe for or convertible into shares) with the prior authorization of shareholders, such authorization stating the aggregate nominal amount of shares that it covers and being valid for a maximum period of five years, each as specified in the articles of association or relevant shareholder resolution. We have obtained authority from our shareholders to allot additional shares for a period of five years ending July 30, 2025, which authorization will need to be renewed upon expiration (i.e., at least every five years) but may be sought more frequently for additional five-year terms (or any shorter period).

English law also generally provides shareholders with preemptive rights when new shares are issued for cash. However, it is possible for the articles of association, or for shareholders to pass a special resolution at a

 

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general meeting, being a resolution passed by at least 75% of the votes cast, to disapply preemptive rights. Such a disapplication of preemptive rights may be for a maximum period of up to five years from the date of adoption of the articles of association, if the disapplication is contained in the articles of association, or from the date of the shareholder special resolution, if the disapplication is by shareholder special resolution but not longer than the duration of the authority to allot shares to which the disapplication relates. In either case, this disapplication would need to be renewed by our shareholders upon its expiration (i.e., at least every five years). We have obtained authority from our shareholders to disapply preemptive rights for a period of five years from            , 2020 which disapplication will need to be renewed upon expiration (i.e., at least every five years), but may be sought more frequently for additional five-year terms (or any shorter period).

English law also generally prohibits a public company from repurchasing its own shares without the prior approval of shareholders by ordinary resolution, being a resolution passed by a simple majority of votes cast, and other formalities. Such approval may be for a maximum period of up to five years. See “Description of Share Capital and Articles of Association.”

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this prospectus 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. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our recurring losses from operations, which have substantial doubt regarding our ability to continue as a going concern absent access to sources of liquidity;

 

   

the development of our product candidates, including statements regarding the timing of initiation, completion and the outcome of clinical studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

 

   

our ability to design and implement successful clinical trials for our product candidates;

 

   

the potential for a pandemic, epidemic or outbreak of an infectious diseases in the U.S., U.K. or EU, including the COVID-19 pandemic, to disrupt our clinical trial pipeline;

 

   

our failure to demonstrate the safety and efficacy of our product candidates;

 

   

the results obtained in earlier stage clinical testing may not be indicative of results in future clinical trials;

 

   

our ability to enroll patients in clinical trials for our product candidates, and that all of our clinical trials to date have been conducted at a single site outside the U.S., which may delay regulatory approval for our product candidates;

 

   

the possibility that one or more of our product candidates may cause serious adverse, undesirable or unacceptable side effects or have other properties that could delay or prevent their regulatory approval or limit their commercial potential;

 

   

our ability to obtain and maintain regulatory approval of our product candidates in the indications for which we plan to develop them, and any related restrictions or limitations imposed by regulators;

 

   

our limited manufacturing experience which could result in delays in our development or commercialization of our product candidates;

 

   

the possibility that contamination in our manufacturing process, shortages of raw materials or failure of any of our key suppliers to deliver necessary components could result in delays in our clinical pipeline;

 

   

our ability to identify or discover additional product candidates, or failure to capitalize on programs or product candidates;

 

   

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

   

the scalability and commercial viability of our manufacturing methods and processes, including our plans to develop and implement plans to establish and operate our own in-house manufacturing operations and facility;

 

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our dependence on a limited number of, or sole suppliers, for some of our components and materials used in our product candidates;

 

   

our commercialization, marketing and manufacturing capabilities and strategy;

 

   

the success of competing therapies that are or may become available;

 

   

the rate and degree of market acceptance and clinical utility of our product candidates, in particular, and gene therapy, in general;

 

   

our ability to obtain and protect our intellectual property and to maintain patent protection for our current product candidates, any future product candidates we may develop and our technology;

 

   

our continued compliance with obligations under our intellectual property licenses with third parties;

 

   

our ability to commercialize our product candidates without infringing, misappropriating or otherwise violating the intellectual property rights of others;

 

   

potential claims relating to our intellectual property and third-party intellectual property;

 

   

whether we are classified as a passive foreign investment company, or PFIC, for future periods;

 

   

the increased time and costs associated with operating as a public company;

 

   

other factors discussed under “Risk Factors” and elsewhere in this prospectus; and

 

   

our plans, objectives, expectations and intentions contained in this prospectus that are not historical.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements contained in this prospectus speak only as of the date of this prospectus. You should refer to the section titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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

 

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of ADSs in this offering will be approximately $143.1 million, or $165.2 million if the underwriters exercise their option to purchase additional ADSs in full, based on initial public offering price of $18.00 per ADS, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

As of July 1, 2020, after giving effect to the Series C Financing and our receipt of the net proceeds therefrom, we had cash and cash equivalents of approximately $117.0 million. We currently expect to use the net proceeds from this offering, together with our existing cash, to advance our clinical pipeline, including, specifically:

 

   

approximately $95.0 million to $105.0 million to fund further clinical and CMC development of our product candidates, including (i) the completion of our ongoing Phase 1/2 B-AMAZE clinical trial of our lead product candidate, FLT180a as well as the enrollment of at least an additional 20 patients in our planned Phase 2b/3 pivotal clinical trial of FLT180a, (ii) completion of the dose escalation portion of our ongoing Phase 1/2 MARVEL-1 clinical trial of FLT190, and (iii) further progressing our FLT201 program, including commencing clinical trials to study the efficacy and safety of this product candidate; and

 

   

the balance for other general corporate purposes, including general and administrative expenses and working capital.

We may also use a portion of the net proceeds from this offering to acquire or invest in complementary products, technologies or businesses, although we have no present agreements or commitments to do so.

Based on our current operational plans and assumptions, we expect that the net proceeds from this offering, combined with our current cash and cash equivalents, will be sufficient to fund operations through the second half of 2022, but we expect that we will need to raise additional capital in order to develop and commercialize our product candidates, including any potential future trials that may be required by regulatory authorities. Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the actual amounts that we will spend on the uses set forth above. We believe opportunities may exist from time to time to expand our current business through the acquisition or in-license of complementary product candidates or programming technologies. While we have no current agreements for any specific acquisitions or in-licenses at this time, we may use a portion of the net proceeds for these purposes.

The amounts and timing of our actual expenditures will depend on numerous factors, including the progress of our clinical trials, the potential for achieving accelerated regulatory approval and the amount of cash used in our operations. We therefore cannot estimate with certainty the amount of net proceeds to be used for the purposes described above. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application of the net proceeds.

Pending these uses, we plan to invest these net proceeds in short-term, interest bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States. The goal with respect to the investment of these net proceeds is capital preservation and liquidity so that such funds are readily available to fund our operations.

 

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DIVIDEND POLICY

We have never declared or paid a dividend, and we do not anticipate declaring or paying dividends in the foreseeable future. We currently intend to retain all available funds and any future earnings, if any, for the foreseeable future, to fund the development and expansion of our business. We do not intend to pay any dividends to holders of our ADSs. As a result, capital appreciation in the price of our ADSs, if any, will be your only source of gain on an investment in our ADSs.

Under current English law, among other things, a company’s accumulated, realized profits must exceed its accumulated, realized losses (on a non-consolidated basis) before dividends can be paid. Accordingly, we may only pay dividends if we have sufficient distributable reserves (on a non-consolidated basis), which are our accumulated, realized profits that have not been previously distributed or capitalized less our accumulated, realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital duly made. The amount of our distributable reserves is a cumulative calculation. We may be profitable in a single financial year but unable to pay a dividend if the profits of that year do not offset all previous years’ accumulated, realized losses. Additionally, a public company may only make a distribution if the amount of its net assets is not less than the aggregate of its called-up share capital and undistributable reserves, and if, and to the extent that, the distribution does not reduce the amount of those assets to less than that aggregate.

 

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CORPORATE REORGANIZATION

Freeline Therapeutics Holdings plc is a public limited company with limited liability originally incorporated pursuant to the laws of England and Wales in April 2020 as a private limited company named Freeline Therapeutics Holdings Limited, with nominal assets and liabilities, for the purposes of becoming the ultimate holding company for Freeline Therapeutics Limited and consummating the corporate reorganization described herein. Freeline Therapeutics Limited was formed as a separate company in March 2015. Freeline Therapeutics Holdings plc and Freeline Holdings (UK) Limited (a wholly owned direct subsidiary of Freeline Therapeutics Holdings plc formed in April 2020 for the purpose of becoming the direct holding company of Freeline Therapeutics Limited) are holding companies which have not or will not have conducted any operations prior to this offering other than activities incidental to their formation, the corporate reorganization, the Series C Financing and this offering.

Prior to the completion of this offering:

 

   

Freeline Therapeutics Holdings Limited incorporated Freeline Holdings (UK) Limited as a wholly owned subsidiary.

 

   

Freeline Therapeutics Holdings Limited became the direct holding company of Freeline Therapeutics Limited.

 

   

Freeline Therapeutics Holdings Limited re-registered as a public limited company and changed its name to Freeline Therapeutics Holdings plc.

Freeline Therapeutics Holdings plc has five direct and indirect subsidiaries: Freeline Holdings (UK) Limited, Freeline Therapeutics Limited, Freeline Therapeutics, Inc., Freeline Therapeutics GmbH and Freeline Therapeutics (Ireland) Limited.

Therefore, investors in this offering will only acquire, and this prospectus only describes the offering of, ADSs representing ordinary shares of Freeline Therapeutics Holdings plc. The corporate reorganization will take place in several steps, some of which will be completed following the completion of this offering. We refer to the following steps, which are discussed in more detail below, as our “corporate reorganization”:

Prior to completion of this offering:

 

   

Redesignation of the share capital of Freeline Therapeutics Holdings Limited: The single ordinary share in the share capital of Freeline Therapeutics Holdings Limited was redesignated into a B ordinary share with the same rights attached to a B ordinary share of Freeline Therapeutics Limited.

 

   

Exchange of Freeline Therapeutics Limited Shares for Freeline Therapeutics Holdings Limited Shares: All shareholders of Freeline Therapeutics Limited exchanged each of the shares held by them for shares of Freeline Therapeutics Holdings Limited to result in them holding the same number and class of newly issued shares of £1.00 nominal value each of Freeline Therapeutics Holdings Limited and, as a result, Freeline Therapeutics Holdings Limited became the sole shareholder of Freeline Therapeutics Limited.

 

   

Subdivision of the share capital of Freeline Therapeutics Holdings Limited: Each share resulting from the exchange described in the previous step was subdivided into (i) one share of the same class, with a nominal value of £0.00001, and (ii) one deferred share of £0.99999 nominal value.

 

   

Reduction of capital of Freeline Therapeutics Holdings Limited: Freeline Therapeutics Holdings Limited reduced the amount standing to the credit of its share premium accounts and its issued share capital pursuant to Chapter 10 of Part 17 of the U.K. Companies Act 2006, or the Companies Act.

 

   

Re-registration of Freeline Therapeutics Holdings Limited: Freeline Therapeutics Holdings Limited re-registered as a public limited company and changed its name to Freeline Therapeutics Holdings plc.

 

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Reorganization of separate classes of shares of Freeline Therapeutics Holdings plc into a single class of ordinary shares: The different classes of issued share capital of Freeline Therapeutics Holdings plc will be reorganized into a single class of ordinary shares.

Following completion of this offering:

 

   

Reorganization of the deferred shares of Freeline Therapeutics Holdings plc: The deferred shares of Freeline Therapeutics Holdings plc may be transferred, consolidated, subdivided and/or cancelled and deferred shares may be issued for the purposes of simplifying our share capital and to ensure compliance with the applicable requirements of the Companies Act.

 

   

Transfer of Freeline Therapeutics Limited shares to Freeline Holdings (UK) Limited: Freeline Therapeutics Holdings plc will transfer the entire issued share capital of Freeline Therapeutics Limited to Freeline Holdings (UK) Limited in exchange for the issue of shares in Freeline Holdings (UK) Limited and, as a result, Freeline Therapeutics Limited will become a wholly owned subsidiary of Freeline Holdings (UK) Limited, which, in turn, will be a wholly owned subsidiary of Freeline Therapeutics Holdings plc.

 

   

Reorganization of separate classes of shares of Freeline Therapeutics Limited into a single class of ordinary shares: The different classes of issued share capital of Freeline Therapeutics Limited will be reorganized into a single class of ordinary shares.

 

   

Reduction of Capital of Freeline Holdings (UK) Limited and Freeline Therapeutics Limited: Freeline Holdings (UK) Limited and Freeline Therapeutics Limited will reduce their issued share capital pursuant to Chapter 10 of Part 17 of the Companies Act.

 

   

Transfer of Freeline Therapeutics, Inc., Freeline Therapeutics GmbH, and Freeline Therapeutics (Ireland) Limited to Freeline Holdings (UK) Limited: It is presently expected that Freeline Therapeutics Limited will transfer, by way of a dividend in specie, the entire issued share capital of its wholly owned subsidiaries Freeline Therapeutics, Inc., Freeline Therapeutics GmbH, and Freeline Therapeutics (Ireland) Limited to its immediate parent, Freeline Holdings (UK) Limited.

Redesignation of the subscriber share of Freeline Therapeutics Holdings Limited

Freeline Therapeutics Holdings Limited was incorporated with share capital of a single ordinary share of £1.00 nominal value. Prior to completion of this offering, the sole shareholder of Freeline Therapeutics Holdings Limited approved a redesignation of the single ordinary share in issue into a B ordinary share with the same rights attached to the B ordinary shares of Freeline Therapeutics Limited.

Exchange of Freeline Therapeutics Limited shares for Freeline Therapeutics Holdings Limited shares

The issued share capital of Freeline Therapeutics Limited is divided into the following classes: A ordinary shares, B ordinary shares, C ordinary shares, D ordinary shares, E ordinary shares, F ordinary shares, series A preferred shares, series B preferred shares, series C preferred shares and deferred shares. Prior to the completion of this offering, the shareholders of Freeline Therapeutics Limited exchanged each of these shares of Freeline Therapeutics Limited for shares of Freeline Therapeutics Holdings Limited to result in them holding the same number and class of shares in Freeline Therapeutics Holdings Limited. As a result, Freeline Therapeutics Holdings Limited became the sole shareholder of Freeline Therapeutics Limited.

Subdivision of the share capital of Freeline Therapeutics Holdings Limited

Each share in the share capital of Freeline Therapeutics Holdings Limited resulting from the exchange described in the previous step was subdivided into (i) one share of the same class, with a nominal value of £0.00001, and (ii) one deferred share of £0.99999 nominal value.

Reduction of capital of Freeline Therapeutics Holdings Limited

Freeline Therapeutics Holdings Limited reduced its issued share capital pursuant to Chapter 10 of Part 17 of the Companies Act by way of the reduction (i) of the nominal value of the deferred shares of £0.99999 issued and

 

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outstanding to £0.001 and (ii) of the amount standing to credit of its share premium account to zero. Such reductions were approved by special resolutions passed by the shares holders of Freeline Therapeutics Holdings Limited and credited to Freeline Therapeutics Holdings Limited’s reserves that are available for distribution.

Re-registration of Freeline Therapeutics Holdings Limited as a public limited company and change of name to Freeline Therapeutics Holdings plc

Following the steps described above, Freeline Therapeutics Holdings Limited re-registered as a public limited company and changed its name to Freeline Therapeutics Holdings plc. Special resolutions were passed by the shareholders of Freeline Therapeutics Holdings Limited to approve the re-registration as a public limited company, the name change to Freeline Therapeutics Holdings plc and the adoption of new articles of association for Freeline Therapeutics Holdings plc appropriate for a public company.

Reorganization of separate classes of shares of Freeline Therapeutics Holdings plc (other than deferred shares) into a single class of ordinary shares

Pursuant to the terms of the articles of association of Freeline Therapeutics Holdings plc in effect, prior to the closing of this offering, each class of shares of Freeline Therapeutics Holdings plc (other than deferred shares) will be reorganized into a single class of ordinary shares of Freeline Therapeutics Holdings plc. The ratio for the redesignation of each class of shares of Freeline Therapeutics Holdings plc into ordinary shares of Freeline Therapeutics Holdings plc will be determined based on the final price per ADS in this offering. At the initial public offering price of $18.00 per ADS, each such class of shares of Freeline Therapeutics Holdings plc outstanding on the date of this prospectus (other than deferred shares and with the possible exception of certain arrangements with limited number of executives of the company whose shares may be converted at different ratios) will be reorganized into one class of ordinary shares of Freeline Therapeutics Holdings plc as follows:

 

 

Each A ordinary share will be redesignated as 1.0000 ordinary share;

 

 

Each B ordinary share will be redesignated as approximately 0.5410 ordinary share;

 

 

Each C ordinary share will be redesignated as approximately 0.5410 ordinary share;

 

 

Each D ordinary share will be redesignated as approximately 0.5410 ordinary share;

 

 

Each E ordinary share will be redesignated as approximately 0.3116 ordinary share;

 

 

Each F ordinary share will be redesignated as approximately 0.3116 ordinary share;

 

 

Each G ordinary share will be redesignated as approximately 1.0000 ordinary share;

 

 

Each series A preferred share will be redesignated as 1.0000 ordinary share;

 

 

Each series B preferred share will be redesignated as 1.0000 ordinary share; and

 

 

Each series C preferred share will be redesignated as 1.0000 ordinary share.

Following the reorganization into a single class of ordinary shares as described above, such ordinary shares will be consolidated and subdivided to reflect an approximately 1-for-0.159 reverse split of such ordinary shares and the balance of any ordinary shares will be redesignated as deferred shares prior to completion of this offering.

Such reorganization will involve (without limitation) the redesignation of classes of shares, the consolidation and/or the subdivision of shares pursuant to the terms of the articles of association of the Company in effect at such time as described above. The number of ordinary shares that each current shareholder of Freeline Therapeutics Holdings plc receives will be rounded up or down to the nearest whole share. Therefore, upon consummation of the corporate reorganization and prior to the completion of this offering, the current shareholders of Freeline Therapeutics Holdings plc will hold an aggregate of approximately 25,921,158 ordinary shares of Freeline Therapeutics Holdings plc.

 

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Reorganization of the deferred shares of Freeline Therapeutics Holdings plc

The deferred shares of Freeline Therapeutics Holdings plc may be transferred, consolidated, subdivided and/or cancelled and deferred shares may be issued for the purposes of simplifying our share capital and to ensure compliance with the applicable requirements of the Companies Act.

Transfer of Freeline Therapeutics Limited shares to Freeline Holdings (UK) Limited

Freeline Therapeutics Holdings plc will transfer the entire issued share capital of Freeline Therapeutics Limited to Freeline Holdings (UK) Limited in exchange for the issue of shares in Freeline Holdings (UK) Limited. As a result, Freeline Therapeutics Limited will become a wholly owned subsidiary of Freeline Holdings (UK) Limited, which, in turn, will be a wholly owned subsidiary of Freeline Therapeutics Holdings plc.

Reorganization of separate classes of shares of Freeline Therapeutics Limited into a single class of ordinary shares

Each class of shares of Freeline Therapeutics Limited will be reorganized into one class of ordinary shares of Freeline Therapeutics Holdings plc as follows:

 

 

Each A ordinary share will be redesignated as 1.0000 ordinary share;

 

 

Each B ordinary share will be redesignated as 1.0000 ordinary share;

 

 

Each C ordinary share will be redesignated as 1.0000 ordinary share;

 

 

Each D ordinary share will be redesignated as 1.0000 ordinary share;

 

 

Each E ordinary share will be redesignated as 1.0000 ordinary share;

 

 

Each F ordinary share will be redesignated as 1.0000 ordinary share;

 

 

Each series A preferred share will be redesignated as 1.0000 ordinary share;

 

 

Each series B preferred share will be redesignated as 1.0000 ordinary share; and

 

 

Each series C preferred share will be redesignated as 1.0000 ordinary share.

Reduction of capital of Freeline Holdings (UK) Limited and Freeline Therapeutics Limited

Freeline Holdings (UK) Limited and Freeline Therapeutics Limited will reduce their issued share capital pursuant to Chapter 10 of Part 17 of the Companies Act by way of reduction in the nominal value of shares issued and outstanding and/or reduction of the amounts credited to each company’s share premium account or other permitted undistributable reserve. Any such reduction of capital will be credited to each company’s reserves that are available for distribution.

 

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Transfer of shares of Freeline Therapeutics, Inc., Freeline Therapeutics GmbH and Freeline Therapeutics (Ireland) Limited to Freeline Holdings (UK) Limited

It is presently expected that Freeline Therapeutics Limited will transfer, by way of a dividend in specie, the entire issued share capital of its wholly owned subsidiaries (i) Freeline Therapeutics, Inc., our U.S. subsidiary which was incorporated under the laws of the State of Delaware in October 2018, (ii) Freeline Therapeutics GmbH, a limited liability company incorporated under the laws of Germany in April 2015 and (iii) Freeline Therapeutics (Ireland) Limited, a limited liability company incorporated under the laws of Ireland in March 2019, to its immediate parent, Freeline Holdings (UK) Limited. Following this dividend in specie, each of Freeline Therapeutics Limited, Freeline Therapeutics, Inc., Freeline Therapeutics GmbH, and Freeline Therapeutics (Ireland) Limited will be repositioned as a direct wholly owned subsidiary of Freeline Holdings (UK) Limited.

 

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CAPITALIZATION

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

 

   

an actual basis;

 

   

a pro forma basis to give effect to (i) our corporate reorganization (including the approximately 1-for-0.159 reverse split of all our ordinary shares prior to completion of this offering) and (ii) the Series C Financing; and

 

   

a pro forma as adjusted basis to give effect to (i) our corporate reorganization (including the approximately 1-for-0.159 reverse split of all our ordinary shares prior to completion of this offering), (ii) the Series C Financing and (iii) the sale of 8,823,529 ADSs in this offering.

The pro forma as adjusted calculations reflect the initial public offering price of $18.00 per ADS, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma information set forth in the table 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 audited financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the sections titled “Presentation of Financial and Other Information,” “Selected Financial and Other Information,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of December 31, 2019  
     Actual     Pro Forma     Pro Forma As
Adjusted
 
     (in thousands of U.S. dollars,
except share and per share data)
 

Cash and cash equivalents

   $ 73,702     $ 152,702     $ 295,667  
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity:

      

Preferred shares, nominal value £0.00001 per share; 300,000,000 shares authorized, 106,081,025 shares issued and outstanding, actual; 300,000,000 shares authorized, 0 shares issued and outstanding, pro forma; 300,000,000 shares authorized, 0 shares issued and outstanding, pro forma as adjusted

     1       —         —    

Ordinary shares, nominal value £0.00001 per share; 800,000,000 shares authorized, 16,047,440 shares issued and outstanding, actual; 800,000,000 shares authorized, 25,921,158 shares issued and outstanding, pro forma; 800,000,000 shares authorized, 34,744,687 shares issued and outstanding, pro forma as adjusted

     —         1       1  

Additional paid-in capital

     207,622       286,622       429,587  

Accumulated other comprehensive loss

     (2,999     (2,999     (2,999

Accumulated deficit

     (119,668     (119,668     (119,668
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     84,956       163,956       306,921  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 84,956     $ 163,956     $ 306,921  
  

 

 

   

 

 

   

 

 

 

The number of ordinary shares outstanding on a pro forma as adjusted basis in the table above excludes:

 

   

2,249,258 ordinary shares issuable upon the exercise of options granted on July 13, 2020 in connection with our Series C Financing, with an exercise price of $12.82 per share;

 

   

1,152,432 ordinary shares underlying the maximum number of IPO Grants;

 

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3,474,469 ordinary shares authorized for future issuance under the 2020 Plan to be adopted in connection with this offering (inclusive of shares reserved in respect of the IPO Grants); and

 

   

347,447 ordinary shares authorized for future issuance under the 2020 ESPP to be adopted in connection with this offering.

 

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DILUTION

If you invest in our ADSs in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per ADS in this offering and the pro forma as adjusted net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ADS is substantially in excess of the net tangible book value per ADS. As of December 31, 2019, we had a historical net tangible book value of $84.8 million, or $5.29 per ordinary share (equivalent to $5.29 per ADS). Our net tangible book value per share represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by the total number of ordinary shares outstanding at December 31, 2019.

After giving effect to our corporate reorganization (including the approximately 1-for-0.159 reverse split of all our ordinary shares prior to completion of this offering) and the Series C Financing, our pro forma net tangible book value at December 31, 2019 would have been $6.32 per ordinary share (equivalent to $6.32 per ADS). After giving further effect to the sale of 8,823,529 ADSs in this offering at the initial public offering price of $18.00 per ADS, 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 at December 31, 2019 would have been $9.28 per ordinary share (equivalent to $9.28 per ADS). This represents an immediate increase in pro forma as adjusted net tangible book value of $2.96 per ADS to existing investors and immediate dilution of $8.72 per ADS to new investors.

The following table illustrates this dilution to new investors purchasing ADSs in this offering on a per ADS basis:

 

Initial public offering price per ADS

      $ 18.00  

Historical net tangible book value per ADS as of December 31, 2019

   $ 5.29     

Increase in net tangible book value per ADS attributable to our corporate reorganization and Series C preferred share issuance

     1.03     

Pro forma net tangible book value per ADS as of December 31, 2019

     6.32     

Increase in net tangible book value per ADS attributable this offering

     2.96     
     

Pro forma as adjusted net tangible book value per ADS as of December 31, 2019

        9.28  
     

 

 

 

Dilution per ADS to new investors purchasing ADSs in this offering

      $ 8.72  
     

 

 

 

If the underwriters exercise their option to purchase additional ADSs in full, the pro forma as adjusted net tangible book value per ADS after the offering would be $9.55, the increase in net tangible book value per ADS to existing shareholders would be $0.27 and the immediate dilution in net tangible book value per ADS to new investors in this offering would be $8.45.

The following table summarizes, on the pro forma as adjusted basis described above as of December 31, 2019, the differences between the existing shareholders and the new investors in this offering with respect to the number of ordinary shares, including ordinary shares represented by ADSs purchased from us, the total consideration paid to us and the average price per share, including ordinary shares represented by ADSs, based on the initial public offering price of $18.00 per ADS, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Ordinary Shares Purchased from
Us(1)
    Total Consideration     Average Price
per Ordinary
Share
 
     Number      Percent     Amount      Percent        

Existing shareholders

     25,921,158        74.6     $282,800,097        64.0     $10.91  

New investors

     8,823,529        25.4       158,823,522        36.0     $ 18.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     34,744,687        100     $441,623,619        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

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(1)

Including ordinary shares underlying ADSs.

If the underwriters exercise their option to purchase additional ADSs in full, the percentage of ordinary shares held by existing shareholders will decrease to 71.9% of the total number of ordinary shares outstanding after the offering, and the number of shares held by new investors will be increased to 10,147,058 or 28.1% of the total number of ordinary shares outstanding after this offering.

The table and discussion above exclude:

 

   

2,249,258 ordinary shares issuable upon the exercise of options granted on July 13, 2020 in connection with our Series C Financing, with an exercise price of $12.82 per share;

 

   

1,152,432 ordinary shares underlying the maximum number of IPO Grants;

 

   

3,474,469 ordinary shares authorized for future issuance under the 2020 Plan adopted in connection with this offering (inclusive of shares reserved in respect of the IPO Grants); and

 

   

347,447 ordinary shares authorized for future issuance under the 2020 ESPP adopted in connection with this offering.

Following the reorganization into a single class of ordinary shares as described above, such ordinary shares will be consolidated and subdivided to reflect an approximately 1-for-0.159 reverse split of such ordinary shares and the balance of any ordinary shares will be redesignated as deferred shares prior to completion of this offering.

Such reorganization will involve (without limitation) the redesignation of classes of shares, the consolidation and/or the subdivision of shares pursuant to the terms of the articles of association of the Company in effect at such time as described above . The number of ordinary shares that each current shareholder of Freeline Therapeutics Holdings plc receives will be rounded up or down to the nearest whole share. Therefore, upon consummation of the corporate reorganization and prior to the completion of this offering, at the initial public offering price of $18.00 per ADS, the current shareholders of Freeline Therapeutics Holdings plc will hold an aggregate of approximately 25,921,158 ordinary shares of Freeline Therapeutics Holdings plc.

To the extent that options are issued under our 2020 Plan and our 2020 ESPP, or we issue additional ordinary shares or ADSs in the future, there will be further dilution to investors participating in this offering.

We also may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities may result in further dilution to our shareholders.

 

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SELECTED FINANCIAL AND OTHER INFORMATION

The following tables present our selected financial data as of the dates and for the periods indicated. We derived the selected statement of operations and comprehensive loss data for the year ended December 31, 2019 and 2018 and the selected balance sheet data as of December 31, 2018 and 2019 from our audited financial statements included elsewhere in this prospectus. We prepare our financial statements in accordance with U.S. GAAP.

Our historical results are not necessarily indicative of our future results. You should read this data together with our financial statements and related notes appearing elsewhere in this prospectus and the information under the sections titled “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We maintain the financial statements of each entity within the group in its local currency, which is also the entity’s functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in other expense, net in the consolidated statement of comprehensive loss. For financial reporting purposes our financial statements have been presented in U.S. dollars, the reporting currency. The financial statements of entities are translated from their functional currency into the reporting currency as follows: assets and liabilities are translated at the exchange rates at the balance sheet dates, revenue and expenses are translated at the average exchange rates and shareholders’ equity is translated based on historical exchange rates. Translation adjustments are not included in determining net loss but are included as a foreign exchange adjustment to other comprehensive loss, a component of shareholders’ equity.

 

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As of December 31, 2019, the last business day of the year ended December 31, 2019, the representative exchange rate was £1.00 = $1.3269.

 

    Year Ended December 31,  
    2018     2019  
    (in thousands of U.S. dollars, except
share and per share data)
 

Statement of Operations and Comprehensive Loss Data:

   

Operating expenses:

   

Research and development

  $ 34,191     $ 47,043  

General and administrative

    6,558       16,057  

General and administrative - fees due to related parties

    232       544  
 

 

 

   

 

 

 

Total operating expenses

    40,981       63,644  
 

 

 

   

 

 

 

Loss from operations

    (40,981     (63,644
 

 

 

   

 

 

 

Other income, net:

   

Other expense, net

    (390     (793

Interest (expense) income, net

    (151     74  

Benefit from R&D tax credit

    8,266       10,595  
 

 

 

   

 

 

 

Total other income, net

    7,725       9,876  
 

 

 

   

 

 

 

Loss before income taxes

    (33,256     (53,768

Income tax expense

    (27     (141
 

 

 

   

 

 

 

Net loss

  $ (33,283   $ (53,909
 

 

 

   

 

 

 

Other comprehensive income (loss):

   

Foreign currency translation adjustment

    (835     (154
 

 

 

   

 

 

 

Total comprehensive loss

  $ (34,118   $ (54,063
 

 

 

   

 

 

 

Net loss per share attributable to ordinary shareholders – basic and diluted

  $ (7.20   $ (8.49
 

 

 

   

 

 

 

Weighted average ordinary shares outstanding – basic and diluted

    4,621,495       6,347,818  
 

 

 

   

 

 

 

 

    As of December 31, 2019  
    2018     2019  
    (in thousands of U.S. dollars,
except share data)
 

Balance Sheet Data:

   

Cash and cash equivalents

  $ 16,051     $ 73,702  

Working capital(1)

    16,926       76,612  

Total assets

    32,134       97,390  

Preferred shares

    1       1  

Ordinary shares

    —         —    

Additional paid-in capital

    91,574       207,622  

Accumulated deficit

    (65,759     (119,668

Total shareholders’ equity

    22,971       84,956  

 

(1)

We define working capital as current assets less current liabilities.

 

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

You should read the following discussion and analysis of our financial condition and results of operations together with section entitled “Selected Consolidated Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and our expectations with respect to liquidity and capital resources, includes forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks and uncertainties described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in this prospectus. Our actual results could differ materially from the results described in or implied by these forward-looking statements.

On April 3, 2020, Freeline Therapeutics Holdings Limited was incorporated under the laws of England and Wales to become the ultimate holding company for Freeline Therapeutics Limited pursuant to our corporate reorganization. See “Corporate Reorganization.” Prior to this offering, Freeline Therapeutics Holdings plc has only engaged in activities incidental to its formation, the corporate reorganization and this offering. Accordingly, a discussion and analysis of the results of operations and financial condition of Freeline Therapeutics Holdings plc for the period of its operations prior to the corporate reorganization would not be meaningful and are not presented. Following the corporate reorganization, the historical consolidated financial statements of Freeline Therapeutics Holdings plc will be retrospectively adjusted to include the historical financial results of Freeline Therapeutics Limited for all periods presented.

Overview

We are a clinical-stage, fully integrated, next generation, systemic AAV-based gene therapy company with the ambition of transforming the lives of patients suffering from inherited systemic debilitating diseases. We aim to deliver one-time gene therapy treatments that provide functional cures through permanently sustained physiological protein levels, leveraging the high expression enabled by our proprietary gene therapy platform. Our initial focus is on developing treatments for monogenic diseases with high unmet need. We are a fully-integrated biotechnology company with internal expertise and capability across the value chain in gene therapy, including expression platform, research, manufacturing, clinical development and commercialization. Our pipeline includes two programs in the clinic and two late-stage preclinical product candidates, as well as research programs targeting novel applications for systemic gene therapy, for which we have, through owned and in-licensed intellectual property rights, development and worldwide commercial rights.

Our differentiated platform uses our proprietary, rationally designed adeno-associated virus, or AAV, capsid, which we refer to as AAVS3. We have optimized our capsid to preferentially deliver a therapeutic gene of interest to the human liver, and thereby to cause the expression of the necessary protein to address a targeted disease. AAVS3 was developed at University College London, or UCL, by a team led by our founder, Prof. Amit Nathwani. In preclinical settings, the AAVS3 capsid has been observed to have significantly higher transduction efficiency in human liver cells as compared to wild-type AAV serotypes used in many other gene therapy programs, including AAV5, AAV6, AAV8 and others. We are able to further enhance the potency of our AAVS3 vector platform through our advanced chemistry, manufacturing and controls, or CMC, capabilities, which include proprietary manufacturing processes and analytic methods. We believe the combination of our proprietary capsid and our powerful CMC platform allows us to produce gene therapy product candidates that have the potential to drive higher levels of protein expression than comparable programs have demonstrated in the clinic to date.

We have invested a significant amount of time and resources in developing proprietary and optimized assays and CMC processes that we believe help us to produce high quality product candidates. Today, we have a

 

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scaled manufacturing process which we believe has the ability to consistently and efficiently produce gene therapy product candidates at commercial scale and competitive cost. As a result of the differentiated potency of our platform, we are able to administer our product candidates at lower doses for a given level of protein expression, with potential benefits in safety and cost of goods. This advantage also gives us the opportunity to address conditions that are not currently amenable to gene therapy because of the high levels of protein expression required to treat such diseases. Our current pipeline programs address hemophilia A and hemophilia B as well as the lysosomal storage disorders, or LSDs, Fabry disease and Gaucher disease. Our most advanced product candidate, FLT180a for the treatment of hemophilia B, is being evaluated in a Phase 1/2 dose-finding clinical trial in adult males, and preliminary data to date has shown its potential to provide patients with sustained normal Factor IX, or FIX, activity levels following a one-off treatment. We recently reported updated data as of June 15, 2020 from the Phase 1/2 B-AMAZE clinical trial of FLT180a for the treatment of hemophilia B at the 2020 International Society on Thrombosis and Hemostasis Congress. We plan to report further data from this trial in due course, and to commence a planned pivotal clinical trial in 2021, subject to agreement with regulatory authorities.

Since our inception in May 2015, we have devoted substantially all of our resources to conducting preclinical studies and clinical trials, organizing and staffing our company, planning our business initiatives, raising capital and establishing our intellectual property portfolio. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily with proceeds from the sale of preferred shares. Through July 1, 2020, after giving effect to the Series C Financing and our receipt of the net proceeds therefrom, we had received net cash proceeds of approximately $282.8 million from sales of our preferred shares.

We have incurred operating losses since inception, including a net loss of $33.3 million and $53.9 million for the years ended December 31, 2018 and 2019, respectively. As of December 31, 2018 and 2019, we had an accumulated deficit of $65.8 million and $119.7 million, respectively. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and recurring increasing operating losses for the foreseeable future as we advance our product candidates through preclinical and clinical development, seek regulatory approval and pursue commercialization of any approved product candidates. To date, we have developed our product candidates internally, and have not outsourced the research, development activities associated with our clinical development, resulting in increased research and development spending but also enabling us to manage our product candidates efficiently through the development and manufacturing process. Our operating losses stem primarily from utilizing our internal manufacturing capabilities, and they will continue to increase with our growth initiatives as we increase our headcount and progress our product candidates through clinical trials. Furthermore, following the closing of this offering, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.

As of May 6, 2020, the issuance date of the consolidated financial statements for the years ended December 31, 2018 and 2019, we had cash and cash equivalents of $73.7 million as of December 31, 2019. As of July 1, 2020, after giving effect to the Series C Financing and the receipt of net proceeds therefrom, we had cash and cash equivalents of approximately $117.0 million after translating our cash and cash equivalents denominated in pounds sterling into U.S. dollars at a rate of $1.23868 to £1.00, and our cash and cash equivalents denominated in Euro into U.S. dollars at a rate of $1.102907 to €1.00, in each case, the noon buying rate of the Federal Reserve Bank of New York on July 1, 2020. Based on our current operational plans and assumptions, we expect that the net proceeds from this offering, combined with our current cash and cash equivalents, will be

 

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sufficient to fund operations through the second half of 2022. See “—Liquidity and Capital Resources—Funding Requirements” below.

The development of our product candidates could be disrupted and materially adversely affected in the future by a pandemic, epidemic or outbreak of an infectious disease, such as the recent COVID-19 pandemic. The spread of COVID-19 has impacted the global economy and has impacted our operations, including the interruption of our preclinical and clinical trial activities and potential interruption to our supply chain. For example, the COVID-19 pandemic has delayed enrollment in our ongoing Phase 1/2 clinical trial for FLT180a and our ongoing Phase 1/2 clinical trial for FLT190. If the disruption due to the COVID-19 pandemic continues, our planned pivotal clinical trial for FLT180a and our planned Phase 1/2 clinical trials for FLT201 and FLT210 also could be further delayed due to government orders and site policies on account of the pandemic. Additionally, some patients may be unwilling or unable to travel to study sites, enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to conduct preclinical studies and clinical trials or release clinical trial results, as well as delay our ability to obtain regulatory approval and commercialize our product candidates. Furthermore, COVID-19 could affect our employees or the employees of research sites and service providers on whom we rely as well as those of companies with which we do business, including our suppliers and CMOs, thereby disrupting our business operations. Quarantines and travel restrictions imposed by governments in the jurisdictions in which we and the companies with which we do business operate could materially impact the ability of employees to access preclinical and clinical sites, laboratories, manufacturing sites and offices. We have implemented work-at-home policies and may experience limitations in employee resources. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact our business.

We are still assessing our business plans and the impact the COVID-19 pandemic may have on our ability to advance the testing, development and manufacturing of our drug candidates, including as a result of adverse impacts on the research sites, service providers, vendors, or suppliers on whom we rely, or to raise financing to support the development of our drug candidates. No assurances can be given that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in our sector in particular. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties on whom we rely or with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely impacted.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the research and development of our product candidates, which are partially offset by research and development tax credits provided by Her Majesty’s Revenue & Customs, or HMRC. Research and development expenses consist of:

 

   

expenses incurred under agreements with contract research organizations, or CROs, contract manufacturing organizations, or CMOs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

 

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manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical studies and clinical trial materials;

 

   

expenses to acquire technologies to be used in research and development;

 

   

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

 

   

costs of outside consultants, including their fees, non-cash share-based compensation and related travel expenses;

 

   

the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;

 

   

costs related to compliance with regulatory requirements;

 

   

facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs; and

 

   

upfront, milestone and management fees for maintaining licenses under our third-party licensing agreements.

We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as a prepaid expense or accrued research and development expenses.

Certain of our direct research and development expenses are not tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs and CMOs in connection with our preclinical development, manufacturing and clinical development activities. License fees and other costs incurred after a product candidate has been selected that are directly related to a product candidate are included in direct research and development expenses for that program. License fees and other costs incurred prior to designating a product candidate are included in other program expense. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and discovery as well as to manage our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. As a result, we expect that our research and development expenses will continue to increase over the next several years as we: (i) expedite the clinical development and obtain marketing approval for our lead product candidates FLT180a and FLT190; (ii) initiate additional clinical trials for our product candidates, including FLT201 and FLT210; (iii) improve the efficiency and scalability of our manufacturing processes and supply chain; and (iv) build our in-house process development, analytical and manufacturing capabilities and continue to discover and develop additional product candidates, increase personnel costs and prepare for regulatory filings related to our product candidates. We also expect to incur additional expenses related to milestone, royalty payments and maintenance fees payable to third parties with whom we have entered into license agreements to acquire the rights related to our product candidates.

 

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The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with development and commercialization, including the following:

 

   

completing research and preclinical development of our product candidates and identifying new gene therapy product candidates;

 

   

establishing an appropriate safety profile with IND- and CTA-enabling studies;

 

   

successful patient enrollment in, and the initiation and completion of, clinical trials;

 

   

the timing, receipt and terms of any marketing approvals from applicable regulatory authorities and reimbursement and market access from third-party payors;

 

   

our ability to establish in-house commercial manufacturing capabilities and maintaining suitable arrangements with third-party manufacturers for our product candidates;

 

   

obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;

 

   

defending against third-party infringement, misappropriation or other violation of intellectual property rights claims;

 

   

significant and changing government regulation;

 

   

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

 

   

maintaining a continued acceptable safety profile of the product candidates following approval.

A change in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA, EMA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to commit significant additional financial resources and time on the completion of clinical development of that product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefits, non-cash share-based compensation expense, travel and other expenses incurred by personnel in executive, finance and administrative functions. These expenses include professional fees for legal, consulting, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. In particular, we expect our non-cash share-based compensation expense for the year ended December 31, 2020 to increase as a result of grants of ordinary shares to certain employees during this period.

We also anticipate we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.

Other income, net

Other expense, net

Other expense, net consists primarily of realized and unrealized foreign currency transaction gains and losses.

 

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Interest (expense) income, net

Interest (expense) income, net consists of interest income on cash and cash equivalents held in our banking institutions and interest expense related to our promissory note with Syncona, which was converted to series B preferred shares in 2018.

Benefit from Research and Development Tax Credit

Benefit from research and development, or R&D, tax credit, consists of the research and development tax credit received in the U.K., which is recorded within other income, net. The U.K. research and development tax credit, as described below, is fully refundable to us and is not dependent on current or future taxable income. As a result, we have recorded the entire benefit from the U.K. research and development tax credit as a benefit which is included in our net loss before income tax and accordingly, not reflected as part of the income tax provision. If, in the future, any U.K. R&D tax credits generated are needed to offset a corporate income tax liability in the U.K., that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other income, net.

Income tax expense

We are subject to corporate taxation in the United States, Germany and the United Kingdom. Due to the nature of our business, we have generated losses since inception and have therefore not paid United Kingdom or German corporation tax. Our income tax (expense) benefit represents only income taxes in the United States. As a company that carries out extensive research and development activities, we seek to benefit from one of two U.K. R&D tax credit cash rebate regimes: Small and Medium Enterprise, or SME, Program and the Research and Development Expenditure Credit, or RDEC, Program. Qualifying expenditures largely comprise employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects for which we do not receive income.

Based on criteria established by HMRC, we expect a portion of expenditures being carried in relation to our pipeline R&D, clinical trials management and manufacturing development activities to be eligible for the RDEC Program for the years ended December 31, 2018 and 2019. We will assess whether it is possible to qualify under the more favorable SME regime for future accounting periods.

Unsurrendered U.K. losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of U.K. taxable profits. After accounting for tax credits receivable, we had accumulated tax losses for carry forward in the United Kingdom of $29.1 million and $45.5 million as of December 31, 2018 and 2019, respectively.

In the event we generate revenues in the future, we may benefit from the U.K. “patent box” regime that allows profits attributable to revenues from patents or patented products to be taxed at effective rate of 10%. Value Added Tax, or VAT, is broadly charged on all taxable supplies of goods and services by VAT-registered businesses. Under current rates, an amount of 20% of the value, as determined for VAT purposes, of the goods or services supplied is added to all sales invoices and is payable to HMRC. Similarly, VAT paid on purchase invoices is generally reclaimable from HMRC.

 

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Results of Operations

Comparison of the Years Ended December 31, 2018 and 2019

The following table summarizes our results of operations for the years ended December 31, 2018 and 2019 (in thousands):

 

     Year Ended December 31,  
     2018     2019     Change  

Operating expenses:

      

Research and development

   $ 34,191     $ 47,043     $ 12,852  

General and administrative

     6,558       16,057       9,499  

General and administrative - fees due to related parties

     232       544       312  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     40,981       63,644       22,663  
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (40,981     (63,644     (22,663
  

 

 

   

 

 

   

 

 

 

Other income, net:

      

Other expense, net

     (390     (793     (403

Interest (expense) income, net

     (151     74       225  

Benefit from R&D tax credit

     8,266       10,595       2,329  
  

 

 

   

 

 

   

 

 

 

Total other income, net

     7,725       9,876       2,151  
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (33,256     (53,768     (20,512

Income tax expense

     (27     (141     (114
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (33,283   $ (53,909   $ (20,626
  

 

 

   

 

 

   

 

 

 

Research and development expenses

The table below summarizes our research and development expenses incurred by program (in thousands):

 

     Year Ended December 31  
     2018      2019      Change  

Direct research and development expenses by program:

        

FLT180a

   $ 13,226      $ 14,062      $ 836  

FLT190

     9,316        6,383        (2,933

FLT201

     —          2,797        2,797  

FLT210

     —          1,676        1,676  

Discovery

     162        588        426  

Unallocated research and development expenses:

        

Personnel expenses (including non-cash share-based compensation)

     8,166        12,601        4,435  

Other expenses

     3,321        8,936        5,615  
  

 

 

    

 

 

    

 

 

 

Total research and development expenses

   $ 34,191      $ 47,043      $ 12,852  
  

 

 

    

 

 

    

 

 

 

Research and development expenses increased by approximately $12.9 million from $34.2 million for the year ended December 31, 2018 to $47.0 million for the year ended December 31, 2019. The increase in research and development expenses was primarily attributable to the following:

 

   

a $0.8 million increase in spending on FLT180a, our most advanced gene therapy product candidate, specifically related to our ongoing Phase 1/2 B-AMAZE clinical trial and our planned pivotal clinical trial;

 

   

a $2.9 million decrease in spending related to our lead product candidates targeting Fabry disease, FLT190, which is primarily related to the timing of purchases of manufacturing materials for our ongoing Phase 1/2 MARVEL-1 clinical trial;

 

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a $2.8 million and $1.7 million increase in spending on preclinical studies and CMC expense for our planned Phase 1/2 clinical trials for FLT201 and FLT210, respectively, which are intended to treat Gaucher disease and hemophilia A, respectively;

 

   

an increase of $10.0 million in unallocated costs for all research and development activities, including increases in discovery costs of $4.4 million, which primarily relates to increases in personnel-related costs as a result of hiring additional personnel in our research and development department to support the requirements of increased clinical activity and the costs associated with preparing to become a public company. The remaining increase of $5.6 million was related to increases in unallocated consulting expenses, facility costs and rent expense, which also stem from our increase in headcount to support increased research and development activities; and

 

   

personnel-related costs for the years ended December 31, 2018 and 2019, including non-cash share-based compensation expense of $0.1 million and $1.5 million, respectively.

We expect these costs to increase materially in the near future, consistent with our plan to advance our pipeline assets through clinical development

General and administrative expenses

The following table summarizes our general and administrative expenses for December 31, 2018 and 2019 (in thousands):

 

     Year Ended December 31,      Change  
     2018      2019      $  

Legal and professional fees

   $ 1,299      $ 4,924      $ 3,625  

Personnel expenses

     3,049        6,568        3,519  

Facilities and other expense

     2,373        4,023        1,650  

Non-cash share-based compensation expense

     69        1,086        1,017  
  

 

 

    

 

 

    

 

 

 

Total general and administrative expenses

   $ 6,790      $ 16,601      $ 9,811  
  

 

 

    

 

 

    

 

 

 

General and administrative expenses increased by $9.8 million from $6.8 million for the year ended December 31, 2018, to $16.6 million for the year ended December 31, 2019. The increase in general and administrative expenses was primarily attributable to the following:

 

   

a $3.6 million increase in legal and professional fees, primarily related to expenses associated with closing our series C preferred share financing and preparation for our anticipated initial public offering;

 

   

a $3.5 million increase in personnel costs, primarily due to an increase in headcount, related to the hiring of additional personnel in general and administrative functions to support our growth initiatives, including our progression towards becoming a public company;

 

   

a $1.7 million increase in facilities and other expenses, including additional rent for office space occupied in 2019 for the U.K. and Germany, depreciation related to additional property plant and equipment and insurance costs; and

 

   

a $1.0 million increase in non-cash share-based compensation expense, primarily due to the meeting of certain milestones that triggered vesting of ordinary shares in addition to significant 2019 equity grants to employees.

We expect these costs to increase materially in the near future, consistent with our plans to increase our headcount in conjunction with this offering and ongoing requirements as a public company.

 

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Total other income, net

Total other income, net was $7.7 million for the year ended December 31, 2018, compared to $9.9 million for the year ended December 31, 2019. During 2018 and 2019, we recognized a R&D tax credit from the U.K. as a benefit within other income for approximately $8.3 million and $10.6 million, respectively.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue from product sales or any other sources and have incurred significant operating losses in each period and on an aggregate basis. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. We have funded our operations to date primarily with proceeds from the sale of preferred shares.

In 2018, we received net cash proceeds of $44.7 million from the sale of our series A preferred shares and series B preferred shares:

 

   

In June 2018, we converted $6.6 million of promissory notes that had been issued to Syncona Portfolio Limited, or Syncona, in November 2017 as partial consideration for the 20,000,000 shares of series B preferred shares further discussed below. At the time of conversion, the outstanding principal and interest on the promissory notes totaled $6.7 million. Also at the time of conversion, Syncona determined that the promissory notes were repaid in full and provided us with an additional $33.0 million ($1.99 or £1.50 per share purchase price) in additional consideration for 20,000,000 series B preferred shares. UTF General Partner LLP, or UTF, also exercised its subscription right at the execution of the 2018 Subscription and Shareholders’ Agreement, or the 2018 Agreement, and purchased 800,034 series B preferred shares at a purchase price of $1.99 or £1.50 per share.

In 2019, we received net cash proceeds of $114.6 million from the sale of our series B preferred shares and series C preferred shares:

 

   

In March 2019, we achieved the second tranche milestone related to our series B preferred shares and issued an additional 20,000,000 series B preferred shares to Syncona at a purchase price of $1.99 or £1.50 per share. UTF exercised its subscription right and purchased 800,033 series B preferred shares at a purchase price of $1.99 or £1.50 per share.

 

   

In June 2019, we made substantial progress to meeting certain series B preferred shares tranche milestones, and we amended the agreement and the underlying milestones based on recent developments. In September 2019, we determined the milestones had been met, and Syncona and UTF subscribed for 16,666,667 and 666,599 series B preferred shares at a purchase price of $1.91 or £1.50 per share.

 

   

In December 2019, under the 2019 Subscription and Shareholders’ Agreement, or the 2019 Agreement, which provides for the issuance of its series C preferred shares, we issued 12,307,692 series C preferred shares to Syncona at a purchase price $3.25 or £2.48 per share.

In 2020, we received net cash proceeds of approximately $79.0 million from the sale of our series C preferred shares:

 

   

In June and July 2020, under the Series C Subscription Agreement, which provides for the issuance of series C preferred shares to certain investors, including Syncona and Novo Holdings A/S, or Novo, we issued 39,215,683 series C preferred shares to such investors at a purchase price of $2.04 or £1.63 per share. In addition, we issued at par value 7,300,151 Top Up series C preferred shares to Syncona to reflect the price per share paid by investors for shares issued pursuant to the Series C Financing in July 2020.

As of December 31, 2018 and 2019, we had cash and cash equivalents of $16.1 million and $73.7 million, respectively. As of July 1, 2020, after giving effect to the Series C Financing and the receipt of net proceeds

 

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therefrom, we had cash and cash equivalents of approximately $117.0 million. Based on our current operational plans and assumptions, we expect that the net proceeds from this offering, combined with our current cash and cash equivalents, will be sufficient to fund operations through the second half of 2022.

We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than our manufacturing, licensing and lease obligations described below.

Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2018 and 2019 (in thousands):

 

     Year ended December 31,