UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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: 001-11460
graphic 
Eterna Therapeutics Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
  
31-1103425
(State of incorporation)
  
(I.R.S. Employer Identification No.)

10355 Science Center Drive, Suite 150
San Diego, California
  
92121
(Address of principal executive offices)
  
(Zip Code)

(212) 582-1199
(Registrant’s telephone number, including area code)

Brooklyn ImmunoTherapeutics, Inc.
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
  
Trading symbol
  
Name of each exchange on which registered
Common stock, $0.005 par value per share
  
ERNA
  
The Nasdaq Stock Market LLC

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, a smaller reporting company or an emerging growth company. See 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒
 
As of November 11, 2022, the registrant had outstanding 2,942,120 shares of common stock, $0.005 par value per share.

 

TABLE OF CONTENTS


 
 
Page
PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements (unaudited)
 
 
1
 
2
 
3
 
5
 
6
Item 2.
29
Item 3.
42
Item 4.
 42
 
 
 
PART II – OTHER INFORMATION
 
Item 1.
 44
Item 1A.
44
Item 2.
44
Item 3.
44
Item 4.
44
Item 5.
44
Item 6.
44
46

i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements related to future events, results, performance, prospects and opportunities, including statements related to our strategic plans and targets, revenue generation, product availability and offerings, capital needs, capital expenditures, industry trends and our financial position. Forward-looking statements are based on information currently available to us, on our current expectations, estimates, forecasts, and projections about the industries in which we operate and on the beliefs and assumptions of management. Forward looking statements often contain words such as “expects,” “anticipates,” “could,” “targets,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “would,” and similar expressions. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, subject to risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in any forward-looking statements. For us, particular factors that might cause or contribute to such differences include those risks and uncertainties described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K/A for the year ended December 31, 2021 and described in other documents we file from time to time with the Securities and Exchange Commission, which we refer to as the SEC.
 
Readers are urged not to place undue reliance on the forward-looking statements in this Quarterly Report on Form 10-Q, which speak only as of the date of this Quarterly Report on Form 10-Q. We are including this cautionary note to make applicable, and take advantage of, the safe harbor provisions of the PSLRA. Except as required by law, we do not undertake, and expressly disclaim any obligation, to disseminate, after the date hereof, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.
 
We believe that the expectations reflected in forward-looking statements in this Quarterly Report on Form 10-Q are based upon reasonable assumptions at the time made. However, given the risks and uncertainties, you should not rely on any forward- looking statements as a prediction of actual results, developments or other outcomes. You should read these forward-looking statements with the understanding that we may be unable to achieve projected results, developments or other outcomes and that actual results, developments or other outcomes may be materially different from what we expect.

On October 17, 2022 we changed our name from Brooklyn ImmunoTherapeutics, Inc. to Eterna Therapeutics Inc. Unless stated otherwise or the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “Eterna” refer to Eterna Therapeutics Inc., references to “Brooklyn LLC” refer to Brooklyn ImmunoTherapeutics LLC, a wholly owned subsidiary of Eterna, and references to the “Company,” “we,” “us” or “our” refer to Eterna and its subsidiaries, including Brooklyn LLC, Novellus, Inc. and Novellus Therapeutics Limited.

ii
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements

ETERNA THERAPEUTICS INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amount)
(unaudited)

    September 30,     December 31,  
 
2022
    
2021
  
ASSETS
          
Current assets:
            
Cash
  
$
13,254
    
$
16,985
  
Other receivable
    
926
      
684
  
Prepaid expenses and other current assets
    
1,672
      
1,097
  
Total current assets
    
15,852
      
18,766
  
Property and equipment, net
    
231
      
670
  
Right-of-use assets - operating leases
    
1,912
      
2,567
  
Goodwill
    
2,044
      
2,044
  
In-process research and development
    
-
      
5,990
  
Investment in non-controlling interest
     68       1,000  
Other assets
    
819
      
488
  
Total assets
  
$
20,926
    
$
31,525
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
  
$
1,150
    
$
1,755
  
Accrued expenses
    
3,230
      
1,249
  
Operating lease liabilities, current
    
436
      
426
  
Finance lease liabilities, current
     3       -  
Other current liabilities     2,648       247  
Total current liabilities
    
7,467
      
3,677
  
Warrant liabilities
    
633
      
-
  
Operating lease liabilities, non-current
    
2,317
      
2,297
  
Finance lease liabilities, non-current
     6       -  
Other liabilities
    
1,690
      
48
  
Total liabilities
    
12,113
      
6,022
  
                 
Stockholders’ equity:
                
Preferred stock, $0.005 par value, 1,000 shares authorized, 156 designated and outstanding of Series A convertible preferred stock at September 30, 2022 and December 31, 2021, $156 liquidation preference
     1       1  
Common stock, $0.005 par value, 100,000 shares authorized at September 30, 2022 and December 31, 2021; 2,942 and 2,601 issued and outstanding at September 30, 2022 and December 31, 2021, respectively
    
15
      
13
  
Additional paid-in capital
    
169,596
      
166,190
  
Accumulated deficit
    
(160,799
)
    
(140,701
)
Total stockholders’ equity
    
8,813
      
25,503
  
Total liabilities and stockholders’  equity
  
$
20,926
    
$
31,525
  

Share and per share data have been adjusted for all periods presented to reflect a 1-for-20 reverse stock split effective October 17, 2022.

The accompanying notes are an integral part of these condensed consolidated financial statements.

1
ETERNA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)

    Three months ended September 30,     Nine months ended September 30,  
    2022     2021     2022     2021  
Operating expenses:
                        
Research and development
  
$
4,963
    
$
1,491
    
$
8,430
    
$
8,456
  
In-process research and development
    
-
      
80,538
      
5,990
      
80,538
  
General and administrative
     3,341
       4,247
       14,060
       10,451
  
Transaction costs
    
-
      
-
      
-
      
5,765
  
Total operating expenses
    
8,304
      
86,276
      
28,480
      
105,210
  
Loss from operations
    
(8,304
)
    
(86,276
)
    
(28,480
)
    
(105,210
)
                                 
Other income (expense), net:
                                
Loss on sale of NTN assets
    
-
      
-
      
-
      
(9,648
)
Change in fair value of warrant liabilities
     1,024       -       10,493       -  
Loss on non-controlling investment
     (21 )     -       (932 )     -  
Other (expense) income, net
    
(10
)
    
290
      
(1,166
)
    
265
  
Total other income (expense), net
    
993
      
290
      
8,395
      
(9,383
)
Loss before income taxes
     (7,311 )     (85,986 )     (20,085 )     (114,593 )
Provision for income taxes
     (5 )     -       (5 )     -  
Net loss
    
(7,316
)
    
(85,986
)
    
(20,090
)
    
(114,593
)
Series A preferred stock dividend
     -       -       (8 )     (8 )
Net loss attributable to common stockholders
   $ (7,316 )   $ (85,986 )   $ (20,098 )   $ (114,601 )

                               
Net loss per common share - basic and diluted
  
$
(2.49
)
  
$
(34.03
)
  
$
(7.04
)
  
$
(56.79
)
Weighted average shares outstanding - basic and diluted
    
2,941
      
2,527
      
2,855
      
2,018
  

Share and per share data have been adjusted for all periods presented to reflect a 1-for-20 reverse stock split effective October 17, 2022.

The accompanying notes are an integral part of these condensed consolidated financial statements.

2
ETERNA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY
For the three and nine months ended September 30, 2022 and 2021 (unaudited)
(in thousands)

   
Common Stock
    
Series A Preferred
Stock
    
Additional Paid-
in
    
Accumulated
        
   
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Deficit
    
Total
  
Balances at July 1, 2022
    
 2,873     $
14       156     $ 1     $
 168,246     $
(153,483 )   $
14,778  
Issuance of common stock from vested restricted stock units
     1       -       -       -       -       -       -  
Issuance of common stock from exercise of pre-funded warrants
     68       1       -       -       874       -       875  
Stock-based compensation
     -       -       -       -       476       -       476  
Net loss
     -       -       -       -       -       (7,316 )     (7,316 )
Balances at September 30, 2022
     2,942     $
15       156     $
 1     $
169,596     $
(160,799 )   $
8,813  
Balances at January 1, 2022
     2,601     $
 13       156     $ 1     $ 166,190     $
(140,701 )   $
 25,503  
Issuance of common stock in connection with private offering
     275       1       -       -       (1 )     -       -  
Forfeiture of unvested restricted stock
     (4 )     -       -       -       -       -       -  
Issuance of common stock from vested restricted stock units
     2       -       -       -       (5 )     -       (5 )
Issuance of common stock from exercise of pre-funded warrants
     68       1       -       -       874       -       875  
Stock-based compensation
     -       -       -       -       2,538       -       2,538  
Cash dividends to Series A preferred stockholders
     -       -       -       -       -       (8 )     (8 )
Net loss
     -       -       -       -       -       (20,090 )     (20,090 )
Balances at September 30, 2022
     2,942     $ 15       156     $
1     $
169,596     $ (160,799 )   $
8,813  

Share and per share data have been adjusted for all periods presented to reflect a 1-for-20 reverse stock split effective October 17, 2022.

The accompanying notes are an integral part of these condensed consolidated financial statements.

3
ETERNA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY
For the three and nine months ended September 30, 2022 and 2021 (unaudited)
(in thousands)

         
Membership Equity
          
Common Stock
    
Series A Preferred
Stock
    
Additional Paid-
in
    
Accumulated
        
   
Class A
    
Class B
    
Class C
    
Common
    
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Deficit
    
Total
  
Balances at July 1, 2021
  
$
-
    
$
-
    
$
-
    
$
-
      
2,235
    
$
11
      
156
    
$
1
    
$
100,347
    
$
(46,756
)
  
$
53,603
  
Common stock to be retained by NTN stockholders
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Issuance of common stock from the exercise of stock options
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net
     -       -      
-
      
-
      
17
      
-
      
-
      
-
      
3,500
      
-
      
3,500
  
Issuance of common stock in lieu of cash dividend to Series A preferred stockholders
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Issuance of common stock in connection with the acquisition of Novellus, Inc.
    
-
      
-
      
-
      
-
      
351
      
2
      
-
      
-
      
58,682
      
-
      
58,684
  
Forfeiture of unvested restricted stock
    
-
      
-
      
-
      
-
      
(1
)
    
-
      
-
      
-
      
-
      
-
      
-
  
Stock-based compensation
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
1,729
      
-
      
1,729
  
Net loss
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
(85,986
)
    
(85,986
)
Balances at September 30, 2021
  
$
-
    
$
-
    
$
-
    
$
-
      
2,602
    
$
13
      
156
    
$
1
    
$
164,258
    
$
(132,742
)
  
$
31,530
  
Balances at January 1, 2021
  
$
23,202
    
$
1,400
    
$
1,000
    
$
198
      
-
    
$
-
      
-
    
$
-
    
$
-
    
$
(18,141
)
  
$
7,659
  
Brooklyn rights offerings membership units
    
10,500
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
10,500
  
Elimination of Brooklyn’s historical members’ equity
    
(33,702
)
    
(1,400
)
    
(1,000
)
    
(198
)
    
-
      
-
      
-
      
-
      
36,300
      
-
      
-
  
Issuance of common stock for business combination
    
-
      
-
      
-
      
-
      
76
      
-
      
-
      
-
      
8,177
      
-
      
8,177
  
Series A preferred stock retained in business combination
    
-
      
-
      
-
      
-
      
-
      
-
      
156
      
1
      
(1
)
    
-
      
-
  
Issuance of common stock to Brooklyn members
    
-
      
-
      
-
      
-
      
1,946
      
10
      
-
      
-
      
(10
)
    
-
      
-
  
Issuance of common stock to Financial Advisor upon consummation of merger
    
-
      
-
      
-
      
-
      
53
      
-
      
-
      
-
      
5,765
      
-
      
5,765
  
Issuance of common stock from the exercise of stock options
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
10
      
-
      
10
  
Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net
    
-
      
-
      
-
      
-
      
178
      
1
      
-
      
-
      
52,025
      
-
      
52,026
  
Issuance of common stock in lieu of cash dividend to Series A preferred stockholders
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
8
      
(8
)
    
-
  
Issuance of common stock in connection with the acquisition of Novellus, Inc.
    
-
      
-
      
-
      
-
      
351
      
2
      
-
      
-
      
58,682
      
-
      
58,684
  
Forfeiture of unvested restricted stock
    
-
      
-
      
-
      
-
      
(2
)
    
-
      
-
      
-
      
-
      
-
      
-
  
Stock-based compensation
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
3,302
      
-
      
3,302
  
Net loss
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
(114,593
)
    
(114,593
)
Balances at September 30, 2021
  
$
-
    
$
-
    
$
-
    
$
-
      
2,602
    
$
13
      
156
    
$
1
    
$
164,258
    
$
(132,742
)
  
$
31,530
  

Share and per share data have been adjusted for all periods presented to reflect a 1-for-20 reverse stock split effective October 17, 2022.

The accompanying notes are an integral part of these condensed consolidated financial statements.

4
ETERNA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

    For the nine months ended  
 
  
September 30,
 
 
  
2022
    
2021
  
Cash flows used in operating activities:
            
Net loss
  
$
(20,090
)
  
$
(114,593
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization
    
144
      
93
  
Stock-based compensation
    
2,538
      
3,302
  
Amortization of right-of-use asset
    
267
      
243
  
Impairment of right-of-use asset
    772       -  
Impairment of in-process research and development
    5,990       -  
In-process R&D acquired in Novellus asset acquisition
     -       80,538  
Transaction costs - shares to Financial Advisor
    
-
      
5,765
  
Loss on sale of NTN assets
    
-
      
9,648
  
Loss on disposal of fixed assets
    431       13  
Gain on forgiveness of PPP loan
     -       (310 )
Gain on lease termination
    (85 )     -  
Gain on lease warrant liabilities
     (10,493 )     -  
Loss on non-controlling investment
   
932
      
-
  
Changes in operating assets and liabilities:
                
Other receivable
   
(237
)
    
5
  
Prepaid expenses and other current assets
    
(575
)
    
(1,109
)
Other non-current assets
    
(331
)
    
(31
)
Accounts payable and accrued expenses
    
1,376
      
(196
)
Operating lease liability
    
(223
)
    
(226
)
Other liabilities
    
4,043
      
202
  
Net cash used in operating activities
    
(15,541
)
    
(16,656
)
Cash flows used in investing activities:
                
Purchase of property and equipment
    
(276
)
    
(7
)
Purchase of Novellus, net of common stock issue and cash acquired
     -       (22,854 )
Proceeds from the sales of fixed assets
    100       -  
Purchase of NTN, net of cash acquired
    
-
      
147
  
Proceeds from the sale of NTN assets, net of cash disposed
    
-
      
119
  
Net cash used in investing activities
   
(176
)
    
(22,595
)
Cash flows provided by financing activities:
                
Proceeds from issuance of common stock and warrants in connection with private offering
    11,993       -  
Issuance of common stock from exercise of pre-funded warrants
     7       -  
Payroll tax remitted on net share settlement of equity awards
    (5 )     -  
Dividends paid to Series A preferred stockholders
    (8 )     -  
Principal payments on finance leases
     (1 )     -  
Proceeds from issuance of common stock to Lincoln Park
    -       54,106  
Fees incurred in connection with the common stock issued to Lincoln Park
     -       (2,080 )
Proceeds from sale of members’ equity
    
-
      
10,500
  
Proceeds from the exercise of stock options
    -       10  
Repayment of NTN’s PPP loan
    
-
      
(532
)
Net cash provided by financing activities
    
11,986
      
62,004
  
Net (decrease) increase in cash and cash equivalents    
(3,731
)
    
22,753
  
Cash and cash equivalents at beginning of period
    
16,985
      
1,630
  
Cash and cash equivalents at end of period
  
$
13,254
    
$
24,383
  
 
                
Supplemental disclosures of cash flow information:
                
Cash paid during the period for:
                
Interest
  
$
25
    
$
13
  
Income taxes
  $ 8     $ -  
 
                
Supplemental disclosure of non-cash investing and financing activities:
                
Conversion of warrant liability to equity
   $ 867     $ -  
Issuance of common stock for Series A preferred stock dividend
   $ -     $ 8  
Issuance of common stock for business combination
  
$
-
    
$
8,177
  
Issuance of common Stock for Novellus acquisition
   $ -     $ 58,684  
Series A preferred stock retained in business combination
  $ -     $ 1  
Initial measurement of ROU assets, net of tenant improvement allowance
   $ 1,706     $ 816  
Initial measurement of operating lease liabilities
   $ 1,706     $ 866  
Initial measurement of finance lease liabilities
   $ 10     $ -  

The accompanying notes are an integral part of these condensed consolidated financial statements.

5
ETERNA THERAPEUTICS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1)
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
 

Description of Business

On October 11, 2022, Eterna Therapeutics Inc., a Delaware corporation, (“Eterna” or the “Company”), filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Restated Certificate of Incorporation, as amended (the “Charter”), to change its name from Brooklyn ImmunoTherapeutics, Inc. to Eterna Therapeutics Inc., which became effective on October 17, 2022 (the “Name Change”). The Name Change did not require approval of the Company’s stockholders and did not affect the rights of the Company’s security holders. In connection with the Name Change, the trading symbol of the Company’s common stock, par value $0.005 per share (“common stock”), on The Nasdaq Global Market changed from “BTX” to “ERNA.”



Eterna, together with its subsidiaries including Brooklyn ImmunoTherapeutics LLC (“Brooklyn LLC”), Novellus, Inc. (“Novellus”) and Novellus Therapeutics Limited (“Novellus Ltd.”), is a biopharmaceutical company using its mRNA technology platform, including mRNA-based cell reprogramming and gene editing technologies, to create next generation mRNA, gene editing and cell therapies, including iPSC therapies for multiple therapeutic indications. The Company also plans to develop and advance a pipeline of therapeutic products both internally and through strategic partnerships. As used herein, the “Company” refers collectively to Eterna and its subsidiaries.


On August 12, 2020, Eterna (then known as “NTN Buzztime, Inc.”), Brooklyn LLC and BIT Merger Sub, Inc., a wholly owned subsidiary of Eterna (the “Merger Sub”), entered into an agreement and plan of merger and reorganization (the “Merger Agreement”) pursuant to which, among other matters, Merger Sub merged with and into Brooklyn LLC, with Brooklyn LLC continuing as a wholly owned subsidiary of Eterna and as the surviving company of the merger (the “Merger”). The Merger closed on March 25, 2021. In connection with the Merger, the Company changed its name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.,” and, as described above, the Company has since changed its name to Eterna Therapeutics Inc. The Merger was accounted for as a reverse acquisition, in which Brooklyn LLC was deemed the acquiring company for accounting purposes.



On March 26, 2021, Eterna sold its rights, title and interest in and to the assets relating to the business operated under the name “NTN Buzztime, Inc.” (the “Disposition”) prior to the Merger to eGames.com Holdings LLC (“eGames.com”) in accordance with the terms of an asset purchase agreement dated September 18, 2020, as amended, between Eterna and eGames.com (the “Asset Purchase Agreement”).



On July 16, 2021, Eterna and its newly formed, wholly owned subsidiary Brooklyn Acquisition Sub, Inc. entered into an agreement and plan of acquisition (the “Novellus Acquisition Agreement”) with (a) Novellus LLC, (b) Novellus (the sole equity holder of Novellus Ltd. and, prior to the closing under the Novellus Acquisition Agreement, a subsidiary of Novellus LLC), and (c) a seller representative (the “Novellus Acquisition”), pursuant to which Eterna acquired Novellus and its subsidiary, Novellus Ltd. As part of the Novellus Acquisition, Eterna also acquired 25.0% of the total outstanding equity interests of NoveCite, Inc. (“NoveCite”), a corporation focused on developing an allogeneic mesenchymal stem cell product for patients with acute respiratory distress syndrome, including from COVID-19.



Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented.


6

These condensed consolidated financial statements should be read together with the audited consolidated financial statements and notes thereto contained in Eterna’s Annual Report on Form 10-K/A for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on June 30, 2022 (the “10-K/A”). The accompanying condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements contained in the 10-K/A but does not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2022, or any other period.



Reverse Stock Split



As approved by the Company’s stockholders at the Company’s Annual Meeting of Stockholders held on September 21, 2022, the Company effected a reverse stock split of its common stock at a ratio of 1-for-20, as determined by the Company’s Board of Directors within the parameters approved by the Company’s stockholders (the “Reverse Stock Split”).  The Reverse Stock Split became effective under Delaware law at 11:59 p.m. Eastern time on October 16, 2022.



Upon the effectiveness of the Reverse Stock Split, every twenty shares of the issued and outstanding common stock were automatically combined and reclassified into one issued and outstanding share of common stock. The Reverse Stock Split did not affect any stockholder’s ownership percentage of the common stock, alter the par value of the common stock or modify any voting rights or other terms of the common stock. The number of authorized shares of common stock under the Charter remains unchanged. No fractional shares were issued in connection with the Reverse Stock Split. In lieu of any fractional shares to which a stockholder would otherwise be entitled, the Company paid an amount of cash equal to the product of (i) the fractional share to which the holder would otherwise be entitled and (ii) the then fair value of a share as determined in good faith by the Board. The Company paid an aggregate of $719 for a total of 175 fractional shares.



All share and per share data in this Quarterly Report on Form 10-Q have been adjusted for all periods presented to reflect the Reverse Stock Split.


Reclassifications



Certain reclassifications have been made to Eterna’s prior years’ financial statements to conform to the current year presentation. These reclassifications had no effect on Eterna’s previously reported results of operations or accumulated deficit.
    
2)
LIQUIDITY AND CAPITAL RESOURCES
 

The Company has incurred significant operating losses and has an accumulated deficit as a result of ongoing efforts to develop product candidates, including conducting clinical trials and providing general and administrative support for operations. As of September 30, 2022, the Company had a cash balance of approximately $13.3 million and an accumulated deficit of approximately $160.8 million. For the three and nine months ended September 30, 2022, the Company incurred a net loss of $7.3 million and $20.1 million, respectively, and for the nine months ended September 30, 2022, the Company used cash in operating activities of $15.5 million.
 

On October 18, 2022, the Company entered into a facility sublease agreement (the “Sublease”) for approximately 45,500 square feet of office and laboratory space in Somerville, Massachusetts.  Pursuant to the Sublease, the Company delivered to the sublessor a security deposit in the form of a letter of credit in the amount of $4.1 million, which will be reduced on an incremental basis throughout the term of the lease.  The letter of credit was issued by the Company’s commercial bank, which required that the Company cash collateralize the letter of credit by depositing $4.1 million in a restricted cash account with such bank.  The amount of required restricted cash collateral will decline in parallel with the reduction in the amount of the letter of credit over the term of the sublease.  The Company’s deposit of this restricted cash reduced the amount of working capital the Company has to fund its operations. See Note 15, Subsequent Events, for more information on the Sublease.
7

In connection with preparing the accompanying condensed consolidated financial statements as of and for the three and nine months ended September 30, 2022, the Company’s management concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern because it does not expect to have sufficient cash or working capital resources to fund operations for the twelve-month period subsequent to the issuance date of these financial statements. The Company will need to raise additional capital, which could be through the remaining availability under an equity line purchase agreement with Lincoln Park Capital Fund, LLC (the “Second Purchase Agreement”) (to the extent the Company is permitted to use such agreement) (see Note 12), public or private equity offerings, debt financings, corporate collaborations or other means. The Company may also seek governmental grants to support its clinical trials and preclinical trials. The Company currently has no arrangements for such capital and no assurances can be given that it will be able to raise such capital when needed, on acceptable terms, or at all.



The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

3)
MERGER, DISPOSITION AND ACQUISITION TRANSACTIONS
 

Merger


On August 12, 2020, Eterna, Brooklyn LLC and the Merger Sub entered into the Merger Agreement, and the Merger closed on March 25, 2021. The Merger was accounted for as a reverse acquisition, in which Brooklyn LLC was deemed the acquiring company for accounting purposes. Brooklyn LLC, as the accounting acquirer, recorded the assets acquired and liabilities assumed of Eterna in the Merger at their fair values as of the acquisition date.


Brooklyn LLC was determined to be the accounting acquirer based upon the terms of the Merger and other factors including that (i) Brooklyn LLC members, received common stock in the Merger that represented 96.35% of Eterna’s outstanding common stock on a fully diluted basis, (ii) all of the directors of Eterna immediately after the Merger were designated by Brooklyn LLC under the terms of the Merger Agreement and (iii) existing members of Brooklyn LLC’s management became the management of Eterna immediately after the Merger.


At the closing of the Merger, all the outstanding membership interests of Brooklyn LLC converted into the right to receive an aggregate of approximately 1,999,000 shares of common stock, of which 53,000 shares were issued as compensation to Brooklyn LLC’s financial advisor for its services to Brooklyn LLC in connection with the Merger.


The purchase price of $8.2 million, which represents the consideration transferred in the Merger to stockholders of Eterna immediately before the Merger, was calculated based on the closing price of $108 per share for approximately 76,000 shares common stock that those stockholders owned on March 25, 2021 immediately prior to the Merger because that represented a more reliable measure of the fair value of consideration transferred in the Merger.


Under the acquisition method of accounting, the total purchase price has been allocated to the acquired tangible and intangible assets and assumed liabilities of Eterna based on their estimated fair values as of March 25, 2021, the Merger closing date. Because the consideration paid by Brooklyn LLC in the Merger is more than the estimated fair values of Eterna’s net assets deemed to be acquired, goodwill is equal to the difference of approximately $8.6 million, which has been calculated using the fair values of the net assets of Eterna as of March 25, 2021.

The allocation of the purchase price to the tangible and intangible assets acquired and liabilities deemed to be assumed from Eterna, based on their estimated fair values as of March 25, 2021, is as follows (in thousands):

 
  
Historical
Balance
Sheet of
Eterna at
March 25, 2021
    
Fair Value
Adjustment
to
Eterna
Pre-Merger
Assets
    
Purchase
Price
Allocation
  
Cash and cash equivalents
  
$
148
    
$
-
    
$
148
  
Accounts receivable
    
103
      
-
      
103
  
Prepaid expense and other current assets
    
329
      
-
      
329
  
Property and equipment, net
    
1,015
      
-
      
1,015
  
Software development costs
    
1,296
      
(368
)
    
928
  
Customers
    
-
      
548
      
548
  
Trade name
    
-
      
299
      
299
  
Accounts payable, accrued liabilities and other current liabilities
    
(3,781
)
    
-
      
(3,781
)
Net assets acquired, excluding goodwill
  
$
(890
)
  
$
479
    
$
(411
)
                         
Total consideration
  
$
8,178
                  
Net assets acquired, excluding goodwill
    
(411
)
                
Goodwill
  
$
8,589
                  


Brooklyn LLC was obligated under the Merger Agreement to have $10.0 million in cash and cash equivalents on its balance sheet at the effective time of the Merger. To ensure Brooklyn LLC had the required funds, certain beneficial holders of Brooklyn LLC’s Class A membership interests entered into contractual commitments to invest $10.0 million into Brooklyn LLC immediately prior to the closing of the Merger. During March 2021, Eterna offered its Class A unit holders an additional 5% rights offering for an additional $0.5 million to be raised by a rights offering. Eterna received funds from the rights offering between February 17, 2021 and April 5, 2021.


Disposition


On March 26, 2021, Eterna sold its rights, title and interest in and to the assets relating to the business it operated (under the name NTN Buzztime, Inc.) prior to the Merger to eGames.com in exchange for a purchase price of $2.0 million and assumption of specified liabilities relating to that business. The sale was completed in accordance with the terms of the Asset Purchase Agreement. Details of the Disposition are as follows (in thousands):

Proceeds from sale:
      
Cash   $ 132  
Escrow
    
50
  
Assume advance/loans
    
1,700
  
Interest on advance/loans
    
68
  
         
Carrying value of assets sold:
        
Cash and cash equivalents
    
(14
)
Accounts receivable
    
(75
)
Prepaids and other current assets
    
(124
)
Property and equipment, net
    
(1,014
)
Software development costs
    
(927
)
Customers
    
(548
)
Trade name
    
(299
)
Goodwill
    
(8,589
)
Other assets
    
(103
)
         
Liabilities transferred upon sale:
        
Accounts payable and accrued expenses
    
113
  
Obligations under finance leases
    
17
  
Lease liability
    
26
  
Deferred revenue
    
55
  
Other current liabilities
    
149
  
         
Transaction costs
    
(265
)
         
Total loss on sale of assets
  
$
(9,648
)

9

Acquisition


On July 16, 2021, Eterna and Brooklyn Acquisition Sub, Inc. entered into the Novellus Acquisition Agreement. The Novellus Acquisition closed contemporaneously with the execution and delivery of the Novellus Acquisition Agreement. At the closing:

 
●
Eterna acquired all of the outstanding equity interests of Novellus as the result of the merger of Brooklyn Acquisition Sub, Inc. with and into Novellus, following which, Novellus, as the surviving corporation, became Eterna’s wholly owned subsidiary and Novellus Ltd. became Eterna’s indirectly owned subsidiary; and

 
●
Eterna acquired 25.0% of the total outstanding equity interests of NoveCite.


As consideration for the Novellus Acquisition, Eterna paid $22.9 million in cash and delivered approximately 351,000 shares of common stock, which under the terms of the Novellus Acquisition Agreement, were valued at a total of $102.0 million based on an agreed upon price of $290.5060 per share. At the date of issuance, the fair value of the shares was approximately $58.7 million.


The Novellus Acquisition Agreement contained customary representations, warranties and certain indemnification provisions. Approximately 37,000 of the shares issued as consideration were placed in escrow to secure indemnification obligations to Eterna under the Novellus Acquisition Agreement, and all such shares were released to the sellers in July 2022. The Novellus Acquisition Agreement also contains certain non-competition and non-solicitation provisions pursuant to which Novellus LLC agreed not to engage in certain competitive activities for a period of five years following the closing, including customary restrictions relating to employees. No employees of Novellus Ltd. or Novellus prior to the Novellus Acquisition continued their employment, or were otherwise engaged by Eterna, immediately following the Novellus Acquisition.



In connection with the Novellus Acquisition, the co-founders of Novellus entered into lock-up agreements with respect to approximately 169,000 of the shares of common stock received in the Novellus Acquisition, and Eterna’s Chairman of the Board and its former Chief Executive Officer and President entered into identical lock-up agreements with respect to their current holdings of Eterna stock. Each lock-up agreement extends for a period of three years, provided that up to 75% of the shares of common stock subject to the lock-up agreement may be released from the lock-up restrictions earlier if the price of common stock on the Nasdaq exceeds specified thresholds. The lock-up agreements include customary exceptions for transfers during the applicable lock-up period.


The Company expects the Novellus Acquisition will advance its evolution into a platform company with a pipeline of next generation mRNA cellular and gene editing programs. In addition, the acquisition of Novellus Ltd. builds on the License Agreement (as defined in Note 10). As a result of the Novellus Acquisition, in accordance with the terms of the Novellus-Factor License Agreement, the rights and obligations of Novellus Ltd. thereunder pertaining to any and all licensed products have inured to Eterna. The License Agreement with Factor Bioscience Limited (“Factor Limited”) under the License Agreement, which grants Brooklyn LLC exclusive rights to develop certain next-generation mRNA gene editing and cell therapy products, remained unchanged after the completion of the Novellus Acquisition.

10

Although Eterna acquired all of the outstanding equity interests of Novellus, the Company accounted for the Novellus Acquisition as an asset acquisition (as the assets acquired did not constitute a business as defined in Accounting Standards Codification (“ASC”) Topic 805, Business Combinations), and was measured by the amount of cash paid and by the fair value of the shares of common stock issued. As a result, substantially all of the value acquired was attributed to in-process research and development (IPR&D), with the exception of the cash paid for the investment in NoveCite, which is being accounted for as an investment in equity securities, as discussed further below.


Eterna paid $22.9 million in cash, net of cash acquired, as part of the consideration for the Novellus Acquisition, of which $1.0 million was paid in cash for the investment in NoveCite. Eterna also issued approximately 351,000 shares of the Company’s common stock, of which approximately 182,000 shares are unrestricted and 169,000 shares are subject to the three-year lockup. The unrestricted shares were valued at $201 per share, which was the closing price of Eterna’s common stock on July 16, 2021. The fair value of the restricted shares was discounted by approximately 35% to $130.60 per restricted share, which was derived from the average discount rate between the Black Scholes and Finnerty valuation models. The resulting fair value of the asset acquired is as follows (in thousands):

 
  
Fair Value of
Consideration
  
Cash paid
  
$
22,882
  
Cash acquired
    
(28
)
Unrestricted shares
    
36,628
  
Restricted shares
    
22,056
  
Total fair value of consideration paid
    
81,538
  
Less amount of cash paid for NoveCite investment
    
(1,000
)
Fair value of IPR&D acquired
  
$
80,538
  


IPR&D that is acquired through an asset purchase that has no alternative future uses and no separate economic values from its original intended purpose is expensed in the period the cost is incurred. Accordingly, the Company expensed the fair value of the IPR&D during the third quarter of 2021 in the amount of $80.5 million.

Investment in NoveCite

As a result of the Novellus Acquisition,  Eterna acquired and currently owns 25% of NoveCite and Citius Pharmaceuticals, Inc. (“Citius”) owns the remaining 75%. A member of the Company’s management is entitled to hold one of three board seats on NoveCite’s board of directors. Citius’ s officers and directors hold the other two board seats. The Company is accounting for its interest in NoveCite under ASC Topic 323, Investments – Equity Method and Joint Ventures. The investment was recorded at cost, which was $1.0 million and is adjusted for the Company’s share of NoveCite’s earnings or losses, which are reflected in the accompanying condensed consolidated statement of operations. The investment may also reflect an equity loss in the event that circumstances indicate an other-than-temporary impairment. For the three and nine months ended September 30, 2022, the Company recorded approximately $21,000 and $0.9 million, respectively, in losses from its investment in NoveCite, and of the $0.9 million loss for the nine months ended September 30, 2022, $0.5 million related to NoveCite’s year ended December 31, 2021. The Company does not guarantee obligations of NoveCite nor is it otherwise committed to providing further financial support for NoveCite. Therefore, the Company will record losses only up to its investment carrying amount.
 
4)
FAIR VALUE OF FINANCIAL INSTRUMENTS
 

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
 
 
●
Level 1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 
 
●
Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
 
11
 
●
Level 3 Inputs – Valued based on inputs for which there is little or no market value, which require the reporting entity to develop its own assumptions.
 

There were no liabilities measured at fair value as of December 31, 2021. The following tables summarize the liabilities that are measured at fair value as of September 30, 2022 (in thousands):

 
  
As of September 30, 2022
  
Description
  
Level 1
    
Level 2
    
Level 3
  
Liabilities:
                  
Warrant liabilities - Common Warrants
   $
-
     $
-
     $
633
  
Total
  
$
-
    
$
-
    
$
633
  




On March 9, 2022, the Company issued pre-funded warrants exercisable for approximately 68,000 shares of common stock (the “Pre-Funded Warrants”) and warrants exercisable for approximately 343,000 shares of common stock (the “Common Warrants”) to the PIPE Investor in connection with the PIPE Transaction (as each such term is defined in Note 12). On July 12, 2022, the PIPE Investor exercised its 68,000 Pre-Funded Warrants at an exercise price of $0.10 per share for an aggregate exercise price of approximately $7,000 in cash. The Company issued 68,000 shares of common stock to the PIPE Investor on July 14, 2022 upon receipt of the cash proceeds. Following the exercise, no Pre-Funded Warrants remained outstanding. See Note 12 for more information related to the PIPE Transaction.



The Common Warrants and Pre-Funded Warrants were accounted for as liabilities under ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity (“ASC 815-40”), as these warrants provide for a cashless settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40.  These warrant liabilities were measured at fair value at inception and are then subsequently measured on a recurring basis, with changes in fair value presented within the Company’s statements of operations.



The Company uses a Black-Scholes option pricing model to estimate the fair value of the Common Warrants, which is considered a Level 3 fair value measurement.  Certain inputs used in this Black-Scholes pricing model may fluctuate in future periods based upon factors that are outside of the Company’s control.  A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations.

The estimated fair value of the Pre-Funded Warrants was deemed a Level 2 measurement as all significant inputs to the valuation model used to estimate the fair value of the Pre-Funded Warrants were directly observable from the Company’s publicly-traded common stock. Upon exercise of the Pre-Funded Warrants on July 12, 2022, the Company reclassified the fair value of the Pre-Funded Warrants to equity as of such date.



The fair values of the Common Warrants and the Pre-Funded Warrants at the issuance date totaled $12.6 million in the aggregate, which was $0.6 million more than the $12.0 million proceeds received in the PIPE Transaction.  The excess $0.6 million represents an inducement to the purchaser to enter into the PIPE Transaction and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations.  Given the Company’s capital requirements and market conditions, the Company consummated this financing on market terms available at the time of the transaction.


The Company remeasured the fair value of the Common Warrants as of September 30, 2022. The following table presents the changes in the warrant liabilities from the issuance date (in thousands):
 
 
  
Pre-Funded
Warrants
(Level 2)
    
Common Warrants
(Level 3)
    
Total Warrant
Liabilities
  
Fair value at January 1, 2022
  
$
-
    
$
-
    
$
-
  
Fair value at March 9, 2022 (issuance date)
    
2,646
      
9,943
      
12,589
  
Change in fair value of warrant liabilities
    
(1,779
)
    
(9,310
)
    
(11,089
)
Exercise of pre-funded warrants     (867 )     -       (867 )
Fair value at September 30, 2022
  
$
-
    
$
633
    
$
633
  
 
5)
LEASES

 

Operating Leases



The Company has operating leases for office and laboratory space in the borough of Manhattan in New York, New York and in Cambridge, Massachusetts, which expire in 2026 and 2028, respectively. On March 31, 2022, the Company entered into a facility lease in San Diego, California (the “San Diego Lease”) with Torrey Pines Science Center Limited Partnership for approximately 5,200 square feet of laboratory and office space. The term of the San Diego Lease is 62 months and the lease commencement date was April 19, 2022. The San Diego Lease will expire in June 2027. See Note 15 for information regarding an additional lease the Company entered into in October 2022.
 

Base rent for the San Diego Lease is $6.35 per square foot in the first year of the San Diego Lease, with a rent abatement for the second and third full months of the first year. The base rent will increase by approximately 3% on each anniversary of the lease commencement date. The Company is also required to pay its share of operating expenses and property taxes. The San Diego Lease provides for a one-time option to extend the lease term for an additional five years at the then fair rental value. The Company recorded a $1.7 million right-of-use (“ROU”) asset and $1.7 million lease liabilities for the San Diego Lease.


During the second quarter of 2022, the Company decided to consolidate its research and development efforts in Cambridge, Massachusetts, and the Company intends to sublease the San Diego laboratory and office space.  As a result, the Company recognized an impairment charge of approximately $0.8 million on the San Diego Lease ROU asset during the nine months ended September 30, 2022, which is recorded in general and administrative expense on the condensed consolidated statements of operations. There was no impairment charge recognized for the three months ended September 30, 2022. 


On March 5, 2022, the Company entered into an Agreement to Assign Space Lease with Regen Lab USA LLC (“Regen”) pursuant to which the Company agreed to assign its Brooklyn, New York lease (the “Brooklyn Lease”) to Regen. The effective date of the assignment was contingent upon, among other things, a consent from BioBat, Inc. (the “Landlord”). Additionally, Regen agreed to purchase certain equipment from the Company for $50,000, partly reimburse the Company $50,000 toward certain existing unamortized leasehold improvements, and to reimburse the Company for the existing security deposit the Company had under the Brooklyn Lease of approximately $63,000.



On March 25, 2022, the Company entered into an Assignment and Assumption of Lease Agreement (the “Assignment Agreement”) with Regen, which included the Landlord’s consent to the assignment. The effective date of the assignment was March 28, 2022.  Under the Assignment Agreement, Regen (i) accepted the assignment of the Brooklyn Lease; (ii) assumed all of the obligations, liabilities, covenants and conditions of the Company’s as tenant under the Brooklyn Lease; (iii) assumed and agreed to perform and observe all of the obligations, terms, requirements, covenants and conditions to be performed or observed by the Company under the Brooklyn Lease; and (iv) made all of the representations and warranties under the Brooklyn Lease with the same force and effect as if Regen had executed the Brooklyn Lease originally as the tenant.



Notwithstanding Regen’s assumption of the Brooklyn Lease, the Company remains liable and responsible for the due keeping, and full performance and observance, of all the provisions of the Brooklyn Lease applicable to the tenant thereunder.  As a result of the Assignment Agreement, the Company wrote off the remaining ROU asset balance and the corresponding lease liability.


13

The Company accounts for leases under ASC 842, Leases. Operating leases are included in “Right-of use assets - operating leases” within the Company’s balance sheets and represent the Company’s right to use an underlying asset for the lease term. The Company’s related obligation to make lease payments are included in “Operating lease liabilities, non-current” and “Operating lease liabilities, current” within the Company’s balance sheets. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Because the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term.



Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance, tax payments and other miscellaneous costs. The variable portion of lease payments is not included in the ROU assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expenses. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.



During the three and nine months ended September 30, 2022 and 2021, the net operating lease expenses were as follows (in thousands):


    Three months ended September 30,
  
   
2022
     2021
 
Operating lease expense
  
$
143
    
$
187
  
Sublease income
    
(21
)
    
(21
)
Variable lease expense
    
60
      
6
  
Total lease expense
  
$
182
    
$
172
  



    Nine months ended September 30,  
    2022     2021
  
Operating lease expense
  
$
476
    
$
501
  
Sublease income
    
(63
)
    
(62
)
Variable lease expense
    
113
      
16
  
Total lease expense
  
$
526
    
$
455
  



The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2022 and the ending balances as of September, 2022, including the changes during the period (in thousands).


   
Operating Lease
ROU Assets
  
       
Operating lease ROU assets at January 1, 2022
  
$
2,567
  
Initial measurement of operating lease ROU assets     1,706  
Amortization of operating lease ROU assets
    
(267
)
Impairment of ROU assets     (772 )
Remeasurement of ROU asset
     50  
Write off of ROU asset due to lease termination
    
(1,372
)
Operating lease ROU assets at September 30, 2022
  
$
1,912
  


   
Operating Lease
Liabilities
  
Operating lease liabilities at January 1, 2022
  
$
2,723
  
Initial measurement of operating lease liabilities     1,706  
Principal payments on operating lease liabilities
    
(223
)
Write off of operating lease liability due to lease termination
    
(1,453
)
Operating lease liabilities at September 30, 2022
    
2,752
  
Less non-current portion
    
2,317
  
Current portion at September 30, 2022
  
$
436
  


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As of September 30, 2022, the Company’s operating leases had a weighted-average remaining life of 4.9 years with a weighted-average discount rate of 8.97%.  The maturities of the operating lease liabilities are as follows (in thousands):


   
As of
September 30,
2022
  
2022
  
$
166
  
2023
    
673
  
2024
    
688
  
2025
    
703
  
2026
    
708
  
Thereafter
    
470
  
Total payments  
3,408
  
Less imputed interest     (656 )
Total operating lease liabilities   $ 2,752  

6)
IN-PROCESS RESEARCH & DEVELOPMENT AND GOODWILL
 

In 2018, the Company acquired IRX Therapeutics (“IRX”), which was accounted for as a business combination. The Company recorded IPR&D in the amount of $6.0 million, which represented the fair value assigned to technologies that were acquired in connection with the IRX acquisition and which have not reached technological feasibility and have no alternative future use. IPR&D assets acquired in a business combination are considered to be indefinite lived until the completion or abandonment of the associated research and development projects. If and when development is complete, which generally occurs upon regulatory approval, and the Company is able to commercialize products associated with the IPR&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives beginning at that point in time. If development is terminated or abandoned, the Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value.


The Company also recorded goodwill in the amount of $2.0 million related to the IRX acquisition. Goodwill and indefinite-lived IPR&D assets are not amortized but are tested for impairment annually, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the entity is less than its carrying values.


In June 2022, the Company received results from the INSPIRE phase 2 trial of IRX-2, a multi-cytokine biologic immunotherapy, in patients with newly diagnosed stage II, III or IVA squamous cell carcinoma of the oral cavity. The IRX-2 multi-cytokine biologic immunotherapy represents substantially all the fair value assigned to the technologies of IRX that the Company acquired. Despite outcomes that favored IRX-2 in certain predefined subgroups, the INSPIRE trial did not meet the primary endpoint of Event-Free Survival (at two years of follow up). Significant additional clinical development work would be required to advance IRX-2 in the form of additional Phase 2 and 3 studies to further evaluate the treatment effect of IRX-2 in patient subgroups and in combination with checkpoint inhibitor therapies. The INSPIRE trial was the only Company-sponsored study of IRX-2. IRX-2 has been studied externally in other clinical settings outside of head and neck cancer in the form of investigator sponsored trials, which have either ended or are not currently active. Based on the totality of available information, the Company currently does not have plans to further develop the IRX-2 product candidate. As such, the Company determined that the carrying value of the IPR&D asset was impaired and recognized a non-cash impairment charge of approximately $6.0 million on the condensed consolidated statement of operations during the second quarter of 2022, which reduced the value of the asset to zero.


15

As of September 30, 2022, the Company performed a qualitative assessment to determine whether it was more likely than not that the fair value of the entity is less than its carrying value of goodwill. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events. As a result of the decline in the Company’s stock price from $10.40 per share as of June 30, 2022 to $4.94 per share as of September 30, 2022, the Company determined that there were indications of impairment. Accordingly, the Company proceeded to the first step in the quantitative assessment of impairment and determined that the fair value of the reporting unit exceeded the carrying amount of goodwill, and therefore, the goodwill was not impaired as of September 30, 2022.
 
7)
CEO SEPARATION AGREEMENT



On May 24, 2022, Dr. Howard J. Federoff resigned as the Company’s Chief Executive Officer and President effective May 26, 2022. In connection with Dr. Federoff’s resignation, the Company entered into a Separation Agreement and General Release with Dr. Federoff (the “Separation Agreement”), pursuant to which Dr. Federoff resigned from his positions as Chief Executive Officer and as an officer, director and employee of the Company and all subsidiaries. Dr. Federoff’s resignation from the Board was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. In consideration for Dr. Federoff’s execution of the Separation Agreement and non-revocation of a waiver and release of claims relating thereto, Dr. Federoff will receive following benefits under the Separation Agreement:



 ●
a lump sum cash severance benefit in the amount of $0.2 million, representing Dr. Federoff’s target bonus for 2022;

 

 ●
payment of Dr. Federoff’s annual base salary for a period of twelve months after the expiration of the applicable revocation period (the “Separation Period”), for a total gross amount equal to $0.5 million;

 

 ●
payment of Dr. Federoff’s premiums for continued health benefits provided under COBRA for the Separation Period;

 

 ●
full acceleration of the vesting of all outstanding options (with the exception of the Milestone Grant (as defined below) options) that would have vested during the Separation Period, and such options, together with outstanding options that vested prior to the separation date, representing collectively approximately 76,000 shares of common stock, may be exercised for a period of thirty-six months after the separation date (see Note 11 for modification accounting impact);

 

 ●
acceleration and vesting of 25/36th of the Milestone Grant options, representing collectively approximately 21,000 shares of common stock, may be exercised for a period of thirty-six months after the separation date (see Note 11 for modification accounting impact); and

 

 ●
a lump sum cash severance benefit in the amount of $0.1 million, representing the value Dr. Federoff would have received if he was entitled to receive a settlement of a pro rata portion of his performance restricted stock units through the expiration of the Separation Period, assuming the performance metrics were waived and assuming a per share value of $16.20.



The Separation Agreement also includes certain other customary representations, warranties and covenants of Dr. Federoff, and provides for reimbursement of certain expenses incurred by Dr Federoff. The Separation Agreement supersedes all other agreements or arrangements between Dr. Federoff and the Company regarding the subject matter of the agreement, including those with respect to severance payments and benefits.

8)
RELATED PARTY TRANSACTIONS


On September 9, 2022, the Company entered into a Master Services Agreement (the “MSA”) with Factor Bioscience Inc. (“Factor”), pursuant to which Factor has agreed to provide services to the Company as agreed between the Company and Factor and as set forth in one or more work orders under the MSA, including the first work order included in the MSA. Under the first work order, Factor has agreed to provide the Company with mRNA cell engineering research support services, including access to certain facilities, equipment, materials and training, and the Company has agreed to pay Factor an initial fee of $5.0 million, payable in twelve equal monthly installments of approximately $0.4 million. Following the initial 12-month period, the Company has agreed to pay Factor a monthly fee of $0.4 million until such time as the first work order under the MSA is terminated. The Company paid a deposit of $0.4 million, which will be applied to the last month of the first work order.

16

The Company may terminate the first work under the MSA on or after the second anniversary of the date of the MSA, subject to providing Factor with 120 days’ prior notice. Factor may terminate such work order only on and after the fourth anniversary of the date of the MSA, subject to providing the Company with 120 days’ prior notice. The MSA contains customary confidentiality provisions and representations and warranties of the parties, and the MSA may be terminated by ether party upon 30 days’ prior notice, subject to any superseding termination provisions contained in a particular work order.



In connection with entering into the MSA, on September 9, 2022, Factor’s subsidiary, Factor Limited, entered into a waiver agreement (the “Waiver Agreement”) with Brooklyn LLC, pursuant to which Factor Limited agreed to waive payment of $3.5 million otherwise payable to it (the “License Fee Obligation”) in October 2022 by Brooklyn LLC under a license agreement by and among Factor Limited, Novellus Ltd., and Brooklyn LLC.  See Note 10, License Agreements, for more information on this agreement. Under the terms of the Waiver Agreement, the License Fee Obligation is waived conditionally on the Company paying Factor Inc. amounts due under the MSA.



As a result of entering into the Waiver Agreement and the MSA on September 9, 2022, the Company recognized $3.5 million in research and development expense, as the license does not have an alternative future use, and a corresponding liability.


On September 1, 2022, Novellus and Eterna entered into a Second Amendment to the Limited Waiver and Assignment Agreement (the “Waiver and Assignment Agreement”) with Drs. Matthew Angel and Christopher Rohde (the “Founders”) whereby the Company has agreed to be responsible for all future, reasonable and substantiated legal fees, costs, settlements and judgments incurred by the Founders, the Company or Novellus for certain claims and actions and any pending or future litigation brought against the Founders, Novellus and/or the Company by or on behalf of the Westman and Sowydra legal matters described in Note 10 (the “Covered Claims”). The Founders will continue to be solely responsible for any payments made to satisfy a judgement or settlement of any pending or future wage act claims. Under the Waiver and Assignment Agreement, the Founders agreed that they are not entitled to, and waived any right to, indemnification or advancement of past, present or future legal fees, costs, judgments, settlement or other liabilities they may have been entitled to receive from the Company or Novellus in respect of the Covered Claims. The Company and the Founders will share in any recoveries up to the point at which the parties have been fully compensated for legal fees, costs and expenses incurred, with the Company retaining any excess recoveries. The Company has the sole authority to direct and control the prosecution, defense and settlement of the Covered Claims.


On September 6, 2022, the Company entered into an assignment and assumption of contracts agreement (the “Assignment and Assumption Agreement”) with Factor, pursuant to which the Company assumed certain contracts with third parties that Factor had previously entered into in anticipation of entering into a sublease for premises in Somerville, Massachusetts.  In October 2022, the Company entered into a sublease for the premises (see Note 15).  Under the Assignment and Assumption Agreement, the Company agreed to reimburse Factor for costs already incurred or paid by it under the assumed contracts in the amount of approximately $0.1 million, and the Company assumed the future obligations under these contracts, which relate to the design and build-out of the subleased space.


The MSA, any work orders under the MSA, the Waiver Agreement, the Waiver and Assignment Agreement, and the Assignment and Assumption Agreement have been deemed related party transactions, as the Company’s Interim Chief Executive Officer, Dr. Matthew Angel, is also the Chairman and Chief Executive Officer of Factor and the Director of Factor Limited.

17
9)
ACCRUED EXPENSES AND OTHER LIABILITIES
 

Accrued expenses consisted of the following (in thousands):
 
   
September 30,
2022
     December 31,
2021		  
Accrued compensation
 
$
1,701
    
$
656
  
Accrued research and development expenses
    
373
      
222
  
Accrued general and administrative expenses
    
1,156
      
371
  
Total accrued expenses
  
$
3,230
    
$
1,249
  


Other liabilities consisted of the following (in thousands):
   
September 30,
2022
    
December 31,
2021
  
Current portion of License Fee Obligation
  
$
1,750
    
$
-
  
Insurance policy premiums
    
898
      
247
  
Total other current liabilities
   $ 2,648     $ 247  
                 
Long term portion of License Fee Obligation
   $ 1,642     $ -  
Other
    
48
      
48
  
Total other liabilities
  
$
1,690
    
$
48
  

18

Accrued compensation at September 30, 2022 includes approximately $1.0 million of severance, of which, approximately $0.3 million relates to severance for Dr. Federoff pursuant to the Separation Agreement discussed above. Accrued general and administration expenses at September 30, 2022 includes $0.6 million for legal-related matters.
 
10)
COMMITMENTS AND CONTINGENCIES
 

Legal Matters

 

The Company is involved in litigation and arbitrations from time to time in the ordinary course of business. Legal fees and other costs associated with such actions are expensed as incurred. In addition, the Company assesses the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable, and the amount can be reasonably estimated.


Dhesh Govender v. Brooklyn Immunotherapeutics, LLC, et al., Index No. 650847/2021 (N.Y. Sup. Ct. N.Y. Cty. 2021)


On or about February 5, 2021, Dhesh Govender, a former short-term consultant of Brooklyn LLC, filed a complaint against Brooklyn LLC and certain individuals that plaintiff alleges were directors of Brooklyn LLC. The complaint is captioned, Dhesh Govender v. Brooklyn Immunotherapeutics, LLC, et al., Index No. 650847/2021 (N.Y. Sup. Ct. N.Y. Cty. 2021). Plaintiff alleges that Brooklyn LLC and certain of its officers and directors (“defendants”) engaged in unlawful and discriminatory conduct based on race, national origin and hostile work environment. Plaintiff also asserts various breach of contract, fraud and quantum meruit claims based on an alleged oral agreement pursuant to which he alleges Brooklyn LLC agreed to hire him as an executive once the Merger was completed. In particular, plaintiff alleges that, in exchange for transferring an opportunity to obtain an agreement to acquire a license from Novellus for its mRNA-based gene editing and cell reprogramming technology to Brooklyn LLC, he was promised a $0.5 million salary and 7% of the equity of Brooklyn LLC. Based on these and other allegations, plaintiff seeks damages of not less than $10 million. By Order dated November 10, 2021, the Court granted defendants’ motion to compel Govender to arbitrate all of his claims against them, based on the arbitration clause of his consulting agreement with Brooklyn LLC.  Govender thereafter filed his Statement of Claim (the “Demand”) with the American Arbitration Association (“AAA”), Case No. 01-21-0017-9417, on December 15, 2021 against the same defendants, and served it on defendants’ counsel on February 3, 2022. In his Demand, Govender continues to assert statutory discrimination claims against all defendants, claims against Brooklyn LLC premised on the breach of an alleged oral promise to issue Govender 7% of the equity of Brooklyn LLC and to employ Govender at a $0.5 million annual salary in exchange for allegedly arranging and negotiating the Novellus license, common law fraud claims against Brooklyn LLC and Cherington based on the breach of these same promises and a claim for quantum meruit against the Brooklyn LLC. In his Demand, Govender now claims that the fair and reasonable value of his services on the quantum meruit claim exceeded $100 million and is seeking damages in an amount to be determined at the hearing. Defendants filed an answering statement to the Demand on February 28, 2022 and the parties have selected a three-member arbitration panel. The date on which arbitration is scheduled to begin has not yet been set. Defendants intend to vigorously defend themselves against these claims. At this stage in the litigation, the Company is not able to predict the probability of a favorable or unfavorable outcome.


Emerald Private Equity Fund, LLC Matter

By a letter dated July 7, 2021, Emerald Private Equity Fund, LLC (“Emerald”), a stockholder of Eterna, made a demand pursuant to 8 Del. C. 220 to inspect certain books and records of Eterna. The stated purpose of the demand was to investigate possible wrongdoing by persons responsible for the implementation of the Merger and the issuance of paper stock certificates, including investigating whether: (i) Eterna’s stock certificates were issued in accordance with the Merger Agreement; (ii) certain restrictions on the sale of Eterna common stock following the Merger were proper and applied without favor; (iii) anyone received priority in post-Merger issuances of Eterna’s stock certificates that allowed them to benefit from an increase in the trading price of Eterna’s common stock; and (iv) it should pursue remedial measures and/or report alleged misconduct to the SEC. Eterna responded to the demand letter and produced certain information to Emerald in connection with the demand, which is subject to the terms of a confidentiality agreement entered into among the parties, including certain additional stockholders who subsequently joined as parties to such agreement. In October 2021, Emerald requested that Eterna produce additional information related to the authority, purpose and justification for the restriction imposed on the sale of Eterna common stock following the Merger and the timing of share delivery to Eterna stockholders, following which request Eterna agreed to produce certain additional information and emails relating to these topics.


19
On March 30, 2022, counsel to Emerald advised the Company that it was prepared to file suit against the Company, certain current and former directors of the Company, and the Company’s financial advisor in connection with the Merger, on behalf of Emerald and a class of similarly situated stockholders with respect to some or all of the foregoing matters, alleging claims for breach of fiduciary duty, conversion and aiding and abetting breach of fiduciary duty. Emerald’s counsel expressed a willingness to engage in private pre-suit early resolution discussions with the Company and its financial advisor on behalf of individual stockholders whom counsel represents in addition to Emerald (collectively, the “Emerald Plaintiffs”); and the Company engaged in such discussions in lieu of incurring the legal costs anticipated in respect of litigating the Emerald Plaintiffs’ claims, all of which the Company disputes.  Following such discussions, with no admission of wrongdoing, the Company and the Emerald Plaintiffs entered into a confidential settlement agreement, pursuant to which the Company paid $1.2 million in full settlement of all of the Emerald Plaintiffs’ purported claims, including a release by the Emerald Plaintiffs in favor of the Company in respect of any and all such claims.


John Westman v. Novellus, Inc., Christopher Rohde, and Matthew Angel, Civil Action No. 2181CV01949 (Middlesex County (Massachusetts) Superior Court)


On or about September 7, 2021, John Westman, a former employee of Novellus, Inc. filed a Complaint in Middlesex County (Massachusetts) Superior Court against Novellus, Inc. and the company’s founders and former executives, Dr. Christopher Rohde and Dr. Matthew Angel (collectively, “Defendants”). The case includes allegations that Novellus, Inc. violated the Massachusetts Wage Act. Eterna acquired Novellus, Inc. on July 16, 2021. Mr. Westman’s claims relate to alleged conduct that took place before Eterna acquired Novellus, Inc. Defense and liability in association with any Wage Act claims have been assumed by Dr. Rohde and Dr. Angel. On December 24, 2021, Westman dismissed the case without prejudice so the parties could mediate the matter. The parties’ February 2022 mediation was unsuccessful and the dispute is currently pending in arbitration.


Novellus, Inc. v. Sowyrda et al., C.A. No. 2184CV02436-BLS2


On October 25, 2021 Novellus, Inc. filed a complaint in the Superior Court of Massachusetts, Suffolk County, against former Novellus, Inc. employees Paul Sowyrda and John Westman and certain other former investors in Novellus LLC (Novellus, Inc.’s former parent company prior to the Company’s acquisition of Novellus, Inc.), alleging breach of fiduciary duty, breach of contract and civil conspiracy. Eterna acquired Novellus, Inc. on July 16, 2021. On May 27, 2022 Novellus, Inc. amended the complaint to withdraw all claims against all defendants except Paul Sowyrda and John Westman. On July 1, 2022, Westman filed a motion to compel arbitration or in the alternative, to stay the litigation pending the disposition of certain litigation in the Court of Chancery for the State of Delaware filed by Mr. Sowyrda against Novellus LLC, Dr. Christopher Rohde, Dr. Matthew Angel, Leonard Mazur and Factor Bioscience, Inc. captioned Zelickson et al., v. Angel et al., C.A. 2021-1014-JRS and by Westman against Novellus LLC captioned Westman v. Novellus LLC, C.A. No. 2021-0882-NAC (the “Delaware Actions”). On July 1, 2022, Sowyrda answered the complaint and asserted counterclaims against Novellus, Inc, and third-party defendants Dr. Matthew Angel and Dr. Christopher Rohde alleging violations of the Massachusetts Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, breach of contract, unjust enrichment and quantum meruit. Sowyrda also joined in Westman’s motion to stay the case pending the Delaware Actions. Novellus, Inc.’s claims and Mr. Sowyrda’s counterclaims relate to alleged conduct that took place before Eterna acquired Novellus, Inc. Defense and liability in association with any Wage Act claims have been assumed by Dr. Rohde and Dr. Angel. The Company filed its opposition to Sowyrda and Westman’s motions on August 19, 2022.  On September 9, 2022, Westman and Sowyrda filed replies in support of their motions and requested to be heard.  The hearing is scheduled for November 16, 2022.

Under applicable Delaware law and Novellus Inc.’s organizational documents, the Company may be required to advance or reimburse certain legal expenses incurred by former officers and directors of Novellus, Inc. in connection with the foregoing Westman and Sowyrda matters. However, a future advance or reimbursement is not currently probable nor can it be reasonably estimated.

20

Licensing Agreements

 

USF

 

Brooklyn LLC has license agreements with University of South Florida Research Association, Inc. (“USF”), granting Brooklyn LLC the right to sell, market, and distribute IRX-2, subject to a 7% royalty payable to USF based on a percentage of gross product sales. Under the license agreement with USF, Brooklyn LLC is obligated to repay patent prosecution expenses incurred by USF. To date, Brooklyn LLC has not recorded any product sales, or obligations related to USF patent prosecution expenses. The license agreement terminates upon the expiration of the IRX-2 patents.

 

Novellus Ltd. and Factor Limited



In December 2020, Brooklyn LLC entered into option agreements (the “Option Agreements”) with Novellus Ltd. and Factor Limited (together, the “Licensors”) to obtain the right to exclusively license the Licensors’ intellectual property and mRNA cell reprogramming and gene editing technology for use in the development of certain cell-based therapies to be evaluated and developed for treating human diseases, including certain types of cancer, sickle cell disease, and beta thalassemia (the “Licensed Technology”). The option was exercisable before February 28, 2021 (or April 30, 2021 if the Merger had not closed by that date) and required Brooklyn LLC to pay a non-refundable option fee of $0.5 million and then an initial license fee of $4.0 million (including the non-refundable fee of $0.5 million) in order to exercise the option.


In April 2021, Brooklyn LLC and the Licensors amended the Option Agreements to extend the exercise period to May 21, 2021 and to require Brooklyn LLC to pay a total $1.0 million of the $4.0 million initial license fees to the Licensors by April 15, 2021.


In April 2021, Brooklyn LLC and the Licensors entered into an exclusive license agreement (the “License Agreement”) pursuant to which Brooklyn LLC acquired an exclusive worldwide license to the Licensed Technology for use in the development of certain mRNA, gene-editing, and cellular therapies to be evaluated and developed for treating human diseases, including certain types of cancer, sickle cell disease, and beta thalassemia. Under the terms of the License Agreement, Brooklyn LLC is obligated to pay the Licensors a total of $4.0 million in connection with the execution of the License Agreement, all of which was paid as of June 2021.


As a result of the Novellus Acquisition, in accordance with the terms of the Novellus-Factor License Agreement, the rights and obligations of Novellus Ltd. thereunder pertaining to any and all licensed products have inured to Eterna. The agreement with Factor Limited under the License Agreement, which grants Brooklyn LLC exclusive rights to develop certain next-generation mRNA gene editing and cell therapy products, remained unchanged after the completion of the Novellus Acquisition. Accordingly, under the License Agreement, Brooklyn LLC remained obligated to pay to Factor Limited a fee of $3.5 million in October 2022, which would have been in addition to a fee of $2.5 million paid to Factor Limited in October 2021. In connection with the Company entering into the MSA (see Note 8), Factor Limited entered into the Waiver Agreement with Brooklyn LLC, pursuant to which Factor Limited waived payment of the $3.5 million otherwise payable to it in October 2022 by Brooklyn LLC.



Brooklyn LLC is also required to use commercially reasonably efforts to achieve certain delineated milestones, including specified clinical development and regulatory milestones and specified commercialization milestones. In general, upon its achievement of these milestones, Brooklyn LLC will be obligated to pay, in the case of development and regulatory milestones, milestone payments to the Licensors in specified amounts and, in the case of commercialization milestones, specified royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers. In the event Brooklyn LLC fails to timely achieve certain delineated milestones, the Licensors will have the right to terminate Brooklyn LLC’s rights under provisions of the License Agreement relating to those milestones.

 

Novellus Ltd. also has a license agreement with Factor Limited, which was entered into in February 2015, amended in June 2018 and March 2020, and then amended and restated in November 2020 (the “Novellus-Factor License Agreement”).  The Novellus-Factor License Agreement grants to Novellus Ltd. an exclusive license to use certain technology owned by Factor Limited for the development of mesenchymal stem cell-based cellular therapies for treating diseases and conditions in humans and animals  (the “Novellus-Factor Licensed Technology”). Under the License Agreement, Novellus Ltd. in turn granted a sublicense to Brooklyn LLC to use the Novellus-Factor Licensed Technology to develop up to four mesenchymal stem cell-based therapy products for use in the treatment of cancer in humans.

 
21

Under the Novellus-Factor License Agreement, Novellus Ltd. is required to use commercially reasonably efforts to achieve certain delineated milestones, including specified clinical development and regulatory milestones and specified commercialization milestones. The Novellus-Factor License Agreement states that upon its achievement of these milestones, Novellus Ltd. will be obligated to make milestone payments of up to $51.0 million in aggregate to Factor Limited as well as specified royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers. In the event Novellus Ltd. fails to timely achieve certain delineated milestones under the Novellus-Factor License Agreement, Factor Limited could seek to terminate the license granted thereunder. The Novellus-Factor License Agreement provides that in the event of termination of the Novellus-Factor License Agreement, if Novellus Ltd. requests that its sublicense to Brooklyn LLC under the License Agreement survive such termination, such sublicense shall be considered a direct license from Factor Limited to Brooklyn LLC, provided that Brooklyn LLC agrees in writing that (i) Factor Limited is entitled to enforce all relevant provisions directly against Brooklyn LLC, and (ii) Factor Limited shall not assume, and shall not be responsible to Brooklyn LLC for, any representations, warranties or obligations of Novellus Ltd. to Brooklyn LLC, other than to permit Brooklyn LLC to exercise any rights to the technology sublicensed by Novellus Ltd. to Brooklyn LLC.  Factor Limited also agreed under the License Agreement that upon the termination of the Novellus-Factor License Agreement for any reason other than Brooklyn LLC’s breach of the License Agreement, the rights and licenses granted to Brooklyn LLC by Novellus Ltd. under the License Agreement shall survive such termination of the Novellus-Factor License Agreement, and Factor Limited grants to Brooklyn LLC such rights and licenses on the same terms and conditions as granted by Novellus Ltd. to Brooklyn LLC under the License Agreement.. Following the expiration of one of the delineated milestone deadlines in the Novellus-Factor License Agreement without Novellus Ltd.’s achievement of the required regulatory filing on November 1, 2022, Novellus Ltd., Brooklyn LLC and Factor began discussions regarding an amendment to the terms of the License Agreement and the Novellus-Factor License Agreement in order for Brooklyn LLC, among other things, to directly license the Novellus-Factor Licensed Technology from Factor and consolidate and amend the milestone, payment and other terms with respect thereto accordingly. There can be no assurance that such an amendment will be made on the forgoing terms, if at all.

 

NoveCite


In October 2020, Novellus Ltd. (as sublicensor) and NoveCite (as sublicensee) entered into an exclusive license agreement (the “Sublicense”) to license novel cellular therapy for acute respiratory distress syndrome, which NoveCite is licensing from Factor Limited. Under the sublicense agreement, NoveCite is required to use commercially reasonably efforts to achieve certain delineated milestones, including specified clinical development and regulatory milestones and specified commercialization milestones. In general, upon its achievement of these milestones, NoveCite will be obligated, in the case of development and regulatory milestones, to make milestone payments to the Novellus Ltd. in specified amounts and, in the case of commercialization milestones, specified royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers.


Under the terms of the Sublicense, in the event that Novellus Ltd. receives any revenue involving the original cell line included in the licensed technology, then Novellus Ltd. shall remit to NoveCite 50% of such revenue.


Royalty Agreements

 

Collaborator Royalty Agreement

 

Effective June 22, 2018, IRX terminated its Research, Development and Option Facilitation Agreement and its Options Agreement (the “RDO and Options Agreements”) with a collaborative partner (the “Collaborator”), pursuant to a termination agreement (the “Termination Agreement”). The Termination Agreement was assigned to Brooklyn LLC in November 2018 when Brooklyn LLC acquired the assets of IRX. In connection with the Termination Agreement, all of the rights granted to the Collaborator under the RDO and Options Agreements were terminated, and Brooklyn LLC has no obligation to refund any payments received from the Collaborator. As consideration for entering into the Termination Agreement, the Collaborator will receive a royalty equal to 6% of revenues from the sale of IRX-2, for the period of time beginning with the first sale of IRX-2 through the later of (i) the twelfth anniversary of the first sale of IRX-2 or (ii) the expiration of the last IRX patent, or other exclusivity of IRX-2.


Royalty Agreement with certain former IRX Therapeutics Investors



On May 1, 2012, IRX Therapeutics entered into a royalty agreement (the “IRX Investor Royalty Agreement”) with certain investors who participated in a financing transaction. The IRX Investor Royalty Agreement was assigned to Brooklyn LLC in November 2018 when Brooklyn LLC acquired the assets of IRX. Pursuant to the IRX Investor Royalty Agreement, when Brooklyn LLC becomes obligated to pay royalties to USF under the agreement described above under “Licensing Agreements-USF,” it will pay an additional royalty of 1% of gross sales to an entity organized by the investors who participated in such financing transaction. There are no termination provisions in the IRX Investor Royalty Agreement. Brooklyn LLC has not recognized any revenues to date, and no royalties are due pursuant to any of the above-mentioned royalty agreements.


Investor Royalty Agreement

 

On March 22, 2021, Brooklyn LLC restated its royalty agreement with certain beneficial holders of Brooklyn ImmunoTherapeutics Investors GP LLC and Brooklyn ImmunoTherapeutics Investors LP, whereby such beneficial holders will continue to receive, on an annual basis, royalties in an aggregate amount equal to 4% of the net revenues of IRX-2, a cytokine-based therapy being developed by Brooklyn LLC to treat patients with cancer.

22

11)
STOCK-BASED COMPENSATION
 

Stock Options

 

During the three and nine months ended September 30, 2022 and 2021, the Company granted the following stock options (in thousands):


 
  
Three months ended September 30,
    
Nine months ended September 30,
  
 
  
2022
    
2021
    
2022
    
2021
  
Stock options granted
    
188
      
12
      
287
      
180
  



The following weighted-average assumptions were used for stock options granted during the three and nine months ended September 30, 2022 and 2021:


    Three months ended September 30,  
 
  
2022
    
2021
  
Weighted average risk-free rate
    
2.64%

   
0.97%

Weighted average volatility
    
89.80%

   
143.29%

Dividend yield
    
0%
   
0%

Expected term
  
5.73 years
    
6.08 years
  


   
Nine months ended September 30,
  
   
2022
    
2021
  
Weighted average risk-free rate
    
2.54%

   
1.06%

Weighted average volatility
    
91.20%

   
134.88%

Dividend yield
    
0%

   
0%

Expected term
  
5.30 years
    
6.08 years
  



During the three and nine months ended September 30, 2022, options to purchase approximately 124,000 shares of common stock were granted to Dr. Matthew Angel, the Company’s Interim Chief Executive Officer. Dr. Angel’s stock options vest at rate of 1/24 on the grant date with the remaining options to vest in 46 substantially equal monthly installments thereafter. For the nine months ended September 30, 2022, stock options to purchase approximately 21,000 shares of common stock were granted to Dr. Howard J. Federoff, who served as the Company’s Chief Executive Officer and President until May 26, 2022 (the “March 2022 Stock Option Grant”). The March 2022 Stock Option Grant vests in 36 substantially equal monthly installments from the grant date and had an exercise price equal to the closing price of the Company’s common stock on the grant date.



During the nine months ended September 30, 2021, options to purchase approximately 161,000 shares of common stock were granted to Dr. Federoff upon his appointment as Chief Executive Officer and President in April 2021. Approximately 131,000 stock options were under a time-based grant (the “Time-Based Grant”) and approximately 30,000 stock options were under a performance-based grant (the “Milestone Grant”). The Time-Based Grant vests over four years, with 25% vesting on the one-year anniversary of the grant date and the remaining options vesting in 36 substantially equal monthly installments thereafter. The Milestone Grant vests upon the first concurrence by the U.S. Food and Drug Administration that a proposed investigation may proceed following review of a Company filed investigational new drug application in connection with that the License Agreement. Both the Time-Based Grant and the Milestone Grant had an exercise price equal to the closing price of the Company’s common stock on the grant date.

23

Vesting of all stock options grants is subject to continuous service with the Company through such vesting dates.



As discussed above, pursuant to the Separation Agreement with Dr. Federoff, the Company accelerated the vesting of approximately 7,000 stock options under the March 2022 Stock Option Grant and approximately 33,000 stock options under the Time-Based Grant. The Company also waived the performance condition under the Milestone Grant and accelerated the vesting of approximately 21,000 stock options under the Milestone Grant. Lastly, the Company extended the post-termination exercise period from 90 days to 36 months immediately following the Separation Date for all options that were vested after such accelerations.



The above modifications to Dr. Federoff’s stock options grants resulted in modification accounting under ASC 718, Compensation – Stock Compensation. As a result, the Company immediately recognized approximately $0.1 million for the incremental fair value of stock options that were vested prior to the modification by calculating the difference between the fair value of the modified award and the fair value of the original award immediately before it was modified. For stock options that were not vested prior to the modification but then vested as a result of the acceleration, the Company reversed any stock compensation expense previously recognized, remeasured the fair value of the modified award and immediately recognized approximately $0.1 million of stock compensation expense in full since there was no future service period required to be provided.



During the three and nine months ended September 30, 2021, there were 65 options exercised for total cash proceeds of $10,202. The options exercised had a total intrinsic value of $57,212. There were no options exercised during the three and nine months ended September 30, 2022.

 

As of September 30, 2022, there were approximately 362,000 stock options outstanding.

 

Restricted Stock Units

 

During the three and nine months ended September 30, 2022 and 2021, the Company granted the following restricted stock units (“RSUs”) (in thousands):


 
  
Three months ended September 30,
    
Nine months ended September 30,
  
 
  
2022
    
2021
    
2022
    
2021
  
RSUs Granted
    
-
      
6
      
55
      
11
  



The Company recognizes the fair value of RSUs granted as expense on a straight-line basis over the requisite service period. For performance based RSUs, the Company begins recognizing the expense once the achievement of the related performance goal is determined to be probable.

 

Outstanding RSUs are settled in an equal number of shares of common stock on the vesting date of the award. An RSU award is settled only to the extent vested. Vesting generally requires the continued employment or service by the award recipient through the respective vesting date. Because RSUs are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date, which is the grant date.



In lieu of paying cash to satisfy withholding taxes due upon the settlement of vested RSUs, at the Company’s discretion, an employee may elect to have shares of common stock withheld that would otherwise be issued at settlement, the value of which is equal to the amount of withholding taxes payable. The following table shows the number of RSUs that vested and were settled during the three and nine months ended September 30, 2022, as well as the number of shares of common stock withheld to cover the withholding taxes and the net shares issued upon settlement (in thousands):


24
 
  
Three months ended
    
Nine months ended
  
 
  
September 30, 2022
    
September 30, 2022
  
RSUs vested
    
1
   
3
  
Common stock withheld to cover taxes
    
-
   
(1
)
Common stock issued
    
1
      
2
  



The 55,000 RSUs granted during the nine months ended September 30, 2022 are performance-based RSUs (the “2022 PSUs”), of which approximately 21,000 were awarded to Dr. Federoff. The 2022 PSUs are subject to the achievement of four performance goals, which are weighted equally. Once a performance goal is achieved, the tranche of shares allocated to that performance goal will be earned and will begin to vest over a three-year annual basis beginning on the date the performance goal was achieved. If a performance goal is not achieved, the tranche of shares allocated to that performance goal will be unearned and forfeited. As of September 30, 2022, two of the performance goals were not achieved by the due date, and as a result, approximately 28,000 2022 PSUs were cancelled and any previously recognized stock compensation expense was reversed.

 

Pursuant to Dr. Federoff’s Separation Agreement, Dr. Federoff’s 21,000 2022 PSUs were canceled in full (a portion of which included the PSUs allocated to the performance goal that was not achieved timely), and a lump sum cash severance benefit in the amount of $0.1 million was paid to Dr. Federoff, which represents the value Dr. Federoff would have received if he were entitled to receive a settlement of a pro rata portion of his 2022 PSUs through the expiration of the Separation Period, assuming the performance metrics were waived and assuming a per share value of $16.20. Any stock compensation expense previously recognized on Dr. Federoff’s 2022 PSUs was reversed and approximately $0.1 million was recognized as compensation expense.

 

As of September 30, 2022, there were approximately 15,000 RSUs outstanding.


Restricted Stock

 

Pursuant to the Merger, Brooklyn LLC’s approximately 3,000 outstanding restricted common units were exchanged for approximately 32,000 shares of Eterna’s restricted common stock. There were no changes to any conditions and requirements of the restricted common stock. The shares vested quarterly beginning on March 31, 2021 and were to continue through December 31, 2022, contingent on continued service. Due to the modification of the restricted common units, the fair value of the restricted common stock immediately after the Merger was compared to the fair value of the restricted common units immediately prior to the Merger, and the change in fair value of $0.3 million was recognized in the statement of operations during the nine months ended September 30, 2021. The Company recognizes the fair value of restricted common stock as an expense on a straight-line basis over the requisite service period.  During the nine months ended September 30, 2022, approximately 4,000 shares of unvested restricted common stock were forfeited due to the holders of such shares no longer providing services to the Company.  As of September 30, 2022, there were no shares of unvested restricted stock outstanding.



Stock-Based Compensation Expense

 

For the three and nine months ended September 30, 2022 and 2021, the Company recognized stock-based compensation expense as follows, which includes the expense related to Dr. Federoff’s modified awards discussed above (in thousands):


 
  
Three months ended September 30,
    
Nine months ended September 30,
  
 
  
2022
    
2021
    
2022
    
2021
  
Research and development
  
$
183
    
$
448
    
$
1,075
    
$
1,018
  
General and administrative
    
293
      
1,281
      
1,463
      
2,284
  
Total
  
$
476
    
$
1,729
    
$
2,538
    
$
3,302
  
 
25
12)
STOCKHOLDERS’ EQUITY



Private Placement of Equity


On March 6, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an investor (the “PIPE Investor”) providing for the private placement (the “PIPE Transaction”) to the PIPE Investor of approximately 343,000 units (collectively, the “Units”), each Unit consisting of (i) one share of the Company’s common stock (or, in lieu thereof, one Pre-Funded Warrant to purchase one share of common stock) and (ii) one warrant (the “Common Warrants”) to purchase one share of common stock, for an aggregate gross purchase price of approximately $12.0 million (the “Subscription Amount”). The PIPE Transaction closed on March 9, 2022. Pursuant to the Purchase Agreement, the Company is prohibited from issuing equity in variable rate transactions for a period of one-year following consummation of the PIPE Transaction, including issuing equity under the Second Purchase Agreement.

 

Each Pre-Funded Warrant had an exercise price of $0.10 per share of common stock, was immediately exercisable, could be exercised at any time, had no expiration date and was subject to customary adjustments. The Pre-Funded Warrants could not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 9.99% immediately after exercise thereof. Upon the closing of the PIPE Transaction, the Company issued 275,000 shares of common stock and issued Pre-Funded Warrants representing approximately 68,000 shares of common stock. On July 12, 2022, the PIPE Investor exercised its 68,000 Pre-Funded Warrants at an exercise price of $0.10 per share for an aggregate exercise price of $6,786, in cash. The Company issued 68,000 shares of common stock to the PIPE Investor on July 14, 2022 upon receipt of the cash proceeds. Subsequent to the exercise, no Pre-Funded Warrants remained outstanding.

   

Each Common Warrant has an exercise price of $38.20 per share, becomes exercisable six months following the closing of the PIPE Transaction, expires five-and-one-half years from the date of issuance and is subject to customary adjustments. The Common Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99% immediately after exercise thereof, subject to increase to 9.99% at the option of the holder.
 

As of September 30, 2022, the Company had 343,000 Common Warrants outstanding with a weighted average exercise price of $38.20 per share and a weighted average contractual life of 4.95 years.

 

The Common Warrants and Pre-Funded Warrants were accounted for as liabilities under ASC 815-40, as these warrants provide for a cashless settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40. These warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the statement of operations. Upon exercise of the Common Warrants and Pre-Funded Warrants, the fair value on the exercise date is reclassified from warrant liabilities to equity.

 

The fair values of the Common Warrants and the Pre-Funded Warrants at the issuance date totaled $12.6 million in the aggregate, which was $0.6 million more than the Subscription Amount. The excess $0.6 million represents an inducement to the PIPE Investor to enter into the PIPE Transaction and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations. Given the Company’s capital requirements and market conditions, the Company consummated this financing on market terms available at the time of the transaction.


The Company incurred fees of approximately $1.0 million through September 30, 2022 related to the PIPE Transaction, which were allocated to the fair value of the Common Warrants and the Pre-Funded Warrants and recorded in other expense, net on the accompanying condensed consolidated statement of operations.


In connection with the PIPE Transaction, the Company and the PIPE Investor also entered into a registration rights agreement, dated March 6, 2022, pursuant to which the Company agreed to prepare and file a registration statement with the SEC no later than 15 days following the filing date of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) to register the resale of the shares of common stock included in the Units and the shares of common stock issuable upon exercise of the Pre-Funded Warrants and the Common Warrants. The Company agreed to use its best efforts to have such registration statement declared effective as promptly as possible after the filing thereof, subject to certain specified penalties if timely effectiveness is not achieved. The Company filed the 2021 Annual Report on April 15, 2022 and the registration statement on April 29, 2022. The resale registration statement became effective on May 11, 2022.

26

Pursuant to the registration rights agreement, the Company is obligated to pay the PIPE Investor liquidated damages equal to 2% of the Subscription Amount per month, with a maximum aggregate payment of 12% of the Subscription Amount, in the event the PIPE Investor is not permitted to use the registration statement to resell the securities registered for resale thereunder for more than 10 consecutive calendar days or more than an aggregate of fifteen calendar days (which need not be consecutive calendar days) during any 12-month period.


On May 24, 2022, the Company provided the PIPE Investor with notice that it was not able to resell the securities registered for resale under the registration agreement because the Company had not timely filed its Quarterly Report on Form 10-Q (the “Q1 2022 10-Q”) with the SEC, and that the PIPE Investor could not use the registration statement to resell the related securities until the Company filed the Q1 2022 10-Q.  Because the PIPE Investor was unable to use the registration statement for at least 10 consecutive calendar days, the Company accrued $0.2 million during the first quarter of 2022 for the contingent loss the Company incurred as liquidated damages as a result of the late Q1 2022 10Q filing, which is recorded in other expense, net for the nine months ended September 30, 2022 in the accompanying condensed consolidated statements of operations.  The Company paid such $0.2 million liquidated damages payment in June 2022.



On June 30, 2022, the Company filed its Q1 2022 10-Q along with the 10-K/A, and on July 1, 2022, the Company provided its notice to the PIPE Investor that it may resume use of the resale registration statement.

 

Merger



Under the terms of the Merger Agreement (see Note 3), on March 25, 2021, Eterna issued shares of common stock to the equity holders of Brooklyn LLC. The 87,000 Class A units of Brooklyn LLC were converted into approximately 1,114,000 shares of common stock; the 15,000,000 Class B units were converted into approximately 126,000 shares of common stock; the 10,000,000 Class C units were converted into approximately 84,000 shares of common stock; approximately 630,000 shares of common units were converted into approximately 31,000 shares of common stock, and 10,500,000 rights options were converted into approximately 591,000 shares of common stock. Eterna also issued approximately 53,000 shares of common stock to its financial advisor pursuant to the Merger Agreement.

13)
EARNINGS PER SHARE


Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period including the weighted average effect of the Pre-Funded Warrants the Company issued in connection with the PIPE Transaction, the exercise of which requires little or no consideration for the delivery of shares of common stock. The Company determined that the exercise of the Pre-Funded Warrants requires nominal consideration for the delivery of shares of common stock, and as such, has considered the 68,000 shares underlying the Pre-Funded Warrants to be outstanding effective on March 9, 2022 for the purposes of calculating basic EPS. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding (including the weighted average effect of the Pre-Funded Warrants) plus dilutive securities. Stock options, RSUs, warrants and other convertible securities are considered potential common shares and are included in the calculation of diluted net loss per share using the treasury method when their effect is dilutive. Diluted net loss per share is the same as basic net loss per share in periods where the effect of potentially dilutive shares of common stock are antidilutive. The following table presents the amount of stock options, RSUs, warrants and convertible preferred stock that were excluded from the computation of diluted net loss per common share for the three and nine months ended September 30, 2022 and 2021, as their effect was anti-dilutive:

27
   
Three and Nine months ended September 30,
  
   
2022
    
2021
  
Stock options
    
362
      
180
  
RSUs
    
15
      
11
  
Warrants
    
343
      
-
  
Preferred stock converted into common stock
    
2
      
2
  
Total potential common shares excluded from computation
    
722
      
193
  

14)
RECENT ACCOUNTING PRONOUNCEMENTS
 

In September 2022, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”). ASU 2022-04 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 roll-forward information. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the requirement to disclose roll-forward information, which is effective for fiscal years beginning after December 15, 2023. The Company does not expect a material impact on its financial statements as a result of adopting this amendment.



In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity related securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption permitted. The Company is evaluating when to adopt the amendments in ASU 2022-02. The Company does not expect a material impact as a result of adopting this amendment.

15)
SUBSEQUENT EVENTS
 

Facility Sublease

On October 18, 2022, the Company entered into the Sublease with E.R. Squibb & Sons, L.L.C., a Delaware limited liability company and subsidiary of Bristol-Myers Squibb Company (“Sublessor”), for office, laboratory and research and development space (the “Premises”). The Premises consists of approximately 45,500 square feet on the ninth floor of the building currently under construction located at 250 Water Street, Somerville, Massachusetts 02141.

The Sublease rent commences on the date that is the earlier of (i) the date that the Company commences business operations from the Premises and (ii) the date that is the one-year anniversary of the later to occur of (A) October 18, 2022 and (B) the date that Sublessor obtains the primary landlord’s consent for the Sublease (such applicable date, the “Rent Commencement Date”). The Sublease has a term of 10 years from the Rent Commencement Date (the “Term”), subject to a five-year extension in accordance with the terms of the Sublease.

Pursuant to the Sublease, within two business days following receipt of the primary landlord’s consent to the Sublease, the Company will pay Sublessor a security deposit in the form of a letter of credit in the amount of approximately $4.1 million. Provided there are no events of default by the Company under the Sublease, the letter of credit will be reduced on an incremental basis throughout the Term. Pursuant to the Sublease, the Company has agreed to pay base rent of approximately $0.5 million per month during the first year of the Term, increasing on an incremental basis each subsequent year of the Term, as well as traditional lease expenses including, certain taxes, operating expenses and utilities.
28

Exacis Option Agreement (Related Party Transaction)

On October 8, 2022, the Company entered into an option agreement (the “Option Agreement”) with Exacis Biotherapeutics, Inc., a Delaware corporation (“Exacis”), pursuant to which Exacis granted the Company the option to negotiate and enter into an exclusive worldwide license to certain of the technology licensed by Exacis for the treatment of cancer in humans (the “Option”). The Option Agreement provides that the Company will pay Exacis a fee of $0.3 million for the Option, which would be creditable against the fees or purchase price payable under any such license if entered into by the Company in accordance with Option Agreement. The Option Agreement provides for certain payments upon the execution of a definitive license agreement, which would become payable only upon execution, and in accordance with the terms, of the applicable license agreement, if any.

The Option Agreement has been deemed a related party transaction, as one of the Company’s Board members, Dr. Gregory Fiore, is the Chief Executive Officer of Exacis. Additionally, the Company’s Interim Chief Executive Office, Dr. Matthew Angel, is Chairman of Exacis’ scientific advisory board. Dr. Angel is also the Chairman and Chief Executive Officer of Factor, which is the majority shareholder of Exacis.


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read this discussion together with the unaudited interim condensed consolidated financial statements, related notes, and other financial information included elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on June 30, 2022 (the “10-K/A”), as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Original 10-K”), filed with the SEC on April 15, 2022, to the extent the information contained in the Original 10-K was not superseded by the information contained in the 10-K/A. The following discussion contains or is based on assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the 10-K/A and as described from time to time in our other filings with the SEC. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Overview

We are a biopharmaceutical company using our mRNA technology platform, including mRNA-based cell reprogramming and gene editing technologies, to create next generation mRNA, gene-editing and cell therapies, including iPSC therapies for multiple therapeutic indications.  We plan to develop and advance a pipeline of therapeutic products both internally and through strategic partnerships.  Our mRNA technology platform, which includes novel lipid nanoparticles (“LNPs”) for mRNA delivery and targeted transgene insertion, was acquired through a license with Factor Bioscience Limited (“Factor Limited”) and through our acquisition of Novellus, Inc. and Novellus, Ltd. in July 2021, which we refer to as the Novellus Acquisition.

Name Change and Ticker Symbol Change

Effective October 17, 2022, we changed our name from Brooklyn ImmunoTherapeutics, Inc. to Eterna Therapeutics Inc. pursuant to an amendment to our Certificate of Incorporation, as amended  (the “Name Change”). The Name Change did not require approval of our stockholders and did not affect the rights of our security holders. In connection with the Name Change, the trading symbol of our common stock on The Nasdaq Global Market changed from “BTX” to “ERNA.”

Merger with NTN Buzztime, Inc.

On March 25, 2021, we completed the Merger with NTN Buzztime, Inc., changed our name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.” and consummated a one-for-two reverse split of our common stock.

On March 26, 2021, we sold the rights, title and interest in and to the assets relating to the business operated under the name “NTN Buzztime, Inc.” prior to the Merger to eGames.com Holdings LLC, or eGames.com, in exchange for eGames.com’s payment of a purchase price of $2.0 million and assumption of specified liabilities relating to such pre-Merger business. This transaction, which we refer to as the Disposition, was completed in accordance with the terms of an asset purchase agreement dated September 18, 2020, as amended, between us and eGames.com.

The Merger has been accounted for as a reverse acquisition in accordance with U.S. generally accepted accounting principles, or GAAP. Under this method of accounting, Brooklyn LLC was deemed the “acquiring” company and Eterna (then known as NTN Buzztime, Inc.) was treated as the “acquired” company for financial reporting purposes. Operations prior to the Merger are those of Brooklyn ImmunoTherapeutics, LLC (“Brooklyn LLC”), and the historical financial statements of Brooklyn LLC became the historical financial statements of Eterna with respect to periods prior to the completion of the Merger.

29
Acquisition of Novellus

On July 16, 2021, we acquired Novellus, Inc. and Novellus, Inc.’s wholly owned subsidiary, Novellus, Ltd. Eterna also acquired 25.0% of the total outstanding equity interests of NoveCite, Inc.  As consideration for the Novellus Acquisition, we paid $22.9 million in cash and delivered 351,000 shares of common stock, which under the terms of the Novellus Acquisition Agreement, were valued at a total of $102.0 million based on an agreed upon price of $290.5060 per share.  At the date of issuance, the fair value of the shares was approximately $58.7 million.

mRNA, Gene-Editing, and Cellular Medicines

We are advancing the technology that we obtained through a license with Factor Limited and through the Novellus Acquisition in July 2021 to evaluate and develop mRNA, gene-editing, and cellular medicines, with an initial focus on hematologic and solid tumors. We expect that the first-generation product candidates will include gene-editing mRNA for in vivo cell engineering and induced pluripotent stem cell (“iPSC”)-derived cytotoxic lymphocytes (“iCLs”) and immune-modulating cells (“iIMCs”). We expect to begin preclinical development, including manufacturing process development, of iCLs and iIMCs for clinical indications including hematologic and solid tumors, as well as other indications that require overcoming molecular cues of the tissue microenvironment. The prior work of Novellus, Inc. and NoveCite shows evidence for preclinical efficacy of iPSC-derived cells in inflammatory conditions (for example, acute respiratory distress syndrome, or ARDS). Interactions with the FDA provided guidance on Chemistry, Manufacturing and Controls (“CMC”), and manufacturing plans, which will be undertaken in a similar manner for additional applications. We expect that second generation products will involve more complex gene editing, for which we anticipate using the stepwise addition of genes provided by the in-licensed Factor Limited gene editing machinery, NoveSlice, to efficiently place genes and regulatory sequences into safe harbor locations. Development of processes to advance CMC and manufacturing will follow the experience from first generation products. We are also exploring opportunities to advance in vivo mRNA cell engineering therapies for hematologic and solid tumors by combining the NoveSlice gene editing technology with ToRNAdoTM, the in-licensed LNP technology.

In conjunction with our internal efforts, we are actively seeking strategic partners to license and advance our technology.

IRX-2

IRX-2 is a mixed, human-derived cytokine product with multiple active constituents including Interleukin-2, or IL2, and other key cytokines. Together, these cytokines are believed to signal, enhance and restore immune function suppressed by the tumor, thus enabling the immune system to attack cancer cells, unlike many existing cancer therapies, which rely on targeting the cancer directly. IRX-2 is prepared from the supernatant of pooled allogeneic peripheral blood mononuclear cells, known as PBMCs, that have been stimulated using a proprietary process employing a specific population of cells and a specific mitogen.

Unlike existing recombinant IL2 therapies, IRX-2 is derived from human blood cells. We believe this may promote better tolerance, broader targeting and a natural molecular conformation leading to greater activity, and may permit low physiologic dosing, rather than the high doses needed in other existing IL2 therapies.

Results of the Phase 2b INSPIRE trial, or the INSPIRE trial, released in June 2022, showed outcomes favored IRX-2 in certain predefined subgroups but the INSPIRE trial did not meet the primary endpoint of Event-Free Survival (“EFS”) at two years of follow up. One hundred and fifty patients were enrolled in the study. At two years of follow-up in the intention-to-treat (ITT, n=105) population the median EFS was 48.3 months and was not reached in the control arm (Hazard Ratio 1.10 (95% Confidence Interval, 0.6-2.1; p value=0.62)). Subgroups favoring the IRX-2 arm included patients with later stage (III and IV) disease and those that did not receive chemotherapy. Trends in EFS rates as defined by the Kaplan-Meier estimate at two years of follow-up in patients with later stage (III and IV) disease were 57.2 (40.3, 70.9) vs 49.4 (28.3, 67.4) in favor of IRX-2. In patients that did not receive chemotherapy (radiation only) as part of adjuvant treatment, the EFS Kaplan-Meier estimate at two years of follow-up was 76.4 (52.2, 89.4) vs 60.6 (29.4, 81.4) in favor of IRX-2. There were no new safety signals observed with IRX-2. We currently do not have plans to further develop the IRX-2 product candidate.

The INSPIRE trial was the only Company-sponsored study of IRX-2.  IRX-2 has been studied externally in other clinical settings outside of head and neck cancer in the form of investigator sponsored trials, which have either ended or are not currently active. Based on the totality of available information, the Company currently does not have plans to further develop the IRX-2 product candidate. As such, the Company determined that the carrying value of the IPR&D asset was impaired and recognized a non-cash impairment charge of approximately $6.0 million on the condensed consolidated statement of operations during the second quarter of 2022, which reduced the value of the asset to zero.

30
Impact of COVID-19 Pandemic

The development of our product candidates has been, and could continue to be, disrupted and materially adversely affected by past and continuing impacts of the COVID-19 pandemic. This is largely a result of measures imposed by the governments and hospitals in affected regions, businesses and schools were suspended due to quarantines intended to contain this outbreak. The spread of COVID-19 from China to other countries resulted in the Director General of the World Health Organization declaring COVID-19 a pandemic in March 2020. Despite progress in vaccination efforts, the longer-term impact of the COVID-19 pandemic on our development plans and on the ability to conduct our clinical trials remains uncertain and cannot be predicted with confidence. COVID-19 could continue to disrupt production and cause delays in the supply and delivery of products used in our operations, may affect our operations, including the conduct of clinical studies, or the ability of regulatory bodies to grant approvals or supervise our candidates and products, may further divert the attention and efforts of the medical community to coping with the COVID-19 and disrupt the marketplace in which we operate and may have a material adverse effects on our operations. COVID-19 may also affect our employees and employees and operations at suppliers that may result in delays or disruptions in supply. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. Additionally, if the COVID-19 pandemic has a significant impact on our business and financial results for an extended period of time, our liquidity and cash resources could be negatively impacted. The extent to which the COVID-19 pandemic and ongoing global efforts to contain its spread will impact our operations will depend on future developments, which are highly uncertain, and include the duration, severity and scope of the pandemic and the actions taken to contain or treat the COVID-19 pandemic. Further, the specific clinical outcomes, or future pandemic related impacts of emerging COVID-19 variants cannot be reliably predicted.

 Recent Developments

Reverse Stock Split

Effective at 11:59 p.m. Eastern time on October 16, 2022, we effected a reverse stock split at a ratio of 1-for-20 (the “Reverse Stock Split”). Upon the effectiveness of the Reverse Stock Split, every twenty shares of the issued and outstanding common stock were automatically combined and reclassified into one issued and outstanding share of common stock. The Reverse Stock Split did not affect any stockholder’s ownership percentage of the common stock, alter the par value of the common stock or modify any voting rights or other terms of the common stock. The number of authorized shares of common stock under our Charter remains unchanged. No fractional shares were issued in connection with the Reverse Stock Split. In lieu of any fractional shares to which a stockholder would otherwise be entitled, we paid an amount of cash equal to the product of (i) the fractional share to which the holder would otherwise be entitled and (ii) the then fair value of a share as determined in good faith by the Board.  We paid an aggregate of $719 for a total of 175 fractional shares.

All share and per share data in this Quarterly Report on Form 10-Q have been adjusted for all periods presented to reflect the Reverse Stock Split.

Facility Sublease

On October 18, 2022, we entered into a sublease agreement (the “Sublease”) with E.R. Squibb & Sons, L.L.C., a Delaware limited liability company and subsidiary of Bristol-Myers Squibb Company (“Sublessor”), for office, laboratory and research and development space (the “Premises”). The Premises consists of approximately 45,500 square feet on the ninth floor of the building currently under construction located at 250 Water Street, Somerville, Massachusetts 02141.
 
31
The Sublease rent commences on the date that is the earlier of (i) the date that the Company commences business operations from the Premises and (ii) the date that is the one-year anniversary of the later to occur of (A) October 18, 2022 and (B) the date that Sublessor obtains the primary landlord’s consent for the Sublease (such applicable date, the “Rent Commencement Date”). The Sublease has a term of 10 years from the Rent Commencement Date (the “Term”), subject to a five-year extension in accordance with the terms of the Sublease.
 
Pursuant to the Sublease, we were required to deliver to the Sublessor a security deposit in the form of a letter of credit in the amount of $4.1 million. Provided there are no events of default by us under the Sublease, the letter of credit will be reduced on an incremental basis throughout the Term. The letter of credit was issued by our commercial bank, which required that we cash collateralize the letter of credit by depositing $4.1 million of restricted cash in a separate account maintained by such bank.  The amount of restricted cash that we are required to maintain in such account will decline during the Term in parallel with the reduction of the amount of the letter of credit.  This restricted cash requirement reduced the amount of working capital we have to fund our operations.
 
Pursuant to the Sublease, we have agreed to pay base rent of $0.4 million per month during the first year of the Term, increasing on an incremental basis each subsequent year of the Term, as well as traditional lease expenses including, certain taxes, operating expenses and utilities.
 
Certain Related Party Transactions

On September 9, 2022, we entered into a Master Services Agreement (the “MSA”) with Factor Bioscience Inc. (“Factor”), pursuant to which Factor has agreed to provide services to us as agreed between us and Factor and set forth in one or more work orders under the MSA, including the first work order included in the MSA. Factor has agreed to provide us with mRNA cell engineering research support services, including access to certain facilities, equipment, materials and training, and we have agreed to pay Factor an initial fee of $5.0 million, payable in twelve equal monthly installments of approximately $0.4 million. Following the initial 12-month period, we have agreed to pay Factor a monthly fee of $0.4 million until such time as the first work order under the MSA is terminated.

We may terminate the first work under the MSA on or after the second anniversary of the date of the MSA, subject to providing Factor with 120 days’ prior notice.  Factor may terminate such work order only on and after the fourth anniversary of the date of the MSA, subject to providing us with 120 days’ prior notice.   In connection with entering into the MSA, on September 9, 2022, Factor’s subsidiary, Factor Limited, entered into a waiver agreement with Brooklyn LLC, pursuant to which Factor Limited agreed to waive payment of $3.5 million otherwise payable to it in October 2022 by Brooklyn LLC under its license agreement with Factor Limited.

As a result of entering into the Waiver Agreement and the MSA during third quarter of 2022, we recognized $3.5 million in research and development expense and a corresponding liability for the committed obligation in the License Agreement that is being paid through the MSA.

On September 6, 2022, we entered into an assignment and assumption of contracts agreement (the “Assignment and Assumption Agreement”) with Factor, pursuant to which we assumed certain contracts with third parties that Factor had previously entered into in anticipation of entering into a sublease for premises in Somerville, Massachusetts.  In October 2022, we entered into the sublease for the premises.  See Note 15 to our unaudited interim financial statements included in this Quarterly Report on Form 10-Q for more information on this subsequent event.  Under the Assignment and Assumption Agreement, we agreed to reimburse Factor for costs already incurred and paid by Factor under the assumed contracts in the amount of approximately $0.1 million, and we assumed the future obligations under these contracts, which relate to the design and build-out of the subleased space.

The foregoing have been deemed related party transactions, as our Interim Chief Executive Officer, Dr. Matthew Angel, is also the Chairman and Chief Executive Officer of Factor and the Director of Factor Limited.  For more information please see Note 8 and Note 15 to our unaudited interim financial statements included in this Quarterly Report on Form 10-Q.

32
Exacis Option Agreement

On October 8, 2022, we entered into an option agreement (the “Option Agreement”) with Exacis Biotherapeutics, Inc., a Delaware corporation (“Exacis”), pursuant to which Exacis granted us the option to negotiate and enter into an exclusive worldwide license to certain of the technology licensed by Exacis for the treatment of cancer in humans (the “Option”). The Option Agreement provides that we will pay Exacis a fee of $0.3 million for the Option, which would be creditable against the fees or purchase price payable under any such license if entered into by us in accordance with Option Agreement. The Option Agreement provides for certain payments upon the execution of a definitive license agreement, which would become payable only upon execution, and in accordance with the terms, of the applicable license agreement, if any.
 
The Option Agreement has been deemed a related party transaction, as one of our Board members, Dr. Gregory Fiore, is the Chief Executive Officer of Exacis.  Additionally, our Interim Chief Executive Office, Dr. Matthew Angel, is Chairman of Exacis’ scientific advisory board. Dr. Angel is also the Chairman and Chief Executive Officer of Factor, which is the majority shareholder of Exacis. For more information please see Note 15 to our unaudited interim financial statements included in this Quarterly Report on Form 10-Q.

PIPE Transaction

On March 6, 2022, we entered into a Securities Purchase Agreement with an investor (the “PIPE Investor”) providing for the private placement (the “PIPE Transaction”) to the PIPE Investor of approximately 343,000 units (the “Units”), each of  which consisted of (i) one share of our common stock (or, in lieu thereof, one pre-funded warrant (the “Pre-Funded Warrants”) to purchase one share of common stock) and (ii) one warrant (the “Common Warrants”) to purchase one share of common stock, for an aggregate purchase price of approximately $12.0 million (the “Subscription Amount”). The PIPE Transaction closed on March 9, 2022. We incurred fees of $1.0 million through September 30, 2022 related to the PIPE Transaction.

Each Pre-Funded Warrant has an exercise price of $0.10 per share of common stock, was immediately exercisable and may be exercised at any time and has no expiration date and is subject to customary adjustments. The Pre-Funded Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 9.99% immediately after exercise thereof.

On July 12, 2022, the PIPE Investor exercised its 68,000 Pre-Funded Warrants at an exercise price of $0.10 per share for an aggregate exercise price of $6,786, in cash.  We issued 68,000 shares of common stock to the PIPE Investor on July 14, 2022 upon receipt of the cash proceeds.  Following the exercise, no Pre-Funded Warrants remained outstanding.

Each Common Warrant has an exercise price of $38.20 per share, becomes exercisable six months following the closing of the PIPE Transaction, expires five-and-one-half years from the date of issuance, and is subject to customary adjustments. The Common Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99% immediately after exercise thereof, subject to increase to 9.99% at the option of the holder.

The Common Warrants and Pre-Funded Warrants were accounted for as liabilities under ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity, as these warrants provide for a cashless settlement provision that fails the requirement of the indexation guidance under ASC 815-40.  The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the statement of operations. Upon exercise of the Common Warrants and Pre-Funded Warrants, the fair value on the exercise date is reclassified from warrant liabilities to equity.

The fair values of the Common Warrants and the Pre-Funded Warrants at the issuance date totaled $12.6 million in the aggregate, which was $0.6 million more than the Subscription Amount.  The excess $0.6 million represents an inducement to the PIPE Investor to enter into the PIPE Transaction and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations.

In connection with the PIPE Transaction, we and the PIPE Investor also entered into a registration rights agreement, dated March 6, 2022, pursuant to which we agreed to prepare and file a registration statement with the SEC to register the resale of the shares of common stock included in the Units and the shares of common stock issuable upon exercise of the Pre-Funded Warrants and the Common Warrants. We agreed to use our best efforts to have such registration statement declared effective as promptly as possible after the filing thereof, subject to certain specified penalties if timely effectiveness is not achieved.  We filed such registration statement on April 29, 2022, which became effective on May 11, 2022.

33
Pursuant to the registration rights agreement, we are obligated to pay the PIPE Investor liquidated damages equal to 2% of the Subscription Amount per month, with a maximum aggregate payment of 12% of the Subscription Amount, in the event the PIPE Investor is not permitted to use the registration statement to resell the related securities for more than 10 consecutive calendar days or more than an aggregate of fifteen calendar days (which need not be consecutive calendar days) during any 12-month period.

On May 24, 2022, we provided the PIPE Investor with notice that it was not able to resell the securities under the registration agreement because we did not timely file our Quarterly Report on Form 10-Q (the “Q1 2022 10-Q”) with the SEC, and that the PIPE Investor could not use the registration statement to resell the related securities until we filed the Q1 2022 10-Q.  Because the PIPE Investor was unable to use the resale registration statement for at least 10 consecutive calendar days, we accrued $0.2 million during the first quarter of 2022 for the estimated contingent loss we expect to incur as a result of the late Q1 2022 10Q filing, which is recorded in other expense, net for the nine months ended September 30, 2022 in the accompanying condensed consolidated statements of operations.  We paid the $0.2 million liquidated damages payment in June 2022.

On June 30, 2022, we filed the Q1 2022 10-Q along with the 10-K/A, and on July 1, 2022, we provided notice to the PIPE Investor that it may resume use of the resale registration statement.

Basis of Presentation

Reverse Stock Split

All share and per share data in this Quarterly Report on Form 10-Q have been adjusted for all periods presented to reflect the Reverse Stock Split.

Revenues

We are a development stage company and have had no revenues from product sales to date. We will not have revenues from product sales until such time as we receive regulatory approval of our product candidates, successfully commercialize our products or enter into a licensing agreement which may include up-front licensing fees, of which there can be no assurance.

Research and Development Expenses

We expense our research and development costs as incurred. Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. Upfront payments and milestone payments for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. In-Process Research and Development (“IPR&D”) that is acquired through an asset acquisition and has no alternative future uses and, therefore, no separate economic values, is expensed to research and development costs at the time the costs are incurred.

The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, expensed licensed technology, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related to our product development efforts. We also have a Master Services Agreement with Factor under which Factor provides us with mRNA cell engineering research support services, including access to certain facilities, equipment, materials and training.

34
In the normal course of our business, we contract with third parties to perform various clinical study and trial activities in the on-going development and testing of potential products. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions. Preclinical and clinical study and trial associated activities such as production and testing of clinical material require significant up-front expenditures. We anticipate paying significant portions of a study’s or trial’s cost before such begins and incurring additional expenditures as the study or trial progresses and reaches certain milestones.

General and Administrative Expenses

Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel, legal and other professional fees, travel, insurance, other costs of being a publicly traded company and other corporate costs.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021


  
Three months ended September 30,
    
 
   
2022
    
2021
    
Change
  
(in thousands)
                  
Operating expenses:
                  
Research and development
  
$
4,963
    
$
1,491
    
$
3,472
  
In-process research and development
    
-
      
80,538
      
(80,538
)
General and administrative
    
3,341
      
4,247
      
(906
)
Total operating expenses
    
8,304
      
86,276
      
(77,972
)
Loss from operations
    
(8,304
)
    
(86,276
)
    
77,972
  
                         
Other income, net:
                        
Change in fair value of warrant liabilities
    
1,024
      
-
      
1,024
  
Loss on non-controlling investment
    
(21
)
    
-
      
(21
)
Other (expense) income, net
    
(10
)
    
290
      
(300
)
Total income, net
    
993
      
290
      
703
  
                         
Loss before income taxes
    
(7,311
)
    
(85,986
)
    
78,675
  
Provision for income taxes
    
(5
)
    
-
      
(5
)
                         
Net loss
  
$
(7,316
)
  
$
(85,986
)
  
$
78,670
  

35

  
Nine months ended September 30,
    
 
   
2022
    
2021
    
Change
  
(in thousands)
                  
Operating expenses:
                  
Research and development
  
$
8,430
    
$
8,456
    
$
(26
)
In-process research and development
    
5,990
      
80,538
      
(74,548
)
General and administrative
    
14,060
      
10,451
      
3,609
  
Transaction costs
    
-
      
5,765
      
(5,765
)
Total operating expenses
    
28,480
      
105,210
      
(76,730
)
                         
Loss from operations
    
(28,480
)
    
(105,210
)
    
76,730
  
                         
Other income (expense), net:
                        
Loss on sale of NTN assets
    
-
      
(9,648
)
    
9,648
  
Change in fair value of warrant liabilities
    
10,493
      
-
      
10,493
  
Loss on non-controlling investment
    
(932
)
    
-
      
(932
)
Other (expense) income, net
    
(1,166
)
    
265
      
(1,431
)
Total other income (expense), net
    
8,395
      
(9,383
)
    
17,778
  
                         
Loss before income taxes
    
(20,085
)
    
(114,593
)
    
94,508
  
Provision for income taxes
    
(5
)
    
-
      
(5
)
                         
Net loss
  
$
(20,090
)
  
$
(114,593
)
  
$
94,503
  

Research and Development Expenses

   
Three months ended September 30,
  
   
2022
    
2021
    
Change
  
(in thousands)
                  
MSA expense
  
$
3,699
    
$
-
    
$
3,699
  
Stock-based compensation
    
183
      
448
      
(265
)
Payroll-related
    
736
      
744
      
(8
)
Other expenses, net
    
345
      
299
      
46
  
Total research and development expenses
  
$
4,963
    
$
1,491
    
$
3,472
  

   
Nine months ended September 30,
  
   
2022
    
2021
    
Change
  
(in thousands)
                  
MSA expense
  
$
3,699
    
$
--
    
$
3,699
  
License fees
    
-
      
4,000
    
$
(4,000
)
Clinical trials
    
812
      
1,076
      
(264
)
                         
Payroll-related
    
2,337
      
1,797
      
540
  
Stock-based compensation
    
1,075
      
1,018
      
57
  
Other expenses, net
    
507
      
565
      
(58
)
Total research and development expenses
  
$
8,430
    
$
8,456
    
$
(26
)

For the three months ended September 30, 2022, our total research and development expenses increased compared to the prior year period, which was primarily the result MSA expenses recognized during the three months ended September 30, 2022. There were no comparable MSA expense in the prior year period. This increase in expense was offset by a decrease in stock-based compensation expense for the three months ended September 30, 2022, resulting from stock option and restricted stock unit forfeitures.

36
For the nine months ended September 30, 2022, our research and development expenses decreased primarily due to a $4.0 million license fee paid in 2021 to Factor Limited and Novellus, Ltd. (the “Licensors”) under the License Agreement with the Licensors, as well as due to a decrease in clinical trial and other miscellaneous expense, offset by increased expenses related to the MSA, increased payroll due to severance expense and stock compensation expense related to an increase in equity awards granted during 2022 when compared to the same period in 2021.

In January 2022, we completed a reduction in our workforce involving eight research and development employees.  As a result, we incurred approximately $0.5 million for severance and termination-related costs, which we recorded during the first quarter of 2022. In June 2022, we made the decision to consolidate our research and development in Cambridge, Massachusetts, and as a result, we accrued approximately $0.1 million for severance and termination-related costs for certain employees in the San Diego, California location.  In August 2022, we recognized approximately $0.3 million in severance expense related to the resignation of a San Diego executive.

Impairment of In-Process Research and Development

 
  
Three months ended September 30,
  
 
  
2022
    
2021
    
Change
  
(in thousands)
                  
Impairment of in-process research and development
  
$
-
    
$
80,538
    
$
(80,538
)

 
  
Nine months ended September 30,
  
 
    
2022
      
2021
    
Change
  
(in thousands)
                        
Impairment of in-process research and development
  
$
5,990
    
$
80,538
    
$
(74,548
)

As discussed above, in June 2022, we received the results from the INSPIRE phase 2 trial of IRX-2. The IRX-2 multi-cytokine biologic immunotherapy represents substantially all the fair value assigned to the technologies of IRX that we acquired in 2018. Despite outcomes that favored IRX-2 in certain predefined subgroups, the INSPIRE trial did not meet the primary endpoint of Event-Free Survival (EFS) at two years of follow up. Significant additional clinical development work will be required to advance IRX-2 in the form of additional Phase 2 and 3 studies to further evaluate the treatment effect of IRX-2 in patient subgroups and in combination with checkpoint inhibitor therapies.  The INSPIRE trial is the only company sponsored study of IRX-2.  IRX-2 has been studied externally in other clinical settings outside of head and neck cancer in the form of investigator sponsored trials, which have either ended or are not currently active. Based on the totality of available information, we currently do not have plans to further develop the IRX-2 product candidate. As such, we determined that the carrying value of the IPR&D asset was impaired and recognized a non-cash impairment charge of approximately $6.0 million for the nine months ended September 30, 2022.

During the three and nine months ended September 30, 2021, we expensed the $80.5 million fair value of IPR&D acquired in the Novellus Acquisition because there was no future alternative use for the IPR&D other than for its intended purpose.

37
General and Administrative Expenses

 
  
Three months ended September 30,
  
 
  
2022
    
2021
    
Change
  
(in thousands)
                  
Professional fees
  
$
1,353
    
$
1,708
    
$
(355
)
Stock-based compensation
    
293
      
1,280
      
(988
)
Payroll-related
    
424
      
546
      
(121
)
Insurance
    
528
      
367
      
161
  
Occupancy expense
    
189
      
177
      
12
  
Loss on disposal of assets
    
156
      
13
      
143
  
Other expenses, net
    
398
      
156
      
242
  
Total general and administrative expenses
  
$
3,341
    
$
4,247
    
$
(906
)

 
  
Nine months ended September 30,
  
 
  
2022
    
2021
    
Change
  
(in thousands)
                  
Payroll-related
  
$
2,706
    
$
720
    
$
1,986
  
Impairment of ROU asset
    
772
      
-
      
772
  
Insurance
    
1,421
      
767
      
654
  
Loss on disposal of fixed assets
    
431
      
13
      
418
  
Occupancy expense
    
541
      
478
      
63
  
Professional fees
    
4,776
      
5,748
      
(972
)
Stock-based compensation
    
1,465
      
2,284
      
(821
)
Other expenses, net
    
1,950
      
441
      
1,509
  
Total general and administrative expenses
  
$
14,060
    
$
10,451
    
$
3,609
  

Our general and administrative expenses decreased for the three months ended September 30, 2022, as compared to the same period in 2021, primarily due to a decrease in professional fees for accounting services, decreased stock-based compensation expense from the forfeitures of stock-options and restricted stock units, and decreased payroll-related expense due to a decrease in headcount, which was offset by an increase in severance expense when compared to the same period in 2021.  These decreases were further offset by increases for the three months ended September 30, 2022 in insurance premiums, the disposal of certain assets related to consolidating our research and development activities in Cambridge, Massachusetts, and other expenses due to legal-related matters, as compared to the same period in 2021.

The increase in general and administrative expense for the nine months ended September 30, 2022 was primarily related to increased headcount as well as severance expense for certain employees, including our former Chief Executive Officer, who resigned effective May 26, 2022.  We also recognized a non-cash impairment charge on our San Diego, California right-of-use (“ROU”) operating lease asset due to consolidating our research and development activities in Cambridge, Massachusetts and our intention to sublease the San Diego, California facility.  Other increases included premiums for public company insurance policies, losses on the disposal of fixed assets and other fees primarily due to legal-related matters, as compared to the same period in 2021.  These increases were offset by decreased professional fees for accounting and legal services and decreased stock-based compensation expense due to primarily to forfeitures of stock options and restricted stock units when compared to the same periods in 2021.

Transaction Costs

The $5.8 million in transaction costs incurred for the nine months ended September 30, 2021 related to the issuance of common stock to Brooklyn LLC’s financial advisor upon consummation of the Merger, and there were no comparable transaction costs for same period in 2022.

38
Loss on Sales of NTN Assets

We incurred a $9.6 million loss on the sale of NTN assets for the nine months ended September 30, 2021 in connection with the Disposition, and there were no comparable transaction costs for either the three or nine-month periods ended September 30, 2022.

Warrant Liabilities Expense

For the three months ended September 30, 2022, we recognized a credit of $1.0 million for the change in the fair value of warrant liabilities due to a decrease in the market price of our common stock during the quarter.  For the nine months ended September 30, 2022, we recognized a credit of  $11.1 million for the change in the fair value of warrant liabilities, which was offset by $0.6 million in expense related to the excess fair value of the Common Warrants and Pre-Funded Warrant issued in connection with the PIPE Transaction over the $12.0 million gross proceeds received. There were no comparable expenses for same periods in 2021.

Loss on Non-Controlling Investment

We account for our investment in NoveCite under the equity method.  During the three and nine months ended September 30, 2022, we recognized approximately $21,000 and $0.9 million of loss, respectively, on our 25% non-controlling investment in NoveCite, respectively.  Of the $0.9 million loss for the nine months ended September 30, 2022, $0.5 million relates to the prior year.  We do not have guaranteed obligation of NoveCite nor are we otherwise committed to providing further financial support for NoveCite.  Therefore, we will record losses only up to our investment carrying amount.  There were no comparable expenses for same periods in 2021.

Other Expense, Net

 
  
Three months ended September 30,
  
 
  
2022
    
2021
    
Change
  
(in thousands)
                  
Interest expense, net
  
$
(10
)
  
$
(20
)
  
$
10
  
Income from PPP loan forgiveness
    
-
      
310
      
(310
)
Total other (expense), income net
  
$
(10
)
  
$
290
    
$
(300
)

 
  
Six months ended September 30,
  
 
  
2022
    
2021
    
Change
  
(in thousands)
                  
PIPE transaction fees
  
$
(1,007
)
  
$
-
    
$
(1,007
)
Liquidated damages
    
(240
)
    
-
      
(240
)
Interest expense, net
    
(24
)
    
(56
)
    
32
  
Income from PPP loan forgiveness
    
-
      
310
      
(310
)
Other income, net
    
105
      
11
      
94
  
Total other (expense), income net
  
$
(1,166
)
  
$
265
    
$
(1,431
)

We recognized a change from other income, net of $0.3 million for the three months ended September 30, 2021 to other expense, net of $10,000 for the three months ended September 30, 2022.  This change was primarily related to income we recognized in 2021 for the forgiveness of Brooklyn LLC’s loan under the Payment Protection Program (“PPP”).  We did not have such income for the same period in 2022.

We recognized a change from other income, net of $0.3 million for the nine months ended September 30, 2021 to other expense, net of approximately $1.2 million for the nine months ended September 30, 2022.  During the nine months ended September 30, 2022, our increase in other expense, net was primarily due to fees related to the PIPE Transaction, which was allocated to the warrants issued in connection with the transaction. Additionally, we recorded a loss related to the liquidated damages we incurred under our registration rights agreement with the PIPE Investor as a result of not timely filing with the SEC our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.  During the nine months ended September 30, 2021, we recognized income from the forgiveness of our PPP loan.  We did not have such income for the same period in 2022.  These increases in expense were offset by income from the sale of certain fixed assets and a decrease in interest expense when compared to the same period in 2021.

39
Provision for Income Taxes

During 2022, we expect to incur state income tax liabilities related to our operations. We have established a full valuation allowance for all deferred tax assets, including our net operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets. The effective tax rate differs from the statutory tax rate due primarily to our full valuation allowance.

Liquidity and Capital Resources

At September 30, 2022, we had cash and cash equivalents of approximately $13.3 million.

On March 9, 2022, we issued 275,000 shares of common stock and Pre-Funded Warrants representing approximately 68,000 shares of common stock for net proceeds of approximately $11.0 million in connection with the PIPE Transaction.  The 68,000 shares Pre-Funded Warrants were exercised on July 12, 2022 at an exercise price of $0.10 per share for total proceeds of approximately $7,000.  Pursuant to the purchase agreement entered into in respect of the PIPE Transaction, we are prohibited from issuing equity in variable rate transactions for a period of one-year following consummation of the PIPE Transaction, including issuing equity under the Second Purchase Agreement.

On October 18, 2022, we entered into the Sublease for approximately 45,500 square feet of office and laboratory space in Somerville, Massachusetts.  As part of the Sublease, we delivered a security deposit in the form of a letter of credit in the amount of $4.1 million, which will be reduced on an incremental basis throughout the term of the lease.  The letter of credit was issued by our commercial bank, which required that we cash collateralize the letter of credit with $4.1 million of cash deposited in a restricted account maintained by such bank.  The amount of required restricted cash collateral will decline in parallel with the reduction in the amount of the letter of credit over the term of the sublease.  The required restricted cash reduced the amount of working capital we have to fund our operations.

We have to date incurred operating losses, and we expect these losses to continue in the future as we further develop our product development programs and operate as a publicly traded company.  Developing product candidates, conducting clinical trials and commercializing products are expensive, and we will need to raise substantial additional funds to achieve our strategic objectives. It will likely be some years before we obtain the necessary regulatory approvals to commercialize one or more of our product candidates. Based on our current financial condition and forecasts of available cash, including as mentioned above, we believe we do not have sufficient funds to fund our operations for the next twelve months from the filing of the financial statements contained in this Quarterly Report on Form 10-Q for the period ended September 30, 2022 (the “Q3 2022 10-Q”). There can be no assurance that we will ever be in a position to commercialize IRX-2 or any other product candidate we may acquire, or that we will obtain any additional financing that we require in the future or, even if such financing is available, that it will be obtainable on terms acceptable to us.

In that regard, our future funding requirements will depend on many factors, including:


 •
the terms and timing of any collaborative, licensing and other agreements that we may establish;


•
the cost and timing of regulatory approvals;


•
the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;

40

 •
the cost and timing of establishing sales, marketing and distribution capabilities;


•
the effect of competition and market developments;


•
the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights;


•
the scope, rate of progress and cost of our clinical trials and other product development activities; and


•
future clinical trial results.

We plan to raise additional funds to support our product development activities and working capital requirements through the remaining availability under the Second Purchase Agreement (to the extent we are permitted to use such agreement), public or private equity offerings, debt financings, strategic partnerships, out-license collaborations or other means. We may also seek governmental grants to support our clinical trials and preclinical trials. Further, we may seek to raise capital to fund additional product development efforts even if we have sufficient funds for our planned operations. Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us.

Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us. If we are not able to secure additional funding when needed, we may have to delay the commercialize of our products, reduce the scope of or eliminate one or more research and development programs, which could have an adverse effect on our business.

Cash Flows

Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:

 
  
For the nine months ended
September 30,
        
Change
   
(in thousands)
  
2022
    
2021
Cash (used in) provided by:
                  
Operating activities
  
$
(15,541
)
  
$
(16,656
)
  
$
1,115
  
Investing activities
    
(176
)
    
(22,595
)
    
22,419
  
Financing activities
    
11,986
      
62,004
      
(50,018
)
Net (decrease) increase in cash and cash equivalents
  
$
(3,731
)
  
$
22,753
    
$
(26,484
)

Net Cash Used in Operating Activities

The decrease in cash used in operating activities was due to a decrease in net loss of $4.3 million, after giving effect to adjustments made for non-cash transactions, offset by an increase in cash provided by operating assets and liabilities of $5.4 million during the nine months ended September 30, 2022 compared to the same period in 2021.  The increase in cash provided by operating assets and liabilities was primarily driven by increased accrued compensation due to higher headcount and severance, accrued costs for litigation matters, increased liabilities related to the MSA and increased insurance liabilities.

Net Cash Used in Investing Activities

The decrease in net cash used in investing activities was primarily due to cash used to purchase Novellus of $22.9 million during the nine months ended September 30, 2022 compared to the same period in 2021, which was offset by proceeds of approximately $0.3 million from the Merger and the Disposition transactions.  There were no similar transactions during the nine months ended September 30, 2022.

41
Net Cash Provided by Financing Activities

The decrease in net cash provided by financing activities was primarily the result of a decrease in net proceeds from capital raises of approximately $51 million, net, offset by a decrease in principal payments made for long-term debt arrangements of $0.5 million during the nine months ended September 30, 2022 compared to the same period in 2021.

Critical Accounting Estimates

There were no significant changes in our critical accounting estimates during the three and nine months ended September 30, 2022 from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 10-K/A.

Recent Accounting Pronouncements

In September 2022, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”). ASU 2022-04 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 roll-forward information. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the requirement to disclose roll-forward information, which is effective for fiscal years beginning after December 15, 2023. We do not expect a material impact on our financial statements as a result of adopting this amendment.

In June 2022, FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity related securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption permitted. We are evaluating when to adopt the amendments in ASU 2022-02. We do not expect a material impact on our financial statements as a result of adopting this amendment.

 Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

Under the rules and regulations of the SEC, as a smaller reporting company we are not required to provide the information otherwise required by this item.

Item 4.
Controls and Procedures.

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

42
In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this Q3 2022 10-Q under the supervision, and with the participation, of our management, including our interim Chief Executive Officer and President (who serves as our principal executive officer) and our Chief Financial Officer (who serves as our principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures.
 
Based on that evaluation, our interim Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Q3 2022 10-Q in providing reasonable assurance of achieving the desired control objectives due primarily to the material weaknesses discussed below.
 
Management’s Plan for Material Weaknesses in Internal Control over Financial Reporting
 
Upon completion of the Merger in March 2021 and the resulting change in our business model and strategy, we experienced a complete turnover of our employees, including all of the members of our executive management team, which resulted in, among other things, our having insufficient accounting staff available to enable and ensure adequate segregation of duties and our lacking appropriate and complete documentation of policies and procedures critical to the accomplishment of financial reporting objectives. The accounting personnel and documentation deficiencies each increase the risk that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
 
Additionally, we were unable to timely file our Q1 2022 10Q with the SEC due to identifying errors in our financial statements reported in the Original 10-K for the years ended December 31, 2021 and 2020 during our preparation of the financial statements for the quarter ended March 31, 2022.  Management concluded that the errors were the result of accounting personnel’s’ lack of technical proficiency in complex matters.  We filed an amendment to our Annual Report on Form 10-K/A for the years ended December 31, 2021 and 2020 on June 30, 2022 to correct the errors in our financial statements for the years ended December 31, 2021 and 2020 and for the quarters ended June 30, 2020, September 30, 2020, March 31, 2021, June 30, 2021 and September 30, 2021.  See the Form 10-K/A for further detail on the restatement.
 
Management is implementing measures designed to ensure that the deficiencies contributing to the ineffectiveness of our internal controls over financial reporting are promptly remediated, such that the internal controls are designed, implemented and operating effectively. The remediation actions include:

•
hiring additional accounting personnel in a number, and with experience, to allow for proper segregation of duties and the accurate application of GAAP, including a chief financial officer, whom we hired in May of 2022;

•
developing and implementing, and then monitoring the effectiveness of, written policies and procedures required to achieve our financial reporting objectives in a timely manner, including policies and procedures relating to internal control over financial reporting, which;

•
providing additional training to accounting personnel; and.

•
consulting with an accounting advisor for technical, complex and non-recurring matters, with whom we have engaged and begun consulting.

We are committed to developing a strong internal control environment, and we believe the remediation efforts that we have implemented and will implement will result in significant improvements in our control environment. Following indications of internal control deficiencies in early 2021, we hired our Vice President of Finance in the second quarter of 2021 to oversee all accounting and financial reporting matters, including implementing a framework for internal controls over financial reporting, a full-time controller at the beginning of 2022, and our chief financial officer in May of 2022. Also, during the fourth quarter of 2021, we engaged a third-party consulting firm with expertise in implementing the framework for internal controls over financial reporting, and we are making progress on developing this framework, including identifying key controls, creating process narratives or flowcharts, developing test plans, and testing of the key controls to ensure the framework is complete and effective. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary.

43
Changes in Internal Control over Financial Reporting
 
Other than described above, there was no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.
Legal Proceedings.

This information is set forth under “Note 10—Commitments and Contingencies—Legal Matters” to the condensed consolidated financial statements included in this Q3 2022 10-Q and is incorporated in this Item 1 by reference.

From time to time we may become involved in legal proceedings arising in the ordinary course of business. Except as described above, we do not believe there is any litigation pending that could have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or cash flows.

Item 1A.
Risk Factors.

During the reporting period covered by this Quarterly Report on Form 10-Q, there have been no material changes to our risk factors as set forth in the 10-K/A and our subsequently filed Quarterly Reports on Form 10-Q.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.
Defaults Upon Senior Securities.

None.

Item 4.
Mine Safety Disclosures.

Not Applicable.

Item 5.
Other Information.

None.

Item 6.
Exhibits.

44
Exhibit
  
Description
  
Incorporated By Reference
 
Master Services Agreement, dated September 9, 2022, by and between Factor Bioscience Inc. and the Company.
  
Exhibit 10.1 to Form 8-K filed on September 15, 2022
 
Separation Agreement and General Release, dated August 24, 2022, by and between the Company and Kevin D’Amour.
  
Exhibit 10.1 to Form 8-K/A filed on September 1, 2022
 
Third Amended and Restated Exclusive License Agreement, dated November 1, 2020, by and between Factor Bioscience Limited and Novellus Therapeutics Limited.
  
Filed herewith
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
Filed herewith
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
Filed herewith
 
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
Furnished herewith
 
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
Furnished herewith
101.INS
  
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
  
Filed herewith
101.SCH
  
Inline XBRL Taxonomy Extension Schema Document
  
Filed herewith
101.CAL
  
Inline XBRL Taxonomy Extension Calculation Linkbase Document
  
Filed herewith
101.DEF
  
Inline XBRL Taxonomy Extension Definition Linkbase Document
  
Filed herewith
101.LAB
  
Inline XBRL Taxonomy Extension Label Linkbase Document
  
Filed herewith
101.PRE
  
Inline XBRL Taxonomy Extension Presentation Linkbase Document
  
Filed herewith
104
  
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
    

*          Management contract or compensation plan or arrangement

45
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
ETERNA THERAPEUTICS INC.
     
Date: November 14, 2022
By:
/s/ Andrew Jackson
   
Andrew Jackson
   
Chief Financial Officer
   
(on behalf of the Registrant and as Principal Financial Officer)


46

Exhibit 10.3

Factor Bioscience Limited
Novellus Therapeutics Limited

 

THIRD AMENDED AND RESTATED EXCLUSIVE LICENSE AGREEMENT

  

THIS THIRD AMENDED AND RESTATED EXCLUSIVE LICENSE AGREEMENT (this “Agreement”) is entered into as of this 1st day of November, 2020 (the “Third Amendment Effective Date”), by and between Factor Bioscience Limited, a company organized and existing under the laws of Ireland (“Licensor”), and Novellus Therapeutics Limited, a company organized and existing under the laws of Ireland (“Licensee”), and supersedes and replaces the Second Amended and Restated Exclusive License Agreement (the “Prior Agreement”) entered into as of the 16th day of March, 2020 (the “Second Amendment Effective Date”), by and between Licensor and Licensee. Licensor and Licensee may each be referred to in this Agreement individually as a “Party” and collectively as the “Parties.”

 

WHEREAS, Licensor and Licensee previously entered into an Exclusive License Agreement (the “Original Agreement”) as of the 6th day of February, 2015 (the “Effective Date”), subsequently amended and restated the Original Agreement by entering into an Amended and Restated Exclusive License Agreement (the “First Amended and Restated Agreement”) as of the 15th day of June, 2018 (the “Amendment Effective Date”), and subsequently amended and restated the First Amended and Restated Agreement by entering into the Prior Agreement;

 

WHEREAS, the Parties desire to amend, restate, and replace such Prior Agreement to, among other things, amend certain definitions and provisions, terminate certain rights and licenses previously granted to Licensee under the Prior Agreement, and grant Licensee rights to certain Licensed Technology in the Field (as such terms are defined herein);

 

WHEREAS, Licensor owns or has in-licensed certain Licensed Technology (as defined herein) pertaining to technology, processes and products, including, but not limited to, methods and compositions for generating Cell Lines (as such term is defined herein);

 

WHEREAS, Licensee desires to develop and commercialize Licensed Products (as defined herein), and Licensee desires to receive from Licensor certain rights to the Licensed Technology in order that Licensee may develop and commercialize Licensed Products (as defined herein); and

 

WHEREAS, in furtherance of the foregoing, Licensor agrees to grant such rights to Licensee, and Licensee agrees to use Commercially Reasonable Efforts (as defined herein) to diligently proceed to develop and make commercially available Licensed Products in accordance with this Agreement for commercial exploitation in the Field (as defined herein) and in the Territory (as defined herein);

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

Section 1

Definitions

 

Unless otherwise specifically provided herein, the following terms, when used with a capital letter at the beginning, will have the following meanings:

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

- 1 -

1.1.        “Affiliate” means, with respect to a Party, a person, corporation, partnership, or other entity that controls, is controlled by or is under common control with such Party. For the purposes of this definition, the word “control” (including, with correlative meaning, the terms “controlled by” or “under common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity, whether by the ownership of fifty percent (50%) or more of the voting stock of such entity, or by contract or otherwise. For the purposes of this definition and this Agreement, and for the avoidance of doubt, Factor Bioscience Limited. Factor Bioscience Pty Ltd, Factor Bioscience LLC, and Factor Bioscience Inc. (collectively, the “Factor Bio Entities”) are each deemed not to be Affiliates of any of Novellus Therapeutics Limited, Novellus LLC, and Novellus, Inc. (collectively, the “Novellus Entities”), and each of the Novellus Entities is deemed not to be an Affiliate of any of the Factor Bio Entities.

 

1.2.        “Agreement” has the meaning set forth in the Preamble.

 

1.3.        “Amendment Effective Date” has the meaning set forth in the Preamble.

 

1.4.        “Applicable Law” means all statutes, ordinances, regulations, rules or orders of any kind whatsoever of any agency, bureau, branch, office, court, commission, authority, department, ministry, official or other instrumentality of, or being vested with public authority under any law of, any country, state or local authority or any political subdivision thereof, or any association of countries that may be in effect from time to time and applicable to the activities contemplated by this Agreement.

 

1.5.        “Auxiliary Technologies” means (a) any one or more of the technologies set forth on Exhibit 1.5, and (b) any Improvement.

 

1.6.        “Auxiliary Technology Patents” means (a) the patents and patent applications set forth on Exhibit 1.6, (b) any reissue, divisional, continuation, reexamination, renewal, extension or supplementary protection certificate for each of the patents and patent applications set forth on Exhibit 1.6, (c) the Improvement Patents, and (d) any reissue, divisional, continuation, reexamination, renewal, extension or supplementary protection certificate for each of the Improvement Patents, but only to the extent that each of the foregoing in clauses (a), (b), (c), and (d) (i) is Controlled by Licensor, (ii) includes at least one claim that is directed to subject matter disclosed in the patents and patent applications described in clause (a) above, and claims priority to such patents and patent applications, and (iii) is necessary or useful to Exploit the Licensed Products in the Field, and (c) all foreign patents and patent applications corresponding to the foregoing specific patents and patent applications described in clause (a) and clause (b) above. For the avoidance of doubt, the Auxiliary Technology Patents do not include any patents not explicitly described in the preceding sentence.

 

1.7.        “Cell Line” means a human pluripotent stem cell line that is made using the cell reprogramming methods disclosed in the Licensed Patents.

 

1.8.        “Combination Product” shall mean any product that is comprised of a Licensed Product and one or more agents that are not themselves Licensed Product (the “Other Agent(s)”).

 

1.9.        “Commercially Reasonable Efforts” means, with respect to the performance of research, development and/or commercialization activities hereunder, including with respect to the research, development and/or commercialization of any Licensed Product by or on behalf of Licensee, the carrying out of such activities using commercial and business efforts and resources comparable to the efforts and resources that a party would typically devote to products of similar market potential at a similar stage in development or product life, taking into account all scientific, commercial and other factors that such a party would take into account, including issues of safety, toxicity and efficacy, as well as regulatory requirements of the FDA or similar government agencies.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

- 2 -

 

1.10.      “Confidential Information” means all Information disclosed by one Party to the other during the negotiation of or under this Agreement in any manner, whether orally, visually, electronically, in writing or in other tangible or intangible form, that relates to Licensed Technology, the Auxiliary Technologies, Cell Lines, Licensed Products, or this Agreement, unless such information is subject to an exception described in Section 8.6.

 

1.11.       “Control” or “Controlled by” means, in the context of a license to or ownership of Intellectual Property, the ability on the part of a Party to grant access to or a license or sublicense of such Intellectual Property as provided for herein without violating the terms of any agreement or other arrangement between such Party and any third party existing at the time such Party would be required hereunder to grant such access or license or sublicense.

 

1.12.       “Cover” or “Covered” means that the use, manufacture, sale, offer for sale, research, development, commercialization, importation or other commercial exploitation of the subject matter in question by an unlicensed entity: (a) would infringe an issued or pending claim of a Licensed Patent or an Auxiliary Technology Patent, or (b) incorporates, uses, or otherwise relies upon the Licensed Technology or the Auxiliary Technologies.

 

1.13.       “Effective Date” has the meaning set forth in the Preamble.

 

1.14.       “Exploit” and “Exploitation” mean to develop, make, have made, manufacture, research, use, sell, have sold, offer for sale, commercialize, distribute, import and export.

 

1.15.       “FDA” means the United States Food and Drug Administration or any successor agency thereto.

 

1.16.       “Field” means the Exploitation of Licensed Products for the treatment of diseases and conditions in humans and animals.

 

1.17.       “First Commercial Sale” means the first arm’s-length sale or other transfer for value of a Licensed Product by or on behalf of Licensee, or an Affiliate or sublicensee of Licensee, to an unrelated third party.

 

1.18.       “Improvement(s)” means any Services Agreement Improvement and any other invention, discovery, advancement, development, or creation which: (a) is invented, developed, authored, created, or reduced to practice by or on behalf of Licensee or an Affiliate of Licensee (or Licensee’s or its Affiliate’s personnel or agents, including any employee, officer, advisor, or independent contractor employed or engaged by (or otherwise having an obligation to assign inventions to) Licensee or its Affiliates): (b) is not an Independent Invention; and (c) meets at least one of the following criteria: (i) is an improvement or modification to the Licensed Technology, the Auxiliary Technologies or to the Cell Lines; (ii) utilizes, incorporates, or reads upon any element of the Licensed Technology or the Auxiliary Technologies or is invented, developed, authored, created, or reduced to practice using the Licensed Technology or the Auxiliary Technologies; and (iii) is invented, developed, authored, created, or reduced to practice by or on behalf of Licensor or an Affiliate of Licensor (or Licensor’s or its Affiliate’s personnel or agents, including any employee, officer, advisor, or independent contractor employed or engaged by (or otherwise having an obligation to assign inventions to) Licensor or its Affiliates).

 

1.19.       “Improvement Patents” means the patents and patent applications claiming Improvements, and any reissue, divisional, continuation, continuation-in-part or reexamination certificate thereof. During the Term, all Improvement Patents shall be set forth in Exhibit 1.19.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited 

- 3 -

 

1.20.       “IND” means an Investigational New Drug Application filed with the FDA required for the initiation of clinical trials in humans for the applicable Licensed Product in the United States (or the foreign equivalent thereof).

 

1.21.       “Independent Invention” means any invention, discovery, advancement, development, or creation, which: (a) is invented, developed, authored, created, or reduced to practice by or on behalf of Licensee or an Affiliate of Licensee (or the personnel or agents of Licensee or an Affiliate of Licensee, including any employee, officer, advisor, or independent contractor employed or engaged by (or otherwise under an obligation to assign inventions to) Licensee or an Affiliate of Licensee); (b) does not utilize, incorporate, or read upon any element of the Licensed Technology, Auxiliary Technology or a Valid Claim and is not invented, developed, authored, created, or reduced to practice using the Licensed Technology or the Auxiliary Technology; and (c) is not invented, developed, authored, created, or reduced to practice by Licensor (or Licensor’s personnel or agents, including any employee, officer, advisor, or independent contractor employed or engaged by (or otherwise under an obligation to assign inventions to) Licensor).

 

1.22.       “Information” means all information, know-how, data, results, technology, materials, business or financial information of any type whatsoever, in any tangible or intangible form, provided by or on behalf of one Party to the other Party, either in connection with the discussions and negotiations pertaining to this Agreement or in the course of performing this Agreement, or that otherwise relates to the Licensed Technology, the Auxiliary Technologies, or Cell Lines, whether disclosed orally, visually, electronically, in writing or in other tangible or intangible form, and which may include data, knowledge, practices, processes, ideas, research plans, antibodies, small molecules, compounds, targets, biological and chemical formulations, structures and designs, laboratory notebooks, proof of concept and pre-clinical studies, formulation or manufacturing processes and techniques, scientific, manufacturing, marketing and business plans, and financial and personnel matters relating to the disclosing Party or to its present or future products, sales, suppliers, customers, employees, investors or business.

 

1.23.       “Intellectual Property” means all (a) patents, patent applications, patent disclosures and all related continuation, continuation-in-part, divisional, reissue, reexamination, post-grant proceeding, utility model, certificate of invention and design patents, applications, registrations and applications for registration, and any equivalent in any jurisdiction; (b) trademarks, service marks, trade dress, Internet domain names, logos, trade names and corporate names and registrations and applications for registration thereof; (c) copyrights and registrations and applications for registration thereof, including all moral rights; (d) Information, inventions, trade secrets and confidential information, whether patentable or non-patentable and whether or not reduced to practice, know-how, show how, manufacturing and product processes and techniques, research and development information, notebooks, formulae, diagrams, technical and engineering specifications, business and marketing plans and customer and supplier lists and other information; (e) other proprietary rights relating to any of the foregoing (including remedies against infringement thereof and rights of protection of interest therein under the laws of all jurisdictions); and (f) copies and tangible embodiments thereof.

 

1.24.       “Licensed Know-How” means all unpatented inventions, technology, methods, materials (including biological and pharmaceutical materials), know-how, studies, pre-clinical and clinical data (including toxicology and safety data), tests and assays, reports, manufacturing processes, regulatory filings (including drafts) and approvals and other information Controlled by Licensor as of the Effective Date, in each case that relates to the subject matter disclosed in the Licensed Patents or the Auxiliary Technology Patents and is necessary or useful to make, use or sell Licensed Products in the Field in the Territory.

 

License Agreement, 

Factor Bioscience Limited, Novellas Therapeutics Limited

 

- 4 -

1.25.       “Licensed Patents” means (a) the patents and patent applications set forth on Exhibit 1.25, and (b) any reissue, divisional, continuation, reexamination, renewal, extension or supplementary protection certificate for each of the patents and patent applications set forth on Exhibit 1.25, but only to the extent that each of the foregoing in clauses (a) and (b) (i) is Controlled by Licensor, (ii) includes at least one claim that is directed to subject matter disclosed in the patents and patent applications described in clause (a) above, and claims priority to such patents and patent applications, and (iii) is necessary or useful to Exploit the Licensed Products in the Field. For the avoidance of doubt, the Licensed Patents do not include any patents not explicitly described in the preceding sentence.

 

1.26.       “Licensed Product” means any Covered allogeneic cell therapy product comprising MSCs for use in the Field. For the avoidance of doubt, Licensed Products expressly exclude autologous cell therapy products and any product comprising Covered cells that are not MSCs, except where such cells are present in inconsequential amounts and do not contribute appreciably to the potency, function, activity, or stability of the product.

 

1.27.       “Licensed Technology” means the Licensed Patents, Licensed Know-How, Cell-Lines, and Improvement Patents, if any, all to the extent owned or Controlled by Licensor and in each case that are necessary for Licensee to Exploit the Licensed Products in the Field.

 

1.28.       “MSCs” means a population of mesenchymal stem cells derived from a Cell Line, and having a set of specific, defined, and experimentally validated biological attributes.

 

1.29.       “Net Sales” means all gross revenue collected from or through Licensee, its Affiliates, or sublicensees from any Licensed Product, including sales, licensing, leasing or other commercial exploitation of Licensed Products. Net Sales excludes the following items (but only as they pertain to the making, using, importing or selling of the applicable Licensed Product, are included in gross revenue, and are separately billed): (a) import, export, excise and sales taxes, custom duties, value added taxes, tariffs or other fees leveled by government authorities, and other consumption taxes similarly incurred or other governmental charges levied to the extent included on the bill or invoice or as a separate item; (b) costs of insurance, packing, and transportation from the place of manufacture to the customer’s premises or point of use; (c) credit for returns, allowances, or trades, including credits or allowances additionally granted upon rejections or recalls, claims returns pursuant to agreements (including, without limitation, managed care agreements), warranty claims, or claims allowed under government regulations, to the extent actually allowed and taken; (d) charge-back payments, and rebates actually granted or administrative fees actually booked to trade customers, patients (including those in the form of a coupon or voucher), managed health care organizations, pharmaceutical benefit managers, group purchasing organizations and national, state or local governments, and to the agencies, purchasers and reimbursers of managed health organizations, pharmaceutical benefit managers, group purchasing organizations, or federal, state or local governments; provided, however, that in each case such amounts shall be applied in a normal and customary manner with respect to other similarly situated products or services of the selling party and not applied disproportionately to the Licensed Product; and (e) Net Sales at transfer prices to a control person of the Licensee (or any member of the consolidated group of such control person), or pricing between subsidiaries of a consolidated group of such control person (including the Licensee as a member of such consolidated group), but shall include the first sale or other commercial disposition of the applicable Licensed Product to an unaffiliated third party; all as determined in accordance with the selling party’s usual and customary accounting methods, which are in accordance with U.S. generally accepted accounting principles (GAAP), consistently applied.

 

1.30.       “Patent Expenses” shall mean all fees, costs, and expenses (including attorneys’ fees) paid or incurred in the preparation, filing, prosecution, issuance, and maintenance of the Licensed Patents and Auxiliary Technology Patents.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

- 5 -

 

1.31.        “Party” or “Parties” has the meaning set forth in the Preamble.

 

1.32.        “Pediatric Priority Review Voucher” or “PRV” means a priority review voucher issued by FDA or otherwise under the authority of the United States Department of Health and Human Services to Licensee or any of its Affiliates or sublicensees as the sponsor of a rare pediatric disease or neglected tropical disease product application, that entitles the holder of such voucher to priority review of a single human drug application submitted under Section 505(b)(1) or 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq., as amended from time to time, together with any rules, regulations and requirements promulgated thereunder or Section 351(a) of the United States Public Health Service Act, as further defined in the Federal Food, Drug, and Cosmetic Act.

 

1.33.        “Phase I Clinical Trial” means a clinical trial generally consistent with 21 CFR §312.21(a) that is required for receipt of clearance or marketing authorization of a Licensed Product from the applicable Regulatory Authority and which is conducted to evaluate safety of a Licensed Product for a particular indication or indications in healthy subjects.

 

1.34.        “Phase IIb Clinical Trial” means a clinical trial generally consistent with 21 CFR §312.21(b) that is required for receipt of clearance or marketing authorization of a Licensed Product from the applicable Regulatory Authority and which is conducted to assess the optimal manner of use of such a Licensed Product (dose and dose regimens) of a Licensed Product for a particular indication or indications in patients with the disease or condition under study. Any clinical trial that is not a Phase III Clinical Trial and which is conducted to evaluate a Licensed Product that has already been tested in a Phase I Clinical Trial shall be deemed a Phase IIb Clinical Trial.

 

1.35.        “Phase III Clinical Trial” means a clinical trial generally consistent with 21 CFR §312.21(c) that is required for receipt of clearance or marketing authorization of a Licensed Product from the applicable Regulatory Authority and which is conducted after preliminary evidence suggesting effectiveness of the Licensed Product has been obtained, and is intended to gather additional information to evaluate the overall benefit-risk relationship of the Licensed Product for a particular indication and provide an adequate basis for physician labeling.

 

1.36.        “Regulatory Approval” means the approval (including label expansions to include additional indications), license, registration, clearance or authorization of the applicable Regulatory Authority necessary for the lawful marketing, commercialization and sale of a Licensed Product in a country or jurisdiction of the Territory.

 

1.37.        “Regulatory Authority” means the FDA or any similar foreign national governmental regulatory authority involved in the granting of authorization to conduct clinical trials or Regulatory Approvals for the manufacture, sale, pricing and/or reimbursement of a Licensed Product in the Field.

 

1.38.        “Second Amendment Effective Date” has the meaning set forth in the Preamble.

 

1.39.        “Services Agreement” means any contract between Licensor or its Affiliate and Licensee or its Affiliate pursuant to which Licensor or its Affiliate provides services to Licensee or its Affiliate, which services may include, but are not limited to, the production of MSCs.

 

1.40.        “Services Agreement Improvement(s)” means any invention, discovery, advancement, development, or creation arising out of the services provided by Licensor or its Affiliate to Licensee or its Affiliates under a Service Agreement, unless otherwise mutually agreed upon by the Parties in the applicable Services Agreement.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

- 6 -

 

1.41.       “Sublicense Fees” means any consideration paid to Licensee or its Affiliates as consideration for or in connection with a sublicense of, or other right, license, option, privilege, or immunity with respect to, any Licensed Product or any of the rights to the Licensed Technology or the Auxiliary Technologies granted to Licensee hereunder, including without limitation license fees, technology access fees, equity or debt investments, upfront payments, milestone payments, unearned minimum royalties and royalties payable on sales of Licensed Products in excess of the Royalty on Net Sales payable hereunder, payments for materials or services (including research and development services), and other payments, and/or other forms of remuneration of any kind, but specifically excluding the Royalty on Net Sales payable hereunder. For the avoidance of doubt, Sublicense Fees shall include any and all payments made by any sublicensee to Licensee that are required by an agreement between Licensee and a sublicensee, wherein said agreement includes the granting of any rights in any Licensed Product or the sublicensing of any rights in the Licensed Technology or the Auxiliary Technologies, including, but not limited to. up-front payments, milestone payments, diligence payments, royalty payments payable on sales of Licensed Products in excess of the Royalty on Net Sales payable hereunder, payments for materials or services, and any other payments, rights or benefits that are payable by or on behalf of such sublicensee to Licensee as consideration for such rights granted to such sublicensee.

 

1.42.       “Term” has the meaning set forth in Section 7.1.

 

1.43.       “Territory” means Earth.

 

1.44.        “Third Amendment Effective Date” has the meaning set forth in the Preamble.

 

1.45.       “Valid Claim” means: (a) any currently pending claim of a patent application within the Licensed Patents or Improvement Patents, which has not been abandoned; or (b) a claim of a granted and unexpired patent within the Licensed Patents. Auxiliary Technology Patents or Improvement Patents that (i) has not been revoked, held invalid, or declared unpatentable or unenforceable by a decision of a court or other governmental agency of competent jurisdiction that is unappealable or unappealed in the time allowed for appeal; (ii) has not been rendered or admitted to be invalid, abandoned or unenforceable through reissue or disclaimer or otherwise; or (iii) has not been lost through an interference proceeding.

 

Section 2
Licenses

 

2.1.       License Grant.

 

Subject to the terms and conditions of this Agreement (including the terms and provisions set forth in Section 2.4 and Section 5.2), Licensor hereby grants to Licensee an exclusive (even as to Licensor), non-transferrable (except in accordance with Section 11.2), royalty-bearing license, with the right to grant sublicenses pursuant to Section 2.2, under the Licensed Technology, the Auxiliary Technologies, and the Auxiliary Technology Patents to Exploit Licensed Products in the Territory in the Field during the Term.

 

2.2.       Sublicensing.

 

Licensee may sublicense the rights granted to it under Section 2.1 through a single tier (i.e., absent Licensor’s express prior written consent, no sublicensee will have any further right to grant sublicenses) to third party sublicensees, so long as: (a) the sublicense is royalty-bearing and in writing; (b) the terms of the sublicense agreement are consistent with the terms and conditions of this Agreement, including, without limitation, Section 7.7: (c) the sublicense was negotiated by Licensee in good faith, for a proper commercial purpose and on reasonable arm’s-length commercial terms: (d) the sublicense agreement names Licensor as a third party beneficiary thereof; (e) the sublicensee has, or has the ability to acquire, adequate resources (including scientific, technical and financial) to perform its obligations under such sublicense, as reasonably determined by Licensee at the time of entry into the sublicense; and (f) a complete, confidential copy of the sublicense agreement and any amendments thereto are provided to Licensor within thirty (30) days of the execution of said sublicense agreement or any such amendments thereto. In each case, Licensee will be responsible for the performance of its sublicensees relevant to this Agreement, including, without limitation, making any payments provided for hereunder. Subject to Section 8.6. Licensee will provide Licensor with a complete, confidential copy of each such sublicense agreement executed by Licensee and any amendments thereto, and will promptly notify Licensor of the termination of any such sublicense.

 

License Agreement,

Factor Bioscience Limited. Novellus Therapeutics Limited

 

- 7 -

 

2.3.          Rights in Improvements. Improvement Patents and Independent Inventions.

 

2.3.1        Improvements shall be automatically included as part of the Auxiliary Technologies, and Improvement Patents shall be automatically included as part of the Auxiliary Technology Patents. Licensee and Licensor agree promptly to update Exhibit 1.19 hereto upon written request by either Party from time to time, to reflect the inclusion of such Improvement Patents in the Auxiliary Technology Patents. Each Party will use reasonable efforts to disclose to the other Party during the Term any and all Improvements and Improvement Patents and Licensee and Licensor agree promptly to update Exhibit 1.19 hereto upon written request by either Party from time to time, to reflect the inclusion of any Improvement Patents.

 

2.3.2        Subject to the rights granted to Licensee in Section 2.1 and Section 2.2, Licensor shall own, and Licensee shall assign and hereby does assign to Licensor all right, title and interest in and to all Improvements and Improvement Patents, including all related certificates of correction, reissue certificates, and supplementary protection certificates, and all other rights granted under 35 U.S.C. § 307, 35 U.S.C. § 318, 35 U.S.C. § 328, and 35 U.S.C. § 254-257. Licensee shall execute and assist with any and all applications, assignments, or other instruments which Licensor deems necessary to perfect the foregoing assignment and/or to evidence, apply for, obtain, maintain, defend or enforce patent or other intellectual property protection in any and all countries worldwide with respect to Improvements assigned to Licensor as set forth above or to protect otherwise Licensor’s interest therein.

 

2.3.3        Licensee shall own all right, title and interest in and to all Independent Inventions invented, developed, created, or reduced to practice by or on behalf of Licensee.

 

2.4.          Retained Rights: Requirements.

 

2.4.1.  Retained Rights.

 

Any and all licenses granted hereunder are subject to Licensor’s right to make and use, and to permit academic, government, and not-for-profit institutions or agencies to make and use the Licensed Technology, the Auxiliary Technologies, and the Auxiliary Technology Patents (a) both in the Field and outside of the Field for non-commercial research, academic, educational, and all other non-commercial purposes, and for the development of the Licensed Technology and the Auxiliary Technologies, and (b) outside of the Field for all commercial and non-commercial purposes.

 

License Agreement,

Factor Bioscience Limited. Novellus Therapeutics Limited

 

- 8 -

 

2.4.2.       Right to Publish.

 

Subject to this Section 2.4.2, any and all licenses granted hereunder are subject to the right of Licensor to review publication of scientific findings related to the Licensed Technology. If Licensee desires to submit any publication related to the Licensed Technology or that would otherwise disclose Confidential Information of Licensor or any patentable information related to Licensed Technology (including any Improvement), Licensee will provide Licensor with prior written notice of such proposed publication and a copy of such proposed publication. Licensor will use reasonable efforts to complete its review of such proposed publication promptly, and in any event will complete its review within thirty (30) days of receipt of the proposed publication. Licensor shall notify Licensee of any Licensor Confidential Information contained in such proposed publication and, in response to such notification, Licensee will promptly delete any Licensor Confidential Information from the proposed publication that Licensor has identified during such thirty (30) day review period. Licensor will have the right to delay submission of the proposed publication for up to an additional sixty (60) days if Licensor determines, in its sole discretion, that publication of the proposed publication would have negative effects on Licensor’s patent rights. In the event that Licensor decides to delay submission of the proposed publication, Licensor shall inform Licensee of such decision within the initial thirty (30) day review period, and the Parties shall reasonably cooperate in order to resolve any concerns with the proposed publication within such review period (as may be extended that it has already been submitted.

 

2.4.3.       U.S. Federal Funding.

 

Any and all licenses granted under patents supported by U.S. federal funding are subject to the rights, conditions, and limitations imposed by U.S. law (see 35 U.S.C. §202 et seq. and regulations pertaining thereto), including without limitation: (i) the royalty-free, non-exclusive license granted to the U.S. government; and (ii) the requirement that any products covered by an issued claim and sold in the U.S. will be substantially manufactured in the United States. Licensee agrees to inform Licensor of those Improvements that are developed, reduced to practice or invented by Licensee’s personnel and agents or the personnel or agents of Licensee’s Affiliates (or that are Controlled by Licensee or Licensee’s personnel or agents or the personnel or agents of Licensee’s Affiliates) during the Term of the Agreement and beyond with the support (either entirely or in part) of U.S. federal funding, and to provide all information and documentation to Licensor that Licensor may request to secure patent rights for those inventions, including, but not limited to, grant numbers, contract numbers, and names of granting and contracting institutions and organizations.

 

Section 3
Reservation of Rights

 

3.1.           No Grant of Other Technology or Patent Rights.

 

Each Party understands and acknowledges that the other Party owns its own Intellectual Property and all rights therein. Except as otherwise expressly provided in this Agreement, under no circumstances shall a Party hereto, as a result of this Agreement, obtain any ownership interest or license, or be deemed to obtain any ownership interest or license, in or to any technology, know-how, patents, patent applications, products, or materials of the other Party, including, but not limited to, items Controlled or developed by the other Party, at any time pursuant to this Agreement. This Agreement does not create, and shall under no circumstances be construed or interpreted as creating, an obligation on the part of either Party to grant any license to the other Party other than as expressly set forth herein. Any further contract or license agreement between the Parties shall be in writing. No licenses are implied by Licensor to Licensee, except as specifically stated in this Agreement. Except as explicitly set forth in this Agreement, Licensor shall not be deemed by estoppel or implication to have granted Licensee any license or other right to any Intellectual Property of Licensor or its Affiliates.

 

License Agreement,

Factor Bioscience Limited. Novellus Therapeutics Limited

 

- 9 -

 

3.2.           Reserved Rights.

 

All rights and interests not expressly granted to Licensee under this Agreement are reserved by Licensor (the ‘‘Reserved Interests”) for itself, its licensors, and other licensees and sublicensees. It shall not be a breach of this Agreement for Licensor, acting directly or indirectly, to exploit its Reserved Interests in any manner anywhere in the Territory.

 

Section 4
Due Diligence

 

4.1.          Regulatory Approval.

 

Licensee will be solely responsible, at Licensee’s expense, for securing any federal, state, or local Regulatory Approval from Regulatory Authorities necessary for commercial sale of Licensed Products, and Licensee shall deliver regular reports to Licensor concerning such Regulatory Approvals in accordance with Section 5.3.2.

 

4.2.         Licensee Responsibilities.

 

4.2.1 Licensee shall be solely responsible, at its expense, for the commercialization of Licensed Products in the Field in the Territory. Licensee will use Commercially Reasonable Efforts to diligently proceed to develop and make commercially available at least one Licensed Product in the Field in the United States or a major market country in Europe or Asia (i.e., the United Kingdom, France, Germany, China, or Japan; each a “Major Market Country”).

 

4.2.2 Licensee shall provide Licensor semi-annual written updates on Licensee’s Licensed Product development and commercialization activities in the Field in the Territory, which updates shall be provided to Licensor and at least every six (6) months during the Term and upon Licensor’s reasonable request therefor, and Licensor shall have the right to reasonably request additional information regarding Licensee’s progress in this regard. Such updates will include the activities undertaken by or on behalf of Licensee since the last report was delivered; and the activities to be undertaken by or on behalf of Licensee during the next twelve (12)-month period and the expected timing of such activities (including the estimated dates of initiation and completion of such activities).

 

4.3.         Licensee‘s Failure to Develop and/or Commercialize Licensed Products.

 

4.3.1         In the event that Licensor notifies Licensee in writing that Licensor reasonably believes that, during any consecutive twelve (12)-month period during the Term, Licensee has failed to use its Commercially Reasonable Efforts to develop and/or make commercially available (as applicable) one or more Licensed Products in the Field in the United States or in a Major Market Country, then Licensee shall deliver to Licensor within sixty (60) days of receipt of such written notice copies of supporting documentation evidencing that Licensee has used Commercially Reasonable Efforts to develop such Licensed Product(s) and/or make such Licensed Product(s) commercially available in the Field in the United States or in a Major Market Country during such twelve (12)-month period. If Licensee fails to provide such supporting documentation within sixty (60) days after Licensor’s written request for it, or if. after examination of such supporting documentation provided by Licensee, Licensor continues to reasonably believe that Licensee has failed to use its Commercially Reasonable Efforts to develop such Licensed Product(s) and/or make such Licensed Product(s) commercially available in the Field in the United States or a Major Market Country, then the Parties shall revolve such dispute in accordance with Section 10.

 

License Agreement,

Factor Bioscience Limited. Novellus Therapeutics Limited

 

- 10 -

4.3.2        Licensee shall achieve the following milestones (“Milestones”): (a) within two (2) years after the Third Amendment Effective Date. Licensee shall submit an IND for a Licensed Product in the Field; and (b) within twenty four (24) months after submission of the IND, Licensee shall have dosed the first patient with a Licensed Product in a Phase I Clinical Trial in the United States or in a Major Market Country. It shall be deemed a material breach of this Agreement and Licensor may elect to terminate this Agreement in its entirety if any of the following occur: (y) Licensee has not submitted an IND for any Licensed Product in the Field on or before the date that is two (2) years after the Third Amendment Effective Date; or (z) Licensee has not dosed a patient with any Licensed Product in a Phase I Clinical Trial in the United States or in a Major Market Country on or before the date that is twenty four (24) months after submission of the IND.

 

Section 5
Consideration; Records & Reports

 

5.1.          Upfront Consideration.

 

In consideration for the rights granted by Licensor to Licensee under this Agreement, Licensee shall pay to Licensor a fee in the amount set forth in Section 5.1 of Exhibit A (“Upfront Fee”), and which First Installment has been fully paid as of the Third Amendment Effective Date.

 

5.2.         Continuing Payments.

 

5.2.1.  Milestone Payments.

 

For each Licensed Product, each time a Milestone set forth in Section 5.2.1 of Exhibit A is achieved by Licensee (or an Affiliate of Licensee) (and such Milestone is not otherwise achieved through a sublicense as provided in Section 2.2), Licensee shall pay to Licensor the corresponding milestone payment set forth in Section 5.2.1 of Exhibit A (each, a “Milestone Payment”), such Milestone Payment to be made within thirty (30) days of the achievement of the applicable Milestone. For the avoidance of doubt, with respect to a Licensed Product, in the event that Licensee (or, as applicable Licensee’s sublicensee) skips or avoids one or more Milestones (e.g., by obtaining approval for a Licensed Product in the United States before initiating a Phase IIb Clinical Trial or a Phase III Clinical Trial for such Licensed Product), then with respect to such Licensed Product. Licensee shall make the Milestone Payments associated with all such skipped or avoided Milestones upon the earlier of (a) achieving the next Milestone for such Licensed Product, or (b) the First Commercial Sale of such Licensed Product.

 

5.2.2.  Royalties on Net Sales.

 

Commencing upon the First Commercial Sale of a Licensed Product in any country in the Territory, on a calendar quarter basis, Licensee shall pay to Licensor a royalty equal to the percentage of Net Sales set forth in Section 5.2.2 of Exhibit A (“Royalty on Net Sales”). On a country-by-country basis, upon expiration of the last to expire of a Valid Claim in the subject country, Licensee shall have a nonexclusive license to Exploit the Licensed Know-How for the development and commercialization of Licensed Products in the applicable country in the Field, and the Royalty on Net Sales due thereafter under this Section 5.2.2 shall be reduced by fifty percent (50%) in the applicable country.

 

5.2.3   Royalties on Sublicense Fees.

 

Licensee shall, within thirty (30) days of receipt of any Sublicense Fees, pay to Licensor an amount equal to the percentage of said Sublicense Fees set forth in Section 5.2.3 of Exhibit A.

 

License Agreement,

Factor Bioscience Limited. Novellus Therapeutics Limited

 

- 11 -

 

5.2.4          No Multiple Royalties.

 

For the avoidance of doubt, no multiple Royalties on Net Sales will be required to be paid because a Licensed Product or its manufacture, use, sale or importation is covered by more than one (1) Valid Claim.

 

5.2.5          Combination Products.

 

A Licensed Product may be made, used, imported or sold in combination with or as part of Combination Products. Notwithstanding any other provision of this Agreement to the contrary, to calculate the value of Net Sales of Combination Products, the gross sales of such Combination Products will be multiplied by the fraction A/(A + B) where A is the fair market value of the Licensed Product when sold separately, and B is the fair market value of the Other Agent(s) when sold separately. Allowed deductions may then be subtracted from the proportion of gross sales attributable to the Licensed Product to compute Net Sales.

 

5.2.6          Royalty Stacking.

 

On a Licensed Product-by-Licensed Product and country-by-country basis, in the event that Licensee is legally required to pay royalties to a third party for licenses to intellectual property rights entered into by Licensee to avoid infringement of such rights by the Exploitation of a Licensed Product in a country, then Licensee may deduct an amount equal to fifty percent (50%) of any such third party royalties from any royalty amounts due to Licensor under Section 5.2.2 for Net Sales of such Licensed Product in such country, provided that notwithstanding anything set forth in this Agreement to the contrary, in no event shall the royalty payments under Section 5.2.2 otherwise due to Licensor for such Licensed Product in such country be less than fifty percent (50%) of the percentage set forth in Section 5.2.2 of Exhibit A (the “Royalty on Net Sales”).

 

5.3.        Records and Reports.

 

5.3.1.  Reports on Development Activities.

 

Licensee shall maintain materially complete, current and accurate records of material development and commercialization activities conducted by Licensee hereunder, and all data and other material information resulting from such activities. Such records shall fully reflect all material work done and results achieved in the performance of the development and commercialization activities in good scientific manner appropriate for regulatory and patent purposes. Licensee shall document all material studies and informal written study records according to Applicable Laws. Licensor shall have the right to review and copy such records maintained by Licensee at reasonable times and to obtain access to the originals to the extent reasonably necessary or useful for regulatory and patent purposes. Licensee shall provide Licensor with written reports detailing Licensee’s development and commercialization activities under this Agreement.

 

5.3.2.  Regulatory Reports.

 

Licensee shall keep Licensor informed of regulatory developments relating to any Licensed Products in the Field in the Territory through semi-annual written updates, which updates shall be provided to Licensor and at least every six (6) months during the Term and upon Licensor’s reasonable request therefor. Licensee shall provide Licensor with copies of all regulatory materials generated in support of developing and/or commercializing Licensed Products in the Field in the Territory, and Licensee hereby grants to Licensor a right of reference (as such term is defined 21 C.F.R. § 314.3(b)) to all such regulatory materials and data for the purpose of developing and/or commercializing products, including Licensed Products, outside the Field, during the Term and thereafter.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

- 12 -

5.3.3.  Regulatory Responsibilities.

 

Subject to the terms and conditions of this Agreement, Licensee shall be solely responsible for all regulatory matters for Licensed Products in the Field in the Territory, including preparing and filing any and all regulatory materials for each Licensed Product, at its sole expense.

 

5.3.4.  Notification of Threatened Action.

 

Each Party shall immediately notify the other Party of any information it receives regarding any threatened or pending action, inspection or communication by or from any third party, including without limitation a regulatory authority, which may materially affect the development, commercialization or regulatory status of a Licensed Product in the Field in the Territory. Upon receipt of such information, the Parties shall consult with each other in an effort to arrive at a mutually acceptable procedure for taking appropriate action.

 

5.3.5.  Remedial Actions.

 

Each Party will notify the other Party immediately, and promptly confirm such notice in writing, if it obtains information indicating that any Licensed Product may be subject to any recall, corrective action or other regulatory action with respect to a Licensed Product taken by virtue of Applicable Laws (a “Remedial Action”). The Parties will assist each other in gathering and evaluating such information as is necessary to determine the necessity of conducting a Remedial Action.

 

5.3.6.  Pediatric Priority Review Vouchers.

 

If Licensee or an Affiliate of Licensee shall own or control a PRV that is granted based on approval of a Licensed Product, Licensee shall notify Licensor within thirty (30) days of the granting of such PRV, and within thirty (30) days of the sale of such PRV, Licensee shall pay Licensor the percentage set forth in Section 5.3.6 of Exhibit A of any proceeds received by Licensee or its Affiliate as consideration for such PRV.

 

5.3.7.  Royalty Reports and Payments.

 

Within thirty (30) days following the end of each calendar quarter, commencing with the calendar quarter in which the First Commercial Sale of any Licensed Product is made anywhere in the Territory, Licensee shall provide Licensor with a report containing the following information for the applicable calendar quarter, on a Licensed Product basis: (i) the amount of Net Sales in the Territory; (ii) an itemized calculation of Net Sales in the Territory showing deductions provided for in the definition of “Net Sales”; (iii) a calculation of the royalty payment due on such Net Sales; and (iv) the exchange rate for such country. Concurrent with the delivery of the applicable quarterly report, Licensee shall pay in U.S. dollars all amounts due to Licensor pursuant to this Agreement with respect to Net Sales by Licensee and its Affiliates and sublicensees for such calendar quarter. All payments due to Licensor hereunder shall be made in U.S. dollars by wire transfer of immediately available funds into an account designated by Licensor.

 

5.4.        Audit and Inspection Rights.

 

Licensee and its Affiliates and sublicensees will maintain complete and accurate records in sufficient detail to permit Licensor to confirm the accuracy of the calculation of payments under this Agreement, including royalty payments and the achievement of Milestones. Upon reasonable prior notice, such records shall be available during regular business hours (without undue disruption of Licensee’s business) for a period of four (4) years from the end of the calendar year to which they pertain for examination by an independent accountant selected by Licensor and reasonably acceptable to Licensee, for the sole purpose of verifying the accuracy of the reports and payments furnished by Licensee pursuant to this Agreement. Any such auditor shall not disclose Licensee’s Confidential Information, except to the extent such disclosure is necessary to verify the accuracy of the reports furnished by Licensee or the amount of payments due by Licensee to Licensor under this Agreement. Any amounts shown to be owed but unpaid shall be paid within thirty (30) days from the accountant’s report, plus interest (as set forth above) from the original due date. Licensor shall bear the full cost of such audit unless such audit discloses an underpayment by Licensee of more than five percent (5%) of the amount due, in which case Licensee shall bear the full cost of such audit and shall promptly remit to Licensor the underpaid amounts.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

- 13 -

5.5.         Taxes.

 

Each Party shall be solely responsible for the payment of all taxes imposed on its share of income arising directly or indirectly from the efforts of the Parties under this Agreement. The Parties agree to cooperate with one another and use reasonable efforts to reduce or eliminate tax withholding or similar obligations in respect of payments made by a Party to the other Party under this Agreement. To the extent either Party is required to deduct and withhold taxes on any payment to the other Party, such Party shall pay the amounts of such taxes to the proper governmental authority in a timely manner and promptly transmit to the other Party an official tax certificate or other evidence of such withholding sufficient to enable the other Party to claim such payment of taxes. Each Party shall provide the other Party with any tax forms that may be reasonably necessary in order for the other Party to not withhold tax or to withhold tax at a reduced rate under an applicable bilateral income tax treaty. Each Party shall provide the other with reasonable assistance to enable the recovery, as permitted by Applicable Laws, of withholding taxes, value added taxes, or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding tax or value added tax.

 

5.6.         Late Payment.

 

If Licensor does not receive payment of any sum due to it on or before the due date, (each, a “Late Payment”), Licensee shall pay to Licensor an amount equal to ten percent (10%) of such Late Payment (“Late Payment Penalty’’), and such Late Payment shall not be considered paid in full until Licensor has received from Licensee both the full amount of such Late Payment and the Late Payment Penalty. Simple interest shall accrue on the sum due to Licensor, including the Late Payment Penalty, until the date of payment at the per annum rate of two percent (2%) over the then-current prime rate reported in The Wall Street Journal or the maximum rate allowable by Applicable Laws, whichever is lower.

 

Section 6

Warranties

 

6.1          Representations, Warranties and Covenants of Licensor.

 

6.1.1   Licensor hereby represents and warrants to Licensee that, as of the Third Amendment Effective Date, it is the owner or licensee of the Licensed Patents and the Auxiliary Technology Patents, and it has the right, power and authority to grant the rights set forth in Section 2.1 of this Agreement.

 

6.1.2    Licensor hereby represents and warrants to Licensee that, as of the Third Amendment Effective Date, the execution and performance of Licensor’s obligations under this Agreement do not conflict with, cause a default under, or violate any existing contractual obligation that may be owed by Licensor to any third party, including, without limitation, any Affiliate of Licensor.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

- 14 -

6.1.3 Licensor hereby represents and warrants to Licensee that neither Licensor nor any of its Affiliates is a party to any litigation, arbitration, mediation or other similar legal proceeding.

 

6.2          Representations, Warranties and Covenants of Licensee.

 

6.2.1   Licensee hereby represents and warrants to Licensor that, as of the Third Amendment Effective Date, the execution and performance of Licensee’s obligations under this Agreement do not conflict with, cause a default under, or violate any existing contractual obligation that may be owed by Licensee to any third party, including, without limitation, any Affiliate of Licensee.

 

6.2.2    Licensee hereby represents and warrants to Licensor that neither Licensee nor any of its Affiliates is a party to any litigation, arbitration, mediation or other similar legal proceeding.

 

6.2.3    Licensee hereby represents, warrants and covenants to Licensor that Licensed Products will be manufactured and sold in compliance with all Applicable Laws, including, without limitation, in accordance with all applicable rules and regulations of the FDA or other Regulatory Authority.

 

6.3          Disclaimer.

 

Except as expressly provided in Section 6.1, nothing in this Agreement will be construed as:

 

6.3.1     a warranty or representation by Licensor as to the validity or scope of any of the Licensed Technology, Auxiliary Technologies or the Auxiliary Technology Patents;

 

6.3.2     a warranty or representation by Licensor that anything made, used, sold or otherwise disposed of under the licenses granted in this Agreement, or the practice of the Licensed Technology, Auxiliary Technologies or the Auxiliary Technology Patents, will or will not infringe patents of third parties; or

 

6.3.3     an obligation of Licensor to bring or prosecute actions or suits against third parties for infringement of Licensed Patents or Auxiliary Technology Patents or misappropriation of Licensed Know-How.

 

6.4           Express Disclaimer.

 

EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, LICENSOR IS PROVIDING THE LICENSED TECHNOLOGY, THE AUXILIARY TECHNOLOGIES, AND THE AUXILIARY TECHNOLOGY PATENTS “AS IS.” EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS, EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT AND ASSUMES ANY RESPONSIBILITIES WHATSOEVER WITH RESPECT TO USE, SALE, OR OTHER DISPOSITION OF PRODUCTS INCORPORATING OR MADE BY USE OF LICENSED PATENTS OR AUXILIARY TECHNOLOGY PATENTS UNDER THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY, OR ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AFFILIATES OR AGENTS, BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES OF ANY KIND, WHETHER GROUNDED IN TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, CONTRACT OR OTHERWISE.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

- 15 -

Section 7

Term and Termination

 

7.1.          Term.

 

The term of this Agreement will begin on the Third Amendment Effective Date and will not terminate unless terminated under the provisions of this Section 7 (the “Term”).

 

7.2.          Termination by Licensor.

 

Licensor may, at its option, terminate this Agreement, upon written notice to Licensee of any of the following events or otherwise as provided in this Agreement:

 

7.2.1         subject to the provisions set forth in Section 10, any material breach of any of Licensee’s obligations under this Agreement, which Licensee fails to remedy within sixty (60) days after receipt of written notice by Licensor of such material breach and Licensor’s demand that it be cured;

 

7.2.2         subject to the provisions set forth in Section 10, the filing in any court or agency pursuant to any statute or regulation of any state, country or jurisdiction, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee or if Licensee is served with an involuntary petition against it, filed in any insolvency proceeding, and such petition is not dismissed within sixty (60) days after the filing thereof, or if Licensee will propose or be a party to any dissolution or liquidation, or if Licensee will make an assignment for the benefit of its creditors, or if at any time Licensee voluntarily enters into proceedings for winding up or dissolution of business; provided, however, if Licensee provides for the cure of all of its defaults under this Agreement (if any) and provides adequate assurance of its future performance of its obligations to Licensor’s reasonable satisfaction, then Licensor shall not have the right to terminate this Agreement pursuant to this Section 7.2.2;

 

7.2.3         subject to the provisions set forth in Section 4.3, Licensee’s failure to timely achieve the Milestones;

 

7.2.4         subject to the provisions set forth in Section 5, Licensee’s failure to timely make any payment required to be made to Licensor as set forth in Section 5 or Exhibit A, which Licensee fails to remedy within thirty (30) days after receipt of written notice by Licensor of such failure and Licensor’s demand that it be cured;

 

7.2.5         Licensee’s use, practice or Exploitation of the Licensed Technology. Auxiliary Technologies or the Auxiliary Technology Patents outside of the Field or for the development or Exploitation of products other than Licensed Products, which Licensee fails to remedy within thirty (30) days after receipt of written notice by Licensor and Licensor’s demand that it be cured;

 

7.2.6         any breach of Licensee’s obligations under Section 7.5 or Section 11.13, which Licensee fails to remedy within thirty (30) days after receipt of written notice by Licensor and Licensor’s demand that it be cured; or

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited  

- 16 -

7.2.7         Licensee’s failure to comply with the obligation to maintain in full force and effect the required insurance coverage in accordance with Section 9.3, which Licensee fails to remedy within thirty (30) days after receipt of written notice by Licensor of such material breach and Licensor’s demand that it be cured.

 

7.2.8         Nothing in the foregoing subsections of this Section 7.2 shall prohibit Licensor from pursuing any other remedies at law which it may have in connection with Licensee’s uncured material breach. For the avoidance of doubt. Licensor’s right to terminate under Section 7.2.3, 7.2.4, 7.2.5, 7.2.6, or 7.2.7 shall not be subject to the provisions set forth in Section 10, shall not expire, and any such termination shall take effect upon written notice to Licensee.

 

7.3.          Partial Termination by Licensor.

 

In the event the events or conditions set forth in Section 7.2 pertain only to a particular Licensed Product, Licensor may elect to terminate this Agreement in-part with respect to that Licensed Product, and upon such termination in-part the Agreement will otherwise remain in effect.

 

7.4.         Termination by Licensee.

 

Licensee may, at its option, terminate this Agreement in its entirety, upon written notice to Licensor of any of the following events or otherwise as provided in this Agreement:

 

7.4.1         at any time without cause, by giving at least one hundred and twenty (120) days prior written notice of such termination to Licensor; or

 

7.4.2         subject to the provisions set forth in Section 10, upon any material breach of Licensor’s express representations, warranties or covenants set forth in Section 6.1, which Licensor fails to remedy within sixty (60) days after receipt of written notice by Licensee of such material breach and Licensee’s demand that it be cured.

 

7.4.3         Nothing in the foregoing subsections of this Section 7.4 shall prohibit Licensee from pursuing any and all rights and remedies it may have under this Agreement or at law or in equity.

 

7.5.         Challenging Validity.

 

Except to the extent unenforceable under Applicable Law in the Territory, Licensor may terminate this Agreement by written notice to Licensee in the event of a breach of Section 11.13 by Licensee, its Affiliates or sublicensees or in the event that Licensee or any of its Affiliates challenges, in any formal proceeding, the validity, patentability, enforceability, scope, construction or inventorship of any of the Licensed Patents or Auxiliary Technology Patents or assists any third party in any such challenge. If a sublicensee of Licensee brings any such challenge or assists a third party in bringing any such challenge (except as required under a court order or subpoena), then Licensor may send a written demand to Licensee to terminate such sublicense. If Licensee fails to so terminate such sublicense within thirty (30) days after Licensor’s demand, Licensor may terminate this Agreement. In the event Licensor is not able to terminate this Agreement pursuant to this Section 7.5 under Applicable Law, then with respect to those countries in which this Agreement may not be terminated (i) Licensee shall pay the Royalty on Net Sales and Sublicense Fees to Licensor at the rate of twice (2X) the rate specified in Section 5.2.2 and Section 5.2.3, as applicable, in respect of Net Sales of all Licensed Products sold and all Sublicense Fees earned or received by Licensee during the pendency of such action and, should the outcome of such action determine that any claim of a Licensor Patent challenged by Licensee (including its Affiliates) is both valid and infringed by a Licensed Product, Licensee shall pay the Royalty on Net Sales and Sublicense Fees to Licensor at the rate of three times (3X) the rate specified in Section 5.2.2 and Section 5.2.3, as applicable, in respect of all Licensed Products thereafter sold. Licensee shall reimburse Licensor for its legal costs and expenses incurred in defending any such challenge, regardless of the outcome.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

- 17 -

7.6.        Effects of Termination; Termination of License.

 

Upon a termination of this Agreement for any reason, Licensee’s rights to the Licensed Technology, Auxiliary Technologies, and the Auxiliary Technology Patents, inclusive of the Licensed Products, which have been granted hereunder and all use thereof will terminate, any and all rights in the Licensed Technology, Auxiliary Technologies, and the Auxiliary Technology Patents, inclusive of the Licensed Products, will revert back to Licensor and Licensee will cease using the Cell Lines, and will cease selling, offering for sale, importing, exporting, developing and commercializing all Licensed Products. Upon Licensor’s request, in the event of a termination of this Agreement in its entirety. Licensee will destroy or return the Cell Lines and all copies, except for the copies to be retained by Licensee’s legal counsel, of any media or materials which have been provided by Licensor to Licensee and are the property of Licensor, including but not limited to all data, documentation, notes, plans, drawings, copies, samples and computer code. Upon termination of this Agreement other than termination by Licensor in accordance with Section 7.2, Licensee, Licensee’s Affiliates and Licensee’s sublicensees may complete and sell any work-in-progress and inventory of Licensed Products that exist as of the effective date of termination provided that (i) Licensee pays Licensor the applicable royalty on such Net Sales in accordance with the terms and conditions of this Agreement, and (ii) Licensee, Licensee’s Affiliates and Licensee’s sublicensees shall complete and sell all work-in-progress and inventory of Licensed Products within six (6) months after the effective date of termination.

 

7.7.         Effect on Sublicenses.

 

In the event that this Agreement is terminated by Licensor in accordance with Section 7.2, and if Licensee requests that a given sublicense(s) survive such termination, any such surviving sublicense(s) shall be considered a direct license from Licensor to such surviving sublicensee; provided that such sublicensee agrees in writing that (i) Licensor is entitled to enforce all relevant provisions directly against such sublicensee, and (ii) Licensor shall not assume, and shall not be responsible to such sublicensee for. any representations, warranties or obligations of Licensee to such sublicensee, other than to permit such sublicensee to exercise any rights to the Licensed Technology, Auxiliary Technologies, and the Auxiliary Technology Patents sublicensed to such sublicensee by Licensee.

 

7.8.         Right to Reference Regulatory Filings.

 

Upon termination of this Agreement pursuant to Sections 7.2, 7.3 or 7.4, Licensee will permit Licensor and its Affiliates, licensors, licensees and sublicensees to reference Regulatory Approvals obtained from, and filings made by Licensee with Regulatory Authorities with respect to the Licensed Products in the Field at no cost to Licensor. In addition, at Licensor’s reasonable request, Licensee will allow Licensor to review at Licensee’s offices all records required by Regulatory Authorities to be maintained with respect to the development, sale, storage, handling, shipping and use of the Licensed Products in the Field, and all reimbursement approval files pertaining to the Licensed Products in the Field.

 

7.9.        Accrued Obligations.

 

Expiration or termination of this Agreement will not release either Party from any obligation that matured prior to the effective date of such expiration or termination. Upon expiration or termination of this Agreement for any reason, any unpaid amounts payable to Licensor shall become immediately due, and payment thereof shall remain an ongoing obligation of Licensee until such amount is paid in full.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

- 18 -

7.10.       Survival.

 

Upon expiration or termination of this Agreement, Sections 2.3, 2.4, 5.4, 6.3, 6.4, 7.5-7.9, 8.6, and 9-11 will, with related definitions, survive and remain in full force and effect.

 

Section 8

Protection of Intellectual Property Rights

 

8.1.         Patent Prosecution.

 

During the Term, Licensor will be responsible for preparing, filing, prosecuting and maintaining all patent applications and patents included in the Licensed Patents and the Auxiliary Technology Patents in the Territory. For the sake of clarity, as used herein the term “prosecution” shall include interference, opposition, and derivation proceedings in connection with the Licensed Patents and the Auxiliary Technology Patents. Licensor shall select patent counsel to conduct such activities regarding the Licensed Patents and the Auxiliary Technology Patents. Licensor shall cause all patent applications and patents included in the Licensed Patents and the Auxiliary Technology Patents in the Territory to be diligently prosecuted, and in the event Licensor decides to irrevocably discontinue prosecution of any patent applications included in the Licensed Patents or the Auxiliary Technology Patents, or irrevocably allow any patents included in the Licensed Patents or the Auxiliary Technology Patents to lapse, Licensor shall provide Licensee notice therof in accordance with Section 8.2. All Patent Expenses will be borne by Licensee pro rata, whereby Licensee’s pro rata share of such Patent Expenses shall equal 1/n of such Patent Expenses, where “n” equals the total number of licenses of the Licensed Patents or Auxiliary Technology Patents at the time such Patent Expenses were incurred, as determined by Licensor in its sole discretion. Licensee has no obligation to pay any Patent Expenses that were incurred prior to the Effective Date.

 

8.2.         Licensee’s Right to Take Over Prosecution or Pay Fees.

 

In the event that Licensor decides to irrevocably discontinue prosecution of any patent applications included in the Licensed Patents or the Auxiliary Technology Patents without filing a continuing or divisional application, Licensor will notify Licensee thereof within such time as may be reasonably necessary for Licensee to continue such prosecution on Licensor’s behalf, and Licensee will have the right, but not the obligation, to so continue such prosecution at its own cost and expense. In the event that Licensor decides to allow any patents included in the Licensed Patents or the Auxiliary Technology Patents to lapse as a result of nonpayment of an annuity, maintenance fee, or equivalent, Licensor will notify Licensee thereof within such time as may be reasonably necessary for Licensee to make such payment on Licensor’s behalf, and Licensee will have the right, but not the obligation, to pay the annuity, maintenance fee, or equivalent at its own cost and expense.

 

8.3.         Enforcement of Licensed Patents.

 

8.3.1.       Notice.

 

If either Party becomes aware of any infringement in the Field, anywhere in the Territory, of any issued patent within the Licensed Patents or the Auxiliary Technology Patents, such Party will notify the other Party in writing within thirty (30) days to that effect.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

- 19 -

 

8.3.2.       Infringement of Licensed Patents or Auxiliary Technology Patents by Third Parties.

 

8.3.2.1 In the case of any infringement of any Licensed Patent or Auxiliary Technology Patent by any third party, Licensor will have the first right, but not the obligation, to cause such third party to cease infringement and to otherwise enforce such Licensed Patent or Auxiliary Technology Patent, or to defend the Licensed Patent or Auxiliary Technology Patent in any declaratory judgment action brought by third party(ies) which alleges the invalidity, unenforceability or non-infringement of the rights associated with the Licensed Patent or Auxiliary Technology Patent. All costs and expenses associated with defending the Licensed Patent or Auxiliary Technology Patent in any such declaratory judgment action will be borne by Licensor, provided, however, that, in the event such declaratory judgment action resulted from or occurred during discussions (regarding any subject matter whatsoever) between the third party and Licensee, then all costs and expenses associated with defending the Licensed Patent or Auxiliary Technology Patent in the declaratory judgment action will be borne by Licensee. Licensee will cooperate and provide reasonable assistance in any action described in this Section 8.3.2.1. Except for providing such cooperation and reasonable assistance, Licensee will have no obligation regarding the legal actions described herein; provided that if required to enable Licensor to initiate or continue such action, Licensee will join such action at Licensor’s request and expense. Any recovery or compensation resulting from such proceeding will first be used to reimburse Licensee for any unreimbursed expenses incurred in connection with providing assistance or joining the proceeding at Licensor’s request, and the remainder, if any. will belong entirely to Licensor.

 

8.3.2.2 If Licensor does not. within a reasonable period after becoming aware of a third party infringement of the Licensed Patents or Auxiliary Technology Patents in the Field, but in any event no less than ninety (90) calendar days from the date of receipt of written notice from Licensee, (i) initiate legal proceedings against such threatened or actual infringement, or defend legal proceedings brought by a third party, as provided in Section 8.3.2.1 above, or (ii) take other reasonable steps to cause such infringement to terminate (for example, by initiating licensing discussions), Licensee may deliver written notice to Licensor that it intends to take action to cause such infringement to terminate, and subject to Licensor’s prior written consent. Licensee may take such action as it deems reasonably necessary to enforce its rights in the Licensed Patents or Auxiliary Technology Patents in the Field, including, without limitation, to bring, at its own expense, an infringement action or file any other appropriate action or claim related to such infringement against any third party. Licensor will, at the reasonable request of Licensee, cooperate and provide reasonable assistance in any action taken by Licensee and described in this Section 8.3.2.2 and, if required to enable Licensee to initiate or continue such action, will join such action at Licensee’s reasonable request, all at Licensee’s cost and expense. Any recovery or compensation resulting from such proceeding undertaken by Licensee will first be used to reimburse Licensor for any unreimbursed expenses in connection with providing assistance at or joining the proceeding at Licensee’s request, then to reimburse Licensee for any expenses, and thereafter to reimburse Licensor for any other unreimbursed expenses incurred in connection with the proceeding (including attorneys’ fees, expert witness fees, court fees, and related charges), and the remainder, if any, will be shared equally by Licensor and Licensee.

 

8.4.       Infringement of Third-Party Rights.

 

Each Party will promptly notify the other Party in writing of any notice or claim of any allegation of infringement or commencement against it of any suit or action for infringement of a third-party patent based upon or arising from actions taken under the licenses granted in this Agreement (‘‘Third-Party Infringement Claim”). If such Third-Party Infringement Claim is alleged or commenced against Licensee, Licensee will have the sole right to defend and settle such Third-Party Infringement Claim, and Licensee will not be obligated to enter into negotiations with such third party to obtain rights for either Licensee or Licensor under the third-party patent. If such Third-Party Infringement Claim is alleged or commenced against Licensor, Licensee will have the first right, but not the obligation, to defend and settle such Third-Party Infringement Claim, provided, however, that Licensee will not be obligated to enter into negotiations with such third party to obtain rights for Licensor under the third-party patent. With respect to any such defense by Licensee of a Third-Party Infringement Claim alleged or commenced against Licensor, Licensee will not make any settlements of such Third-Party Infringement Claim that would materially adversely affect Licensor’s rights or interests in the Licensed Technology, Auxiliary Technologies or the Auxiliary Technology Patents without first obtaining Licensor’s prior written consent. If Licensee opts not to defend or settle such Third-Party Infringement Claim alleged or commenced against Licensor, Licensee will notify Licensor of such decision and, at Licensor’s expense, Licensor will have the right to undertake the defense or settlement of such Third-Party Infringement Claim.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited 

- 20 -

8.5.        Patent Marking.

 

Licensee will mark Licensed Products sold or distributed by Licensee (and will require that Licensee’s Affiliates and sublicensees mark Licensed Products sold or distributed by Licensee’s sublicensees) in a given country in the Territory with a notice that will recite that such Licensed Products are made under one or more of the Licensed Patents or Auxiliary Technology Patents, in the manner and with such prominence as is legally required or, if there is no legal requirement, as is customary for such proprietary notices in such country.

 

8.6.        Confidential Information.

 

Each Party shall maintain the Confidential Information of the other Party in strict confidence, and will not disclose, divulge or otherwise communicate such Confidential Information to others, or use it for any purpose, except pursuant to, and in order to carry out, the terms and objectives of this Agreement, or with the express written consent of the Party who provided such Confidential Information. Each Party will maintain the confidentiality of the other Party’s confidential information using methods and practices that are substantially similar to those that the receiving Party uses to maintain the confidentiality of its own confidential information, but in no event less than a reasonable degree of care. Except as may be authorized in advance in writing by the disclosing Party, the receiving Party’ will only grant access to the Confidential Information to its employees and agents as necessary to carry out activities under this Agreement and such employees and agents will have entered into non-disclosure agreements consistent with the terms of this Section 8.6. The obligations of confidentiality described above will not pertain to that part of any Confidential Information to the extent that it is supported by competent written proof that:

 

8.6.1.     such information was lawfully in the receiving Party’s possession or control prior to the time it received the information from the disclosing Party;

 

8.6.2.     such information was developed by the receiving Party independently of and without reference to the Confidential Information of the disclosing Party;

 

8.6.3.     such information was, at the time it was disclosed to or obtained by the receiving Party, or thereafter became, available to the public through no act or omission of the Party holding such information; or

 

8.6.4.     such information was lawfully obtained by the receiving Party from a third party that has the right to disclose such information free of any obligations of confidentiality.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited 

- 21 -

8.6.5.     In addition, a receiving Party may disclose such Confidential Information to the limited extent required to do so by Applicable Law or a proper legal, governmental or other competent authority, or by the rules of any securities exchange on which any security issued by either Party is traded, or included in any filing or action taken by the receiving Party to obtain or maintain government clearance or approval to market a subject Licensed Product. Except where impracticable, such required Party shall give the other Party reasonable advance notice of such disclosure requirement and shall afford the other Party a reasonable opportunity to oppose, limit or secure confidential treatment for such required disclosure, or, where it is impracticable to give an advance notice, such required Party shall give the other Party reasonable notice promptly after such required disclosure. In the event of any such required disclosure, the required Party shall disclose only that portion of the Confidential Information legally required to be disclosed.

 

8.6.6      In addition, either Party may disclose this Agreement and the terms hereof (including providing a copy hereof, redacted as appropriate) to any bona fide potential permitted sublicensee or successor to said Party’s interest under this Agreement, to a bona fide potential lender from which said Party is considering borrowing money, to a bona fide potential collaborator in connection with development or commercialization of Licensed Products, or to any bona fide financial investor from which said Party may take money; provided, however, in any such case said Party shall first obtain a written obligation of confidentiality no less stringent than that imposed in this Section 8.6 from the bona fide potential permitted sublicensee or successor, bona fide potential lender, bona fide potential collaborator or bona fide financial investor.

 

8.7.       Use of Names.

 

Neither Party may identify the other Party in any promotional advertising or other promotional materials to be disseminated to the public or any portion thereof, or use the name of any staff member or employee of the other Party or any trademark, service mark, trade name, symbol or logo that is associated with the other Party, without the other Party’s prior written consent. Notwithstanding the foregoing, and for the avoidance of doubt, without the consent of the other Party either Party may comply with disclosure requirements of all Applicable Laws relating to its business, including, without limitation. United States and state securities laws. Each Party may include the other Party’s name, logo, and a brief description of such other Party on said Party’s website.

 

8.8.       Press Releases.

 

The Parties shall mutually agree upon the timing and content of any press releases or other public announcement relating to this Agreement and the transactions contemplated herein; provided, however, that subject to Section 2.4.2, the foregoing shall not apply to publication of scientific findings in the form of Licensed Products or in connection with the Exploitation of Licensed Products.

 

Section 9

Indemnification; Insurance

 

9.1.       Indemnification by Licensee.

 

Licensee will indemnify, defend and hold harmless Licensor, its Affiliates and their respective directors, officers, employees, consultants, licensors and agents, and their respective successors, heirs, and assigns (each a “Licensor Indemnitee”), against all third party suits, actions, claims, proceedings, liabilities, demands, damages, losses, or expenses (including legal expenses, investigative expenses, and attorneys’ fees), including claims resulting from or connected to the death of or injury to any person or persons, or any damage to property, resulting from, arising out of, or otherwise attributable to Licensee’s or, as applicable Licensee’s Affiliate’s or sublicensee’s: (a) negligence or misconduct, (b) failure to comply with Applicable Laws or the terms of this Agreement, including any breach of Licensee’s express representations and warranties set forth in this Agreement, (c) Exploitation of Licensed Products or the exercise of the licenses granted under this Agreement, including the production, manufacture, sale, use, lease, consumption, administration, shipping, storage, transfer, advertisement, analysis, measurement, description, or characterization of the Licensed Technology, Auxiliary Technologies, Auxiliary Technology Patents, Improvements, Improvement Patents, Cell Lines or Licensed Products, or any activity arising from or in connection with any right or obligation of Licensee hereunder, except in each case to the extent resulting from, arising out of, or otherwise attributable to Licensor’s breach of any express representation, warranty or covenant set forth in Section 6.1. The Licensor will promptly give notice to Licensee of any suits, actions, claims, proceedings, liabilities, demands, damages, losses, or expenses which might be covered by this Section 9.1 and Licensee will have the right to defend the same, including selection of counsel and control of the proceedings; provided that Licensee will not, without the written consent of Licensor, settle or consent to the entry of any judgment with respect to any such third party claim (x) that does not release the Licensor Indemnitee(s) from all liability with respect to such third party claim or (y) which may materially adversely affect Licensor or the Licensor Indemnitee or under which Licensor or the Licensor Indemnitee would incur any obligation or liability, other than one as to which Licensee has an indemnity obligation hereunder. Licensor agrees to fully cooperate and aid such defense. Licensor at all times reserves the right to select and retain counsel of its own at its own expense to defend Licensor’s interests.

  

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited 

- 22 -

 

9.2.        Indemnification by Licensor.

 

Licensor will indemnify, defend and hold harmless Licensee, its Affiliates and their respective directors, officers, employees, consultants, licensors and agents, and their respective successors, heirs, and assigns (each a ‘‘Licensee Indemnitee”), against all third party suits, actions, claims, proceedings, liabilities, demands, damages, losses, or expenses (including legal expenses, investigative expenses, and attorneys’ fees), including claims resulting from or connected to the death of or injury to any person or persons, or any damage to property, resulting from, arising out of, or otherwise attributable to Licensor’s breach of Licensor’s express representations and warranties set forth in Section 6.1 of this Agreement, except to the extent resulting from, arising out of, or otherwise attributable to Licensee’s breach of any express representation, warranty or covenant set forth in Section 6.2. Licensee will promptly give notice to Licensor of any suits, actions, claims, proceedings, liabilities, demands, damages, losses, or expenses which might be covered by this Section 9.2 and Licensor will have the right to defend the same, including selection of counsel and control of the proceedings; provided that Licensor will not, without the written consent of Licensee, settle or consent to the entry of any judgment with respect to any such third party claim (x) that does not release the Licensee Indemnitee(s) from all liability with respect to such third party claim or (y) which may materially adversely affect Licensee or the Licensee Indemnitee or under which Licensee or the Licensee Indemnitee would incur any obligation or liability, other than one as to which Licensor has an indemnity obligation hereunder. Licensee agrees to fully cooperate and aid such defense. Licensee at all times reserves the right to select and retain counsel of its own at its own expense to defend Licensee’s interests.

 

9.3.        Insurance.

 

Licensee shall maintain in full force and effect during the Term and for a period of three (3) years after expiration or termination of this Agreement, worker’s compensation, general liability and professional liability, clinical trial liability, and product liability insurance coverage, all in such amounts and with such scope of coverages as are reasonably sufficient to cover Licensee’s obligations under this Agreement (including Licensee’s indemnity obligations set forth in Section 9.1) and as are customary in the life sciences and pharmaceutical industries. Upon written request. Licensee shall provide evidence of such insurance to Licensor. Licensor shall be named as an additional insured with respect to such insurance policies, and Licensee shall ensure that Licensor will receive no less than fourteen (14) days’ prior notice of any cancellation, non-renewal or material change in such insurance coverage.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited 

- 23 -

Section 10 

Alternative Dispute Resolution

 

10.1.      Negotiation.

 

In the event of any dispute or disagreement between the Parties as to the interpretation of any provision of this Agreement or any other related document (or the performance of any obligations hereunder or thereunder), the matter, upon written request of either Party, shall be referred to representatives of the Parties for decision, each Party being represented by an Executive Officer (the “Representatives”). The Representatives shall promptly meet in a good faith effort to resolve the dispute. If the Representatives do not mutually agree upon a decision within thirty (30) calendar days after reference of the matter to them, each of the Parties shall be free to exercise the remedies available to it under Section 10.2. Each Party may extend the period of time for negotiation among the Representatives for an additional period of fourteen (14) calendar days on one (1) occasion per dispute.

 

10.2.      Submission to Arbitration.

 

If the Parties are unable to resolve such dispute pursuant to Section 10.1, the dispute shall be submitted to binding arbitration (without any recourse to the federal or state courts except to enforce any arbitral award or. within forty five (45) days of an Arbitrator’s rendering of a final decision, to appeal such final decision based solely on a claim that the Arbitrator engaged in gross misconduct or made a material error or miscalculation in his or her decision) in accordance with the rules of JAMS/End Dispute (“JAMS”) then in force (except as expressly modified below), and the arbitration hearings shall be held before a single arbitrator (“Arbitrator”) in Boston, Massachusetts. The Parties agree to appoint an Arbitrator who is knowledgeable in the biotechnology and/or life sciences industries. If the Parties cannot agree upon an Arbitrator within ten (10) days after a demand for arbitration has been filed with the JAMS by either of them, either or both Parties may request the JAMS to name a panel of five (5) candidates to serve as Arbitrator. The Parties shall each, in successive rounds (with the Party demanding the arbitration having the first chance to strike a name), strike one name off this list until only one name remains, and such last- named person shall be the Arbitrator.

 

10.3.      Conduct of Arbitration.

 

The Arbitrator shall be required to (a) follow the substantive rules of Massachusetts State or Federal law, as applicable, (b) require all testimony to be transcribed, and (c) accompany his or her award with findings of fact and a statement of reasons for the decision. The Arbitrator shall have the authority to permit discovery for no more than thirty (30) days, to the extent deemed appropriate by the Arbitrator, upon reasonable request of a Party. The Arbitrator shall have no power or authority to (i) add to or detract from the written agreement of the Parties set forth herein, (ii) modify or disregard any provision of this Agreement or any of the other related documents, or (iii) address or resolve any issue not submitted by the Parties. The Arbitrator shall hold proceedings during a period of no longer than thirty (30) calendar days promptly following conclusion of discovery, and the Arbitrator shall render a final decision within thirty (30) days following conclusion of the hearings. The Arbitrator shall have the power to grant injunctive relief (without the necessity of a Party posting a bond) in the event a Party has violated the confidentiality provisions set forth in this Agreement, but shall have no power to award punitive and/or exemplary damages in the event of a breach. In the event of any conflict between the commercial arbitration rules then in effect and the provisions of this Agreement, the provisions of this Agreement shall prevail and be controlling.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited 

- 24 -

 

10.4.      Interim Relief.

 

Either Party may, without waiving any remedy under this Agreement, apply to the Arbitrator for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Either Party also may, without waiving any remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights regarding the Intellectual Property of that Party pending the arbitration award. The Arbitrator shall have no authority to award punitive or any other type of damages not measured by a Party’s compensatory damages.

 

10.5.      Cost of Arbitration.

 

Each Party shall share in the actual and direct costs of the engagement of the Arbitrator, but the prevailing Party in the arbitration shall be reimbursed by the non-prevailing Party for the prevailing Party’s fees and costs of arbitration (e.g., the costs, fees and expenses of outside experts and counsel retained by the prevailing Party). If one Party is not deemed by the Arbitrator to be the primary prevailing Party, then each Party will pay its own costs, fees and expenses (including attorneys’ fees) and an equal share of the Arbitrator’s fees and any administrative fees of arbitration.

 

10.6.      Excluded Claims.

 

Unless otherwise mutually agreed upon by the Parties in writing, any Excluded Claims shall be brought in the federal court for the District Court of Massachusetts, if federal jurisdiction is available, or, alternatively, in the state courts in Suffolk County, Massachusetts. Each of the Parties hereby submits to the exclusive jurisdiction of such courts for the purpose of any such litigation; provided, however, that a final judgment in any such litigation shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably and unconditionally agrees not to assert (a) any objection which it may ever have to the laying of venue of any such litigation in such courts, (b) any claim that any such litigation brought in any such court has been brought in an inconvenient forum, and (c) any claim that such court does not have jurisdiction with respect to such litigation. As used in this Section 10.6. the term “Excluded Claim” means a dispute, controversy or claim that concerns: (x) the scope, construction, validity or infringement of a patent, trademark or copyright: (y) any antitrust, antimonopoly or competition law or regulation, whether or not statutory’: or (z) the Licensee’s or, as applicable Licensee’s Affiliates or sublicensee(s), Exploitation of Licensed Products or use of the Licensed Technology. Auxiliary Technologies, or the Auxiliary Technology Patents outside of the Field.

 

10.7.      Injunctive Relief; Specific Performance.

 

Notwithstanding anything to the contrary herein, nothing in this Section 10 shall preclude a Party from seeking injunctive relief or specific performance in a court of competent jurisdiction.

 

10.8.      Confidentiality.

 

Except to the extent necessary to confirm an award or as may be required by law, neither a Party nor an Arbitrator may disclose the existence, content, or results of the arbitration without the prior written consent of both Parties, except to its directors and officers. In no event shall arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable Massachusetts statute of limitations.

  

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited 

- 25 -

 

Section 11

Miscellaneous

 

11.1.      Compliance with Law.

 

In connection with its Exploitation of Licensed Products, Licensee agrees to comply with all Applicable Laws. Without limiting the foregoing, by entering into this Agreement, the Parties specifically intend to comply with all Applicable Laws pertaining to Licensed Products, including (i) the federal anti-kickback statute (42 U.S.C. §1320a-7b) and the related safe harbor regulations; and (ii) the Limitation on Certain Physician Referrals, also referred to as the “Stark Law’’ (42 U.S.C. §1395nn). Accordingly, no part of any consideration paid hereunder is a prohibited payment for the recommending or arranging for the referral of business or the ordering of items or services; nor are the payments intended to induce illegal referrals of business.

 

11.2.      Assignment.

 

This Agreement will be binding upon and will inure to the benefit of each Party and each Party’s respective transferees, successors and assigns, pursuant to the provisions set forth below. Licensee may not transfer or assign this Agreement without the prior written consent of Licensor, except as provided in this Section 11.2. In the event that a third party (the “Acquiring Party”) acquires all or substantially all of Licensee’s business, capital stock or assets, whether by sale, merger, change of control, operation of law or otherwise (an “Acquisition”), the rights granted to Licensee under this Agreement pertaining to any and all Licensed Products shall inure to the benefit of the Acquiring Party. For the avoidance of doubt, in the event of an Acquisition, the Acquiring Party will be responsible for all payments and other obligations set forth in this Agreement, including, but not limited to, all payments set forth herein, and any obligations that matured prior to the Acquisition date. Upon an Acquisition, any unpaid portion of any deferred payments payable to Licensor hereunder shall become immediately due, and payment thereof shall remain an ongoing obligation of the Acquiring Party until such amount is paid in full. Any attempted assignment in contravention of this Section 11.2 will be null and void.

 

11.3.      Entire Agreement.

 

This Agreement constitutes the entire agreement between the Parties hereto with respect to the subject matter thereof, amends and restates the Prior Agreement in its entirety, and supersedes all previous negotiations, commitments, and writings with respect to such subject matter. Without limiting the foregoing, any terms or provisions of the Prior Agreement not included in this Agreement are terminated as of the Third Amendment Effective Date. Notwithstanding the foregoing, and for the avoidance of doubt, any and all rights granted to Licensee under the Original Agreement, the First Amended and Restated Agreement, or the Prior Agreement, and not granted in this Agreement, are terminated as to Licensee and its sublicensees (if any), and shall revert back to Licensor as of the Third Amendment Effective Date, and Licensee hereby releases Licensor and Licensor’s other licensees from any and all claims with respect to such rights under the Original Agreement, the First Amended and Restated Agreement, or the Prior Agreement. Neither Party shall be obligated by any undertaking or representation regarding that subject matter other than those expressly stated herein or as may be subsequently agreed to by the Parties hereto in writing. In the event of any conflict or inconsistency between any provision of any Exhibit hereto and any provision of this Agreement, the provisions of this Agreement shall prevail.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited 

- 26 -

 

11.4.        Amendment.

 

No amendment, modification or supplement of any provision of this Agreement will be valid or effective unless made in writing and signed by a duly authorized officer of each Party.

 

11.5.        Notices.

 

Any notice required to be given pursuant to the provisions of this Agreement will be in writing and will be deemed to have been given at the time when actually received as a consequence of any effective method of delivery, including but not limited to hand delivery, transmission by telecopier, facsimile or electronic transmission, including PDF (portable document format), delivery by a professional courier service or delivery by first class, certified or registered mail (postage prepaid) addressed to the Party for whom intended at the address below, or at such changed address as the Party will have specified by written notice in accordance with this Section 11.5; provided, however, that any notice of change of address will be effective only upon actual receipt.

 

If to Licensor: 

Factor Bioscience Limited

c/o Factor Bioscience Inc. 

Attn: Matt Angel, Ph.D., CEO 

1035 Cambridge Street, Suite 17B 

Cambridge, MA 02141

matt.angel@factorbio.com

 

If to Licensee: 

Novellus Therapeutics Limited

c/o Novellus, Inc. 

Attn: Christopher Rohde, Ph.D., President 

1035 Cambridge Street, Suite 17B 

Cambridge, MA 02141 

chris.rohde@novellustx.com

 

11.6.        Governing Law.

 

11.6.1.    The substantive law governing this Agreement (which shall be applied in the arbitration) shall be, with respect to disputes involving general contract or trade secret matters, the internal laws of the Commonwealth of Massachusetts, and with respect to matters involving patents, the United States Patent Act, as to copyright matters, the United States Copyright Act, and as to trademark matters, the United States Trademark Act, each as amended from time to time. Any award rendered by the Arbitrator shall be final, conclusive and binding upon the Parties to this Agreement, and judgment thereon may be entered and enforced in any state or federal court of competent jurisdiction.

 

11.6.2.    If any provisions of this Agreement are or will come into conflict with the laws or regulations of any jurisdiction or any governmental entity having jurisdiction over the Parties or this Agreement, those provisions will be deemed automatically deleted, if such deletion is allowed by relevant law, and the remaining terms and conditions of this Agreement will remain in full force and effect. If such a deletion is not so allowed or if such a deletion leaves terms thereby made clearly illogical or inappropriate in effect, the Parties agree to substitute new terms as similar in effect to the present terms of this Agreement as may be allowed under Applicable Law.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited 

- 27 -

 

11.7.        Descriptive Headings.

 

This Agreement has been prepared jointly by the Parties and shall not be strictly construed against either Party. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. Licensee hereby acknowledges that Licensor owns and/or has in-licensed the Licensed Technology, Auxiliary Technologies, and the Auxiliary Technology Patents, and the use of the term “license” hereunder with reference to the rights granted to Licensee is understood by the Parties to mean either a direct license of Licensor’s ownership interest in the subject Licensed Technology, Auxiliary Technology, or Auxiliary Technology Patent or a sublicense of Licensor’s in-licensed interest in the subject Licensed Technology, Auxiliary Technology or Auxiliary Technology Patent, as applicable. The headings of each Section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular Section. Except where the context otherwise requires, the use of any gender shall be applicable to all genders, and the word “or” is used in the inclusive sense (and/or). The term “including” as used herein means including, without limiting the generality of any description preceding such term.

 

11.8.        Independent Contractors.

 

Both Parties are independent contractors under this Agreement. Nothing contained in this Agreement will be deemed to create an employment, agency, joint venture or partnership relationship between the Parties hereto or any of their agents or employees, or any other legal arrangement that would impose liability upon one Party for the act or failure to act of the other Party. Neither Party will have any express or implied power to enter into any contracts or commitments or to incur any liabilities in the name of, or on behalf of, the other Party, or to bind the other Party in any respect whatsoever. Notwithstanding anything contained herein to the contrary, and for the avoidance of doubt, Licensor shall not be deemed an Affiliate of Licensee, and Licensee shall not be deemed an Affiliate of Licensor.

 

11.9.        Severability.

 

The illegality or partial illegality of any provision of this Agreement will not affect the validity of the remainder of the Agreement, or any provision thereof, and the illegality or partial illegality of any provision of this Agreement will not affect the validity of the Agreement in any jurisdiction in which such determination of illegality or partial illegality has not been made, except in either case to the extent such illegality or partial illegality causes the Agreement to no longer contain all of the material provisions reasonably expected by the Parties to be contained therein. Moreover, in the event that a court of competent jurisdiction determines that any provision of this Agreement is illegal or partially illegal, then it is the intention of the Parties that such provision be modified to the minimum extent deemed necessary by such court to make such provision enforceable and to give effect to the original intention of the Parties.

 

11.10.        Waiver of Compliance.

 

The failure of either Party to comply with any obligation, covenant, agreement or condition under this Agreement may be waived by the Party entitled to the benefit thereof only by a written instrument signed by the Party on granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to. any subsequent or other failure. The failure of any Party to enforce at any time any of the provisions of this Agreement will in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of the Agreement or any part thereof or the right of any Party thereafter to enforce each and every such provision. No waiver of any breach of such provisions will be held to be waiver of any other or subsequent breach.

 

License Agreement,

Factor Bioscience Limited. Novellus Therapeutics Limited

 

- 28 -

 

11.11.        Counterparts.

 

This Agreement may be executed by original or facsimile signature in any number of counterparts, each of which need not contain the signature of more than one Party but all such counterparts taken together will constitute one and the same agreement.

 

11.12.        Authority.

 

The persons signing on behalf of Licensor and Licensee hereby warrant and represent that they have authority to execute this Agreement on behalf of the Party for whom they have signed.

 

11.13.        Non-Disparagement.

 

Licensee on behalf of itself, its Affiliates and sublicensees hereby covenants and agrees that it shall not make, write or publish any statement, assertion or claim that disclaims, disparages, denies, questions or otherwise challenges or casts doubt upon the validity, enforceability, scope, construction or inventorship of any patent Controlled by Licensor (including, but not limited to, any pending or issued claim(s) within the Licensed Patents or the Auxiliary Technology Patents). The provisions set forth in this Section 11.13 shall take effect on the Effective Date, shall not require any further consideration or performance of Licensor, shall remain in effect regardless of any event that may occur hereunder or otherwise, including any breach of this Agreement by either Party, shall survive the termination or expiration of this Agreement, and, upon the termination or expiration of this Agreement, shall, with related definitions, remain in full force and effect for five (5) years. If any part of this Section 11.13 shall be deemed illegal or unenforceable by a court of competent jurisdiction, that part shall be deemed automatically deleted, such deletion being made as narrowly as possible (and, if possible, only in said jurisdiction) to maintain, as much as possible, the intent of this Section 11.13, and the remainder of this Section 11.13 shall, with related definitions, remain in full force and effect.

 

11.14.       Non-Solicitation.

 

During the Term, neither Party shall, without the prior written consent of the other Party, directly or indirectly solicit for employment any employee of the other Party or any of its Affiliates or subsidiaries, or any person who has terminated his or her employment with the other Party or any of its Affiliates or subsidiaries within the previous twelve (12)-month period prior to any purported solicitation; provided, however, the foregoing will not prevent a Party from employing any such person who contacts such Party on his or her own initiative without any direct or indirect solicitation by or encouragement from the soliciting or hiring person. General advertising which is not directed at any specific employee of a Party will not be deemed solicitation, and hiring of employees of such Party which are solicited in this manner will not be a breach of this provision.

 

11.15       Force Majeure.

 

Neither Party hereto shall be liable for failures and delays in performance due to strikes, lockouts, fires, acts of God or the public enemy, riots, incendiaries, interference by civil or military authorities, acts of terrorism, endemic, pandemic, and the results related to such acts, compliance with the law s of various states/countries, or with the orders of any governmental authorities, delays in transit or delivery on the part of transportation companies, failures of communication facilities, or any failure of sources of material.

 

License Agreement,

Factor Bioscience Limited. Novellus Therapeutics Limited

 

- 29 -

 

 

11.16        No Preferential Treatment, Fraudulent Conveyance, Insolvency.

 

11.16.1 The Parties have not entered into this Agreement to provide any preferential treatment under section 547 of title 11 of the United States Code, as amended (the “Bankruptcy Code”) or any other applicable insolvency law.

 

11.16.2 Neither the execution or delivery of this Agreement or the consummation of the transactions hereunder were entered into with the intent by the Parties to effectuate a transaction that may be avoided under section 548(a) of the Bankruptcy Code, the Uniform Fraudulent Transfer Act (the “UFTA”), or any other applicable insolvency law. The Parties received reasonably equivalent value in exchange for the obligations provided hereunder. The transactions contemplated hereunder are not subject to avoidance under section 548(a) of the Bankruptcy Code, the UFTA, or any applicable insolvency law.

 

11.16.3 As of the Third Amendment Effective Date, Licensor does not intend to file for protection or seek relief under title 11 of the Bankruptcy Code or any similar federal or state law providing for the relief of debtors. The Licensor is not now insolvent (as such term is defined in the Bankruptcy Code or any other applicable law relating to insolvency).

 

11.16.4 Notwithstanding any other provision of this Agreement to the contrary, in the event that Licensor becomes a debtor under the Bankruptcy Code and rejects this Agreement pursuant to section 365 of the Bankruptcy Code (a “Bankruptcy Rejection”): (a) any and all of the licensee and sublicensee rights of Licensee arising under or otherwise set forth in this Agreement, shall be deemed fully retained by and vested in Licensee as protected intellectual property rights under section 365(n)(l)(B) of the Bankruptcy Code and further shall be deemed to exist immediately before the commencement of the bankruptcy case in which Licensor is the debtor; (b) Licensee shall have all of the rights afforded to non-debtor licensees and sublicensees under section 365(n) of the Bankruptcy Code and all other applicable laws; and (c) to the extent any rights of Licensee under this Agreement that arise after the termination or expiration of this Agreement are determined by a bankruptcy court to not be “intellectual property rights” for purposes of section 365(n), all of such rights shall remain vested in and fully retained by Licensee after any Bankruptcy Rejection as though this Agreement were terminated or expired. Licensee shall under no circumstances be required to terminate this Agreement after a Bankruptcy Rejection in order to enjoy or acquire any of its rights under this Agreement, but retains the right to do so in accordance herewith.

 

Remainder of page intentionally left blank.

 

License Agreement,

Factor Bioscience Limited. Novellus Therapeutics Limited

 

- 30 -

 

IN WITNESS WHEREOF, the Parties hereto have duly executed this Third Amended and Restated Exclusive License Agreement as of the Third Amendment Effective Date.

 

Factor Bioscience Limited

 

By: (GRAPHIC)  
  Name: Matt Angel  
  Title: President and Chief Executive Officer  

 

Novellus Therapeutics Limited

 

By: (GRAPHIC)  
  Name: Christopher Rohde  
  Title: President  

 

License Agreement,

Factor Bioscience Limited. Novellus Therapeutics Limited

 

- 31 -

 

Exhibit A

 

Financial Terms

 

Sec. 5.1 Licensee shall pay to Licensor the Upfront Fee of $2,749,700, which Upfront Fee has been fully paid as of the Third Amendment Effective Date.

 

Sec. 5.2.1 For each Licensed Product, each time a Milestone set forth below is achieved by Licensee (or an Affiliate of Licensee) (and such Milestone is not otherwise achieved through a sublicense as provided in Section 2.2), Licensee shall pay to Licensor the corresponding Milestone Payment set forth below:

 

Milestone Milestone Payment
Development Milestones
IND Filing with a Regulatory Authority $2,000,000
First Patient Enrolled in a Phase I Clinical Trial $1,500,000
First Patient Enrolled in a Phase IIb Clinical Trial or Phase III Clinical Trial $2,500,000
Application for Regulatory Approval filed with a Regulatory Authority $5,000,000
Regulatory Approval of Licensed Product by Regulatory Authority by FDA $20,000,000
Regulatory Approval of Licensed Product by EMA $10,000,000
Regulatory Approval of Licensed Product in Japan $10,000,000

 

Sec. 5.2.2 Commencing upon the First Commercial Sale of a Licensed Product by Licensee or, as applicable Licensee’s sublicensee(s), in any country in the Territory, on a calendar quarter basis, Licensee shall pay to Licensor a Royalty on Net Sales equal to five percent (5.0%) of Net Sales of such Licensed Product.

 

Sec. 5.2.3 Licensee shall, within thirty (30) days of receipt of any Sublicense Fees, pay to Licensor twenty percent (20%) of said Sublicense Fees.

 

Sec. 5.3.6 Licensee shall, within thirty (30) days of receipt of any proceeds from the sale of a PRV, pay to Licensor twenty percent (20%) of said proceeds.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

 

Exhibit 1.5

 

Auxiliary Technologies

 

1. “mRNA Vectorization of Gene-Editing Proteins” means the methods and compositions disclosed in U.S. Patent 10,662,410.

 

2. “Chromatin Context-Sensitive Gene-Editing Endonuclease” means the methods and compositions disclosed in U.S. Patent 9,447,395.

 

3. “Combined mRNA Gene-Editing & Cell Reprogramming” means the methods and compositions disclosed in U.S. Patent 10,472,611.

 

4. “Gene Editing Checkpoint Molecule Genes for the Treatment of Cancer” means the methods and compositions disclosed in U.S. Patent 10,137,206.

 

5. “ToRNAdo Nucleic-Acid Delivery System” means the methods and compositions disclosed in U.S. Patent 10,501,404.

 

6. “Insertion of Sequences into Safe-Harbor Loci” means the methods and compositions disclosed in U.S. Patent 10,724,053.

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

 

Exhibit 1.6

 

Auxiliary Technology Patents

 

Docket Number Country Title

Application No. 

Application Date

 Publication No. Publication Date

Registration No. 

Registration Date 

 Case Status/Description
FAB-001AU Australia METHODS AND PRODUCTS FOR TRANSFECTING CELLS

2012347919

Dec-05-2012

2012347919

Jun-13-2013

2012347919 

May-18-2017 

 PATENTED
FAB-001AUD1 Australia METHODS AND PRODUCTS FOR TRANSFECTING CELLS

2016277545

Dec-05-2012

 N/A

2016277545 

Sep-28-2017 

 PATENTED
FAB-001AUD3 Australia METHODS AND PRODUCTS FOR TRANSFECTING CELLS

2019203662 

May-24-2019 

 N/A

2019203662 

May-14-2020 

 PATENTED
FAB-001AUD4 Australia METHODS AND PRODUCTS FOR TRANSFECTING CELLS

2020202780 

Apr-27-2020 

 N/A N/A Pending
FAB-001BR Brazil METHODS AND PRODUCTS FOR TRANSFECTING CELLS

11201401366

45 Dec-05-2012

 N/A N/A Pending
FAB-001CA Canada METHODS AND PRODUCTS FOR TRANSFECTING CELLS

2,858,148

Dec-05-2012

 N/A N/A Pending
FAB-001CN China METHODS AND PRODUCTS FOR TRANSFECTING CELLS

20128006822 

3.0 Dec-05-2012

 104080482 ZL201280068 223.0 Nov-25-2015 PATENTED
FAB-001CND1 China METHODS AND PRODUCTS FOR TRANSFECTING CELLS

20151085201 

9.3 Dec-05-2012

105316278

Feb-10-2016

 ZL201510852 019.3 May-29-2017 PATENTED
FAB-001CND2 China METHODS AND PRODUCTS FOR TRANSFECTING CELLS

20151085368 

9.7 Dec-05-2012

105368854

Mar-02-2016

 ZL201510853 689.7 Aug-13-2019 PATENTED
FAB-001CND3 China METHODS AND PRODUCTS FOR TRANSFECTING CELLS 20151085369 0.X Dec-05-2012

105420232

Mar-23-2016

 ZL201510853 690.x Apr-17-2020 PATENTED

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

 

Docket Number Country Title

Application No. 

Application Date 

 Publication No. Publication Date

Registration No. 

Registration Date 

 Case Status/Description
FAB-001CND4 China METHODS AND PRODUCTS FOR TRANSFECTING CELLS

N/A

Jul-02-2020

 N/A N/A Pending
FAB-001EP Europe METHODS AND PRODUCTS FOR TRANSFECTING CELLS

12813595.1

Dec-05-2012

2788033

Oct-15-2014

2788033

May-31-2017

 PATENTED
FAB-001CH Switzerland METHODS AND PRODUCTS FOR TRANSFECTING CELLS

12813595.1

Dec-05-2012

2788033

Oct-15-2014

2788033

May-31-2017

 PATENTED
FAB-001DE Germany METHODS AND PRODUCTS FOR TRANSFECTING CELLS

12813595.1

Dec-05-2012

2788033

Oct-15-2014

602012033063.5

May-31-2017

 PATENTED
FAB-001FR France METHODS AND PRODUCTS FOR TRANSFECTING CELLS

12813595.1

Dec-05-2012

2788033

Oct-15-2014

2788033

May-31-2017

 PATENTED
FAB-001GB Great Britain METHODS AND PRODUCTS FOR TRANSFECTING CELLS

12813595.1

Dec-05-2012

2788033

Oct-15-2014

2788033

May-31-2017

 PATENTED

FAB-

001IE

 Ireland METHODS AND PRODUCTS FOR TRANSFECTING CELLS

12813595.1

Dec-05-2012

2788033

Oct-15-2014

2788033

May-31-2017

 PATENTED
FAB-001EPD1 Europe METHODS AND PRODUCTS FOR TRANSFECTING CELLS

17170810.0

May-02-2017

EP3260140

Dec-27-2017

 N/A Pending
FAB-001HK Hong Kong METHODS AND PRODUCTS FOR TRANSFECTING CELLS

15103141.5

Dec-05-2012

1202443

Oct-02-2015

1202443

Mar-23-2018

 PATENTED
FAB-001HKD1 Hong Kong METHODS AND PRODUCTS FOR TRANSFECTING CELLS

16108558.9

Dec-05-2012

1220490A

May-05-2017

1220490

Feb-23-2018

 PATENTED
FAB-001HKD2 Hong Kong METHODS AND PRODUCTS FOR TRANSFECTING CELLS

16110473.7

Dec-05-2012

1222203A

Jun-23-2017

 N/A Pending

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

 

Docket Number Country Title

Application No.

Application Date

Publication No.

Publication Date

Registration No.

Registration Date

 Case Status/Description
FAB-001HKD4 Hong Kong METHODS AND PRODUCTS FOR TRANSFECTING CELLS

18101023.9

Jan-23-2018

1241704A.

Jun-15-2018

 N/A Pending
FAB-001JP Japan METHODS AND PRODUCTS FOR TRANSFECTING CELLS

2014-546024

Dec-05-2012

2015-506673A

Mar-5-2015

6073916

Jan-13-2017

 PATENTED
FAB-001JPD1 Japan METHODS AND PRODUCTS FOR TRANSFECTING CELLS

2016-213019 

Oct-31-2016 

2017-023156A

Feb-2-2017

6294944

Feb-23-2018

 PATENTED
FAB-001KR Republic of Korea METHODS AND PRODUCTS FOR TRANSFECTING CELLS

10-2014-7018569 Dec-05-2012

20140109925 A

Sep-16-2014

 N/A Pending
FAB-001MX Mexico METHODS AND PRODUCTS FOR TRANSFECTING CELLS MX/a/2014/00 6663 Dec-05-2012

P184014MX 

Apr-17-2015 

354995

Mar-27-2018

 PATENTED
FAB-001MXD1 Mexico METHODS AND PRODUCTS FOR TRANSFECTING CELLS MX/a/2018/00 3987 Mar-28-2018 N/A N/A Pending
FAB-001RU Russian Federation METHODS AND PRODUCTS FOR TRANSFECTING CELLS

2014127505

Dec-05-2012

2014127505A

Jun-30-2017

2624139

Jun-30-2017

 PATENTED
FAB-001RUD2 Russian Federation METHODS AND PRODUCTS FOR TRANSFECTING CELLS

2018112719 

Apr-10-2018 

 N/A N/A Pending
FAB-001C7 USA METHODS AND PRODUCTS FOR TRANSFECTING CELLS

16/402,175

May-02-2019

2019-0270968

Sep-05-2019

10,472,611 

Nov-12-2019 

 PATENTED
FAB-001C8 USA METHODS AND PRODUCTS FOR TRANSFECTING CELLS

16/567,059 

Sep-11-2019 

2019-0390174

Dec-26-2019

 N/A Pending
FAB-001C9 USA METHODS AND PRODUCTS FOR TRANSFECTING CELLS

16/776,765 

Jan-30-2020 

 N/A

10,662,410

May-26-2020

 PATENTED

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

 

Docket Number Country Title

Application No.

Application Date

Publication No.

Publication Date

Registration No.

Registration Date

 Case Status/Description
FAB-001010 USA METHODS AND PRODUCTS FOR TRANSFECTING CELLS

16/857,894 

Apr-24-2020 

 N/A N/A Pending
FAB-001011 USA METHODS AND PRODUCTS FOR TRANSFECTING CELLS

16/869,232

May-07-2020 

 N/A N/A Pending
FAB-001012 USA METHODS AND PRODUCTS FOR TRANSFECTING CELLS

16/913,306

Jun-26-2020 

 N/A N/A Pending
FAB-001013 USA METHODS AND PRODUCTS FOR TRANSFECTING CELLS

16/913,315

Jun-26-2020 

 N/A N/A Pending
FAB-005AU Australia METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

2013337651 

Nov-01-2013 

 N/A

2013337651 

Mar-28-2019 

 PATENTED
FAB-005BR Brazil METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

11201500980 

45 Nov-01-2013

 N/A N/A Pending
FAB-005BRD1 Brazil METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS 12201902567 8-0 Dec-04-2019 N/A N/A Pending
FAB-005BRD2 Brazil METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

12201902568 1-0.

Dec-04-2019 

 N/A N/A Pending
FAB-005BRD3 Brazil METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS 12201902568 3-7 Dec-04-2019 N/A N/A Pending
FAB-005CA Canada METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

2,890,110 

Nov-01-2013 

 N/A N/A Pending

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

  

Docket Number Country Title

Application No.

Application Date

 Publication No. Publication Date

Registration No.

Registration Date

 Case Status/Description
FAB-005CN China METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS 20138005662 0.0 Nov-01-2013

104769112

Jul-08-2015

 N/A Pending
FAB-005EP Europe METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

13850281.0

Nov-01-2013 

2914728

Sep-9-2015

 N/A Pending
FAB-005EPD1 Europe METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

EP 20184168.1

Jul-06-2020

 N/A N/A Pending
FAB-005HK Hong Kong METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

16102376.2

Nov-01-2013

1214304

Jul-22-2016

 N/A Pending
FAB-005JP Japan METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

2015-540833

Nov-01-2013

2015-534817

Dec-07-2015

6510416

Apr-12-2019

 PATENTED
FAB-005JPD1 Japan METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

2018-073676 

Apr-06-2018

2018-115207

Jul-26-2018

 N/A Pending
FAB-005KR Korea METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

10-2015-7013918 Nov-01-2013

20150080573

Jul-09-2015

 N/A Pending
FAB-005KRD1 Korea METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

10-2020-7015879 Jun-03-2020

 N/A N/A Pending
FAB-005MX Mexico METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS MX/a/2015/00 5346 Nov-01-2013 N/A

363017

Mar-04-2019

 PATENTED

 

License Agreement, 

Factor Bioscience Limited, Novellus Therapeutics Limited

 

 

Docket Number Country Title

Application No.

Application Date

 Publication No.
Publication Date

Registration No.

Registration Date

 Case Status/Description
FAB-005MXD1 Mexico METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

MX/a/2019/00

2498
Mar-01-2009

 N/A N/A Pending
FAB-005RU Russian Federation METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS 2015120524
Nov-01-2013		 2015120524A
Dec-20-2016		 2711249
Jan-15-2020		 PATENTED
FAB-005RUD1 Russian Federation METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

2019143431

Dec-24-2019

 N/A N/A Pending
FAB-005 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

14/701,199

Apr-30-2015

 2015-0267189
Sep-24-2015		 9,447,395
Sep-20-2016		 PATENTED
FAB-005C1 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS 14/735,603
Jun-10-2015		 2015-0275193
Oct-01-2015		 9,376,669
Jun-28-2016		 PATENTED
FAB-005C2 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS 15/156,806
May-17-2016		 2016-0251649
Sep-01-2016		 9,464,285
Oct-11-2016		 PATENTED
FAB-005C3 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS 15/156,829
May-17-2016		 2016-0251639
Sep-01-2016		 9,487,768
Nov-08-2016		 PATENTED
FAB-005C4 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

15/270,469

Sep-20-2016

 2017-0015983
Jan-19-2017		 9,657,282
May-23-2017		 PATENTED
FAB-005C5 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

15/487,088 

Apr-13-2017

 2017-0218400
Aug-03-2017		 9,758,797
Sep-12-2017		 PATENTED

 

License Agreement,

Factor Bioscience Limited, Novellus Therapeutics Limited

 

Docket Number Country Title

Application No.

Application Date

 Publication No.
Publication Date

Registration No. 

Registration Date 

 Case Status/Description
FAB-005C6 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

15/670,639

Aug-07-2017

 2017-0362612
Dec-21-2017		 10,415,060
Sep-17-2019		 PATENTED
FAB-005C7 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

16/523,558

Jul-30-2019

 2019-0345519
Nov-14-2019		 N/A Pending
FAB-005C8 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

16/654,532

Oct-16-2019 

 2020-0032295
Jan-30-2020		 N/A Pending
FAB-005C9 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

16/654,536

Oct-16-2019

 2020-0032296
Jan-30-2020

10,752,917

Aug-25-2020

 PATENTED
FAB-005C11 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

16/655,744 

Oct-17-2019

 2020-0032297
Jan-30-2020		 10,724,053
Jul-28-2020		 PATENTED
FAB-005C12 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

16/655,760 

Oct-17-2019

 2020-0040363
Feb-06-2020		 N/A Pending
FAB-005C17 USA METHODS AND PRODUCTS FOR EXPRESSING PROTEINS IN CELLS

16/912,321

Jun-25-2020

 

 N/A N/A Pending
FAB-010AU Australia NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF 2017312113
Dec-03-2018		 N/A N/A Pending
FAB-010CA Canada NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF 3,033,788
Feb-12-2019		 N/A N/A Pending

 

License Agreement,

Factor Bioscience Limited, Novellas Therapeutics Limited

 

Docket Number Country Title

Application No.

Application Date

 Publication No.
Publication Date

Registration No. 

Registration Date

 Case Status/Description
FAB-010CN China NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF

20178005963

27 Mar-27-2019

 109803977
May-24-2019		 N/A Pending
FAB-010EP Europe NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF 17842152.5
Mar-11-2019		 3500585
Jun-26-2019		 N/A Pending
FAB-010HK Hong Kong NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF 62-19000231.6
Dec-23-2019		 N/A N/A Pending
FAB-010IN India NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF 20192700233 2
Jan-24-2019		 N/A N/A Pending
FAB-010IL Israel NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF 264439
Jan-23-2019		 264439D0
Feb-28-2019		 N/A Pending
FAB-010JP Japan NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF 2019-509510
Feb-15-2019		 N/A N/A Pending
FAB-010NZ New Zealand NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF 748925
Dec-03-2018		 N/A N/A Pending
FAB-010B USA NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF

15/881,721

Jan-26-2018

 

 2018-0177893
Jun-28-2018		 10,137,206
Nov-27-2018		 PATENTED
FAB-010C3 USA NUCLEIC ACID PRODUCTS AND METHODS OF ADMINISTRATION THEREOF 16/030,675
Jul-09-2018		 2019-0000997
Jan-03-2019

10,369,233

Aug-06-2019

 

 PATENTED

 

License Agreement,

Factor Bioscience Limited, Novellus Therapeutics Limited

 

Docket Number Country Title

Application No.

Application Date

 Publication No.
Publication Date

Registration No.

Registration Date 

 Case Status/Description
FAB-012PR USA CATIONIC LIPIDS AND USES THEREOF

62/870,245 

Jul-03-2019

 N/A N/A Pending
FAB-012PR2 USA CATIONIC LIPIDS AND USES THEREOF 62/880,435
Jul-30-2019		 N/A N/A Pending
FAB-012PR3 USA CATIONIC LIPIDS AND USES THEREOF

63/023,654 

May-12-2020 

 N/A N/A Pending
FAB-012 USA CATIONIC LIPIDS AND USES THEREOF 16/920,556
Jul-03-2020		 N/A N/A Pending
FAB-012PC USA CATIONIC LIPIDS AND USES THEREOF PCT/US20/40 813
Jul-03-2020		 N/A N/A Pending
FAB-012A USA CATIONIC LIPIDS AND USES THEREOF

16/526,621 

Aug-12-2019

 N/A 10,501,404
Dec-10-2019		 PATENTED
FAB-012AC1 USA CATIONIC LIPIDS AND USES THEREOF

16/660,299

Oct-22-2019 

 N/A 10,556,855
Feb-11-2020		 PATENTED
FAB-012AC2 USA CATIONIC LIPIDS AND USES THEREOF

16/660,317

Oct-22-2019

 N/A

10,611,722 

Apr-07-2020 

 PATENTED
FAB-012AC3 USA CATIONIC LIPIDS AND USES THEREOF

16/746,279 

Jan-17-2020 

 N/A

10,752,576

Aug-25-2020 

 PATENTED
FAB-012C4 USA CATIONIC LIPIDS AND USES THEREOF

16/930,901 

Jul-16-2020 

 N/A N/A Pending

 

License Agreement,

Factor Bioscience Limited, Novellus Therapeutics Limited

 

Exhibit 1.19

 

Improvement Patents  

 

[To be added during the Term]  

 

License Agreement,  

Factor Bioscience Limited, Novellus Therapeutics Limited  

Exhibit 1.25

 

Licensed Patents

 

Docket Number Country Title

Application No.

Application Date

 Publication No.
Publication Date

Registration No.

Registration Date 

 Case Status/Description
FAB-003 USA METHODS AND PRODUCTS FOR REPROGRAMMING CELLS TO A LESS DIFFERENTIATED STATE

13/465,490

May-07-2012 

 2013-0029418
Jan-31-2013		 8,497,124
Jul-30-2013		 PATENTED
FAB-003C1 USA PRODUCTS FOR TRANSFECTION AND REPROGRAMMING

13/931,251 

Jun-28-2013 

 2013-0344602
Oct-15-2013		 9,127,248
Sep-08-2015		 PATENTED
FAB-003C2 USA METHODS OF REPROGRAMMING CELLS TO A LESS DIFFERENTIATED STATE

14/810,123

Jul-27-2015 

 2016-0010060
Jan-14-2016		 9,399,761
Jul-26-2016		 PATENTED
FAB-003C3 USA METHODS AND PRODUCTS FOR TRANSFECTION

15/178,190 

Jun-9-2016 

 2016-0281059
Sep-29-2016		 9,562,218
Feb-07-2017		 PATENTED
FAB-003C4 USA METHODS AND PRODUCTS FOR TRANSFECTION

15/358,818

Nov-22-2016

 2017-0073644
Mar-16-2017		 9,695,401
Jul-04-2017		 PATENTED
FAB-003C5 USA METHODS AND PRODUCTS FOR TRANSFECTION

15/605,513 

May-25-2017

 2017-0267979
Sep-21-2017		 9,879,228
Jan-30-2018		 PATENTED
FAB-003C6 USA METHODS AND PRODUCTS FOR TRANSFECTION

15/844,063 

Dec-15-2017

 2018-0105800
Apr-19-2018		 9,969,983
May-15-2018		 PATENTED
FAB-003C7 USA METHODS AND PRODUCTS FOR TRANSFECTION

15/947,741 

Apr-06-2018

 2018-0230438
Aug-16-2018		 10,131,882
Nov-20-2018		 PATENTED
FAB-003C8 USA METHODS AND PRODUCTS FOR TRANSFECTION 16/037,597
Jul-17-2018		 2018-0327720
Nov-15-2018		 10,301,599
May-28-2019		 PATENTED
FAB-003C9 USA METHODS AND PRODUCTS FOR TRANSFECTION

16/374,482

Apr-03-2019

 2019-0225944
Jul-25-2019

10,443,045 

Oct-15-2019

 PATENTED
FAB-003C10 USA METHODS AND PRODUCTS FOR TRANSFECTION

16/562,497 

Sep-06-2019

 2020-0048616
Feb-13-2020		 N/A Pending

 

License Agreement,

Factor Bioscience Limited, Novellus Therapeutics Limited

 
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Matthew Angel, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q of Eterna Therapeutics Inc.
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
 
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.
 
Date: November 14, 2022
/s/ Matthew Angel
 
Matthew Angel
 
Interim Chief Executive Officer and President
 
(Principal Executive Officer)

 
Exhibit 31.2
 
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Andrew Jackson, certify that:
 
1. I have reviewed this Quarterly Report on Form 10-Q of Eterna Therapeutics Inc.
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
 
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.
 
Date: November 14, 2022
/s/ Andrew Jackson
 
Andrew Jackson
 
Chief Financial Officer
 
(Principal Financial Officer)


Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Eterna Therapeutics Inc. for the quarterly period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge on the date hereof:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Eterna Therapeutics Inc. for the period presented therein.

Date: November 14, 2022
/s/ Matthew Angel
 
Matthew Angel
 
Interim Chief Executive Officer and President
 
(Principal Executive Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Eterna Therapeutics Inc. for the quarterly period ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge on the date hereof:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Eterna Therapeutics Inc. for the period presented therein.

Date: November 14, 2022
/s/ Andrew Jackson
 
Andrew Jackson
 
Chief Financial Officer
 
(Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.