UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2022
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number 001-39575
G
ONCORUS, INC.
(Exact name of Registrant as specified in its Charter)
Delaware |
|
47-3779757 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
4 Corporate Drive Andover, Massachusetts |
|
01810 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (339) 240-3330
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, $0.0001 par value per share |
|
ONCR |
|
The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ No ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
|
|
|
|
|||
Non-accelerated filer |
|
☒ |
|
Smaller reporting company |
|
☒ |
|
|
|
|
|
|
|
|
|
|
|
Emerging growth company |
|
☒ |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The aggregate market value of the Registrant’s common stock held by non-affiliates as of June 30, 2022 (the last business day of the Registrant's most recently completed second quarter) was $25.9 million, based on the closing price of the Registrant’s common stock on The Nasdaq Global Market on that date.
The number of shares of Registrant’s common stock outstanding as of March 20, 2023 was 26,095,363.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant intends to file a definitive proxy statement pursuant to Regulation 14A relating to the 2022 Annual Meeting of Stockholders within 120 days of the end of the Registrant’s fiscal year ended December 31, 2022. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein.
Table of Contents
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, investors can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “hope,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
ii
These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management's beliefs and assumptions and are not guarantees of future performance or development. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under “Summary Risk Factors,” “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this report. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Annual Report on Form 10-K to conform these statements to new information, actual results or changes in our expectations, except as required by law.
iii
SUMMARY RISK FACTORS
Our business is subject to a number of risks of which investors should be aware before making a decision to invest in our common stock. These risks are more fully described in the “Risk Factors” section of this Annual Report on Form 10-K, but a summary of the risks that could materially and adversely affect our business, financial condition, operating results and prospects includes the following:
iv
PART I
Unless otherwise stated or the context otherwise indicates, references to “Oncorus,” the “Company,” “we,” “our,” “us,” or similar terms refer to Oncorus, Inc.
Item 1. Business.
Overview
We are a preclinical-stage biopharmaceutical company focused on the intravenous administration of self-amplifying RNA to transform outcomes for cancer patients. We believe that our product candidates have the potential to bring significant benefit to patients who are currently underserved by approved immuno-oncology therapies, including other viral immunotherapies and immune checkpoint inhibitors.
Our self-amplifying RNA immunotherapy platform improves upon key characteristics of this therapeutic class to enhance systemic activity. Our approach involves encapsulating genomes of RNA viruses known to kill cancer cells within a lipid nanoparticle, or LNP, creating a selectively self-amplifying vRNA immunotherapy to be administered intravenously, or IV. We believe this approach has the potential to avoid the rapid immune clearance caused by neutralizing antibodies otherwise observed to date with IV-administered oncolytic viruses, which is thought to have limited the effectiveness of RNA viruses in the clinic. Once inside the tumor, the viral RNA genome is first amplified via transcription and then instructs tumor cells to synthesize proteins via translation that then self assemble into infectious virions, which thereafter causes an immunogenic tumor cell lysis before daughter virions infect nearby tumor cells.
Our two product candidates from our self-amplifying RNA platform are ONCR-021 and ONCR-788. ONCR-021, our lead product candidate, is an IV administered viral RNA encoding an optimized genome of Coxsackievirus 21A, or CVA21, encapsulated within an LNP. We plan to submit an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or FDA, in mid-2023 to evaluate ONCR-021 in multiple indications, including non-small cell lung cancer, renal cell carcinoma, melanoma, and anaplastic thyroid cancer, both as monotherapy and in combination with immune checkpoint inhibitors and other cancer treatments. We are also developing ONCR-788, which encodes for a modified version of the Seneca Valley Virus, or SVV. Both CVA21 and SVV have extensive clinical experience and favorable safety profiles when administered IV. Following the IND submission for ONCR-021 and pending the receipt of additional financing, which is not certain at this time, we may submit an IND for ONCR-788 to enable its development in small cell lung cancer, neuroendocrine prostate and other neuroendocrine cancers, both as a single agent and in combination with immune checkpoint inhibitors and other cancer treatments. Alongside our self-amplifying RNA platform, we are also developing a proprietary LNP platform intended to efficiently deliver nucleic acids after both intramuscular and IV administration.
Our product candidate ONCR-177 is an intratumorally, or iTu, administered viral immunotherapy based on our oncolytic HSV-1 platform, which leverages the Herpes Simplex Virus type 1, or HSV-1, a virus which has been clinically proven to effectively treat certain cancers. In November 2022, we announced our decision to discontinue our Phase 1 clinical trial of ONCR-177. We plan to present the results of the Phase 1 clinical trial in conjunction with a medical conference in 2023. Further development product candidates from our HSV platform, including ONCR-719, an armed HSV-1 engineered for viral entry via the EGFR receptor for the treatment of glioblastoma multiforme, or GBM, is dependent on our ability to obtain additional financing or enter into a partnership, collaboration, strategic alliance or licensing arrangement with a third party.
We plan to manufacture our product candidates at our manufacturing facility in Andover, Massachusetts. The facility is approximately 105,000 square feet, of which 41,000 square feet are specifically dedicated to processes that are compliant with good manufacturing practices, or GMP. We began process development activities at the facility in 2021 and, as of November 2022, construction was complete and the facility is currently fully operational. We have completed initial engineering batches of ONCR-021 at the facility, with additional engineering batches planned for the first half of 2023.
1
Our Pipeline
The status of our current product candidates from our self-amplifying RNA platform is shown in the table below. We have retained worldwide rights to all of our product candidates.
*Further development of ONCR-788 is contingent upon availability of future funding or entry into a strategic arrangement with a third party.
Our Founders, Leadership Team and Key Investors
Our company was co-founded by a team including MPM Capital executive partner Mitchell Finer, Ph.D., who has over three decades of experience in cancer immunotherapy, cell and gene therapy and regenerative medicine. Dr. Finer previously served as our chief executive officer, chief scientific officer and executive chairman and currently serves as chairman of our board of directors. Our HSV platform, including ONCR-177 and ONCR-719, is based upon the work of renowned scientist Professor Joseph Glorioso III, Ph.D. Professor Glorioso has conducted over four decades of research related to the basic biology and genetics of herpes simplex virus and is a pioneer in the design and application of HSV-1 gene vectors.
Our leadership team has extensive experience in developing and manufacturing oncology therapies, including advancing product candidates from preclinical research through clinical development and commercialization. Our President and Chief Executive Officer, Theodore (Ted) Ashburn, M.D., Ph.D., was previously Head of Oncology Development at Moderna Therapeutics, Inc. and Global Head of Leukine® (rhu GM-CSF) and Elitek®S/Fasturtec® (rasburicase) within Sanofi Oncology at Sanofi S.A., and also held multiple business development roles at Genzyme Corporation. John Goldberg, M.D., our Chief Medical Officer, is a pediatric oncologist who trained at the Dana Farber Cancer Institute with clinical development experience at both H3 Biomedicine Inc. and Agenus, Inc.
Traditional Cancer Therapy, Immunotherapy and the Need for New Options for Cancer Patients
The treatment of certain cancers has improved markedly over the past decade. Whereas many cancer treatments were historically limited to surgical removal, cytotoxic chemotherapy and/or radiation, recent advances target specific genetic changes in individual tumors or redirect the patient’s immune system, particularly T cells, to eliminate tumors and improve outcomes. Unfortunately, most patients are either not eligible for or do not respond to these therapies. For example, the efficacy of immune-based approaches in patients who qualify for this type of therapy is limited to around 12 percent. While these therapies have advanced the treatment of cancer for some patients, many are still underserved and therapies with improved clinical outcomes are still desperately needed.
The goal of immuno-oncology is to harness an individual’s immune system and better enable it to identify, attack and kill tumor cells and to form long-term immunologic memory against such tumors. We believe that the best way to significantly improve outcomes for cancer patients is to stimulate not only T cells, as has been the focus of approved immune checkpoint inhibitors, but also additional key immune cells within the innate and adaptive immune systems.
The immune system is generally divided into two arms, the innate and the adaptive, which are responsible for driving immediate and lasting anti-tumor responses. The innate immune system involves a diverse set of cells, including Natural-Killer, or NK, cells, macrophages and dendritic cells, all of which generate a rapid response to any foreign body, pathogen or tumor cell. The adaptive immune system is a second line of defense that is specific to a pathogen or antigen and is triggered when the innate immune system releases signals to activate and recruit cells from the adaptive immune system. The adaptive immune system is composed of T cells and B cells that can form immunologic memory, activating upon reintroduction of the initial antigen or pathogen. Many of the recent advances in immuno-oncology, such as immune checkpoint inhibitors, have focused on improving the function of T cells, which are a key cell type within a patient’s adaptive immune system.
We see a vast opportunity for therapies that can stimulate robust anti-tumor responses by activating both the innate and adaptive immune systems that also influence both the immunosuppressive tumor microenvironment and systemic immune responses. We believe that virus-based immunotherapies offer this potential benefit by delivering potent immune stimulating agents to tumors, including not only T cells, but also NK cells and dendritic cells, and, to inhibit immune suppression within tumors, immune checkpoint inhibitors.
2
Our Focus—Unlock the Full Potential of RNA Therapeutics for Cancer
We believe that RNA therapeutics are the most promising modality available today to activate multiple arms of the immune system and improve outcomes for cancer patients. Self-amplifying viral RNA, or vRNA, selectively infects and destroys tumor cells and leverages key cell types from the patient’s innate and adaptive immune systems, resulting in a robust and durable anti-tumor response. In the process of directly killing the tumor, tumor-specific antigens and danger signaling molecules are released. These molecules recruit and activate the innate and adaptive immune responses to identify, attack and destroy tumors and to develop long-term immunity against such tumors. vRNA can also be engineered to express transgenes to further stimulate and prevent downregulation of the immune system. Self-amplifying vRNA has several properties that differentiates it from other anti-tumor therapies, which make it a particularly attractive addition to today’s anti-cancer arsenal, including the ability to:
3
Our Self-Amplifying RNA Platform—A Novel Selectively Self-Amplifying RNA Strategy
Our pioneering IV-administered, self-amplifying RNA approach involves encapsulating the RNA genomes of viruses known to kill cancer cells (i.e., viral immunotherapies) in a lipid nanoparticle, or LNP, creating a vRNA/LNP immunotherapy.
This LNP delivery strategy evades the host immune response and allows for systemic distribution throughout the body to tumor sites. The LNP, which is intended to be less immunogenic than a natural viral capsid, is designed to overcome the challenges caused by neutralizing antibodies that have limited the efficacy of previous industry efforts to administer viruses intravenously to treat tumors.
Once inside the tumor cells, and as is the case with other viral immunotherapies, these genomes replicate and generate a burst of infectious virions that then spread locally and lyse adjacent tumor cells, as illustrated in Figure 1 below. In healthy cells, the innate immune system senses genomic replication, shuts down transcription, and no virions are produced.
Figure 1. Schematic representation of the mode of action of our self-amplifying RNA platform.
Current programs from our self-amplifying RNA platform, ONCR-021 and ONCR-788, are based on coxsackievirus A21, or CVA21, and Seneca Valley Virus, or SVV, respectively, which have both demonstrated acceptable safety and tolerability in early clinical trials conducted by others when virions have been administered IV, but where the efficacy was likely limited by the subsequent development of neutralizing antibodies.
We have demonstrated proof of concept of this approach in preclinical models showing that self-amplifying RNAs based on both CVA21 and SVV, when administered IV, are able to successfully deliver an RNA viral genome to tumors leading to the production of replication competent viruses within the tumors and the inhibition of tumor growth. Product candidates to be developed from our self-amplifying RNA platform will utilize shared formulation, regulatory and manufacturing strategies, allowing us to be more efficient in the development of subsequent product candidates.
In October 2022, we published preclinical data in the journal Nature Communications highlighting the potential of our self-amplifying RNA platform as a novel approach to treating cancer by enabling repeat IV administration. The data demonstrated that delivery of RNA encoding for the genome of a replication-competent virus encapsulated within an LNP enabled selective replication, virus assembly, viral spread and lysis of tumor cells, leading to potent anti-tumor activity even in the presence of virus-neutralizing antibodies in the bloodstream. These RNA constructs were well tolerated in preclinical models and resulted in tumor-specific in situ production of oncolytic virions, broad immune cell recruitment and tumor destruction. Activity was observed across multiple cancer models, including xenografts, PDX, GEMM and syngeneic models, with survival benefit observed in an orthotopic small cell lung cancer tumor model. Overall, these constructs were well tolerated after single or multiple IV doses in both mice and non-human primates. We believe these preclinical results support the potential of this modality to safely and effectively kill tumor cells and stimulate multiple arms of the immune system to better fight cancer.
4
We plan to submit an IND to the FDA in mid-2023 to evaluate ONCR-021 in multiple indications, including non-small cell lung cancer, renal cell carcinoma, melanoma and anaplastic thyroid cancer, both as monotherapy and in combination with immune checkpoint inhibitors and other cancer treatments. Following the IND submission for ONCR-021 and pending the receipt of additional financing, which is not certain at this time, we may submit an IND for ONCR-788 to enable its development in small cell lung cancer, neuroendocrine prostate and other neuroendocrine cancers, both as a single agent and in combination with immune checkpoint inhibitors and other cancer treatments.
Our Self-Amplifying RNA Product Candidate Selection Criteria
In May 2021, we announced the nomination of our first product candidates from our self-amplifying RNA platform, ONCR-021 and ONCR-788. We selected genomes for development for our self-amplifying RNA platform based upon two factors, as discussed below:
ONCR-021—Our Lead Self-Amplifying RNA Immunotherapy Leveraging Synthetic CVA21
We are developing ONCR-021, a vRNA product candidate for repeat IV administration based on CVA21. We selected CVA21 for our first vRNA program based on a number of attractive properties such as clinical safety and tolerability after IV dosing in patients, ability to replicate in solid tumors, and its inability to insert into the host chromosome, eliminating the potential of insertional mutagenesis. CVA21 is a picornavirus that has broad tumor tropism, in particular for non-small cell lung cancer, or NSCLC, melanoma, kidney and other solid tumors. We intend to develop ONCR-021 for non-small cell lung cancer, renal cell carcinoma, melanoma, anaplastic thyroid cancer and hepatocellular carcinoma. In preclinical studies conducted by us and others, we observed that treatment with CVA21 resulted in significant tumor growth inhibition in mouse tumor models including NCI-H1299 and NCI-H2122 NSCLC cells and SK-MEL-28 melanoma cells.
Coxsackievirus A21 (CVA21)
Coxsackievirus A21 is a naturally occurring RNA virus that normally causes mild upper respiratory tract infections in humans. Most studies on coxsackievirus focus on the CVA21 kuykendall strain which is currently in clinical development for NSCLC by Merck as V937 (formerly CAVATAK).
In early clinical trials, V937 was well-tolerated when dosed either iTu or IV and associated with both local and distant tumor responses. In a Phase 2 clinical trial, iTu injections of V937 in patients with late-stage melanoma demonstrated durable objective responses in 21.1% of patients. Tumor biopsies of treated patients demonstrated the presence of virions and increased infiltration of immune cells in tumors. Clinical trials of IV administered V937 found that neutralizing antibodies developed against the virus after approximately five to seven days, resulting in a limited window where repeat IV doses could potentially be delivered effectively. Even with the development of neutralizing antibodies, V937 administered IV in combination with pembrolizumab generated an overall response rate of 23% in NSCLC. In December 2022, Merck announced its plans to discontinue clinical development of V937 in solid tumors, citing a pipeline re-prioritization. We have reviewed clinical data of other intratumoral therapies under development and, based on that review, we hypothesize that iTu delivery of V937 was insufficient to generate meaningful responses in advanced, disseminated solid tumor. Based on this review and findings from our preclinical data, we believe that IV delivery of V937 was hindered by the presence of neutralizing antibodies. Our preclinical data support our hypothesis that ONCR-021 can be delivered IV, repeatedly without loss of efficacy due to neutralizing antibodies.
5
ONCR-021 preclinical data
We selected a CVA21 viral strain, referred to as ONCR-CVA21 prior to candidate nomination, that demonstrates more potent oncolytic activity in cancer cell lines than the Kuykendall strain developed by Merck as V937. In preclinical studies, IV dosing of ONCR-021 resulted in tumor shrinkage in two xenograft models of NSCLC, including in the NCI-H1299 tumor model, as shown in Figure 2 below, which provides us with preclinical validation for our ONCR-021 program.
Figure 2. ONCR-021 demonstrated anti-tumor activity in an NCI-H1299 NSCLC tumor model when dosed IV twice every 7 days. ONCR-021 is more active than vRNA based on Kuykendall (V937) strain, formulated in the same LNP (n=8 per group; p<0.0001 for ONCR-021 versus PBS control or Kuykendall vRNA).
Further preclinical studies of ONCR-021 demonstrated that ONCR-021 was well tolerated in hulCAM-1 transgenic mouse models and in non-human primates with no adverse pathology after single or repeat administration, including no effects on body weight, no adverse elevation of liver enzymes and no pathological findings at exposures above those required for antitumor activity. In addition, ONCR-021 exhibited minimal replication in normal tissues.
We plan to submit an IND to the FDA in mid-2023 to evaluate ONCR-021 in multiple indications, including non-small cell lung cancer, renal cell carcinoma, melanoma and anaplastic thyroid cancer, both as monotherapy and in combination with immune checkpoint inhibitors and other cancer treatments.
6
Our Clinical Development Plan for ONCR-021
As shown in Figure 3, our Phase 1 clinical trial of ONCR-021 is being designed to evaluate the safety, tolerability and initial efficacy of ONCR-021 administered alone and in combination with a yet to be determined anti-PD-1 checkpoint inhibitor in the histologies noted below. We plan to conduct dose escalation in our Phase 1 trial with ONCR-021 to determine the recommended phase 2 dose, or RP2D, in patients with NSCLC, RCC, melanoma and anaplastic thyroid cancer. Once RP2D is determined, we plan to open monotherapy expansion cohorts for each of the histologies listed below, NSCLC, clear cell RCC, melanoma, and anaplastic thyroid cancer. Subject to our observation of monotherapy activity at RP2D, we plan to confirm safety the safety profile of ONCR-021 at RP2D in combination with an anti-PD-1 checkpoint inhibitor. Upon confirmation of safety, we plan to launch expansion cohorts of ONCR-021 in combination with an anti-PD-1 checkpoint inhibitor in frontline NSCLC and frontline melanoma. Subject to observations of safety, tolerability and efficacy in Phase 1 escalation and expansion cohorts, there is potential for accelerated approval and orphan drug designation in anaplastic thyroid cancer.
Figure 3. Clinical development plan for ONCR-021 in multiple histologies.
ONCR-788—Self-Amplifying RNA Leveraging SVV
In addition to ONCR-021, we are also developing ONCR-788 based on the Seneca Valley Virus RNA genome, or SVV. Following the IND submission for ONCR-021 and pending further financing, which is not certain at this time, we may submit an IND for ONCR-788 to enable its development in small cell lung cancer, or SCLC, neuroendocrine prostate and other neuroendocrine cancers, both as a single agent and in combination with immune checkpoint inhibitors and other cancer treatments.
We selected the SVV genome based on a number of attractive properties such as clinical safety and tolerability after IV dosing in patients, ability to replicate solid tumors, and its inability to insert into the host chromosome, eliminating the potential of insertional mutagenesis. SVV is a picornavirus that has tropism for several human tumor cell lines, in particular those with neuroendocrine features. Cancers with neuroendocrine features include SCLC and treatment-emergent small-cell neuroendocrine prostate cancer, or t-NEPC. In preclinical studies led by others, SVV was shown to result in complete and durable eradication of tumors in multiple mouse tumor models including NCI-H446 cells, and in a mouse model of medulloblastoma, SVV was shown to lead to increases in long term survival.
Past attempts by others at developing an SVV monotherapy as a treatment for cancer have been shown to demonstrate increases in viral titers as well as no dose limiting toxicities in patients treated with low doses of SVV. In these Phase 1 and 2 trials conducted by others, there was also evidence of selective viral replication in tumor tissue but not adjacent healthy tissue. These observations are consistent with what we believe is the ability of SVV to specifically target and replicate in tumor cells and to be well-tolerated after IV dosing. In these trials, patients who received SVV also developed neutralizing antibodies, resulting in rapid clearance of SVV from circulation, limiting the ability to deliver repeat doses effectively, which we believe has hampered the therapeutic potential of prior SVV candidates.
7
ONCR-788 preclinical data
In a preclinical study, an LNP-encapsulated SVV genome was administered IV in a mouse NCI-H446 model of human SCLC. As shown in Figure 4 below, we observed a significant reduction in tumor growth as compared to PBS and, as shown in Figure 5, the presence of neutralizing antibodies did not have a significant effect on the observed reduction in tumor growth.
Figure 4. ONCR-788 led to tumor growth inhibition in the NCI-H446 SCLC tumor model when dosed IV twice every 7 days (n=8 per group; p< 0.0001 ONCR-788 versus PBS).
Figure 5. Efficacy of ONCR-788 is not inhibited by SVV neutralizing antibodies. ONCR-788 leads to tumor growth inhibition in the NCI-H446 SCLC model when dosed IV in presence of either control or neutralizing SVV antibodies (Ab). By contrast, the efficacy of SVV virions dosed IV is inhibited by SVV neutralizing antibodies (n= 10 per group, p<0.0001 for Synthetic SVV + control Ab, Synthetic SVV + neutralizing Ab and SVV + control Ab vs. PBS or SVV + neutralizing Ab).
8
After IV dosing our LNP-encapsulated RNA genome, we examined multiple tissues from treated animals for the presence of negative-strand SVV RNA to assess the replication of our synthetic SVV in these tissues. Testing for the presence of negative-strand SVV RNA is a sensitive way of assessing the replication of ONCR-788, which is based on the fact that SVV is a positive-strand RNA virus that requires a negative-strand RNA as a replication intermediate. As illustrated in Figure 6 below, we found negative-strand RNA only in tumor tissue and not in the liver, demonstrating that RNA genomes were delivered to the tumor cells and resulted in the generation of fully infectious virions within the tumor, but did not replicate in tissues outside the tumor.
Detection of SVV Replicating Genomes
Figure 6. Replicative SVV intermediates, negative-strand RNA, are found in the tumors but not in liver. Each histogram represents a dosed animal. Neg = non-replicating vRNA control; OCR-788 = replicating SVV vRNA; cDNA = complementary DNA; (-)ssRNA = negative single strand RNA.
We believe that the ability of SVV to target neuroendocrine tumors as a monotherapy, as well as the potential for adding benefit in combination with immune checkpoint inhibitors or chemotherapy, could allow us to bring therapeutic benefit to patients for whom there are limited treatment options.
Our HSV Platform
We designed our HSV platform, including product candidates ONCR-177 and ONCR-719, to overcome the limitations in potency and in the ability to stimulate anti-tumor immunity that have both been encountered by previous viral immunotherapies and other immuno-oncology therapies. Therapies derived from this platform have the potential to address multiple types of tumors, including our ONCR-719 program designed to target brain cancer. Further development of ONCR-719 is dependent on a strategic partnership or additional financing.
Our Discontinued Phase 1 Clinical Trial of ONCR-177
In June 2020, we initiated a Phase 1 clinical trial of ONCR-177 in patients with several different types of solid tumors, including breast cancers and cutaneous tumors. We presented our preliminary findings from the Phase 1 clinical trial in November 2021 via a poster presentation at the 36th Annual Meeting of the Society for Immunotherapy of Cancer, or SITC. The presentation included data from 14 patients in the fully enrolled and completed dose escalation cohorts of the trial and five patients enrolled in the dose expansion monotherapy portion of the trial. In the fully enrolled and completed surface lesion dose escalation portion of the trial, we reported that ONCR-177, when administered to heavily pretreated patients with advanced, injectable solid tumors, was well tolerated with no dose-limiting toxicities as of the data cutoff date of November 8, 2021. No treatment-related adverse events exceeded Grade 2, and the most common Grade 1 and 2 adverse events were fatigue, chills, nausea, and mild, dose-dependent cytokine release syndrome, or CRS. No infectious virions were detected in skin swabs, consistent with our expectations with respect to ONCR-177's safety profile. As of November 8, 2021, after four weeks of monotherapy treatment with ONCR-177 at the recommended Phase 2 dose, or RP2D, of 4x108 PFU in 4 mL (receiving two doses of ONCR-177), three of eight evaluable patients (one with cutaneous melanoma, one with squamous cell carcinoma of the head and neck, or SCCHN, and one with mucosal melanoma) had demonstrated clinical benefit. These consisted of one partial response in the patient with cutaneous melanoma as measured by calipers per Response Evaluation Criteria in Solid Tumors, or RECIST; one investigator-reported clinical response in the SCCHN patient in their injected lymph node; and one reported stable disease in the patient with mucosal melanoma as measured by RECIST 1.1 with additional improvement in cancer-related symptoms. Several findings from this trial suggested immune stimulation of the tumor microenvironment following administration of ONCR-177, including mild, dose-dependent CRS in association with increased interferon-gamma (IFNγ) and T-cell proliferation in blood, as well evidence of tumor PD-L1 expression and immune cell infiltration.
9
We later initiated enrollment in the surface lesion dose combination expansion portion of the clinical trial. Patients in this portion of the trial received ONCR-177 in combination with Merck's KEYTRUDA® (pembrolizumab), an immune checkpoint inhibitor. In addition, we enrolled and dosed separate cohorts of patients with visceral tumors in the liver with the goal of showing additional safety data.
On November 30, 2022, we announced our plans to discontinue the Phase 1 clinical trial of ONCR-177 and our decision to reprioritize our product pipeline to focus on the development of our lead self-amplifying vRNA immunotherapy product candidate, ONCR-021. We plan to present the final results of the Phase 1 clinical trial of ONCR-177 in conjunction with a medical conference in 2023.
ONCR-719—Our HSV Immunotherapy Candidate for GBM
Leveraging the knowledge and experience gained through the development of ONCR-177, we also have additional preclinical stage programs within our HSV platform addressing both iTu and IV solutions to other unmet medical needs, including ONCR-719, our program designed to target GBM through iTu injection.
In November 2022, we announced the presentation of preclinical data for ONCR-719 in a poster at the 2022 Society for Neuro-Oncology (SNO) Annual Meeting alongside an update regarding product candidate selection criteria. ONCR-719 is a novel, armed oncolytic HSV-1 vector product candidate engineered with targeted entry via EGFR/EGFRvIII and expresses four immunomodulatory payloads designed to reverse GBM’s immunosuppressive tumor microenvironment. In addition, ONCR-719 is derived from a potent HSV-1 isolate to drive oncolysis, is engineered with fusogenic mutations to enhance viral spread, and uses our clinically validated microRNA attenuation strategy to inhibit viral replication in healthy cells. We leveraged our knowledge of mRNA expression to engineer an attenuation strategy designed to protect healthy brain tissue and select a combination of payloads that address the specific drivers of immune suppression in brain cancer.
Highlights from the preclinical poster presented at the 2022 SNO Annual Meeting describing ONCR-719 include:
ONCR-719 is specifically designed to treat GBM, the most frequent and aggressive form of brain cancer. GBM, with its typically poor prognosis, represents a particularly acute unmet medical need. In the United States, it is estimated that there are approximately 18,000 newly diagnosed patients each year and 13,000 deaths annually. Newly diagnosed high-grade patients have a median overall survival of 15 to 17 months; the 5-year-overall survival rate is only 5.6%. For patients in which disease recurred the prognosis is much worse, with a median overall survival of 6 to 8 months, while in patients who failed treatment with temozolomide and bevacizumab, or equivalent salvage chemotherapy, overall survival is reported being as short as 3 to 4 months. The current FDA-approved therapies bevacizumab, carmustine wafer, NovoTTF-100A, and lomustine are only marginally effective in extending overall survival in patients with recurrent GBM. The initial results from other companies’ clinical trials with immune checkpoint inhibitors such as anti-PD-1 antibodies have not shown positive outcomes in patients with recurrent high-grade gliomas.
Our further development of ONCR-719 is dependent on our ability to obtain a strategic partner for the program or upon receipt of additional financing to support its development.
10
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary rights. We compete in the highly competitive markets that address cancer and face significant competition from many sources, including pharmaceutical, biopharmaceutical and biotechnology companies, as well as universities and private and public research institutions. Any RNA-based therapeutics that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. We are focused on developing next-generation RNA therapeutics for the treatment of cancer.
We are aware of other companies either marketing or focused on developing competing therapies for the treatment of cancer which generally fall into the following treatment groups:
Many of our potential competitors, alone or with their strategic partners, may have substantially greater financial, technical and other resources than we do, 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, are easier to administer or are less expensive alone or in combination with other therapies than any products that we may develop alone or in combination with other therapies, especially if these get to market sooner than our products. These and other third parties also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business.
Competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Our viral immunotherapy product candidates, if and when marketed, will compete with a number of therapies that are currently marketed or in development that also target cancer but that utilize different mechanisms of action. To compete effectively with these agents, our product candidates will need to demonstrate advantages that lead to improved clinical efficacy and safety compared with these competitive agents. While we believe that our current and future product candidates have the potential to provide potent clinical antitumor activity as monotherapies, we also plan to test them in combination with immune checkpoint inhibitors and chemotherapy agents. As such, if and when ultimately marketed, our product candidates may be in combination with checkpoint therapies in addition to other existing cancer therapies, including surgery, chemotherapy, radiation therapy and other biological therapies such as antibodies targeting particular surface receptors. We, therefore, believe that our product candidates, if and when marketed, may in some instances complement rather than compete directly with these existing treatment options.
We expect to face direct and increasing competition from a number of companies that are also seeking to develop cancer therapies based on viral immunotherapies and other ways to stimulate the immune system. We believe that our ability to successfully compete will depend, among other things, on our ability to:
11
Manufacturing
We continue to invest in our internal development capabilities to establish in-house manufacturing expertise to support our pipeline. We expect to continue to invest to build proprietary processes that will enable us to be at a competitive advantage when manufacturing product candidates from our self-amplifying RNA platform programs, and expect that our product candidates and their components from our self-amplifying RNA platform will be manufactured in-house with minimal reliance on third-party CMOs. We intend to continue to rely on third party CMOs from time to time while establishing our own cGMP manufacturing facilities and thereafter for the production of cGMP-grade material in order to secure our supply chain for future production needs.
In December 2020, we entered into a lease agreement for approximately 88,000 square feet of manufacturing and office space in Andover, Massachusetts to support our advancing pipeline of product candidates. In November 2021, we entered into an amendment to our lease to increase the existing footprint of the facility to a total of approximately 105,000 square feet, 41,000 square feet of which is specifically dedicated to GMP compliant processes. We began process development activities at the facility in 2021 and, as of November 2022, construction was complete and the facility is currently fully operational. We have completed initial engineering batches of ONCR-021 at the facility, with additional engineering batches planned for the first half of 2023.
With respect to our discontinued Phase 1 clinical trial of ONCR-177, we transferred our processes to commercial CMOs based in the United States for production, labeling, packaging and distribution of our initial batches of clinical material. Through the development of ONCR-177 prior to November 2022, we focused on developing a full-scale manufacturing process intended to optimize production of clinical grade material through a closed, serum-free process.
We require that our CMOs produce drug substance and finished drug product in accordance with cGMPs and all other applicable laws and regulations. We maintain agreements with our manufacturers that include confidentiality and intellectual property provisions to protect our proprietary rights related to our product candidates. We do not have long-term supply arrangements in place with our CMOs.
Intellectual Property
We strive to protect and enhance the proprietary technologies, inventions and improvements that we believe are important to our business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain our proprietary position in our field and other fields that are or may be important for the development of our business. Our policy is to seek to protect our proprietary position by, among other methods, pursuing and obtaining patent protection in the United States and in jurisdictions outside of the United States related to our proprietary technology, inventions, improvements, platforms and our product candidates that are important to the development and implementation of our business.
As of February 21, 2023, our patent portfolio consisted of 17 issued U.S. patents, 21 pending U.S. patent applications, and 35 issued foreign patents and approximately 151 pending foreign applications. These patents and patent applications include claims related to our platforms, products, methods, manufacturing processes, and potential future products and developments, with expected expiry dates not earlier than between 2026 and 2043.
Self-Amplifying RNA Platform
As of February 21, 2023, our patent portfolio related to our self-amplifying RNA platform includes twelve patent families, which relate generally to synthetic virus compositions and methods of use in the treatment of various cancers.
We solely own these twelve patent families. Four families currently have applications pending in the United States and in foreign jurisdictions including Australia, Brazil, Canada, China, Europe, Israel, India, Japan, Korea, Mexico, New Zealand, Singapore and South Africa. One family has application pending in the United States. Three families have pending PCT applications that will enter national stages between July 2023 and June 2024. These applications cover the compositions related to polynucleotides, expression of therapeutic payloads, nanoparticle formulations and dosage, bispecific payload molecules, diagnostic biomarkers and methods related to their manufacturing and use. We intend to file national phase applications in multiple jurisdictions, including the United States, Europe, Asia, and Central and South America. Any patents that may issue from these pending applications are expected to expire between 2039 and 2043, absent any patent term adjustments or extensions.
12
HSV Platform
As of February 21, 2023, our patent portfolio related to our HSV platform includes 13 owned or licensed patent families, which relate generally to the composition of our current and potential future products, and their methods of use.
We solely own six patent families, which include four issued U.S. patents, eight issued foreign patents, five pending U.S. patent applications, and pending foreign counterparts in Europe, Asia, Oceania, South Africa, Canada, and Central and South America. Two issued U.S. patents, which expire on January 27, 2037, include claims directed at particular microRNA-attenuated HSV vectors, expression of certain therapeutic payloads, and their methods of use in the treatment of cancer. The other two issued U.S. patents, which expire on June 30, 2037, include claims directed at HSV vectors comprising particular combinations of certain therapeutic payloads. The pending applications include additional claims for microRNA-attenuated HSV vectors including the HSV vector utilized in our HSV based product candidates, HSV vectors encoding particular therapeutic payloads, and their methods of use in the treatment of cancer. Patent applications are pending in these families in more than 17 jurisdictions worldwide, including Argentina, Australia, Brazil, Canada, China, Europe, Israel, India, Japan, Korea, Mexico, New Zealand, Russia, Singapore, South Africa and Taiwan. Any patents that may issue from these pending applications are expected to expire between 2037 and 2042, absent any patent term adjustments or extensions.
We have exclusively licensed from the University of Pittsburgh rights in three patent families related to HSV platform vectors, including certain glycoprotein modifications, a deletion of repeated HSV genes, certain micro-RNA-attenuated HSV vectors, and expression of certain therapeutic proteins from HSV vectors, and their methods of use. These patent families include eight issued U.S. patents, 17 issued patents in jurisdictions including Australia, China, Europe, Israel, Japan, Korea, Mexico, New Zealand, Singapore and South Africa, two pending U.S. patent applications and 16 pending foreign applications pending in various jurisdictions worldwide, including Australia, Brazil, Canada, China, Europe, India, Japan, Korea, Mexico, New Zealand and Singapore. Patents in these families are expected to expire between 2031 and 2037, absent any patent term adjustments or extensions. We have also exclusively licensed from Ospedale San Raffaele S.r.l. and Fondazione Telethon rights in one patent family related to micro-RNA attenuation of therapeutic payloads. This family includes six issued patents and seven pending applications in the U.S. and foreign jurisdictions. Patents in this family are expected to expire in 2026, absent any patent term adjustments or extensions. We have exclusively licensed from Northwestern University rights in one patent family related to mutations in the UL37 HSV gene. Patents in this family are expected to expire in 2036, absent any patent term adjustments or extensions. We have also exclusively licensed from WuXi Biologics Ireland Limited rights in one patent family related to novel PD-1 antagonist sequences. This family includes one Chinese patent and seven pending applications in the United States, China, Canada, Hong Kong, Taiwan, Europe and Japan. Patents in this family are expected to expire in 2039, absent any patent term adjustments or extensions. Finally, we have also exclusively licensed from Gaeta Therapeutics Ltd. rights in one patent family related to local delivery or expression of IL-12 with a systemic checkpoint inhibitor. This family includes six issued patents and six pending applications in the U.S. and foreign jurisdictions. Patents in this family are expected to expire in 2032, absent any patent term adjustments or extensions.
In November 2022, we began taking steps to align our patent portfolio with our re-focused research and development efforts outlined above. This included reducing the number of pending cases in certain of our HSV-related patent families. For example, we have allowed pending cases that claim priority to PCT/US2017/040354 to lapse in Australia, Brazil, Canada, China, Hong Kong, India, Israel, Korea, Mexico, New Zealand, and South Africa, pending cases that claim priority to PCT/US2018/043938 to lapse in Australia, Brazil, China, Hong Kong, India, Israel, Korea, Mexico, New Zealand, Singapore, and South Africa, and pending cases that claim priority to PCT/US2018/067922 to lapse in the United States, Europe, and Japan. Furthermore, we are undergoing discussions with University of Pittsburg to allow pending cases that claim priority to PCT/US2014/062676 to lapse in Brazil, China, Hong Kong, India, Mexico, and Singapore.
Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the U.S. Patent and Trademark Office, or the USPTO, delay in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.
Furthermore, we rely upon trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our collaborators, employees and consultants and invention assignment agreements with our employees. We also have confidentiality agreements or invention assignment agreements with selected consultants. These agreements are designed to protect our proprietary information and,
13
in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our product candidates or processes, obtain licenses, or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future product candidates may have an adverse impact on us. If third parties have prepared and filed patent applications prior to March 16, 2013 in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the USPTO, to determine priority of invention. For more information, please see “Risk Factors—Risks Related to Intellectual Property.”
License, Royalty and Collaboration Agreements
University of Pittsburgh Agreement
In March 2016, we entered into a license agreement with the University of Pittsburgh, which was subsequently amended in June 2016, November 2016 and October 2019. Under the license agreement with University of Pittsburgh, or the University of Pittsburgh Agreement, we obtained an exclusive, worldwide license from University of Pittsburgh to three patent families in fields specified in the University of Pittsburgh Agreement including all of oncology. We have the right to grant sublicenses of the foregoing license subject to certain limitations. We are required to use commercially reasonable best efforts to meet certain development milestones regarding licensed products.
Under the terms of the University of Pittsburgh Agreement, we made an initial license payment of $0.1 million. Additionally, we are required to pay a five-figure annual maintenance fee until net sales for the first licensed product are achieved and certain clinical and commercial milestone payments for the first product to achieve such milestones in an aggregate amount of $2.6 million. We are also obligated to pay a low single digit royalty on net sales of licensed products, subject to specified annual minimum royalties. The obligation to pay royalties under the University of Pittsburgh Agreement expires on a licensed product-by-licensed product and country-by-country basis upon the expiry of the last valid claim of the licensed patents that cover such licensed product in such country. The royalty rate is subject to reduction in the event that it is necessary for us to obtain a license to any third-party intellectual property related to the licensed patents. We are also obligated to pay a percentage of non-royalty-related payments received by us from sublicensees.
The University of Pittsburgh Agreement expires upon the last to expire valid claim of a licensed patent. University of Pittsburgh may terminate upon our uncured breach or insolvency. We may terminate the agreement upon specified prior written notice to University of Pittsburgh.
TIGET Agreement
In December 2015, we entered into a license agreement with Ospedale San Raffaele S.r.l., or OSR, and Fondazione Telethon, or FT, which was subsequently amended in July 2017, or the TIGET Agreement. Under the TIGET Agreement, we obtained an exclusive, worldwide license, with the right to sublicense, under certain patents of OSR and FT to research, develop, make, have made, use, sell, offer for sale and import licensed products for use in the prevention and treatment of human cancer using HSV. We also have an exclusive option to obtain an exclusive license to additional oncolytic viruses. We are required to use commercially reasonable efforts to develop and commercialize a licensed product for each licensed virus.
Under the terms of the TIGET Agreement, we made an initial license payment of $0.1 million. Additionally, we are required to pay a high five-figure annual maintenance fee, and certain clinical and regulatory milestone payments for the first product to achieve such milestones on an indication-by-indication basis, which milestone payments are $3.9 million in the aggregate for the first indication and $5.7 million in the aggregate for each subsequent indication. We are also obligated to pay tiered royalties on net sales of licensed products ranging in the low-single digits. The royalty rates are subject to reduction in the event that it is necessary for us to obtain a license to any third-party intellectual property related to the licensed products. The obligation to pay royalties under the TIGET Agreement expires on a licensed product-by-licensed product and country-by-country basis upon expiry of the last valid claim of the licensed patents that cover such licensed product in such country. We are also obligated to pay a percentage of non-royalty-related payments received by us from sublicensees ranging from a mid-single digit to low double digits.
The TIGET Agreement expires upon expiry of the last remaining royalty obligation for a licensed product. Under the TIGET Agreement, either party may terminate the agreement upon an uncured material breach or insolvency of the other party. We may terminate the agreement on a licensed virus by licensed virus basis upon specified prior written notice to OSR and FT. Additionally, OSR and FT may terminate the agreement on a licensed virus by licensed virus basis if we fail to demonstrate pre-clinical data in in vivo animal models for any such virus.
14
Northwestern Agreement
In December 2018, we entered into a license agreement with Northwestern University, or Northwestern, which was subsequently amended in September 2019 and December 2022. Under the license agreement with Northwestern, or the Northwestern Agreement, we obtained an exclusive, worldwide license under certain patents of Northwestern, Trustees of Tufts College and NUTech Ventures and a non-exclusive, worldwide license under certain know-how of Northwestern, Trustees of Tufts College and NUTech Ventures, in either case to make, have made, use, import, offer for sale and sell oncolytic viruses for use in the treatment or prevention of cancer in animals or humans, which use specifically excludes diagnostics, human and animal vaccine development and use, and veterinary use. We have the right to grant sublicenses of the foregoing license subject to certain limitations. We are required to use efforts to meet certain development milestone regarding licensed products.
Under the terms of the Northwestern Agreement, we made an initial license payment of approximately $0.1 million. Additionally, we are required to pay an annual maintenance fee ranging in the low five figures until a certain period after regulatory approval for the first licensed product is obtained and certain clinical and commercial milestone payments for the first product to achieve such milestones in an aggregate amount of $4.1 million. We are also obligated to pay a low single digit royalty on net sales of licensed products, subject to certain annual minimum royalties ranging in the low to mid five figures, but only to the extent a product is covered by a valid claim of a licensed patent at the time of first commercial sale. The obligation to pay royalties under the Northwestern Agreement expires on a licensed product-by-licensed product and country-by-country basis upon the later of expiry of the last valid claim of the licensed patents that cover such licensed product in such country and the 10th anniversary of the first commercial sale of such product in such country. The royalty rate is subject to reduction for lack of any valid claim covering such product in a country. We are also obligated to pay certain amounts in the event we grant a sublicense of commercial rights to a third party, which payments vary from a fixed amount in the upper five figures to a low double digit percentage of non-royalty related payments received by us.
The Northwestern Agreement expires on a licensed product-by-licensed product and country-by-country basis upon expiry of the applicable royalty obligation for such licensed product in such country. Under the Northwestern Agreement, either party may terminate the agreement upon an uncured material breach by the other party. We may terminate the agreement upon specified prior written notice to Northwestern. Northwestern may terminate the agreement in the event of our insolvency. Additionally, in the event of our failure to use efforts to meet certain diligence milestones, Northwestern may after a specified cure period, elect to either terminate the agreement or render the license non-exclusive. If Northwestern elects to render our license non-exclusive, then all our payment obligations under the agreement will be reduced by a specified percentage.
MPM/UBS Royalty Transfer Agreement
In March 2016, in connection with the sale of Series A convertible preferred stock, we entered into a royalty transfer agreement with MPM Oncology Charitable Foundation, Inc. and UBS Optimus Foundation, or the Royalty Transfer Agreement. We have agreed to pay a royalty of 1%, in the aggregate, of net sales of our products. Our obligation to pay a royalty expires on a product-by-product and country-by-country basis upon the later of the 12th anniversary of the first commercial sale of such product in such country and expiration of the last valid claim in such country covering such product. The royalty rate is subject to a specified reduction for lack of any valid claim covering such product in a country. The obligation to pay royalties under the Royalty Transfer Agreement shall not apply to any product that would only infringe our intellectual property rights or to any product of an acquirer, assignee of the agreement or merger partner of the company so long as such product does not incorporate any of our pre-acquisition intellectual property.
WuXi Agreement
In July 2019, we entered into a license agreement with WuXi Biologics Ireland Limited, or WuXi. Under the license agreement with WuXi, or the WuXi Agreement, we obtained an exclusive, worldwide license, with the right to sublicense, under certain patents and technology of WuXi to research, develop, manufacture and commercialize licensed products for the treatment and prevention of human or animal diseases. We are required to use commercially reasonable efforts to develop and commercialize licensed products.
Under the terms of the WuXi Agreement, we made an initial license payment of $0.3 million. Additionally, we are required to pay certain clinical milestone payments for the first product developed in an aggregate amount of $8.0 million and certain commercial milestone payments for the first three products developed in an aggregate amount of $27.0 million per product. We are also obligated to pay tiered royalties on net sales of licensed products ranging in the low-single digits. The obligation to pay royalties under the WuXi Agreement expires on a licensed product-by-licensed product and country-by-country basis upon expiry of the last valid claim of the licensed patents that cover such licensed product in such country.
The WuXi Agreement expires on a licensed product-by-licensed product and country-by-country basis upon expiry of the last valid claim of the licensed patents that cover such licensed product in such country. Under the WuXi Agreement, either party may terminate the agreement upon an uncured material breach or insolvency of the other party. Additionally, we may terminate the agreement upon specified prior written notice to WuXi. WuXi may terminate the agreement for any challenge brought by us, our affiliates and our sublicensees of the validity, scope, enforceability or patentability of the licensed patents, unless we abandon such challenge, or in the case of our sublicensees, terminate the applicable sublicense.
15
Clinical Trial Collaboration and Supply Agreement with MSD International GmbH
In July 2020, we entered into a clinical trial collaboration and supply agreement, or the MSD Agreement, with MSD International GmbH, an affiliate of Merck & Co., Inc. (known as MSD outside the United States and Canada), to evaluate the safety and tolerability of ONCR-177 combined with Merck’s cancer immunotherapy KEYTRUDA (pembrolizumab), a humanized anti-human PD-1 monoclonal antibody, in our Phase 1 clinical trial in patients with solid tumors. The MSD Agreement provides that we conduct the trial at our own cost with MSD contributing its compound for use in the clinical trial without financial obligation to us, except that we may be required to reimburse MSD for the cost of its compound upon certain early termination events. The parties equally own the clinical data and inventions arising from the combination study, with the exception of inventions relating solely to each party’s compound class. The MSD Agreement will expire upon the delivery of a written report on the results of the study, unless earlier terminated or agreed by the parties.
Each party has the right to terminate the MSD Agreement in the event of an uncured material breach by the other party. In addition, each party may terminate the agreement upon its own good faith determination that the study may unreasonably affect patient safety or that termination is required for medical, scientific, legal or regulatory reasons, or if an applicable regulatory authority takes any action that prevents the supply of its respective compound for use in the trial. In addition, MSD may terminate the agreement and its supply of KEYTRUDA if MSD believes in good faith that its compound is being used in an unsafe manner in the trial and we fail to promptly incorporate any requested changes into the trial protocol.
Gaeta Agreement
In November 2021, we entered into a license agreement with Gaeta Therapeutics Ltd., or Gaeta, pursuant to which Gaeta has granted us an exclusive, worldwide sublicense under certain patent rights related to the local delivery or expression of IL-12 with a systemic checkpoint inhibitor to make and have made, use, have used, sell, offer for sale, export and import any products we develop that would otherwise infringe upon such patent rights when administered in combination with a checkpoint blockade agent in the field of oncolytic viral therapy. Gaeta is the licensee of these patent rights under a separate license agreement with the University of Zurich, or UZH, pursuant to which Gaeta is entitled to sublicense the patent rights and has agreed not to enter into (and to ensure that UZH not enter into) any further sublicense with respect to the patent rights in the field.
In connection with our entry into the license agreement with Gaeta, we paid Gaeta an up-front fee of $0.2 million. We are obligated to make certain additional milestone payments to Gaeta, including a low six-figure payment related to the achievement of a certain patent-related milestone in the United States, and certain clinical and regulatory milestone payments on a product-by-product and indication-by-indication basis, which milestone payments amount to $7.5 million in the aggregate for a given product or indication, with an additional annual payment in the low single-digit millions following regulatory approval of each product. We are also obligated to pay tiered royalties on cumulative net sales of all products ranging from the low to mid single-digit millions, up to $2.5 million in the aggregate for cumulative net sales in excess of a mid nine-digit threshold with additional payments in the mid single-digit millions thereafter upon the achievement of additional net sales milestones.
The license agreement with Gaeta will terminate upon the last to expire of any patent included in the applicable patent rights. Additionally, Gaeta may terminate the agreement for cause upon written notice to us if (i) we directly or indirectly oppose or dispute the grant of letters patent or any patent application within the patent rights, (ii) we are in material breach of the license agreement with Gaeta and fail to remedy such breach within sixty days of Gaeta providing notice thereof in writing, or (iii) we are deemed bankrupt or insolvent or become subject to similar proceedings. We may terminate the license agreement with Gaeta with or without cause upon sixty days’ prior written notice to Gaeta. In the event that UZH terminates the head license with Gaeta, we have the right to become a direct licensee of UZH with substantially the same rights and obligations as it is entitled to under the license agreement with Gaeta, subject to certain qualifications.
NOF Agreement
In October 2022, we entered into a license agreement with NOF Corporation, or NOF. Under the license agreement with NOF, or the NOF Agreement, we obtained a non-exclusive, worldwide (except with respect to China and other specified territories in Asia), sublicensable (subject to certain limitations) license from NOF under certain patent claims of NOF relating to NOF’s cationic lipid, or NOF Lipid, to develop, manufacture, and commercialize products made of or from NOF Lipid and a nucleic acid, or Oncorus Products, including ONCR-021. The NOF Lipid is one of multiple lipids that comprise the proprietary LNP associated with ONCR-021. NOF will supply the NOF Lipid to be used for the development, manufacture and commercialization of Oncorus Products pursuant to a supply agreement to be negotiated and entered into by the parties.
16
The NOF Agreement provides for an initial license payment of $0.5 million, which was paid to NOF upon signing, and we may be obligated to make milestone payments to NOF of up to approximately $25 million in the aggregate upon the achievement of specified development and regulatory milestones. In the event that more than one Oncorus Product achieves such milestones, or if an Oncorus Product achieves the specified milestones for additional indications, we will be obligated to make additional milestone payments between approximately $5 million and approximately $10 million for each such additional product and/or indication. We are also obligated to pay NOF royalties on net sales of Oncorus Products at a percentage in the low single digits, subject to standard reductions. The obligation to pay royalties under the NOF Agreement commences on the first commercial sale of the first Oncorus Product anywhere in the licensed territory, and expires on a jurisdiction-by-jurisdiction basis after a specified number of years following the first commercial sale of the first Oncorus Product anywhere in the licensed territory, or if later, the date upon which no licensed patent claim validly exists in such jurisdiction.
The NOF Agreement expires upon expiration of all royalty obligations. We may terminate the NOF Agreement for convenience upon prior written notice to NOF. NOF may terminate the NOF Agreement if we fail to pay any undisputed amount due under the NOF Agreement, or if NOF reasonably determines that we have not been engaged in any material activities for the development, manufacture or commercialization of any Oncorus Product for a specified period of time. Additionally, either party may terminate the NOF Agreement upon an uncured material breach by the other party, in the event of the other party’s insolvency, or if all clinical trials for the Oncorus Products in all jurisdictions in the licensed territory fail and/or all applications for regulatory approvals in all jurisdictions in the licensed territory are rejected, and it is reasonably determined that there is no possibility of further clinical trials or applications for regulatory approvals in any jurisdiction in the licensed territory being successful.
Government Regulation
In the United States, the FDA regulates biologic products under the Federal Food, Drug, and Cosmetic Act, or the FDCA, the Public Health Service Act, or the PHSA, and regulations and guidance implementing these laws. The FDCA, PHSA and their corresponding regulations govern, among other things, the testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution, reporting, advertising and other promotional practices involving biologic products. Clearance from the FDA is required before conducting human clinical testing of biologic products. FDA licensure also must be obtained before marketing of biologic products. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.
U.S. Biologic Products Development Process
Any biologic product must be licensed by the FDA before it may be legally marketed in the United States. The process required by the FDA before a biologic product candidate may be marketed in the United States generally involves the following:
Before testing any biologic product candidate in humans, the product candidate must undergo preclinical testing. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as in vivo studies to assess the potential safety and activity of the product candidate and to establish a rationale for therapeutic use. The conduct of the preclinical tests must comply with federal regulations and requirements including GLPs.
17
Concurrent with clinical trials, companies usually must complete some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the drug in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA also may impose clinical holds on a biologic product candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical studies to begin, or that, once begun, issues will not arise that suspend or terminate such studies.
Human Clinical Trials Under an IND
Clinical trials involve the administration of the biologic product candidate to healthy volunteers or patients under the supervision of qualified investigators which generally are physicians not employed by, or under, the control of the trial sponsor. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety, including stopping rules that assure a clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to the protocol must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence. Clinical trials must be conducted and monitored in accordance with the FDA’s regulations comprising the GCP requirements, including the requirement that all research subjects provide informed consent.
Further, each clinical trial must be reviewed and approved by an IRB at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers items such as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent that must be signed by each clinical trial subject, or their legal representative, reviews and approves the study protocol, and must monitor the clinical trial until completed.
Human clinical trials typically are conducted in three sequential phases that may overlap or be combined:
Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial approval. These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA.
18
Written IND safety reports must be promptly submitted to the FDA and the investigators for: serious and unexpected adverse events; any findings from other trials, in vivo laboratory tests or in vitro testing that suggest a significant risk for human subjects; or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information.
The FDA or the sponsor or its data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biologic product candidate has been associated with unexpected serious harm to patients.
Compliance with cGMP Requirements
Manufacturers of biologics must comply with applicable cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Manufacturers and others involved in the manufacture and distribution of such products also must register their establishments with the FDA and certain state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the FDA upon their initial participation in the manufacturing process. Establishments may be subject to periodic, unannounced inspections by government authorities to ensure compliance with cGMP requirements and other laws. Discovery of problems may result in a government entity placing restrictions on a product, manufacturer or holder of an approved BLA, and may extend to requiring withdrawal of the product from the market. The FDA will not approve a BLA unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specification.
Concurrent with clinical trials, companies usually complete additional preclinical studies and must also develop additional information about the physical characteristics of the biologic product candidate as well as finalize a process for manufacturing the product candidate in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents or of causing other adverse events with the use of biologic products, the PHSA emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other requirements, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biologic product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the biologic product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. Review and Approval Processes
The results of the preclinical tests and clinical trials, together with detailed information relating to the product’s CMC and proposed labeling, among other things, are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts the PDUFA user fees on an annual basis. The PDUFA also imposes an annual product fee for biologics and an annual establishment license fee on facilities used to manufacture prescription biologics. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on BLAs for product candidates designated as orphan drugs, unless the product candidate also includes a non-orphan indication.
The FDA reviews a BLA within 60 days of submission to determine if it is substantially complete before the agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In that event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth, substantive review of the BLA.
The FDA reviews the BLA to determine, among other things, whether the proposed product candidate is safe and potent, or effective, for its intended use, has an acceptable purity profile and whether the product candidate is being manufactured in accordance with cGMP to assure and preserve the product candidate’s identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel biologic products or biologic products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During the product approval process, the FDA also will determine whether a risk evaluation and mitigation strategy, or REMS, is necessary to assure the safe use of the product candidate. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product,
19
seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. A REMS could include medication guides, physician communication plans and elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a REMS, if required.
Before approving a BLA, the FDA will inspect the facilities at which the product candidate is manufactured. The FDA will not approve the product candidate unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product candidate within required specifications. Additionally, before approving a BLA, the FDA typically will inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND trial requirements and GCP requirements.
On the basis of the BLA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the biologic product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter.
If a product candidate receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post-marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biologic product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.
The FDA has agreed to specified performance goals in the review of BLAs under the PDUFA. One such goal is to review standard BLAs in ten months after the FDA accepts the BLA for filing, and priority BLAs in six months, whereupon a review decision is to be made. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs and its review goals are subject to change from time to time. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.
Post-approval Requirements
Rigorous and extensive FDA regulation of biologic products continues after approval, particularly with respect to cGMP requirements. Manufacturers are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biologic products include reporting of cGMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse effects, reporting updated safety and efficacy information and complying with electronic record and signature requirements. After a BLA is approved, the product also may be subject to official lot release. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA, together with a release protocol, showing a summary of the history of manufacture of the lot and the results of all tests performed on the lot. The FDA also may perform certain confirmatory tests on lots of some products before releasing the lots for distribution. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency and effectiveness of biologic products.
A sponsor also must comply with the FDA’s advertising and promotion requirements, such as 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”). The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. Violations relating to the promotion of off-label uses may lead to investigations alleging violations of federal and state healthcare fraud and abuse and other laws, as well as state consumer protection laws. Companies, however, may generally share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
20
Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal actions and adverse publicity. These actions could include refusal to approve pending applications or supplemental applications, withdrawal of an approval, clinical hold, suspension or termination of a clinical trial by an IRB, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines or other monetary penalties, refusals of government contracts, mandated corrective advertising or communications with healthcare providers, debarment, restitution, disgorgement of profits or other civil or criminal penalties.
U.S. Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of FDA approval of product candidates, some of a sponsor’s U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period generally is one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved biologic product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. Moreover, a given patent may only be extended once based on a single product. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.
Other Healthcare Laws and Regulations
Healthcare providers and third-party payors play a primary role in the recommendation and use of pharmaceutical products that are granted marketing approval. Arrangements with third-party payors, existing or potential customers and referral sources, including healthcare providers, are subject to broadly applicable fraud and abuse, and these laws and regulations may constrain the business or financial arrangements and relationships through which manufacturers conduct clinical research, market, sell and distribute the products for which they obtain marketing approval. Such restrictions under applicable federal and state healthcare laws and regulations include the following:
21
Violation of the laws described above or any other governmental laws and regulations may result in significant penalties, including administrative, civil and criminal penalties, damages, fines, the curtailment or restructuring of operations, the exclusion from participation in federal and state healthcare programs, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, imprisonment, and additional reporting requirements and oversight if a person becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws. Furthermore, efforts to ensure that business activities and business arrangements comply with applicable healthcare laws and regulations can be costly for manufacturers of branded prescription products.
Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. In the United States, sales of any product candidates for which regulatory approval for commercial sale is obtained will depend in part on the availability of coverage and adequate reimbursement from third-party payors. Third-party payors include government authorities and health programs in the United States such as Medicare and Medicaid, managed care providers, private health insurers and other organizations. These third-party payors are increasingly reducing reimbursements for medical products and services. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of FDA-approved drugs for a particular indication. Additionally, the containment of healthcare costs has become a priority of federal and state 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, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results.
A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. New metrics frequently are used as the basis for reimbursement rates, such as average sales price, average manufacturer price and actual acquisition cost. In order to obtain coverage and reimbursement for any product that might be approved for sale, it may be necessary to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the products, in addition to the costs required to obtain regulatory approvals. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit.
The marketability of any product candidates for which we or our collaborators receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we or our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
22
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies. European Union member states may approve a specific price for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other member states allow companies to fix their own prices for products, but monitor and control company profits. The downward pressure on health care costs has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations may not allow favorable reimbursement and pricing arrangements.
Health Reform
The United States and some foreign jurisdictions are considering or have enacted a number of reform proposals to change the healthcare system. There is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by federal and state legislative initiatives, including those designed to limit the pricing, coverage, and reimbursement of pharmaceutical and biopharmaceutical products, especially under government-funded health care programs, and increased governmental control of drug pricing.
By way of example, in March 2010, the ACA was signed into law, intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose taxes and fees on the healthcare industry and impose additional health policy reforms. Among the provisions of the ACA of importance to our business are:
Since its enactment, there have been executive, judicial and Congressional challenges to certain aspects of the ACA. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the ACA. For example, former President Trump signed several Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA. Concurrently, Congress considered legislation to repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing penalties, effective January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance and delaying the implementation of certain ACA-mandated fees. In addition, on June 17, 2021 the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the ACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminates the "donut hole" under the Medicare Part D program beginning in 2025
23
by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is possible the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform measures of the Biden administration will impact the ACA and our business.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, 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 2012 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 of up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect until 2032, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 due to the COVID-19 pandemic, unless additional Congressional action is taken. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. In January 2013, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to certain providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
There also has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, the U.S. Department of Health and Human Services, or HHS, released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. Further, the IRA, among other things (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. Additionally, the Biden administration released an additional executive order on October 14, 2022, directing HHS to report on how the Center for Medicare and Medicaid Innovation can be further leveraged to test new models for lowering drug costs for Medicare and Medicaid beneficiaries. At the state level, individual states in the United States have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that these initiatives, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded 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.
Additional Regulation
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservation and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern the use, handling and disposal of various biologic, chemical and radioactive substances used in, and wastes generated by, operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. Equivalent laws have been adopted in other countries that impose similar obligations.
24
U.S. Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act, or FCPA, prohibits U.S. corporations and individuals from engaging in certain activities to obtain or retain business abroad or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value, directly or indirectly, to any foreign government official, government staff member, official or employee of a public international organization, or a political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. The scope of the FCPA includes interactions with healthcare professionals of foreign state-owned or affiliated hospitals, universities, or research institutions. Equivalent laws have been adopted in other foreign countries that impose similar obligations.
Employees and Human Capital
As of December 31, 2022, we had 64 full-time employees. Of these 64 employees, 50 employees were engaged in research and development. None of our employees is subject to a collective bargaining agreement or represented by a trade or labor union. We consider our relationship with our employees to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plans are to attract, retain and reward personnel through the granting of stock-based compensation awards in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
Corporate Information
We were incorporated under the laws of the State of Delaware under the name Oncorus, Inc. in April 2015. Our principal executive office is located at 4 Corporate Drive, Andover, Massachusetts 01810. Our telephone number is (339) 240-3330. We completed our initial public offering in October 2020 and our common stock is listed on the Nasdaq Global Market under the symbol “ONCR.”
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and, accordingly, file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, with the Securities and Exchange Commission, or the SEC. In addition, the SEC maintains a web site (http://www.sec.gov) that contains material regarding issuers that file electronically, such as ourselves, with the SEC.
We maintain a website at www.oncorus.com, to which we regularly post copies of our press releases as well as additional information about us. Our filings with the SEC will be available free of charge through the website as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Information contained in our website is not a part of, nor incorporated by reference into, this Annual Report on Form 10-K or our other filings with the SEC, and should not be relied upon.
25
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. Investors should carefully consider the risks and uncertainties described below, as well as the information in the section of this Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our consolidated financial statements and related notes appearing elsewhere in this report, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, financial condition, operating results and prospects could be materially harmed. In that event, the price of our common stock could decline, and investors could lose part or all of their investment.
Risks Related to Our Financial Position, Indebtedness and Need for Additional Capital
We have a limited operating history. We have incurred significant losses since our inception and anticipate that we will incur significant and increasing losses for the foreseeable future and we may never achieve or maintain profitability.
We have a limited operating history, and we are early in our development efforts. Since our inception in April 2015, we have incurred significant operating losses. Our net loss was $77.4 million and $64.8 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $272.0 million. Since inception, we have devoted substantially all of our financial resources and efforts to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing and maintaining our intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing clinical trials and supporting the build out of our manufacturing facility and capabilities. Our product candidates are still in the early stages of development, and we have not completed the development of or commercialized any product candidates to date. We expect to continue to incur significant and increasing operating losses for the foreseeable future. We expect that it will be several years, if ever, before we have a commercialized product. The net losses we incur may fluctuate significantly from quarter to quarter and year to year. We anticipate that we will continue to incur net losses and that our expenses will increase substantially if, and as, we:
To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining regulatory approval for product candidates and manufacturing, marketing and selling products for which we may obtain marketing approval and satisfying any post-marketing requirements. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, we may never generate sufficient revenue to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts or even continue our operations.
26
We will require substantial additional capital to advance the development of our product candidates, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, potential commercialization efforts or other operations.
The development of biopharmaceutical product candidates is capital-intensive. Our operations have consumed substantial amounts of cash since inception. As of December 31, 2022, our cash and cash equivalents and investments were $62.2 million. In October 2020, we completed an initial public offering of our common stock, or IPO, which provided net proceeds of $88.3 million. In February 2021, we completed a follow-on public offering of our common stock, or the Follow-on Offering, which provided net proceeds of $53.0 million. In April 2022, we entered into a loan and security agreement with K2 HealthVentures, LLC, which provided us with $20.0 million in loan proceeds at closing, along with the potential to access additional proceeds, subject to our achievement of certain development, regulatory and time-based milestones.
We expect to continue to spend substantial amounts of capital to continue the preclinical and clinical development of our current and future programs. If we are able to gain marketing approval of any product candidate that we develop, we will require significant additional amounts of cash in order to launch new product candidates and programs and ultimately commercialize such product candidates either alone or in collaboration with others. In November 2022, we announced the discontinuation of our Phase 1 clinical trial of our product candidate ONCR-177 and a reprioritization of our product pipeline. Following this announcement, we are devoting significant capital towards the development of ONCR-021, including our plans to submit an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or FDA, in mid-2023. Further development of product candidates from our self-amplifying vRNA immunotherapy and HSV platforms is dependent on our ability to obtain additional financing or enter into strategic partnerships, of which no terms or conditions have been identified at this time.
Because the design and outcome of our ongoing, anticipated and any future clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of any product candidate we develop. Our future capital requirements depend on many factors, including:
27
We do not currently have any committed external source of funds or other support for our development efforts. Until we can generate sufficient product revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings and debt financings, or other sources financing such as collaborations, strategic alliances, licensing and other arrangements. Based on our current research and development plans, our cash and cash equivalents and investments at December 31, 2022 will enable us to fund our planned operating expenses and capital expenditure requirements into early 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. In addition, because the design and outcome of our planned and potential future clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of ONCR-021, ONCR-788, ONCR-GBM or any future product candidates.
Our existing cash and cash equivalents and investments will not be sufficient to complete development of ONCR-ONCR-021 oSr any other product candidate. Currently, further development of ONCR-788 and ONCR-719 is dependent on our ability to secure additional funding or a strategic arrangement with a third party. Accordingly, we will be required to obtain further funding to achieve our business objectives and to meet our stated milestones with respect to our current product candidates. Adequate additional funding may not be available to us on acceptable terms, or at all. Our ability to raise additional capital may be adversely impacted by worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from macroeconomic factors outside of our control, such as recent and potential future bank failures, global geopolitical tension, the heightened inflation and rising interest rates, as well as the COVID-19 pandemic and other public health crises. If we are unable to raise additional funding in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue our research and development initiatives. We could also be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves. Any of these events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.
We have never generated any revenue from product sales and may never become profitable.
Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with future partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our product candidates and programs. We have no products approved for commercial sale, have not generated any revenue from product sales, and do not anticipate generating any revenue from product sales until after we have received marketing approval for the commercial sale of a product candidate, if ever. Our ability to generate revenue and achieve profitability depends heavily on our success in achieving a number of goals, including:
28
Even if ONCR-021 or any future product candidates that we develop are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any such product candidate that we commercialize on our own or in collaboration with others. Our expenses could increase beyond expectations if we are required by the FDA or comparable foreign regulatory authorities to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate.
If we are successful in obtaining regulatory approvals to market ONCR-021 or any future product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories in which we gain marketing approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indications approved by regulatory authorities are narrower than we expect, the labels for our product candidates contain significant safety warnings, regulatory authorities impose burdensome or restrictive distribution requirements, or the reasonably accepted patient populations for treatment are narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if they are approved. If we are not able to generate revenue from the sale of any approved products, we could be prevented from or significantly delayed in achieving profitability.
We have identified conditions and events that raise substantial doubt about our ability to continue as a going concern.
We do not believe that our cash, cash equivalents and investments as of the date of this Annual Report on Form 10-K will be sufficient to enable us to fund our current operations for at least 12 months from the date of issuance of the financial statements included in this Annual Report on Form 10-K, and have therefore concluded that this circumstance raises substantial doubt about our ability to continue as a going concern. The report from our independent registered public accounting firm for the year ended December 31, 2022 includes an explanatory paragraph stating that our losses from operations and required additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern for a period of one year after the date the financial statements are issued. See Note 1 to our financial statements appearing elsewhere in this Annual Report on Form 10-K for additional information on our assessment and our auditors' report.
If we are unable to continue as a going concern, we might have to liquidate our assets, and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements, and it is likely that investors will lose all or a part of their investment. There can be no assurance that our current operating plan will be achieved in the time frame anticipated by us, or that additional funding will be available on terms acceptable to us, or at all. Our lack of cash resources and our conclusion that we may be unable to continue as a going concern may materially adversely affect our share price and our ability to raise new capital or to enter into critical contractual relations with third parties.
The terms of our loan agreement place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our operating and financial flexibility.
In April 2022, we entered into a loan and security agreement, or the Loan Agreement, with K2 HealthVentures LLC, or K2HV. At closing we borrowed $20.0 million in the first tranche under the Loan Agreement. We may borrow an additional $15.0 million based upon the achievement of certain time-based, clinical and regulatory developments, and an additional $10.0 million at the discretion of the lenders.
Our obligations under the Loan Agreement are secured by a security interest in substantially all of our assets, other than certain intellectual property assets. The Loan Agreement includes customary affirmative and negative covenants, as well as standard events of default, including an event of default based on the occurrence of a material adverse event. The negative covenants include, among others, restrictions on us transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying cash dividends or making other distributions, making investments, creating liens, selling assets and making any payment on subordinated debt, in each case subject to certain exceptions. These restrictive covenants could limit our flexibility in operating our business and our ability to pursue business opportunities that we or our stockholders may consider beneficial. In addition, K2HV could declare a default upon the occurrence of any event that it interprets could have material adverse effect, subject to the limitations specified in the Loan Agreement. Upon the occurrence and continuance of an event of default, K2HV may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. Any declaration of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline. If we are liquidated, the rights of our lenders to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation. We may not have enough available cash or be able to raise additional funds through equity or debt financings to repay these outstanding obligations at the time any event of default occurs. Further, if we raise any additional capital through debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.
29
We are exposed to interest rate risk under our Loan Agreement with K2HV, which could cause our debt service obligations to increase significantly.
We are exposed to market risk from changes in interest rates. Our Term Loan with K2HV bears a variable interest rate equal to the greater of (i) 7.75% and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) and (B) 4.25%. The Federal Reserve has recently raised, and may in the future further raise, interest rates to combat the effects of recent high inflation. An increase in interest rates by the Federal Reserve has and could in the future cause the prime rate to increase, which has and could in the future increase our debt service obligations. Significant increases in such obligations could have a negative impact on our financial position or operating results, including cash available for servicing our indebtedness, or result in increased borrowing costs in the future.
Adverse developments affecting financial institutions, companies in the financial services industry or the financial services industry generally, such as actual events or concerns involving liquidity, defaults or non-performance, could adversely affect our operations and liquidity.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or the FDIC, as receiver. As of March 10, 2023, a portion of our cash and cash equivalents were held in deposit and sweep accounts with SVB. On March 12, 2023, the FDIC, the Federal Reserve and the Department of the Treasury jointly announced that all assets held at SVB would be available to all customers commencing March 13, 2023.
The amounts held in the deposit accounts are in excess of the insurance coverage offered by the FDIC and we believe that the amounts in the cash sweep account continue to be our assets and not the assets of SVB. We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the FDIC, the loss of which would have a severe negative affect on our operations and liquidity.
Notwithstanding the resolution of SVB's closure in March 2023, uncertainty and liquidity concerns in the broader financial services industry remain. Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. The U.S. Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments. However, widespread demands for customer withdrawals or other needs of financial institutions for immediate liquidity may exceed the capacity of such program. There is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions in a timely fashion or at all.
Our access to our cash and cash equivalents in amounts adequate to finance our operations could be significantly impaired by the financial institutions with which we have arrangements directly facing liquidity constraints or failures. In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any material decline in available funding or our ability to access our cash and cash equivalents could adversely impact our ability to meet our operating expenses, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws, any of which could have material adverse impacts on our operations and liquidity.
Raising additional capital through securities issuances or other transactions may cause dilution to our stockholders and restrict our operations or require us to relinquish rights to our technologies or product candidates.
If we raise additional capital through the sale of equity or convertible debt securities or through other strategic transactions, the ownership interests of our existing common stockholders may be diluted, our fixed payment obligations may increase, any such securities may have rights senior to those of our common stock, and the terms may include liquidation or other preferences and anti-dilution protections that adversely affect the rights of our existing common stockholders. Future issuances of our common stock or other equity securities, or the perception that such sales may occur, could adversely affect the prevailing market price of our common stock and impair our ability to raise capital through future offerings of equity or equity-linked securities. For example, in October 2020, we issued an aggregate of 6,557,191 shares of common stock in our IPO, and in February 2021, we issued 3,000,000 shares of common stock in our Follow-On Offering. Additionally, in November 2021, we filed a registration statement on Form S-3, or the Registration Statement, with the Securities and Exchange Commission, or SEC, pursuant to which we may offer up to $200 million in common stock, preferred stock, debt securities and warrants to the public, $50 million of which is allocated to our At-the-Market, or ATM, sales facility with Jefferies LLC. As of the date of this Annual Report on Form 10-K, we have not yet made any sales under our ATM facility with Jefferies. In addition, under our loan agreement with K2 HealthVentures, LLC, the lender may convert up to $5
30
million of their outstanding principal at any time at a conversion price specified in the loan agreement. Any future debt financings we undertake, if available, are likely to involve restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, or conversion features that have the potential to increase dilution to current stockholders. If we raise additional funds through licensing or collaboration arrangements with third parties or through other strategic transactions, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. We could also be required to seek collaborators for product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves.
Our failure to obtain capital when needed on acceptable terms may force us to delay, limit or terminate our product development and commercialization of our current or future product candidates, which could have a material and adverse effect on our business, financial condition, results of operations and prospects. Securing additional financing could also require a substantial amount of time from our management and may divert a disproportionate amount of their attention away from daily activities, which may adversely affect our management’s ability to oversee the development of ONCR-021, ONCR-788, ONCR-GBM or any future product candidates.
Our short operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.
We are an early-stage company. We were founded and commenced our operations in 2015, which to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing and winding down clinical trials and manufacturing scale-up activities. All of our research programs are still in preclinical development, and their risk of failure is high. We have not yet demonstrated an ability to successfully complete any clinical trials, including large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial-scale therapy, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes approximately 10 to 15 years to develop a new therapy from the time it is discovered to when it is approved and available for treating patients. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. We will need to transition from a company primarily focused on research and in the early stages of launching a clinical trial to a company capable of supporting clinical activities on a larger scale and commercial activities. We may not be successful in such a transition.
Risks Related to Product Discovery, Development and Regulatory Approval
Our product candidates are in the early stages of development, are not approved for commercial sale and might never receive regulatory approval or become commercially viable.
We are very early in our development efforts and all of our product candidates are in research or preclinical development. We have not completed the development of any product candidates. We currently generate no revenue from sales of our products and we may never be able to develop a marketable product. In June 2020, we commenced clinical development of ONCR-177, our first product candidate to enter into the clinic since our inception as a company. In November 2022, we announced that we were reprioritizing our product pipeline to focus on our lead self-amplifying vRNA immunotherapy product candidate, ONCR-021, with plans to submit an IND to the FDA in mid-2023 to evaluate ONCR-021 in patients with non-small cell lung cancer, renal cell carcinoma, melanoma and anaplastic thyroid cancer. Subject to FDA clearance, we plan to commence in-human studies of ONCR-021 shortly thereafter. We are currently in the process of winding down our clinical trial of ONCR-177.
Additionally, we have a portfolio of programs, including ONCR-GBM, another program from our HSV platform, which is currently in preclinical development, and another program from our self-amplifying RNA platform, ONCR-788, the further development of which is dependent upon additional funding for such programs. These additional programs may never advance to clinical-stage development. Our ability to generate product revenues, which we do not expect will occur for several years, if ever, will depend on obtaining regulatory approvals for, and successfully commercializing our product candidates, either alone or in collaboration with others, and we cannot guarantee that we will ever obtain regulatory approval for any of our product candidates. Before obtaining regulatory approval for the commercial distribution of our product candidates, we, or a future collaborator, must conduct extensive preclinical tests and clinical trials to demonstrate the safety and efficacy in humans of our product candidates.
31
The success of ONCR-021 and our future product candidates will depend on several factors, including the following:
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our drug candidates, which would materially harm our business.
Following our decision to discontinue the Phase 1 clinical trial of ONCR-177, we do not currently have any product candidates in clinical development. This decision may adversely affect our business and future product development efforts.
We invested a significant portion of our efforts and financial resources in the programs from our HSV platform and our self-amplifying RNA platform, particularly in the development of ONCR-177. We commenced our Phase 1 clinical trial of ONCR-177 in June 2020, and released preliminary data from Part 1 of the trial in November 2021. In November 2022, we announced that we were reprioritizing our product pipeline to focus on our lead self-amplifying vRNA immunotherapy product candidate, ONCR-021, with plans to evaluate ONCR-021 in patients with non-small cell lung cancer, renal cell carcinoma, melanoma, anaplastic thyroid cancer and hepatocellular carcinoma. We are currently in the process of winding down our clinical trial of ONCR-177.
To date we have only submitted one IND with respect to one product candidate, ONCR-177, and we have not yet submitted a Biologics License Application, or BLA, to the FDA, or similar regulatory approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that our product candidates will be successful in clinical trials or receive regulatory approval to warrant such future submissions. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials.
Since ONCR-177 is based on our HSV platform, our decision to discontinue its further clinical development may be perceived as a result of an underlying problem with our HSV platform, which may impede any future development efforts we undertake for product candidates that are based on this therapeutic approach, such as ONCR-GBM or other product candidates that we nominate from the HSV platform. The same risk applies to ONCR-021, ONCR-788 and other products developed from our self-amplifying RNA platform. Our decision to discontinue the further clinical development of ONCR-177 may have a negative effect on our ability to successfully launch and run future clinical trials, such as our planned clinical trial of ONCR-021, or may be perceived as a result of underlying problems affecting our self-amplifying RNA platform as well. We can provide no assurance that we will be successful at developing ONCR-021 or any future product candidates based on either product platform.
32
Products from our self-amplifying RNA platform are based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of their clinical development.
We have concentrated all of our research and development efforts on product candidates based on our self-amplifying RNA platform and our HSV platform, each of which is novel. Our self-amplifying RNA platform has not yet produced a product candidate that has been tested in clinical trials. Our future success depends on the successful development of ONCR-021 from our self-amplifying RNA platform. There can be no assurance that any development problems we experience in the future will not cause significant delays or unanticipated costs, or that such development problems can be resolved. Should we encounter challenges in the course of drug development, including unfavorable preclinical or clinical trial results, the FDA or foreign regulatory authorities may refuse to approve our product candidates, or may require additional information, tests or trials, which could significantly delay product development and significantly increase our development costs. Moreover, even if we are able to provide the requested information or trials to the FDA, there would be no guarantee that the FDA would accept them or approve our product candidates. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process, or developing or qualifying and validating product release assays, other testing and manufacturing methods, and our equipment and facilities in a timely manner, which may prevent us from completing our clinical trials or commercializing our product candidates on a timely or profitable basis, if at all.
In addition, the clinical trial requirements of the FDA and comparable foreign regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The FDA and comparable foreign regulatory authorities have limited experience with the approval of RNAs encapsulated in lipid nanoparticles. There are only three RNA/LNP therapeutics approved globally, patisiran (Onpattro), tozinameran (Comirnaty), and elasomeran (Spikevax). Any RNA/LNP therapies that are approved may be subject to extensive post-approval regulatory requirements, including requirements pertaining to manufacturing, distribution and promotion. We may need to devote significant time and resources to compliance with these requirements.
Preclinical and clinical development involve a lengthy and expensive process with uncertain outcomes, and delays can occur for a variety of reasons outside of our control.
In order to obtain FDA approval to market a new biological product, we must demonstrate proof of safety, purity and potency and efficacy in humans. To meet these requirements, we will have to conduct adequate and well-controlled clinical trials. Before we can commence a clinical trial for ONCR-021 or any product candidate, we must complete extensive preclinical testing and studies that support our planned IND submission in the United States. We cannot be certain of the timely completion or outcome of our preclinical testing and studies or clinical trials and cannot predict if the FDA will accept our proposed clinical programs or if the outcome of our preclinical testing and studies or clinical trials will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit an IND for ONCR-021 on the timeline we expect, if at all; we cannot be sure that submission of INDs or similar applications for ONCR-021 or any product candidates will result in the FDA or other regulatory authorities allowing clinical trials to begin; and we cannot be sure that our planned clinical trials will begin on time or that they will be completed on schedule.
Conducting preclinical testing and clinical development is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity and novelty of the program, and often can be several years or more per program. Delays associated with programs for which we are directly conducting preclinical testing and studies may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the preclinical testing and studies of certain programs that are the responsibility of any potential future partners over which we have no control. The commencement and rate of completion of preclinical studies and clinical trials for a product candidate may be delayed by many factors, including, for example:
33
We may experience delays in initiating or completing clinical trials, including the planned Phase 1 clinical trial for ONCR-021. We also may experience numerous unforeseen events during, or as a result of, any ongoing or future clinical trials that we could conduct that could delay or prevent our ability to receive marketing approval for or commercialize any current or future product candidates, including:
34
Our product development costs will also increase if we experience delays in clinical testing or marketing approvals, and we may not have sufficient funding to complete the testing and approval process for any of our current or future product candidates. We may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our product candidates. We do not know whether any preclinical tests or clinical trials beyond what we currently have planned will be required, will begin as planned, will need to be restructured, or will be completed on schedule or at all. Significant delays relating to any preclinical studies or clinical trials also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, delays in clinical trials may ultimately lead to the denial of marketing approval of any of our product candidates. Any delays in our clinical development programs may harm our business, financial condition and results of operations significantly.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for ONCR-021 or any future product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or foreign regulatory authorities. In addition, some of our competitors may have ongoing clinical trials for drug candidates that treat the same indications as our drug candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.
Patient enrollment is affected by other factors, including:
35
Our inability to enroll sufficient patients for our anticipated and any future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which could have an adverse effect on our business, financial condition, results of operations, and prospects. In addition, disruptions caused by the COVID-19 pandemic or similar public health crises may increase the likelihood that we encounter patient enrollment difficulties.
Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials.
We commenced our Phase 1 clinical trial for our lead product candidate, ONCR-177, in June 2020, and released preliminary data from the monotherapy portion of the trial in November 2021. In November 2022, we announced that we were reprioritizing our product pipeline to focus on ONCR-021, with plans to submit an IND to the FDA in mid-2023 to evaluate ONCR-021 in patients with non-small cell lung cancer, renal cell carcinoma, melanoma and anaplastic thyroid cancer. We are currently in the process of winding down our clinical trial of ONCR-177. Other product candidates generated from our self-amplifying RNA platform, including ONCR-788, and from our HSV platform, including ONCR-GBM, are pending further funding.
We will be required to submit substantial preclinical findings to the FDA in order to support our IND submission for ONCR-021. ONCR-021 may not perform as we expect in clinical trials, may ultimately have a different or no impact on tumors, may have a different mechanism of action than we expect and, despite our preliminary results, may not ultimately prove to be safe and effective. The same risks apply to ONCR-788 and ONCR-GBM, if and when they enter the clinic.
The results of preclinical studies or early clinical trials for ONCR-021, ONCR-788 and ONCR-GBM, or any other product candidate we develop, may not be predictive of the results of later-stage clinical trials. As with ONCR-177, promising results from preclinical studies may not be predictive of sufficient clinical efficacy to warrant further development of the product candidate. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute our clinical trials to support marketing approval for our product candidates. Our experience in designing the clinical trial for ONCR-177 may not be predictive of our ability to design and execute on our planned clinical trial for ONCR-021. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and early clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we, or future collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Moreover, should there be an issue with the design of any of our clinical trials, our results may be impacted. We may not discover such a flaw until the clinical trial is at an advanced stage.
Interim and preliminary or topline data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim topline or preliminary data from our ongoing clinical trials. For example, we announced preliminary data from our Phase 1 trial of ONCR-0177 in November 2021. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues, as additional patients are dosed in monotherapy and in combination with other therapeutics and more patient data become available. Preliminary or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary or topline data previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Preliminary data that we expect to report from our planned clinical trial for ONCR-021 may not be predictive of future readouts, particularly as patients are scanned and data is analyzed from later stages of the trial. Adverse differences between interim or preliminary or topline data and final data could significantly harm our reputation and business prospects.
36
Serious adverse events, undesirable side effects or other unexpected properties of our current or future product candidates may be identified during development or after approval, which could halt their development or lead to the discontinuation of our clinical development programs, refusal by regulatory authorities to approve our product candidates or, if discovered following marketing approval, revocation of marketing authorizations or limitations on the use of our product candidates thereby limiting the commercial potential of such product candidate.
To date, ONCR-177 is the only product candidate that we have tested in humans. In November 2021, we presented preliminary findings from Part 1 of our Phase 1 clinical trial of ONCR-177, including data from 14 patients in the fully enrolled and completed dose escalation cohorts and five patients enrolled in the dose expansion monotherapy portion of the trial. In the fully enrolled and completed surface lesion dose escalation portion of the trial, ONCR-177 administered to heavily pretreated patients with advanced, injectable solid tumors was well tolerated with no dose-limiting toxicities. As of the data cut-off date, no treatment-related adverse events exceeded Grade 2, and the most common Grade 1 and 2 adverse events were fatigue, chills, nausea, and mild, dose-dependent cytokine release syndrome, or CRS. No infectious virions were detected in skin swabs. We plan to explore preliminary safety and tolerability data in the planned clinical trial for ONCR-021 and any future clinical trial we conduct. However, initial results or other preliminary analyses or results of early clinical trials may not be predictive of the data we will receive as the trial progresses or the final trial results.
As we initiate clinical trials for ONCR-021 and any future product candidates we may develop, serious adverse events, undesirable side effects or unexpected characteristics may emerge causing us to abandon these product candidates or limit their development to more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Even if our product candidates initially show promise in early clinical trials, the side effects of therapies are frequently only detectable after they are tested in large, Phase 3 clinical or pivotal trials or, in some cases, after they are made available to patients on a commercial scale after approval. Sometimes, it can be difficult to determine if the serious adverse or unexpected side effects were caused by the product candidate or another factor, especially in oncology subjects who may suffer from other medical conditions and be taking other medications. If serious adverse or unexpected side effects are identified during development and are determined to be attributed to our product candidates, the FDA or comparable foreign regulatory authorities, or IRBs and other reviewing entities, may also require, or we may voluntarily develop, a Risk Evaluation and Mitigation Strategy, or REMS, or other strategies for managing adverse events during clinical development, which could include restrictions on our enrollment criteria, the use of stopping criteria, adjustments to a study’s design, or the monitoring of safety data by a data monitoring committee, among other strategies. Any requests from the FDA or comparable foreign regulatory authority for additional data or information could also result in substantial delays in the approval of our product candidates.
Drug-related side effects could also affect subject recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
In addition, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:
If any of our product candidates are associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. The therapeutic-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
We anticipate that many of our product candidates will be used in combination with third-party drugs, some of which may still be in development, and we have limited or no control over the supply, regulatory status or regulatory approval of such drugs.
In addition to developing our product candidates as monotherapies, we also anticipate developing our product candidates for use in combination with certain immune checkpoint inhibitors. For example, ONCR-177 was administered to patients in our Phase 1 clinical trial in combination with the anti-PD-1 checkpoint inhibitor pembrolizumab, which is being supplied by Merck, pursuant to our
37
clinical trial collaboration and supply agreement entered into in July 2020. In the future, we may enter into additional agreements for the supply of immune checkpoint inhibitors for use in connection with the development of one or more of our product candidates, including with ONCR-021. Our ability to develop and ultimately commercialize our product candidates used in combination with any immune checkpoint inhibitor or other therapy will depend on our ability to access such drugs on commercially reasonable terms for the clinical trials and their availability for use with the commercialized product, if approved. We cannot be certain that current or potential future commercial relationships will provide us with a steady supply of such drugs on commercially reasonable terms or at all.
Any failure to maintain or enter into new successful commercial relationships, or the expense of purchasing immune checkpoint inhibitors in the market, may delay our development timelines, increase our costs and jeopardize our ability to develop our product candidates as commercially viable therapies. If any of these occur, our business, financial condition, results of operations, stock price and prospects may be materially harmed.
Moreover, the development of product candidates for use in combination with another product or product candidate may present challenges that are not faced for single agent product candidates. For our product candidates that may be used in combination with immune checkpoint inhibitors, the FDA may require us to use more complex clinical trial designs to evaluate the contribution of each product and product candidate to any observed effects. It is possible that the results of these trials could show that any positive previous trial results are attributable to the combination therapy and not our product candidates. Moreover, following product approval, the FDA may require that products used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to the other product, this may require us to work with a third party to satisfy such a requirement. Moreover, developments related to the other product may impact our clinical trials for the combination as well as our commercial prospects should we receive marketing approval. Such developments may include changes to the other product’s safety or efficacy profile, changes to the availability of the approved product, and changes to the standard of care.
In the event that any future collaborator or supplier of immune checkpoint inhibitors administered in combination with our product candidates does not supply their products on commercially reasonable terms or in a timely fashion, we would need to identify alternatives for accessing these products. This could cause our clinical trials to be delayed and limit the commercial opportunities for our product candidates, in which case our business, financial condition, results of operations, stock price and prospects may be materially harmed.
We may not be successful in our efforts to expand our pipeline of product candidates and develop marketable products.
A key part of our current strategy is to pursue clinical development of ONCR-021 and, pending receipt of further funding, additional product candidates based on our self-amplifying RNA platform and our HSV platform. Research programs to identify new product candidates require substantial technical, financial and human resources. Developing, obtaining marketing approval for, and commercializing additional product candidates will require substantial additional funding and will be subject to the risks of failure inherent in medical product development. In November 2022, in addition to our decision to reprioritize our product pipeline to focus on ONCR-021, we announced a reduction in our workforce by approximately 20 percent, primarily impacting our discovery research capabilities, with the remaining workforce solely focused on the clinical development of ONCR-021. We cannot provide assurance that we will be able to successfully advance any of these additional product candidates through the development process.
Even if we obtain approval from the FDA or comparable foreign regulatory authorities to market additional product candidates for the treatment of cancer, any such product candidates may not be successfully commercialized, widely accepted in the marketplace, or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize additional product candidates our commercial opportunity may be limited and our business, financial condition, results of operations, stock price and prospects may be materially harmed.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we must prioritize our research programs and will need to focus our product candidates and future research efforts on specific indications and target markets. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may also relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
38
If we do not achieve our product development goals within the timeframes we announce publicly, the further development and commercialization of our product candidates may be delayed and our business may suffer.
Drug development is inherently risky and uncertain. We cannot be certain that we will be able to achieve the following milestones for ONCR-021 or any future product candidates within the timeframes we announce publicly:
The actual timing of our development milestones could vary significantly compared to our estimates, in some cases for reasons beyond our control. If we are unable to achieve our goals within the timeframes we announce, the further development and commercialization of our product candidates may be delayed and, as a result, the stock price of our common stock could fall and investors may lose all of their investment.
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us or any of our potential future collaboration partners from obtaining approvals for the commercialization of ONCR-021 and any other product candidate we develop.
Any current or future product candidate we may develop and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, and distribution, are subject to comprehensive regulation by the FDA and other regulatory authorities in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate in a given jurisdiction. We have not received approval to market any product candidates from regulatory authorities in any jurisdiction and it is possible that none of the product candidates we may seek to develop in the future will ever obtain regulatory approval.
Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy for that indication. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and clinical trial sites by, the regulatory authorities. If we do not receive approval from the FDA and comparable foreign regulatory authorities for any of our product candidates, we will not be able to commercialize such product candidates in the United States or in other jurisdictions. If significant delays in obtaining approval for and commercializing our product candidates occur in any jurisdictions, our business, financial condition, results of operations, stock price and prospects will be materially harmed. Even if our product candidates are approved, they may:
The process of obtaining marketing approvals, both in the United States and abroad, is expensive, takes many years even if successful, and can vary substantially based upon a variety of factors, including the type, complexity, and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
39
If we experience delays in obtaining approval or if we fail to obtain approval of any current or future product candidates we may develop, the commercial prospects for those product candidates may be harmed, and our ability to generate revenues will be materially impaired.
Regulatory approval by the FDA or comparable foreign regulatory authorities is limited to those specific indications and conditions for which approval has been granted, and we may be subject to substantial fines, criminal penalties, injunctions, or other enforcement actions if we are determined to be promoting the use of any products for unapproved or “off-label” uses, resulting in damage to our reputation and business.
We must comply with requirements concerning advertising and promotion for any product candidates for which we obtain marketing approval. Promotional communications with respect to therapeutics are subject to a variety of legal and regulatory restrictions and continuing review by the FDA, Department of Justice, Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress, and the public. When the FDA or comparable foreign regulatory authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific uses and indications for which a product is approved. If we are not able to obtain FDA approval for desired uses or indications for our product candidates, we may not market or promote them for those indications and uses, referred to as off-label uses, and our business, financial condition, results of operations, stock price and prospects will be materially harmed. We also must sufficiently substantiate any claims that we make for any products we develop, including claims comparing our products to other companies’ products, and must abide by the FDA’s strict requirements regarding the content of promotion and advertising.
Because regulatory authorities in the United States generally do not restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine, physicians may choose to prescribe products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical trials and approved by the regulatory authorities. Regulatory authorities do, however, restrict communications by biopharmaceutical companies concerning off-label use. We are prohibited for marking and promoting the products for indications and uses that are not specifically approved by the FDA.
If we are found to have impermissibly promoted any products that we may develop, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations regarding product promotion, particularly those prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted a product may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
In the United States, engaging in the impermissible promotion of our products, following approval, for off-label uses can also subject us to false claims and other litigation under federal and state statutes. These include fraud and abuse and consumer protection laws, which can lead to civil and criminal penalties and fines, agreements with governmental authorities that materially restrict the manner in which we promote or distribute therapeutic products and conduct our business. These restrictions could include corporate integrity agreements, suspension or exclusion from participation in federal and state healthcare programs, and suspension and debarment from government contracts and refusal of orders under existing government contracts. These False Claims Act lawsuits against manufacturers of drugs and biologics have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements, up to $3.0 billion, pertaining to certain sales practices and promoting off-label uses. In addition, False Claims Act lawsuits may expose manufacturers to follow-on claims by private payers based on fraudulent marketing practices. This growth in litigation has increased the risk that a biopharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid, or other federal and state healthcare programs. If we do not lawfully promote our approved products, if any, we may become subject to such litigation and, if we do not successfully defend against such actions, those actions may have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
In the United States, the promotion of biopharmaceutical products is subject to additional FDA requirements and restrictions on promotional statements. If after one or more of our product candidates obtains marketing approval the FDA determines that our promotional activities violate its regulations and policies pertaining to product promotion, it could request that we modify our promotional materials or subject us to regulatory or other enforcement actions, including issuance of warning letters or untitled letters, suspension or withdrawal of an approved product from the market, requests for recalls, payment of civil fines, disgorgement of money, imposition of operating restrictions, injunctions or criminal prosecution, and other enforcement actions. Similarly, industry codes in foreign jurisdictions may prohibit companies from engaging in certain promotional activities and regulatory agencies in various countries may enforce violations of such codes with civil penalties. If we become subject to regulatory and enforcement actions our business, financial condition, results of operations, stock price and prospects will be materially harmed.
40
Obtaining and maintaining marketing approval for our product candidates in one jurisdiction would not mean that we will be successful in obtaining marketing approval of that product candidate in other jurisdictions, which could prevent us from marketing our products internationally.
Obtaining and maintaining marketing approval of our product candidates in one jurisdiction would not guarantee that we will be able to obtain or maintain marketing approval in any other jurisdiction, while a failure or delay in obtaining marketing approval in one jurisdiction may have a negative effect on the marketing approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable foreign regulatory authorities must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign marketing approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed. If we obtain approval for any product candidate and ultimately commercialize that product in foreign markets, we would be subject to additional risks and uncertainties, including the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements and the reduced protection of intellectual property rights in some foreign countries.
Even if our product candidates receive regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense and limit how we manufacture and market our products.
Any product candidate for which we obtain marketing approval will be subject to extensive and ongoing requirements of and review by the FDA or comparable foreign regulatory authorities, including requirements related to the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such product. These requirements further include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listing requirements, the payment of annual fees, continued compliance with cGMP requirements relating to manufacturing, quality control, quality assurance, and corresponding maintenance of records and documents, and good clinical practices, or GCPs, for any clinical trials that we conduct post-approval.
The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of our product candidates, they may withdraw approval, issue public safety alerts, require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Any such restrictions could limit sales of the product.
We and any of our suppliers or collaborators, including our contract manufacturers, could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs and other FDA regulatory requirements. Application holders must further notify the FDA, and depending on the nature of the change, obtain FDA pre-approval for product and manufacturing changes.
In addition, later discovery of previously unknown adverse events or that the product is less effective than previously thought or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements both before and after approval, may yield various negative results, including:
41
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, or could substantially increase the costs and expenses of commercializing such product, which in turn could delay or prevent us from generating significant revenues from its marketing and sale. Any of these events could further have other material and adverse effects on our operations and business and could adversely impact our business, financial condition, results of operations, stock price and prospects.
The FDA’s policies or those of comparable foreign regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates, limit the marketability of our product candidates, or impose additional regulatory obligations on us. Changes in medical practice and standard of care may also impact the marketability of our product candidates.
If we are slow or unable to adapt to changes in existing requirements, standards of care, or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and be subject to regulatory enforcement action.
Should any of the above actions take place, we could be prevented from or significantly delayed in achieving profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operations and business and could adversely impact our business, financial condition, results of operations, stock price and prospects.
42
Risks Related to Manufacturing
We are subject to multiple manufacturing risks, any of which could substantially increase our costs, limit supply of our product candidates and result in delays in our planned clinical trials.
The process of manufacturing viral immunotherapies and their components, including vRNA-based therapeutics, is complex, time-consuming, highly regulated and subject to a variety of risks. Our supply of clinical drug product is subject to potential product loss during the manufacturing process, including loss caused by contamination, operator error, equipment failure or improper installation or operation of equipment, inconsistency in yields, variability in product characteristics, and difficulties in scaling the applicable production process. For example, we experienced manufacturing loss of ONCR-177 clinical supply caused by operator error in the course of our ONCR-177 clinical trial. We may experience additional manufacturing losses in the future with respect to ONCR-021 or other products we develop, notwithstanding our plans to manufacture ONCR-021 in house. In addition, anticipated yields of drug product based on studies conducted to date may not result in full-scale production that meets the requirements of our planned clinical trials. Factors associated with production yields, product defects and other supply disruptions could ultimately affect our development timelines and our ability to deliver on our product-specific milestones.
There are numerous other factors outside our control that could impact the manufacturing of our product candidates. If microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. The manufacturing facilities in which our product candidates are made could be adversely affected by equipment failures, labor and raw material shortages, natural disasters, power failures and numerous other factors. Any adverse developments affecting the manufacturing operations for our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our product candidates. We may also have to take inventory write-offs and incur other charges and expenses for product candidate batches that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.
We may make changes to our manufacturing processes at various points during development for a number of reasons, such as controlling costs, achieving scale, decreasing processing time, increasing manufacturing success rate, and other reasons. Such changes carry the risk that they will not achieve their intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of our planned and future clinical trials. In some circumstances, changes in the manufacturing process may require us to perform ex vivo comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials. For instance, changes in our process during the course of clinical development may require us to show the comparability of the product used in earlier clinical phases or at earlier portions of a trial to the product used in later clinical phases or later portions of the trial. Any of these events, if they were to occur, could substantially increase our costs or lead to delays in our clinical trials.
We have built out internal manufacturing capabilities at our facility in Andover, Massachusetts, which will be costly and time consuming and may not ultimately be successful.
In December 2020, we entered into a lease agreement for approximately 88,000 square feet of manufacturing and office space in Andover, Massachusetts to support our advancing pipeline of product candidates and to serve as an alternative to or in addition to our reliance on CMOs. In November 2021, we entered into an amendment to our lease to increase the existing footprint of the facility to a total of approximately 105,000 square feet. We plan to manufacture ONCR-021 at our Andover facility. We began process development activities at the facility in 2021 and, as of the date of this Annual Report on Form 10-K, construction at the facility is complete and we have initiated engineering batches for ONCR-021. We have not yet successfully manufactured a GMP batch for ONCR-021 at the facility.
Building out a complex manufacturing facility that is capable of supporting processes that are compliant with good manufacturing practices, or GMP, is a difficult undertaking, with several risks related to execution and qualification, any of which could result in manufacturing failures and supply shortages. If our Andover facility becomes inoperable for any reason, or if we fail to recruit the required personnel and generally manage our growth effectively, the development and production of our product candidates could be curtailed or delayed. Our manufacturing capabilities could be affected by unforeseen cost overruns, unexpected delays, equipment failures, labor shortages, process failures, natural disasters, power failures and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.
43
We will need to hire additional highly qualified personnel to manage our manufacturing operations and develop the necessary infrastructure to continue the development, and eventual commercialization, if approved, of our product candidates. We may encounter problems hiring and retaining the experienced technical, quality control, quality assurance and manufacturing personnel needed to operate our manufacturing processes and facilities, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements.
Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive development programs.
We may not be successful in managing our manufacturing facility or satisfying manufacturing-related regulatory requirements.
Operating our own manufacturing facility requires significant resources and management. We cannot be certain that our manufacturing plans will be completed on time, if at all, or if manufacturing of product candidates from our own manufacturing facility for our planned clinical trial of ONCR-021 will begin or be completed on time, if at all. We may have unacceptable or inconsistent product quality success rates and yields, and we may be unable to maintain adequate quality control, quality assurance, manufacturing, technical or other qualified personnel. In addition, if we switch from our current CMOs to our own manufacturing facility for one or more of our product candidates in the future, we may need to conduct additional preclinical, analytical or clinical trials to bridge our modified product candidates to earlier versions. Failure to successfully operate our planned manufacturing facility could adversely affect the commercial viability of our product candidates.
In addition, the FDA and other foreign 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 or other foreign regulatory authorities may require that we not distribute a product lot until the relevant agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes 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. Problems in our manufacturing processes could restrict our ability to meet market demand for our products.
Risks Related to Our Reliance on Third Parties
We have relied on contract manufacturing organizations, or CMOs, to supply components of and manufacture ONCR-177. The loss of these CMOs or their failure to meet their obligations to us could affect our ability to develop our product candidates in a timely manner.
We rely on a limited number of CMOs and previously entered into an agreement with a third-party CMO to manufacture ONCR-177 and supply the Phase 1 clinical trial material, in compliance with applicable regulatory and quality standards. Our proprietary manufacturing process is used by third-party contract manufacturers we direct for production of batches of clinical material for us. We expect to continue to rely on third-party CMOs, from time to time, to implement our proprietary process to manufacture our clinical supply for the foreseeable future. Any replacement of a third-party contract manufacturer could require significant effort and expertise because there may be a limited number of qualified replacements. Any delays in obtaining adequate clinical supply that meets the necessary quality standards may delay our development or commercialization.
Our reliance on third-party providers for certain manufacturing activities reduces our control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations. Under certain circumstances, these third-party providers may be entitled to terminate their engagements with us. If a third-party provider terminates its engagement with us, or does not successfully carry out its contractual duties, meet expected deadlines or manufacture our product candidates in accordance with regulatory requirements, or if there are disagreements between us and a third-party provider, we may not be able to complete, or may be delayed in completing, the clinical trials required for approval of our product candidates or the preclinical studies required to support our future IND submissions. In such instance, we may need to enter into an appropriate replacement third-party relationship, which may not be readily available or available on acceptable terms, which would cause additional delay or increased expense prior to the approval of our future product candidates and would thereby have a negative impact on our business, financial condition, results of operations and prospects.
44
We may rely on additional third parties to manufacture ingredients of our product candidates in the future and to perform quality testing. Reliance on third-party contract manufacturers and service providers entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:
Any of these events could lead to clinical trial delays or failure to obtain regulatory approval, impact our ability to successfully commercialize any of our product candidates or otherwise harm our business, financial condition, results of operations, stock price and prospects. Some of these events could be the basis for FDA or other regulatory authority action, including injunction, recall, seizure or total or partial suspension of product manufacture.
We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials. If those third parties do not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with regulatory requirements, we may be unable to obtain regulatory approval for our product candidates or any other product candidates that we may develop in the future.
We rely, and will rely, on third-party CROs, study sites and others to conduct, supervise, and monitor our preclinical studies and clinical trials for our product candidates and do not currently plan to independently conduct preclinical studies or clinical trials of any product candidates. We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct our preclinical studies and clinical trials. Although we have agreements governing their activities, we have limited influence over their actual performance and control only certain aspects of their activities. The failure of these third parties to successfully carry out their contractual duties or meet expected deadlines could substantially harm our business because we may be delayed in completing or unable to complete the studies required to support future approval of our product candidates, or we may not obtain marketing approval for or commercialize our product candidates in a timely manner or at all. Moreover, these agreements might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements our product development activities would be delayed and our business, financial condition, results of operations, stock price and prospects may be materially harmed.
Our reliance on these third parties for development activities will reduce our control over these activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on third parties does not relieve us of our regulatory responsibilities. For example, we will remain responsible for ensuring that each of our trials is conducted in accordance with the general investigational plan and protocols for the trial. We must also ensure that our preclinical trials are conducted in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations, as appropriate. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with standards, commonly referred to as GCPs for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce these requirements through periodic inspections of trial sponsors, clinical investigators, and trial sites. If we or any of our third parties fail to comply with applicable GCPs or other regulatory requirements, we or they may be subject to enforcement or other legal actions, the data generated in our trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional studies.
In addition, we will be required to report certain financial interests of our third-party investigators if these relationships exceed certain financial thresholds or meet other criteria. The FDA or comparable foreign regulatory authorities may question the integrity of the data from those clinical trials conducted by investigators who may have conflicts of interest.
45
We cannot provide assurance that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our trials complies with the applicable regulatory requirements. In addition, our clinical trials must be conducted with product candidates that were produced under cGMP regulations. Failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. We also are required to register certain clinical trials and post the results of certain completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in enforcement actions and adverse publicity.
The third parties with which we work may also have relationships with other entities, some of which may be our competitors, for whom they may also be conducting trials or other therapeutic development activities that could harm our competitive position. In addition, such third parties are not our employees, and except for remedies available to us under our agreements with such third parties we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, non-clinical, and preclinical programs. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our preclinical studies or clinical trials in accordance with regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our trials may be repeated, extended, delayed, or terminated; we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates; we may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates; or we or they may be subject to regulatory enforcement actions. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the performance of third-party service providers in the future, our business, financial condition, results of operations, stock price and prospects may be materially harmed.
If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative providers or to do so on commercially reasonable terms. Switching or adding additional third parties involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays could occur, which could compromise our ability to meet our desired development timelines.
We will also rely on other third parties to store and distribute our product candidates for the clinical trials that we conduct. Any performance failure on the part of our distributors could delay clinical development, marketing approval, or commercialization of our product candidates, which could result in additional losses and deprive us of potential product revenue.
If the third-party manufacturers upon which we rely fail to produce any product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to biopharmaceutical manufacturers, we may face delays in the development and commercialization of, or be unable to meet demand for, any product candidates, and may lose potential revenues.
For the near future, at least until our manufacturing facility is operational, and from time to time thereafter, we will continue to rely on third-party contract manufacturers to manufacture our clinical trial product supplies. There can be no assurance that our clinical product supply will not be limited, interrupted, or of satisfactory quality or continue to be available at acceptable prices. In particular, any replacement of a contract manufacturer could require significant effort and expertise because there may be a limited number of qualified replacements. Any delays in obtaining adequate supplies of our product candidates that meet the necessary quality standards may delay our development or commercialization.
We may not succeed in our efforts to establish the necessary manufacturing relationships or other alternative arrangements for any of our product candidates or programs. Any product candidates we develop compete with other products and product candidates for access to manufacturing facilities and capable personnel to operate those facilities. There are a limited number of manufacturers that operate under cGMP regulations that are both capable of manufacturing and filling our viral product for us and willing to do so. If our existing third-party CMOs, or the third-party providers, that we engage in the future should cease to work with us, we likely would experience delays in obtaining sufficient quantities of any product candidates for us to advance our clinical studies and trials while we identify and qualify replacement suppliers. If for any reason we are unable to obtain adequate supplies of any product candidates we develop or the substances used to manufacture them, it will be more difficult for us to develop product candidates and compete effectively. Further, even if we do establish such collaborations or arrangements, our third-party manufacturers may breach, terminate, or not renew these agreements.
Any problems or delays we experience in preparing for commercial-scale manufacturing of a product candidate or component may result in a delay in product development timelines and FDA or comparable foreign regulatory authority approval of the product candidate or may impair our ability to manufacture commercial quantities or such quantities at an acceptable cost and quality, which could result in the delay, prevention, or impairment of clinical development and commercialization of any product candidates and may materially harm our business, financial condition, results of operations, stock price and prospects.
46
The manufacture of biopharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of therapeutics often encounter difficulties in production, particularly in scaling up initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing, shortages of qualified personnel or key raw materials, and compliance with strictly enforced federal, state, and foreign regulations. Our current and future contract manufacturers may not perform as agreed. If our manufacturers were to encounter these or other difficulties, our ability to provide product candidates to patients in our clinical trials could be jeopardized.
Contract manufacturers of our product candidates may be unable to comply with our specifications, applicable cGMP requirements or other FDA, state or foreign regulatory requirements. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of a product candidate that may not be detectable in final product testing. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure or maintain regulatory approval for their manufacturing facilities. Any such deviations may also require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business. Any delays in obtaining products or product candidates that comply with the applicable regulatory requirements may result in delays to clinical trials, product approvals, and commercialization. It may also require that we conduct additional studies.
While we are ultimately responsible for the manufacturing of our product candidates and therapeutic substances, other than through our contractual arrangements, we have little control over our manufacturers’ compliance with these regulations and standards. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Any new manufacturers would need to either obtain or develop the necessary manufacturing know-how, and obtain the necessary equipment and materials, which may take substantial time and investment. We must also receive FDA approval for the use of any new manufacturers for commercial supply.
A failure to comply with the applicable regulatory requirements, including periodic regulatory inspections, may result in regulatory enforcement actions against our manufacturers or us (including fines and civil and criminal penalties, including imprisonment) suspension or restrictions of production, injunctions, delay or denial of product approval or supplements to approved products, clinical holds or termination of clinical trials, warning or untitled letters, regulatory authority communications warning the public about safety issues with the product candidate, refusal to permit the import or export of the products, product seizure, detention, or recall, operating restrictions, suits under the civil False Claims Act, corporate integrity agreements, consent decrees, withdrawal of product approval, environmental or safety incidents and other liabilities. If the safety of any quantities supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.
Any failure or refusal to supply our product candidates or components for our product candidates that we may develop could delay, prevent or impair our clinical development or commercialization efforts. Any change in our manufacturers could be costly because the commercial terms of any new arrangement could be less favorable and because the expenses relating to the transfer of necessary technology and processes could be significant.
We may in the future seek to establish collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.
We may in the future seek collaboration arrangements with other parties for the development or commercialization of our product candidates. The success of any collaboration arrangements may depend on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these arrangements. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision making authority.
Collaborations with biopharmaceutical companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration could adversely affect us financially and could harm our business reputation.
47
Any future collaborations we might enter into may pose a number of risks, including the following:
In addition, if we establish one or more collaborations, all of the risks relating to product development, regulatory approval and commercialization described in this Annual Report on Form 10-K would also apply to the activities of any such future collaborators.
If any collaborations we might enter into in the future do not result in the successful development and commercialization of products or if one of our future collaborators subsequently terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under such potential future collaboration. If we do not receive the funding we expect under the agreements, our development of our product candidates could be delayed and we may need additional resources to develop our product candidates and our product platform.
Additionally, if any future collaborator of ours is involved in a business combination, the collaborator might deemphasize or terminate development or commercialization of any product candidate licensed to it by us. If one of our future collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our reputation in the business and financial communities could be adversely affected.
We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for any collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or
48
commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms, or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product platform and our business may be materially and adversely affected.
Risks Related to Commercialization of Our Product Candidates
If we are unable to successfully commercialize any product candidate for which we receive regulatory approval, or experience significant delays in doing so, our business will be materially harmed.
If we are successful in obtaining marketing approval from applicable regulatory authorities for ONCR-021 or any other product candidate that we successfully progress through clinical development, our ability to generate revenues from any such products will depend on our success in:
To the extent we are not able to do any of the foregoing, our business, financial condition, results of operations, stock price and prospects will be materially harmed.
We face significant competition from other biopharmaceutical and biotechnology companies, academic institutions, government agencies, and other research organizations, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, our commercial opportunity may be reduced or eliminated.
The development and commercialization of cancer immunotherapy products is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary rights. We face competition with respect to our current product candidates and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major biopharmaceutical companies, specialty biopharmaceutical companies, and biotechnology companies worldwide. There are several large biopharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of solid tumors, including viral immunotherapy and cancer vaccine approaches. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.
While certain of our product candidates may be used in combination with other drugs with different mechanisms of action, if and when marketed they will still compete with a number of drugs that are currently marketed or in development that also target cancer. To compete effectively with these drugs, our product candidates will need to demonstrate advantages in clinical efficacy and safety compared to these competitors when used alone or in combination with other drugs.
49
Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are easier to administer or are less expensive alone or in combination with other therapies than any products that we may develop alone or in combination with other therapies. Our competitors also may obtain FDA or comparable foreign regulatory authorities’ approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by third-party payors’ coverage and reimbursement decisions.
Many of the companies with which we are competing or may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the biopharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in developing or acquiring technologies complementary to, or necessary for, our programs. If we are unable to successfully compete with these companies our business, financial condition, results of operations, stock price and prospects may be materially harmed.
If we are unable to establish effective marketing, sales and distribution capabilities or enter into agreements with third parties to market and sell our product candidates, if they are approved, the revenues that we generate may be limited and we may never become profitable.
We currently do not have a commercial infrastructure for the marketing, sale, and distribution of any products that we may develop. If and when our product candidates receive marketing approval, we intend to commercialize our product candidates on our own or in collaboration with others and potentially with pharmaceutical or biotechnology partners in other geographies. In order to commercialize our products, we must build our marketing, sales, and distribution capabilities or make arrangements with third parties to perform these services. We may not be successful in doing so. Should we decide to move forward in developing our own marketing capabilities, we may incur expenses prior to product launch or even approval in order to recruit a sales force and develop a marketing and sales infrastructure. If a commercial launch is delayed as a result of the FDA or comparable foreign regulatory authority requirements or other reasons, we would incur these expenses prior to being able to realize any revenue from sales of our product candidates. Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing our product candidates. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
We may also or alternatively decide to collaborate with third-party marketing and sales organizations to commercialize any approved product candidates, in which event, our ability to generate product revenues may be limited. To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these products ourselves, which could materially harm our prospects. In addition, we would have less control over the sales efforts of any other third parties involved in our commercialization efforts, and could be held liable if they failed to comply with applicable legal or regulatory requirements.
We have no prior experience in the marketing, sale, and distribution of biopharmaceutical products, and there are significant risks involved in building and managing a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We will have to compete with other biopharmaceutical and biotechnology companies, including oncology-focused companies, to recruit, hire, train, manage, and retain marketing and sales personnel, which is expensive and time consuming and could delay any product launch. Developing our sales capabilities may also divert resources and management attention away from product development.
In the event we are unable to develop a marketing and sales infrastructure, we may not be able to commercialize our product candidates, which could limit our ability to generate product revenues and materially harm our business, financial condition, results of operations, stock price and prospects. Factors that may inhibit our efforts to commercialize our product candidates include:
50
Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, hospitals, cancer treatment centers, third-party payors and others in the medical community necessary for commercial success. The revenues that we generate from their sales may be limited, and we may never become profitable.
We have never commercialized a product candidate for any indication. Even if our product candidates are approved by the appropriate regulatory authorities for marketing and sale, they may not gain acceptance among physicians, patients, third-party payors, and others in the medical community. If any product candidates for which we obtain regulatory approval does not gain an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. Market acceptance of our product candidates by the medical community, patients, and third-party payors will depend on a number of factors, some of which are beyond our control. For example, physicians are often reluctant to switch their patients and patients may be reluctant to switch from existing therapies even when new and potentially more effective or safer treatments enter the market.
Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. If any of our product candidates is approved but does not achieve an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. The degree of market acceptance of any product for which we receive marketing approval will depend on a number of factors, including:
51
The size of the potential market for our product candidates is difficult to estimate and, if any of our assumptions are inaccurate, the actual markets for our product candidates may be smaller than our estimates.
The potential market opportunities for our product candidates are difficult to estimate and will depend in large part on the drugs with which our product candidates are co-administered and the success of competing therapies and therapeutic approaches. In particular, the market opportunity for viral immunotherapies is hard to estimate given that it is an emerging field with only one existing FDA-approved viral immunotherapy, T-VEC, which has yet to enjoy broad market acceptance. Our estimates of the potential market opportunities are predicated on many assumptions, which may include industry knowledge and publications, third-party research reports, and other surveys. Although we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain, and their reasonableness has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual markets for our product candidates could be smaller than our estimates of the potential market opportunities.
Negative developments in the field of immuno-oncology, particularly with respect to viral immunotherapies, could damage public perception of our self-amplifying RNA and HSV platforms and our product candidates, which would adversely affect our business.
The commercial success of our product candidates will depend in part on public acceptance of the use of viral immunotherapies and specifically viral RNA-based therapies to treat cancer patients. Adverse events in clinical trials of our product candidates, including ONCR-021, or in clinical trials of other companies developing similar products and the resulting publicity, as well as any other negative developments in the field of immuno-oncology that may occur in the future, including in connection with competitor therapies or with immune checkpoint inhibitors, could result in a decrease in demand for ONCR-021 or any other product candidates that we may develop. These events could also result in the suspension, discontinuation, or clinical hold of or modification to our clinical trials. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to our therapies or those of our competitors, our product candidates may not be accepted by the general public or the medical community and potential clinical trial subjects may be discouraged from enrolling in our clinical trials. As a result, we may not be able to continue or may be delayed in conducting our development programs.
As our product candidates consist of modified or synthetic viruses, adverse developments in anti-viral vaccines or clinical trials of other viral immunotherapy products may result in a disproportionately negative effect for ONCR-021 or our other product candidates as compared to other products in the field of immuno-oncology that are not based on viruses. Future negative developments in the field of immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our products. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for ONCR-021 or our other product candidates.
52
Risks Related to Our Intellectual Property
If we are unable to obtain, maintain and protect our intellectual property rights for our technology and product candidates, or if our intellectual property rights are inadequate, our competitive position could be harmed.
Our commercial success will depend in part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our technology, including our self-amplifying RNA platform, our HSV platform, and ONCR-021 and our other product candidates. We also rely in part on trade secret, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the United States and abroad related to our technology and product candidates.
The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our licensed patents and any patents we own are highly uncertain. The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside of the United States.
Further, the examination process may require us to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. Our pending and future patent applications may not result in patents being issued that protect our product candidates, in whole or in part, or which effectively prevent others from commercializing competitive product candidates. The scope of a patent may also be reinterpreted after issuance. The rights that may be granted under our issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. If we are unable to obtain and maintain patent protection for our technology or for ONCR-021 or our other product candidates, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize products similar or superior to ours in a non-infringing manner, and our ability to successfully commercialize ONCR-021 or our other product candidates and future technologies may be adversely affected. It is also possible that we will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.
In addition, the patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, collaborators, and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. It is also possible that we will fail to identify patentable aspects of our research and development efforts in time to obtain patent protection.
For the core technology in our self-amplifying RNA and HSV platforms, patent applications are pending at each of the U.S. provisional, Patent Cooperation Treaty, or PCT, and national stages with, minimally, filings submitted to the U.S., European Patent Conventions, or EPC, and Japan. As of February 21, 2023, our patent portfolio consisted of 17 issued U.S. patents, 21 pending U.S. patent applications, 35 issued foreign patents and approximately 151 pending foreign applications. Any future provisional patent applications are not eligible to become issued patents until, among other things, we file a non-provisional patent application within 12 months of filing of one or more of our related provisional patent applications. If we do not timely file any non-provisional patent applications, we may lose our priority date with respect to our provisional patent applications and any patent protection on the inventions disclosed in our provisional patent applications. Although we intend to timely file non-provisional patent applications relating to our provisional patent applications, we cannot predict whether any of our future patent applications will result in the issuance of patents that effectively protect our technology or our product candidates, or if any of our future issued patents will effectively prevent others from commercializing competitive products. We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all until they are issued as a patent. Therefore, we cannot be certain that we were the first to make the inventions claimed in our pending patent applications, or that we were the first to file for patent protection of such inventions.
53
Our pending applications cannot be enforced against third parties practicing the inventions claimed in such applications unless and until a patent issues from such applications with a claim that covers such third party activity. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we license from third parties or own in the future may be challenged in the courts or patent offices in the United States and abroad, including through opposition proceedings, derivation proceedings, post-grant review, inter partes review, interference proceedings or litigation. Such proceedings may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical products, or limit the duration of the patent protection for our technology. Protecting against the unauthorized use of our patented inventions, trademarks and other intellectual property rights is expensive, time consuming, difficult and in some cases may not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult. If we are unable to obtain, maintain, and protect our intellectual property our competitive advantage could be harmed, and it could result in a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business.
We are a party to license agreements with entities including the University of Pittsburgh, Northwestern University, WuXi Biologics, Ospedale San Raffaele S.r.l. and Fondazione Telethon, Gaeta Therapeutics Ltd. and NOF Corporation, and we may need to obtain additional licenses from others to advance our research and development activities or allow the commercialization of our current or future product candidates. These license agreements impose, and we expect that future license agreements will impose, various development, diligence, commercialization, and other obligations on us. For example, under our license agreement with the University of Pittsburgh, we are required to use commercially reasonable efforts to engage in various development and commercialization activities with respect to licensed products, and must satisfy specified milestone and royalty payment obligations. In spite of our efforts, our licensors might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by the intellectual property under these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek regulatory approval of, and to market, products identical to ours and we may be required to cease our development and commercialization our product candidates. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:
In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.
54
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.
In addition to seeking patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential and proprietary information. To maintain the confidentiality of our trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators, contractors, and other third parties who have access to our trade secrets. Our agreements with employees and consultants also provide that any inventions conceived by the individual employee or consultant in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. In addition, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.
Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information including a breach of our confidentiality agreements. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time consuming, and the outcome is unpredictable. In addition, some courts in and outside of the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. The disclosure of our trade secrets or the independent development of our trade secrets by a competitor or other third party would impair our competitive position and may materially harm our business, financial condition, results of operations, stock price and prospects.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.
Our commercial success depends on our ability and the ability of any future collaborators to develop, manufacture, market and sell product candidates from our self-amplifying RNA and HSV platforms, and to use our related proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. We may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our current and any other future product candidates, including interference proceedings, post-grant review, inter partes review and derivation proceedings before the USPTO. Third parties may assert infringement or other intellectual property claims against us based on existing patents or patents that may be granted in the future. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that we may be subject to claims of infringement of the patent rights of third parties. If we are found to infringe a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such intellectual property rights are invalid or unenforceable, we could be required to obtain a license from such third party to continue developing, manufacturing and commercializing our product candidates. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We also could be forced, including by court order, to cease developing, manufacturing, and commercializing our product candidates. In addition, in any such proceeding or litigation, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar material adverse effect on our business. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.
55
Parties making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.
Furthermore, in addition to developing ONCR-021 as a monotherapy, we also anticipate developing ONCR-021 in combination with the commercially available checkpoint inhibitors, similar to the approach with took with ONCR-177 and pembrolizumab. Pembrolizumab, while commercially available in the market, is covered by patents held by Merck. We may develop ONCR-021 and our future product candidates in combination with products developed by additional companies that are covered by patents or licenses held by those entities to which we do not have a license or a sublicense. In the event that a labeling instruction is required in product packaging recommending that combination, we could be accused of, or held liable for, infringement of the third-party patents covering the product candidate or product recommended for administration with our product candidates. In such a case, we could be required to obtain a license from the other company or institution to use the required or desired package labeling, which may not be available on commercially reasonable terms, or at all.
We may not be able to protect our intellectual property and proprietary rights throughout the world.
Filing, prosecuting and defending patents on our technology throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws and practices of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop and/or manufacture their own products, and may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as that in the United States. These products may compete with our products and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the granting or enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to obtain patent rights or stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally in those countries. Proceedings to enforce our intellectual property and proprietary rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to protect and enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property we develop or license.
In addition, the laws of certain foreign countries may not protect our rights to the same extent as the laws of the United States, and those foreign laws may also be subject to change. For example, methods of treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries. Furthermore, biosimilar product manufacturers or other competitors may challenge the scope, validity and enforceability of our patents, requiring us to engage in complex, lengthy and costly litigation or proceedings.
Moreover, many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business and results of operations may be adversely affected.
56
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payments and other similar provisions during the patent application process and to maintain patents after they are issued. For example, periodic maintenance fees, renewal fees, annuity fees and various other government fees on issued patents and patent applications often must be paid to the USPTO and foreign patent agencies over the lifetime of our licensed patents or any patents we own. In certain circumstances, we may rely on future licensing partners to take the necessary action to comply with these requirements with respect to licensed intellectual property. Although an unintentional lapse can be cured for a period of time by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to obtain and maintain the patents and patent applications covering our products or procedures, we may not be able to stop a competitor from marketing products that are the same as or similar to our product candidates, which could have a material adverse effect on our business.
Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect ONCR-021 and our other product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States or other jurisdictions in which we have or seek patent protection could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law in the United States on September 16, 2011, could increase those uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. After March 2013, under the Leahy-Smith Act, the United States transitioned to a first inventor to file system in which, assuming that the other statutory requirements are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future. For example, in Europe, a new unitary patent system takes effect June 1, 2023, which will significantly impact European patents, including those granted before the introduction of such a system. Under the unitary patent system, European applications will have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the Unitary Patent Court (UPC). As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation. Patents granted before the implementation of the UPC will have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries. Patents that remain under the jurisdiction of the UPC will be potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty the long-term effects of any potential changes.
57
In addition, geo-political actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications and the maintenance, enforcement or defense of our issued patents. For example, the United States and foreign government actions related to Russia’s invasion of Ukraine may limit or prevent filing, prosecution, and maintenance of patent applications in Russia. Government actions may also prevent maintenance of issued patents in Russia. These actions could result in abandonment or lapse of our patents or patent applications, resulting in partial or complete loss of patent rights in Russia. If such an event were to occur, it could have a material adverse effect on our business. In addition, a decree was adopted by the Russian government in March 2022, allowing Russian companies and individuals to exploit inventions owned by patentees from the United States without consent or compensation. Consequently, we would not be able to prevent third parties from practicing our inventions in Russia or from selling or importing products made using our inventions in and into Russia. Accordingly, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
We may wish to acquire rights to future assets through in-licensing or may attempt to form collaborations in the future with respect to our product candidates, but may not be able to do so, which may cause us to alter or delay our development and commercialization plans.
The development and potential commercialization of our product candidates will require substantial additional capital to fund expenses. We may, in the future, decide to collaborate with other biopharmaceutical companies for the development and potential commercialization of those product candidates in other countries or territories of the world. We will face significant competition in seeking appropriate collaborators. We may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the following:
The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators and changes to the strategies of the combined company. As a result, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such product candidate, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any planned sales or marketing activities for such product candidate, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
58
We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful and have a material adverse effect on the success of our business.
Competitors may infringe our licensed patents or any patent we own or misappropriate or otherwise violate our intellectual property rights. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. If we were to initiate legal proceedings against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. Our licensed patents and any patents we own in the future may become involved in priority or other intellectual property related disputes. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications. Also, third parties may initiate legal proceedings against us to challenge the validity or scope of our owned or licensed intellectual property rights. These proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to conduct intellectual property related litigations or proceedings than we can. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation and other intellectual property related proceedings could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or other intellectual property related proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation in the United States, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments in any such proceedings. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock, and could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market. Any of the foregoing may have a material adverse effect our business, financial condition, results of operations, stock price and prospects.
We may be subject to claims by third parties asserting that we, our employees or any future collaborators have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees, including our senior management team, were previously employed at, or consulted for, universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these individuals, including members of our senior management team, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment or consulting agreements, which assigned ownership of intellectual property relating to work performed under such agreements to the contracting third party. Although we endeavor to ensure that our employees do not use, claim as theirs, or misappropriate the intellectual property, proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used, claimed as theirs, misappropriated or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms, or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. Any of the foregoing may have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
59
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed confidential information of third parties or are in breach of non-competition or non-solicitation agreements with our competitors.
We could be subject to claims that we or our employees, including senior management, have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of former employers or competitors or others. Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may be subject to claims that we caused an employee to breach the terms of their non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor or other party. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our defenses to these claims fail, in addition to requiring us to pay monetary damages, a court could prohibit us from using technologies or features that are essential to our product candidates, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers, competitors or other parties. An inability to incorporate such technologies or features would have a material adverse effect on our business, and may prevent us from successfully commercializing our product candidates. In addition, we may lose valuable intellectual property rights or personnel as a result of such claims. Moreover, any such litigation or the threat thereof may adversely affect our ability to hire employees or consultants. A loss of key personnel or their work product could hamper or prevent our ability to develop and commercialize our product candidates, which could have an adverse effect on our business, financial condition, results of operations, stock price and prospects.
If we obtain any issued patents covering our technology, such patents could be found invalid or unenforceable if challenged in court or before the USPTO or comparable foreign regulatory authority.
If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering any of our technology, the defendant could counterclaim that the patent covering our product candidate is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity challenge could be, among other things, an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be, among other things, an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, inter partes review, post-grant review, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions, such as opposition proceedings. Such proceedings could result in revocation, cancellation or amendment to our patents in such a way that they no longer cover and protect our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. For example, with respect to the validity of our licensed patents or any patents we obtain in the future, we cannot be certain that there is no invalidating prior art of which we, our or our licensing partner’s patent counsel, and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business.
Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time, and our product candidates for which we intend to seek approval as biological products may face competition sooner than anticipated.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, but no longer than 14 years from the product’s approval date, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authorities in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their products earlier than might otherwise be the case, which could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
60
The enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act, or ACA, created an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. Certain changes, however, and supplements to an approved BLA, and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the 12-year exclusivity period.
We expect that product candidates generated from our self-amplifying RNA and HSV platforms will be regulated as biologics. We anticipate being awarded market exclusivity for each of our biological product candidates that is subject to its own BLA for 12 years in the United States, 10 years in Europe and significant durations in other markets. However, the term of the patents that cover such product candidates may not extend beyond the applicable market exclusivity awarded by a particular country. For example, in the United States, if all of the patents that cover our particular biological product expire before the 12-year market exclusivity expires, a third party could submit a marketing application for a biosimilar product four years after approval of our biological product, the FDA could immediately review the application and approve the biosimilar product for marketing 12 years after approval of our biological product, and the biosimilar sponsor could then immediately begin marketing. Alternatively, a third party could submit a full BLA for a similar or identical product any time after approval of our biological product, and the FDA could immediately review and approve the similar or identical product for marketing and the third party could begin marketing the similar or identical product upon expiry of all of the patents that cover our particular biological product.
There is also a risk that this exclusivity could be changed in the future. For example, this exclusivity could be shortened due to congressional action or through other actions, including future proposed budgets, international trade agreements and other arrangements or proposals. Additionally, there is a risk that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. The extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. It is also possible that payors will give reimbursement preference to biosimilars over reference biologics, even absent a determination of interchangeability.
To the extent that we do not receive any anticipated periods of regulatory exclusivity for our product candidates or the FDA or foreign regulatory authorities approve any biosimilar, interchangeable, or other competing products to our product candidates, it could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
Risks Related to Regulatory and Other Legal Compliance Matters
If we fail to comply with federal and state healthcare laws, including fraud and abuse and patient privacy and security laws, we could face substantial penalties and our business, financial condition, results of operations, stock price and prospects will be materially harmed.
Our current and future arrangements with healthcare providers, third-party payors, customers, and others may expose us to broadly applicable healthcare fraud and abuse, patient privacy and security, and other healthcare laws, which may constrain the business or financial arrangements and relationships through which we research, as well as, sell, market and distribute any products for which we obtain marketing approval. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include, but are not limited to:
The federal Anti-Kickback Statute, which prohibits, among other things, individuals and entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs.
The federal civil and criminal false claims laws, including, without limitation, the civil False Claims Act, and the federal civil monetary penalties law, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government.
61
The Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters.
The federal physician payment transparency requirements, sometimes referred to as the Physician Payments Sunshine Act, created under the ACA and its implementing regulations, which require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals, as well as ownership and investment interests held by such physicians and their immediate family members.
HIPAA, as amended by the Health Information Technology for Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which impose obligations on “covered entities,” including certain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity and their subcontractors that use, disclose or otherwise process individually identifiable health information, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
Analogous state and foreign anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or that apply regardless of payor; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state and local laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require the reporting of information related to drug pricing; state and local laws requiring the registration of pharmaceutical sales representatives; and state and foreign laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
If we or our operations are found to be in violation of any federal or state healthcare law, or any other governmental laws or regulations that apply to us, we may be subject to penalties, including significant civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, imprisonment, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from participation in U.S. federal or state health care programs, additional reporting requirements and/or oversight if we become subject to corporate integrity agreements or similar agreement to resolve allegations of non-compliance, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our business and our financial results. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, it may be subject to significant criminal, civil or administrative sanctions, including but not limited to, exclusions from participation in U.S. federal or state healthcare programs, which could also materially affect our business.
Although an effective compliance program can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Moreover, achieving and sustaining compliance with such laws may prove costly. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.
If the government or third-party payors fail to provide adequate coverage, reimbursement and payment rates for our product candidates, or if health maintenance organizations or long-term care facilities choose to use therapies that are less expensive or considered a better value, our revenue and prospects for profitability will be limited.
In both domestic and foreign markets, sales of our products will depend in part upon the availability of coverage and adequate reimbursement from third-party payors. Such third-party payors include government health programs such as Medicare and Medicaid, managed care providers, private health insurers, and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new therapeutic products when more established or lower cost therapeutic alternatives are already available or subsequently become available, even if our products are alone in a class. Third-party payors establish reimbursement levels.
62
Therefore, even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain a market share sufficient to realize a sufficient return on our or their investments. If reimbursement is not available, or is available only to limited levels, our product candidates may be competitively disadvantaged, and we may not be able to successfully commercialize our product candidates. Alternatively, securing favorable reimbursement terms may require us to compromise pricing and prevent us from realizing an adequate margin over cost.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved therapeutics. Marketing approvals, pricing, and reimbursement for new therapeutic products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a therapeutic before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription biopharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval. Our ability to commercialize our product candidates will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from third-party payors.
The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. Several third-party payors are requiring that companies provide them with predetermined discounts from list prices, are using preferred drug lists to leverage greater discounts in competitive classes, are disregarding therapeutic differentiators within classes, are challenging the prices charged for therapeutics, and are negotiating price concessions based on performance goals. In addition, third-party payors are increasingly requiring higher levels of evidence of the benefits and clinical outcomes of new technologies, benchmarking against other therapies, seeking performance-based discounts, and challenging the prices charged. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if available, that the reimbursement rates will be adequate. If payors subject our product candidates to maximum payment amounts, or impose limitations that make it difficult to obtain reimbursement, providers may choose to use therapies which are less expensive when compared to our product candidates. Additionally, if payors require high copayments, beneficiaries may seek alternative therapies. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any products to the satisfaction of hospitals, other target customers and their third-party payors. Such studies might require us to commit a significant amount of management time and financial and other resources. Our products might not ultimately be considered cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.
In addition, in the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for our products or product candidates for which we receive regulatory approval may not be available or adequate in either the United States or international markets, which could have a negative effect on our business, financial condition, results of operations, stock price and prospects.
There may also be delays in obtaining coverage and reimbursement for newly approved therapeutics, and coverage may be more limited than the indications for which the product is approved by the FDA or comparable foreign regulatory authorities. Such delays have made it increasingly common for manufacturers to provide newly approved drugs to patients experiencing coverage delays or disruption at no cost for a limited period in order to ensure that patients are able to access the drug. Moreover, eligibility for reimbursement does not imply that any therapeutic will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new therapeutics, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary, by way of example, according to the use of the product and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost products or may be incorporated into existing payments for other services.
An inability to promptly obtain coverage and adequate reimbursement from third-party payors for any of our product candidates for which we obtain marketing approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
63
We are subject to new legislation, regulatory proposals and third-party payor initiatives that may increase our costs of compliance, and adversely affect our ability to market our products, obtain collaborators, and raise capital.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we may receive for any approved products.
For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or ACA, was passed in March 2010 and substantially changed the way healthcare is financed by both governmental and private insurers, and continues to significantly impact the United States pharmaceutical industry. Since its enactment, there have been executive, judicial and political challenges to certain aspects of the ACA. For example, the Tax Cuts and Jobs Act, or the Tax Act, includes a provision repealing the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On June 17, 2021 the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the ACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The IRA also eliminates the "donut hole" under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform measures of the Biden administration will impact the ACA and our business.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, 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 2012 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 of up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect until 2031, with the exception of a temporary suspension from May 1, 2021 through March 31, 2022 due to the COVID-19 pandemic, unless additional Congressional action is taken. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of this sequester. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. In January 2013, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to certain providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
There has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. For example, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, the U.S. Department of Health and Human Services, or HHS, released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue to advance these principles. Further, the IRA, among other things (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. Additionally, the Biden administration released an additional executive order on October 14, 2022, directing HHS to report on how the Center for Medicare and Medicaid Innovation can be further leveraged
64
to test new models for lowering drug costs for Medicare and Medicaid beneficiaries. Any new laws or regulations that result in additional reductions in Medicare and other healthcare funding could have a material adverse effect on customers for our products, if approved, and, accordingly, on our results of operations.
We cannot predict what healthcare reform initiatives may be adopted in the future. However, we expect that the ACA, as well as other federal and state healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria, increased regulatory burdens and operating costs, decreased net revenue from our biopharmaceutical products, decreased potential returns from our development efforts, and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government healthcare programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from commercializing our products and being able to generate revenue, and we could be prevented from or significantly delayed in achieving profitability.
In addition, there have been a number of other legislative and regulatory proposals aimed at changing the biopharmaceutical industry. For instance, the Drug Quality and Security Act of 2013 imposes obligations on manufacturers of biopharmaceutical products related to product tracking and tracing. Further, manufacturers have product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products that would result in serious adverse health consequences of death to humans, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.
Compliance with the federal track and trace requirements may increase our operational expenses and impose significant administrative burdens. As a result of these and other new proposals, we may determine to change our current manner of operation, provide additional benefits or change our contract arrangements, any of which could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as import and export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, and other consequences, which could adversely affect our business, financial condition, results of operations, stock price and prospects.
Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws that apply in countries where we do business. The FCPA and these other anti-corruption laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, providing, soliciting, or receiving, directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. We can be held liable for the corrupt or other illegal activities of our personnel or intermediaries, even if we do not explicitly authorize or have prior knowledge of such activities.
We are also subject to other laws and regulations governing our international operations, including applicable import and export control regulations, economic sanctions on countries and persons, anti-money laundering laws, customs requirements and currency exchange regulations, collectively referred to as the trade control laws.
We can provide no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws or other legal requirements, including trade control laws. If we are not in compliance with applicable anti-corruption laws or trade control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations, stock price and prospects. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. An investigation of any potential violations of anti-corruption laws or trade control laws by U.S. or other authorities could also have an adverse impact on our reputation, our business, financial condition, results of operations, stock price and prospects.
65
We are subject to stringent and changing obligations related to privacy and security. Our actual or perceived failure to comply with such obligations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business.
In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, processing) sensitive information, including personal data, proprietary and confidential business data, trade secrets, intellectual property, data we collect about trial participants in connection with clinical trials, and sensitive third-party data. Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and other obligations that govern the processing of personal data by us and on our behalf.
In the United States, numerous federal, state, and local governments have enacted numerous data privacy and security laws and regulations, including personal data privacy laws, health information privacy laws, data breach notification laws, personal data privacy laws, and consumer protection laws. For example, HIPAA, as amended by HITECH, imposes specific requirements relating to the privacy, security, and transmission of individually identifiable health information. We may obtain health information from third parties, including research institutions from which we obtain clinical trial data, that are subject to privacy and security requirements under HIPAA, as amended HITECH, and its implementing rules and regulations. Depending on the facts and circumstances, we could be subject to significant penalties if we obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
Additionally, the California Consumer Privacy Act, or CCPA, imposes obligations on covered businesses. These obligations include, but are not limited to, providing specific disclosures in privacy notices and affording California residents certain rights related to their personal data. The CCPA also allows for statutory fines for noncompliance (up to $7,500 per violation) and includes a private right of action for certain data breaches. Although there are some exemptions for clinical trial data and health information, the CCPA may impact our business activities and increase our compliance costs and potential liability. In addition, it is anticipated that the California Privacy Rights Act, or CPRA, which will become operative on January 1, 2023, will expand the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal data. The CPRA also creates the new California Privacy Protection Agency to implement and enforce the CCPA and the CPRA, which could increase compliance costs. New legislation proposed or enacted in various other states will continue to shape the data privacy environment nationally. For example, Virginia passed the Consumer Data Protection Act, and Colorado passed the Colorado Privacy Act, both of which become effective in 2023.
Outside the United States, an increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, the European Union’s General Data Protection Regulation, or EU GDPR, and the United Kingdom’s GDPR, or UK GDPR, impose strict requirements for processing personal data. For example, under the EU GDPR, government regulators may impose temporary or definitive bans on data processing, as well as fines up to the greater of €20 million or 4% of annual global revenue. Further, individuals may initiate litigation related to processing of their personal data. In addition, in Canada, the Personal Information Protection and Electronic Documents Act (“PIPEDA”) and various related provincial laws, as well as Canada’s Anti-Spam Legislation (“CASL”), may apply to our operations.
Certain jurisdictions have enacted data localization laws and cross-border personal data transfer laws, which could make it more difficult to transfer information across jurisdictions (such as transferring or receiving personal data that originates in the EU or in other foreign jurisdictions). Existing mechanisms that facilitate cross-border personal data transfers may change or be invalidated. For example, absent appropriate safeguards or other circumstances, the EU GDPR generally restricts the transfer of personal data to countries outside of the European Economic Area, or EEA, that the European Commission does not consider to provide an adequate level of data privacy and security, such as the United States. The European Commission released a set of “Standard Contractual Clauses” (“SCCs”) that are designed to be a valid mechanism to facilitate personal data transfers out of the EEA to these jurisdictions. The SCCs, though approved by the European Commission as a suitable alternative, have faced challenges in European courts, and may be further challenged, suspended or invalidated. Additionally, the SCCs impose additional compliance burdens, such as conducting transfer impact assessments to determine whether additional security measures are necessary to protect the at-issue personal data. Other countries in Europe, such as the UK, similarly restrict personal data transfers outside of those jurisdictions to countries such as the United States that do not provide an adequate level of personal data protection. If we cannot implement a valid compliance mechanism for cross-border data transfers, we may face increased exposure to regulatory actions, substantial fines, and injunctions against processing or transferring personal data from Europe or other foreign jurisdictions. The inability to import personal data to the United States could significantly and negatively impact our business operations, limiting our ability to collaborate with parties that are subject to such cross-border data transfer or localization laws; or requiring us to increase our personal data processing capabilities and infrastructure in foreign jurisdictions at significant expense.
66
Our obligations related to data privacy and security are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires significant resources and may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. Although we endeavor to comply with all applicable data privacy and security obligations, we may at times fail (or be perceived to have failed) to do so. Moreover, despite our efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations, which could negatively impact our business operations and compliance posture. For example, any failure by a third-party processor to comply with applicable law, regulations, or contractual obligations could result in adverse effects, including inability to or interruption in our ability to operate our business and proceedings against us by governmental entities or others.
If we fail, or are perceived to have failed, to address or comply with data privacy and security obligations, we could face significant consequences. These consequences may include, but are not limited to, government enforcement actions (e.g. investigations, fines, penalties, audits, inspections, and similar), private litigation (including class-related claims), additional reporting requirements and/or oversight, bans on processing personal data; orders to destroy or not use personal data, and imprisonment of company officials. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose the information. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to, loss of customers, interruptions or stoppages in our business operations (including, as relevant, clinical trials); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our operations.
Violations of or liabilities under environmental, health and safety laws and regulations could subject us to fines, penalties or other costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures, the handling, use, storage, treatment and disposal of hazardous materials and wastes and the cleanup of contaminated sites. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We would incur substantial costs as a result of violations of or liabilities under environmental requirements in connection with our operations or property, including fines, penalties and other sanctions, investigation and cleanup costs and third-party claims. Although we generally contract with third parties for the disposal of hazardous materials and wastes from our operations, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.
We have generated significant net operating loss (NOL) carryforwards and research and development tax credits, and our ability to utilize our net operating loss carryforwards and research and development tax credits to reduce future tax payments may be limited or restricted.
We have generated significant NOL carryforwards and research and development tax credits, or R&D credits, as a result of our incurrence of losses and our conduct of research activities since inception. As of December 31, 2022, we had federal and state NOL carryforwards of $176.2 million and $171.6 million, respectively. We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we may never achieve profitability. Our U.S. federal NOL carryforwards generated in taxable years beginning before January 1, 2018 will expire if not utilized beginning in 2035. These NOL carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Act, as modified by the CARES Act, U.S. federal NOLs incurred in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the utilization of such U.S. federal NOLs is limited. As of December 31, 2022, we also had federal and state R&D credit carryforwards of $7.4 million and $4.0 million, respectively. Our federal R&D credit carryforwards begin to expire in 2035 and our state R&D credit carryforwards begin to expire in 2030. These R&D credit carryforwards could expire unused and be unavailable to offset future income tax liabilities.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and R&D credits to offset its post-change income and taxes, respectively, may be limited. For purposes of these rules, an “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The application of these rules could
67
limit the amount of NOLs or R&D credit carryforwards that we can utilize annually to offset future taxable income or tax liabilities. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. Our NOL and R&D credit carryforwards are subject to review and possible adjustment by U.S. and state tax authorities.
Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.
New tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted differently, changed or modified. Any such enactment, interpretation, change or modification could adversely affect us, possibly with retroactive effect. For example, Tax Act, the CARES Act and the Inflation Reduction Act enacted many significant changes to the U.S. tax laws. Effective January 1, 2022, the Tax Act eliminated the option to deduct research and experimental expenditures for tax purposes in the year incurred and requires taxpayers to capitalize and subsequently amortize such expenses over five years for research activities conducted in the United States and over 15 years for research activities conducted outside the United States. Although there have been legislative proposals to repeal or defer the capitalization requirement to later years, there can be no assurance that the provision will be repealed or otherwise modified. Future guidance from the Internal Revenue Service and other tax authorities with respect to such legislation may affect us, and certain aspects of such legislation could be repealed or modified in future legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations and the deductibility of expenses under the Tax Act, as modified by the CARES Act or any future tax reform legislation, could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense.
Risks Related to Employee and Operational Matters
Our portfolio reprioritization and the associated workforce reduction announced in November 2022 may not result in anticipated cost savings, could result in total costs and expenses that are greater than expected and could disrupt our business.
In November 2022, along with our portfolio reprioritization, we announced a reduction in workforce by approximately 25% in connection with the streamlining of our business to prioritize and focus on our lead asset, ONCR-021. The reduction in force was a component of our broader efforts to materially reduce our research and development expenses by focusing on key milestones and to limit progression of other costs to track our top line performance. We may not realize, in full or in part, the anticipated benefits, savings and improvements in our operating structure from our restructuring and reprioritization efforts. If we are unable to realize the expected operational efficiencies and cost savings, our results of operation and financial condition would be adversely affected. We cannot guarantee that we will not have to undertake additional workforce reductions or restructuring activities in the future. Furthermore, our strategic restructuring plan may be disruptive to our operations. For example, our workforce reductions could yield unanticipated consequences, such as attrition beyond planned staff reductions, increased difficulties in our day-to-day operations and reduced employee morale. If employees who were not affected by the reduction in force seek alternate employment, this could result in us seeking contract support at unplanned additional expense or harm our productivity. Our workforce reductions could also harm our ability to attract and retain qualified management, scientific, clinical, and manufacturing personnel who are critical to our business. Any failure to attract or retain qualified personnel could prevent us from successfully developing ONCR-021 and other product candidates in the future.
We are highly dependent on our key personnel. If we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract, motivate and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management and particularly on the services of our scientific personnel, including Theodore (Ted) Ashburn, M.D., Ph.D., our President and Chief Executive Officer, and John Goldberg, M.D., our Chief Medical Officer. We believe that their drug discovery and development experience and overall biopharmaceutical company management experience would be difficult to replace. Any of our executive officers could leave our employment at any time as all of our employees are “at-will” employees. We currently do not have “key person” insurance on any of our employees. The loss of the services of our other executive officers, key employees, and scientific and medical advisors, and our inability to find suitable replacements, could result in delays in our research and development objectives and harm our business.
68
Recruiting and retaining qualified employees, consultants and advisors for our business, including scientific and technical personnel, is and will continue to be critical to our success. Competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies and academic institutions for skilled individuals. In addition, failure to succeed in preclinical studies, clinical trials or applications for marketing approval may make it more challenging to recruit and retain qualified personnel. The inability to recruit, or the loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects.
Factors associated with the planned relocation of our operations to Andover, Massachusetts may have a negative impact on our business, results of operations and stock price.
In April 2022, we announced plans to relocate all of our operations to our approximately 105,000 square foot manufacturing facility in Andover, Massachusetts, which we successfully completed in the fourth quarter of 2022. Our relocation may have a negative impact on our business, results of operations and stock price. In particular, we may experience difficulties retaining our executive officers, key employees and our scientific and medical advisors as a result of our planned relocation due to travel limitations or other inconveniences or preferences, and we may experience difficulties finding suitable replacements for these key personnel, which could result in delays in our research, development and clinical objectives and ultimately harm our business.
We may experience difficulties in managing this growth, which could disrupt our operations and ultimately harm our business.
As of December 31, 2022, we had 64 employees, including 50 employees engaged in research and development. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:
Our future financial performance and our ability to progress our product candidates through clinical development and commercialization will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. The services include substantially all aspects of clinical trial management and, currently, manufacturing of clinical supply. The services of independent organizations, advisors and consultants may not be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain marketing approval for our product candidates or otherwise advance our business. We cannot provide assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.
If we are not able to effectively expand our organization by hiring qualified new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize ONCR-021 and our other product candidates and, accordingly, may not achieve our research, development and commercialization goals.
69
The COVID-19 pandemic and other public health crises could materially and adversely affect our business, including the conduct of preclinical studies and clinical trials and our manufacturing efforts.
Our clinical development timelines could be negatively affected by COVID-19 or other public health crises, which could materially and adversely affect our business, financial condition and results of operations. As a result of the COVID-19 pandemic, or similar crises, and related governmental orders and other public health guidance measures, we have and may in the future experience disruptions that could materially and adversely impact our preclinical studies, clinical trials, business, financial condition and results of operations. Potential disruptions might include but are not limited to:
The extent to which any pandemic may affect our preclinical activities, clinical trials, business, financial condition and results of operations is highly uncertain and cannot be predicted at this time.
If our information technology systems or sensitive information, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to, regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, reputational harm, loss of revenue or profits, and other adverse consequences.
We collect and maintain information in digital and other forms that is necessary to conduct our business, and we are increasingly dependent on information technology systems and infrastructure to operate our business. In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, processing) sensitive information, including personal data, proprietary and confidential business data, trade secrets, intellectual property, data we collect about trial participants in connection with clinical trials, and sensitive third-party data.
We have also outsourced elements of our information technology infrastructure, and as a result a number of third-party service providers may have access to our confidential information. We may rely upon third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, third-party providers of cloud-based infrastructure, encryption and authentication technology, employee email, content delivery to customers, and other functions. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place.
70
Cyberattacks, malicious internet-based activity, and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect. These threats come from a variety of sources, including traditional computer “hackers,” threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including, without limitation, nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including cyber-attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our products. We and the third parties upon which we rely may be subject to a variety of evolving threats, including but not limited to computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, software or hardware failures, loss of data or other information technology assets, adware, denial or degradation of service attacks, ransomware, hacking, phishing and other social engineering attacks, or intentional or accidental actions or omissions to act by persons inside our organization, or persons with access to systems inside our organization. Ransomware attacks, including by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Similarly, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems or the third-party information technology systems that support us.
In addition, the prevalent use of mobile devices that access confidential information increases the risk of security incidents, which could lead to the loss of sensitive information. Future or past business transactions (such as acquisitions or integrations) could also expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.
Any of the previously identified or similar threats could cause a security incident or other interruption. A security incident or other interruption could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our products. We may expend significant resources or modify our business activities (including our clinical trial activities) to try to protect against security incidents. Certain data privacy and security obligations may require us to implement and maintain specific security measures, industry-standard or reasonable security measures to protect our information technology systems and sensitive information.
While we have implemented security measures to protect against security incidents, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service, negative publicity, and other harm to our business, our reputation and our competitive position. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. We may be unable in the future to detect vulnerabilities in our information technology systems because such threats and techniques change frequently, are often sophisticated in nature, and may not be detected until after a security incident has occurred. Despite our efforts to identify and remediate vulnerabilities, if any, in our information technology systems, our efforts may not be successful. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.
Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include government enforcement actions (for example, investigations, fines, penalties, audits, and inspections), additional reporting requirements and/or oversight, restrictions on processing sensitive information (including personal data), litigation (including class claims), indemnification obligations, negative publicity, reputational harm, monetary fund diversions, interruptions in our operations (including availability of data), financial loss, and other similar harms. Security incidents and attendant consequences may cause customers to stop using our products or services, deter new customers from using our products or services, and negatively impact our ability to grow and operate our business.
71
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.
Risks Related to Ownership of Our Common Stock
The market price of our common stock has been and is likely to continue to be volatile and fluctuate substantially.
Our stock price has been highly volatile since our IPO and particularly since we released preliminary data from the Phase 1 clinical trial of ONCR-177 in November 2021, and is likely to continue to be volatile. The stock market in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme price and volume fluctuations that have been often unrelated or disproportionate to the operating performance of the reporting company. In particular, the trading prices for pharmaceutical, biopharmaceutical and biotechnology companies have been highly volatile as a result of the impact of the COVID-19 pandemic and other market factors. The market price for our common stock may be influenced by many factors, including:
72
These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their shares at or above the price paid for the shares and may otherwise negatively affect the liquidity of our common stock.
If we cannot comply with Nasdaq’s continued listing standards, our common stock could be delisted, which would harm our business and could have an adverse impact on the liquidity and trading price of our common stock and our ability to raise additional capital.
Our common stock is currently listed on The Nasdaq Global Market. To maintain the listing of our common stock on The Nasdaq Global Market, we must satisfy minimum financial and other continued listing requirements and standards, including those related to the price of our common stock. On November 1, 2022, we received a written notice from the Listing Qualifications Department of The Nasdaq Stock Market, or Nasdaq, notifying us that, based on the closing bid price of our common stock being below $1.00 per share for 30 consecutive business days, we no longer complied with Nasdaq’s minimum bid price requirement in Listing Rule 5450(a)(1) for continued listing on The Nasdaq Global Market.
Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial compliance period of 180 calendar days from receipt of the Notice, or until May 1, 2023, to regain compliance with the minimum bid price requirement. To regain compliance, the bid price for our common stock would need to close at $1.00 per share or more for a minimum of 10 consecutive business days during this 180-day grace period, among other requirements. While we may be able to qualify for additional time to attempt to regain compliance, there can be no assurance that we will qualify for additional time to regain compliance, or that we will regain compliance with or without such additional time. If we are unable to meet Nasdaq’s listing maintenance standards for any reason within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, our common stock could be delisted from The Nasdaq Global Market.
If necessary to regain compliance with Nasdaq listing standards, we may, subject to approval of our Board of Directors and stockholders, implement a reverse stock split. However, there can be no assurance that a reverse stock split, or any other alternatives we may consider to regain compliance with the minimum bid price requirement, would be approved or would result in a sustained higher stock price that would allow us to meet the Nasdaq stock price listing requirements. If our common stock were to be delisted from Nasdaq and is not eligible for quotation or listing on another market or exchange, trading of our common stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed on a major exchange.
The delisting of our common stock could also result in an event of default under our loan and security agreement with K2 HealthVentures, LLC, in certain circumstances.
Our operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
We expect our operating results to be subject to quarter-over-quarter fluctuations. Our net losses, available cash, cash equivalents and investments and other operating results will be affected by numerous factors, including:
73
If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
Provisions in our corporate charter and bylaws and Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws and provisions of Delaware corporate law may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which investors might otherwise receive a premium for their shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired 15% or more of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction that may be beneficial to stockholders. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in stockholders’ best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.
We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our stock.
Investors should not rely on an investment in our common stock as a source of dividend income. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their value of their common stock holdings, which may never occur, as the only way to realize any return on their investment.
74
Concentration of ownership of our shares of our common stock among our executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.
As of December 31, 2022, our directors, executive officers and holders of at least 5% of our outstanding common stock, including their respective affiliated persons and entities, together beneficially own a majority of our outstanding common stock. As a result, if this group were to act together, they would be able to control the outcome of matters requiring stockholder approval, including the election and removal of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. The concentration of voting power and transfer restrictions could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in the management of our company in ways with which other stockholders disagree.
Conflicts of interest may arise because some members of our board of directors are representatives of our principal stockholders.
Certain of our principal stockholders or their affiliates are venture capital funds or other investment vehicles that could invest in entities that directly or indirectly compete with us. As a result of these relationships, conflicts may arise between the interests of the principal stockholders or their affiliates and the interests of other stockholders, and members of our board of directors that are representatives of such principal stockholders may not be disinterested in such conflicts. Neither the principal stockholders nor the representatives of the principal stockholders on our board of directors, by the terms of our amended and restated certificate of incorporation, are required to offer us any transaction opportunity of which they become aware and could take any such opportunity for themselves or offer it their other affiliates, unless such opportunity is expressly offered to them solely in their capacity as members of our board of directors.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our existing stockholders sell, or indicate an intention to sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly.
In addition, we have registered under the Securities Act shares that we may issue from time to time under our equity incentive plans, meaning that they can be freely sold in the public market upon issuance, subject to volume limitations applicable to our directors and officers. If any of these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:
This provision would not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously
75
assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage these types of lawsuits. If a court were to find either exclusive forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other jurisdictions, which could seriously harm our business.
General Risk Factors
Unstable market and economic conditions may negatively impact our business, financial condition and stock price.
Market conditions such as inflation, volatile energy costs, geopolitical issues, unstable global credit markets and financial conditions could lead to periods of significant economic instability, diminished liquidity and credit availability, diminished expectations for the global economy and expectations of slower global economic growth going forward. Our business and operations may be adversely affected by such instability, including any such inflationary fluctuations, economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. For example, the COVID-19 pandemic resulted in widespread unemployment, economic slowdown and extreme volatility in the capital markets. Similarly, the Russia-Ukraine war has created volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may have adverse consequences on us or the third parties on whom we rely. Additionally, supply chain issues or rising costs of goods and services that we purchase, including raw materials or supplies used in manufacturing our product candidates and the conducting of our clinical and preclinical studies, or rising salary inflation to retain and recruit biotech talent, may have an adverse effect on our financial results in future periods.
If economic and market conditions continue to deteriorate or do not improve, it may make any future financing efforts more difficult to complete, more costly and more dilutive to our stockholders. Additionally, due to our volatile industry and industry-wide declining stock values, investors may seek to pursue non-biotech investments with steadier returns. Failure to secure any necessary financing in a timely manner or on favorable terms could have a material adverse effect on our operations, financial condition or stock price or could require us to delay or abandon development or commercialization plans. In addition, our current or future service providers, contract manufacturers, suppliers and other partners could be negatively affected by such difficult economic factors, which could have an adverse impact on our operations or financial condition.
Our employees, independent contractors, consultants, commercial partners, principal investigators, CMOs, or CROs may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could have a material adverse effect on our business.
We are exposed to the risk of fraud and other forms of misconduct by employees, independent contractors, consultants, commercial partners, principal investigators, CMOs or CROs, and other personnel associated with our business. This misconduct could include intentional, reckless, negligent, or unintentional actions, including failures to: comply with applicable FDA regulations, provide accurate information to the FDA, properly calculate pricing information required by federal programs, report financial information or data accurately or disclose unauthorized activities to us. This misconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We are exposed to similar personnel risks under applicable anti-corruption, fraud and abuse laws, as well as securities laws and regulations applicable to publicly traded companies, including insider trading laws.
It is not always possible to identify and deter this type of misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Moreover, it is possible for a whistleblower to pursue a False Claims Act case against us even if the government considers the claim unmeritorious and/or declines to intervene, which could require us to incur costs defending against such a claim. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations, stock price and prospects, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in U.S. federal healthcare programs, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations.
76
We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability and be forced to limit the commercialization of any approved products and/or our product candidates.
The use of our product candidates in clinical trials, and the sale of any product for which we obtain regulatory approval, exposes us to the risk of product liability claims. We face inherent risk of product liability related to the testing of our product candidates in human clinical trials, including liability relating to the actions and negligence of our investigators, and will face an even greater risk if we commercially sell any product candidates that we may develop. For example, we may be sued if ONCR-021 or any other product candidate we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. Product liability claims might be brought against us by consumers, healthcare providers or others using, administering or selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of merit or eventual outcome, liability claims may result in:
We believe we have sufficient insurance coverage in place for our business operations as they are currently conducted. However, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for all expenses or losses we may suffer as a result of product liability claims against us. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include clinical trials and the sale of commercial products if we obtain FDA or comparable foreign regulatory approval for our product candidates, but we may be unable to obtain such insurance at commercially reasonable prices, or at all. Failure to obtain and retain sufficient product liability insurance at a commercially reasonable cost could prevent or inhibit the commercialization of products we develop. On occasion, large judgments have been awarded in class action lawsuits based on therapeutics that had unanticipated side effects. A successful product liability claim or series of claims brought against us could, if judgments exceed our insurance coverage, decrease our cash and materially harm our business, financial condition, results of operations, stock price and prospects.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against public companies following declines in the market prices of their securities. This risk is especially relevant for biopharmaceutical companies like us, which have experienced significant stock price volatility in recent years. We have experienced significant stock price decline since our IPO, particularly since we announced initial clinical data in our Phase 1 trial of ONCR-177 in November 2021. If we face securities litigation or other class action litigations, it could result in substantial costs and a diversion of management’s attention and our resources, which could materially harm our business, financial condition, results of operations, stock price and prospects.
77
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.
The market for our common stock is reliant on and will rely on the research and reports that industry or financial analysts publish about us or our business. Since our IPO, certain of these analysts have downgraded their evaluations of our business and, in certain cases, ceased to cover our stock. If one or more of the analysts who currently cover our business further downgrade their evaluations of our business, or in the event we obtain additional coverage and one or more of the new analysts issues an adverse evaluation of our business, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
We will continue to incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to public company compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, Nasdaq listing requirements and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time and resources to these compliance initiatives. Moreover, we expect these rules and regulations to continue to increase our legal and financial compliance costs and to make some activities more time consuming and costly than they were for us as a privately traded company or a newly public company. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain and maintain director and officer liability insurance and we may be required to incur substantial costs to maintain sufficient coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. The increased costs may require us to reduce costs in other areas of our business. Moreover, these rules and regulations are often subject to new rulemaking and varying interpretations of existing rules and regulations and, as a result, their application to us in practice may evolve over time as new rules and regulations are promulgated and guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
We are an “emerging growth company” and a “smaller reporting company” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies or smaller reporting companies will make our common stock less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, (iii) exemptions from the requirements of holding nonbinding advisory stockholder votes on executive compensation and stockholder approval of any golden parachute payments not approved previously, and (iv) pay-for-performance reporting requirements. In addition, as an emerging growth company, we are only required to provide two years of audited financial statements in this report. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date that we are no longer an “emerging growth company” or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act, upon issuance of a new or revised accounting standard that applies to our consolidated financial statements and that has a different effective date for public and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.
78
We could be an emerging growth company until December 31, 2025, although circumstances could cause us to lose that status earlier, including if we are deemed to be a “large accelerated filer,” which occurs when the market value of our common stock that is held by non-affiliates equals or exceeds $700.0 million as of the prior June 30, or if we have total annual gross revenue of $1.07 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following December 31, or if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, in which case we would no longer be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
We cannot predict if investors will find our common stock less attractive because we have chosen to rely on the exemptions and reduced disclosure obligations applicable to emerging growth companies and smaller reporting companies. If investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Exchange Act and must design our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and thereafter recorded, processed, summarized and reported publicly 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, but 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 human or system errors or mistakes. For example, our directors or executive officers could fail to disclose a new relationship or arrangement thereby causing us to fail to make a required related party transaction disclosure or impacting our conclusions regarding director independence under applicable Nasdaq or SEC rules. Additionally, controls can be circumvented by the individual acts, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and may not be detected.
If we fail to maintain proper and effective internal controls over financial reporting, our ability to produce accurate and timely financial statements could be impaired.
Pursuant to Section 404 of the Sarbanes-Oxley Act, our management is required to report upon the effectiveness of our internal control over financial reporting, effective as of this Annual Report on Form 10-K. When we lose our status as an emerging growth company and a smaller reporting company, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and, if deficient, remediation. To comply with the requirements of being a reporting company under the Exchange Act, we will need to maintain and continually reassess the adequacy of these internal controls, reporting systems and procedures.
79
We cannot guarantee that there will not be material weaknesses in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal office is located in Andover, Massachusetts, where we lease office, laboratory and manufacturing space. We entered into the lease for our Andover facility in December 2020 for approximately 88,000 square feet of manufacturing and office space to support our advancing pipeline of product candidates. In November 2021, we entered into an amendment to our lease to increase the existing footprint of the facility to a total of approximately 105,000 square feet. The lease terminates in December 2036, unless earlier terminated in accordance with its terms. Our total lease commitment is expected to be approximately $85 million over the 15-year term. We have two options to extend the term of the lease for the entire premises for a period of 10 years each.
We believe that suitable additional or substitute space will be available as needed and on commercially reasonable terms to accommodate any future expansion of operations.
Item 3. Legal Proceedings.
From time to time, we may be involved in various other claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
80
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for Common Stock
Our common stock is listed on the Nasdaq Global Market under the symbol “ONCR”. Trading of our common stock commenced on October 6, 2020, following the completion of our initial public offering. Prior to that time, there was no established public trading market for our common stock.
Record Holders
As of March 1, 2023, there were approximately 43 stockholders of record of our common stock. This number does not include beneficial owners whose shares are held in street name.
Dividends
We have never declared or paid a cash dividend on our common stock and do not anticipate paying any cash dividends in the foreseeable future.
Item 6. [Reserved].
81
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with Part I, Item 1, “Business” and Item 8, ‘Financial Statements and Supplementary Data.” For information on risks and uncertainties related to our business that may make past performance not indicative of future results or cause actual results to differ materially from any forward-looking statements, see “Special Note Regarding Forward-Looking Statements,” and Part I, Item 1A, ‘Risk Factors.”
Introduction
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
Overview - A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.
Results of Operations - An analysis of our financial results comparing the year ended December 31, 2022 to the year ended December 31, 2021.
Liquidity and Capital Resources - An analysis of changes in our consolidated balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.
Critical Accounting Policies and Significant Judgments and Estimates - A discussion of critical accounting policies and those that require us to make subjective estimates and judgments.
Overview
We are a preclinical-stage biopharmaceutical company focused the intravenous administration of self-amplifying RNA to transform outcomes for cancer patients. We believe that our product candidates have the potential to bring significant benefit to patients who are currently underserved by approved immuno-oncology therapies, including other viral immunotherapies and immune checkpoint inhibitors.
Our Self-Amplifying RNA Platform
Our self-amplifying RNA immunotherapy platform improves upon key characteristics of this therapeutic class to enhance systemic activity. Our approach involves encapsulating genomes of RNA viruses known to kill cancer cells within a lipid nanoparticle, or LNP, creating a selectively self-amplifying vRNA immunotherapy to be administered intravenously, or IV. We believe this approach has the potential to avoid the rapid immune clearance caused by neutralizing antibodies otherwise observed to date with IV-administered oncolytic viruses, which is thought to have limited the effectiveness of RNA viruses in the clinic. Once inside the tumor, the viral RNA genome is first amplified via transcription and then instructs tumor cells to synthesize proteins via translation that then self assemble into infectious virions, which thereafter causes an immunogenic tumor cell lysis before daughter virions infect nearby tumor cells.
Our two product candidates from our self-amplifying RNA platform are ONCR-021 and ONCR-788. ONCR-021, our lead product candidate, is an IV administered viral RNA encoding an optimized genome of Coxsackievirus 21A, or CVA21, encapsulated within an LNP. We plan to submit an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or FDA, in mid-2023 to evaluate ONCR-021 in multiple indications, including non-small cell lung cancer, renal cell carcinoma, melanoma, and anaplastic thyroid cancer, both as monotherapy and in combination with immune checkpoint inhibitors and other cancer treatments. We are also developing ONCR-788, which encodes for a modified version of the Seneca Valley Virus, or SVV. Both CVA21 and SVV have extensive clinical experience and favorable safety profiles when administered IV. Following the IND submission for ONCR-021 and pending the receipt of additional financing, which is not certain at this time, we may submit an IND for ONCR-788 to enable its development in small cell lung cancer, neuroendocrine prostate and other neuroendocrine cancers, both as a single agent and in combination with immune checkpoint inhibitors and other cancer treatments. Alongside our self-amplifying RNA platform, we are also developing a proprietary LNP platform intended to efficiently deliver nucleic acids after both intramuscular and IV administration.
Our HSV Platform
Our product candidate ONCR-177 is an intratumorally, or iTu, administered viral immunotherapy based on our oncolytic HSV-1 platform, which leverages the Herpes Simplex Virus type 1, or HSV-1, a virus which has been clinically proven to effectively treat certain cancers. In November 2022, we announced our decision to discontinue our Phase 1 clinical trial of ONCR-177. We plan to present the results of the Phase 1 clinical trial in conjunction with a medical conference in 2023. Further development product candidates from our HSV platform, including ONCR-719, an armed HSV-1 engineered for viral entry via the EGFR receptor for the treatment of glioblastoma multiforme, or GBM, is dependent on our ability to obtain additional financing or partnership.
82
Manufacturing
We plan to manufacture our product candidates at our manufacturing facility in Andover, Massachusetts. The facility is approximately 105,000 square feet, of which 41,000 square feet are specifically dedicated to processes that are compliant with good manufacturing practices, or GMP. We began process development activities at the facility in 2021 and, as of November 2022, construction was complete and the facility is currently fully operational. We have completed initial engineering batches of ONCR-021 at the facility, with additional engineering batches planned for the first half of 2023.
Financial
Since inception in 2015, our operations have focused on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing a clinical trial, and manufacturing scale-up activities. We do not have any products approved for sale and have not generated any revenue from product sales. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.
We have funded our operations primarily through the sale of redeemable convertible preferred stock and from our initial public offering, or IPO, of our common stock in 2020 and a follow-on public offering of common stock in 2021. From inception through December 31, 2022, we raised an aggregate of $306.3 million in gross proceeds from sales of our equity securities.
At-the-Market Program
In November 2021, we entered into an Open Market Sale AgreementSM, or the Sales Agreement, with Jefferies LLC, or Jefferies, relating to the sale of shares of our common stock. In accordance with the terms of the Sales Agreement, we may offer and sell shares of our common stock having an aggregate offering price of up to $50,000,000 from time to time through Jefferies, acting as agent, in a series of one or more at-the-market equity offerings. Jefferies is not required to sell any specific amount but acts as our agent using commercially reasonable efforts consistent with its normal trading and sales practices. Shares sold pursuant to the Sales Agreement will be sold pursuant to a shelf registration statement on Form S-3 which was declared effective by the SEC on November 12, 2021. Our common stock will be sold at prevailing market prices at the time of the sale, and as a result, prices may vary. As of December 31, 2022, we have not sold any shares under the Sales Agreement.
Loan Facility
On April 1, 2022, we entered into a loan and security agreement, or the Loan Agreement, with K2 HealthVentures, LLC, or K2HV, which provides for term loan commitments of up to $45.0 million in four potential tranches. As of December 31, 2022, we have borrowed a total of $20.0 million under the Loan Agreement.
The Loan Agreement contains a Subjective Acceleration Clause, or SAC, which allows K2HV to accelerate the maturity of the Loan Agreement. Based upon our significant operating losses as of December 31, 2022, we determined that we should classify our loan facility with K2HV, which would otherwise be classified as long-term debt, as a current liability on our consolidated balance sheet as of December 31, 2022.
Since inception, we have incurred significant operating losses. Our net losses were $77.4 million and $64.8 million for the year ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $272.0 million. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.
We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.
As of December 31, 2022, we had aggregate cash and cash equivalents and investments of $62.2 million. We believe that, based on our current operating plan, our cash, cash equivalents and investments as of December 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements into early 2024. Accordingly, there is substantial doubt about our ability to continue as a going concern as we do not believe that our cash, cash equivalents and investments at December 31, 2022 will be sufficient to fund operations for at least twelve months from the date of issuance of the financial statements included in this Annual Report on Form 10-K. We plan to address the existence of substantial doubt through capital sources such as collaborations with other companies or other
83
strategic transactions; however, we currently do not have any committed sources of additional capital at this time. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. See “Liquidity and Capital Resources.” Our future viability is dependent on our ability to raise additional capital to finance our operations.
Impact of the COVID-19 Pandemic on Our Business
In response to the COVID-19 pandemic, we implemented a work-from-home policy allowing employees who can work from home to do so. We have transitioned back to in-office work for the majority of our employees. We have taken measures to secure our research and development project activities, while work in laboratories has been organized to reduce risk of COVID-19 transmission. Business travel was previously suspended but is now becoming more frequent, and online and teleconference technology continues to be used regularly. We continue to monitor guidance from the CDC and other relevant health regulatory authorities and may adjust our plans to the extent there are changes in such guidance.
Components of Operating Results
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts, preclinical and clinical studies under our research programs, which include:
Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our preclinical and clinical studies or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.
We track external research and development costs on a program-by-program basis beginning, with respect to each program, upon our internal nomination of a candidate in that program for further preclinical and clinical development. For example, ONCR-021 and ONCR-788 were both nominated as candidates in May 2021, at which time we began tracking their external research and development costs. External costs include fees paid to consultants, contractors and vendors, including contract manufacturing organizations, or CMOs, and clinical research organizations, or CROs, in connection with our preclinical, clinical and manufacturing activities and license milestone payments related to candidate development. We do not allocate employee costs, costs associated with our discovery efforts, costs incurred for laboratory supplies, and facilities, including depreciation, or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.
84
The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if they are approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as we commence and continue clinical trials and continue the development of our current and future product candidates. However, we do not believe that it is possible at this time to accurately project expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
General and Administrative Expenses
General and administrative expenses include salaries, bonuses, benefits and other compensation-related costs, including stock-based compensation, for personnel in executive, finance and accounting, business development, operations and administrative roles. Other significant costs include professional service and consulting fees including legal fees relating to intellectual property and corporate matters, audit and tax fees, insurance costs, recruiting costs and costs for consultants who we utilize to supplement our personnel. General and administrative expenses also include travel costs, and facility, office-related costs and depreciation and amortization that are not included in research and development expenses.
We anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities, including our future clinical programs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside service providers, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the Securities and Exchange Commission, or the SEC, and listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums, and investor relations costs. In addition, if we obtain regulatory approval for any of our product candidates and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.
Other Income (Expense)
Other income (expense) consists primarily of interest expense associated with our Loan Agreement with K2HV and interest income earned on our investments and cash equivalents.
85
Results of Operations
The following table summarizes our results of operations for the periods indicated.
|
|
YEAR ENDED DECEMBER 31, |
|
|
CHANGE |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
|
|
(in thousands, except percentages) |
|
|||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
$ |
54,744 |
|
|
$ |
44,682 |
|
|
$ |
10,062 |
|
|
|
23 |
% |
General and administrative |
|
|
21,793 |
|
|
|
20,136 |
|
|
|
1,657 |
|
|
|
8 |
|
Total operating expenses |
|
|
76,537 |
|
|
|
64,818 |
|
|
|
11,719 |
|
|
|
18 |
|
Loss from operations |
|
|
(76,537 |
) |
|
|
(64,818 |
) |
|
|
(11,719 |
) |
|
|
18 |
|
Total other income (expense), net |
|
|
(885 |
) |
|
|
56 |
|
|
|
(941 |
) |
|
|
(1,681 |
) |
Net loss |
|
$ |
(77,422 |
) |
|
$ |
(64,762 |
) |
|
$ |
(12,660 |
) |
|
|
20 |
% |
Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
Research and Development Expenses
The table below summarizes our research and development expenses by product candidate or development program and unallocated research and development expenses for each of the periods presented:
|
|
YEAR ENDED DECEMBER 31, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
CHANGE |
|
|||
|
|
(in thousands) |
|
|||||||||
Direct external expenses by program: |
|
|
|
|
|
|
|
|
|
|||
ONCR-177 |
|
$ |
9,548 |
|
|
$ |
11,357 |
|
|
$ |
(1,809 |
) |
ONCR-021 |
|
|
12,624 |
|
|
|
2,668 |
|
|
|
9,956 |
|
ONCR-788 |
|
|
114 |
|
|
|
831 |
|
|
|
(717 |
) |
Platform development, early-stage research and unallocated expenses: |
|
|
|
|
|
|
|
|
|
|||
Employee compensation and related |
|
|
16,366 |
|
|
|
14,624 |
|
|
|
1,742 |
|
External research, development and consulting |
|
|
1,261 |
|
|
|
2,209 |
|
|
|
(948 |
) |
Laboratory supplies |
|
|
2,639 |
|
|
|
3,698 |
|
|
|
(1,059 |
) |
Facility-related |
|
|
7,802 |
|
|
|
6,301 |
|
|
|
1,501 |
|
Other expenses |
|
|
4,390 |
|
|
|
2,994 |
|
|
|
1,396 |
|
Total research and development |
|
$ |
54,744 |
|
|
$ |
44,682 |
|
|
$ |
10,062 |
|
Research and development expenses increased from $44.7 million for the year ended December 31, 2021 to $54.7 million for the year ended December 31, 2022. The increase of $10.0 million, or 23%, was primarily the result of:
86
General and Administrative Expenses
|
|
YEAR ENDED DECEMBER 31, |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
CHANGE |
|
|||
|
|
(in thousands) |
|
|||||||||
Employee compensation and related expenses |
|
$ |
10,381 |
|
|
$ |
8,711 |
|
|
$ |
1,670 |
|
Professional service and consultant fees |
|
|
8,651 |
|
|
|
8,846 |
|
|
|
(195 |
) |
Facility-related |
|
|
1,186 |
|
|
|
529 |
|
|
|
657 |
|
Other expenses |
|
|
1,575 |
|
|
|
2,050 |
|
|
|
(475 |
) |
Total general and administrative expenses |
|
$ |
21,793 |
|
|
$ |
20,136 |
|
|
$ |
1,657 |
|
General and administrative expenses increased from $20.1 million for the year ended December 31, 2021 to $21.8 million for the year ended December 31, 2022. The increase of $1.7 million, or 8%, was primarily the result of:
Other Income (Expense)
Other income (expense) for the year ended December 31, 2022 decreased by $0.9 million compared to the year ended December 31, 2021. This decrease was primarily driven by interest expense recognized on our term loan with K2HV. We entered into this term loan agreement on April 1, 2022.
Liquidity and Capital Resources
Sources of Liquidity
From inception through December 31, 2022, we funded our operations with gross proceeds of $306.3 million from sales of our redeemable convertible preferred stock, our IPO and our Follow-on-Offering. As of December 31, 2022, our cash and cash equivalents and investments totaled $62.2 million.
Cash Flows
|
|
YEAR ENDED DECEMBER 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in thousands) |
|
|||||
Net cash (used in) provided by: |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(61,688 |
) |
|
$ |
(49,824 |
) |
Investing activities |
|
|
(33,008 |
) |
|
|
(32,730 |
) |
Financing activities |
|
|
19,653 |
|
|
|
53,561 |
|
Net decrease in cash and cash equivalents |
|
$ |
(75,043 |
) |
|
$ |
(28,993 |
) |
Operating Activities
Net cash used in operating activities for the year ended December 31, 2022 was $61.7 million and was primarily related to our net loss for the period of $77.4 million, partially offset by non-cash charges consisting of depreciation and amortization of $3.6 million and stock-based compensation expense of $7.2 million. Our net cash used in operating activities also included a net source of cash of $5.1 million related to changes in operating assets and liabilities as follows:
87
Net cash used in operating activities for the year ended December 31, 2021 was $49.8 million and was primarily related to our net loss for the period of $64.8 million, partially offset by non-cash activity consisting of depreciation and amortization of $1.9 million and stock-based compensation expense of $6.6 million. Our net cash used in operating activities also included a net source of cash of $6.4 million related to changes in operating assets and liabilities as follows:
Investing Activities
Net cash used in investing activities for the year ended December 31, 2022 and 2021 was $33.0 million and $32.7 million, respectively. The net cash used in investing activities in 2022 was associated with net purchases of investments of $13.1 million and purchases of leasehold improvements and laboratory equipment for our Andover facility of approximately $19.9 million. The net cash used in investing activities in 2021 was related to purchases of approximately $23.2 million of investments and $9.5 million of leasehold improvements and laboratory equipment for our Andover facility.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2022 was $19.7 million from net proceeds from borrowings under or term loan. Net cash provided by financing activities for the year ended December 31, 2021 was $53.6 million and primarily consisted of net proceeds from our Follow-on Offering.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, initiate clinical trials, build out our manufacturing facility and seek marketing approval for our current and any of our future product candidates. In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
88
As of December 31, 2022, we had cash, cash equivalents and investments of $62.2 million. We believe that, based on our current operating plan, our cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements into early 2024. Accordingly, there is substantial doubt about our ability to continue as a going concern as we do not believe that our cash, cash equivalents and investments at December 31, 2022 will be sufficient to fund operations for at least twelve months from the date of issuance of the financial statements included in this Annual Report on Form 10-K.
We plan to address the existence of substantial doubt through capital sources such equity or debt financings as well as collaborations strategic alliances or licensing arrangements with third parties; however, we do not currently have any committed sources of additional capital at this time. Our cash, cash equivalents and investments at December 31, 2022 will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development of any of our product candidates. Accordingly, we will be required to obtain further funding through public or private equity offerings, collaborations and licensing arrangements, or other sources of capital. Adequate additional financing may not be available to us on acceptable terms, if at all. In addition, while we may seek one or more collaborators for future development of our product candidates for one or more indications, we may not be able to enter into a collaboration for any of our product candidate for such indications on suitable terms, on a timely basis or at all. Although we have been successful in raising capital in the past, there is no assurance that we will be successful in obtaining such additional financing in the future and, therefore, it is not considered probable that we will be able to raise the necessary additional capital when and as needed to alleviate the substantial doubt regarding our ability to continue as a going concern.
We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on a number of factors, including:
Our existing cash and cash equivalents and investments will not be sufficient to complete development of ONCR-021 or any other product candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of common stockholders. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.
89
If we raise funds through potential collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when and as needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Further, if we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to us or at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritize among them.
Critical Accounting Policies and Significant Judgments and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our consolidated financial statements prospectively from the date of the change in estimate.
We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following are the critical accounting policies used in the preparation of our consolidated financial statements that require significant estimates and judgments.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.
The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense.
In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid balance accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees and directors based on the fair value of the award on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award.
90
Determination of the Fair Value of Equity-Based Awards
Prior to the IPO, because there was no public market for our common stock as a private company, our board of directors determined the fair value of common stock by considering a number of objective and subjective factors, including having contemporaneous and retrospective valuations of our equity performed by a third-party valuation specialist, valuations of comparable peer public companies, sales of redeemable convertible preferred stock, operating and financial performance, the lack of liquidity of our common stock, and general and industry-specific economic outlook. Following our IPO, the closing sale price per share of our common stock as reported on The Nasdaq Global Market on the date of grant is used to determine the fair value of our share-based awards.
We estimate the fair value of stock option awards granted using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and subjective assumptions we make, including expected stock price volatility, the expected term of the award, the risk-free interest rate, and expected dividends. Due to the lack of an extended trading history of our common stock and a lack of company-specific historical and implied volatility data, we base the estimate of expected stock price volatility on the historical volatility of a representative group of publicly traded companies for which historical information is available. The historical volatility is generally calculated based on a period of time commensurate with the expected term assumption. We use the simplified method to calculate the expected term for options granted to employees and directors. We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. For options granted to non-employees, we utilize the contractual term. The risk-free interest rate is based on a U.S. treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero, as we have never paid dividends and do not have current plans to pay any dividends on our common stock.
We determine the fair value of restricted common stock awards based on the fair value of our common stock on the date of grant.
Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2022:
AS OF DECEMBER 31, 2022 |
|
TOTAL |
|
|
LESS THAN |
|
|
1 TO 3 |
|
|
3 TO 5 |
|
|
MORE THAN |
|
|||||
Operating lease obligations |
|
$ |
82,861 |
|
|
$ |
4,850 |
|
|
$ |
10,140 |
|
|
$ |
10,757 |
|
|
$ |
57,114 |
|
Total |
|
$ |
82,861 |
|
|
$ |
4,850 |
|
|
$ |
10,140 |
|
|
$ |
10,757 |
|
|
$ |
57,114 |
|
We have an operating lease for approximately 33,518 square feet (the “Pod 4 Portion”), approximately 54,666 square feet (the “Pod 5 Portion”), and approximately 17,150 square feet ("Pod 3 Portion") of a manufacturing facility located in Andover, Massachusetts, that also serves as our corporate headquarters. This lease expires in December 2036 and we have two options to extend the term of the lease for a period of ten years each. As of December 31, 2022, we have not exercised our options to extend the lease term for either lease and did not consider it reasonably certain that these options would be exercised. We agreed to provide the landlord with a $3.4 million letter of credit as support for our obligations under the Andover facility lease. The lease provides a lease incentive in the form of reimbursable leasehold improvements of $14.9 million. Due to the unpredictability of the payout of leasehold improvement reimbursements, the right-of-use asset has been adjusted on a prospective basis to reflect any payments relating to the lease incentive as construction related to these improvements is performed over the life of the lease. As of December 31, 2022, we had capitalized $37.7 million of leasehold improvement costs, of which $9.7 million was reimbursed through the lease incentive. The lease payments include fixed base rent payments and variable rents for certain shared facility operating and other costs.
We were also party to an operating lease in Cambridge, Massachusetts, which served as our corporate headquarters until September 2022. On September 13, 2022, we executed an amendment to our Cambridge lease which accelerated the lease termination date to November 15, 2022, from the previous date of January 12, 2024. In connection with this amendment, we remeasured the remaining lease liability and right-of-use-asset and recognized a gain of $0.5 million, which is included as a reduction of operating expenses in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022.
We enter into agreements in the normal course of business with vendors for preclinical and clinical studies, preclinical and clinical supply and manufacturing services, professional consultants for expert advice, and other vendors for other services for operating purposes. We have not included these payments in the table of contractual obligations above since the contracts do not contain any minimum purchase commitments and are cancelable at any time by us, generally upon 30 days prior written notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.
In addition, we have entered into license and royalty agreements for intellectual property with certain parties. Such arrangements require ongoing payments, including payments upon achieving certain development, regulatory and commercial milestones, receipt of sublicense income, as well as royalties on commercial sales. Payments under these arrangements are expensed as incurred and are recorded as research and development expenses. We paid amounts under such agreements at the time of execution and pay annual fees. Upon the dosing of patients in our Phase 1 clinical trial for ONCR-177, certain payments came due. We have not included the annual license fee payments in the table of contractual obligations above because the license agreements are cancelable by us and
91
therefore, we believe that our non-cancelable obligations under these agreements are not material. We have not included potential royalties or milestone obligations in the table above because they are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.
Please also refer to Note 11, Leases and Note 12, Commitments and Contingencies for further discussion about our contractual obligations.
Emerging Growth Company and Smaller Reporting Company Status
We are an ‘‘emerging growth company,’’ or EGC, under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of the delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as private entities.
As an EGC, we may also take advantage of certain exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC:
We will remain an EGC until the earliest of (i) December 31, 2025, (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (iii) the date on which we have issued more than $1 billion in non-convertible debt during the previous rolling three-year period, or (iv) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
We are also a ‘‘smaller reporting company,’’ meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as of the date of our initial public offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company until (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.
If we are a smaller reporting company at the time we cease to be an EGC, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to EGCs, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recent Accounting Pronouncements
Other than as disclosed in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we do not expect that any recently issued accounting standards will have a material impact on our financial statements or will otherwise apply to our operations.
92
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our cash equivalents and investments are, or may be, in the form of money market funds or marketable debt securities and are, or may be, invested in U.S. Treasury and U.S. government agency obligations. However, because of the short-term nature of the investments in our portfolio, an immediate one percentage point change in market interest rates would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.
We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors that are located in Europe. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.
Inflation generally affects us by increasing our cost of labor, cost of material inputs and clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 2022 or 2021.
Item 8. Financial Statements and Supplementary Data.
93
Index to Consolidated Financial Statements
|
Pages |
|
|
Report of Independent Registered Public Accounting Firm (PCAOB Auditor ID: 42) |
95 |
Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021 |
96 |
97 |
|
98 |
|
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and December 31, 2021 |
99 |
100 |
94
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Oncorus, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Oncorus, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has limited financial resources, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2017.
Boston, Massachusetts
March 24, 2023
95
ONCORUS, INC.
Consolidated Balance Sheets
(in thousands, except for par value data)
|
|
DECEMBER 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
25,709 |
|
|
$ |
100,752 |
|
Investments |
|
|
36,487 |
|
|
|
23,173 |
|
Prepaid expenses and other current assets |
|
|
2,422 |
|
|
|
5,185 |
|
Total current assets |
|
|
64,618 |
|
|
|
129,110 |
|
Property and equipment, net |
|
|
44,360 |
|
|
|
23,233 |
|
Right-of-use asset |
|
|
32,560 |
|
|
|
45,218 |
|
Restricted cash |
|
|
3,437 |
|
|
|
3,437 |
|
Other assets |
|
|
611 |
|
|
|
589 |
|
Total assets |
|
$ |
145,586 |
|
|
$ |
201,587 |
|
Liabilities, redeemable convertible preferred stock and stockholders’ equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
5,694 |
|
|
$ |
13,009 |
|
Accrued expenses |
|
|
10,948 |
|
|
|
6,281 |
|
Lease liability - current portion |
|
|
1,129 |
|
|
|
1,684 |
|
Term loan, net of debt discount |
|
|
19,436 |
|
|
|
— |
|
Total current liabilities |
|
|
37,207 |
|
|
|
20,974 |
|
Lease liability, net of current portion |
|
|
47,854 |
|
|
|
50,388 |
|
Other long-term liabilities |
|
|
— |
|
|
|
203 |
|
Total liabilities |
|
|
85,061 |
|
|
|
71,565 |
|
Stockholders’ equity: |
|
|
|
|
|
|
||
Preferred stock, $0.0001 par value; authorized — 10,000 shares at December 31, 2022 and 2021; issued and outstanding — no shares at December 31, 2022 and 2021 |
|
|
— |
|
|
|
— |
|
Common stock, $0.0001 par value; authorized — 100,000 shares at December 31, 2022 and 2021; issued and outstanding — 26,095 and 25,848 shares at December 31, 2022 and 2021, respectively |
|
|
3 |
|
|
|
3 |
|
Additional paid-in capital |
|
|
332,583 |
|
|
|
324,620 |
|
Accumulated other comprehensive loss |
|
|
(52 |
) |
|
|
(14 |
) |
Accumulated deficit |
|
|
(272,009 |
) |
|
|
(194,587 |
) |
Total stockholders’ equity |
|
|
60,525 |
|
|
|
130,022 |
|
Total liabilities and stockholders’ equity |
|
$ |
145,586 |
|
|
$ |
201,587 |
|
The accompanying notes are an integral part of these consolidated financial statements.
96
ONCORUS, INC.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
|
|
YEARS ENDED DECEMBER 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating expenses: |
|
|
|
|
|
|
||
Research and development |
|
$ |
54,744 |
|
|
$ |
44,682 |
|
General and administrative |
|
|
21,793 |
|
|
|
20,136 |
|
Total operating expenses |
|
|
76,537 |
|
|
|
64,818 |
|
Loss from operations |
|
|
(76,537 |
) |
|
|
(64,818 |
) |
Other income (expense): |
|
|
|
|
|
|
||
Interest income (expense) |
|
|
(1,095 |
) |
|
|
65 |
|
Other income (expense) |
|
|
210 |
|
|
|
(9 |
) |
Total other income (expense), net |
|
|
(885 |
) |
|
|
56 |
|
Net loss |
|
$ |
(77,422 |
) |
|
$ |
(64,762 |
) |
Comprehensive loss: |
|
|
|
|
|
|
||
Net unrealized loss on investments |
|
|
(52 |
) |
|
|
(14 |
) |
Comprehensive loss |
|
$ |
(77,474 |
) |
|
$ |
(64,776 |
) |
Net loss per share —basic and diluted |
|
$ |
(2.99 |
) |
|
$ |
(2.56 |
) |
Weighted-average number of common shares outstanding—basic and diluted |
|
|
25,924 |
|
|
|
25,320 |
|
The accompanying notes are an integral part of these consolidated financial statements.
97
ONCORUS, INC.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share amounts)
|
|
COMMON STOCK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
SHARES |
|
|
AMOUNT |
|
|
ADDITIONAL |
|
|
ACCUMULATED OTHER COMPRENSIVE LOSS |
|
|
ACCUMULATED |
|
|
TOTAL |
|
||||||
Balance at December 31, 2020 |
|
|
22,599,048 |
|
|
$ |
2 |
|
|
$ |
264,487 |
|
|
$ |
— |
|
|
$ |
(129,825 |
) |
|
$ |
134,664 |
|
Issuance of common stock in follow-on public offering, net of $4,017 in offering costs |
|
|
3,000,000 |
|
|
|
1 |
|
|
|
52,982 |
|
|
|
— |
|
|
|
— |
|
|
|
52,983 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
6,573 |
|
|
|
— |
|
|
|
— |
|
|
|
6,573 |
|
Vesting of restricted common stock |
|
|
17,236 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercise of options to purchase common stock |
|
|
231,945 |
|
|
|
— |
|
|
|
578 |
|
|
|
— |
|
|
|
— |
|
|
|
578 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14 |
) |
|
|
— |
|
|
|
(14 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(64,762 |
) |
|
|
(64,762 |
) |
Balance at December 31, 2021 |
|
|
25,848,229 |
|
|
$ |
3 |
|
|
$ |
324,620 |
|
|
$ |
(14 |
) |
|
$ |
(194,587 |
) |
|
$ |
130,022 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
7,211 |
|
|
|
— |
|
|
|
— |
|
|
|
7,211 |
|
Exercise of options to purchase common stock |
|
|
35,278 |
|
|
|
— |
|
|
|
64 |
|
|
|
— |
|
|
|
— |
|
|
|
64 |
|
Issuance of common stock under employee stock purchase plan |
|
|
211,340 |
|
|
|
— |
|
|
|
121 |
|
|
|
— |
|
|
|
— |
|
|
|
121 |
|
Issuance of warrants in connection with term loan |
|
|
— |
|
|
|
— |
|
|
|
567 |
|
|
|
— |
|
|
|
— |
|
|
|
567 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(38 |
) |
|
|
— |
|
|
|
(38 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(77,422 |
) |
|
|
(77,422 |
) |
Balance at December 31, 2022 |
|
|
26,094,847 |
|
|
$ |
3 |
|
|
$ |
332,583 |
|
|
$ |
(52 |
) |
|
$ |
(272,009 |
) |
|
$ |
60,525 |
|
The accompanying notes are an integral part of these consolidated financial statements.
98
ONCORUS, INC.
Consolidated Statements of Cash Flows
(In thousands)
|
|
YEARS ENDED DECEMBER 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(77,422 |
) |
|
$ |
(64,762 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
3,632 |
|
|
|
1,948 |
|
Stock-based compensation |
|
|
7,211 |
|
|
|
6,573 |
|
Loss on disposal of assets |
|
|
94 |
|
|
|
— |
|
Non-cash interest expense related to term loan |
|
|
535 |
|
|
|
— |
|
Amortization of premium/discount on investments |
|
|
(278 |
) |
|
|
24 |
|
Non-cash interest income |
|
|
— |
|
|
|
(30 |
) |
Gain on lease termination |
|
|
(520 |
) |
|
|
— |
|
Changes in: |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
2,700 |
|
|
|
(2,252 |
) |
Operating lease right-of-use asset |
|
|
1,723 |
|
|
|
2,718 |
|
Tenant improvement allowance reimbursements |
|
|
9,744 |
|
|
|
1,737 |
|
Accounts payable |
|
|
(8,301 |
) |
|
|
1,529 |
|
Accrued expenses and other liabilities |
|
|
573 |
|
|
|
1,526 |
|
Operating lease liability |
|
|
(1,379 |
) |
|
|
1,165 |
|
Net cash used in operating activities |
|
|
(61,688 |
) |
|
|
(49,824 |
) |
Investing activities |
|
|
|
|
|
|
||
Purchase of property and equipment |
|
|
(19,933 |
) |
|
|
(9,549 |
) |
Purchase of investments |
|
|
(43,186 |
) |
|
|
(23,181 |
) |
Proceeds from maturities of investments |
|
|
30,111 |
|
|
|
— |
|
Net cash used in investing activities |
|
|
(33,008 |
) |
|
|
(32,730 |
) |
Financing activities |
|
|
|
|
|
|
||
Proceeds from exercise of options to purchase common stock |
|
|
65 |
|
|
|
578 |
|
Proceeds from purchases of common stock under employee stock purchase plan |
|
|
121 |
|
|
|
— |
|
Proceeds from borrowings under term loan, net of issuance costs |
|
|
19,467 |
|
|
|
— |
|
Proceeds from issuance of common stock, net of issuance costs |
|
|
— |
|
|
|
52,983 |
|
Net cash provided by financing activities |
|
|
19,653 |
|
|
|
53,561 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
(75,043 |
) |
|
|
(28,993 |
) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
104,189 |
|
|
|
133,182 |
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
29,146 |
|
|
$ |
104,189 |
|
Supplemental disclosure of operating cash flow information: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
1,471 |
|
|
$ |
— |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Purchase of property and equipment in accounts payable and accrued expenses |
|
$ |
4,879 |
|
|
$ |
11,447 |
|
Issuance of warrants in connection with term loan |
|
$ |
567 |
|
|
$ |
— |
|
Assets acquired under operating leases |
|
$ |
— |
|
|
$ |
8,301 |
|
The accompanying notes are an integral part of these consolidated financial statements.
99
ONCORUS, INC.
Notes to Consolidated Financial Statements
1. Nature of the Business and Liquidity
Oncorus, Inc. (the "Company") is a preclinical-stage biopharmaceutical company focused on the intravenous administration of self-amplifying RNA to transform outcomes for cancer patients. The Company believes that its product candidates have the potential to bring significant benefit to patients who are currently underserved by approved immuno-oncology therapies, including other viral immunotherapies and immune checkpoint inhibitors. The Company's approach involves encapsulating genomes of RNA viruses known to kill cancer cells within a lipid nanoparticle, creating a selectively self-amplifying vRNA immunotherapy to be administered intravenously. The Company’s operations to date have focused on organization and staffing, business planning, raising capital, acquiring and developing the Company’s technology, establishing the Company’s intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing a clinical trial and manufacturing scale-up activities. The Company does not have any product candidates approved for sale and has not generated any revenue from product sales. The Company’s product candidates are subject to long development cycles and the Company may be unsuccessful in its efforts to develop, obtain regulatory approval for or market its product candidates.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, possible failure of preclinical studies or clinical trials, the need to obtain marketing approval for its product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, the need to successfully commercialize and gain market acceptance of any of the Company’s products that are approved and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing, and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
Liquidity
In accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
The Company has incurred recurring losses since its inception, including a net loss of $77.4 million for the year ended December 31, 2022. In addition, as of December 31, 2022, the Company had an accumulated deficit of $272.0 million. The Company expects to continue to generate operating losses for the foreseeable future.
The Company expects that its cash, cash equivalents and investments as of December 31, 2022 may not be sufficient to fund operations for at least the next twelve months from the date of issuance of these consolidated financial statements which raises substantial doubt about the Company's ability to continue as a going concern, and the Company will need to obtain additional funding. The Company expects to finance its operations through potential public or private equity financings, debt financings, collaboration agreements, and or other capital sources. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the Company's current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.
As of December 31, 2022, the Company had approximately $19.4 million in debt, net of debt discount, which is classified as a short-term liability on the Company's Consolidated Balance Sheet. For more details, see Note 7. Despite the debt's maturity date of April 1, 2026, the Company classified its debt obligations as a short-term liability based on the going concern disclosure in this Form 10-K and the Company's consideration of the subjective acceleration clause in its loan and security agreement.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
100
2. Summary of Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the FASB.
COVID-19 Pandemic
In response to the COVID-19 pandemic, the Company implemented a work-from-home policy allowing employees who can work from home to do so. The Company has transitioned back to in-office work for the majority of our employees. The Company has taken measures to secure its research and development project activities, while work in laboratories has been organized to reduce risk of COVID-19 transmission. Business travel was previously suspended but is now becoming more frequent, and online and teleconference technology continues to be used regularly. Given the global impact and the other risks and uncertainties associated with the pandemic and other public health crises, the Company’s business, financial condition and results of operations could be materially adversely affected. The Company continues to monitor guidance from the CDC and other relevant health regulatory authorities and may adjust its plans to the extent there are changes in such guidance. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Actual results could differ from those estimates, and any such differences may be material to the Company’s financial statements.
Principles of Consolidation
The accompanying consolidated financial statements of the Company include the accounts of its wholly owned subsidiary, Oncorus Securities Corporation. All intercompany transactions have been eliminated in consolidation. The Company has one operating segment.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not limited to, the estimated fair value of the Company’s common stock prior to its IPO and share-based awards utilized for stock-based compensation purposes, accrued expenses and amounts of expenses during the reported period, and determination of an incremental borrowing rate for any identified leases for which an implicit discount rate is not easily determinable. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.
Concentration of Credit Risk and of Significant Suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and short-term investments. The Company has all of its cash at one financial institution that management believes to be of high credit quality, in amounts that exceed federally insured limits. The Company invests its excess cash, in line with its investment policy, primarily in money market funds and high credit quality debt instruments .
The Company is dependent upon a third-party contract manufacturer and third-party contract research organizations for the performance of portions of its testing for pre-clinical and clinical studies. The Company believes that its relationships with these organizations are satisfactory, and that alternative suppliers of these services are available in the event of the loss of one or more of these suppliers.
Research and Development Expenses
Research and development expenses are expensed as incurred. Research and development expenses consist of costs incurred to discover, research and develop drug candidates, including compensation-related expenses for research and development personnel, including stock-based compensation expense, preclinical and clinical activities, costs of manufacturing, overhead expenses including facilities and laboratory expenses, materials and supplies, amounts paid to consultants and outside service providers, and depreciation and amortization.
Upfront and annual license payments related to acquired technologies or technology licenses which have not yet reached technological feasibility and have no alternative future use are also included in research and development expense for the period in which they are incurred.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation-related expenses, including stock-based compensation expense, for personnel in executive, finance and accounting, business development, operations and administrative functions. General and administrative expenses also include fees for legal, consulting, accounting and audit services as well as insurance, outside service providers, direct and allocated facility- and office-related costs, and depreciation and amortization.
101
Interest Income on Investments
Interest income is separately presented on the consolidated statements of operations and comprehensive loss and consists of interest on cash and cash equivalents and investments.
Cash and Cash Equivalents
The primary objectives for the Company’s investment portfolio are the preservation of capital and maintenance of liquidity. The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At December 31, 2022 and 2021, cash and cash equivalents include bank demand deposits and money market funds that invest primarily in U.S. government-backed securities and treasuries. Cash equivalents are stated at cost, which is substantially equivalent to fair value.
Restricted cash
The Company maintains a balance in a segregated bank account in connection with a letter of credit for the benefit of the landlord in connection with an operating lease. As of December 31, 2022 and 2021, restricted cash consisted of $3.4 million held for the benefit of the landlord. This amount has been classified as part of non-current assets on the Company's consolidated balance sheets.
The Company includes its restricted cash balance in the cash, cash equivalents and restricted cash reconciliation of operating, investing and financing activities in the consolidated statements of cash flows. The following table provides a reconciliation of cash, cash equivalents and restricted cash in the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
Investments
Short-term investments consist of commercial paper, corporate bonds, asset-backed securities, and U.S. Treasury securities with original maturities greater than three months. The Company may sell investments at any time for use in current operations even if the investments have not yet reached maturity. As a result, the Company classifies its investments, including securities with maturities beyond twelve months, as current assets. As of December 31, 2022, all investments are classified as available-for-sale securities, which are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are reported as a net amount in accumulated other comprehensive income or loss in stockholders’ equity until realized. Purchase premiums and discounts are amortized to interest income over the terms of the related securities. Realized gains and losses and declines in fair value that are deemed to be other than temporary are reflected in the statements of operations and comprehensive loss using the specific-identification method. The Company periodically reviews all available-for-sale securities for other than temporary declines in fair value below the cost basis whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company also evaluates whether it has plans or is required to sell short-term investments before recovery of their amortized cost bases. For the year ended December 31, 2022, the Company has not identified any other than temporary declines in fair value of its short-term investments.
Property and Equipment, Net
Property and equipment are recorded at cost. Expenditures for major renewals or betterments that extend the useful lives of property and equipment are capitalized; expenditures for maintenance and repairs are charged to expense as incurred. Depreciation expense is recognized on a straight-line basis over the estimated useful lives of the related assets. Property and equipment are depreciated as follows:
ASSET TYPE |
|
ESTIMATED USEFUL LIFE |
Computer equipment and software |
|
3-5 years |
Furniture and fixtures |
|
5 years |
Laboratory equipment |
|
5 years |
Manufacturing equipment |
|
5 years |
Leasehold improvements |
|
Shorter of lease term or estimated useful life |
Upon retirement or sale, the cost and related accumulated depreciation of assets disposed of are removed from the accounts, and any resulting gain or loss is included in the Company's consolidated statements of operations as a component of other income (expense).
102
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the long-lived assets. If an impairment review were to be performed to evaluate a long-lived asset for recoverability, the Company would compare forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized if estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. For the years ended December 31, 2022 and 2021, the Company has not recorded any impairment losses on long-lived assets.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly, such as quoted market prices, interest rates, and yield curves.
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.
To the extent a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company believes that the carrying amounts of prepaid expenses, other current assets, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of those instruments.
Research Contract Costs and Accruals
The Company has entered into various research service arrangements under which vendors perform various services. The Company records accrued expenses for estimated costs incurred under the arrangements. When evaluating the adequacy of the accrued expenses, the Company analyzes the progress of the studies, trials or other services performed, including invoices received and contracted costs. Judgments and estimates are made in determining the accrued expense balances at the end of each reporting period.
Operating Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on specific facts and circumstances, the existence of an identified asset(s), if any, and the Company’s control over the use of the identified asset(s), if applicable. The lease liability is measured at the present value of future lease payments, discounted using the discount rate as of the lease commencement date. Future lease payments may include payments that depend on an index or a rate (such as the consumer price index or other market index). The Company initially measures payments based on an index or rate by using the applicable rate at lease commencement and subsequent changes in such rates are recognized as variable lease costs. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as they are incurred. The Company’s contracts typically do not have variable payments based on index or rate. The Company’s contracts that include a lease component generally include additional services that are transferred to the lessee (e.g., common-area maintenance services), which are non-lease components. Contracts typically also include other costs and fees that do not provide a separate service to the lessee, such as costs paid by the lessee to reimburse the lessor for administrative costs or payment for the lessor’s costs for property taxes, insurance related to the leased asset, and other lessor costs. The Company elected the practical expedient to account for the lease and its associated non-lease components as a single lease component for its real estate leases, including the office, lab, and its manufacturing space.
When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease. As the Company's leases typically do not provide an implicit rate, the Company uses its incremental borrowing rate based on the lease term and economic environment at the lease commencement date. The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. With limited exceptions, the nature of the Company's facility leases is such that there are no economic or other conditions that would indicate that it is reasonably certain at lease commencement that the Company will exercise options to extend the term.
103
The Company recognizes a corresponding lease right of use (“ROU”) asset, initially measured as the amount of lease liability, adjusted for any initial lease costs or lease payments made before or at the commencement of the lease, and reduced by any lease incentives. In some instances, as construction related to leasehold improvements is performed over the life of the lease, the right-of-use asset and lease liability will be adjusted on a prospective basis to reflect any payments relating to the lease incentives.
The Company’s leases consist of only operating leases. Operating leases are recognized on the balance sheet as ROU lease assets, lease liabilities current and lease liabilities non-current. Fixed rents are included in the calculation of the lease balances while certain variable costs paid for certain operating and pass-through costs are excluded. Lease expense is recognized over the expected lease term on a straight-line basis. For leases with a term of one year or less, or short-term leases, the Company has elected to not recognize the lease liability for these arrangements and the lease payments are recognized in the consolidated statements of operations and comprehensive loss.
Patent Costs
The Company expenses patent costs as incurred and records such costs within general and administrative expenses.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s income tax returns. Deferred taxes are determined based on the difference between the consolidated financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes in the Company's consolidated statements of operations and comprehensive loss. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. The potential for recovery of deferred tax assets is evaluated by analyzing carryback capacity in periods with taxable income, reversal of existing taxable temporary differences and estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. The Company recognizes any interest and penalties related to uncertain tax positions in income tax expense.
Stock-Based Compensation
The Company measures all stock options and other stock-based awards granted based on the fair value of the award on the date of the grant and recognizes stock-based compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The Company has elected to recognize forfeitures as they occur. The reversal of compensation cost previously recognized for an award that is forfeited because of a failure to satisfy a service or performance condition is recognized in the period of the forfeiture. Generally, the Company issues stock options and restricted stock awards with only service-based vesting conditions and records the expense for these awards using the straight-line method over the requisite service period. For performance-based awards that are awarded, the Company applies the graded-vesting method to the awards once achievement of the performance conditions is considered probable.
The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model, which requires inputs based on certain subjective assumptions, including the fair value of the Company’s common stock, expected stock price volatility, the expected term of the stock option, the risk-free interest rate for a period that approximates the expected term of the stock option, and the Company’s expected dividend yield. The closing sale price per share of the Company’s common stock as reported on The Nasdaq Global Market on the date of grant is used to determine the fair value, which is then used to establish the exercise price per share of share-based awards to purchase common stock. As there was no public market for its common stock prior to October 2, 2020, which was the first day of trading upon completion of its IPO, the Company estimates its expected share price volatility based on the historical volatility of publicly-traded peer companies and expects to continue to do so until such time as it has
104
adequate historical data regarding the volatility of its own traded share price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain vanilla” stock options. We use the simplified method to calculate the expected term for options granted to employees and directors. We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.
The fair value of each restricted common stock award is estimated on the date of grant based on the fair value of the Company’s common stock on that same date.
Net Loss Per Share
Basic and diluted net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding for the periods. Diluted net loss per share is computed by dividing the diluted net loss by the weighted average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted stock units. For periods in which we have reported net losses, diluted net loss per common share is the same as basic net loss per share, since dilutive common shares are not included if their effect is anti-dilutive.
Deferred Offering Costs
The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity issuances or debt financings as deferred offering costs until such equity issuances or debt financings are consummated. After consummation, these costs are recorded as a reduction in the capitalized amount associated with the equity issuance or debt financing.
Debt Related Costs
The carrying value of the Company’s Term Loan (see Note 7) is recorded net of issuance costs and discount relating to the issuance of warrants and fees paid to the lender. Debt-related costs are amortized over the term of the debt using the effective interest method and recognized as interest expense.
Recently Issued Accounting Pronouncements
In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This amendment requires a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently reviewing the provisions of this new pronouncement, but does not expect this guidance will have a material impact on its consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This amendment simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. It also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and simplifies the diluted earnings per share calculation in certain areas. ASU No. 2020-06 is effective for public companies for annual periods beginning after December 15, 2021, including interim periods within those fiscal
years. The Company early adopted the provisions of ASU 2020-06 effective January 1, 2022, using the modified retrospective method for transition with no significant impact on its consolidated financial statements at the time of adoption.
In June 2016, the FASB issued ASU 2016-13 (Topic 326), Financial Instruments — Credit Losses — Measurement of Credit Losses on Financial Instruments, which is codified in Topic 326. The ASU changes how entities will measure credit losses on Held-to-Maturity (HTM) and Available-for-Sale debt securities. After the adoption of ASU 2016-13 (Topic 326), additional disclosures are required for HTM debt securities. The standard is effective for annual periods beginning after December 15, 2022 since the Company is a Smaller Reporting Company. The Company is currently reviewing the provisions of this new pronouncement, but does not expect this guidance will have a material impact on its consolidated financial statements.
There have been no other issued accounting pronouncements other than those described in the Company’s audited financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Annual Report, that will have a material effect on the Company's consolidated financial statements.
105
3. Cash Equivalents and Investments
The following tables summarize the amortized cost and fair value of our cash equivalents and investments (in thousands):
|
|
DECEMBER 31, 2022 |
|
|||||||||||||
|
|
AMORTIZED COST BASIS |
|
|
GROSS UNREALIZED GAINS |
|
|
GROSS UNREALIZED LOSSES |
|
|
ESTIMATED FAIR VALUE |
|
||||
Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
19,881 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
19,881 |
|
Total Cash Equivalents |
|
$ |
19,881 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
$ |
25,094 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
25,094 |
|
Corporate bonds |
|
|
3,028 |
|
|
|
— |
|
|
|
(13 |
) |
|
|
3,015 |
|
U.S. Treasury securities |
|
|
8,417 |
|
|
|
— |
|
|
|
(39 |
) |
|
|
8,378 |
|
Total Investments |
|
$ |
36,539 |
|
|
$ |
|
|
|
$ |
(52 |
) |
|
$ |
36,487 |
|
|
|
DECEMBER 31, 2021 |
|
|||||||||||||
|
|
AMORTIZED COST BASIS |
|
|
GROSS UNREALIZED GAINS |
|
|
GROSS UNREALIZED LOSSES |
|
|
ESTIMATED FAIR VALUE |
|
||||
Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
98,900 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
98,900 |
|
Total Cash Equivalents |
|
$ |
98,900 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
98,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
$ |
11,084 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,084 |
|
Asset-backed securities |
|
|
2,020 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
2,018 |
|
U.S. treasury securities |
|
|
4,812 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
4,804 |
|
Corporate bonds |
|
|
5,271 |
|
|
|
— |
|
|
|
(4 |
) |
|
|
5,267 |
|
Total Investments |
|
$ |
23,187 |
|
|
$ |
— |
|
|
$ |
(14 |
) |
|
$ |
23,173 |
|
As of December 31, 2022, the Company held seven investments with unrealized losses. All investments in an unrealized loss position were in this position for less than 12 months. The Company evaluated its securities for potential other-than-temporary impairment and considered the decline in market value to be primarily attributable to current economic and market conditions. Additionally, the Company does not intend to sell the securities in an unrealized loss position and does not expect it will be required to sell the securities before recovery of the unamortized cost basis. Given the Company's intent and ability to hold such securities until recovery, and the lack of a significant change in credit risk for these investments, the Company does not consider these investments to be impaired as of December 31, 2022.
There were no realized gains or losses recognized on investments for the year ended December 31, 2022. Interest on investments is recognized as interest income in the consolidated statements of operations and comprehensive loss.
All investments held as of December 31, 2022, were classified as available-for-sale securities and had contractual maturities of less than one year.
4. Fair Value Measurements
The following table presents information about the Company’s financial assets measured at fair value on a recurring basis (in thousands):
|
|
FAIR VALUE MEASUREMENTS |
|
|||||||||||||
|
|
LEVEL 1 |
|
|
LEVEL 2 |
|
|
LEVEL 3 |
|
|
TOTAL |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
19,881 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
19,881 |
|
U.S. treasury securities |
|
|
8,378 |
|
|
|
— |
|
|
|
— |
|
|
|
8,378 |
|
Commercial paper |
|
|
— |
|
|
|
25,094 |
|
|
|
— |
|
|
|
25,094 |
|
Corporate bonds |
|
|
— |
|
|
|
3,015 |
|
|
|
— |
|
|
|
3,015 |
|
Total Assets |
|
$ |
28,259 |
|
|
$ |
28,109 |
|
|
$ |
— |
|
|
$ |
56,368 |
|
106
|
|
FAIR VALUE MEASUREMENTS |
|
|||||||||||||
|
|
LEVEL 1 |
|
|
LEVEL 2 |
|
|
LEVEL 3 |
|
|
TOTAL |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
98,900 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
98,900 |
|
U.S. treasury securities |
|
|
4,804 |
|
|
|
— |
|
|
|
— |
|
|
|
4,804 |
|
Commercial paper |
|
|
— |
|
|
|
11,084 |
|
|
|
— |
|
|
|
11,084 |
|
Asset-backed securities |
|
|
— |
|
|
|
2,018 |
|
|
|
— |
|
|
|
2,018 |
|
Corporate bonds |
|
|
— |
|
|
|
5,267 |
|
|
|
— |
|
|
|
5,267 |
|
Total Assets |
|
$ |
103,704 |
|
|
$ |
18,369 |
|
|
$ |
— |
|
|
$ |
122,073 |
|
The Company classifies its money market funds and U.S. treasury securities as Level 1 assets since it measures fair value using quoted prices in active markets for identical assets. The Level 2 assets include commercial paper, asset-backed securities, and corporate bonds and are valued based on quoted prices for similar assets in active markets and inputs other than quoted prices that are derived from observable market data. The Company did not hold any Level 3 assets during the periods presented.
The Company evaluates transfers between levels at the end of each reporting period. There were no transfers between Level 1 and Level 2 assets during the periods presented.
5. Property and Equipment, net
Property and equipment, net as of December 31, 2022 and 2021 consisted of the following (in thousands):
Depreciation expense was $3.6 million and $1.9 million for the years ended December 31, 2022 and 2021, respectively, which is recognized included within operating expenses in the consolidated statement of operations and comprehensive loss.
6. Accrued Expenses and Other Long-Term Liabilities
At December 31, 2022 and 2021, accrued expenses and other long-term liabilities consisted of the following (in thousands):
107
7. Term Loan, net of debt discount
On April 1, 2022, the Company entered into a loan and security agreement (the "Loan Agreement") with K2 HealthVentures LLC ("K2HV"), and together with any other lender from time to time party thereto, the “Lenders”), K2HV as administrative agent for the Lenders, and Ankura Trust Company, LLC, as collateral agent for the Lenders. The Loan Agreement provides term loan commitments of up to $45.0 million in four potential tranches: (i) a $20.0 million term loan funded on April 1, 2022, (the “First Tranche Term Loan”), (ii) a $5.0 million term loan commitment (the “Second Tranche Term Loan Commitment”), (iii) a $15.0 million term loan commitment (reduced to $10.0 million if a second tranche term loan is made) (the “Third Tranche Term Loan Commitment”), and (iv) a $10.0 million term loan commitment (the “Fourth Tranche Term Commitment”). The timing and availability of the tranche term loan commitments are subject to various conditions, including that no events of default have occurred. The availability period of the Second Tranche Term Loan Commitment ended on December 31, 2022. The availability of the Third Tranche Term Loan Commitment begins January 1, 2023 and ends no later than July 31, 2023 and is subject to the achievement of a clinical milestone event. The Fourth Term Loan Commitment availability ends May 1, 2024, unless the third tranche milestone is met, which would adjust such date to May 1, 2025. The Fourth Tranche Term Loan Commitment is subject to a satisfactory loan review by the Lenders who may provide the advances in their sole discretion, and is also subject to an additional 1% facility fee.
The facility carries a 48-month term with interest only payments for 24 months, subject to increase to up to 36 months upon the Company drawing on the Third Tranche Loan Commitment and no event of default having occurred. Subsequent to the interest-only period, the Company is required to make equal monthly payments of principal plus interest until the loans mature on April 1, 2026. The term loans bear a variable interest rate equal to the greater of 7.75% and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) and (B) 4.25%. The variable interest rate at December 31, 2022, was 11.75%. Upon final payment or prepayment of the loans, the Company must pay a final payment equal to 5.45% of the loans borrowed (the "Final Fee"), which is being accrued to interest expense over the term of the loan. The Company has an option to prepay the loans in whole, subject to a prepayment fee of 3% prior to the first anniversary of the April 1, 2022, funding date, 2% after the first anniversary but prior the second anniversary of the funding date, and 1% thereafter if prior to the maturity date.
The Lenders may elect at any time prior to the full repayment of the term loans to convert any portion of the principal amount of the term loans then outstanding, up to an aggregate of $5.0 million in principal amount, into shares of the Company's common stock at a conversion price of $2.2689, subject to customary beneficial ownership limitations.
The Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including covenants that limit or restrict the Company’s ability to, among other things, dispose of assets, make changes to the Company’s business, management, ownership or business locations, merge or consolidate, incur additional indebtedness, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain exceptions. As security for its obligations under the Loan Agreement, the Company granted the Lenders a first priority security interest on substantially all of the Company’s assets (other than intellectual property), subject to certain exceptions. Upon occurrence of an event of default, which includes the failure to maintain solvency and a subjective acceleration clause, the Company, at the Lender's request, may have to prepay the term loans in an amount equal to the sum of the (a) outstanding principal together with accrued interest, (b) prepayment fee, and (c) Final Fee. The subjective acceleration clause can be activated at the Lenders' discretion in the event of certain events or circumstances including a material adverse effect upon the prospect of repayment of any part of the amounts due to the Lenders. Based upon an assessment of this clause and the Company's going concern audit opinion and its significant operating losses, the Company determined that its otherwise long-term debt should be classified as a current liability on its consolidated balance sheet as of December 31, 2022.
Upon an event of default, a default interest rate of an additional 5.00% per annum may, at the Lender’s request, also be applied to the outstanding loan balances. The Lender’s right to demand prepayment of the term loan and/or require the default interest rate represent an embedded derivative of the term loan. The Company has determined that the fair value of this embedded derivative is de minimis as of December 31, 2022.
In connection with entering into the Loan Agreement, the Company also issued to K2HV a warrant to purchase a number of shares of Common Stock equal to the quotient of 2.95% of the aggregate funded term loan amount divided by $1.5126, the exercise price, up to a maximum of 877,627 shares (the "Warrant"). The Warrant expires on April 1, 2032. The Warrant has been classified within equity since it (i) is indexed to the Company’s own equity and (ii) meets the equity classification conditions. As of December 31, 2022, the Warrant is exercisable for 390,056 shares of common stock. The Company allocated the proceeds between the term loan and the Warrant on a relative fair value basis, resulting in a discount on the term loan. The Loan Agreement and the Warrant each provide the Lenders with certain piggyback registration rights with respect to the shares of common stock issuable upon conversion under the Loan Agreement or upon exercise of the Warrant.
108
The Company incurred fees and issuance costs associated with the Loan Agreement of $0.5 million, which was capitalized as a reduction to the Term Loan balance. The Company recorded contractual interest expense related to the Loan Agreement of $1.5 million and additional interest expense related to the amortization of the debt discount and issuance costs and accretion of the Final Fee of $0.5 million in the year ended December 31, 2022. The effective interest rate at December 31, 2022, which includes the non-cash interest components noted above, was 15.25%.
Future principal debt payments on the Loan Agreement are as follows (in thousands):
8. Common Stock
Each share of common stock is entitled to one vote. The holders of shares of common stock are entitled to receive dividends, if and when declared by the Board of Directors. Prior to the IPO, the voting, dividend, and liquidation rights of the holders of common stock were subject to, and qualified by, the rights, powers, and preferences of the holders of preferred stock.
Upon the closing of the IPO, the Company changed its authorized capital stock to include 100,000,000 shares designated as common stock with a par value of $0.0001 per share as part of its authorized capital.
Restricted Stock
The Company issued restricted stock to its founders and certain officers of the Company. In general, the shares of restricted stock vest over a four-year period, with 25% of the shares vesting after one year, followed by monthly vesting over the remaining three years. As of December 31, 2022, all restricted stock awards were fully vested.
Common Stock Warrants
The Company issued warrants to purchase common stock in connection with a preferred stock financing in March 2016. These common stock warrants allow for the holders to purchase 71,544 shares of common stock at $1.21 per share. As of December 31, 2022, all of the common stock warrants were fully exercisable. The common stock warrants expire in 2031.
As described in Note 7, on April 1, 2022, the Company issued a warrant to K2HV to purchase 390,056 shares of common stock. This warrant expires in 2032.
Reserved Shares
The Company has reserved shares of common stock for the conversion or exercise of the following securities:
|
|
DECEMBER 31, |
|
|
DECEMBER 31, |
|
||
Exercise of common stock warrants |
|
|
949,171 |
|
|
|
71,544 |
|
Exercise of options to purchase common stock |
|
|
4,391,207 |
|
|
|
3,681,793 |
|
Shares available for issuance under employee stock purchase plan |
|
|
— |
|
|
|
— |
|
Shares available for issuance under equity incentive plans |
|
|
2,680,248 |
|
|
|
2,132,067 |
|
Shares available for issuance under term loan conversion |
|
|
2,203,711 |
|
|
|
— |
|
Total |
|
|
10,224,337 |
|
|
|
5,885,404 |
|
109
9. Equity Incentive Plans
The Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”) on March 31, 2016. The Plan, as amended, provided for the granting of stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock awards to employees, directors and non-employees. All option awards were granted with an exercise price equal to or greater than the market price of the Company's stock at the date of grant. Option awards generally vest over to four years. Certain option awards provide for accelerated vesting if there is a change in control as defined in the 2016 Plan. The provisions of the 2016 Plan allow for early exercises for options that have not yet vested. Early exercises have historically been for a de minimis number of shares.
On September 23, 2020, the Company adopted the 2020 Equity Incentive Plan (the “2020 Plan”), which became effective upon the execution of the underwriting agreement related to the IPO and serves as the successor to the 2016 Plan. The 2020 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units, cash awards, performance awards, and stock bonus awards. The number of shares reserved for issuance under the 2020 Plan will increase automatically on January 1 of each fiscal year, starting on January 1, 2021 and ending on and including January 1, 2030, by the number of shares equal to 5% of the aggregate number of outstanding shares of common stock as of the immediately preceding December 31, or a lesser number of shares as may be determined by the board of directors (or an authorized committee thereof). On January 1, 2022, the board of directors authorized an increase in the number of shares reserved for issuance under the 2020 Plan by 1,292,458 shares of common stock. At December 31, 2022, there were 2,680,248 shares of common stock available for issuance under the 2020 Plan.
On September 23, 2020, the Company adopted the 2020 Employee Stock Purchase Plan (the “ESPP”), which became effective upon the execution of the underwriting agreement related to the IPO. The Company has initially reserved 280,000 shares of common stock for sale under the ESPP. The aggregate number of shares reserved for sale under the ESPP will increase automatically on January 1 of each fiscal year starting on January 1, 2021 and ending on and including January 1, 2030, by the number of shares equal to the lesser of (a) 1% of the total number of shares of common stock outstanding on the last day of the fiscal year prior to the date of such automatic increase and (b) 560,000 shares, provided that prior to the date of any such increase, the board of directors may determine a less number of shares for such increase. In December 2021, the board of directors determined that there would be no automatic increase in the number of shares of common stock reserved for sale under the ESPP in 2022. For 2023, the increase in the number of shares of common stock reserved for sale under the ESPP went into effect automatically on January 1, 2023.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option-pricing model using the range of assumptions for the years ended December 31, 2022 and 2021 as noted in the following table:
|
|
YEARS ENDED DECEMBER 31, |
||
|
|
2022 |
|
2021 |
Expected volatility |
|
84.2% - 88.2% |
|
81.4% - 88.3% |
Expected dividends |
|
0.0% |
|
0.0% |
Expected term (in years) |
|
5.3 - 6.2 |
|
5.3 - 10 |
Risk-free rate |
|
1.5% - 4.2% |
|
0.5% - 1.6% |
Total stock-based compensation expense (including both stock option awards and restricted stock) was as follows:
|
|
YEARS ENDED DECEMBER 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
(in thousands) |
|
|||||
General and administrative |
|
$ |
4,786 |
|
|
$ |
4,240 |
|
Research and development |
|
|
2,426 |
|
|
|
2,333 |
|
Total stock-based compensation |
|
$ |
7,211 |
|
|
$ |
6,573 |
|
In December 2020, the Company granted an employee an option to purchase 113,000 shares of the Company’s common stock with an exercise price per share equal to the fair value of the Company’s common stock on the date of grant. This grant is included in the outstanding options in the summary table below. The option grant includes three separate tranches (each tranche representing one-third of the total grant) that will each vest four years from the date of grant. This option grant and its tranches are subject to accelerated vesting in the event that the Company achieves certain defined milestones related to the Company’s manufacturing efforts.
As of December 31, 2022, the Company determined that the requisite service period for two of the three tranches of this award is four years and recognized $0.4 million of stock-based compensation expense for the year ended December 31, 2022. Accelerated vesting was considered to be probable for one of the tranches as of December 31, 2022. Accordingly, the Company recognized stock-based compensation expense of $0.3 million for this tranche in the year ended December 31, 2022, which included a cumulative adjustment reflecting the retroactive application of the accelerated vesting.
110
A summary of stock option activity for the year ended December 31, 2022 is presented below:
|
|
SHARES |
|
|
WEIGHTED- |
|
|
WEIGHTED- |
|
|
AGGREGATE |
|
||||
Outstanding at December 31, 2021 |
|
|
3,681,793 |
|
|
$ |
10.84 |
|
|
|
|
|
|
|
||
Granted |
|
|
2,040,368 |
|
|
$ |
1.60 |
|
|
|
|
|
|
|
||
Exercised |
|
|
(34,863 |
) |
|
$ |
1.77 |
|
|
|
|
|
|
|
||
Canceled, expired, or forfeited |
|
|
(1,296,091 |
) |
|
$ |
7.61 |
|
|
|
|
|
|
|
||
Outstanding at December 31, 2022 |
|
|
4,391,207 |
|
|
$ |
7.57 |
|
|
|
8.00 |
|
|
$ |
— |
|
Vested and expected to vest at December 31, 2022 |
|
|
4,391,207 |
|
|
$ |
7.57 |
|
|
|
8.00 |
|
|
$ |
— |
|
Exercisable at December 31, 2022 |
|
|
1,867,964 |
|
|
$ |
8.11 |
|
|
|
6.89 |
|
|
$ |
— |
|
The weighted average grant date fair value of options granted to employees, directors and non-employee consultants during the years ended December 31, 2022 and 2021 was $1.17 and $11.05, respectively. The total intrinsic value of stock options exercised was less than $0.1 million and $2.4 million for the years ended December 31, 2022 and 2021, respectively. Total unrecognized stock-based compensation expense related to stock options amounted to $11.2 million at December 31, 2022 and is expected to be recognized over a weighted-average period of 2.4 years.
The total fair value of restricted shares vested during each of the years ended December 31, 2022 and 2021 was less than $0.1 million.
10. Income Taxes
Total (benefit from) provision for income taxes for the years ended December 31, 2022 and 2021 consisted of the following (in thousands):
A reconciliation of income tax expense (benefit) at the statutory federal income tax rate and income taxes as reflected in the consolidated financial statements is as follows:
111
The Company had a net loss for 2022 and 2021 and no income tax benefit has been recorded due to the full valuation allowance for deferred tax assets. The components of the Company’s deferred taxes at December 31, 2022 and 2021 are as follows (in thousands):
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred income tax assets. Accordingly, a full valuation allowance has been established against the net deferred income tax assets for each period presented. Management evaluates the positive and negative evidence at each reporting period. The valuation allowance was $76.0 million as of December 31, 2022 and $53.1 million as of December 31, 2021. The increase in the valuation allowance of approximately $22.9 million in 2022 was primarily a result of capitalized R&D expenses for tax and net losses generated with no corresponding financial statement benefit.
As of December 31, 2022, the Company had net operating loss (“NOLs”) carryforwards for federal income tax purposes of $176.2 million, of which $18.1 million will begin to expire in 2035, and approximately $158.1 million can be carried forward indefinitely. The Company also has $171.6 million of state net operating losses which expire at various dates through 2042. As of December 31, 2022, the Company also had available research and development tax credit carryforwards for federal and state income tax purposes of $7.4 million and $4.0 million, respectively, which begin to expire in 2035 and 2030, respectively. Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the "Code"), due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382 of the Code, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382 of the Code, at any time since inception, utilization of the NOLs or research and development tax credit carryforwards would be subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOLs or research and development tax credit carryforwards before utilization. Further, until a study is completed, and any limitation is known, no adjustments have been reflected in the deferred income tax asset for NOL carryforwards or credits.
112
For the year ended December 31, 2022, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts have been recognized as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred income tax asset established for the research and development credit carryforwards and the valuation allowance.
The Company had no unrecognized tax benefits or related interest and penalties for the years ended December 31, 2022 and 2021.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s tax years are still open under statute from the year of formation to the present. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.
The Company established a Massachusetts securities corporation in 2019. The securities corporation is taxed on its investment income at the rate of 1.32%. The income tax associated with investment income from the securities corporation was not material to the 2022 income tax provision.
11. Leases
The Company has an operating lease for approximately 33,518 square feet (the “Pod 4 Portion”), approximately 54,666 square feet (the “Pod 5 Portion”), and approximately 17,150 square feet ("Pod 3 Portion") of a manufacturing facility located in Andover, Massachusetts, that also serves as its corporate headquarters. This lease expires in December 2036 and the Company has two options to extend the term of the lease for a period of ten years each. As of December 31, 2022, the Company had not exercised its options to extend the lease term and did not consider it reasonably certain that these options would be exercised. The Company agreed to provide the landlord with a $3.4 million letter of credit as support for its obligations under the Andover facility lease. The lease provides a lease incentive in the form of reimbursable leasehold improvements of $14.9 million. Due to the unpredictability of the payout of leasehold improvement reimbursements, the right-of-use asset will be adjusted on a prospective basis to reflect any payments relating to the lease incentive as construction related to these improvements is performed over the life of the lease. As of December 31, 2022, the Company had capitalized $37.7 million of leasehold improvement costs, of which $9.7 million was reimbursed through the lease incentive. The lease payments include fixed base rent payments and variable rents for certain shared facility operating and other costs.
The Company was also party to an operating lease in Cambridge, Massachusetts, which served as its corporate headquarters until September 2022. On September 13, 2022, the Company executed an amendment to its Cambridge lease which accelerated the lease termination date to November 15, 2022, from the previous date of January 12, 2024. In connection with this amendment, the Company remeasured the remaining lease liability and right-of-use-asset and recognized a gain of $0.5 million, which is included as a reduction of operating expenses in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022.
During the years ended December 31, 2022 and 2021, the Company recognized total rent expense related to the leases described above of $5.2 million and $5.7 million, respectively. The amount of variable rent expense and rent for short-term leases for the years ended December 31, 2022 and 2021, was $3.1 million, and $2.4 million, respectively.
Other supplemental information related to leases is as follows:
(in thousands) |
|
2022 |
|
2021 |
Weighted average remaining lease term |
|
14.0 years |
|
13.8 years |
Weighted average discount rate |
|
7.7% |
|
8.1% |
Cash paid for amounts included in the measurement of lease liabilities |
|
$5,505 |
|
$1,777 |
113
Maturities of operating lease liabilities were as follows as of December 31, 2022 (in thousands):
Year |
|
Amount |
|
|
2023 |
|
$ |
4,850 |
|
2024 |
|
|
4,995 |
|
2025 |
|
|
5,145 |
|
2026 |
|
|
5,299 |
|
2027 |
|
|
5,458 |
|
Thereafter |
|
|
57,114 |
|
Total lease payments |
|
|
82,861 |
|
Less imputed interest |
|
|
(33,878 |
) |
Total lease liabilities |
|
$ |
48,983 |
|
|
|
|
|
|
Current portion |
|
$ |
1,129 |
|
Long-term portion |
|
$ |
47,854 |
|
12. Commitments and Contingencies
License and Royalty Agreements
The Company has entered into license and royalty agreements for intellectual property with certain parties. Such arrangements require ongoing payments, including payments upon the achievement of certain development, regulatory and commercial milestones, receipt of sublicense income, as well as royalties on commercial sales. Payments under these arrangements are expensed as incurred.
The Company’s material license and collaboration agreements are summarized below.
Ospedale San Raffaele S.r.l. and Fondazione Telethon
In December 2015, the Company entered into a license agreement with Ospedale San Raffaele S.r.l. and Fondazione Telethon, as amended, for the use of certain patents and technology. The Company made an initial payment of $0.1 million, which amount was recorded as research and development expense. Under the terms of the license, the Company is required to pay an annual maintenance fee, up to $3.9 million in milestone payments for the first indication, up to $5.7 million in milestone payments for each subsequent indication, and a low single digit tiered royalty on net sales of any covered products. The agreement terminates upon the expiration of the last remaining royalty obligation for a licensed product.
University of Pittsburgh
In March 2016, the Company entered into a license agreement, as amended, with University of Pittsburgh for the use of certain patents and technology. The Company made an initial payment of $0.1 million, which amount was recorded as research and development expense. Under the terms of the license, the Company is required to pay an annual maintenance fee and up to $2.6 million in milestone payments through first commercial product sale and a low single digit royalty on net product revenue, subject to annual minimum amounts, through the expiration of the patent claims.
Northwestern University
In December 2018, the Company entered into a license agreement with Northwestern University for the use of certain patents and technology. The Company made an initial payment of $0.1 million, which amount was recorded as research and development expense. Under the terms of the license, the Company is required to pay an annual maintenance fee and up to $4.1 million in milestone payments through the first commercial product sale and an annual low single digit royalty on net sales, subject to annual minimum amounts, through the later of ten years from the first commercial sale or the expiration of the patent claims.
WuXi Biologics Ireland Limited
In July 2019, the Company entered into a license agreement with Wuxi Biologics Ireland Limited for the use of certain patents and technology. Under the terms of the license, the Company agreed to an initial license payment of $0.3 million and is required to pay milestone payments for the first product developed, as well as additional products, in addition to royalties on net product revenue. For the first product developed, the Company is required to pay up to $8.0 million in certain clinical milestone payments. For the first three products developed, the Company is also required to pay up to $27.0 million in commercial milestone payments for each product that achieves specified net sales levels along with product approvals in several countries. The Company also agreed to pay tiered royalties on net sales of licensed products ranging in the low-single digits. The obligation to pay royalties under the license agreement expires on a licensed product-by-licensed product and country-by-country basis upon expiry of the last valid claim of the licensed patents that cover such licensed product in such country. In June 2021, the Company satisfied a $0.5 million milestone event related the development of its first product and paid Wuxi Biologics Ireland Limited, which was recorded to research and development expense.
114
Gaeta Therapeutics Ltd.
In November 2021, the Company entered into a license agreement with Gaeta Therapeutics Ltd. for the use of certain patent rights in connection with usage of a certain transgene, IL-12, with a systemic checkpoint inhibitor and with respect to the development of products that would otherwise infringe on such rights. The Company made an initial payment of $0.2 million, which was recorded as research and development expense in the year ended December 31, 2021. Under the terms of the license, the Company is obligated to make certain milestone payments including a low six-figure payment related to the achievement of a certain patent milestone in the United States, certain clinical and regulatory milestone payments which amount to $7.5 million in the aggregate for a given developed product or indication, and additional annual payments of low single digit millions following regulatory approval of each product. The Company is also obligated to pay tiered royalties on cumulative net sales of all developed products up to $2.5 million in the aggregate for cumulative net sales in excess of certain thresholds of net sales reached, with additional payments in the mid single-digit millions thereafter upon the achievement of additional net sales milestones. The Company achieved the first clinical milestone in December 2021 and paid Gaeta Therapeutics Ltd. $0.5 million, which was recorded to research and development expense.
NOF Corporation
On October 31, 2022, the Company entered into a license agreement with NOF Corporation ("NOF"). Under this license agreement, the Company obtained a non-exclusive, worldwide (except with respect to China and other specified territories in Asia), sublicensable (subject to certain limitations) license from NOF under certain patent claims of NOF relating to NOF’s cationic lipid, or NOF Lipid. The NOF Lipid is one of multiple lipids that comprise the proprietary LNP associated with ONCR-021. NOF will supply NOF Lipid to be used for the development, manufacture, and commercialization of Oncorus Products pursuant to a supply agreement to be negotiated and entered into by the parties.
The NOF Agreement provides for an initial license payment of $0.5 million to NOF upon signing, which will be recorded to research and development expense in October 2022. Additionally, the Company may be obligated to make milestone payments to NOF of up to approximately $25.0 million in the aggregate upon the achievement of specified development and regulatory milestones. In the event that more than one Oncorus Product achieves such milestones, or if an Oncorus Product achieves the specified milestones for additional indications, the Company will be obligated to make additional milestone payments. Such payments would be between approximately $5.0 million and approximately $10.0 million for each such additional product and/or indication. The Company is also obligated to pay NOF royalties on net sales of Oncorus Products at a percentage in the low single digits, subject to standard reductions. The obligation to pay royalties under the NOF Agreement commences on the first commercial sale of the first Oncorus Product anywhere in the licensed territory, and expires on a jurisdiction-by-jurisdiction basis after a specified number of years following the first commercial sale of the first Oncorus Product anywhere in the licensed territory, or if later, the date upon which no licensed patent claim validly exists in such jurisdiction.
Related Party License and Royalty Agreements
Certain investors are entitled to receive, in the aggregate, a royalty from the Company equal to 1% of net sales of Company products discovered or developed prior to an IPO by the Company. The royalty obligation expires upon the later of twelve years from the first commercial sale or the expiration of the patent.
The Company entered into a patent assignment agreement with an investor under which that investor would receive $1.0 million upon regulatory approval of a product in the United States and an annual low single-digit royalty on net product revenue. The Company is not currently developing any product candidates using the patent that was assigned to the Company.
In September 2016, the Company entered into a sublicense agreement with an entity affiliated with a stockholder of the Company for the use of certain patents and technology. Under the terms of the license, the Company is required to pay up to $7.6 million in milestone payments through first commercial product sale and an annual mid-single digit royalty on net sales through the expiration of the patent claims. This agreement was terminated in May 2020.
Litigation
The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.
115
13. Net Loss Per Share
The following securities that could potentially dilute basic net loss per share in the future were not included in the computation of diluted net loss per share for the periods presented, because to do so would have been antidilutive:
|
|
YEARS ENDED DECEMBER 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Outstanding stock options |
|
|
4,391,207 |
|
|
|
3,681,793 |
|
Common stock warrants |
|
|
461,600 |
|
|
|
71,544 |
|
Shares available for purchase under employee stock purchase plan |
|
|
— |
|
|
|
— |
|
Potential conversion of note payable |
|
|
2,203,711 |
|
|
|
— |
|
Total |
|
|
7,056,518 |
|
|
|
3,753,337 |
|
14. Retirement Plan
The Company has a tax-qualified employee savings and retirement plan under Section 401(k) of the Code, covering all qualified employees. Participants may elect a salary deferral up to the statutorily prescribed annual limit for tax-deferred contributions. The Company paid matching contributions of $0.4 million for the years ended December 31, 2022 and 2021.
15. Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through the date on which these financial statements were issued. Subsequent to the issuance of the financial statements, there were no events that occurred that required disclosure, or revision to, the financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Management’s Evaluation of our Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Financial Officer and our Chief Executive Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of December 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our management’s evaluation (with the participation of our Chief Executive Officer and our Chief Financial Officer), as of the end of the period covered by this Annual
116
Report of Form 10-K, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of senior management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the evaluation under that framework and applicable SEC rules, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
117
PART III
We will file a definitive Proxy Statement for our 2023 Annual Meeting of Stockholders, or the 2023 Proxy Statement, with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2023 Proxy Statement that specifically address the items set forth herein are incorporated by reference.
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 10 is incorporated herein by reference to the sections of the 2023 Proxy Statement under the captions “Information Regarding the Board of Directors and Corporate Governance,” “Election of Directors,” and “Information about our Executive Officers.”
Our board of directors has adopted the Oncorus, Inc. Code of Business Conduct and Ethics that applies to all officers, directors and employees. This includes our principal executive officer, principal financial officer and principal accounting officer or controller or persons performing similar functions. The nominating and corporate governance committee is responsible for overseeing the Code of Business Conduct and Ethics and must approve any waivers of the Code of Business Conduct and Ethics for our employees, executive officers and directors. The Code of Business Conduct and Ethics is available on our website at investors.oncorus.com. If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code of Business Conduct and Ethics to the principal executive officer, principal financial officer and principal accounting officer or controller or persons performing similar functions, we will promptly disclose the nature of the amendment or waiver on our website. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K.
Item 11. Executive Compensation.
The information required by Item 11 is incorporated herein by reference to the sections of the 2023 Proxy Statement under the captions “Executive Compensation” and “Non-Employee Director Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by Item 12 is incorporated herein by reference to the sections of the 2023 Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans.”
The information required by Item 13 is incorporated herein by reference to the sections of the 2023 Proxy Statement under the captions “Transactions with Related Persons” and “Independence of the Board of Directors.”
Item 14. Principal Accounting Fees and Services.
Our independent public accounting firm is Ernst & Young LLP, Boston, Massachusetts (PCAOB Auditor ID: 42).The information required by Item 14 is incorporated herein by reference to the sections of the 2023 Proxy Statement under the caption “Ratification of Selection of Independent Registered Public Accounting Firm.”
118
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) (1) Financial Statements. The response to this portion of Item 15 is set forth under Part II, Item 8 above.
(a) (2) Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the consolidated financial statements or the notes thereto.
(a) (3) Exhibits.
The following is a list of Exhibits filed as part of this Annual Report on Form 10-K:
EXHIBIT NO. |
|
DESCRIPTION |
|
FORM |
|
FILE NO. |
|
EXHIBIT |
|
FILING DATE |
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
8-K |
|
001-39575 |
|
3.1 |
|
October 6, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
8-K |
|
001-39575 |
|
3.2 |
|
October 6, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
4.1 |
|
|
S-1 |
|
333-248757 |
|
4.1 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
4.2 |
|
|
S-1/A |
|
333-248757 |
|
4.2 |
|
September 28, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
4.3 |
|
|
S-1 |
|
333-248757 |
|
4.3 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
|
10-K |
|
001-39575 |
|
4.4 |
|
March 10, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
8-K |
|
001-39575 |
|
4.1 |
|
April 5, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
Form of Indemnification Agreement between the registrant and its directors and officers |
|
S-1 |
|
333-248757 |
|
10.1 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
10.2+ |
|
|
S-1 |
|
333-248757 |
|
10.2 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.3+ |
|
|
S-1 |
|
333-248757 |
|
10.3 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.4+ |
|
|
S-1 |
|
333-248757 |
|
10.4 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.5+ |
|
|
S-1/A |
|
333-248757 |
|
10.5 |
|
September 28, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.6+ |
|
Form of Stock Option Grant Notice and Option Agreement for the 2020 Equity Incentive Plan |
|
S-1/A |
|
333-248757 |
|
10.6 |
|
September 28, 2020 |
|
|
|
|
|
|
|
|
|
|
|
10.7+ |
|
|
S-8 |
|
333-249425 |
|
4.9 |
|
October 9, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.8+ |
|
|
S-1/A |
|
333-248757 |
|
10.7 |
|
September 28, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.9+ |
|
|
S-1 |
|
333-248757 |
|
10.11 |
|
September 11, 2020 |
119
|
|
|
|
|
|
|
|
|
|
|
10.10+ |
|
|
10-K |
|
001-39575 |
|
10.10 |
|
March 9, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
10.11+ |
|
|
S-1/A |
|
333-248757 |
|
10.20 |
|
September 28, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.12+ |
|
Employment Agreement by and between the registrant and Steve Harbin, dated as of December 7, 2020 |
|
S-1 |
|
333-252896 |
|
10.12 |
|
February 9, 2021 |
|
|
|
|
|
|
|
|
|
|
|
10.13+* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.14+ |
|
Employment Agreement by and between the registrant and Richard Wanstall, dated as of May 10, 2022 |
|
10-Q |
|
001-39575 |
|
10.2 |
|
August 4, 2022 |
|
|
|
|
|
|
|
|
|
|
|
10.15† |
|
|
S-1 |
|
333-248757 |
|
10.12 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.16† |
|
|
S-1 |
|
333-248757 |
|
10.13 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.17† |
|
|
S-1 |
|
333-248757 |
|
10.16 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.18†* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.19† |
|
|
S-1 |
|
333-248757 |
|
10.17 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.20† |
|
|
S-1 |
|
333-248757 |
|
10.18 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
10.21† |
|
|
10-K |
|
001-39575 |
|
10.21 |
|
March 9, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
10.22†* |
|
License Agreement by and between the registrant and NOF Corporation, dated as of October 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.23 |
|
|
S-1 |
|
333-248757 |
|
10.19 |
|
September 11, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
120
10.24 |
|
|
8-K |
|
001-39575 |
|
10.1 |
|
September 14, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
10.25 |
|
Lease Agreement by and between IQHQ-4 Corporate, LLC and the Company, dated as of December 29, 2020 |
|
S-1 |
|
333-252896 |
|
10.21 |
|
February 9, 2021 |
|
|
|
|
|
|
|
|
|
|
|
10.26 |
|
|
10-Q |
|
001-39575 |
|
10.1 |
|
November 3, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
10.27 |
|
|
10-K |
|
001-39575 |
|
10.25 |
|
March 9, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
10.28 |
|
|
10-Q |
|
001-39575 |
|
10.2 |
|
November 2, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
10.29* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.30 |
|
|
8-K |
|
001-39575 |
|
10.1 |
|
November 19, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
10.31† |
|
|
8-K |
|
001-39575 |
|
10.1 |
|
April 5, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
23.1* |
|
Consent of Ernst & Young LLP, independent registered public accounting firm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1^ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2^ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS* |
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data |
|
|
|
|
|
|
|
|
121
|
|
File because its XBRL tags are embedded within the inline XBRL document) |
|
|
|
|
|
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
104* |
|
Cover Page Interactive Data File (embedded within Inline XBRL document) |
|
|
|
|
|
|
|
|
* |
Filed herewith. |
+ |
Indicates management contract or compensatory plan. |
† |
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Certain portions of this exhibit (indicated by asterisks) have been omitted because they are not material and would likely cause competitive harm to the registrant if publicly disclosed. |
^ |
This certification is being furnished herewith solely to accompany this Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
Item 16. Form 10-K Summary
None.
122
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
ONCORUS, INC. |
|
|
|
|
|
Date: March 24, 2023 |
|
By: |
/s/ Theodore (Ted) Ashburn |
|
|
|
Name: Theodore (Ted) Ashburn, M.D., Ph.D. |
|
|
|
Title: President, Chief Executive Officer and Director (Principal Executive Officer) |
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Theodore (Ted) Ashburn, M.D., Ph.D., Richard Wanstall and Brian Shea, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her, and in his or her name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and either of them, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
|
|
|
NAME
|
POSITION
|
DATE
|
|
|
|
/s/ Theodore (Ted) Ashburn
Theodore (Ted) Ashburn, M.D., Ph.D. |
President, Chief Executive Officer and Director (Principal Executive Officer) |
March 24, 2023 |
|
|
|
/s/ Richard Wanstall
Richard Wanstall |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
March 24, 2023 |
|
|
|
/s/ Mitchell Finer
Mitchell Finer, Ph.D. |
Chairman of the Board of Directors |
March 24, 2023 |
|
|
|
/s/ Luke Evnin
Luke Evnin, Ph.D. |
Director |
March 24, 2023 |
|
|
|
/s/ Douglas Fambrough
Douglas M. Fambrough, III, Ph.D. |
Director |
March 24, 2023 |
|
|
|
/s/ Mary Kay Fenton
Mary Kay Fenton |
Director |
March 24, 2023 |
|
|
|
/s/ Spencer Nam
Spencer Nam |
Director |
March 24, 2023 |
|
|
|
/s/ Eric Rubin
Eric Rubin, M.D. |
Director |
March 24, 2023 |
|
|
|
/s/ Barbara Yanni
Barbara Yanni |
Director |
March 24, 2023 |
123