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RISK FACTORS

Stockholders should carefully consider the following risk factors, together with all of the other information included in this proxy statement, before they decide whether to vote or instruct their vote to be cast to approve the proposals described in this proxy statement. The following risk factors apply to the business and operations of Chardan, Renovacor and the business and operations of New Renovacor following the completion of the Business Combination. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with other events or circumstances, may adversely affect the ability to complete or realize the anticipated benefits of the Business Combination, and may have an adverse effect on the business, cash flows, financial condition and results of operations of Chardan, Renovacor and the post-combination company. You should also carefully consider the following risk factors in addition to the other information included in this proxy statement, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” Chardan, Renovacor and New Renovacor may also face additional risks and uncertainties that are not presently known to Chardan or Renovacor, or that Chardan or Renovacor currently deem immaterial, which may also impair our or Chardan’s, Renovacor’s and New Renovacor’s business or financial condition. The following discussion should be read in conjunction with the financial statements and notes to the financial statements included herein.

Risks Related to Renovacor’s Financial Position and Capital Requirements

Renovacor’s limited operating history may make it difficult for you to evaluate the success of its business to date and to assess its future viability.

Renovacor is a preclinical-stage gene therapy company with a limited operating history on which to base your investment decision. Its operations to date have been limited to organizing and staffing the company, in-licensing key intellectual property, business planning, raising capital, conducting discovery and research activities, filing and prosecuting patent applications, identifying potential product candidates and preparing to initiate and conduct clinical trials, undertaking preclinical studies, and establishing processes and arrangements with third parties for the manufacture of initial quantities of Renovacor’s lead product candidate and component materials necessary for the planned Phase I/II clinical trial. Renovacor’s lead product candidate is still in the preclinical development phase and other planned product candidates are in the discovery and research phase. Renovacor does not expect to submit an IND for any of its product candidates until mid-2022. Renovacor has not yet demonstrated its ability to successfully commence or complete a clinical trial, submit an IND, or submit a biologics license application (“BLA”) for a product candidate, obtain regulatory approval for any product candidate, manufacture a product at a commercial-scale or arrange for a third party to do so on its behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any assumptions you make about its future success or viability may not be as informed as they could be if Renovacor had a longer operating history.

Renovacor has incurred significant operating losses since its inception and expects to incur significant losses for the foreseeable future.

Renovacor has incurred significant operating losses since its inception. If its product candidates are not successfully developed and approved, Renovacor may never generate any revenue. Its net losses were $0.8 million and $1.7 million for the three months ended March 31, 2020 and March 31, 2021, respectively, and $1.6 million and $3.2 million for the years ended December 31, 2019 and December 31, 2020, respectively. Renovacor had an accumulated deficit of $6.5 million as of March 31, 2021. Substantially all of its losses have resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with its operations. All of its product candidates will require the expenditure of substantial additional development time and resources before Renovacor would be able to apply for or receive regulatory approvals and begin realizing product sales. Renovacor expects to continue to incur losses for the foreseeable future, and it anticipates these losses will significantly increase as it continues its development of,

 

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seek regulatory approval for and potentially commercialize any of its product candidates and seek to identify, assess, acquire, in-license or develop additional product candidates. Its prior losses, combined with expected future losses, have had and will continue to have a negative effect on its stockholders’ deficit and working capital.

Renovacor expects that it will be several years, if ever, before it has a commercialized product. Renovacor anticipates that its expenses will increase substantially if, and as, it:

 

•

continues to advance its BAG3-based gene therapy products;

 

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continues preclinical development of, and initiates clinical development of REN-001 and its other product candidates;

 

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continues to advance the preclinical and clinical development of its earlier discovery stage programs;

 

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seeks to discover and develop additional product candidates;

 

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establishes manufacturing processes and arrangements with third parties for the manufacture of initial quantities of its product candidates and component materials and validate clinical- and commercial-scale current good manufacturing practices, or cGMP, facilities;

 

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seeks regulatory approvals for any of its product candidates that successfully complete clinical trials;

 

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maintains, expands and protects its intellectual property portfolio;

 

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acquires or in-licenses other product candidates and technologies;

 

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incurs additional legal, accounting or other expenses in operating its business, including the additional costs associated with operating as a public company; and

 

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increases its employee headcount and related expenses to support these activities.

Renovacor may never succeed in any or all of these activities and, even if it does, it may never generate revenue.

Renovacor has never generated revenue from product sales and may never achieve or maintain profitability.

Renovacor has no product candidates in clinical development or approved for commercial sale and has not generated any revenue. To become and remain profitable, Renovacor must develop and eventually commercialize product candidates with significant market potential, which will require it to be successful in a range of challenging activities. These activities can include successfully completing preclinical studies and initiating and successfully completing clinical trials of its product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products that are approved and satisfying any post-marketing requirements. Renovacor may never succeed in any or all of these activities and, even if it does, it may never generate sufficient revenues to achieve profitability. Because of the numerous risks and uncertainties associated with biologics product development, Renovacor is unable to accurately predict the timing or amount of increased expenses or when, or if, it will be able to achieve profitability.

Even if Renovacor does achieve profitability, it may not be able to sustain or increase profitability. Its failure to become and remain profitable would decrease the value of the company and could impair its ability to raise capital, maintain its research and development efforts, expand its business or continue its operations.

Even if the Business Combination is successful, Renovacor will require additional funding in order to finance operations. If Renovacor is unable to raise capital when needed, or on acceptable terms, it could be forced to delay, reduce, or eliminate its product development programs or commercialization efforts.

Developing biopharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. Renovacor’s operations have

 

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consumed substantial amounts of cash since inception, and it expects its expenses to increase significantly in connection with its ongoing activities, particularly as it conducts additional preclinical studies and clinical trials of, and seeks regulatory and marketing approval for, its product candidates. Even if one or more of its product candidates is approved for commercial sale, Renovacor anticipates incurring significant costs associated with commercializing any approved product candidate. Renovacor has financed its operations primarily through private placements of its securities. It intends to use the additional capital made available to it through the Business Combination to, among other uses, fund research and development of its product candidates and development programs, including the preclinical and clinical development of its lead product candidate, REN-001, with an initial focus on patients with BAG3 DCM, as well as additional indications that may benefit from BAG3-based gene therapy. Its research and development expenses increased from $0.7 million for the year ended December 31, 2019 to $2.4 million for the year ended December 31, 2020. As of December 31, 2020, Renovacor had cash and cash equivalents of $5.4 million. Based on its current business plans, it believes that the net proceeds from the Business Combination, together with its existing cash and cash equivalents, will be sufficient for it to fund its operating expenses and capital expenditure requirements into 2023.

Attempting to secure additional financing will divert the company’s management team from its day-to-day activities, which may impair or delay its ability to develop its product candidates. In addition, demands on Renovacor’s cash resources may change as a result of many factors currently unknown to it including, but not limited to, any unforeseen costs it may incur as a result of preclinical study or clinical trial delays due to the COVID-19 pandemic or other causes, and it may need to seek additional funds sooner than planned. If Renovacor is unable to obtain funding on a timely basis or at all, it may be required to significantly curtail or stop one or more of its research or development programs.

Raising additional capital may cause dilution to Renovacor’s stockholders, including purchasers of Chardan common stock in the PIPE Investment, restrict its operations or require it to relinquish rights to its technologies or product candidates.

Until and unless Renovacor can generate substantial product revenue, it expects to finance its cash needs through the proceeds from this Business Combination, a combination of equity offerings and debt financings, and potentially through additional license and development agreements or strategic partnerships or collaborations with third parties. Financing may not be available in sufficient amounts or on reasonable terms. In addition, market volatility resulting from the COVID-19 pandemic or other factors could adversely impact its ability to access capital as and when needed. Renovacor has no commitments for any additional financing, and will likely be required to raise such financing through the sale of additional securities, which, in the case of equity securities, may occur at prices lower than the offering price of Chardan common stock prior to this Business Combination. If Renovacor sells equity or equity-linked securities, its current stockholders, including investors in the PIPE Investment, may be diluted, and the terms may include liquidation or other preferences that are senior to or otherwise adversely affect the rights of its stockholders. Moreover, if Renovacor issues debt, it may need to dedicate a substantial portion of its operating cash flow to paying principal and interest on such debt and it may need to comply with operating restrictions, such as limitations on incurring additional debt, which could impair its ability to acquire, sell or license intellectual property rights which could impede its ability to conduct its business. Furthermore, the issuance of additional securities, whether equity or debt, by Renovacor, or the possibility of such issuance, may cause the market price of its common stock to decline.

If Renovacor raises additional funds through licensing or collaboration arrangements with third parties, it may have to relinquish valuable rights to its product candidates, or grant licenses on terms that are not favorable. In addition, Renovacor may seek additional capital due to favorable market conditions or strategic considerations even if it believes it has sufficient funds for its current or future operating plans.

 

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Renovacor’s ability to utilize its net operating loss carryforwards and certain other tax attributes may be limited.

For the fiscal year ended December 31, 2020, Renovacor had approximately $4.3 million of federal net operating loss carryforwards, and approximately $4.4 million of state net operating loss carryforwards. To the extent that Renovacor continues to generate taxable losses, unused losses will carryforward to offset future taxable income, if any, until such unused losses expire. Under Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), if a corporation undergoes an ownership change (generally defined as a greater than 50 percentage points change (by value) in its equity ownership over a rolling three-year period), the corporation’s ability to use its pre-change net operating losses and other pre-change tax attributes to offset its post-change income may be limited. Renovacor may have experienced an ownership change in the past, which may affect its ability to utilize its net operating loss carryforwards. In addition, it may experience ownership changes in the future as a result of this Business Combination, or subsequent shifts in its stock ownership, some of which are outside its control. Similar limitations will apply to its ability to carry forward any unused tax credits to offset future taxable income.

The COVID-19 pandemic, or a similar pandemic, epidemic, or outbreak of an infectious disease, may materially and adversely affect Renovacor’s business and its financial results and could cause a disruption to the development of its product candidates.

Public health crises, such as pandemics or similar outbreaks, could adversely impact Renovacor’s business. A novel virus, severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2 or coronavirus, which causes COVID-19 has spread to most countries across the world, including the United States. The coronavirus pandemic is evolving and has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which the coronavirus impacts Renovacor’s operations or those of its consultants and collaborators will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of the coronavirus, new strains or mutations of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

As a result of the coronavirus pandemic, or similar pandemics, Renovacor may experience disruptions that could severely impact its business, manufacturing, preclinical development activities and preclinical studies, including, but not limited to:

 

•

delays or disruptions in preclinical experiments and IND-enabling studies due to restrictions of on-site staff, limited or no access to animal facilities, and unforeseen circumstances at contract research organizations (“CROs”), and vendors;

 

•

limitations on employee or other resources that would otherwise be focused on the conduct of its preclinical work and any clinical trials it subsequently commences, including because of sickness of employees or their families, the desire of employees to avoid travel or contact with large groups of people, an increased reliance on working from home, school closures, or mass transit disruptions;

 

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delays in necessary interactions with regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of government or contractor personnel; and

 

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limitations on maintaining its corporate culture that facilitates the transfer of institutional knowledge within its organization and fosters innovation, teamwork, and a focus on execution.

Renovacor has not yet commenced clinical trial activities for any of its product candidates. If it commences clinical trials for one or more of its product candidates, potential disruptions of those clinical activities as a result of the coronavirus pandemic or similar pandemics, include, but are not limited to:

 

•

interruption of key clinical trial activities, such as clinical trial site data monitoring and efficacy, safety and translational data collection, processing and analyses, due to limitations on travel imposed or

 

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recommended by federal, state, or local governments, employers and others or interruption of clinical trial subject visits, which may impact the collection and integrity of subject data and clinical study endpoints;

 

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delays or difficulties in initiating or expanding clinical trials, including delays or difficulties with clinical site initiation and recruiting clinical site investigators and clinical site staff;

 

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delays or difficulties in enrolling and retaining patients in its clinical trials;

 

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increased rates of patients withdrawing from its clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or being forced to quarantine;

 

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interruption of, or delays in receiving, supplies of its product candidates from its contract manufacturing organizations (“CMOs”), due to staffing shortages, production slowdowns, or stoppages and disruptions in materials and reagents;

 

•

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as its clinical trial sites and hospital staff supporting the conduct of its clinical trials;

 

•

interruption or delays in the operations of the FDA and comparable foreign regulatory agencies;

 

•

changes in regulations as part of a response to the coronavirus pandemic which may require it to change the ways in which its clinical trials are conducted, which may result in unexpected costs, or to discontinue any such clinical trials altogether;

 

•

delays in receiving approval from local regulatory authorities to initiate any planned clinical trials;

 

•

limitations on employee resources that would otherwise be focused on the conduct of its preclinical studies and clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

 

•

refusal of the FDA or comparable regulatory authorities to accept data from clinical trials in affected geographies; and

 

•

additional delays, difficulties or interruptions as a result of current or future shutdowns due to the coronavirus pandemic, or other pandemics, in countries where Renovacor or its third-party service providers operate.

The coronavirus pandemic continues to rapidly evolve. Although many countries, including the United States, have re-opened, rises in new cases have caused certain countries to re-initiate restrictions. The extent to which the outbreak may affect its preclinical studies, clinical trials, business, financial condition, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures, or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. Additionally, Renovacor is unable to predict if a different pandemic could have similar or different impacts on its business, financial condition, or share price. Future developments in these and other areas present material uncertainty and risk with respect to its clinical trials, business, financial condition, and results of operations.

Unstable market and economic conditions may have serious adverse consequences on Renovacor’s business, financial condition and stock price.

Global financial markets have experienced, as a result of the coronavirus pandemic, and have in the past experienced, extreme volatility and disruptions, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Renovacor’s

 

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general business strategy and ability to raise capital may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on Renovacor’s growth strategy, financial performance and stock price and could require it to delay or abandon the development of preclinical studies and clinical trial plans. In addition, there is a risk that one or more of its current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect its ability to attain its operating goals on schedule and on budget.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, including very recently in connection with the ongoing coronavirus pandemic, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments relating to the ongoing coronavirus pandemic, political, regulatory and other market conditions, may negatively affect the market price of shares of its common stock, regardless of its actual operating performance.

Risks Related to Renovacor’s Product Development and Government Regulation

Renovacor is very early in its research and development efforts. Its business is dependent on its ability to advance its current and future product candidates through preclinical studies and clinical trials, obtain marketing approval and ultimately commercialize them.

Renovacor is very early in its research and development efforts and all of its product candidates are still at the preclinical stage of development. Renovacor expects to file the IND with respect to its lead product candidate REN-001 in mid-2022. Additionally, Renovacor has earlier stage programs that are in the discovery research phase and may never advance to clinical-stage development. Its ability to generate product revenue, which it does not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of its product candidates, which may never occur. Renovacor currently generates no revenue from sales of any product and it may never be able to develop or commercialize a marketable product.

Each of its programs and product candidates will require additional preclinical and clinical development, regulatory approval in multiple jurisdictions, obtaining manufacturing supply, capacity and expertise, building a commercial organization or successfully outsourcing commercialization, substantial investment and significant marketing efforts before Renovacor generates any revenue from product sales. Renovacor’s product candidates must be authorized for marketing by the FDA, or certain other foreign regulatory agencies before it may commercialize its product candidates.

The clinical and commercial success of its product candidates will depend on several factors, including the following:

 

•

timely and successful completion of preclinical studies, including toxicology studies, biodistribution studies and minimally efficacious dose studies in animals, where applicable;

 

•

effective INDs or comparable foreign applications that allow commencement of its planned clinical trials or future clinical trials for its product candidates;

 

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successful enrollment and completion of clinical trials, including under the FDA’s current Good Clinical Practices, or cGCPs, and current Good Laboratory Practices, or cGLPs;

 

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positive results from its future clinical programs that support a finding of safety and effectiveness and an acceptable risk-benefit profile of its product candidates in the intended populations;

 

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receipt of marketing approvals from applicable regulatory authorities;

 

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establishment of arrangements with CMOs for clinical supply and, where applicable, commercial manufacturing capabilities;

 

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establishment and maintenance of patent and trade secret protection and/or regulatory exclusivity for its product candidates;

 

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commercial launch of its product candidates, if approved, whether alone or in collaboration with others;

 

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acceptance of the benefits and use of its product candidates, including method of administration, if and when approved, by patients, the medical community and third-party payors;

 

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effective competition with other therapies;

 

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establishment and maintenance of healthcare coverage and adequate reimbursement and patients’ willingness to pay out-of-pocket in the absence of such coverage and adequate reimbursement;

 

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enforcement and defense of intellectual property rights and claims; and

 

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maintenance of a continued acceptable safety, tolerability and efficacy profile of its product candidates following approval.

If Renovacor does not succeed in one or more of these factors in a timely manner or at all, it could experience significant delays or an inability to successfully commercialize its product candidates, which would materially harm its business. If Renovacor is unable to advance its product candidates to clinical development, obtain regulatory approval and ultimately commercialize its product candidates, or experience significant delays in doing so, its business will be materially harmed.

Renovacor’s business is highly dependent on the success of its lead product candidate, REN-001, and its other product candidates.

Renovacor cannot guarantee that, based on its IND application for REN-001 or its other product candidates, the FDA, or any other comparable foreign regulatory authorities, will allow clinical trials to commence, or that REN-001 or its other product candidates will be approved for commercialization, on a timely basis or at all. Renovacor has not initiated and, therefore, has not previously completed any clinical trials or submitted an IND or a BLA to the FDA, or similar regulatory approval filings to comparable foreign authorities, for any product candidate, and it cannot be certain that REN-001 or its other product candidates will be successful in clinical trials or receive regulatory approval. The FDA and other comparable global regulatory authorities can delay, limit or deny approval of a product candidate for many reasons. Any delay in obtaining, or inability to obtain, applicable regulatory approval will delay or harm Renovacor’s ability to successfully initiate clinical trials and commercialize REN-001 or its other product candidates and materially adversely affect its business, financial condition, results of operations and growth prospects.

Furthermore, because REN-001 is its lead product candidate and Renovacor’s other product candidates could be based on similar technology, if clinical trials of REN-001 encounter safety, efficacy or manufacturing problems, development delays, regulatory issues or other problems, Renovacor’s development plans for REN-001 and its other product candidates in its pipeline based on similar technology would be significantly impaired, which could materially adversely affect its business, financial condition, results of operations and growth prospects.

Renovacor’s business depends upon the success of its BAG3-based platform.

Renovacor’s success depends on its ability to utilize the exclusive rights to its BAG3-based platform to identify potential product candidates, to obtain regulatory approval for product candidates derived from the

 

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platform, and then to commercialize its product candidates addressing one or more indications. Though gene therapy product candidates have been evaluated by others in clinical trials using similar AAV vectors, Renovacor’s product candidates have never been evaluated in human clinical trials, and may experience unexpected or adverse results in the future. Renovacor is exposed to a number of unforeseen risks and it is difficult to predict the types of challenges and risks that it may encounter during development of its product candidates. All of its product candidates developed from its BAG3-based platform will require significant non-clinical studies, clinical development, review and approval by the FDA or other regulatory authorities in one or more jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before they can be successfully commercialized. If REN-001 or any of Renovacor’s other product candidates encounter safety or efficacy problems, developmental delays or regulatory issues or other problems, such problems could impact the development plans for its other product candidates because all of its product candidates are currently based on the same core BAG3-based technology.

Additionally, a key element of its strategy is to use and expand its BAG3-based platform to build a pipeline of product candidates and progress those product candidates through clinical development for the treatment of a variety of different types of indications in heart failure and central nervous system diseases. Although its research and development efforts to date have been focused on identifying a pipeline of product candidates, Renovacor may not be able to develop product candidates that are safe and effective. Even if it is successful in building its pipeline, the potential product candidates that it identifies may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be approvable or marketable products that will receive marketing approval/authorization and achieve market acceptance. If Renovacor does not successfully develop, get approval for and begin to commercialize any product candidates, it will face difficulty in obtaining product revenue in future periods, which would result in significant harm to its financial position and adversely affect its share price.

Utilizing AAV/BAG3-based gene therapies to target BAG3 mutations represents a novel approach to the treatment of DCM, and Renovacor must overcome significant challenges in order to develop, commercialize and manufacture its product candidates.

Renovacor has concentrated its research and development efforts on developing AAV/BAG3-based gene therapies to target BAG3 mutations for the treatment of DCM. It is aware of several companies developing gene therapies targeting heart failure but is not aware of any companies developing gene therapies targeting the BAG3 pathway for patients suffering from BAG3 DCM. The processes and requirements imposed by the FDA or other applicable regulatory authorities may cause delays and additional costs in obtaining approvals for REN-001 and Renovacor’s other product candidates. Because its AAV/BAG3-based gene therapy products are novel, and gene-based therapies are relatively new, regulatory agencies may lack experience in evaluating its product candidates utilizing AAV/BAG3-based gene therapies to target BAG3 mutations for patients suffering from BAG3 DCM. This novelty may lengthen the regulatory review process, including the time it takes for the FDA to review its IND applications, if and when submitted, increase its development costs and delay or prevent commercialization of its AAV/BAG3-based gene therapy products. Additionally, advancing novel gene therapies creates significant challenges for Renovacor, including:

 

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developing a manufacturing process to produce its product candidates on a large scale and in a cost-effective manner;

 

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educating medical personnel regarding the potential side-effect profile of its product candidates and, as the clinical program progresses, on any observed side effects with the therapy;

 

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training a sufficient number of medical personnel on how to properly administer its product candidates;

 

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developing a reliable and safe and an effective means of genetically modifying its AAV/BAG3-based gene therapies;

 

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sourcing starting material suitable for clinical and commercial manufacturing; and

 

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•

establishing sales and marketing capabilities, as well as developing a distribution network to support the commercialization of any approved products.

Renovacor must be able to overcome these challenges in order for it to develop, commercialize and manufacture its product candidates utilizing AAV/BAG3 gene therapies for its targeted indications.

The product candidates for which Renovacor intends to seek approval as biologic products may face competition sooner than anticipated.

The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (the “ACA”) includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a highly similar or “biosimilar” product may not be submitted to the FDA until 12 years following the date that the reference product was first approved by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first approved. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. In addition, complexities associated with the larger, and often more complex, structures of biological products, such as the gene products Renovacor is developing, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.

Renovacor believes that any of its product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider its product candidates to be reference products for competing products, potentially creating the opportunity for competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar product, once approved, will be substituted for any one of its reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

Jurisdictions in addition to the United States have established abbreviated pathways for regulatory approval of biological products that are biosimilar to earlier approved reference products. For example, the European Union has had an established regulatory pathway for biosimilars since 2004. However, biosimilars can only be authorized once the period of data exclusivity on the reference biological medicine has expired.

The increased likelihood of biosimilar competition has increased the risk of loss of innovators’ market exclusivity. Due to this risk, and uncertainties regarding patent protection, if its clinical candidates are approved for marketing, it is not possible to predict the length of market exclusivity for any particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity. It is also not possible to predict changes in United States regulatory law that might reduce biological product regulatory exclusivity. The loss of market exclusivity for a product would likely materially and negatively affect revenues and Renovacor may not generate adequate or sufficient revenues from them or be able to reach or sustain profitability.

 

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Preclinical and clinical development involve a lengthy and expensive process with an uncertain outcome. Renovacor may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of its current product candidates or any future product candidates.

REN-001 and all of Renovacor’s other product candidates are in the preclinical stage of development and their risk of failure is high. It is impossible to predict when or if REN-001 or any of its other product candidates will receive regulatory approval. To obtain the requisite regulatory approvals to commercialize any product candidate, Renovacor must demonstrate through extensive preclinical studies and lengthy, complex and expensive clinical trials that its product candidates are safe and effective in humans. Clinical testing can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process.

The results of preclinical studies and early clinical trials or early cohorts of clinical trials of product candidates may not be predictive of the results of later-stage clinical trials or later cohorts of clinical trials. Renovacor anticipates beginning its initial clinical trials with relatively small cohorts before expanding in size in subsequent cohorts. The initial cohorts of early stage clinical trials often involve enrollment of a small number of patients and may not be as predictive as trials with larger cohorts. Additionally, if safety issues arise in an early cohort, Renovacor may be delayed or prevented from subsequently expanding into larger trial cohorts. Renovacor may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful, and a clinical trial can fail at any stage of testing. Differences in trial design between early-stage clinical trials and later-stage clinical trials make it difficult to extrapolate the results of earlier clinical trials to later clinical trials.

Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their products. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or to unfavorable safety profiles, notwithstanding promising results in earlier trials. There is typically a high rate of failure of product candidates proceeding through clinical trials. Most product candidates that commence clinical trials are never approved as products and there can be no assurance that any of Renovacor’s future clinical trials will ultimately be successful or support clinical development of its current or any of its future product candidates.

Renovacor may experience delays in initiating or completing clinical trials. It also may experience numerous unforeseen events during, or as a result of, any future clinical trials that Renovacor could conduct that could delay or prevent its ability to receive marketing approval or commercialize its lead product candidate or any future product candidates, including:

 

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regulators or institutional review boards (“IRBs”), the FDA or ethics committees may not authorize it or its investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

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Renovacor may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

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clinical trial sites deviating from trial protocol or dropping out of a trial;

 

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clinical trials of any product candidates may fail to show safety or efficacy, produce negative or inconclusive results and Renovacor may decide, or regulators may require it, to conduct additional preclinical studies or clinical trials or it may decide to abandon product development programs;

 

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novel therapies, such as gene therapies with less well-characterized safety profiles, may require slower or more staggered early clinical trial enrollment to adequately assess safety data;

 

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the number of subjects required for clinical trials of any product candidates may be larger than it anticipates, enrollment in these clinical trials may be slower than it anticipates or subjects may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than it anticipates;

 

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third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to Renovacor in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that Renovacor add new clinical trial sites or investigators;

 

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Renovacor may elect to, or regulators, IRBs, or ethics committees may require that it or its investigators, suspend or terminate clinical research or trials for various reasons, including noncompliance with regulatory requirements or a finding that the participants in its trials are being exposed to unacceptable health risks;

 

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the cost of clinical trials of any of its product candidates may be greater than Renovacor anticipates;

 

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the quality of its product candidates or other materials necessary to conduct clinical trials of its product candidates may be inadequate to initiate or complete a given clinical trial;

 

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its inability or the inability of third parties to manufacture sufficient quantities of its product candidates for use in clinical trials;

 

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reports from clinical testing of other therapies may raise safety or efficacy concerns about its product candidates;

 

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its failure to establish an appropriate safety profile for a product candidate based on clinical or preclinical data for such product candidate as well as data emerging from other studies or trials in the same class as its product candidate; and

 

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the FDA or applicable foreign regulatory agencies may require it to submit additional data such as long-term toxicology studies, or impose other requirements before permitting it to initiate a clinical trial.

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the number and location of clinical sites Renovacor enrolls, the proximity of patients to clinical sites, the eligibility and exclusion criteria for the trial, the design of the clinical trial, the inability to obtain and maintain patient consents, the risk that enrolled participants will drop out before completion, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs or therapeutic biologics that may be approved for the indications being investigated by it. Furthermore, Renovacor expects to rely on its collaborators, CROs and clinical trial sites to ensure the proper and timely conduct of its future clinical trials, including the patient enrollment process, and it has limited influence over their performance. Additionally, Renovacor could encounter delays if treating physicians encounter unresolved ethical issues associated with enrolling patients in future clinical trials of its product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles.

Renovacor could also encounter delays if a clinical trial is suspended or terminated by it, the IRBs of the institutions in which such trials are being conducted, or the FDA or other regulatory authorities, or if a clinical trial is recommended for suspension or termination by the Data Safety Monitoring Board for such trial. A suspension or termination may be imposed due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or its clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Clinical studies may also be delayed or terminated as a result of ambiguous or negative interim results. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of its product candidates. Further, the FDA or other regulatory authorities may disagree with its clinical trial design and its interpretation of data from clinical trials, or may change the requirements for approval even after they have reviewed and commented on the design for its clinical trials.

 

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Renovacor’s product development costs will increase if it experiences delays in clinical testing or marketing approvals. It does not know whether any of its clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which Renovacor may have the exclusive right to commercialize its product candidates and may allow its competitors to bring products to market before it does, potentially impairing its ability to successfully commercialize its product candidates and harming its business and results of operations. Any delays in its clinical development programs may harm its business, financial condition and results of operations significantly.

There is no guarantee that the toxicology and biodistribution studies in healthy pigs and the efficacy studies in haploinsufficient mice will be successful, or that the FDA will not require further testing in these or other animal models.

Preclinical studies involve a lengthy and expensive process with an uncertain outcome. Some outcomes may demonstrate the need to conduct studies in different animal models or using different protocols. These outcomes may lead Renovacor to incur additional costs or experience delays in completing, or render it unable to complete, the development and commercialization of its current product candidates or any future product candidates.

Renovacor conducted a pilot study in infarcted pigs to assess the transduction efficiency and functional effect of REN-001. It later concluded that an infarcted pig model is untenable for further efficacy studies due to the variability of the infarcted phenotype and the development of neutralizing antibodies to AAV in the study animals during the study.

There is no guarantee that future toxicology and biodistribution studies in healthy pigs and the efficacy studies in haploinsufficient mice will be successful, or that the FDA will not require further testing in these or other animal models. There is also no guarantee that the FDA will not reverse its interpretation of the results from past studies, such as those mentioned above.

As an organization, Renovacor has limited experience designing and no experience implementing clinical trials and Renovacor has never conducted pivotal clinical trials. Failure to adequately design a trial, or incorrect assumptions about the design of the trial, could adversely affect the ability to initiate the trial, enroll patients, complete the trial, or obtain regulatory approval on the basis of the trial results, as well as lead to increased or unexpected costs.

The design and implementation of clinical trials is a complex process. While the employees who will implement its clinical trials may have experience in the field, Renovacor, as an organization, has limited experience designing and no experience implementing clinical trials, and it may not successfully or cost-effectively design and implement clinical trials that achieve its desired clinical endpoints efficiently, or at all. A clinical trial that is not well designed may delay or even prevent initiation of the trial, can lead to increased difficulty in enrolling patients, may make it more difficult to obtain regulatory approval for the product candidate on the basis of the study results, or, even if a product candidate is approved, could make it more difficult to commercialize the product successfully or obtain reimbursement from third-party payors. Additionally, a trial that is not well-designed could be inefficient or more expensive than it otherwise would have been, or Renovacor may incorrectly estimate the costs to implement the clinical trial, which could lead to a shortfall in funding. Renovacor also is required to register certain clinical trials and post the results of certain completed clinical trials on a government-sponsored database, www.clinicaltrials.gov, within specified timeframes. Failure to do so can result in enforcement actions and adverse publicity.

Interim, topline, or preliminary data from clinical trials that Renovacor announces or publishes from time to time may change as more patient data becomes available or as Renovacor make changes to its manufacturing processes and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, Renovacor may publicly disclose interim, topline, or preliminary data from its preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and

 

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related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. Renovacor also makes assumptions, estimations, calculations, and conclusions as part of its analyses of interim, topline or preliminary data, and therefore Renovacor may not have received or had the opportunity to fully and carefully evaluate all data. Further, modifications or improvements to its manufacturing processes for a therapy may result in changes to the characteristics or behavior of the product candidates that could cause its product candidates to perform differently and affect the results of its ongoing clinical trials. As a result, the topline results that Renovacor reports may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data Renovacor previously published. As a result, topline data should be viewed with caution until the final data are available.

Preliminary or interim data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm its business prospects. Additionally, disclosure of preliminary or interim data by Renovacor or by its competitors could result in volatility in the price of its common stock.

Further, others, including regulatory agencies, may not accept or agree with its assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate, and its company in general. If the interim, topline, or preliminary data that Renovacor reports differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, its ability to obtain approval for, and commercialize, any of its potential product candidates may be harmed, which could harm its business, operating results, prospects, or financial condition.

Renovacor may not be able to file its IND to commence clinical trials for its lead product candidate, REN-001 or its other product candidates on the timelines it expects, and even if Renovacor is able to, the FDA may not permit it to proceed.

Renovacor anticipates filing an IND submission in connection with REN-001 in mid-2022, and expects its preclinical research pipeline to yield potential additional follow-on IND opportunities in cardiovascular and central nervous system (“CNS”) diseases beyond that of its lead indication for BAG3 DCM. It cannot be sure that submission of an IND will result in the FDA allowing testing and clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such clinical trials. The manufacturing of its product candidates remains an emerging and evolving field. Accordingly, Renovacor expects chemistry, manufacturing and control related topics, including product specifications, will be a focus of IND reviews, which may delay the clearance of INDs. Additionally, even if the FDA agrees with the design and implementation of the clinical trials set forth in an IND or clinical trial application, Renovacor cannot guarantee that the FDA will not change their requirements in the future.

Renovacor intends to study its product candidates in patient populations with significant comorbidities that may result in deaths or serious adverse events or unacceptable side effects and require it to abandon or limit its clinical development activities.

Patients Renovacor intends to treat with its product candidates may also receive angiotensin converting enzyme (ACE) inhibitors, angiotensin receptor blockers, neprilysin inhibitors, SGLT2 inhibitors, beta-adrenergic receptor antagonists, aldosterone antagonists and/or diuretics or other medical and surgical interventions in the course of treatment of their disease, and they may therefore experience side effects or adverse events, including death, that are unrelated to Renovacor’s product candidates. While these side effects or adverse events may be unrelated to Renovacor’s product candidates, they may still affect the success of its clinical studies. The inclusion of patients that could become critically ill during Renovacor’s clinical studies may result in deaths or other adverse medical events due to underlying disease or to other therapies or medications that these patients may

 

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receive. Any of these events could prevent Renovacor from advancing its product candidates through clinical development and from obtaining regulatory approval, which would impair its ability to commercialize its product candidates. Any inability to advance its existing product candidates or any other product candidate through clinical development would have a material adverse effect on its business.

Renovacor may experience difficulties identifying and enrolling patients in its clinical trials, which could delay or prevent clinical trials of its lead product candidate, REN-001, or its other product candidates.

Identifying and qualifying patients to participate in clinical trials of REN-001 is critical to Renovacor’s success. The timing of its clinical trials depends in part on the speed at which Renovacor can recruit patients to participate in testing REN-001, and it may experience delays in its clinical trials if it encounters difficulties in enrollment. The eligibility criteria of its clinical trials may limit the pool of available study participants as it will require patients to have specific characteristics that Renovacor can measure to assure their disease is either severe enough or not too advanced to include them in a clinical trial. The process of finding and diagnosing patients may prove costly. Renovacor also may not be able to identify, recruit, and enroll a sufficient number of appropriate patients to complete its clinical trials because of demographic criteria for prospective patients, the perceived risks and benefits of the product candidate under study, the proximity and availability of clinical trial sites for prospective patients, and the patient referral practices of physicians. The availability and efficacy of competing therapies and clinical trials can also adversely impact enrollment. If patients are unwilling to participate in its trials for any reason, the timeline for recruiting patients, conducting trials, and obtaining regulatory approval of potential products may be delayed, the commercial prospects of REN-001 or its other product candidates will be harmed, and its ability to generate product revenue from any of these product candidates could be delayed or prevented. Furthermore, Renovacor’s inability to enroll a sufficient number of patients for its clinical trials could result in significant delays or may require it to abandon one or more clinical trials altogether. Enrollment delays in its clinical trials may result in increased development costs and jeopardize its ability to achieve its clinical development timeline and goals, including the dates by which Renovacor will commence, complete and receive results from clinical trials. Enrollment delays in its clinical trials may also jeopardize its ability to commence sales of and generate revenues from REN-001 or its other product candidates. Any of these occurrences may harm its business, financial condition, and prospects significantly.

REN-001 and Renovacor’s other product candidates may cause adverse events or undesirable side effects that could delay or prevent its regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

While Renovacor believes its therapeutic BAG3 gene construct is non-immunogenic and does not expect the BAG3 gene or protein to elicit a significant immune response, gene therapy is still a relatively new approach to disease treatment and adverse side effects could develop. There also is the potential risk of delayed adverse events following exposure to gene therapy products due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material including adverse side effects related to the AAV vector.

Renovacor is collecting data about REN-001 and its other product candidates in preclinical studies and will continue to do so in clinical trials, if and when they begin. To date, Renovacor has only evaluated its product candidate in preclinical animal models, and it, therefore, does not know the side effect profile of its product candidates in humans. Accordingly, it may experience unexpected side effects and/or higher levels of known side effects in clinical trials, including adverse events known in gene therapies. These include the potential for, among others, infusion reaction, vector/transgene-specific toxicities and disease-/host-specific idiosyncrasy and in rare cases certain cancers.

Any adverse events or undesirable side effects caused by, or other unexpected properties of, REN-001 or its other product candidates could cause Renovacor, any future collaborators, an IRB or ethics committee or

 

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regulatory authorities to interrupt, delay or halt clinical trials of its product candidate and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. It is possible that as Renovacor progresses REN-001 or its other product candidates through preclinical and clinical development, or as the use of REN-001 or its other product candidates become more widespread if it receives regulatory approval, illnesses, injuries, discomforts and other adverse events that were not observed in preclinical studies or clinical trials, as well as conditions that did not occur or went undetected, will be reported by patients. If such side effects become known later in development or after approval, such findings may harm its business, financial condition, and prospects significantly. Further, if a serious safety issue is identified in connection with the use of REN-001 or its other product candidates commercially or in third-party clinical trials elsewhere, such issues may adversely affect the development potential of REN-001 or Renovacor’s other product candidates or result in regulatory authorities restricting its ability to develop or commercialize REN-001 or its other product candidates.

Further, if REN-001 or any of its other product candidates were to receive regulatory approval and Renovacor or others identify undesirable side effects caused by the product (or any other product) after the approval, a number of potentially significant negative consequences could result, including:

 

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regulatory authorities may request that Renovacor recall or withdraw the product from the market or may limit the approval of the product through labeling or other means;

 

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

 

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it may be required to change the way the product is distributed or administered, conduct additional clinical trials, or change the labeling of the product;

 

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it may decide to recall or remove the product from the marketplace;

 

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it could be sued and/or held liable for injury caused to individuals exposed to or taking its product candidates;

 

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damage to the public perception of the safety of REN-001 or its other product candidates; and

 

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its reputation may suffer.

Any of these events could prevent Renovacor from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing its product candidates and significantly impact its ability to successfully commercialize its product candidates and generate revenues, all of which would materially adversely affect its business, financial condition, and results of operations.

Public opinion and scrutiny of gene-based therapies for the treatment of human disease may impact public perception of Renovacor and its product candidates, or impair its ability to conduct its business.

Renovacor’s lead product candidate, REN-001, is an AAV9 vector-based gene therapy designed to deliver a human BAG3 gene to express a fully functional human BAG3 protein in transduced cells for the treatment of BAG DCM. To date, there are no FDA-approved therapeutic interventions designed to address specific genetic mutations that result in heart failure. Public perception may be influenced by claims, such as claims that gene-based therapies are unsafe, unethical, or immoral. Accordingly, its approach may not gain the acceptance of the public or the medical community. Negative public reaction to gene-based therapy in general could result in greater government regulation and stricter labeling requirements of gene-based therapeutic products, including any of its product candidates, and could cause a decrease in the demand for any products Renovacor may develop. Adverse public attitudes may adversely impact its ability to enroll clinical trials. More restrictive government regulations or negative public opinion could have an adverse effect on its business or financial condition and may delay or impair the development and commercialization of its product candidates or demand for any products Renovacor may develop.

 

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If Renovacor does not meet its projected development goals on the timelines it announces and expects to meet, the potential approval of its products may be delayed.

From time to time, Renovacor estimates the timing of the accomplishment of various scientific, clinical, regulatory, manufacturing and other product development goals, which it sometimes refers to as milestones. These milestones may include the commencement or completion of preclinical studies and clinical trials and the submission of regulatory filings, including IND submissions. From time to time, Renovacor may publicly announce the expected timing of some of these milestones. All of these milestones are, and will be, based on a variety of assumptions. The actual timing of these milestones can vary significantly compared to its estimates, in some cases for reasons beyond its control. Renovacor may experience numerous unforeseen events during, or as a result of, any future clinical trials that it conducts that could delay or prevent its ability to receive marketing approval or commercialize its product candidates.

Renovacor relies, and expects to continue to rely, on third parties to conduct, supervise, and monitor its preclinical studies, and Renovacor will rely on third parties to conduct, supervise, and monitor future clinical trials for its product candidates.

Renovacor relies on third-party CROs, study sites, and others to conduct, supervise, and monitor its preclinical studies for its product candidates and it expects to rely on third parties to similarly conduct, supervise, and monitor any future clinical trials for its product candidates. It expects to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct its preclinical studies, and intend to rely on third parties in connection with the commencement of future clinical trials of its product candidates. Although Renovacor has and will continue to have agreements with these third parties governing their activities, it has limited influence over their actual performance and will control only certain aspects of their activities. The failure of these third parties to successfully carry out their contractual duties or meet expected deadlines, including as a result of the impact of the coronavirus pandemic, could substantially harm its business because Renovacor may be delayed in completing or unable to complete the studies required to support future approval of REN-001 and its other product candidates, or it may not obtain marketing approval for, or commercialize, REN-001 and its other product candidates in a timely manner or at all. Moreover, these agreements might terminate for a variety of reasons, including a failure to perform by the third parties. If Renovacor needs to enter into alternative arrangements its product development activities would be delayed and its business, financial condition, results of operations and prospects may be materially harmed.

Renovacor’s reliance on these third parties for development activities reduces its control over these activities. Nevertheless, Renovacor is responsible for ensuring that each of its studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and its reliance on third parties does not relieve it of its regulatory responsibilities. For example, it will remain responsible for ensuring that each of its preclinical studies and future clinical trials is conducted in accordance with the general investigational plan and protocols for such trial. Renovacor must also ensure that its preclinical and future clinical trials are conducted in accordance with cGLP regulations, as appropriate. Moreover, the FDA and comparable foreign regulatory authorities require it to comply with cGCPs for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce these requirements through periodic inspections of trial sponsors, clinical investigators, and trial sites. If it or any of its third parties fail to comply with applicable cGCPs or other regulatory requirements, Renovacor or such third parties may be subject to enforcement or other legal actions, the data generated in its preclinical studies and future clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require it to perform additional studies.

Renovacor cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of its clinical trials will comply with the applicable regulatory requirements. In addition, Renovacor’s clinical trials must be conducted with product candidates that were produced under cGMP regulations. Failure to comply with these regulations may require it to repeat clinical trials, which would delay the regulatory approval process.

 

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If any of its relationships with these third parties terminate, Renovacor may not be able to enter into arrangements with alternative providers or to do so on commercially reasonable terms. Switching or adding additional third parties involves additional cost and requires management’s time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays could occur, which could compromise its ability to meet its desired development timelines.

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

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

Changes in regulatory requirements, guidance from the FDA and other regulatory authorities or unanticipated events during its preclinical studies and clinical trials of REN-001 or its other product candidates may result in changes to preclinical studies or clinical trials or additional preclinical or clinical trial requirements, which could result in increased costs to Renovacor and could delay its development timeline.

Regulatory requirements governing biologic drug products, including gene therapy products, are still evolving and it is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for REN-001 or its other product candidates. Changes in regulatory requirements, FDA guidance or guidance from other regulatory agencies or unanticipated events during its preclinical studies or clinical trials may force Renovacor to terminate or adjust its development program.

In addition, the clinical trial requirements of the FDA and foreign regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of such product candidates. The regulatory approval process for novel product candidates such as Renovacor’s can be more expensive and take longer than for other, better known or more extensively studied product candidates. The FDA, or the applicable regulatory authorities, may impose additional preclinical or clinical trial requirements. Amendments to clinical trial protocols would require resubmission to the FDA, or the applicable regulatory authorities as well as IRBs and ethics committees for review and approval, which may adversely impact the cost, timing or successful completion of a clinical trial. If Renovacor experiences delays completing, or if it terminates, any of its clinical trials, or if it is required to conduct additional preclinical or clinical trials, the commercial prospects for REN-001 or its other product candidates may be harmed and its ability to generate product revenue will be delayed, and it would materially adversely affect its business, financial condition, and results of operations.

In order to market any product outside of the United States, Renovacor must comply with numerous and varying regulatory requirements of other countries regarding biologic development and commercialization. The approval process varies from country to country and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country does not ensure regulatory

 

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approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.

Renovacor is subject to various foreign, federal, and state healthcare and privacy laws and regulations, and its failure to comply with these laws and regulations could harm its results of operations and financial condition.

Renovacor’s business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, and customers expose it to broadly applicable foreign, federal and state fraud and abuse and other healthcare and privacy laws and regulations. These laws may constrain the business or financial arrangements and relationships through which Renovacor conducts its operations, including how it researches, markets, sells and distributes any products for which it obtains marketing approval. Such laws include:

 

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the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing any remuneration (including any kickback, bribe or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, in return for, either the referral of an individual or the purchase, lease, or order, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

 

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the federal false claims and civil monetary penalties laws, including the civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making or causing to be made a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

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

 

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

 

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the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the CMS information related to payments and other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members;

 

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the Foreign Corrupt Practices Act (the “FCPA”), which prohibits companies and their intermediaries from making, or offering or promising to make improper payments to non-U.S. officials for the purpose of obtaining or retaining business or otherwise seeking favorable treatment; and

 

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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to its business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non- governmental third-party payors, including private insurers, or by the patients themselves; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug and biologic manufacturers to file reports relating to pricing and marketing information or which require tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and entities; state and local laws that require the registration of pharmaceutical sales representatives; state and foreign laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA; state and foreign governments that have enacted or proposed requirements regarding the collection, distribution, use, security, and storage of personally identifiable information and other data relating to individuals (including the EU General Data Protection Regulation 2016/679 (the “GDPR”), and the California Consumer Protection Act (the “CCPA”)), and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use, and dissemination of data, thus complicating compliance efforts.

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

Healthcare legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty and cost for Renovacor to obtain marketing approval of and commercialize its product candidates.

The commercial potential for its approved products, if any, could be affected by changes in healthcare spending and policy in the United States and abroad. Renovacor operates in a highly regulated industry. New laws, regulations or judicial decisions or new interpretations of existing laws, regulations or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could adversely affect its business, operations and financial condition. The United States and many foreign jurisdictions have

 

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enacted or proposed legislative and regulatory changes affecting the healthcare system that may affect its ability to profitably sell its product and product candidates, if approved. The United States government, state legislatures and foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs and biologics.

The ACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. There have been significant ongoing administrative, executive and legislative efforts to modify or eliminate the ACA. For example, the Tax Act enacted on December 22, 2017, repealed the shared responsibility payment for individuals who fail to maintain minimum essential coverage under Section 5000A of the IRC, commonly referred to as the individual mandate. The Trump administration issued executive orders which sought to reduce burdens associated with the ACA and modified how it was implemented. Other legislative changes have been proposed and adopted since passage of the ACA. The ACA has also been subject to challenges in the courts. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is unconstitutional and remanded the case to the Texas District Court to reconsider its earlier invalidation of the entire ACA. An appeal was taken to the U.S. Supreme Court (the “Supreme Court”) which heard oral arguments in the case on November 10, 2020. A ruling is expected in 2021.

Further changes to and under the ACA remain possible, although the new Biden administration has signaled that it plans to build on the ACA and expand the number of people who are eligible for subsidies under it. President Biden indicated that he intends to use executive orders to undo changes to the ACA made by the Trump administration and would advocate for legislation to build on the ACA. It is unknown what form any such changes or any law proposed to replace the ACA would take, and how or whether it may affect its business in the future. Renovacor expects that changes to the ACA, the Medicare and Medicaid programs, changes allowing the federal government to directly negotiate drug and biologic prices and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry.

The Budget Control Act of 2011 has resulted in reductions in spending on certain government programs, including aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year. These reductions have been extended until 2030 unless additional Congressional action is taken.

Any reduction in reimbursement from Medicare, Medicaid, or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent Renovacor from being able to generate revenue, attain and maintain profitability of its product and product candidates, if approved.

Renovacor cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If Renovacor or its collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if it or its collaborators are not able to maintain regulatory compliance, REN-001 or any future product candidates may lose any marketing approval that may have been obtained and it may not achieve or sustain profitability, which would materially adversely affect its business, financial condition and results of operations.

 

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Risks Related to Manufacturing

The manufacture and distribution of Renovacor’s recombinant AAV-derived gene product candidates is complex and subject to a multitude of risks. These risks could substantially increase its costs, limit the clinical and commercial supply of its product candidates, and result in delays in our development or commercialization programs.

The manufacture and supply of REN-001 and Renovacor’s other product candidates based on the BAG3 gene and protein involve novel processes that are more complex than those required for most drugs and biologics and, accordingly, present significant challenges and are subject to multiple risks.

Renovacor’s product candidates require processing steps that are more complex than those required for most small molecule drugs. These are complex biological processes which include transfection of the gene of interest into a viral vector, production of viral vector in a host cell line, purification and characterization of the vector gene product. Moreover, unlike small molecules, the physical and chemical properties of a biologic such as Renovacor’s generally cannot be fully characterized. Accordingly, Renovacor will employ multiple analytical methods to control the manufacturing process to assure that the process works consistently and the product candidate is made strictly and consistently in compliance with current regulatory expectations. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, low lot yields, product recalls, product liability claims or insufficient inventory. As a result, Renovacor may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet the FDA or other applicable standards or specifications with consistent and acceptable production yields and costs. Accordingly, Renovacor expects chemistry, manufacturing and control of related topics, including product release specifications, will be a focus of IND reviews, which may delay the clearance of INDs.

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

As a result of the complexities in manufacturing biologics and distributing gene therapies, the cost to manufacture and distribute biologics and gene therapies in general, and Renovacor’s gene product candidates in particular, is generally higher than traditional small molecule chemical compounds. In addition, its cost of goods development is at an early stage. The actual cost to manufacture and process its product candidates could be greater than Renovacor expects and could materially and adversely affect the commercial viability of REN-001 and its other product candidates.

Renovacor currently relies on and expects to continue to rely on third parties for the manufacture of its product candidates for development and such reliance may adversely affect its future profit margins and its ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Renovacor currently does not operate manufacturing facilities and relies, and will continue to rely, on CMOs for the manufacture of its product candidates and related raw materials for clinical and preclinical development and expects to rely on third parties for commercial manufacture if any of its product candidates receive marketing approval. Renovacor has partnered with Andelyn Biosciences and Aldevron LLC for the manufacture and supply of certain of its product candidates for future clinical development, but it may partner with other third party manufacturers for supplies in future clinical development. Renovacor has not yet secured manufacturing capabilities for commercial quantities of its product candidates. The competition for gene therapy

 

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contract development, manufacturing and testing is intense and Renovacor may be unable to negotiate binding agreements with the manufacturers to support its potential commercialization activities at commercially reasonable terms. Further, even with contractual agreements in place for the production and supply of its product candidates and related raw materials for its future clinical development, there can be no assurance the CMOs or the manufacturing facilities will meet its demands on schedule or at all.

The facilities that may in the future be used by Renovacor, third-party CMOs or any other manufacturers with which it may collaborate must be approved by the FDA pursuant to inspections that will be conducted after it submits a BLA to the FDA. For manufacturing facilities in which Renovacor does not operate, it does not control the manufacturing process of, and are completely dependent on, CMOs for compliance with cGMP requirements for manufacture of biologic products. If these CMOs cannot successfully manufacture material that conforms to its specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, Renovacor has no control over the ability of CMOs to maintain adequate quality control and quality assurance. The CMOs may also encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel needed to operate the required manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of its product candidates or if it withdraws any such approval in the future, it may need to find alternative manufacturing facilities, which would significantly impact its ability to develop, obtain regulatory approval for or market its product candidates, if approved. Its failure, or the failure of its CMO, to comply with applicable regulations could result in sanctions being imposed on it, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of its product candidates.

Its CMO’s failure to execute on its manufacturing requirements, to do so on commercially reasonable terms and comply with cGMP could adversely affect Renovacor’s business in a number of ways, including:

 

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an inability to initiate or continue clinical trials of REN-001 or its other product candidates under development;

 

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delay in submitting regulatory applications, or receiving marketing approvals, for its product candidates;

 

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subjecting third-party manufacturing facilities to additional inspections by regulatory authorities;

 

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requirements to cease development or to recall batches of its product candidates; and

 

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in the event of approval to market and commercialize REN-001 or its other product candidates, an inability to meet commercial demands for REN-001 or its other product candidates.

Any performance failure on the part of Renovacor or its existing or future CMOs could delay clinical development or marketing approval, and any related remedial measures may be costly or time consuming to implement. If Renovacor’s current CMOs cannot perform as agreed, it may be required to replace such manufacturers and it may be unable to replace them on a timely basis, with attractive terms or at all.

Its current and anticipated future dependence upon CMOs for the manufacture of its product candidates or products may adversely affect its future profit margins and its ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates proceed through preclinical studies to late-stage clinical trials towards potential approval and commercialization, it is common that various aspects of the development program, such as

 

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manufacturing methods and formulation, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause Renovacor’s product candidates to perform differently and affect the results of planned preclinical studies or future clinical trials conducted with the materials manufactured using altered processes. Such changes may also require additional testing, FDA notification or FDA approval. This could delay completion of preclinical studies and clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase costs, delay approval of Renovacor’s product candidates and jeopardize its ability to commence sales and generate revenue.

CMOs and suppliers use biological materials and may use hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.

Renovacor’s CMOs and suppliers may use hazardous materials, including potent chemicals and biological agents and compounds that could be dangerous to human health and safety or the environment. The operations of its CMOs and suppliers also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair Renovacor’s product development efforts. In addition, Renovacor cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Renovacor does not carry specific biological or hazardous waste insurance coverage, and its property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, Renovacor could be held liable for damages or be penalized with fines in an amount exceeding its resources, and its clinical trials or regulatory approvals could be suspended.

Any contamination in Renovacor’s CMO process, shortages of raw materials, labor or reagents or failure of any of its key suppliers to deliver necessary components of its platform could result in delays in its clinical development or marketing schedules.

Given the nature of biologics manufacturing, there is a risk of contamination. Any contamination could materially adversely affect Renovacor’s or its third-party vendor’s ability to produce its gene therapies on schedule and could therefore harm its results of operations and cause reputational damage.

The raw materials required in Renovacor’s third-party vendors manufacturing processes are derived from biological sources. Renovacor cannot be assured that its third-party vendors have, or will be able to obtain on commercially reasonable terms, or at all, sufficient rights to these materials derived from biological sources. Such raw materials are difficult to procure, may be difficult to substitute and may also be subject to contamination or recall. A material shortage, contamination, recall, or restriction on the use of biologically derived substances in the manufacture of its product candidates could adversely impact or disrupt the clinical trials and commercial manufacturing of its product candidates, which could materially and adversely affect Renovacor’s operating results and development timelines.

Renovacor relies and will continue to rely on third-party suppliers for the supply and manufacture of certain components of its technology. It currently relies on Andelyn Biosciences and Aldevron LLC as its suppliers of its clinical materials for REN-001 and its other product candidates. Even if it were able to source REN-001 or its other product candidates from alternative suppliers or produce them by itself, such alternatives may cost more, result in lower yields or not be as suitable for its purposes. Should Renovacor’s ability to procure these material components from its suppliers be compromised, its ability to continuously operate would be impaired until an alternative supplier is sourced, qualified and tested, which could limit Renovacor’s ability to produce a clinical and commercial supply of its product candidates and harm its business.

 

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Risks Related to Commercialization of Renovacor’s Product Candidates

If Renovacor is unable to successfully commercialize REN-001 or any of its other product candidates for which Renovacor receives regulatory approval, or experience significant delays in doing so, its business will be materially harmed.

If Renovacor is successful in obtaining marketing approval from applicable regulatory authorities for REN-001 or any of its other product candidates, its ability to generate revenues from such product candidates will depend on its success in:

 

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launching commercial sales of its product candidates, whether alone or in collaboration with others;

 

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receiving an approved label with claims that are necessary or desirable for successful marketing, and that does not contain safety or other limitations that would impede its ability to market its product candidates;

 

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creating market demand for its product candidates through marketing, sales and promotion activities;

 

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hiring, training, and deploying a sales force or contracting with third parties to commercialize its product candidates;

 

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manufacturing, either on its own or through third parties, product candidates in sufficient quantities and at acceptable quality and cost to meet commercial demand at launch and thereafter;

 

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establishing and maintaining agreements with wholesalers, distributors, and group purchasing organizations on commercially reasonable terms;

 

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creating partnerships with, or offering licenses to, third parties to promote and sell product candidates in foreign markets where Renovacor receives marketing approval;

 

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maintaining patent and trade secret protection and regulatory exclusivity for its product candidates;

 

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achieving market acceptance of its product candidates by patients, the medical community, and third-party payors;

 

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achieving appropriate reimbursement for its product candidates;

 

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effectively competing with other therapies; and

 

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maintaining an acceptable tolerability profile of its product candidates following launch.

To the extent Renovacor is not able to do any of the foregoing, its business, financial condition, results of operations and prospects will be materially harmed.

Renovacor faces significant competition, and if its competitors develop product candidates more rapidly than Renovacor does or their product candidates are more effective, its ability to develop and successfully commercialize products may be adversely affected.

The biopharmaceutical and pharmaceutical industries are characterized by rapid innovation, intense and dynamic competition and a strong emphasis on proprietary and novel products and product candidates. While Renovacor believes that its technology, scientific knowledge and foundational understanding in the field of BAG3 mutations provide it with competitive advantages, it faces potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biopharmaceutical companies, academic institutions and governmental agencies and public and private research institutions, as well as standard-of-care treatments, new products undergoing development and combinations of existing and new therapies. Any product candidates that Renovacor successfully develops and commercialize will compete with existing therapies and new therapies, including combinations thereof, that may become available in the future. Renovacor competes with these organizations to recruit management, scientists and clinical development personnel, which could negatively affect its level of expertise and its ability to execute its business plan. It will also face competition in

 

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establishing clinical trial sites, enrolling subjects for clinical trials and in identifying and in-licensing new product candidates. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Renovacor is developing a pipeline of BAG3-based therapies for diseases of high unmet medical need associated with BAG3 biology. While it believes its proposed therapeutic intervention for BAG3 DCM derived from its AAV/BAG3 gene therapy product is significantly differentiated, a number of companies are currently focused on drug development and other therapies for the treatment of heart failure. Its potential competitors include, but are not limited to, Rocket Pharmaceuticals, Inc. (LAMP2B), Asklepios Biopharmaceuticals, Inc. and its subsidiary NanoCor Therapeutics, Inc. (I1c gene), Bristol-Myers Squibb Company (ßARKct), and Renova Therapeutics, Inc. (AC6); however, none of these genes act directly on the BAG3 pathway and are not expected to directly compete for patients suffering from BAG3 DCM. These companies may compete with Renovacor in recruiting human capital and securing licenses to complementary technologies that may be critical to the success of its business. They also compete with Renovacor for potential funding from the biotechnology and pharmaceutical industries. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. While it is not aware of any competitive programs in development for BAG3 DCM, there may be other companies pursuing therapeutic candidates from which it faces current or future competition.

Many of Renovacor’s competitors have significantly greater financial, technical, manufacturing, marketing, sales and supply resources or experience than it does. If Renovacor successfully obtains approval for any product candidate, it will face competition based on many different factors, including the safety and effectiveness of its products, the ease with which its products can be administered and the extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Competing products could present superior treatment alternatives, including by being more effective, safer, more convenient, less expensive or marketed and sold more effectively than any products Renovacor may develop. Its competitors also may obtain FDA or other regulatory approval for their products more rapidly than it may obtain approval for its, which could result in its competitors establishing a strong market position before it is able to enter the market. Competitive products may make any products Renovacor develops obsolete or noncompetitive before it recovers the expense of developing and commercializing its product candidates. If it is unable to compete effectively, its opportunity to generate revenue from the sale of the products it may develop, if approved, could be adversely affected.

Renovacor expects to face uncertainty regarding the pricing of its existing product candidates and any other product candidates that it may develop.

Due to the novel nature of its product candidates, Renovacor faces significant uncertainty as to the pricing of any such products for which it may receive marketing approval. While Renovacor anticipates that pricing for any product candidates that it develops will be relatively high due to their anticipated use in the prevention or treatment of life-threatening diseases where therapeutic options are limited, the biopharmaceutical industry has recently experienced significant pricing pressures. In particular, drug pricing and other healthcare costs continue to be subject to intense political and societal pressures, which Renovacor anticipates will continue and escalate on a global basis. These pressures may result in harm to its business and reputation, cause its stock price to decline or experience periods of volatility and adversely affect results of operations and its ability to raise funds.

The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new products could limit Renovacor’s product revenues.

Renovacor’s ability to commercialize its lead product candidate, REN-001, or any of its other product candidates successfully will depend in part on the extent to which reimbursement for these products and related

 

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treatments will be available from government health administration authorities, private health insurers, and other organizations. In the United States, the principal decisions about reimbursement for new therapies are typically made by Centers for Medicare and Medicaid Services, an agency within the U.S. Department of Health and Human Services (“CMS”). CMS decides whether and to what extent a new therapy will be covered and reimbursed under Medicare, and private payors tend to follow CMS determinations to a substantial degree. The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments, such as gene therapy. There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products by government and third-party payors. In particular, there is no body of established practices and precedents for reimbursement of gene therapy, and it is difficult to predict what the regulatory authority or private payor will decide with respect to reimbursement levels for novel products such as its. Its products may not qualify for coverage or direct reimbursement, or may be subject to limited reimbursement. If reimbursement or insurance coverage is not available, or is available only to limited levels, Renovacor may not be able to successfully commercialize its product candidates. Even if coverage is provided, the approved reimbursement amount may not be sufficient to allow it to establish or maintain pricing to generate income.

In addition, reimbursement agencies in foreign jurisdictions may be more conservative than those in the United States. Accordingly, in markets outside the United States, the reimbursement for its products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits. Moreover, increasing efforts by governmental and third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for its product candidates. Failure to obtain or maintain adequate reimbursement for any products for which Renovacor receives marketing approval will adversely affect its ability to achieve commercial success, and could have a material adverse effect on its operating results, its ability to raise capital needed to commercialize products, and its overall financial condition.

Even if Renovacor obtains regulatory and marketing approval for a product candidate, its product candidates will remain subject to regulatory oversight and it may be subject to penalties and other penalties if it fails to comply with regulatory requirements or if it experiences unanticipated problems with its product candidates.

Even if Renovacor receives marketing and regulatory approval for REN-001 or any of its other product candidates, regulatory authorities may still impose significant restrictions on the indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. REN-001 and its other product candidates will also be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information. The FDA has significant post-market authority, including, for example, the authority to require labeling changes based on new safety information and to require post-market studies or clinical trials to evaluate serious safety risks related to the use of a biologic. Any regulatory approvals that Renovacor receives for REN-001 or its other product candidates may also be subject to a risk evaluation and mitigation strategy (“REMS”), limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including post-approval clinical trials, and surveillance to monitor the quality, safety and efficacy of the product, all of which could lead to lower sales volume and revenue. For example, the holder of an approved BLA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. The holder of an approved BLA also must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.

In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP

 

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requirements and adherence to commitments made in the BLA or foreign marketing application. If Renovacor, or a regulatory authority, discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling of that product, a regulatory authority may impose restrictions relative to that product, the manufacturing facility or it, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

If Renovacor or its contractors fail to comply with applicable regulatory requirements following approval of REN-001 or its other product candidates, a regulatory authority may:

 

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issue a warning letter asserting that Renovacor is in violation of the law;

 

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request voluntary product recalls;

 

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

 

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suspend or withdraw regulatory approval;

 

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suspend any ongoing clinical trials;

 

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refuse to approve a pending BLA or comparable foreign marketing application (or any supplements thereto);

 

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restrict the marketing or manufacturing of the product;

 

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

 

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

 

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

Any government investigation of alleged violations of law could require Renovacor to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit its ability to commercialize REN-001 or its other product candidates and adversely affect its business, financial condition, results of operations, and prospects.

Even if Renovacor receives marketing approval for REN-001 or its other product candidates, it may not achieve broad market acceptance.

The commercial success of Renovacor’s lead product candidate, REN-001, or its other product candidates, if developed and approved for marketing by the FDA or comparable foreign regulatory authority, will depend upon the awareness and acceptance of REN-001 or such other product candidate among the medical community, including physicians, patients, advocacy groups and healthcare payors. Market acceptance of its product candidates, if approved, will depend on a number of factors, including, among others:

 

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the prevalence and severity of any adverse side effects associated with its product candidates;

 

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limitations or warnings contained in the labeling approved for its product candidates by the FDA or comparable foreign regulatory authority, such as a “black box” warning;

 

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availability of alternative treatments, including any competitive therapies in development that could be approved or commercially launched prior to approval of its product candidates;

 

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

 

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the strength of marketing and distribution support and timing of market introduction of competitive products;

 

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pricing;

 

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payor acceptance;

 

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the impact of any future changes to the healthcare system in the United States;

 

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the effectiveness of its sales and marketing strategies; and

 

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the likelihood that the FDA may require development of a REMS, as a condition of approval or post-approval or may not agree with its proposed REMS or may impose additional requirements that limit the promotion, advertising, distribution or sales of its product candidates.

If REN-001 or any of its other product candidates are approved but do not achieve an adequate level of acceptance by patients, advocacy groups, physicians and payors, Renovacor may not generate sufficient revenue to become or remain profitable and its business, financial condition, and results of operations could be materially adversely affected. Its efforts to educate the medical community and third-party payors about the benefits of REN-001 and its other product candidates may require significant resources and may never be successful.

Even if Renovacor receives marketing approval for REN-001 or its other product candidates in the United States, it may never receive regulatory approval to market REN-001 or its other product candidates outside of the United States.

In order to market any product outside of the United States, Renovacor must establish and comply with the numerous and varying safety, efficacy and other regulatory requirements of other jurisdictions, including potential additional clinical trials and/or preclinical studies. Approval procedures vary among jurisdictions and can involve additional testing and additional administrative review periods. The time required to obtain approvals in other jurisdictions might differ from that required to obtain FDA approval. The marketing approval processes in other jurisdictions may implicate all of the risks detailed above regarding FDA approval in the United States as well as other risks. In particular, in many jurisdictions outside of the United States, products must receive pricing and reimbursement approval before the product can be commercialized. Obtaining this approval can result in substantial delays in bringing products to market in such jurisdictions. Marketing approval in one jurisdiction does not necessarily ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one country may have a negative effect on the regulatory process or commercial activities in others. Failure to obtain marketing approval in other jurisdictions or any delay or other setback in obtaining such approval would impair its ability to market a product candidate in such foreign markets. Any such impairment would reduce the size of its potential market, which could have a material adverse impact on its business, financial condition, results of operations, and prospects.

Renovacor may be unable to establish effective marketing, sales and distribution capabilities or enter into agreements with third parties to market and sell REN-001 or its other product candidates, if approved.

Renovacor currently does not have a commercial infrastructure for the marketing, sale, and distribution of its lead product candidate, REN-001, or its other product candidates. If REN-001 or its other product candidates receive marketing approval, Renovacor intends to commercialize such product candidates in the United States and potentially in other geographies. In order to commercialize its products, it must build its marketing, sales, and distribution capabilities or make arrangements with third parties to perform these services. It may not be successful in doing so. Should Renovacor decide to move forward in developing its own marketing capabilities, it may incur expenses prior to product launch or even approval in order to recruit a sales force and develop a marketing and sales infrastructure. If a commercial launch is delayed as a result of the FDA’s or comparable foreign regulatory authority’s requirements or for other reasons, Renovacor would incur these expenses prior to being able to realize any revenue from sales of REN-001 and its other product candidates. Even if it is able to effectively hire a sales force and develop a marketing and sales infrastructure, its sales force and marketing teams may not be successful in commercializing REN-001 or its other product candidates. This may be costly, and its investment would be lost if Renovacor cannot retain or reposition its sales and marketing personnel.

Renovacor may also or alternatively decide to collaborate with third-party marketing and sales organizations to commercialize any approved product candidates in the United States, in which event, its ability to generate

 

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product revenues may be limited. To the extent it relies on third parties to commercialize any products for which it obtains regulatory approval, Renovacor may receive less revenues than if it commercialized these products itself, which could materially harm its prospects. In addition, Renovacor would have less control over the sales efforts of any other third parties involved in its commercialization efforts, and could be held liable if they failed to comply with applicable legal or regulatory requirements.

Renovacor has no prior experience in the marketing, sale, and distribution of biopharmaceutical products, and there are significant risks involved in building and managing a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market any products Renovacor may develop will be expensive and time-consuming and could delay any product launch, and it may not be able to successfully develop this capability. It will have to compete with other biopharmaceutical and pharmaceutical companies to recruit, hire, train, manage, and retain marketing and sales personnel, which is expensive and time consuming and could delay any product launch. Developing its sales capabilities may also divert resources and management attention away from product development.

In the event Renovacor is unable to develop a marketing and sales infrastructure, it may not be able to commercialize REN-001 or its other product candidates in the United States or elsewhere, which could limit its ability to generate product revenues and materially harm its business, financial condition, results of operations and prospects.

If the market opportunities for Renovacor’s products are smaller than it believes they are, its revenue may be adversely affected, and its business may suffer.

The initial planned clinical trials for REN-001 are designed to evaluate its safety and tolerability in humans, as well as efficacy in the treatment of patients with BAG3 DCM. Renovacor does not know at this time whether REN-001 or any of its other product candidates will be safe for use in humans or produce efficacious results. Subsequently, Renovacor plans to conduct additional clinical trials in related indications, but there is no guarantee that product candidates it develops, even if approved for multiple related indications, would be approved for others, and, prior to any such approvals, the company may have to conduct additional clinical trials.

Renovacor focuses its research and product development on the use of AAV/BAG3-based gene therapy platforms for the treatment of a variety of different types of indications in heart failure and central nervous system diseases. Its projections of both the number of people who have BAG3 mutations, as well as the subset of people with these mutations who have the potential to benefit from treatment with its product candidates, are based on beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new trials may change the estimated incidence or prevalence of such mutations. The total addressable market across all of Renovacor’s product candidates will ultimately depend upon, among other things, the diagnosis criteria included in the final label for each of its product candidates approved for sale for these indications, the availability of alternative treatments and the safety, convenience, cost and efficacy of its product candidates relative to such alternative treatments, acceptance by the medical community and patient access, drug and biologic pricing and reimbursement. The number of patients in the United States and other major markets and elsewhere may turn out to be lower than expected, patients may not be otherwise amenable to treatment with its products or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect Renovacor’s results of operations and its business.

Risks Related to Renovacor’s Intellectual Property

If Renovacor is unable to protect its intellectual property and its proprietary technologies, it may not be able to compete effectively in the market.

Renovacor’s commercial success depends in part on its ability to obtain and maintain patent protection and trade secret protection for REN-001 and any of its other product candidates, proprietary technologies and their

 

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uses as well as its ability to operate without infringing upon the proprietary rights of others. If Renovacor is unable to protect its intellectual property rights or if its intellectual property rights are inadequate for its technology or its product candidates, Renovacor’s competitive position could be harmed, which could have a material adverse impact on its business, results of operations, financial conditions and prospects. Renovacor generally seeks to protect its proprietary position by filing patent applications in the United States and abroad related to REN-001 and any of its other product candidates, proprietary technologies and their uses that are important to Renovacor’s business. Renovacor’s patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, patents are issued from such applications, and then only to the extent the issued claims cover the technology. There can be no assurance that Renovacor’s patent applications will result in patents being issued or that issued patents will afford sufficient protection to prevent competitors from using identical or similar technology, nor can there be any assurance that the patents if issued will be sufficiently broad or will not be infringed, designed around or invalidated by third parties. Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for Renovacor’s proprietary rights is uncertain. Only limited protection may be available and may not adequately protect Renovacor’s rights or permit it to gain or keep any competitive advantage. These uncertainties and/or limitations in Renovacor’s ability to properly protect the intellectual property rights relating to REN-001 and any of its other product candidates could have a material adverse effect on its financial condition and results of operations.

Although Renovacor licenses an issued patent in Europe and licenses or jointly owns pending patent applications in the United States and foreign countries, it cannot be certain that the claims in these U.S. pending patent applications, corresponding international patent applications and patent applications in certain foreign countries will be considered patentable by the United States Patent and Trademark Office (the “USPTO”), courts in the United States or by the patent offices and courts in foreign countries, nor can it be certain that the claims in its issued patent will not be found invalid or unenforceable if challenged.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that Renovacor or any of its potential future collaborators will be successful in protecting REN-001 and any of its other product candidates by obtaining and defending patents. These risks and uncertainties include the following:

 

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the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process, the noncompliance with which can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;

 

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patent applications may not result in any patents being issued;

 

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patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;

 

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Renovacor’s competitors, many of whom have substantially greater resources than it does and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or block Renovacor’s ability to make, use and sell REN-001 and any of its other product candidates;

 

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there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and

 

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countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing products.

The patent prosecution process is also expensive and time consuming, and Renovacor may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all

 

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jurisdictions where protection may be commercially advantageous. It is also possible that Renovacor will fail to identify patentable aspects of its research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, Renovacor does not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, directed to technology that it licenses from third parties. Renovacor may also require the cooperation of its licensor in order to enforce the licensed patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of Renovacor’s business. Renovacor cannot be certain that patent prosecution and maintenance activities by its licensors have been or will be conducted in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. If they fail to do so, this could cause it to lose rights in any applicable intellectual property that Renovacor in-licenses, and as a result its ability to develop and commercialize products or product candidates may be adversely affected and Renovacor may be unable to prevent competitors from making, using and selling competing products.

In addition, although Renovacor enters into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of its research and development output, such as its employees, outside scientific collaborators, CROs, third-party manufacturers, consultants, advisors and other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing Renovacor’s ability to seek patent protection.

Renovacor relies on licenses of intellectual property from Temple and may license intellectual property from other third parties in the future, and such licenses may not provide adequate rights or may not be available in the future on commercially reasonable terms, if at all, and Renovacor’s licensors may be unable to obtain and maintain patent protection for the technology or products that it licenses to Renovacor.

Renovacor has acquired rights to the intellectual property underlying REN-001 through the License Agreement (the “License Agreement”), dated August 12, 2019, with Temple University of the Commonwealth System of Higher Education (“Temple”), and may in the future enter into other license agreements with third parties for other intellectual property rights or assets. Renovacor is heavily reliant on licenses to the patent rights and proprietary technology from Temple provided to it under the License Agreement, and these licenses are necessary to the development of Renovacor’s technology and products, including the technology related to REN-001. These and other licenses may not provide adequate rights to use such technology in all relevant fields of use. Licenses to additional third-party technology that may be required for Renovacor’s development programs may not be available in the future or may not be available on commercially reasonable terms, which could have a material adverse effect on its business.

In some circumstances, Renovacor may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that it licenses from Temple and other third parties in the future. In addition, some of Renovacor’s agreements with its licensors require obtaining consent from the licensor before it can enforce patent rights and the licensor may withhold such consent or may not provide it on a timely basis. Thus, Renovacor cannot be certain that these patents and applications will be prosecuted and enforced in a manner consistent with the best interests of its business. In addition, if third parties from whom Renovacor licenses patents fail to maintain such patents, or lose rights to those patents, the rights it has licensed may be reduced or eliminated.

If Renovacor fails to comply with its obligations in the License Agreement under which it licenses intellectual property and other rights from Temple or otherwise experiences disruptions to its business relationships with Temple, it could lose license rights that are important to its business.

Renovacor’s commercial success will depend in part on the maintenance of its license agreements. Renovacor has acquired rights to the intellectual property underlying REN-001 through the License Agreement with Temple, and may in the future enter into other license agreements with third parties for other intellectual

 

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property rights or assets. The License Agreement imposes, and future license agreements may impose, various diligence, milestone payment, royalty, and other obligations on Renovacor. If Renovacor fails to comply with its obligations under the License Agreement or any future license agreements with any party, or is subject to a bankruptcy, the licensor may have the right to terminate the license, in which event Renovacor would not be able to market products covered by the license. The License Agreement further provides Temple with a right to terminate the License Agreement for Renovacor’s material breach or default under the agreement, including the failure to make any required milestone or other payments. Should Temple exercise such a termination right, Renovacor would lose its right to the intellectual property under the License Agreement, and such loss may materially harm its business.

Renovacor may need to obtain licenses from third parties to advance its research or allow commercialization of REN-001 and any of its other product candidates, and it cannot provide any assurances that third-party patents do not exist which might be enforced against REN-001 and any of its other product candidates in the absence of such a license. Renovacor may fail to obtain any of these licenses on commercially reasonable terms, if at all, which could have a material adverse effect on its business and financial condition. Even if Renovacor is able to obtain a license, it may be non-exclusive, thereby giving its competitors access to the same technologies. In that event, Renovacor may be required to expend significant time and resources to develop or license replacement technology. If it is unable to do so, it may be unable to develop or commercialize the affected product candidates, which could materially harm its business and the third parties owning such intellectual property rights could seek either an injunction prohibiting Renovacor’s sales, or, with respect to its sales, an obligation on Renovacor’s part to pay royalties and/or other forms of compensation. Licensing of intellectual property is of critical importance to Renovacor’s business and involves complex legal, business and scientific issues. Disputes may arise between Renovacor and its licensors regarding intellectual property subject to a license agreement, including:

 

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

 

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

 

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Renovacor’s right to sublicense patents and other rights to third parties;

 

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Renovacor’s diligence obligations with respect to the use of the licensed technology in relation to its development and commercialization of REN-001 and any of its other product candidates, and what activities satisfy those diligence obligations;

 

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Renovacor’s right to transfer or assign the license;

 

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

 

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the priority of invention of patented technology.

If disputes over intellectual property that Renovacor has licensed prevent or impair its ability to maintain its current licensing arrangements on acceptable terms, it may not be able to successfully develop and commercialize the affected product candidates, which would have a material adverse effect on its business.

In addition, certain of Renovacor’s agreements may limit or delay its ability to consummate certain transactions, may impact the value of those transactions, or may limit its ability to pursue certain activities. For example, if Renovacor chooses to sublicense or assign to any third parties its rights under its existing license agreements with respect to any licensed product, it may be required to pay a specified percentage of all revenue to be received in connection with such transaction.

 

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Renovacor may need to obtain a license from REGENXBIO Inc. to develop and commercialize REN-001 and any of its other product candidates, and it cannot provide any assurances that it will be able to obtain such license.

Renovacor is aware of patents issued to REGENXBIO Inc. that claim AAV vectors that have an AAV9 capsid serotype. As such, Renovacor may likely need to obtain a license from REGENXBIO Inc. to develop and commercialize REN-001 and any of its other product candidates utilizing the AAV9 capsid serotype. If Renovacor commercializes any of its product candidates utilizing the AAV9 capsid serotype prior to the expiry of those patents in January 2026 without a license, it is possible that REGENXBIO Inc. could bring an action claiming infringement. If Renovacor fails to obtain a license from REGENXBIO Inc. on commercially reasonable terms, or at all, this could have a material adverse effect on its business and financial condition. Even if Renovacor is able to obtain such a license, it may be non-exclusive, thereby giving its competitors access to the same technologies or intellectual property rights licensed to Renovacor. In the event that Renovacor fails to obtain a license from REGENXBIO Inc., Renovacor may be required to expend significant time and resources to develop or license replacement technology which may be impossible or require substantial time and monetary expenditure. If it is unable to do so, it may be unable to develop and commercialize the affected product candidates, including its lead product candidate REN-001, which could materially harm its business and if Renovacor fails to obtain a license, REGENXBIO Inc. could seek either an injunction prohibiting Renovacor’s sales, or, with respect to its sales, an obligation on Renovacor’s part to pay royalties and/or other forms of compensation which could limit Renovacor’s ability to generate revenue or achieve profitability. A finding of infringement could prevent Renovacor from commercializing its lead product candidate REN-001, which could harm its business, possibly prevent it from generating revenue sufficient to sustain its operations and force it to cease some of its business operations. In addition, under certain circumstances, Renovacor could be held liable for substantial monetary damages, potentially including enhanced damages and attorney fees if it is found to have willfully infringed the patent. Given Renovacor’s current expectation of filing its first IND with respect to its lead product candidate REN-001 in mid-2022, and the anticipated timing of its expected approval pathway for its lead product candidate with the FDA, it expects that it will be at least several years, if ever, and in any event beyond January 2026, before it is able to commercialize its lead product candidate, and thus the need for a license from REGENXBIO Inc. with respect to commercialization of REN-001 is expected to be remote.

If the scope of any patent protection Renovacor obtains is not sufficiently broad, or if it loses any of its patent protection, its ability to prevent its competitors from developing and commercializing similar or identical product candidates would be adversely affected.

The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability and commercial value of Renovacor’s patent rights are highly uncertain. Renovacor’s pending and future patent applications may not result in patents being issued which protect its product candidates or which effectively prevent others from commercializing competitive product candidates.

Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications Renovacor licenses or owns currently or in the future issue as patents, they may not issue in a form that will provide Renovacor with any meaningful protection, prevent competitors or other third parties from competing with it, or otherwise provide it with any competitive advantage. Any patents that Renovacor licenses or owns may be challenged or circumvented by third parties or may be narrowed or invalidated as a result of challenges by third parties. Consequently, Renovacor does not know whether REN-001 and any of its other product candidates will be protectable or remain protected by valid and enforceable patents. Renovacor’s competitors or other third parties may be able to circumvent its patents by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect Renovacor’s business, financial condition, results of operations and prospects.

 

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The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and Renovacor’s patents may not cover REN-001 and any of its other product candidates or may be challenged in the courts or patent offices in the United States and abroad. Renovacor may be subject to a third party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant review, or PGR, and inter partes review, or IPR, or other similar proceedings in the USPTO or foreign patent offices challenging its patent rights. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, Renovacor cannot be certain that there is no invalidating prior art, of which it or its predecessors and the patent examiner were unaware during prosecution. There is no assurance that all potentially relevant prior art relating to Renovacor’s patents and patent applications or those of its licensors has been found. There is also no assurance that there is not prior art of which Renovacor, its predecessors or licensors are aware, but which Renovacor does not believe affects the validity or enforceability of a claim in its patents and patent applications or those of its licensors, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, Renovacor’s patent rights, allow third parties to commercialize REN-001 and any of its other product candidates and compete directly with Renovacor, without payment to it. Such loss of patent rights, loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable could limit Renovacor’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of REN-001 and any of its other product candidates. Such proceedings also may result in substantial costs and require significant time from Renovacor’s scientists and management, even if the eventual outcome is favorable to it. In addition, if the breadth or strength of protection provided by Renovacor’s patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with it to license, develop or commercialize current or future product candidates.

The patent protection and patent prosecution for some of Renovacor product candidates may be dependent on third parties and the failure to appropriately prosecute and maintain patent protection for patents covering REN-001 and any of its other product candidates, may adversely impact Renovacor’s ability to develop and commercialize those product candidates.

Renovacor or its licensors may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, it may miss potential opportunities to strengthen its patent position. It is possible that defects of form in the preparation or filing of Renovacor’s patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If Renovacor or its licensors, whether current or future, fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If Renovacor’s licensors are not fully cooperative or disagree with it as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or enforcement of Renovacor’s patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair Renovacor’s ability to prevent competition from third parties, which may have an adverse impact on its business.

As a licensee of third parties, Renovacor relies on third parties to file and prosecute patent applications and maintain patents and otherwise protect the licensed intellectual property under some of its license agreements. Renovacor has not had and does not have primary control over these activities for certain of its patents or patent applications and other intellectual property rights. It cannot be certain that such activities by third parties have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. Pursuant to the terms of the license agreements with some of Renovacor’s licensors, the licensors may have the right to control enforcement of these licensed patents or defense of any claims asserting the invalidity of these patents. Even if Renovacor is permitted to pursue such enforcement or defense, it will require the cooperation of its licensors. Renovacor cannot be certain that its

 

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licensors will allocate sufficient resources or prioritize their or Renovacor’s enforcement of such patents or defense of such claims to protect its interests in the licensed patents. Even if it is not a party to these legal actions, an adverse outcome could harm Renovacor’s business because it might prevent it from continuing to license intellectual property that it may need to operate its business. If any of Renovacor’s licensors or any of its future licensors or future collaborators fail to appropriately prosecute and maintain patent protection for patents covering REN-001 and any of its other product candidates, Renovacor’s ability to develop and commercialize those product candidates may be adversely affected and it may not be able to prevent competitors from making, using and selling competing products.

In addition, even where Renovacor has the right to control patent prosecution of patents and patent applications it has acquired or licensed from third parties, Renovacor may still be adversely affected or prejudiced by actions or inactions of its predecessors or licensors and their counsel that took place prior to Renovacor assuming control over patent prosecution.

Renovacor’s technology acquired or licensed from various third parties may be subject to retained rights. Renovacor’s predecessors or licensors often retain certain rights under their agreements with Renovacor, including the right to use the underlying technology for noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether Renovacor’s predecessors or licensors limit their use of the technology to these uses, and Renovacor could incur substantial expenses to enforce its rights to its licensed technology in the event of misuse.

If Renovacor is limited in its ability to utilize acquired or licensed technologies, or if it loses its rights to critical in-licensed technology, it may be unable to successfully develop, out-license, market and sell its products, which could prevent or delay new product introductions. Renovacor’s business strategy depends on the successful development of licensed and acquired technologies into commercial products. Therefore, any limitations on its ability to utilize these technologies may impair its ability to develop, out-license or market and sell REN-001 and any of its other product candidates.

Intellectual property rights do not necessarily address all potential threats to Renovacor’s competitive advantage.

The degree of future protection afforded by Renovacor’s intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect Renovacor’s business or permit it to maintain its competitive advantage. For example:

 

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others may be able to develop products that are similar to REN-001 and any of Renovacor’s other product candidates but that are not covered by the claims of any issued patents that it owns or licenses;

 

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Renovacor or its licensors or predecessors might not have been the first to make the inventions covered by any issued patent or patent application that it owns or licenses;

 

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Renovacor or its licensors or predecessors might not have been the first to file patent applications covering certain of its inventions;

 

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others may independently develop similar or alternative technologies or duplicate any of Renovacor’s technologies without infringing its owned or licensed intellectual property rights;

 

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it is possible that Renovacor’s pending patent applications will not lead to issued patents;

 

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issued patents that Renovacor owns or licenses may be held invalid or unenforceable, including as a result of legal challenges by its competitors;

 

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Renovacor’s competitors might conduct research and development activities in countries where it does not have patent rights and then use the information learned from such activities to develop competitive products for sale in Renovacor’s major commercial markets;

 

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•

Renovacor may not develop additional proprietary technologies that are patentable;

 

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the patents of others may have an adverse effect on Renovacor’s business; and

 

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Renovacor may choose not to file a patent for certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, it could significantly harm Renovacor’s business, results of operations and prospects.

Renovacor’s success depends significantly on its ability to operate without infringing the patents and other proprietary rights of third parties. Claims by third parties that Renovacor infringes their proprietary rights may result in liability for damages or prevent or delay Renovacor’s development and commercialization efforts.

Renovacor’s success depends in part on avoiding infringement of the patents and proprietary rights of third parties. However, Renovacor’s research, development and commercialization activities may be subject to claims that it infringes or otherwise violates patents or other intellectual property rights owned or controlled by third parties. Other entities may have or obtain patents or proprietary rights that could limit or prevent Renovacor’s ability to make, use, sell, offer for sale or import REN-001 or any of its other product candidates that may be approved in the future, or impair its competitive position. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biopharmaceutical industry, including patent infringement lawsuits, oppositions, reexaminations, IPR proceedings and PGR proceedings before the USPTO and/or foreign patent offices. Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which Renovacor is developing product candidates. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of REN-001 and any of Renovacor’s other product candidates.

As the biopharmaceutical industry expands and more patents are issued, the risk increases that REN-001 and any of Renovacor’s other product candidates may be subject to claims of infringement of the patent rights of third parties. Because patent applications are maintained as confidential for a certain period of time, until the relevant application is published Renovacor may be unaware of third-party patents that may be infringed by commercialization of REN-001 and any of its other product candidates, and it cannot be certain that it was the first to file a patent application related to REN-001 and any of its other product candidates. Moreover, because patent applications can take many years to issue, there may be currently-pending patent applications that may later result in issued patents that REN-001 and any of Renovacor’s other product candidates may infringe. In addition, identification of third-party patent rights that may be relevant to Renovacor’s technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Furthermore, third parties may obtain patents in the future and claim that use of Renovacor’s technologies infringes upon these patents. Any claims of patent infringement asserted by third parties would be time consuming and could:

 

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result in costly litigation that may cause negative publicity;

 

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divert the time and attention of Renovacor’s technical personnel and management;

 

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cause development delays;

 

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prevent Renovacor from commercializing REN-001 and any of its other product candidates until the asserted patent expires or is held finally invalid or not infringed in a court of law;

 

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require Renovacor to develop non-infringing technology, which may not be possible on a cost-effective basis;

 

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subject Renovacor to significant liability to third parties; or

 

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require Renovacor to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at all, or which might be non-exclusive, which could result in its competitors gaining access to the same technology.

Although no third party has asserted a claim of patent infringement against Renovacor as of the date of this proxy statement, others may hold proprietary rights that could prevent REN-001 and any of its other product candidates from being marketed. Any patent-related legal action against Renovacor claiming damages and seeking to enjoin activities relating to REN-001 and any of its other product candidates or processes could, if successful, subject Renovacor to liability for damages, including treble damages if it were determined to willfully infringe, and require Renovacor to obtain a license to manufacture or develop REN-001 and any of its other product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from Renovacor’s business. Renovacor cannot predict whether it would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. Moreover, even if Renovacor or its future strategic partners were able to obtain a license, the rights may be nonexclusive, which could result in Renovacor’s competitors gaining access to the same intellectual property. In addition, Renovacor cannot be certain that it could redesign REN-001 and any of its other product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent Renovacor from developing, manufacturing and commercializing REN-001 and any of its other product candidates, which could harm its business, financial condition and operating results.

Parties making claims against Renovacor may be able to sustain the costs of complex patent litigation more effectively than it can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of Renovacor’s confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on Renovacor’s ability to raise additional funds or otherwise have a material adverse effect on its business, results of operations, financial condition and prospects.

Renovacor may be involved in lawsuits to protect or enforce its patents or the patents of its licensors, which could be expensive, time consuming and unsuccessful. Further, any of its issued patents could be found invalid or unenforceable if challenged in court.

Competitors may infringe Renovacor’s intellectual property rights or those of its licensors. To prevent infringement or unauthorized use, Renovacor and/or its licensors may be required to file infringement claims, which can be expensive and time consuming. In addition, in a patent infringement proceeding, a court may decide that a patent Renovacor owns or licenses is not valid, is unenforceable and/or is not infringed. If Renovacor or any of its licensors or potential future collaborators were to initiate legal proceedings against a third party to enforce a patent directed at REN-001 or any of its other product candidates, the defendant could counterclaim that its patent is invalid and/or unenforceable in whole or in part. In patent litigation, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution.

If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, Renovacor would lose at least part, and perhaps all, of the patent protection on such product candidate. In addition, if the breadth or strength of protection provided by Renovacor’s patents and patent applications or those of its licensors is threatened, it could dissuade companies from collaborating with Renovacor to license, develop or commercialize current or future product candidates. Such a loss of patent protection would have a material adverse impact on Renovacor’s business.

 

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Even if resolved in Renovacor’s favor, litigation or other legal proceedings relating to its intellectual property rights may cause it to incur significant expenses, and could distract its technical and management personnel from their normal responsibilities. Such litigation or proceedings could substantially increase Renovacor’s operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. Renovacor may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of its competitors may be able to sustain the costs of such litigation or proceedings more effectively than it can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise Renovacor’s ability to compete in the marketplace.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other legal proceedings relating to Renovacor’s intellectual property rights, there is a risk that some of its confidential information could be compromised by disclosure during this type of litigation or other proceedings.

Intellectual property litigation may lead to unfavorable publicity that harms Renovacor’s reputation and causes the market price of its common shares to decline.

During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of Renovacor’s existing products, programs or intellectual property could be diminished. Accordingly, the market price of shares of its common stock may decline. Such announcements could also harm Renovacor’s reputation or the market for its future products, which could have a material adverse effect on its business.

Derivation or interference proceedings may be necessary to determine priority of inventions, and an unfavorable outcome may require Renovacor to cease using the related technology or to attempt to license rights from the prevailing party.

Derivation or interference proceedings provoked by third parties or brought by Renovacor or declared by the USPTO or similar proceedings in foreign patent offices may be necessary to determine the priority of inventions with respect to Renovacor’s patents or patent applications. An unfavorable outcome could require it to cease using the related technology or to attempt to license rights to it from the prevailing party. Renovacor’s business could be harmed if the prevailing party does not offer it a license on commercially reasonable terms. Renovacor’s defense of such proceedings may fail and, even if successful, may result in substantial costs and distract its management and other employees. In addition, the uncertainties associated with such proceedings could have a material adverse effect on Renovacor’s ability to raise the funds necessary to continue its clinical trials, continue its research programs, license necessary technology from third parties or enter into development or manufacturing partnerships that would help it bring REN-001 and any of its other product candidates to market.

Changes in U.S. patent law, or laws in other countries, could diminish the value of patents in general, thereby impairing Renovacor’s ability to protect REN-001 and any of its other product candidates.

As is the case with other biopharmaceutical companies, Renovacor’s success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve a high degree of technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of Renovacor’s intellectual property and may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Renovacor cannot predict the breadth of claims that may be allowed or enforced in its patents or in third-party patents. In addition, the U.S. Congress or other foreign legislative bodies may pass patent reform legislation that is unfavorable to Renovacor.

 

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For example, the Supreme Court has ruled on several patent cases, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to Renovacor’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken Renovacor’s ability to obtain new patents or to enforce its existing patents and patents it might obtain in the future.

The patent positions of companies engaged in the development and commercialization of biopharmaceuticals are particularly uncertain. Two significant cases involving diagnostic method claims and “gene patents” were decided by the Supreme Court. On March 20, 2012, the Supreme Court issued a decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., or Prometheus, a case involving patent claims directed to a process of measuring a metabolic product in a patient to optimize a drug dosage for the patient. According to the Supreme Court, the addition of well-understood, routine or conventional activity such as “administering” or “determining” steps was not enough to transform an otherwise patent-ineligible natural phenomenon into patent-eligible subject matter. On June 13, 2013, the Supreme Court issued its decision in Association for Molecular Pathology v. Myriad Genetics, Inc., or Myriad, a case involving patent claims held by Myriad relating to the breast cancer susceptibility genes BRCA1 and BRCA2. Myriad held that an isolated segment of naturally occurring DNA, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patent- eligible subject matter, but that complementary DNA, which is an artificial construct that may be created from RNA transcripts of genes, may be patent-eligible.

The USPTO has issued a number of guidance memorandum and updates to USPTO patent examiners on the ramifications of the Prometheus, Myriad and other court rulings in the application of the rulings to natural products and principles including all naturally occurring nucleic acids. USPTO guidance may be further updated in view of developments in the case law and in response to public feedback. Patents for certain of Renovacor’s product candidates contain claims related to specific DNA sequences that are naturally occurring and, therefore, could be the subject of future challenges made by third parties. In addition, USPTO guidance or changes in guidance or procedures issued by the USPTO could make it impossible for Renovacor to pursue similar patent claims in patent applications it may prosecute in the future.

Renovacor cannot assure that its efforts to seek patent protection for its technology and products will not be negatively impacted by the decisions described above, rulings in other cases or changes in guidance or procedures issued by the USPTO. Renovacor cannot fully predict what impact the Supreme Court’s decisions in Prometheus and Myriad may have on the ability of life science companies to obtain or enforce patents relating to their products and technologies in the future. These decisions, the guidance issued by the USPTO and rulings in other cases or changes in USPTO guidance or procedures could materially harm its existing patent portfolio and its ability to protect and enforce its intellectual property in the future.

Moreover, although the Supreme Court has held in Myriad that isolated segments of naturally occurring DNA are not patent-eligible subject matter, certain third parties could allege that activities that Renovacor may undertake infringe other gene-related patent claims, and Renovacor may determine it is necessary to defend itself against these claims by asserting noninfringement and/or invalidity positions, or paying to obtain a license to these patents. In any of the foregoing or in other situations involving third-party intellectual property rights, if Renovacor is unsuccessful in defending against claims of patent infringement, Renovacor could be forced to pay damages or be subjected to an injunction that would prevent it from utilizing the patented subject matter. Such outcomes could harm Renovacor’s business, financial condition, results of operations or prospects.

 

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Renovacor may be subject to claims challenging the inventorship or ownership of its patents and other intellectual property which could result in substantial costs.

Renovacor may also be subject to claims that former employees or other third parties are inventors of, or have an ownership interest in, its patents or other intellectual property. For example, Renovacor is aware of a complaint filed against Temple by an individual alleging a claim to inventorship and ownership rights to U.S. application 15/115.807 and ex-U.S. equivalents. While Renovacor believes the claims are without merit, litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If Renovacor fails in defending any such claims, in addition to paying monetary damages, it may lose valuable intellectual property rights. Such an outcome could have a material adverse effect on its business. Even if Renovacor is successful in defending against such claims, litigation could result in substantial costs and distraction to management and other employees.

Patent terms may be inadequate to protect Renovacor’s competitive position on REN-001 and any of its other product candidates for an adequate amount of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the term of a patent, and the protection it affords, is limited. Even if patents covering REN-001 and any of Renovacor’s other product candidates are obtained, once the patent has expired, Renovacor may be open to competition from competitive products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting REN-001 and any of its other product candidates might expire before or shortly after such candidates are commercialized. As a result, Renovacor’s patent portfolio may not provide it with sufficient rights to exclude others from commercializing products similar or identical to its.

If Renovacor does not obtain patent term extension for REN-001 or any of its other product candidates, its business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of REN-001 and any of Renovacor’s other product candidates, one or more of its U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”). The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. A maximum of one patent may be extended per FDA approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended. Patent term extension may also be available in certain foreign countries upon regulatory approval of Renovacor’s product candidates. However, Renovacor may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than Renovacor requests. In addition, Renovacor may be reliant on third party licensors and collaborators in applying for such patent term extensions and it may not be able to obtain their cooperation. If Renovacor is unable to obtain patent term extension or restoration or the term of any such extension is less than it requests, Renovacor’s competitors may obtain approval of competing products following its patent expiration, and its revenue could be reduced, possibly materially. Further, if this occurs, Renovacor’s competitors may take advantage of its investment in development and trials by referencing its clinical and preclinical data and launch their product earlier than might otherwise be the case.

 

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Renovacor may not be able to protect its intellectual property rights throughout the world, which could diminish the value of the intellectual property and lead to impairment of Renovacor’s competitive position.

Although Renovacor has patents and pending patent applications in the United States and certain other countries, filing, prosecuting and defending patents in all countries throughout the world would be prohibitively expensive, and its intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, Renovacor may not be able to prevent third parties from practicing its inventions in all countries outside the United States or from selling or importing products made using its inventions in the United States or other jurisdictions. Competitors may use Renovacor’s technologies in jurisdictions where it has not obtained patent protection to develop its own products and, further, may export otherwise infringing products to territories where it has patent protection, but enforcement is not as strong as that in the United States. These products may compete with Renovacor’s product candidates, and its patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of many foreign countries, particularly in certain foreign countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology patents, which could make it difficult for Renovacor to stop the infringement of its patents or marketing of competing products in violation of its proprietary rights. Proceedings to enforce Renovacor’s patent rights in foreign jurisdictions could result in substantial costs and divert its efforts and attention from other aspects of its business, could put its patents at risk of being invalidated or interpreted narrowly and its patent applications at risk of not issuing and could provoke third parties to assert claims against it. Renovacor may not prevail in any lawsuits that it initiates, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Renovacor’s efforts to enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that it develops or licenses.

Many foreign countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If Renovacor is forced to grant a license to third parties with respect to any patents relevant to its business, its competitive position may be impaired, and its business, financial condition, results of operations and prospects may be adversely affected.

Obtaining and maintaining Renovacor’s patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by regulations and governmental patent agencies, and its patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of Renovacor’s patents and/or applications. Renovacor relies on third parties to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. Renovacor employs reputable law firms and other professionals to help it comply and it is also dependent on its licensor to take the necessary action to comply with these requirements with respect to Renovacor’s licensed intellectual property. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in irreversible abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, potential competitors might be able to enter the market which could have a material adverse effect on Renovacor’s business.

 

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If Renovacor is unable to protect the confidentiality of its trade secrets, its business and competitive position would be harmed.

In addition, Renovacor relies on the protection of its trade secrets, including unpatented know-how, technology and other proprietary information to maintain its competitive position. Although Renovacor has taken steps to protect its trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, it cannot provide any assurances that such agreements were obtained in all circumstances or that all have been duly executed, and any of these parties may breach the agreements and disclose Renovacor’s proprietary information, including its trade secrets. Renovacor may not be able to obtain adequate remedies for such breaches, even if these agreements have been obtained.

Adequate remedies may not exist in the event of unauthorized use or disclosure of Renovacor’s confidential information, including a breach of its confidentiality agreements. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.

Moreover, third parties may still obtain this technology or information or may come upon this or similar information independently, and Renovacor would have no right to prevent them from using that technology or information to compete with it. If any of these events occurs or if Renovacor otherwise loses protection for its trade secrets, the value of this information may be greatly reduced and its competitive position would be harmed. If Renovacor does not apply for patent protection prior to such publication or if it cannot otherwise maintain the confidentiality of its proprietary technology and other confidential information, then Renovacor’s ability to obtain patent protection or to protect its trade secret information may be jeopardized.

If Renovacor’s trademarks and trade names are not adequately protected, then it may not be able to build name recognition in its markets of interest and its business may be adversely affected.

Renovacor has two pending trademark applications with the USPTO for the mark “RENOVACOR” and the Renovacor logo, approval of which is not guaranteed. Once registered, its trademarks or trade names can be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks. Renovacor may not be able to protect the rights to these trademarks and trade names, which it needs to build name recognition among potential partners or customers in its markets of interest. At times, competitors may adopt trade names or trademarks similar to Renovacor’s, thereby impeding its ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of Renovacor’s registered and unregistered trademarks or trade names. Over the long term, if Renovacor were unable to establish name recognition based on its trademarks and trade names, then it may not be able to compete effectively and its business may be adversely affected. Renovacor’s efforts to enforce or protect its proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources, which could adversely impact its financial condition.

Renovacor may be subject to claims that it has wrongfully hired an employee or consultant from a competitor or that it or its employees or consultants have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.

As is common in the biopharmaceutical industry, in addition to Renovacor’s employees, it engages the services of consultants to assist it in the development of REN-001 and any of its other product candidates. Some of these consultants or employees, may have been employed at, or may have previously provided or may be currently providing consulting services to, other biopharmaceutical companies including Renovacor’s

 

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competitors or potential competitors. Renovacor may become subject to claims that it, its employees or a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. If Renovacor fails in defending any such claims, in addition to paying monetary damages, it may lose valuable intellectual property rights or personnel, which could adversely affect its business. Even if it is successful in defending against these claims, litigation could result in substantial costs and be a distraction to its management team and other employees.

Risks Related to Employee Matters, Managing Growth and Other Risks Related to Renovacor’s Business

Renovacor is dependent on the services of its management and other clinical and scientific personnel, and if Renovacor is not able to retain these individuals or recruit additional management or clinical and scientific personnel, its business will suffer.

Renovacor’s success depends in part on its continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel, many of whom have been instrumental for it and have substantial experience with its BAG3-based platform, underlying technologies and related product candidates. Given the specialized nature of its BAG3-based platform and the fact that it is a novel field, there is an inherent scarcity of experienced personnel in this field. As Renovacor continues developing its product candidates in its pipeline, it will require personnel with medical, scientific, or technical qualifications specific to each program.

Renovacor is highly dependent upon Magdalene Cook, M.D., its President and Chief Executive Officer, as well as its senior scientists and advisors. The loss of services of any of these individuals could delay or prevent the successful development of its product pipeline, initiation or completion of its planned preclinical studies and clinical trials or the commercialization of REN-001 and its other product candidates. Renovacor has executed an employment agreement with Dr. Cook, which agreement is terminable at will with or without notice and, therefore, it may not be able to retain her services as expected. Renovacor does not currently maintain “key person” life insurance on the lives of its executives or any of its employees.

Its research and development programs, clinical operations and sales and marketing efforts depend on its ability to attract and retain highly skilled scientists, engineers and sales professionals. The competition for qualified personnel in the biotechnology and pharmaceutical industries is intense, and Renovacor has experienced, and it expects to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications on acceptable terms, or at all. Many of the companies with which Renovacor compete for experienced personnel have greater resources than it does, and any of its employees may terminate their employment with it at any time. If it hires employees from competitors or other companies, their former employers may attempt to assert that these employees or Renovacor have breached legal obligations, resulting in a diversion of its time and resources and, potentially, damages. In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived benefits of its stock awards decline, it may harm its ability to recruit and retain highly skilled employees. If Renovacor fails to attract new personnel or fails to retain and motivate its current personnel, its business and future growth prospects would be harmed.

Renovacor will need to increase the size and capabilities of its organization, and Renovacor may experience difficulties in managing its growth.

As of July 12, 2021, Renovacor had five full-time employees and twelve part-time consultants. As Renovacor’s development and commercialization plans and strategies develop, and as it transitions into operating as a public company, it must add a significant number of additional managerial, operational, financial and other personnel. Future growth will impose significant added responsibilities on members of management, including:

 

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

 

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managing its internal development efforts effectively, including the clinical and FDA or other comparable authority review process for REN-001 and its other product candidates, while complying with its contractual obligations to contractors and other third parties; and

 

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

Renovacor’s future financial performance, its ability to advance REN-001 and its other product candidates will depend, in part, on its ability to effectively manage any future growth, and its management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. In addition, Renovacor expects to incur additional costs in hiring, training and retaining such additional personnel.

If Renovacor is not able to effectively expand its organization by hiring new employees and expanding its groups of consultants and contractors, it may not be able to successfully implement the tasks necessary to further develop and commercialize REN-001 and its other product candidates and, accordingly, may not achieve its research, development and commercialization goals.

If Renovacor fails to maintain proper and effective internal controls over financial reporting, its ability to produce accurate and timely financial statements could be impaired.

Renovacor will be required to maintain internal controls over financial reporting. Commencing with its fiscal year ending the year after the Business Combination is completed, Renovacor must perform system and process design evaluation and testing of the effectiveness of its internal controls over financial reporting to allow management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form 10-K for that year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that Renovacor incur substantial additional professional fees and internal costs to expand its accounting and finance functions and expend significant management efforts. Prior to the Business Combination, Renovacor has never been required to test its internal controls within a specified period and, as a result, it may experience difficulty in meeting these reporting requirements in a timely manner. In addition, if it identifies material weaknesses in its internal control over financial reporting in the future or otherwise fail to maintain an effective system of internal controls, Renovacor may not be able to accurately or timely report its financial condition or results of operations, which may adversely affect its business.

If Renovacor is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if its independent registered public accounting firm determines that it has a material weakness or a significant deficiency in its internal control over financial reporting, or it is unable to maintain proper and effective internal controls over financial reporting, it may not be able to produce timely and accurate financial statements. As a result, its investors could lose confidence in its reported financial information, the market price of its stock could decline and Renovacor could be subject to sanctions or investigations by the SEC or other regulatory authorities.

Renovacor believes that any internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Renovacor may discover weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. Its internal control over financial reporting will not prevent or detect all errors and all fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

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

 

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

Renovacor’s reliance on third parties requires it to share its trade secrets, which increases the possibility that a competitor will discover them or that its trade secrets will be misappropriated or disclosed.

Because Renovacor currently relies on other third parties to manufacture its product candidates and to perform certain quality testing, it must, at times, share its proprietary technology and confidential information, including trade secrets, with them. Renovacor seeks to protect its proprietary technology, in part, by entering into confidentiality agreements, consulting agreements or other similar agreements with its advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose its confidential information. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by its competitors, are intentionally or inadvertently incorporated into the technology of others or are disclosed or used in violation of these agreements. Given that its proprietary position is based, in part, on its know-how and trade secrets and despite its efforts to protect its trade secrets, a competitor’s discovery of its proprietary technology and confidential information or other unauthorized use or disclosure would impair its competitive position and may have a material adverse effect on its business, financial condition, results of operations and prospects.

If product liability lawsuits are brought against it, Renovacor may incur substantial liabilities and may be required to limit commercialization of its products.

Renovacor is exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing, and use of pharmaceutical products. While it currently has no product candidates that have commenced clinical trials or been approved for commercial sale, the future use of product candidates by it in clinical trials, and the sale of any approved products in the future, may expose it to liability claims. For example, Renovacor may be sued if REN-001 and its other product candidates allegedly cause injury or are found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability and a breach of warranties. Claims may be brought against Renovacor by clinical trial participants, patients or others using, administering or selling products that may be approved in the future. Claims could also be asserted under state consumer protection acts.

If Renovacor cannot successfully defend itself against product liability claims, it may incur substantial liabilities or be required to limit or cease the commercialization of its products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

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decreased demand for its products;

 

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injury to its reputation and significant negative media attention;

 

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withdrawal of clinical trial participants and inability to continue clinical trials;

 

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initiation of investigations by regulators;

 

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costs to defend the related litigation;

 

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a diversion of management’s time and its resources;

 

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substantial monetary awards to trial participants or patients;

 

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

 

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significant negative financial impact;

 

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exhaustion of any available insurance and its capital resources;

 

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the inability to commercialize REN-001 or its other product candidates; and

 

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a decline in its stock price.

Renovacor currently holds approximately $4.0 million in general liability insurance coverage in the aggregate and holds a $1.0 million umbrella policy. Renovacor may need to increase its insurance coverage as it expands its clinical trials or if it commences commercialization of REN-001 or its other product candidates. Insurance coverage is increasingly expensive. Its inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of REN-001 or its other product candidates. Although Renovacor maintains such insurance, any claim that may be brought against it could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by its insurance or that is in excess of the limits of its insurance coverage. Its insurance policies will also have various exclusions, and it may be subject to a product liability claim for which it has no coverage. Renovacor may have to pay any amounts awarded by a court or negotiated in a settlement that exceed its coverage limitations or that are not covered by its insurance, and it may not have, or be able to obtain, sufficient capital to pay such amounts.

Renovacor may be unable to adequately protect its information systems from cyberattacks, which could result in the disclosure of confidential or proprietary information, including personal data, damage its reputation, and subject it to significant financial and legal exposure.

Renovacor relies on information technology systems that it or its third-party providers operate to process, transmit and store electronic information in its day-to-day operations. In connection with its product discovery efforts, it may collect and use a variety of personal data, such as names, mailing addresses, email addresses, phone numbers and clinical trial information. Despite its implementation of security measures, its internal computer systems, and those of its CROs, CMOs, information technology suppliers and other contractors and consultants are vulnerable to damage from computer viruses, cyberattacks and other unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. A successful cyberattack could result in the theft or destruction of intellectual property, data, or other misappropriation of assets, or otherwise compromise its confidential or proprietary information and disrupt its operations. Cyberattacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, denial-of-service, social engineering fraud or other means to threaten data security, confidentiality, integrity and availability. A successful cyberattack could cause serious negative consequences for Renovacor, including, without limitation, the disruption of operations, the misappropriation of confidential business information, including financial information, trade secrets, financial loss and the disclosure of corporate strategic plans. Although it devotes resources to protect its information systems, Renovacor realizes that cyberattacks are a threat, and there can be no assurance that its efforts will prevent information security breaches that would result in business, legal, financial or reputational harm to it, or would have a material adverse effect on its results of operations and financial condition. Any failure to prevent or mitigate security breaches or improper access to, use of, or disclosure of its clinical data or patients’ personal data could result in significant liability under state (e.g., state breach notification laws), federal (e.g., HIPAA, as amended by HITECH), and international law (e.g., the GDPR) and may cause a material adverse impact to its reputation, affect its ability to conduct new studies and potentially disrupt its business.

Renovacor relies on its third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. If Renovacor or its third-party providers fail to maintain or protect its information technology systems and data integrity effectively or fail to anticipate, plan for or manage

 

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significant disruptions to its information technology systems, it or its third-party providers could have difficulty preventing, detecting and controlling such cyberattacks and any such attacks could result in the losses described above as well as disputes with physicians, patients and its partners, regulatory sanctions or penalties, increases in operating expenses, expenses or lost revenues or other adverse consequences, any of which could have a material adverse effect on its business, results of operations, financial condition, prospects and cash flows. Any failure by such third parties to prevent or mitigate security breaches or improper access to or disclosure of such information could have similarly adverse consequences for Renovacor. If it is unable to prevent or mitigate the impact of such security or data privacy breaches, it could be exposed to litigation and governmental investigations, which could lead to a potential disruption to its business. By way of example, the CCPA, which went into effect on January 1, 2020, creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase its compliance costs and potential liability, and many similar laws have been proposed at the federal level and in other states. By way of example regarding foreign laws and regulations with respect to data privacy and security, the GDPR went into effect in the EU in May 2018 and introduced strict requirements for processing the personal data of EU data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.

Renovacor’s employees and independent contractors, including principal investigators, CROs, consultants and vendors, may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements that could result in significant penalties to Renovacor.

Renovacor is exposed to the risk that its employees and independent contractors, including principal investigators, CROs, consultants and vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to Renovacor that violate: the laws and regulations of the FDA and other similar regulatory requirements, including those laws that require the reporting of true, complete and accurate information to such authorities; manufacturing standards, including cGMP requirements; federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad; or laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in its preclinical studies or clinical trials, or illegal misappropriation of drug or biologic product, which could result in regulatory sanctions and cause serious harm to its reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions Renovacor takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, it is subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against Renovacor, and it is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and oversight if Renovacor becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of its operations, any of which could adversely affect its ability to operate its business and its results of operations.

Risks Related to Ownership of Chardan Securities and the Business Combination

Except where noted or the context otherwise requires, as used in this subsection, the terms “we,” “us,” “our,” “our company,” “our business” and similar terms refer to Chardan.

 

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The Sponsor and the Insiders have agreed to vote in favor of the Business Combination, regardless of how Chardan’s public stockholders vote.

The Sponsor and the Insiders have agreed to vote any shares of common stock owned by them in favor of the business combination proposal. As of the date of this proxy statement, the Sponsor and the Insiders own shares equal to approximately 20% of Chardan’s issued and outstanding shares of common stock. Accordingly, it is more likely that the necessary stockholder approval will be received for the Business Combination than would be the case if the Sponsor and the Insiders agreed to vote any shares of common stock owned by them in accordance with the majority of the votes cast by the public stockholders.

The Sponsor, certain members of the Chardan Board and certain Chardan officers have interests in the Business Combination that are different from or are in addition to other stockholders in recommending that stockholders vote in favor of approval of the business combination proposal and approval of the other proposals described in this proxy statement.

When considering the Chardan Board’s recommendation that our stockholders vote in favor of the approval of the business combination proposal and the other proposals described in this proxy statement, our stockholders should be aware that the Sponsor and certain directors and officers of Chardan have interests in the Business Combination that may be different from, or in addition to, the interests of our stockholders generally. These interests include:

 

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the fact that the Sponsor and the Insiders have agreed not to redeem any of the founder shares in connection with a stockholder vote to approve a proposed initial business combination;

 

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the continued right of the Sponsor to hold Chardan common stock and the shares of Chardan common stock to be issued to the Sponsor upon exercise of its private placement warrants following the Business Combination, subject to certain lock-up periods;

 

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the continued indemnification of our existing directors and officers and the continuation of our directors’ and officers’ liability insurance after the Business Combination;

 

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the fact that the Sponsor, officers and directors will lose their entire investment in us and will not be reimbursed for any out-of-pocket expenses if an initial business combination is not consummated within the completion window and as of June 30, 2021, the Sponsor and Chardan’s officers and directors, and their respective affiliates had not incurred any such out-of-pocket expenses;

 

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the fact that the Sponsor and the Insiders have agreed to waive their rights to liquidating distributions from the trust account with respect to their founder shares if we fail to complete an initial business combination within the completion window; and

 

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the fact that the Sponsor paid an aggregate of approximately $1,400,000 for its 3,500,000 private placement warrants to purchase shares of Chardan common stock and that such private placement warrants will expire and be worthless if an initial business combination is not consummated within the completion window.

The personal and financial interests of our officers and directors may have influenced their motivation in identifying and selecting Renovacor, completing an initial business combination with Renovacor and may influence their operation of the post-combination company following the Business Combination. This risk may become more acute as the deadline of April 28, 2022 for completing an initial business combination nears.

The Chardan Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Business Combination and in recommending to the Chardan stockholders that they vote “FOR” the proposals presented at the special meeting.

 

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The Sponsor may have interests in the Business Combination different from the interests of Chardan’s public stockholders.

The Sponsor has financial interests in the Business Combination that are different from, or in addition to, those of other Chardan stockholders generally. See the section entitled “Proposal No. 1 — The Business Combination Proposal — Interests of Certain Persons in the Business Combination” for additional information. In addition, the Sponsor may be incentivized to complete the Business Combination ,or an alternative initial business combination with a less favorable company or on terms less favorable to shareholders, rather than to liquidate, in which case the Sponsor would lose its entire investment. As a result, the Sponsor may have a conflict of interest in determining whether Renovacor is an appropriate business with which to effectuate a business combination and/or in evaluating the terms of the Business Combination. See the sections entitled “Summary of the Proxy Statement — Interests of Certain Persons in the Business Combination” and “Proposal No. 1 — The Business Combination Proposal — Interests of Certain Persons in the Business Combination” for additional information. The Chardan Board was aware of and considered these interests, among other matters, in evaluating and unanimously approving the Business Combination and in recommending to Chardan stockholders that they approve the Business Combination.

The Sponsor, Chardan’s directors and affiliates of Chardan’s management team may receive a positive return on the 1,655,661 founder shares and 3,500,000 private placement warrants even if Chardan’s public stockholders experience a negative return on their investment after consummation of the Business Combination.

If Chardan is able to complete a business combination within the required time period, the Sponsor may receive a positive return on the 1,655,661 founder shares (after giving effect to the Sponsor’s placement of 500,000 founder shares into escrow and subject to forfeiture), which were acquired by the Sponsor for an aggregate purchase price of $25,000 prior to Chardan’s IPO, and the 3,500,000 private placement warrants, which were acquired for an aggregate purchase price of $1,400,000 (or $0.40 per warrant) concurrently with completion of Chardan’s IPO, even if Chardan’s public stockholders experience a negative return on their investment in Chardan common stock and private placement warrants after consummation of the Business Combination.

Our private placement warrants are currently accounted for as liabilities, and we expect that the Sponsor Earnout Shares and Company Earnout Shares which will be outstanding upon the completion of the Business Combination will also be accounted for as liabilities and the changes in value of our private placement warrants, Sponsor Earnout Shares and Company Earnout Shares could have a material effect on our financial results.

On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the SEC together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”). Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those contained in the warrant agreement governing Chardan’s private placement warrants. As a result of the SEC Statement, Chardan reevaluated the accounting treatment of the private placement warrants and determined to classify the private placement warrants as derivative liabilities measured at fair value, with changes in fair value each period reported in earnings. As a result, included on Chardan’s balance sheet as of March 31, 2021 are derivative liabilities related to embedded features contained within the private placement warrants. In addition, upon the completion of the Business Combination, Chardan expects that the Sponsor Earnout Shares and the Company Earnout Shares will also be accounted for as derivative liabilities, with changes in fair value each period reported in earnings. Accounting Standards Codification 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity (“ASC 815”), provides for the remeasurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or

 

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loss related to the change in the fair value being recognized in earnings in the statement of operations. As a result of the recurring fair value measurement, our financial statements and results of operations may fluctuate quarterly, based on factors, which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our private placement warrants, Sponsor Earnout Shares and Company Earnout Shares each reporting period and that the amount of such gains or losses could be material.

We identified a material weakness in our internal control over financial reporting. This material weakness could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management also evaluates the effectiveness of our internal controls and we will disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or surrounding interim financial statements will not be prevented or detected on a timely basis.

We have implemented a remediation plan, described under Item 4, Controls and Procedures of our March 31, 2021 Form 10-Q filed with the SEC on May 25, 2021, to remediate the material weakness relalted to our historical presentation of our private placement warrants but can give no assurance that the measures we have taken will prevent any future material weaknesses or deficiencies in internal control over financial reporting. Even though we have strengthened our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.

Chardan and, following the Business Combination, New Renovacor, may face litigation and other risks as a result of the material weakness in Chardan’s internal control over financial reporting.

Following the issuance of the SEC Statement, Chardan’s management and audit committee concluded that it was appropriate to revise its previously issued financial statements as of and for the year ended December 31, 2020, as well as certain interim periods within 2020, on Form 10-Q filed with the SEC on May 25, 2021. See above under the heading “ —Our private placement warrants are currently accounted for as liabilities, and we expect that the Sponsor Earnout Shares and Company Earnout Shares which will be outstanding upon the completion of the Business Combination will also be accounted for as liabilities and the changes in value of our private placement warrants, Sponsor Earnout Shares and Company Earnout Shares could have a material effect on our financial results.” As part of the restatement, Chardan identified a material weakness in its internal controls over financial reporting.

As a result of such material weakness, the restatement, the change in accounting for the warrants and other matters raised or that may in the future be raised by the SEC, Chardan and, following the Business Combination, New Renovacor, face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weaknesses in Chardan’s internal control over financial reporting and the preparation of its financial statements. As of the date of this proxy statement, Chardan has no knowledge of any such litigation or dispute. However, Chardan can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on Chardan’s business, results of operations and financial condition or its ability to complete the Business Combination and related transactions.

 

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The NYSE may not continue to list our securities, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

Our common stock and public warrants are currently listed on the NYSE and will be listed on the NYSE upon consummation of the Business Combination. Our continued eligibility for listing may depend on, among other things, the number of public shares that are redeemed. There can be no assurance that Chardan will be able to comply with the continued listing standards of the NYSE following the Business Combination. If, after the Business Combination, the NYSE delists Chardan common stock from trading on its exchange for failure to meet the listing standards, Chardan’s stockholders could face significant material adverse consequences including:

 

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a limited availability of market quotations for Chardan’s securities;

 

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reduced liquidity for Chardan’s securities;

 

•

a determination that Chardan common stock is a “penny stock,” which would require brokers trading in such securities to adhere to more stringent rules, could adversely impact the value of Chardan’s securities and/or possibly result in a reduced level of trading activity in the secondary trading market for Chardan’s securities;

 

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a limited amount of news and analyst coverage; and

 

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a decreased ability to issue additional securities or obtain additional financing in the future.

The Chardan Board did not obtain a third-party valuation or fairness opinion in determining whether or not to proceed with the Business Combination.

The Chardan Board did not obtain a third-party valuation or fairness opinion in connection with its determination to approve the Business Combination. Accordingly, investors will be relying solely on the judgment of the Chardan Board in valuing Renovacor’s business, and assuming the risk that the Chardan Board may not have properly valued such business. The lack of a third-party valuation or fairness opinion may also lead an increased number of stockholders to vote against the business combination proposal or demand redemption of their shares for cash, which could potentially impact Chardan’s ability to consummate the Business Combination.

Future resales of our outstanding shares, including the registration of sales for resale under the Registration Rights Agreement, may cause the market price of our securities to drop significantly, even if our business is doing well.

Chardan will have 19,778,305 shares of common stock outstanding immediately following the consummation of the Business Combination (assuming that no shares of Chardan common stock are redeemed by Chardan stockholders) and excluding the Earnout Consideration, and there may be a large number of shares of Chardan common stock sold in the market following the consummation of the Business Combination, or shortly thereafter.

At the closing of the Business Combination, New Renovacor will enter into the Registration Rights Agreement with certain stockholders party thereto, pursuant to which, among other things, such stockholders will be entitled to customary registration rights following their respective lock-up periods. The sale or possibility of sale of these securities could have the effect of increasing the volatility in our share price or putting significant downward pressure on the price of our common stock.

The Sponsor is liable to ensure that proceeds of the trust are not reduced by vendor claims in the event an initial business combination is not consummated. It has also agreed to pay for any liquidation expenses if an initial business combination is not consummated. Such liability may have influenced the Sponsor’s decision to approve the Business Combination.

If the Business Combination or another initial business combination are not consummated by Chardan within the completion window, the Sponsor will be liable under certain circumstances to ensure that the proceeds

 

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in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Chardan for services rendered or contracted for or products sold to Chardan. If Chardan consummates an initial business combination, including the Business Combination, on the other hand, Chardan will instead be liable for all such claims. Please see the section entitled “Other Information Related to Chardan — Liquidation if No Business Combination” for further information. If Chardan is required to be liquidated and there are no funds remaining to pay the costs associated with the implementation and completion of such liquidation, the Sponsor has also agreed to pay the funds necessary to complete such liquidation and not to seek repayment for such expense. We currently do not anticipate that such funds will be insufficient.

These obligations of the Sponsor may have influenced the Sponsor’s decision to approve the Business Combination and to continue to pursue the Business Combination. In considering the recommendations of the Chardan Board to vote for the business combination proposal and the other proposals described in this proxy statement, Chardan’s stockholders should consider these interests.

The exercise of Chardan’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are appropriate and in Chardan’s stockholders’ best interest.

In the period leading up to the Closing, events may occur that, pursuant to the Merger Agreement, would require Chardan to agree to amend the Merger Agreement, to consent to certain actions to be taken by Renovacor or to waive rights that Chardan is entitled to under the Merger Agreement. Such events could arise because of changes in the course of Renovacor’s business, a request by Renovacor to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement or the occurrence of other events that would have a material adverse effect on Renovacor’s business and would entitle Chardan to terminate the Merger Agreement. In any such circumstances, it would be at Chardan’s discretion, acting through the Chardan Board, to grant its consent or waive those rights. The existence of the financial and personal interests of the directors described in the preceding risk factors may result in a conflict of interest on the part of one or more of the directors between what such directors believe is best for Chardan and what he or they may believe is best for themselves in determining whether or not to take the requested action. As of the date of this proxy statement, Chardan does not believe there will be any material changes or waivers that Chardan’s directors and officers would be likely to make after the mailing of this proxy statement. To the extent required by law, Chardan will circulate a new or amended proxy statement or supplement thereto in the event there are any changes to the terms of the Merger Agreement or the Business Combination that would have a material impact on its stockholders are required prior to the vote on the business combination proposal.

If Chardan is unable to complete the Business Combination or another initial business combination by April 28, 2022, Chardan will cease all operations except for the purpose of winding up, redeeming 100% of the outstanding public shares and, subject to the approval of its remaining stockholders and the Chardan Board, dissolving and liquidating. In such event, third parties may bring claims against Chardan and, as a result, the proceeds held in the trust account could be reduced and the per-share liquidation price received by stockholders could be less than $10.00 per share.

Under the terms of Chardan’s current certificate of incorporation, Chardan must complete an initial business combination before the end of the completion window, or Chardan must cease all operations except for the purpose of winding up, redeeming 100% of the outstanding public shares and, subject to the approval of its remaining stockholders and the Chardan Board, dissolving and liquidating. In such event, third parties may bring claims against Chardan. Although Chardan has obtained waiver agreements from certain vendors and service providers it has engaged and owes money to, and the prospective target businesses it has negotiated with, whereby such parties have waived any right, title, interest or claim of any kind they may have in or to any monies held in the trust account, there is no guarantee that they or other vendors who did not execute such waivers will not seek recourse against the trust account notwithstanding such agreements. Furthermore, there is no guarantee

 

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that a court will uphold the validity of such agreements. Accordingly, the proceeds held in the trust account could be subject to claims which could take priority over those of Chardan’s public stockholders. If Chardan is unable to complete an initial business combination within the completion window, the Insiders have agreed they will be personally liable under certain circumstances to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Chardan for services rendered or contracted for or products sold to Chardan. However, they may not be able to meet such obligation. Therefore, the per-share distribution amount from the trust account in such a situation may be less than $10.00 due to such claims.

Additionally, if Chardan is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, or if Chardan otherwise enters compulsory or court supervised liquidation, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in its bankruptcy estate and subject to the claims of third parties with priority over the claims of its stockholders. To the extent any bankruptcy claims deplete the trust account, Chardan may not be able to return to its public stockholders at least $10.00 per share.

Chardan’s stockholders may be held liable for claims by third parties against Chardan to the extent of distributions received by them.

If Chardan is unable to complete the Business Combination or another initial business combination within the completion window, Chardan will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably practicable following such redemption, subject to the approval of its remaining stockholders and the Chardan Board, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject (in the case of (ii) and (iii) above) to its obligations to provide for claims of creditors and the requirements of applicable law. Chardan cannot assure you that it will properly assess all claims that may be potentially brought against Chardan. As such, Chardan’s stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of its stockholders may extend well beyond the third anniversary of the date of distribution. Accordingly, Chardan cannot assure you that third parties will not seek to recover from its stockholders amounts owed to them by Chardan.

If Chardan is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by Chardan’s stockholders. Furthermore, because Chardan intends to distribute the proceeds held in the trust account to its public stockholders promptly after the expiration of the time period to complete an initial business combination, this may be viewed or interpreted as giving preference to its public stockholders over any potential creditors with respect to access to or distributions from its assets. Furthermore, the Chardan Board may be viewed as having breached their fiduciary duties to Chardan’s creditors and/or may have acted in bad faith, and thereby exposing itself and Chardan to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. Chardan cannot assure you that claims will not be brought against it for these reasons.

We may not have sufficient funds to satisfy indemnification claims of our directors and officers.

We have agreed to indemnify our officers and directors to the fullest extent permitted by law. However, our officers and directors have agreed, and any persons who may become officers or directors prior to an initial business combination will agree, to waive any right, title, interest or claim of any kind in or to any monies in the trust account and to not seek recourse against the trust account for any reason whatsoever. Accordingly, any indemnification provided will be able to be satisfied by us only if (a) we have sufficient funds outside of the trust

 

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account or (b) we consummate an initial business combination. Our obligation to indemnify our officers and directors may discourage stockholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these indemnification provisions.

Chardan’s stockholders will experience immediate dilution as a consequence of, among other transactions, the issuance of Chardan common stock as consideration in the Business Combination and the PIPE Investment. Having a minority share position may reduce the influence that Chardan’s current stockholders have on the management of Chardan.

It is anticipated that, upon completion of the Business Combination, the concentration of ownership of Chardan immediately following the consummation of the Business Combination will be as follows:

 

		Minimum Redemptions								Maximum Redemptions
		Number of Shares				% Ownership				Number of Shares				% Ownership
Ownership of Common Stock
Chardan existing public stockholders			8,622,644				43.6	%			5,694,009				33.8	%
Renovacor existing shareholders			6,500,000				32.9	%			6,500,000				38.6	%
PIPE shares — Non-affiliated holders			1,000,000				5.0	%			1,000,000				5.9	%
PIPE shares — New Renovacor stockholders or their affiliates (including Sponsor)			2,000,000				10.1	%			2,000,000				11.9	%
Founder shares — Sponsor and current Chardan directors			1,655,661				8.4	%			1,655,661				9.8	%
Total shares outstanding			19,778,305				100.0	%			16,849,670				100.0	%

The minimum redemption scenario assumes that no public stockholders of Chardan exercise redemption rights with respect to their public shares for a pro rata share of the funds in the trust account. Assumes that stockholders holding 2,928,635 of the public shares will exercise their redemption rights for their pro rata share (approximately $10.00 per share) of the funds in the trust account. The maximum redemption scenario gives effect to public share redemptions for aggregate redemption payments of $29,286,350 using a $10.00 per share redemption price. The two redemption scenarios exclude Renovacor’s outstanding unvested option awards. Pursuant to the Merger Agreement, 119,046 options will be canceled and such agreement terminated pursuant to the issuance of replacement awards by Chardan. Replacement awards will be subject to the same vesting schedule and forfeiture restrictions as the Renovacor awards. Furthermore, the two redemption scenarios also exclude the Earnout and Sponsor Earnout Consideration and public and private placements warrants have not been assumed to be exercised. The warrants would have an aggregate market value of approximately $7,758,492 based upon the closing price of $0.64 per warrant on the NYSE on August 3, 2021. If the actual facts are different from these assumptions, the percentage ownership owned by Chardan’s existing stockholders in New Renovacor will be different.

In addition, Renovacor employees and consultants hold and, after the Transactions are expected to be granted, equity awards under the Incentive Award Plan. Chardan stockholders will experience additional dilition when those equity awards and purchase rights become vested and settled or exercisable, as applicable, for shares of New Renovacor common stock.

The issuance of additional common stock will significantly dilute the equity interests of existing holders of Chardan securities and may adversely affect prevailing market prices for our units, public shares or public warrants.

Having a minority ownership interest in New Renovacor may reduce the influence that Chardan’s public stockholders have on the management of Chardan.

 

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