UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2020
or
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-29089
Agenus Inc.
(exact name of registrant as specified in its charter)
|
Delaware |
|
06-1562417 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
3 Forbes Road, Lexington, Massachusetts 02421
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code:
(781) 674-4400
Securities registered or to be registered pursuant to Section 12(b) of the Act.
|
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
|
Common stock, par value $0.01 |
AGEN |
The Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☒ |
|
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☐ |
|
|
|
|
|
Emerging growth company |
|
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares outstanding of the issuer’s Common Stock as of August 3, 2020: 183,442,653 shares
Agenus Inc.
Six Months Ended June 30, 2020
Table of Contents
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Page |
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PART I |
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ITEM 1. |
|
|
2 |
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|
|
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Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019 |
|
2 |
|
|
|
|
4 |
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|
|
|
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5 |
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7 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
|
8 |
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ITEM 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
21 |
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ITEM 3. |
|
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27 |
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ITEM 4. |
|
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27 |
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PART II |
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|
ITEM 1A. |
|
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28 |
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ITEM 6. |
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83 |
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|
84 |
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PART I - FINANCIAL INFORMATION
|
Item 1. |
Financial Statements |
AGENUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
|
|
|
June 30, 2020 (unaudited) |
|
|
December 31, 2019 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
79,171 |
|
|
$ |
61,808 |
|
|
Accounts receivable |
|
|
16,628 |
|
|
|
16,293 |
|
|
Prepaid expenses |
|
|
7,664 |
|
|
|
7,420 |
|
|
Other current assets |
|
|
1,296 |
|
|
|
1,015 |
|
|
Total current assets |
|
|
104,759 |
|
|
|
86,536 |
|
|
Property, plant and equipment, net of accumulated amortization and depreciation of $45,330 and $42,861 at June 30, 2020 and December 31, 2019, respectively |
|
|
28,520 |
|
|
|
26,326 |
|
|
Operating lease right-of-use assets |
|
|
15,015 |
|
|
|
7,364 |
|
|
Goodwill |
|
|
24,276 |
|
|
|
23,188 |
|
|
Acquired intangible assets, net of accumulated amortization of $10,499 and $9,431 at June 30, 2020 and December 31, 2019, respectively |
|
|
11,760 |
|
|
|
10,504 |
|
|
Other long-term assets |
|
|
1,454 |
|
|
|
1,417 |
|
|
Total assets |
|
$ |
185,784 |
|
|
$ |
155,335 |
|
|
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
Current portion, long-term debt |
|
$ |
1,532 |
|
|
$ |
646 |
|
|
Current portion, liability related to sale of future royalties and milestones |
|
|
52,849 |
|
|
|
45,961 |
|
|
Current portion, deferred revenue |
|
|
37,337 |
|
|
|
29,174 |
|
|
Current portion, operating lease liabilities |
|
|
1,650 |
|
|
|
1,347 |
|
|
Accounts payable |
|
|
20,698 |
|
|
|
13,564 |
|
|
Accrued liabilities |
|
|
27,451 |
|
|
|
31,332 |
|
|
Other current liabilities |
|
|
755 |
|
|
|
185 |
|
|
Total current liabilities |
|
|
142,272 |
|
|
|
122,209 |
|
|
Long-term debt, net of current portion |
|
|
18,813 |
|
|
|
13,380 |
|
|
Liability related to sale of future royalties and milestones, net of current portion |
|
|
175,547 |
|
|
|
175,408 |
|
|
Deferred revenue, net of current portion |
|
|
14,995 |
|
|
|
27,705 |
|
|
Operating lease liabilities, net of current portion |
|
|
15,337 |
|
|
|
8,020 |
|
|
Contingent purchase price considerations |
|
|
11,443 |
|
|
|
8,843 |
|
|
Other long-term liabilities |
|
|
6,424 |
|
|
|
4,190 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
CONVERTIBLE PREFERRED STOCK |
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized: |
|
|
|
|
|
|
|
|
|
Series C-1 convertible preferred stock; 12,459 shares designated, issued, and outstanding at June 30, 2020 and December 31, 2019 |
|
|
26,917 |
|
|
|
26,917 |
|
|
STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
|
Series A-1 convertible preferred stock; 31,620 shares designated, issued, and outstanding at June 30, 2020 and December 31, 2019; liquidation value of $33,145 at June 30, 2020 |
|
|
0 |
|
|
|
0 |
|
|
Common stock, par value $0.01 per share; 400,000,000 shares authorized; 171,417,481 and 137,818,068 shares issued at June 30, 2020 and December 31, 2019, respectively |
|
|
1,714 |
|
|
|
1,378 |
|
|
Additional paid-in capital |
|
|
1,156,442 |
|
|
|
1,059,583 |
|
|
Accumulated other comprehensive income (loss) |
|
|
369 |
|
|
|
(1,324 |
) |
|
Accumulated deficit |
|
|
(1,377,147 |
) |
|
|
(1,284,993 |
) |
2
|
Total stockholders’ deficit attributable to Agenus Inc. |
|
|
(218,622 |
) |
|
|
(225,356 |
) |
|
Non-controlling interest |
|
|
(7,342 |
) |
|
|
(5,981 |
) |
|
Total stockholders’ deficit |
|
|
(225,964 |
) |
|
|
(231,337 |
) |
|
Total liabilities, convertible preferred stock and stockholders’ deficit |
|
$ |
185,784 |
|
|
$ |
155,335 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
AGENUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(Amounts in thousands, except per share amounts)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
18,068 |
|
|
$ |
4,399 |
|
|
$ |
19,996 |
|
|
$ |
75,271 |
|
|
Service revenue |
|
|
1,023 |
|
|
|
— |
|
|
|
1,023 |
|
|
|
— |
|
|
Other revenue |
|
|
8 |
|
|
|
2,053 |
|
|
|
52 |
|
|
|
2,468 |
|
|
Non-cash royalty revenue related to the sale of future royalties |
|
|
7,846 |
|
|
|
9,263 |
|
|
|
21,002 |
|
|
|
17,869 |
|
|
Total revenues |
|
|
26,945 |
|
|
|
15,715 |
|
|
|
42,073 |
|
|
|
95,608 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service revenue |
|
|
(634 |
) |
|
|
— |
|
|
|
(634 |
) |
|
|
— |
|
|
Research and development |
|
|
(38,550 |
) |
|
|
(45,243 |
) |
|
|
(74,913 |
) |
|
|
(85,374 |
) |
|
General and administrative |
|
|
(14,195 |
) |
|
|
(11,405 |
) |
|
|
(24,809 |
) |
|
|
(22,211 |
) |
|
Contingent purchase price consideration fair value adjustment |
|
|
(6,840 |
) |
|
|
(213 |
) |
|
|
(2,456 |
) |
|
|
(2,961 |
) |
|
Operating loss |
|
|
(33,274 |
) |
|
|
(41,146 |
) |
|
|
(60,739 |
) |
|
|
(14,938 |
) |
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on modification of debt |
|
|
— |
|
|
|
— |
|
|
|
(2,720 |
) |
|
|
— |
|
|
Non-operating expense |
|
|
(340 |
) |
|
|
(924 |
) |
|
|
(1,392 |
) |
|
|
(554 |
) |
|
Interest expense, net |
|
|
(14,630 |
) |
|
|
(9,797 |
) |
|
|
(28,664 |
) |
|
|
(18,940 |
) |
|
Net loss |
|
|
(48,244 |
) |
|
|
(51,867 |
) |
|
|
(93,515 |
) |
|
|
(34,432 |
) |
|
Dividends on Series A-1 convertible preferred stock |
|
|
(52 |
) |
|
|
(52 |
) |
|
|
(105 |
) |
|
|
(104 |
) |
|
Less: net loss attributable to non-controlling interest |
|
|
(764 |
) |
|
|
(1,233 |
) |
|
|
(1,361 |
) |
|
|
(2,304 |
) |
|
Net loss attributable to Agenus Inc. common stockholders |
|
$ |
(47,532 |
) |
|
$ |
(50,686 |
) |
|
$ |
(92,259 |
) |
|
$ |
(32,232 |
) |
|
Per common share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss attributable to Agenus Inc. common stockholders |
|
$ |
(0.28 |
) |
|
$ |
(0.38 |
) |
|
$ |
(0.59 |
) |
|
$ |
(0.24 |
) |
|
Weighted average number of Agenus Inc. common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
169,130 |
|
|
|
134,636 |
|
|
|
157,096 |
|
|
|
132,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain |
|
|
466 |
|
|
$ |
1,142 |
|
|
$ |
1,693 |
|
|
$ |
460 |
|
|
Other comprehensive income |
|
|
466 |
|
|
|
1,142 |
|
|
|
1,693 |
|
|
|
460 |
|
|
Comprehensive loss |
|
$ |
(47,066 |
) |
|
$ |
(49,544 |
) |
|
$ |
(90,566 |
) |
|
$ |
(31,772 |
) |
See accompanying notes to unaudited condensed consolidated financial statements.
4
AGENUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(Unaudited)
(Amounts in thousands)
|
|
|
Series C-1 |
|
|
|
Series A-1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Convertible |
|
|
|
Convertible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Preferred Stock |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
Number of Shares |
|
|
Amount |
|
|
|
Number of Shares |
|
|
Par Value |
|
|
Number of Shares |
|
|
Par Value |
|
|
Additional Paid-In Capital |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Non-controlling Interest |
|
|
Accumulated Deficit |
|
|
Total |
|
|||||||||||
|
Balance at December 31, 2019 |
|
|
12 |
|
|
$ |
26,917 |
|
|
|
|
32 |
|
|
$ |
0 |
|
|
|
137,819 |
|
|
$ |
1,378 |
|
|
$ |
1,059,583 |
|
|
$ |
(1,324 |
) |
|
$ |
(5,981 |
) |
|
$ |
(1,284,993 |
) |
|
$ |
(231,337 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(597 |
) |
|
|
(44,674 |
) |
|
|
(45,271 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,227 |
|
|
|
— |
|
|
|
— |
|
|
|
1,227 |
|
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,397 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,397 |
|
|
Shares sold at the market |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
24,716 |
|
|
|
247 |
|
|
|
64,876 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
65,123 |
|
|
Amendment of 2015 warrants and issuance of 2020 warrants |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,145 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,145 |
|
|
Payment of consultant in shares |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
0 |
|
|
|
12 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
Exercise of stock options and employee share purchases |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
765 |
|
|
|
8 |
|
|
|
2,196 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,204 |
|
|
Balance at March 31, 2020 |
|
|
12 |
|
|
$ |
26,917 |
|
|
|
|
32 |
|
|
$ |
0 |
|
|
|
163,304 |
|
|
$ |
1,633 |
|
|
$ |
1,132,209 |
|
|
$ |
(97 |
) |
|
$ |
(6,578 |
) |
|
$ |
(1,329,667 |
) |
|
$ |
(202,500 |
) |
|
Net loss |
|
|
— |
|
|
$ |
— |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(764 |
) |
|
$ |
(47,480 |
) |
|
|
(48,244 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
466 |
|
|
|
— |
|
|
|
— |
|
|
|
466 |
|
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,464 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,464 |
|
|
Shares sold at the market |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
7,290 |
|
|
|
73 |
|
|
|
19,834 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,907 |
|
|
Issuance of shares for business acquisition |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
405 |
|
|
|
4 |
|
|
|
896 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
900 |
|
|
Payment of CEO payroll in shares |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
31 |
|
|
|
0 |
|
|
|
88 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
88 |
|
|
Payment of consultant in shares |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
0 |
|
|
|
31 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31 |
|
|
Exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
290 |
|
|
|
3 |
|
|
|
921 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
924 |
|
|
Vesting of nonvested shares |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
88 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance at June 30, 2020 |
|
|
12 |
|
|
$ |
26,917 |
|
|
|
|
32 |
|
|
$ |
0 |
|
|
|
171,418 |
|
|
$ |
1,714 |
|
|
$ |
1,156,442 |
|
|
$ |
369 |
|
|
$ |
(7,342 |
) |
|
$ |
(1,377,147 |
) |
|
$ |
(225,964 |
) |
5
AGENUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(Unaudited)
(Amounts in thousands)
|
|
|
Series C-1 |
|
|
|
Series A-1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Convertible |
|
|
|
Convertible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Preferred Stock |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
Number of Shares |
|
|
Amount |
|
|
|
Number of Shares |
|
|
Par Value |
|
|
Number of Shares |
|
|
Par Value |
|
|
Additional Paid-In Capital |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Non-controlling Interest |
|
|
Accumulated Deficit |
|
|
Total |
|
|||||||||||
|
Balance at December 31, 2018 |
|
|
18 |
|
|
$ |
39,879 |
|
|
|
|
32 |
|
|
$ |
0 |
|
|
|
119,996 |
|
|
$ |
1,200 |
|
|
$ |
1,005,183 |
|
|
$ |
(1,539 |
) |
|
$ |
(2,078 |
) |
|
$ |
(1,177,311 |
) |
|
$ |
(174,545 |
) |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,071 |
) |
|
|
18,506 |
|
|
|
17,435 |
|
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(682 |
) |
|
|
— |
|
|
|
— |
|
|
|
(682 |
) |
|
Adoption of ASC 842 |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25 |
) |
|
|
(25 |
) |
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,843 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,843 |
|
|
Shares sold under stock purchase agreement |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
11,111 |
|
|
|
111 |
|
|
|
29,889 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,000 |
|
|
Conversion of Series C-1 convertible preferred stock |
|
|
(3 |
) |
|
|
(6,481 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
3,000 |
|
|
|
30 |
|
|
|
6,451 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,481 |
|
|
Payment of consultant in shares |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
0 |
|
|
|
37 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
37 |
|
|
Exercise of stock options and employee share purchases |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
85 |
|
|
|
1 |
|
|
|
172 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
173 |
|
|
Balance at March 31, 2019 |
|
|
15 |
|
|
$ |
33,398 |
|
|
|
|
32 |
|
|
$ |
0 |
|
|
|
134,206 |
|
|
$ |
1,342 |
|
|
$ |
1,043,575 |
|
|
$ |
(2,221 |
) |
|
$ |
(3,149 |
) |
|
$ |
(1,158,830 |
) |
|
$ |
(119,283 |
) |
|
Net loss |
|
|
— |
|
|
$ |
— |
|
|
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
(1,233 |
) |
|
|
(50,634 |
) |
|
|
(51,867 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,142 |
|
|
|
— |
|
|
|
— |
|
|
|
1,142 |
|
|
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,917 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,917 |
|
|
Conversion of Series C-1 convertible preferred stock |
|
|
(3 |
) |
|
|
(6,481 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
3,000 |
|
|
|
30 |
|
|
|
6,451 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,481 |
|
|
Vesting of nonvested shares |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
53 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance at June 30, 2019 |
|
|
12 |
|
|
$ |
26,917 |
|
|
|
|
32 |
|
|
$ |
0 |
|
|
|
137,259 |
|
|
$ |
1,373 |
|
|
$ |
1,051,942 |
|
|
$ |
(1,079 |
) |
|
$ |
(4,382 |
) |
|
$ |
(1,209,464 |
) |
|
$ |
(161,610 |
) |
See accompanying notes to unaudited condensed consolidated financial statements.
6
AGENUS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(93,515 |
) |
|
$ |
(34,432 |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,491 |
|
|
|
3,323 |
|
|
Share-based compensation |
|
|
4,950 |
|
|
|
3,760 |
|
|
Non-cash royalty revenue |
|
|
(21,002 |
) |
|
|
(17,869 |
) |
|
Non-cash interest expense |
|
|
28,191 |
|
|
|
19,609 |
|
|
Change in fair value of contingent obligations |
|
|
2,456 |
|
|
|
2,961 |
|
|
Loss on modification of debt |
|
|
2,720 |
|
|
|
— |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
766 |
|
|
|
(1,267 |
) |
|
Prepaid expenses |
|
|
(266 |
) |
|
|
5,704 |
|
|
Accounts payable |
|
|
6,106 |
|
|
|
5,643 |
|
|
Deferred revenue |
|
|
(4,599 |
) |
|
|
52,803 |
|
|
Accrued liabilities and other current liabilities |
|
|
(3,532 |
) |
|
|
(235 |
) |
|
Other operating assets and liabilities |
|
|
2,354 |
|
|
|
883 |
|
|
Net cash (used in) provided by operating activities |
|
|
(71,880 |
) |
|
|
40,883 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of plant and equipment |
|
|
(1,762 |
) |
|
|
(2,762 |
) |
|
Cash paid for business acquisition |
|
|
(1,000 |
) |
|
|
— |
|
|
Cash acquired in business acquisition |
|
|
28 |
|
|
|
— |
|
|
Net cash used in investing activities |
|
|
(2,734 |
) |
|
|
(2,762 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Net proceeds from sale of equity |
|
|
85,030 |
|
|
|
30,000 |
|
|
Proceeds from employee stock purchases and option exercises |
|
|
3,128 |
|
|
|
172 |
|
|
Proceeds from issuance of long-term debt |
|
|
6,197 |
|
|
|
— |
|
|
Repayments of debt |
|
|
(1,000 |
) |
|
|
— |
|
|
Payment of finance lease obligation |
|
|
(1,430 |
) |
|
|
(151 |
) |
|
Net cash provided by financing activities |
|
|
91,925 |
|
|
|
30,021 |
|
|
Effect of exchange rate changes on cash |
|
|
52 |
|
|
|
521 |
|
|
Net increase in cash and cash equivalents |
|
|
17,363 |
|
|
|
68,663 |
|
|
Cash and cash equivalents, beginning of period |
|
|
61,808 |
|
|
|
53,054 |
|
|
Cash and cash equivalents, end of period |
|
$ |
79,171 |
|
|
$ |
121,717 |
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
590 |
|
|
$ |
620 |
|
|
Supplemental disclosures - non-cash activities: |
|
|
|
|
|
|
|
|
|
Purchases of plant and equipment in accounts payable and accrued liabilities |
|
$ |
662 |
|
|
$ |
105 |
|
|
Issuance of common stock, $0.01 par value, in connection with payment to consultant |
|
|
31 |
|
|
|
38 |
|
|
Issuance of common stock, $0.01 par value, in connection with business acquisition |
|
|
900 |
|
|
|
— |
|
|
Contingent purchase price consideration in connection with business acquisition |
|
|
144 |
|
|
|
— |
|
|
Lease right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
8,600 |
|
|
|
— |
|
|
Lease right-of-use assets obtained in exchange for new finance lease liabilities |
|
|
2,434 |
|
|
|
— |
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
AGENUS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
Note A - Business, Liquidity and Basis of Presentation
Agenus Inc. (including its subsidiaries, collectively referred to as “Agenus,” the “Company,” “we,” “us,” and “our”) is a clinical-stage immuno-oncology (“I-O”) company advancing an extensive pipeline of immune checkpoint antibodies, adoptive cell therapies and neoantigen vaccines, to fight cancer and infections. Our business is designed to drive success in I-O through speed, innovation and effective combination therapies. We believe that combination therapies and a deep understanding of each patient’s cancer will drive substantial expansion of the patient population benefiting from current I-O therapies. In addition to a diverse pipeline, we have assembled fully integrated end-to-end capabilities including novel target discovery, antibody generation, cell line development and good manufacturing practice manufacturing. We believe that these fully integrated capabilities enable us to produce novel candidates on timelines that are shorter than the industry standard. Leveraging our science and capabilities, we have forged important partnerships to advance our innovation.
We are developing a comprehensive I-O portfolio driven by the following platforms and programs, which we intend to utilize individually and in combination:
|
|
• |
our multiple antibody discovery platforms, including our proprietary display technologies, designed to drive the discovery of future CPM antibody candidates; |
|
|
• |
our antibody candidate programs, including our CPM programs; |
|
|
• |
our vaccine programs, including Prophage™, AutoSynVax™ and PhosPhoSynVax ™; |
|
|
• |
our saponin-based vaccine adjuvants, principally our QS-21 Stimulon™ adjuvant, or QS-21 Stimulon; and |
|
|
• |
our cell therapy subsidiary, AgenTus Therapeutics, Inc., which is designed to drive the discovery of future adoptive cell therapy, or “living drugs” programs. |
Our business activities include product research and development, intellectual property prosecution, manufacturing, regulatory and clinical affairs, corporate finance and development activities, and support of our collaborations. Our product candidates require clinical trials and approvals from regulatory agencies, as well as acceptance in the marketplace. Part of our strategy is to develop and commercialize some of our product candidates by continuing our existing arrangements with academic and corporate collaborators and licensees and by entering into new collaborations. As a result of the COVID-19 pandemic, in March 2020, we streamlined our operations and repurposed certain of our research and development efforts to advance product candidates for the potential treatment of COVID-19, including certain agents from our existing clinical portfolio.
Our cash and cash equivalents at June 30, 2020 were $79.2 million, an increase of $17.4 million from December 31, 2019.
We have incurred losses since our inception. As of June 30, 2020, we had an accumulated deficit of $1.4 billion. Although we plan to launch our first commercial product in 2021, if approved, we do not expect to be profitable in 2021.
During the past five years, we have successfully financed our operations through the sale of equity, notes, corporate partnerships and advance royalty sales. Based on our current plans and projections, we believe that our cash resources of $79.2 million as of June 30, 2020, combined with proceeds from financing transactions already completed in the third quarter of 2020, along with cash expected to be received from corporate transactions and milestones, will be sufficient to satisfy our liquidity requirements into the third quarter of 2021; we are presently in financing, partnership, and out licensing discussions which, if consummated, could extend our cash resources further into and beyond next year. Until we are successful in our efforts for capital infusion through these transactions or other financing options, and because the completion of such transactions is not entirely within our control, in accordance with accounting guidance we are required to disclose that substantial doubt exists about our ability to continue as a going concern for a period of one year after the date of filing of this Quarterly Report on Form 10-Q.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the financial statements have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management continues to address the Company’s liquidity position and will adjust spending as needed in order to preserve liquidity. In March 2020, in response to the COVID-19 pandemic, we streamlined our organization, which included a headcount reduction and the slowing down of several non-priority programs and our CEO, Dr. Garo Armen, also elected to receive his base
8
salary in stock rather than cash for the remainder of 2020. We also continue to monitor the likelihood of success of our key initiatives and have a plan to discontinue funding of such activities if they do not prove to be successful, or further restrict funding of non-core programs, restrict capital expenditures and/or reduce the scale of our operations as necessary to ensure sufficient cash resources into the third quarter of 2021. Our future liquidity needs will be determined primarily by the success of our operations with respect to the progression of our product candidates and key development and regulatory events in the future. Potential sources of additional funding include: (1) pursuing collaboration, out-licensing and/or partnering opportunities for our portfolio programs and product candidates with one or more third parties, (2) renegotiating third party agreements, (3) selling assets, (4) securing additional debt financing and/or (5) selling equity securities.
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual consolidated financial statements. In the opinion of our management, the condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of our financial position and operating results. All significant intercompany transactions and accounts have been eliminated in consolidation. Operating results for the six months ended June 30, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. For further information, refer to our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 16, 2020.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.
For our foreign subsidiaries, the local currency is the functional currency. Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars using rates in effect at the balance sheet date while revenues and expenses are translated into U.S. dollars using average exchange rates during the period. The cumulative translation adjustment resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive loss in total stockholders’ deficit.
Note B - Net Loss Per Share
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our Amended and Restated Directors’ Deferred Compensation Plan, or “DDCP”). Diluted loss per common share is calculated by dividing loss attributable to common stockholders by the weighted average number of common shares outstanding (including common shares issuable under our DDCP) plus the dilutive effect of outstanding instruments such as warrants, stock options, non-vested shares and convertible preferred stock. Because we reported a net loss attributable to common stockholders for all periods presented, diluted loss per common share is the same as basic loss per common share, as the effect of utilizing the fully diluted share count would have reduced the net loss per common share. The following securities (listed on an as-if-converted-to-Common-Stock basis) have been excluded from the computation of diluted weighted average shares outstanding as of June 30, 2020 and 2019, as they would be anti-dilutive (in thousands):
|
|
|
Three and Six Months Ended June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Warrants |
|
|
1,950 |
|
|
|
1,400 |
|
|
Stock options |
|
|
26,079 |
|
|
|
23,844 |
|
|
Non-vested shares |
|
|
873 |
|
|
|
2,218 |
|
|
Series A-1 convertible preferred stock |
|
|
333 |
|
|
|
333 |
|
|
Series C-1 convertible preferred stock |
|
|
12,459 |
|
|
|
12,459 |
|
9
Note C - Investments
Cash equivalents consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):
|
|
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||||||||||
|
|
|
Cost |
|
|
Estimated Fair Value |
|
|
Cost |
|
|
Estimated Fair Value |
|
||||
|
Institutional money market funds |
|
$ |
53,942 |
|
|
$ |
53,942 |
|
|
$ |
55,258 |
|
|
$ |
55,258 |
|
|
U.S. Treasury Bills |
|
|
9,996 |
|
|
|
9,996 |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
63,938 |
|
|
$ |
63,938 |
|
|
$ |
55,258 |
|
|
$ |
55,258 |
|
As a result of the short-term nature of our investments, there were minimal unrealized holding gains or losses for the three and six months ended June 30, 2020 and 2019.
Note D - Goodwill and Acquired Intangible Assets
The following table sets forth the changes in the carrying amount of goodwill for the six months ended June 30, 2020 (in thousands):
|
Balance, December 31, 2019 |
|
$ |
23,188 |
|
|
Foreign currency translation adjustment |
|
|
294 |
|
|
Addition of goodwill related to business acquisition |
|
|
794 |
|
|
Balance, June 30, 2020 |
|
$ |
24,276 |
|
Acquired intangible assets consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):
|
|
|
As of June 30, 2020 |
|
|||||||||||
|
|
|
Amortization period (years) |
|
Gross carrying amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
|||
|
Intellectual property |
|
7-15 years |
|
$ |
16,667 |
|
|
$ |
(9,015 |
) |
|
$ |
7,652 |
|
|
Trademarks |
|
4-4.5 years |
|
|
1,266 |
|
|
|
(867 |
) |
|
|
399 |
|
|
Other |
|
2-7 years |
|
|
2,345 |
|
|
|
(617 |
) |
|
|
1,728 |
|
|
In-process research and development |
|
Indefinite |
|
|
1,981 |
|
|
|
— |
|
|
|
1,981 |
|
|
Total |
|
|
|
$ |
22,259 |
|
|
$ |
(10,499 |
) |
|
$ |
11,760 |
|
|
|
|
As of December 31, 2019 |
|
|||||||||||
|
|
|
Amortization period (years) |
|
Gross carrying amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
|||
|
Intellectual property |
|
7-15 years |
|
$ |
16,584 |
|
|
$ |
(8,044 |
) |
|
$ |
8,540 |
|
|
Trademarks |
|
4.5 years |
|
|
834 |
|
|
|
(834 |
) |
|
|
— |
|
|
Other |
|
2-6 years |
|
|
572 |
|
|
|
(553 |
) |
|
|
19 |
|
|
In-process research and development |
|
Indefinite |
|
|
1,945 |
|
|
|
— |
|
|
|
1,945 |
|
|
Total |
|
|
|
$ |
19,935 |
|
|
$ |
(9,431 |
) |
|
$ |
10,504 |
|
The weighted average amortization period of our finite-lived intangible assets is 9 years. Amortization expense related to acquired intangibles is estimated at $1.1 million for the remainder of 2020, $2.2 million for each of the years ending December 31, 2021 and 2022, $1.7 million for the year ending December 31, 2023 and $0.6 million for the year ending December 31, 2024.
10
Note E - Debt
Debt obligations consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):
|
Debt instrument |
|
Balance at June 30, 2020 |
|
|
|
Current Portion: |
|
|
|
|
|
Debentures |
|
$ |
146 |
|
|
Other |
|
|
1,386 |
|
|
Long-term Portion: |
|
|
|
|
|
2015 Subordinated Notes |
|
|
12,616 |
|
|
Other |
|
|
6,197 |
|
|
Total |
|
$ |
20,345 |
|
|
Debt instrument |
|
Principal at December 31, 2019 |
|
|
Unamortized Debt Discount |
|
|
Balance at December 31, 2019 |
|
|||
|
Current Portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures |
|
$ |
146 |
|
|
$ |
— |
|
|
$ |
146 |
|
|
2015 Subordinated Notes |
|
|
500 |
|
|
|
— |
|
|
|
500 |
|
|
Long-term Portion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Subordinated Notes |
|
|
13,500 |
|
|
|
(120 |
) |
|
|
13,380 |
|
|
Total |
|
$ |
14,146 |
|
|
$ |
(120 |
) |
|
$ |
14,026 |
|
On February 18, 2020, we entered into an amendment to the 2015 Subordinated Notes (the “Amendment”) pursuant to which we:
|
|
• |
extended the maturity date of $13.5 million of the 2015 Subordinated Notes by three years from February 20, 2020 to February 20, 2023; |
|
|
• |
repaid $0.5 million of the 2015 Subordinated Notes; |
|
|
• |
extended the exercise period of the warrants to purchase 1,350,000 shares of the Company’s common stock previously issued in 2015 by three years from February 20, 2020 to February 20, 2023; and |
|
|
• |
issued new warrants to purchase 675,000 shares of the Company’s common stock with a term of five years and an exercise price of $4.48 per share, which represented a 20% premium over the 30-day average trailing closing price of the Company’s common stock as of the date of the Amendment. |
The Amendment was accounted for as a debt extinguishment under the guidance of ASU 470: Debt. For the six months ended June 30, 2020, we recorded a loss of approximately $2.7 million in other expense in our condensed consolidated statements of operations and comprehensive loss, which primarily represents the fair value of the new and extended warrants. The amended 2015 Subordinated Notes were recorded at fair value. In April 2020, we repaid $0.5 million of the outstanding amended 2015 Subordinated Notes and cancelled related warrants. As of June 30, 2020, the principal amount of our outstanding debt balance was $20.7 million.
Payroll Protection Program
In May 2020, we entered into promissory notes with Bank of America, NA for aggregate loan proceeds of approximately $6.2 million (collectively, the “Loan”) under the Small Business Administration (the “SBA”) Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”). We intend to use at least 60% of the Loan proceeds for covered payroll costs and no more than 40% of the Loan proceeds for rent and utilities in accordance with the relevant terms and conditions of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act. Each Loan has a two-year term and bears interest at a rate of 1.00% per annum.
The Loan may be forgiven partially or fully if the Loan proceeds are used for covered payroll costs, rent and utilities, provided that such amounts are incurred during the twenty-four week period commencing on receipt of the Loan proceeds, and at least 60% of any forgiven amount has been used for covered payroll costs. Any forgiveness of the Loan will be subject to approval by the SBA and will require us to apply for such treatment in the future.
11
As we cannot yet determine if the Loan will be partially or fully forgiven, we have classified the Loan proceeds as debt in our condensed consolidated balance sheet.
Note F – Liability Related to the Sale of Future Royalties and Milestones
The following table shows the activity within the liability account in the six months ended June 30, 2020 (in thousands):
|
|
|
Period from December 31, 2019 to June 30, 2020 |
|
|
|
Liability related to sale of future royalties and milestones - beginning balance |
|
$ |
221,845 |
|
|
Non-cash royalty revenue |
|
|
(21,002 |
) |
|
Non-cash interest expense recognized |
|
|
27,999 |
|
|
Liability related to sale of future royalties and milestones - ending balance |
|
|
228,842 |
|
|
Less: unamortized transaction costs |
|
|
(446 |
) |
|
Liability related to sale of future royalties and milestones, net |
|
$ |
228,396 |
|
Healthcare Royalty Partners
In January 2018, we, through our wholly-owned subsidiary Antigenics, LLC (“Antigenics”), entered into a Royalty Purchase Agreement (the “HCR Royalty Purchase Agreement”) with Healthcare Royalty Partners III, L.P. and certain of its affiliates (collectively, “HCR”). Pursuant to the terms of the HCR Royalty Purchase Agreement, we sold to HCR 100% of Antigenics’ worldwide rights to receive royalties from GlaxoSmithKline (“GSK”) on sales of GSK’s vaccines containing our QS-21 Stimulon adjuvant. At closing, we received gross proceeds of $190.0 million from HCR. Although we sold all of our rights to receive royalties on sales of GSK’s vaccines containing QS-21, as a result of our obligation to HCR, we are required to account for these royalties as revenue when earned, and we recorded the $190.0 million in proceeds from this transaction as a liability on our condensed consolidated balance sheet that will be amortized using the interest method over the estimated life of the HCR Royalty Purchase Agreement. The liability is classified between the current and non-current portion of liability related to sale of future royalties and milestones in the condensed consolidated balance sheets based on the estimated recognition of the royalty payments to be received by HCR in the next 12 months from the financial statement reporting date.
During the six months ended June 30, 2020, we recognized $21.0 million of non-cash royalty revenue, and we recorded $28.0 million of related non-cash interest expense related to the HCR Royalty Purchase Agreement.
As royalties are remitted to HCR from GSK, the balance of the recorded liability will be effectively repaid over the life of the HCR Royalty Purchase Agreement. To determine the amortization of the recorded liability, we are required to estimate the total amount of future royalty payments to be received by HCR. The sum of these amounts less the $190.0 million proceeds we received will be recorded as interest expense over the life of the HCR Royalty Purchase Agreement. Periodically, we assess the estimated royalty payments to be paid to HCR from GSK, and to the extent the amount or timing of the payments is materially different from our original estimates, we will prospectively adjust the amortization of the liability. During the six months ended June 30, 2020, our estimate of the effective annual interest rate over the life of the agreement increased to 27.3%, which results in a retrospective interest rate of 22.9%.
12
Note G - Accrued Liabilities
Accrued liabilities consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):
|
|
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||
|
Payroll |
|
$ |
6,514 |
|
|
$ |
9,575 |
|
|
Professional fees |
|
|
4,254 |
|
|
|
4,314 |
|
|
Contract manufacturing costs |
|
|
8,044 |
|
|
|
8,768 |
|
|
Research services |
|
|
7,344 |
|
|
|
6,675 |
|
|
Other |
|
|
1,295 |
|
|
|
2,000 |
|
|
Total |
|
$ |
27,451 |
|
|
$ |
31,332 |
|
Note H - Fair Value Measurements
We measure our contingent purchase price considerations at fair value.
The fair values of our contingent purchase price considerations, $11.4 million, are based on significant inputs not observable in the market, which require them to be reported as Level 3 liabilities within the fair value hierarchy. The valuation of these liabilities use assumptions we believe would be made by a market participant and are based on estimates from a Monte Carlo simulation of our market capitalization and share price, and other factors impacting the probability of triggering the milestone payments. Market capitalization and share price were evolved using a geometric Brownian motion, calculated daily for the life of the contingent purchase price considerations.
The significant unobservable inputs include the anticipated timelines to achieve the contingent purchase milestones and our estimated credit spread, the weighted average values of which (weighted based on the value of each contingent liability), as of June 30, 2020, are shown in the table below.
|
|
|
Unobservable Input |
|
|
|
Period of time to achieve milestones (in years) |
|
|
1.4 |
|
|
Credit spread |
|
|
10.8 |
% |
Liabilities measured at fair value are summarized below (in thousands):
|
Description |
|
June 30, 2020 |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price considerations |
|
$ |
11,443 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,443 |
|
|
Total |
|
$ |
11,443 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
December 31, 2019 |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent purchase price consideration |
|
$ |
8,843 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,843 |
|
|
Total |
|
$ |
8,843 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,843 |
|
13
The following table presents our liabilities measured at fair value using significant unobservable inputs (Level 3), as of June 30, 2020 (in thousands):
|
Balance, December 31, 2019 |
|
$ |
8,843 |
|
|
Change in fair value of contingent purchase price considerations during the period |
|
|
2,456 |
|
|
Addition of contingent purchase price consideration related to business acquisition |
|
|
144 |
|
|
Balance, June 30, 2020 |
|
$ |
11,443 |
|
The fair value of our outstanding debt balance at June 30, 2020 and December 31, 2019 was $20.5 million and $14.2 million, respectively, based on the Level 2 valuation hierarchy of the fair value measurements standard using a present value methodology that was derived by evaluating the nature and terms of each note and considering the prevailing economic and market conditions at the balance sheet date. The principal amount of our outstanding debt balance at June 30, 2020 and December 31, 2019 was $20.7 and $14.1 million, respectively.
Note I - Revenue from Contracts with Customers
Gilead Collaboration Agreement
On December 20, 2018, we entered into a series of agreements with Gilead Sciences, Inc. (“Gilead”) focused on the development and commercialization of up to five novel immuno-oncology therapies. Pursuant to the terms of the license agreement, the option and license agreements and the stock purchase agreement we entered into with Gilead (collectively, the “Gilead Collaboration Agreements”), at the closing of the transaction on January 23, 2019 (the “Effective Date”), we received an upfront cash payment from Gilead of $120.0 million and Gilead made a $30.0 million equity investment in Agenus. We are also eligible to receive up to $1.7 billion in aggregate potential milestones.
Collaboration Revenue
For the three months ended June 30, 2020, we recognized $4.0 million of research and development revenue related to the Gilead Collaboration Agreements based on the partial satisfaction of the over time performance obligations as of quarter end. For the three months ended June 30, 2019, we recognized $3.8 million of research and development revenue based on the partial satisfaction of the over time performance obligations as of quarter end.
For the six months ended June 30, 2020, we recognized $5.8 million of license and collaboration revenue related to the Gilead Collaboration Agreements based on the partial satisfaction of the over time performance obligations as of period end. For the six months ended June 30, 2019, we recognized $74.1 million of license and collaboration revenue related to the Gilead Collaboration Agreements. This amount included $8.6 million of the transaction price recognized based on the partial satisfaction of the over time performance obligations as of period end.
We expect to recognize deferred research and development revenue of $22.9 million and $27.7 million for the remainder of 2020 and 2021, respectively, related to performance obligations that are unsatisfied or partially unsatisfied as of June 30, 2020.
Incyte Collaboration Agreement
For the three months ended June 30, 2020, we recognized approximately $0.2 million of research and development revenue for research and development services provided. For the three months ended June 30, 2019, we recognized approximately $0.6 million of research and development revenue. This amount included $0.1 million of the transaction price recognized based on the partial satisfaction of the over time performance obligations as of quarter end and $0.5 million for research and development services.
For the six months ended June 30, 2020, we recognized approximately $0.3 million of research and development revenue for research and development services provided. For the six months ended June 30, 2019, we recognized approximately $1.2 million of research and development revenue. This amount included $0.3 million of the transaction price for the Incyte Collaboration Agreement recognized based on the partial satisfaction of the over time performance obligations as of period end and $0.9 million for research and development services.
14
Betta License Agreement
In June 2020, we entered into a license and collaboration agreement (the “Betta License Agreement”) with Betta Pharmaceuticals Co., Ltd. (“Betta”), pursuant to which we granted Betta an exclusive license to develop, manufacture and commercialize balstilimab and zalifrelimab in Greater China. Under the terms of the Betta License Agreement, we received $15.0 million upfront in July 2020 and are eligible to receive up to $100.0 million in milestone payments plus royalties on any future sales in Greater China.
We also entered into a stock purchase agreement with Betta and a wholly-owned subsidiary of Betta (“Betta HK”), pursuant to which we agreed to sell to Betta HK 4,962,779 shares of Agenus common stock for an aggregate purchase price of approximately $20.0 million, or $4.03 per share. The closing under the stock purchase agreement occurred in July 2020.
We identified the following performance obligations under the Betta License Agreement: (1) the license of balstilimab and zalifrelimab, (2) our obligation to complete manufacturing technology transfer activities to Betta (the “Technology Transfer”) for balistilimab and zalifrelimab and (3) the supply of balistilimab and zalifrelimab.
We determined that the license of balstilimab and zalifrelimab was both capable of being distinct and distinct within the context of the contract as the license has significant stand-alone functionality as of contract inception based on the advanced development stage of balstilimab and zalifrelimab. Betta can begin deriving benefit from the license prior to the Technology Transfer being completed. The Technology Transfer is completed over time and is separate from the transfer of the balstilimab and zalifrelimab license, which occurred at contract inception. As a result, we concluded that the balstilimab and zalifrelimab license and Technology Transfer are separate performance obligations. We also determined that the supply of balstilimab and zalifrelimab was both capable of being distinct and distinct within the context of the contract as it was considered a readily available resource in the market.
We determined that there were no significant financing components, noncash consideration, or amounts that may be refunded to the customer, and as such the total upfront fixed consideration of $15.0 million would be included in the total transaction price and be allocated to the identified performance obligations using the relative standalone selling price method.
We determined the estimated standalone selling price of the balstilimab and zalifrelimab license by applying a risk adjusted, net present value, estimate of future cash flow approach. We determined the estimated standalone selling price of the Technology Transfer by using the estimated costs of satisfying the performance obligation, plus an appropriate margin for such services. We did not estimate the standalone selling price of the balstilimab and zalifrelimab supply due to the “as invoiced” practical expedient.
Revenue attributable to the balstilimab and zalifrelimab license was recognized at a point-in-time, upon delivery of the license to Betta at contract inception. The Technology Transfer is satisfied over time and revenue attributable to this performance obligation will be recognized as the related services are being performed using the input of costs incurred over total costs expected to be incurred. We believe this is the best measure of progress because other measures do not reflect how we transfer the performance obligation to Betta.
For the three and six months ended June 30, 2020, we recognized $13.9 million of license and collaboration revenue related to the Betta License Agreement.
Disaggregation of Revenue
The following tables present revenue (in thousands) for the three and six months ended June 30, 2020 and 2019, disaggregated by geographic region and revenue type. Revenue by geographic region is allocated based on the domicile of our respective business operations.
15
|
|
|
Three months ended June 30, 2020 |
|
|||||||||
|
|
|
United States |
|
|
Rest of World |
|
|
Total |
|
|||
|
Revenue Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development services |
|
$ |
237 |
|
|
$ |
— |
|
|
$ |
237 |
|
|
License fee revenue |
|
|
13,857 |
|
|
|
— |
|
|
|
13,857 |
|
|
Other services |
|
|
— |
|
|
|
1,023 |
|
|
|
1,023 |
|
|
Recognition of deferred revenue |
|
|
3,974 |
|
|
|
— |
|
|
|
3,974 |
|
|
Recognition of deferred grant revenue |
|
|
8 |
|
|
|
— |
|
|
|
8 |
|
|
Non-cash royalty revenue |
|
|
7,846 |
|
|
|
— |
|
|
|
7,846 |
|
|
|
|
$ |
25,922 |
|
|
$ |
1,023 |
|
|
$ |
26,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2019 |
|
|||||||||
|
Revenue Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development services |
|
$ |
486 |
|
|
$ |
— |
|
|
$ |
486 |
|
|
Recognition of deferred revenue |
|
|
3,913 |
|
|
|
— |
|
|
|
3,913 |
|
|
Recognition of deferred grant revenue |
|
|
231 |
|
|
|
55 |
|
|
|
286 |
|
|
Manufacturing services |
|
|
1,767 |
|
|
|
— |
|
|
|
1,767 |
|
|
Non-cash royalty revenue |
|
|
9,263 |
|
|
|
— |
|
|
|
9,263 |
|
|
|
|
$ |
15,660 |
|
|
$ |
55 |
|
|
$ |
15,715 |
|
|
|
|
Six months ended June 30, 2020 |
|
|||||||||
|
|
|
United States |
|
|
Rest of World |
|
|
Total |
|
|||
|
Revenue Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development services |
|
$ |
334 |
|
|
$ |
— |
|
|
$ |
334 |
|
|
License fee revenue |
|
|
13,857 |
|
|
|
— |
|
|
|
13,857 |
|
|
Other services |
|
|
— |
|
|
|
1,023 |
|
|
|
1,023 |
|
|
Recognition of deferred revenue |
|
|
5,805 |
|
|
|
— |
|
|
|
5,805 |
|
|
Recognition of deferred grant revenue |
|
|
8 |
|
|
|
44 |
|
|
|
52 |
|
|
Non-cash royalty revenue |
|
|
21,002 |
|
|
|
— |
|
|
|
21,002 |
|
|
|
|
$ |
41,006 |
|
|
$ |
1,067 |
|
|
$ |
42,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2019 |
|
|||||||||
|
Revenue Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development services |
|
$ |
901 |
|
|
$ |
— |
|
|
$ |
901 |
|
|
License fee revenue |
|
|
65,500 |
|
|
|
— |
|
|
|
65,500 |
|
|
Recognition of deferred revenue |
|
|
8,870 |
|
|
|
— |
|
|
|
8,870 |
|
|
Recognition of deferred grant revenue |
|
|
646 |
|
|
|
55 |
|
|
|
701 |
|
|
Manufacturing services |
|
|
1,767 |
|
|
|
— |
|
|
|
1,767 |
|
|
Non-cash royalty revenue |
|
|
17,869 |
|
|
|
— |
|
|
|
17,869 |
|
|
|
|
$ |
95,553 |
|
|
$ |
55 |
|
|
$ |
95,608 |
|
Contract Balances
Contract assets primarily relate to our rights to consideration for work completed in relation to our research and development services performed but not billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. Currently, we do not have any contract assets which have not transferred to a receivable. We had no asset impairment charges related to contract assets in the period. The contract liabilities primarily relate to contracts where we received payments but have not yet satisfied the related performance obligations. The advance consideration received from customers for research and development services or licenses bundled with other promises is a contract liability until the underlying performance obligations are transferred to the customer.
The following table provides information about contract assets and contract liabilities from contracts with customers (in thousands):
16
|
Six months ended June 30, 2020 |
|
Balance at beginning of period |
|
|
Additions |
|
|
Deductions |
|
|
Balance at end of period |
|
||||
|
Contract assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled receivables from collaboration partners |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Contract liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
$ |
56,414 |
|
|
$ |
1,311 |
|
|
$ |
(5,805 |
) |
|
$ |
51,920 |
|
The change in contract liabilities is primarily related to the recognition of $5.8 million of revenue related to the Gilead Collaboration Agreements and the addition of $1.1 million of deferred revenue from the Betta License Agreement during the six months ended June 30, 2020. Deferred revenue related to the Gilead Collaboration Agreements of $50.6 million as of June 30, 2020, which was comprised of the $142.5 million initial transaction price, less $91.9 million of license and collaboration revenue recognized from the effective date of the contract, will be recognized as the combined performance obligation is satisfied.
We also recorded a $1.6 million receivable as of June 30, 2020 for research and development and other services provided.
During the six months ended June 30, 2020, we did not recognize any revenue from amounts included in the contract asset or the contract liability balances from performance obligations satisfied in previous periods. None of the costs to obtain or fulfill a contract were capitalized.
Note J - Share-based Compensation Plans
We primarily use the Black-Scholes option pricing model to value stock options granted to employees and non-employees, including stock options granted to members of our Board of Directors. However, the fair value of stock option market-based awards is calculated based on a Monte Carlo simulation as of the date of issuance. All stock options have 10-year terms and generally vest ratably over a 3 or 4-year period.
A summary of option activity for the six months ended June 30, 2020 is presented below:
|
|
|
Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term (in years) |
|
|
Aggregate Intrinsic Value |
|
||||
|
Outstanding at December 31, 2019 |
|
|
27,164,147 |
|
|
$ |
3.67 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,333,722 |
|
|
|
4.01 |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(817,429 |
) |
|
|
3.10 |
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,315,126 |
) |
|
|
3.41 |
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
(1,286,014 |
) |
|
|
4.49 |
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2020 |
|
|
26,079,300 |
|
|
$ |
3.69 |
|
|
|
7.38 |
|
|
$ |
16,015,293 |
|
|
Vested or expected to vest at June 30, 2020 |
|
|
26,079,300 |
|
|
$ |
3.69 |
|
|
|
7.38 |
|
|
$ |
16,015,293 |
|
|
Exercisable at June 30, 2020 |
|
|
12,863,425 |
|
|
$ |
4.05 |
|
|
|
5.87 |
|
|
$ |
6,172,093 |
|
The weighted average grant-date fair values of stock options granted during the six months ended June 30, 2020 and 2019 were $1.46 and $1.83, respectively.
As of June 30, 2020, there was approximately $16.9 million of total unrecognized share-based compensation expense related to these stock options which, if all milestones are achieved, will be recognized over a weighted average period of 2.0 years.
Certain employees and consultants have been granted non-vested stock. The fair value of non-vested market-based awards is calculated based on a Monte Carlo simulation as of the date of issuance. The fair value of other non-vested stock is calculated based on the closing sale price of our common stock on the date of issuance.
17
A summary of non-vested stock activity for the six months ended June 30, 2020 is presented below:
|
|
|
Non-vested Shares |
|
|
Weighted Average Grant Date Fair Value |
|
||
|
Outstanding at December 31, 2019 |
|
|
2,207,943 |
|
|
$ |
2.85 |
|
|
Granted |
|
|
73,030 |
|
|
|
3.56 |
|
|
Vested |
|
|
(88,132 |
) |
|
|
2.95 |
|
|
Forfeited |
|
|
(1,320,311 |
) |
|
|
3.44 |
|
|
Outstanding at June 30, 2020 |
|
|
872,530 |
|
|
$ |
2.00 |
|
As of June 30, 2020, there was approximately $0.9 million of unrecognized share-based compensation expense related to these non-vested shares which will be recognized over a period of 1.7 years.
During the six months ended June 30, 2020, 236,855 shares were issued under the 2019 Employee Stock Purchase Plan, 88,132 shares were issued as a result of the vesting of non-vested stock and 817,429 shares were issued as a result of stock option exercises.
The impact on our results of operations from share-based compensation for the three and six months ended June 30, 2020 and 2019, was as follows (in thousands):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Research and development |
|
$ |
839 |
|
|
$ |
610 |
|
|
$ |
2,042 |
|
|
$ |
1,497 |
|
|
General and administrative |
|
|
1,625 |
|
|
|
1,306 |
|
|
|
2,819 |
|
|
|
2,263 |
|
|
Total share-based compensation expense |
|
$ |
2,464 |
|
|
$ |
1,916 |
|
|
$ |
4,861 |
|
|
$ |
3,760 |
|
Note K – Leases
The majority of our operating lease agreements are for the office, research and development and manufacturing space we use to conduct our operations.
We lease space in Lexington, Massachusetts for our manufacturing, research and development, and corporate offices, office space in New York, New York for use as corporate offices, facilities in Berkeley, California, for manufacturing and corporate offices and a facility in Cambridge, United Kingdom for research and development and corporate offices. We have subleased a small portion of the space in our main Lexington facility for part of the associated head lease. These agreements expire at various times between 2020 and 2030.
We also have a finance lease agreement for transportation equipment that expires in 2022.
The components of lease cost recorded in our condensed consolidated statement of operations were as follows (in thousands):
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Operating lease cost |
|
$ |
1,074 |
|
|
$ |
604 |
|
|
$ |
2,151 |
|
|
$ |
1,155 |
|
|
Finance lease cost |
|
|
119 |
|
|
|
58 |
|
|
|
192 |
|
|
|
123 |
|
|
Variable lease cost |
|
|
495 |
|
|
|
357 |
|
|
|
1,009 |
|
|
|
655 |
|
|
Sublease income |
|
|
(144 |
) |
|
|
(140 |
) |
|
|
(288 |
) |
|
|
(280 |
) |
|
Net lease cost |
|
$ |
1,544 |
|
|
$ |
879 |
|
|
$ |
3,064 |
|
|
$ |
1,653 |
|
Variable lease cost for the three and six months ended June 30, 2020 and 2019 primarily related to common area maintenance, taxes, utilities, insurance and parking associated with our operating leases. Short-term lease cost for the three and six months ended June 30, 2020 and 2019 was immaterial.
18
Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2020 and 2019 was approximately $0.9 million and $0.8 million, respectively. Cash paid for amounts included in the measurement of finance lease liabilities for the six months ended June 30, 2020 was approximately $1.4 million.
The following table presents supplemental balance sheet information related to our leases (in thousands):
|
|
|
As of June 30, 2020 |
|
|
As of December 31, 2019 |
|
||
|
Operating Leases |
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
$ |
15,015 |
|
|
$ |
7,364 |
|
|
Total operating lease right-of-use assets |
|
|
15,015 |
|
|
|
7,364 |
|
|
|
|
|
|
|
|
|
|
|
|
Current portion, operating lease liabilities |
|
|
1,650 |
|
|
|
1,347 |
|
|
Operating lease liabilities, net of current portion |
|
|
15,337 |
|
|
|
8,020 |
|
|
Total operating lease liabilities |
|
|
16,987 |
|
|
|
9,367 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
2,353 |
|
|
|
796 |
|
|
Total finance lease right-of-use assets |
|
|
2,353 |
|
|
|
796 |
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
|
701 |
|
|
|
148 |
|
|
Other long-term liabilities |
|
|
451 |
|
|
|
— |
|
|
Total finance lease liabilities |
|
$ |
1,152 |
|
|
$ |
148 |
|
Maturities of our lease liabilities as of June 30, 2020 were as follows (in thousands):
|
Year |
|
Operating Leases |
|
|
Finance leases |
|
|
Expected sublease receipts |
|
|
Net future lease commitments |
|
||||
|
Remainder of 2020 |
|
$ |
2,048 |
|
|
$ |
402 |
|
|
$ |
(289 |
) |
|
$ |
2,161 |
|
|
2021 |
|
|
4,344 |
|
|
|
804 |
|
|
|
|
|
|
|
5,148 |
|
|
2022 |
|
|
4,446 |
|
|
|
67 |
|
|
|
|
|
|
|
4,513 |
|
|
2023 |
|
|
4,008 |
|
|
|
|
|
|
|
|
|
|
|
4,008 |
|
|
2024 |
|
|
2,638 |
|
|
|
|
|
|
|
|
|
|
|
2,638 |
|
|
Thereafter |
|
|
12,366 |
|
|
|
|
|
|
|
|
|
|
|
12,366 |
|
|
Total |
|
$ |
29,850 |
|
|
$ |
1,273 |
|
|
$ |
(289 |
) |
|
$ |
30,834 |
|
|
Less imputed interest |
|
|
(12,863 |
) |
|
|
(121 |
) |
|
|
|
|
|
|
|
|
|
Present value of lease liabilities |
|
$ |
16,987 |
|
|
$ |
1,152 |
|
|
|
|
|
|
|
|
|
The weighted-average remaining lease terms and discount rates related to our operating and finance leases were as follows:
|
|
|
June 30, 2020 |
|
|||||
|
|
|
Operating |
|
|
Finance |
|
||
|
Weighted average remaining lease term (in years) |
|
|
7.3 |
|
|
|
1.6 |
|
|
Weighted average discount rate |
|
|
15.8 |
% |
|
|
12.3 |
% |
Note L – Equity
At the Market Offerings
During the three and six months ended June 30, 2020, we received net proceeds of approximately $19.9 million and $85.0 million from the sale of approximately 7.3 million and 32.0 million shares of our common stock at an average price per share of
19
approximately $2.82 and $2.74, respectively, in at-the-market offerings under our At Market Issuance Sales Agreement with B. Riley FBR, Inc. (“B. Riley”) dated May 11, 2019 (the “Prior Sales Agreement”).
Note M - Recent Accounting Pronouncements
Recently Issued and Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements of fair value measurements. Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis. We adopted the standard on January 1, 2020. The adoption did not have a material impact on our financial statement disclosures.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, Revenue from Contracts with Customers, (“ASC 606”) (“ASU 2018-18”). ASU 2018-18 (1) clarifies that certain transactions between collaborative arrangement participants should be accounted for under ASC 606, when the collaborative arrangement participant is a customer in the context of a unit of account, (2) adds unit-of-account guidance in ASC 808 to align with ASC 606 when an entity is assessing whether the collaborative arrangement, or a part of the arrangement, is within the scope of ASC 606, and (3) precludes presenting transactions together with revenue when those transactions involve collaborative arrangement participants that are not directly related to third parties and are not customers. We adopted the standard on January 1, 2020. The adoption did not have a material impact on our consolidated financial statements.
Recently Issued, Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) that will eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, an impairment charge will be based on the excess of a reporting unit’s carrying amount over its fair value. The guidance is effective for the Company in the first quarter of fiscal 2023. Early adoption is permitted. We do not anticipate the adoption of this guidance to have a material impact on our consolidated financial statements, absent any goodwill impairment.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 enhances and simplifies multiple aspects of the income tax accounting guidance in ASC 740. The standard will be effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of adoption of ASU 2019-12 on our consolidated financial statements.
No other new accounting pronouncement issued or effective during the six months ended June 30, 2020 had or is expected to have a material impact on our consolidated financial statements or disclosures.
Note M – Subsequent Events
Automatic Shelf Registration Statement on Form S-3ASR
On July 22, 2020, we filed an Automatic Shelf Registration Statement on Form S3-ASR (file no. 333-240006) (the “Registration Statement”). The Registration Statement included both a base prospectus that covered the potential offering, issuance and sale from time to time of common stock, preferred stock, warrants, debt securities and units of Agenus and a prospectus covering the offering, issuance and sale of up to 100 million shares of our common stock from time to time in “at-the-market offerings” pursuant to a new At Market Issuance Sales Agreement (the “New Sales Agreement”) entered into with B. Riley on July 22, 2020. Pursuant to the New Sales Agreement, sales will be made only upon instructions by us to B. Riley.
At the Market Offerings
During the period of July 1, 2020 through August 3, 2020, we received net proceeds of approximately $23.7 million from the sale of approximately 6.9 million shares of our common stock under both the Prior Sales Agreement and New Sales Agreement.
20
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward Looking Statements
This Quarterly Report on Form 10-Q and other written and oral statements we make from time to time contain certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). You can identify these forward-looking statements by the fact they use words such as “could,” “expect,” “anticipate,” “estimate,” “target,” “may,” “project,” “guidance,” “intend,” “plan,” “believe,” “will,” “potential,” “opportunity,” “future” and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements relate to, among other things, our business strategy, our research and development, our product development efforts, our ability to commercialize our product candidates, the activities of our licensees, our prospects for initiating partnerships or collaborations, the timing of the introduction of products, the effect of new accounting pronouncements, uncertainty regarding our future operating results and our profitability, anticipated sources of funds as well as our plans, objectives, expectations, and intentions.
We have included more detailed descriptions of these risks and uncertainties and other risks and uncertainties applicable to our business that we believe could cause actual results to differ materially from any forward-looking statements in Part II-Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. We encourage you to read those descriptions carefully. Although we believe we have been prudent in our plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved. We caution investors not to place significant reliance on forward-looking statements contained in this document; such statements need to be evaluated in light of all the information contained in this document. Furthermore, the statements speak only as of the date of this document, and we undertake no obligation to update or revise these statements.
ASV™, AgenTus™, Agenus™, AutoSynVax™, PSV™, PhosPhoSynVax™, Prophage™, Retrocyte Display™ and Stimulon™ are trademarks of Agenus Inc. and its subsidiaries. All rights reserved.
Overview
We are a clinical-stage immuno-oncology (“I-O”) company advancing an extensive pipeline of immune checkpoint antibodies, adoptive cell therapies and neoantigen vaccines, to fight cancer and infections. Our business is designed to drive success in I-O through speed, innovation and effective combination therapies. We believe that combination therapies and a deep understanding of each patient’s cancer will drive substantial expansion of the patient population benefiting from current I-O therapies. In addition to a diverse pipeline, we have assembled fully integrated end-to-end capabilities including novel target discovery, antibody generation, cell line development and good manufacturing practice manufacturing. We believe that these fully integrated capabilities enable us to produce novel candidates on timelines that are shorter than the industry standard. Leveraging our science and capabilities, we have forged important partnerships to advance our innovation.
We are developing a comprehensive I-O portfolio driven by the following platforms and programs, which we intend to utilize individually and in combination:
|
|
• |
our multiple antibody discovery platforms, including our proprietary display technologies, designed to drive the discovery of future CPM antibody candidates; |
|
|
• |
our antibody candidate programs, including our CPM programs; |
|
|
• |
our vaccine programs, including Prophage™, AutoSynVax™ and PhosPhoSynVax™; |
|
|
• |
our saponin-based vaccine adjuvants, principally our QS-21 Stimulon™ adjuvant, or QS-21 Stimulon; and |
|
|
• |
our cell therapy subsidiary, AgenTus Therapeutics, Inc. (“AgenTus Therapeutics”), which is designed to drive the discovery of future adoptive cell therapy, or “living drugs” programs. |
As a result of the COVID-19 pandemic, in March 2020, we streamlined our operations and repurposed certain of our research and development efforts to advance product candidates for the potential treatment of COVID-19, including certain agents from our existing clinical portfolio.
We assess development, commercialization and partnering strategies for each of our product candidates periodically based on several factors, including pre-clinical and clinical trial results, competitive positioning and funding requirements and resources. Our
21
most advanced antibody candidates are balstilimab (an anti-PD-1 antibody) and zalifrelimab (an anti-CTLA-4 antibody), which are currently in Phase 2 trials of balstilimab monotherapy and balstilimab/zalifrelimab combination for patients with second-line cervical cancer. Both of these trials are designed to support Biological License Application (“BLA”) filings under the U.S. Food and Drug Administration (“FDA”) accelerated approval pathway. We announced interim data from these trials in February and March 2020, and we expect to file our first BLA for balstilimab monotherapy by the end of 2020, with the BLA for our balstilimab/zalifrelimab combination to follow soon thereafter. In June 2020, we entered into a license and collaboration agreement (the “Betta License Agreement”) with Betta Pharmaceuticals Co., Ltd. (“Betta”), pursuant to which we granted Betta an exclusive license to develop, manufacture and commercialize balstilimab and zalifrelimab in Greater China. Under the terms of the Betta License Agreement, we received $15.0 million upfront and are eligible to receive up to $100.0 million in milestone payments plus royalties on any future sales in Greater China. In connection with this transaction, we also entered into a stock purchase agreement with Betta and a wholly-owned subsidiary of Betta (“Betta HK”), pursuant to which we agreed to sell to Betta HK 4,962,779 shares of Agenus common stock for $4.03 per share, or an aggregate purchase price of approximately $20.0 million. The closing under the stock purchase agreement occurred in July 2020.
We have formed additional collaborations with companies such as Gilead Sciences, Inc. (“Gilead”), Incyte Corporation (“Incyte”), Merck Sharpe & Dohme (“Merck”) and Recepta Biopharma SA (“Recepta”). Through these alliances, as well as our own internal programs, we currently have more than a dozen antibody programs in pre-clinical or clinical development.
Pursuant to our collaboration agreement with Incyte, we have exclusively licensed to Incyte monospecific antibodies targeting GITR, OX40, TIM-3 and LAG-3, which Incyte is currently advancing in various clinical trials, as well as an additional undisclosed target that Incyte is advancing in preclinical studies. Under the terms of our agreement, Incyte is responsible for all future development expenses, and we are eligible to receive up to an additional $500.0 million in potential milestone payments plus royalties on any future sales. Pursuant to our collaboration and license agreement with Merck, we exclusively licensed to Merck a monospecific antibody targeting ILT4, which Merck is advancing in a Phase 1 clinical trial. Under the terms of our agreement, Merck is responsible for all future development expenses, and we are eligible to receive up to an additional $95.0 million in potential milestone payments plus royalties on any future sales. In September 2018, we, through our wholly-owned subsidiary, Agenus Royalty Fund, LLC, entered into a royalty purchase agreement (the “XOMA Royalty Purchase Agreement”) with XOMA (US) LLC (“XOMA”). Pursuant to the terms of the XOMA Royalty Purchase Agreement, XOMA purchased 33% of all future royalties and 10% of all future milestone payments that we are entitled to receive from Incyte and Merck, net of certain of our obligations to a third party. After taking into account our obligations under the XOMA Royalty Purchase Agreement, as of June 30, 2020, we remain eligible to receive up to $450.0 million and $85.5 million in potential development, regulatory and commercial milestones from Incyte and Merck, respectively.
In December 2018, we entered into a series of agreements with Gilead to collaborate on the development and commercialization of up to five novel I-O therapies (the “Gilead Collaboration Agreements”). Pursuant to the Gilead Collaboration Agreements, Gilead received worldwide exclusive rights to our bispecific antibody, AGEN1423 (now GS-1423), as well as the exclusive option to exclusively license AGEN1223, a bispecific antibody, and AGEN2373, a monospecific antibody. We filed INDs for each of AGEN1423 (now GS-1423), AGEN1223 and AGEN2373 in 2019, and all three assets are now in clinical development. We are responsible for developing the option programs up to the option decision points, at which time Gilead may acquire exclusive rights to the programs on option exercise. For either, but not both, of the option programs, we have the right to opt-in to share Gilead’s development and commercialization costs in the United States in exchange for a profit (loss) share on a 50:50 basis and revised milestone payments. Gilead also received the right of first negotiation for two additional, undisclosed programs. Pursuant to the terms of the Gilead Collaboration Agreements, we are eligible to receive up to an additional $1.7 billion in aggregate potential fees and milestones, as well as royalties on any future sales.
Our QS-21 Stimulon adjuvant is partnered with GlaxoSmithKline (“GSK”) and is a key component in multiple GSK vaccine programs. These programs are in various stages, with the most advanced being GSK’s shingles vaccine, Shingrix. In October 2017, GSK’s shingles vaccine was approved in the United States by the FDA. In January 2018, we entered into a Royalty Purchase Agreement with Healthcare Royalty Partners III, L.P. and certain of its affiliates (together, “HCR”), pursuant to which HCR purchased 100% of our worldwide rights to receive royalties from GSK on GSK’s sales of vaccines containing our QS-21 Stimulon adjuvant. We do not incur clinical development costs for products partnered with GSK. We were also entitled to receive up to $40.35 million in milestone payments from HCR based on sales of GSK’s vaccines as follows: (i) $15.1 million upon reaching $2.0 billion last-twelve-months net sales any time prior to 2024 (the “First HCR Milestone”) and (ii) $25.25 million upon reaching $2.75 billion last-twelve-months net sales any time prior to 2026 (the “Second HCR Milestone”). We received the First HCR Milestone after GSK’s net sales of Shingrix for the twelve months ended December 31, 2019 exceeded $2.0 billion, and we remain eligible to receive the Second HCR Milestone.
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Our business activities include product research and development, intellectual property prosecution, manufacturing, regulatory and clinical affairs, corporate finance and development activities, and support of our collaborations. Our product candidates require clinical trials and approvals from regulatory agencies, as well as acceptance in the marketplace. Part of our strategy is to develop and commercialize some of our product candidates by continuing our existing arrangements with academic and corporate collaborators and licensees and by entering into new collaborations.
In October 2017, we announced the launch of a subsidiary that is advancing our cell therapy business, AgenTus Therapeutics. AgenTus Therapeutics is focused on the discovery, development, and commercialization of breakthrough “living drugs” to advance cures for cancer patients, currently advancing allogeneic cell therapies that include unmodified iNKT cells. AgenTus Therapeutics licenses intellectual property assets from Agenus and has its own management and governance.
Historical Results of Operations
Three months ended June 30, 2020 compared to the three months ended June 30, 2019
Research and development revenue
We recognized research and development revenue of approximately $18.1 million and $4.4 million during the three months ended June 30, 2020 and 2019, respectively. Research and development revenues in the second quarter of 2020 primarily consisted of $4.0 million related to the recognition of deferred revenue earned under our Gilead Collaboration Agreements and $13.9 million related to the recognition of an upfront fee under our Betta License Agreement. Research and development revenues in the second quarter of 2019 primarily consisted of $3.8 million related to the recognition of deferred revenue earned under our Gilead Collaboration Agreement. During the three months ended June 30, 2020 and 2019, we recorded revenue of $4.0 million and $3.9 million, respectively, from the amortization of deferred revenue.
Non-cash royalty revenue related to the sale of future royalties
In January 2018, we sold 100% of our worldwide rights to receive royalties from GSK on sales of GSK’s vaccines containing our QS-21 Stimulon adjuvant to HCR. As described in Note F to our Condensed Consolidated Financial Statements, this transaction has been recorded as a liability that amortizes over the estimated life of our Royalty Purchase Agreement with HCR. As a result of this liability accounting, even though the royalties are remitted directly to HCR, we record these royalties from GSK as revenue. During the three months ended June 30, 2020 and 2019, we recognized approximately $7.8 million and $9.3 million, respectively, in non-cash royalty revenue related to our agreement with GSK.
Research and development expense
Research and development expense includes the costs associated with our internal research and development activities, including compensation and benefits, occupancy costs, manufacturing costs, costs of consultants, and administrative costs. Research and development expense decreased 15% to $38.6 million for the three months ended June 30, 2020 from $45.2 million for the three months ended June 30, 2019. Decreased expenses in the three months ended June 30, 2020 primarily relate to a $5.5 million decrease in third-party services and other related expenses largely due to the timing of expenses related to the advancement of our antibody programs and a $1.9 million decrease in expenses attributable to the activities of our subsidiaries, AgenTus Therapeutics and Agenus UK Limited. These decreases were partially offset by a $0.6 million increase in other research and development expenses.
General and administrative expense
General and administrative expense consists primarily of personnel costs, facility expenses, and professional fees. General and administrative expenses increased 24% to $14.2 million for the three months ended June 30, 2020 from $11.4 million for the three months ended June 30, 2019. Increased expenses in the three months ended June 30, 2020 primarily relate to a $1.6 million increase in professional fees, a $0.5 million increase in expenses attributable to the activities of our subsidiaries and a $0.6 million increase in other general and administrative expenses.
Contingent purchase price consideration fair value adjustment
Contingent purchase price consideration fair value adjustment represents the change in the fair value of our purchase price considerations, which mainly resulted from changes in our market capitalization and share price and changes in the credit spread since each year end. The fair value of our contingent purchase price considerations is mainly based on estimates from a Monte Carlo simulation of our market capitalization and share price.
Non-operating expense
Non-operating expense includes our foreign currency translation adjustment and other income or expense. Non-operating expense decreased $0.6 million for the three months ended June 30, 2020, from $0.9 million for the three months ended June 30, 2019
23
to $0.3 million for the three months ended June 30, 2020, primarily due to decreased foreign currency exchange losses in the second quarter of 2020 compared to the second quarter of 2019.
Interest expense, net
Interest expense, net increased to approximately $14.6 million for the three months ended June 30, 2020 from $9.8 million for the three months ended June 30, 2019, due to increased non-cash interest recorded in connection with our Royalty Purchase Agreement with HCR.
Six months ended June 30, 2020 compared to the six months ended June 30, 2019
Research and development revenue
We recognized research and development revenue of approximately $20.0 million and $75.3 million during the six months ended June 30, 2020 and 2019, respectively. Research and development revenues in the first half of 2020 primarily consisted of $5.8 million related to the recognition of deferred revenue earned under our Gilead Collaboration Agreements and $13.9 million related to the recognition of an upfront fee under our Betta License Agreement. Research and development revenues in the first half of 2019 primarily consisted of amounts earned under our Gilead Collaboration Agreement, including $65.5 million related to the recognition of an upfront license fee and $8.6 million related to the recognition of deferred revenue earned. During the six months ended June 30, 2020 and 2019, we recorded revenue of $5.8 million and $8.9 million, respectively, from the amortization of deferred revenue.
Non-cash royalty revenue related to the sale of future royalties
In January 2018, we sold 100% of our worldwide rights to receive royalties from GSK on sales of GSK’s vaccines containing our QS-21 Stimulon adjuvant to HCR. As described in Note F to our Condensed Consolidated Financial Statements, this transaction has been recorded as a liability that amortizes over the estimated life of our Royalty Purchase Agreement with HCR. As a result of this liability accounting, even though the royalties are remitted directly to HCR, we will record these royalties from GSK as revenue. During the six months ended June 30, 2020 and 2019, we recognized approximately $21.0 million and $17.9 million, respectively, in non-cash royalty revenue related to our agreement with GSK.
Research and development expense
Research and development expense includes the costs associated with our internal research and development activities, including compensation and benefits, occupancy costs, manufacturing costs, costs of consultants, and administrative costs. Research and development expense decreased 12% to $74.9 million for the six months ended June 30, 2020 from $85.4 million for the six months ended June 30, 2019. Decreased expenses in the six months ended June 30, 2020 primarily relate to a $11.6 million decrease in third-party services and other related expenses largely due to the timing of expenses related to the advancement of our antibody programs and a $2.1 million decrease in expenses attributable to the activities of our subsidiaries, AgenTus Therapeutics and Agenus UK Limited. These decreases were partially offset by a $2.0 million increase in personnel related expenses, primarily due to increased headcount and a $1.2 million increase in other research and development expenses.
General and administrative expense
General and administrative expense consists primarily of personnel costs, facility expenses, and professional fees. General and administrative expenses increased 12% to $24.8 million for the six months ended June 30, 2020 from $22.2 million for the six months ended June 30, 2019. Increased expenses in the six months ended June 30, 2020 primarily relate to a $1.1 million increase in professional fees, a $0.5 million increase in personnel related expenses, primarily due to increased share-based compensation expense and a $1.1 million increase in other general and administrative expenses.
Contingent purchase price consideration fair value adjustment
Contingent purchase price consideration fair value adjustment represents the change in the fair value of our purchase price considerations, which mainly resulted from changes in our market capitalization and share price and changes in the credit spread since each year end. The fair value of our contingent purchase price considerations is mainly based on estimates from a Monte Carlo simulation of our market capitalization and share price.
Non-operating expense
Non-operating expense includes our foreign currency translation adjustment and other income or expense. Non-operating expense increased $0.8 million for the six months ended June 30, 2020, from $0.6 million for the six months ended June 30, 2019 to $1.4 million for the six months ended June 30, 2020, primarily due to our increased foreign currency exchange losses in the first half of 2020 compared to the first half of 2019.
Interest expense, net:
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Interest expense, net increased to approximately $28.7 million for the six months ended June 30, 2020 from $18.9 million for the six months ended June 30, 2019, due to increased non-cash interest recorded in connection with our Royalty Purchase Agreement with HCR.
Research and Development Programs
For the six months ended June 30, 2020, our research and development programs consisted largely of our antibody programs as indicated in the following table (in thousands).
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Six Months Ended June 30, |
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Year Ended December 31, |
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||||||||||
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Research and Development Program |
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Product |
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2020 |
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|
2019 |
|
|
2018 |
|
|
2017 |
|
|
Prior to 2017 |
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Total |
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||||||
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Antibody programs* |
|
Various |
|
$ |
59,677 |
|
|
$ |
126,400 |
|
|
$ |
97,011 |
|
|
$ |
95,656 |
|
|
$ |
160,632 |
|
|
$ |
539,376 |
|
|
Heat shock proteins for cancer |
|
Prophage and ASV |
|
|
1,917 |
|
|
|
13,235 |
|
|
|
13,235 |
|
|
|
12,499 |
|
|
|
323,391 |
|
|
|
364,277 |
|
|
Vaccine adjuvant |
|
QS-21 Stimulon |
|
|
90 |
|
|
|
872 |
|
|
|
211 |
|
|
|
222 |
|
|
|
13,876 |
|
|
|
15,271 |
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|
Adoptive cell therapies and other research and development programs |
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Various |
|
|
13,229 |
|
|
|
27,832 |
|
|
|
14,143 |
|
|
|
7,748 |
|
|
|
70,594 |
|
|
|
133,546 |
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Total research and development expenses |
|
|
|
$ |
74,913 |
|
|
$ |
168,339 |
|
|
$ |
124,600 |
|
|
$ |
116,125 |
|
|
$ |
568,493 |
|
|
$ |
1,052,470 |
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* |
Prior to 2014, costs were incurred by 4-AB, which we acquired in February 2014. |
Research and development program costs include compensation and other direct costs plus an allocation of indirect costs, based on certain assumptions and our review of the status of each program. Our product candidates are in various stages of development and significant additional expenditures will be required if we start new clinical trials, encounter delays in our programs, apply for regulatory approvals, continue development of our technologies, expand our operations, and/or bring our product candidates to market. The total cost of any particular clinical trial is dependent on a number of factors such as trial design, length of the trial, number of clinical sites, number of patients, and trial sponsorship. The process of obtaining and maintaining regulatory approvals for new therapeutic products is lengthy, expensive, and uncertain. Because of the current stage of our product candidates, among other factors, we are unable to reliably estimate the cost of completing our research and development programs or the timing for bringing such programs to various markets or substantial partnering or out-licensing arrangements, and, therefore, when, if ever, material cash inflows are likely to commence. Active programs involving QS-21 Stimulon depend on our licensee successfully completing clinical trials, successfully manufacturing QS-21 Stimulon to meet demand, obtaining regulatory approvals and successfully commercializing product candidates containing QS-21 Stimulon.
Liquidity and Capital Resources
We have incurred annual operating losses since inception, and we had an accumulated deficit of $1.4 billion as of June 30, 2020. We expect to incur significant losses over the next several years as we continue development of our technologies and product candidates, manage our regulatory processes, initiate and continue clinical trials, and prepare for potential commercialization of products. To date, we have financed our operations primarily through the sale of equity and debt securities, and interest income earned on cash, cash equivalents, and short-term investment balances. From our inception through June 30, 2020, we have raised aggregate net proceeds of approximately $1.3 billion through the sale of common and preferred stock, the exercise of stock options and warrants, proceeds from our Employee Stock Purchase Plan, royalty monetization transactions, and the issuance of convertible and other notes.
We maintain an effective registration statement (the “Registration Statement”), covering an unlimited amount of common stock, preferred stock, warrants, debt securities and units. The Registration Statement includes prospectuses covering the offer, issuance and sale of up to 100 million shares of our common stock from time to time in “at-the-market offerings” pursuant to an At Market Issuance Sales Agreement (the “New Sales Agreement”) with B. Riley FBR, Inc. as our sales agent. We sold approximately 32.0 million and 6.9 million shares of our common stock pursuant to both a prior At Market Issuance Sales Agreement with B. Riley FBR, Inc. and the New Sales Agreement during the six months ended June 30, 2020 and the period of July 1, 2020 through August 3, 2020, respectively, and received aggregate net proceeds totaling $108.7 million. As of August 3, 2020, we had approximately 94.4 million shares that remained available for sale under the New Sales Agreement.
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As of June 30, 2020, we had debt outstanding of $20.7 million in principal. In February 2015, we issued subordinated notes in the aggregate principal amount of $14.0 million with annual interest at 8% (the “2015 Subordinated Notes”). In February 2020, we amended $13.5 million of the 2015 Subordinated Notes, extending the due date by three years to February 2023. The remaining $0.5 million of the 2015 Subordinated Notes were repaid in February 2020. In April 2020, we repaid an additional $0.5 million of the 2015 Subordinated Notes, leaving $13.0 million outstanding. In May 2020, we received $6.2 million under the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) which is classified as debt in our condensed consolidated balance sheet we cannot yet determine if the amount will be partially or fully forgiven.
Our cash and cash equivalents at June 30, 2020 were $79.2 million, an increase of $17.4 million from December 31, 2019.
During the past five years, we have successfully financed our operations through the sale of equity, notes, corporate partnerships and advance royalty sales. Based on our current plans and projections, we believe that our cash resources of $79.2 million as of June 30, 2020, combined with proceeds from financing transactions already completed in the third quarter of 2020, along with cash expected to be received from corporate transactions and milestones, will be sufficient to satisfy our liquidity requirements into the third quarter of 2021; we are presently in financing, partnership, and out licensing discussions which, if consummated, could extend our cash resources further into and beyond next year. Until we are successful in our efforts for capital infusion through these transactions or other financing options, and because the completion of such transactions is not entirely within our control, in accordance with accounting guidance we are required to disclose that substantial doubt exists about our ability to continue as a going concern for a period of one year after the date of filing of this Quarterly Report on Form 10-Q.
Management continues to address the Company’s liquidity position and will adjust spending as needed in order to preserve liquidity. In March 2020, in response to the COVID-19 pandemic, we streamlined our organization, which included a headcount reduction and the slowing down of several non-priority programs and our CEO, Dr. Garo Armen, also elected to receive his base salary in stock rather than cash for the remainder of 2020. We also continue to monitor the likelihood of success of our key initiatives and have a plan to discontinue funding of such activities if they do not prove to be successful, or further restrict funding of non-core programs, restrict capital expenditures and/or reduce the scale of our operations as necessary to ensure sufficient cash resources into the third quarter of 2021. Our future liquidity needs will be determined primarily by the success of our operations with respect to the progression of our product candidates and key development and regulatory events in the future. Potential sources of additional funding include: (1) pursuing collaboration, out-licensing and/or partnering opportunities for our portfolio programs and product candidates with one or more third parties, (2) renegotiating third party agreements, (3) selling assets, (4) securing additional debt financing and/or (5) selling equity securities.
Our future cash requirements include, but are not limited to, supporting clinical trial and regulatory efforts and continuing our other research and development programs. Since inception, we have entered into various agreements with contract manufacturers, institutions, and clinical research organizations (collectively “third party providers”) to perform pre-clinical activities and to conduct and monitor our clinical studies and trials. Under these agreements, subject to the enrollment of patients and performance by the applicable third-party provider, we have estimated our total payments to be $352.3 million over the term of the related activities. Through June 30, 2020, we have expensed $287.7 million as research and development expenses and $271.4 million has been paid under these agreements. The timing of expense recognition and future payments related to these agreements is subject to the enrollment of patients and performance by the applicable third-party provider. We have also entered into sponsored research agreements related to our product candidates that required payments of $10.0 million, of which $9.0 million have been paid as of June 30, 2020. We plan to enter into additional agreements with third party providers as well as sponsored research agreements, and we anticipate significant additional expenditures will be required to initiate and advance our various programs.
Part of our strategy is to develop and commercialize some of our product candidates by continuing our existing collaboration arrangements with academic and collaboration partners and licensees and by entering into new collaborations. As a result of our collaboration agreements, we will not completely control the efforts to attempt to bring those product candidates to market. For example, our collaboration with Incyte for the development, manufacture and commercialization of CPM antibodies against certain targets is managed by a joint steering committee, which is controlled by Incyte.
Net cash (used in) provided by operating activities for the six months ended June 30, 2020 and 2019 was ($71.9) million and $40.9 million, respectively. Our future ability to generate cash from operations will depend on achieving regulatory approval and market acceptance of our product candidates, achieving benchmarks as defined in existing collaboration agreements, and our ability to enter into new collaborations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward Looking Statements” in Part I, Item 2, and the risks highlighted under Part II, Item 1A. “Risk Factors”, of this Quarterly Report on Form 10-Q.
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Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2020.
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Our primary market risk exposure is foreign currency exchange rate risk. International revenues and expenses are generally transacted by our foreign subsidiaries and are denominated in local currency. Approximately 1% and 2% of our cash used in operations for the six months ended June 30, 2020 and the year ended December 31, 2019, respectively, was from our foreign subsidiaries. We are also exposed to foreign currency exchange rate fluctuation risk related to our transactions denominated in foreign currencies. We do not currently employ specific strategies, such as the use of derivative instruments or hedging, to manage these exposures. Our currency exposures vary but are primarily concentrated in the Euro, Swiss Franc and British Pound, in large part due to our subsidiaries, AgenTus Therapeutics SA, which formerly had operations in Belgium, Agenus Switzerland which formerly had operations in Switzerland, and Agenus UK Limited, with operations in England. There has been no material change to our interest rate exposure and our approach toward interest rate and foreign currency exchange rate exposures, as described in our Annual Report on Form 10-K for the year ended December 31, 2019.
We had cash and cash equivalents at June 30, 2020 of $79.2 million, which are exposed to the impact of interest rate changes, and our interest income fluctuates as interest rates change. Additionally, in the normal course of business, we are exposed to fluctuations in interest rates as we seek debt financing and invest excess cash. Due to the short-term nature of our investments in money market funds and U.S. Treasury Bills, our carrying value approximates the fair value of these investments at June 30, 2020.
We invest our cash and cash equivalents in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs, and maximize yields. We review our investment policy annually and amend it as deemed necessary. Currently, the investment policy prohibits investing in any structured investment vehicles and asset-backed commercial paper. Although our investments are subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer, or type of investment. We do not invest in derivative financial instruments. Accordingly, we do not believe that there is currently any material market risk exposure with respect to derivatives or other financial instruments that would require disclosure under this item.
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Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and our Principal Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective and were designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. It should be noted that any system of controls is designed to provide reasonable, but not absolute, assurances that the system will achieve its stated goals under all reasonably foreseeable circumstances. Our Principal Executive Officer and Principal Financial Officer have each concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective at a level that provides such reasonable assurances.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
27
PART II - OTHER INFORMATION
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Item 1A. |
Risk Factors |
Our future operating results could differ materially from the results described in this Quarterly Report on Form 10-Q due to the risks and uncertainties described below. You should consider carefully the following information about risks below in evaluating our business. If any of the following risks actually occur, our business, financial conditions, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock would likely decline. These risk factors restate and supersede the risk factors set forth under the heading “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on May 11, 2020.
We cannot assure investors that our assumptions and expectations will prove to be correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. See “Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Factors that could cause or contribute to such differences include those factors discussed below.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.
Investment in I-O product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception. Our net losses for the years ended December 31, 2019, 2018, and 2017, were $111.6 million, $162.0 million and $120.7 million, respectively. During the six months ended June 30, 2020, we generated a net loss of $93.5 million. We expect to incur significant losses for the foreseeable future as we continue our research and development efforts, seek regulatory approvals, and begin commercial readiness efforts for our product candidates. We anticipate that our expenses will increase substantially if, and as, we:
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• |
conduct clinical trials for our product candidates; |
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• |
further develop our antibody programs and platforms, our vaccine programs, and our saponin-based vaccine adjuvants; |
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• |
continue to discover and develop additional product candidates; |
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• |
maintain, expand and protect our intellectual property portfolio; |
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• |
hire additional clinical, scientific manufacturing and commercial personnel; |
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• |
expand in-house manufacturing capabilities; |
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• |
establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval; |
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• |
acquire or in-license other product candidates and technologies; |
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• |
seek regulatory approvals for any product candidates that successfully complete clinical trials; |
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• |
establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval; and |
28
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• |
add operational, regulatory, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as any additional infrastructure necessary to function as a public company. |
To become profitable, we or any current or potential future licensees and collaboration partners must develop and eventually commercialize products with significant market potential at an adequate profit margin after cost of goods sold and other expenses. This will require us to be successful in a range of challenging activities, including completing clinical trials, obtaining marketing approval for product candidates, obtaining adequate reimbursement for product candidates, manufacturing, marketing and selling products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenue that is significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause our stockholders to lose all or part of their investment.
Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
Furthermore, our ability to generate cash from operations is dependent on the success of our licensees and collaboration partners, as well as the likelihood and timing of new strategic licensing and partnering relationships and/or successful development and commercialization of product candidates, including through our antibody programs and platforms, our vaccine programs, and our saponin-based vaccine adjuvants.
We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we will not be able to complete the development and commercialization of our product candidates.
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to conduct further research and development and preclinical or nonclinical testing and studies and clinical trials of our current and future programs, to build a supply chain, to seek regulatory approvals for our product candidates and to launch and commercialize any products for which we receive regulatory approval, including building our own commercial organization. To date, we have financed our operations primarily through the sale of equity, assets, notes, corporate partnerships and interest income. In order to finance future operations, we will be required to raise additional funds in the capital markets, through arrangements with collaboration partners or from other sources.
As of June 30, 2020, we had $79.2 million of cash and cash equivalents. Based on our current plans and projections, we believe that our cash resources as of June 30, 2020, combined with proceeds from financing transactions already completed in the third quarter of 2020, along with cash expected to be received from corporate transactions and milestones, will be sufficient to satisfy our liquidity requirements into the third quarter of 2021; we are presently in financing, partnership, and out licensing discussions which, if consummated, could extend our cash resources further into and beyond next year. However, our future capital requirements and the period for which our existing resources will support our operations may vary significantly from what we expect, and we will in any event require additional capital in order to complete clinical development of our current programs. Our monthly spending levels will vary based on new and ongoing development and corporate activities. Because the length of time and activities associated with development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
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the initiation, progress, timing, costs and results of preclinical or nonclinical testing and studies and clinical trials for our product candidates; |
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the clinical development plans we establish for our product candidates; |
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the number and characteristics of future product candidates that we develop or may in-license; |
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our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such arrangements; |
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the timing, receipt and amount of sales of, or royalties on, our future products and those of our partners, if any; |
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the outcome, timing and cost of meeting regulatory requirements established by the FDA, the European Medicines Agency (the “EMA”) and other comparable foreign regulatory authorities; |
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the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; |
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the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates; |
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the effect of competing technological and market developments; |
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the costs of establishing and maintaining a supply chain for the development and manufacture of our product candidates; |
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the cost and timing of establishing, expanding and scaling manufacturing capabilities; and |
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the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own. |
We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product or royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products or product candidates or one or more of our other research and development initiatives. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline and we may become insolvent.
From time to time we have issued, and in the future expect to issue, projections regarding our future cash position. Such projections include the expectation that we will be able to raise additional funds from the aforementioned sources and our ability to do so is subject to the risks described herein.
General economic conditions in the United States and abroad, whether as a result of a public health crisis, such as COVID-19, the 2020 U.S. presidential election or otherwise, may have a material adverse effect on our liquidity and financial condition, particularly if our ability to raise additional funds is impaired.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect their rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms unfavorable to us. We also could be required to seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves.
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The nature and length of our operating history may make it difficult to evaluate our technology and product development capabilities and predict our future performance.
We have no products approved for commercial sale and have not generated any revenue from product sales. Our ability to generate product revenue or profits, which we do not expect will occur before 2021, if ever, will depend on the successful development and eventual commercialization of our product candidates, which may never occur. We may never be able to develop or commercialize a marketable product.
All of our programs require additional pre-clinical or clinical research and development, manufacturing supply, capacity and/or expertise, building of a commercial organization, substantial investment and/or significant marketing efforts before we generate any revenue from potential product sales. Other programs of ours require additional discovery research and then preclinical development. In addition, our product candidates must be approved for marketing by the FDA or certain other health regulatory agencies, including the EMA, before we may commercialize any product.
Our operating history, particularly in light of the rapidly evolving I-O field, may make it difficult to evaluate our technology and industry and predict our future performance. We will encounter risks and difficulties frequently experienced by clinical stage companies in rapidly evolving fields. If we do not address these risks successfully, our business will suffer. Similarly, we expect that our financial condition and operating results will fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. As a result, our stockholders should not rely upon the results of any quarterly or annual period as an indicator of future operating performance.
In addition, as a clinical stage company, we have encountered unforeseen expenses, difficulties, complications, delays and other known and unknown circumstances. As we advance our product candidates, we will need to transition from a company with a research and clinical focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
Global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability, and these adverse market and economic conditions have increased as a result of the COVID-19 pandemic. The scope, duration and long-term impact of the COVID-19 pandemic are unknown at this time, so there can be no assurance how significant the deterioration in credit and financial markets and confidence in economic conditions will be and how long it may continue. Our general business strategy 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 continue to deteriorate, or do not improve, 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 our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.
As of June 30, 2020, we had cash and cash equivalents of $79.2 million. While we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents and investments since June 30, 2020, no assurance can be given that further deterioration of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives. Furthermore, our stock price may decline due in part to the volatility of the stock market and any general economic downturn.
Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements, and it is possible that such report on our financial statements may include such an explanation again in the future.
We believe we have sufficient capital to fund our operations into the third quarter of 2021. Going forward, if we are unable to obtain sufficient funding to support our operations, we could be forced to delay, reduce or eliminate all of our research and development programs, product portfolio expansion or commercialization efforts, and our financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. In the future, reports from our independent registered public accounting firm may also contain statements expressing substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt
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about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms, if at all.
Our obligations to the holders of our promissory notes could materially and adversely affect our liquidity.
In February 2015, we issued senior subordinated promissory notes in the aggregate principal amount of $14.0 million, of which $13.0 million remains outstanding, with annual interest of 8% (the “2015 Subordinated Notes”). The 2015 Subordinated Notes were previously due February 20, 2020, and in February 2020, we amended the 2015 Subordinate Notes to extend the maturity date to February 20, 2023. The 2015 Subordinated Notes include default provisions that allow for the acceleration of the principal payment of the 2015 Subordinated Notes in the event we become involved in certain bankruptcy proceedings, become insolvent, fail to make a payment of principal or (after a grace period) interest on the 2015 Subordinated Notes, default on other indebtedness with an aggregate principal balance of $13.0 million or more if such default has the effect of accelerating the maturity of such indebtedness, or become subject to a legal judgment or similar order for the payment of money in an amount greater than $13.0 million if such amount will not be covered by third-party insurance. If we default on the 2015 Subordinated Notes and the repayment of such indebtedness is accelerated, our liquidity could be materially and adversely affected.
In May 2020, we issued promissory notes in the aggregate principal amount of approximately $6.2 million (“PPP Loan”) pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”). Under the current terms of the CARES Act, our PPP Loan is eligible for forgiveness if the proceeds are used for covered payroll costs, rent and utilities during the 8 to 24-week period immediately following receipt of the proceeds. However, the CARES Act regulations are still being written, and the interim regulations have been revised multiple times since they were initially published in March 2020. Our PPP Loan may not qualify for forgiveness under the final regulations of the CARES Act, and we may be required to repay the PPP Loan in full, with interest.
If we do not have sufficient cash on hand to service or repay our 2015 Subordinated Notes or PPP Loan, we may be required to raise additional capital which entails the risks described herein.
Risks Related to the Development of Our Product Candidates
Our business is highly dependent on the success of our balstilimab and zalifrelimab programs targeting second-line cervical cancer, which still require significant additional clinical development.
Our business and future success depends in large part on our ability to obtain regulatory approval of, and then successfully launch and commercialize, our initial product candidates targeting cervical cancer.
Our anti-PD-1 and anti-CTLA-4 programs (balstilimab and zalifrelimab, respectively) are in Phase 2 expansion trials with both balstilimab monotherapy and balstilimab/zalifrelimab combination trials for patients with second-line cervical cancer that are designed to support BLA filings under the FDA’s accelerated approval pathway. We expect to file our first BLA for balstilimab monotherapy by the end of 2020, with the BLA for our balstilimab/zalifrelimab combination to follow soon thereafter. If approved, we intend to commercialize these assets by the end of 2021. These timelines are aggressive and subject to various factors outside of our control, including regulatory review and approval. In order to file a BLA and seek accelerated approval, we must launch a confirmatory trial and have it be substantially underway at the time of BLA submission. We have initiated a trial intended to satisfy this requirement, but there is no guarantee that the FDA will consider it to be substantially underway at the time of BLA submission, and the COVID-19 pandemic may prevent us from doing so on our planned timeline. There is no guarantee that we will be able to file a BLA in 2020, if at all, or that we will be able to commercialize these assets in 2021 even if we receive approval. If our anti-PD-1 and anti-CTLA-4 programs encounter safety, efficacy, supply or manufacturing problems, developmental delays, regulatory or commercialization issues or other problems, our development plans and business would be significantly harmed.
Even though we have observed positive results to date, they may not necessarily be predictive of the final results of the trials or future clinical trials or otherwise be sufficient to support an accelerated approval. Many companies in the pharmaceutical, biopharmaceutical and biotechnology industries have suffered significant setbacks in clinical trials after achieving positive results, and we cannot be certain that we will not face similar setbacks.
All of our other product candidates are in earlier stages of development and will require additional nonclinical and clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales.
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The successful development of immune modulating antibodies, including our balstilimab and zalifrelimab programs, is highly uncertain.
Successful development of immune modulating antibodies, such as our balstilimab and zalifrelimab programs, is highly uncertain and is dependent on numerous factors, many of which are beyond our control. Immune modulating antibodies that appear promising in the early phases of development may fail to reach, or remain in, the market for several reasons, including:
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clinical trial results may show our candidates to be less effective than expected (e.g., a clinical trial could fail to meet its primary endpoint(s)) or to have unacceptable side effects, toxicities or other negative consequences; |
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failure to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, such delays may be caused by slow enrollment in clinical trials, patients dropping out of trials, length of time to achieve trial endpoints, additional time requirements for data analysis, or BLA preparation, discussions with the FDA, an FDA request for additional nonclinical or clinical data, or unexpected safety or manufacturing issues; |
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manufacturing costs, formulation issues, pricing or reimbursement issues, or other factors that make the candidates uneconomical; |
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proprietary rights of others and their competing products and technologies that may prevent our candidates from being commercialized; and |
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failure to initiate or successfully complete confirmation trials for candidates that receive accelerated approval. |
The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority may be difficult to predict for immune modulating antibodies.
Even if we are successful in obtaining market approval, commercial success of any approved products will also depend in large part on the availability of insurance coverage and adequate reimbursement from third-party payors, including government payors, such as the Medicare and Medicaid programs, and managed care organizations, which may be affected by existing and future healthcare reform measures designed to reduce the cost of healthcare. Third-party payors may limit the definition of the target treatment population to one smaller than that implied in the label granted by regulatory authorities, and could require us to conduct additional studies, including post-marketing studies related to the cost-effectiveness of a product, to qualify for reimbursement, which could be costly and divert our resources. If government and other healthcare payors were not to provide adequate insurance coverage and reimbursement levels for one any of our products once approved, market acceptance and commercial success would be reduced.
In addition, if any of our products are approved for marketing, we will be subject to significant regulatory obligations regarding the submission of safety and other post-marketing information and reports and registration, and will need to continue to comply (or ensure that our third-party providers comply) with cGMPs and good clinical practices (“GCPs”), for any clinical trials that we conduct post-approval. In addition, there is always the risk that we or a regulatory authority might identify previously unknown problems with a product post-approval, such as adverse events of unanticipated severity or frequency. Compliance with these requirements is costly and any failure to comply or other issues with our product candidates’ post-approval could have a material adverse effect on our business, financial condition and results of operations.
Interim top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim top-line or preliminary data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. In February and March 2020, we reported positive interim data from our lead trials of balstilimab and zalifrelimab. These results may not be indicative of the final results from the study, and the final results may not support a marketing approval. There is no guarantee that either balstilimab monotherapy or balstilimab/zalifrelimab combination therapy will receive marketing approval in any jurisdiction, and failure to achieve marketing approval for either of these programs could have a material adverse impact on our business. Any adverse differences between preliminary or interim data and final data could significantly harm our business prospects.
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Preclinical development is uncertain. Some of our antibody programs are in early stage development that may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.
Several of our proprietary antibody programs are currently in early stage development, and many of our antibody programs are pre-clinical. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin.
Our clinical trials or those of our current and future collaborators may reveal significant adverse events not seen in our preclinical or nonclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.
Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through potentially lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication. Failure can occur at any time during the clinical trial process.
Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through nonclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products and there can be no assurance that any of our current or future clinical trials will ultimately be successful or support further clinical development of any of our product candidates.
We intend to develop our existing antibody candidates, and may develop future product candidates, alone and in combination with one or more additional cancer therapies. The uncertainty resulting from the use of our product candidates in combination with other cancer therapies may make it difficult to accurately predict side effects in future clinical trials.
If significant adverse events or other side effects are observed in any of our current or future clinical trials, we may have difficulty recruiting patients to our clinical trials, patients may drop out of our trials, or we may be required to abandon the trials or our development efforts of one or more product candidates altogether. We, the FDA or other applicable regulatory authorities, or an institutional review board may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the drug from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of any approved product due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition and prospects.
Positive results from preclinical and clinical studies of our product candidates are not necessarily predictive of the results of later preclinical studies and any future clinical trials of our product candidates. If we cannot replicate the positive results from our earlier studies of our product candidates in our later studies and future clinical trials, we may be unable to successfully develop, obtain regulatory for and commercialize our product candidates.
Any positive results from our preclinical studies of our product candidates may not necessarily be predictive of the results from required later preclinical studies and clinical trials. Similarly, even if we are able to complete our planned preclinical studies or any future clinical trials of our product candidates according to our current development timeline, the positive results from such preclinical studies and clinical trials of our product candidates may not be replicated in subsequent preclinical studies or clinical trial results. Moreover, positive results observed in interim data may not necessarily be predictive of the results from final, more mature data.
For example, in 2018 we presented early data on our balstilimab and zalifrelimab programs at major oncology conferences that demonstrated a clinical benefit (i.e., complete response, partial response or disease stabilization) in more than 60% of patients treated with balstilimab and zalifrelimab at that time. In February and March 2020, we reported interim data from our registrational trials of these same programs that showed overall response rates of approximately 11.9% with balstilimab monotherapy and
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approximately 26.5% with balstilimab/zalifrelimab combination therapy. The final data readouts on these programs may not show similar positive results.
Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical and other nonclinical findings made while clinical trials were underway, or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, preclinical, nonclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including:
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the severity of the disease under investigation; |
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the patient eligibility and exclusion criteria defined in the protocol; |
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the size of the patient population required for analysis of the trial’s primary endpoints; |
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the proximity of patients to trial sites; |
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the design of the trial; |
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our ability to recruit clinical trial investigators with the appropriate competencies and experience; |
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clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other available therapies, including any new drugs that may be in clinical development or approved for the indications we are investigating; |
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the efforts to facilitate timely enrollment in clinical trials; |
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the patient referral practices of physicians; |
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the ability to monitor patients adequately during and after treatment; |
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our ability to obtain and maintain patient consents; and |
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the risk that patients enrolled in clinical trials will drop out of the trials before completion. |
In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site. Moreover, because our product candidates represent a departure from more commonly used methods for our targeted therapeutic areas, potential patients and their doctors may be inclined to use conventional or newly launched competitive therapies, rather than enroll patients in any future clinical trial.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates. The COVID-19 pandemic may cause delays in the patient enrollment in our clinical trials and could prevent the completion and/or timely completion of such trials.
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The number of product candidates that we are attempting to simultaneously advance creates a significant strain on our resources and may prevent us from successfully advancing any product candidates. If, due to our limited resources and access to capital, we prioritize development of certain product candidates, such decisions may prove to be wrong and may adversely affect our business.
We are currently advancing multiple immune modulating antibodies, vaccines, vaccine adjuvants and adoptive cell therapies (through our AgenTus subsidiary). Simultaneously advancing so many product candidates creates a significant strain on our limited human and financial resources. As a result, we may not be able to provide sufficient resources to any single product candidate to permit the successful development and commercialization of such product candidate, causing material harm to our business.
If, due to our limited resources and access to capital, we prioritize development of certain product candidates that ultimately prove to be unsuccessful, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
We may not be able to advance clinical development or commercialize our cancer vaccine candidates or realize any benefits from these programs.
The probability of future clinical development efforts leading to marketing approval and commercialization of Prophage vaccines is highly uncertain. Prophage vaccines have been in clinical development for over 17 years, including multiple Phase 1 and 2 trials in eight different tumor types as well as randomized Phase 3 trials in metastatic melanoma and adjuvant renal cell carcinoma. To date, the only marketing approval for Prophage is in Russia where commercialization of the approved product was unsuccessful. All of our currently planned trials involving Prophage are intended to be sponsored by third parties, and there is no guarantee that they will occur at all.
Our current clinical trial plans with Prophage vaccines entail one government sponsored IND in which we provide support and product supply. For third-party sponsored trials, we lack the ability to control trial design, timelines, tumor tissue procurement and data availability. For example, in January 2017, we announced a clinical trial collaboration with the NCI, whereby the NCI is conducting a double-blind, randomized controlled Phase 2 trial to evaluate the effect of Prophage vaccine in conjunction with Merck’s pembrolizumab on the overall survival rate of patients with ndGBM. In addition, the Phase 2 trial of Prophage vaccine in combination with bevacizumab in patients with surgically resectable recurrent glioma that was being conducted under the sponsorship of the Alliance for Clinical Trials in Oncology, a cooperative group of the NCI, has been closed. Our other cancer vaccine programs (ASV and PSV) are in Phase 1 and pre-clinical development, respectively, and there is no guarantee that they will successfully advance in and through the clinic. ASV also utilizes QS-21 Stimulon, and any inability or delay in securing adequate supplies of the adjuvant could have an adverse impact on the program or otherwise delay timelines. Current and future studies may eventually be terminated due to, among other things, slow enrollment, lack of probability that they will yield useful translational and/or efficacy data, lengthy timelines, or the unlikelihood that results will support timely or successful regulatory filings.
Our synthetic Heat Shock Protein (“HSP”) peptide-based platform is in early stage development, and there is no guarantee that a product candidate will progress from this platform.
In June 2014, we reported positive results from a Phase 2 trial with HerpVTM, a vaccine candidate for genital herpes from our synthetic HSP peptide-based platform. The Phase 2 trial met its formal endpoints, but subjects were not followed long enough to determine whether the magnitude of the effect on viral load would be sufficient to significantly reduce the incidence, severity, or duration of herpetic lesions or reduce the risk of viral transmission. Although we have not advanced this program into a Phase 3 trial, we initiated our ASV synthetic cancer vaccine program based on our prior findings with this platform. We initiated our first clinical trial for our first AutoSynVax product candidate in 2017 and reported safety and immunogenicity of the vaccine at CIMT2018. Although we have planned to initiate a combination trial with ASV and one or more of our antibodies, the timeline is uncertain and there is no guarantee that we will be able to do so at all. Furthermore, it is possible that research and discoveries by others will render any product candidate from this platform as obsolete or noncompetitive.
Risks Related to the Commercialization of Our Product Candidates
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If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates, we will not be able to commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate revenue will be materially impaired.
Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Before we can commercialize any of our product candidates, we must obtain marketing approval. Except for Prophage in Russia, we have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction and it is possible that none of our product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. We, as a company, have limited experience in filing and supporting the applications necessary to gain regulatory approvals and expect to rely in part on third-party contract research organizations (“CROs”) and/or regulatory consultants to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the drug manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.
The process of obtaining regulatory approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted IND, Premarket Approval, BLA or equivalent application types, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. Our product candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials; |
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication or a related companion diagnostic is suitable to identify appropriate patient populations; |
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval; |
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we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; |
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; |
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an BLA or other submission or to obtain regulatory approval in the United States or elsewhere; |
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and |
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. |
Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations and prospects.
We expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. As a result, our ability to develop product candidates and obtain regulatory approval may be significantly impacted.
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For example, the general approach for FDA approval of a new biologic or drug is for sponsors to seek licensure or approval based on dispositive data from well-controlled, Phase 3 clinical trials of the relevant product candidate in the relevant patient population. Phase 3 clinical trials typically involve hundreds of patients, have significant costs and take years to complete. We intend to utilize FDA’s accelerated approval program for our product candidates given the limited alternatives for treatments for certain rare diseases, cancer and autoimmune diseases, but the FDA may not agree with our plans.
The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support approval. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain approval of any product candidates that we develop based on the completed clinical trials.
Moreover, approval of genetic or biomarker diagnostic tests may be necessary in order to advance some of our product candidates to clinical trials or potential commercialization. In the future, regulatory agencies may require the development and approval of such tests. Accordingly, the regulatory approval pathway for such product candidates may be uncertain, complex, expensive and lengthy, and approval may not be obtained.
In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could reduce the size of the potential market for our product candidates and materially harm the commercial prospects for our product candidates.
If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional nonclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates could cause us to interrupt, delay or halt preclinical studies or could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. As is the case with many treatments for cancer and autoimmune diseases, it is likely that there may be side effects associated with their use. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The treatment-related side effects could affect patient recruitment or the ability of
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enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. If our product candidates receive marketing approval and we or others identify undesirable side effects caused by such product candidates (or any other similar drugs) after such approval, a number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw or limit their approval of such product candidates; |
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regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication; |
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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; |
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we may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or change the labeling of the product candidates; |
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regulatory authorities may require a Risk Evaluation and Mitigation Strategy(“REMS”), plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools; |
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we may be subject to regulatory investigations and government enforcement actions; |
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we may decide to remove such product candidates from the marketplace; |
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we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and |
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our reputation may suffer. |
We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidates and could substantially increase the costs of commercializing our product candidates, if approved, and significantly impact our ability to successfully commercialize our product candidates and generate revenues.
Our competitors may have superior products, manufacturing capability, selling and marketing expertise and/or financial and other resources.
Our product candidates and the product candidates in development by our collaboration partners may fail because of competition from major pharmaceutical companies and specialized biotechnology companies that market products, or that are engaged in the development of product candidates and for the treatment cancer. Many of our competitors, including large pharmaceutical companies, have substantially greater financial, technical and other resources than we do, such as larger research and development staff, experienced marketing and manufacturing organizations and well-established sales forces. Our competitors may:
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develop safer or more effective therapeutic drugs or therapeutic vaccines and other products; |
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establish superior intellectual property positions; |
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discover technologies that may result in medical insights or breakthroughs, which render our drugs or vaccines obsolete, possibly before they generate any revenue, if ever; |
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adversely affect our ability to recruit patients for our clinical trials; |
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solidify partnerships or strategic acquisitions that may increase the competitive landscape; |
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develop or commercialize their product candidates sooner than we commercialize our own, if ever; or |
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implement more effective approaches to sales and marketing and capture some of our potential market share. |
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Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel therapeutics that could make the product candidates that we develop obsolete. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries.
There is no guarantee that our product candidates will be able to compete with potential future products being developed by our competitors.
The CPM drug landscape is crowded with several competitors developing assets against a number of targets. Our development plans are spread out across various indications and lines of therapy, either alone or in combination with other assets. Our competitors range from small cap to large cap companies, with assets in pre-clinical or clinical stages of development. Therefore, the landscape is dynamic and constantly evolving. We and our partners have CPM antibody programs, currently in clinical stage development targeting various pathways (as mono- or bispecifics) including PD-1, CTLA-4, GITR, OX40, TIM-3, LAG-3, CD73, TGFb and CD137.
We are aware of many companies that have products on the market directed towards at least one of the biological targets as these programs, including, without limitation, the following: (1) BMS markets ipilimumab, an anti-CTLA-4 antibody, and nivolumab, an anti-PD-1 antibody, and is developing additional antagonists to LAG-3, TIM-3 and CD73. BMS also has next generation anti-CTLA-4 antibodies in the clinic, which may be competitive to our next generation anti-CTLA-4 program, (2) Merck has an approved anti-PD-1 antibody, as well as anti-CTLA-4 and LAG-3 antagonists recruiting in clinical trials, (3) Regeneron has an approved anti-PD-1 antibody as well as an antibody targeting LAG-3 in clinical development, (4) Roche/Genentech has an approved anti-PD-L1 antibody as well as bispecifics targeting CD137, LAG-3 and TIM-3 in clinical development, (5) AstraZeneca has an approved anti PD-L1 antibody, as well as antibodies targeting CTLA-4 and CD73 in the clinic and (6) Pfizer has an approved anti-PD-L1 (with Merck KgaA) as well as agents targeting PD-1, TGFbR1, CD137 in clinical development. Besides these PD-1 and PD-L1 antibodies that were approved in the U.S., we are also aware of competitors with approved PD-1 agents in ex-U.S. geographies such as China. These include Innovent Biologics, Shanghai Junshi Biosciences, Shanghai HengRui Pharmaceuticals and Beigene.
We are also aware of other competitors with clinical-stage PD-1/PD-L1 agents including but limited to AbbVie, Adagene, Amgen, Anhui Anke Biotechnology, Arcus Biosciences, Akeso Bio, Biocad Ltd., Boehringer Ingelheim, Checkpoint Therapeutics, CStone Pharmaceuticals, CSPC ZhongQi Pharmaceutical Technology, GSK, Gilead Sciences, Genor Biopharma/ Apollomics, Genrix (Shanghai) Biopharmaceutical, Incyte, ImmuneOncia Therapeutics Inc., Jounce Therapeutics, Janssen, Laekna Therapeutics, Lee’s Pharmaceuticals, Livzon Mabpharm, MacroGenics, Mabspace Biosciences, Maxinovel Pharmaceuticals, Novartis, Servier, Sichuan Kelun Pharmaceutical, Suzhou Alphamab/3D Medicines, Shanghai Henlius Biotech Co Ltd, Sinocelltech, Shandong New Time Pharmaceutical Co Ltd, and Taizhou Houdeaoke Technology. In addition, we are also aware of anti-PD-(L)1 monospecific agents that are preclinical in stage. We are also aware of competitors developing bispecifics targeting PD-1 or PD-L1.
We are aware of companies developing “next-generation” anti-CTLA-4 approaches, which may be competitive to our next-generation anti-CTLA-4 program (AGEN1181). As mentioned earlier, BMS has 3 next-generation CTLA-4 programs in the clinic: a non-fucosylated anti CTLA-4 antibody, a peptide-masked version of ipilimumab and a peptide masked version of the non-fucosylated anti CTLA-4 antibody; the peptide masked versions are designed to localize activity to the tumor and minimize systemic toxicity associated with parent drug. We are also aware of companies advancing clinical stage, CTLA-4 targeting multispecifics as a next-generation approach, including, but not limited to, Macrogenics, Xencor, AstraZeneca, Akeso Biopharma, 3D Medicines/Alphamab, Alpine Immune Sciences. We are also aware of preclinical stage bispecifics co-targeting CTLA-4.
We are also aware of competitors with clinical stage monospecific drug candidates against CTLA-4, GITR, OX40, LAG-3, TIM-3, CD73, TGFb, and CD137, in addition to those named earlier in this section. As outlined above, some of these include, but are not limited to AbbVie, Adagene, Arcus Biosciences, Alligator Biosciences, Beigene, Boehringer Ingelheim, Compass Therapeutics, Corvus Pharmaceuticals, CStone Therapeutics, Eli Lilly, Forbius, GSK, Innovent Biologics, Inhibrx, Leap Therapeutics, Lyvgen Biopharma, MedPacto, Novartis, Potenza Therapeutics, Servier, Scholar Rock, and Sanofi. We are also aware of preclinical stage competitors developing monospecific agents against these targets. Further, we are also aware of competitors developing bispecifics targeting these pathways.
Additionally, we are advancing TIGIT programs towards Investigational New Drug (IND) filing and are aware of competitors with clinical stage anti-TIGIT antibodies. These include, but are not limited to, Arcus Biosciences, BMS, Beigene, Compugen, iTeos Therapeutics, Merck, Mereo Biopharma, Potenza Therapeutics, Roche, Merck, Mereo Biopharma and Seattle Genetics. We are also
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aware of competitor programs in preclinical development against this target. There is no guarantee that our antibody product candidates will be able to successfully compete with our competitors’ antibody products and product candidates.
We are conducting both monotherapy and combination trials in second line cervical cancer. We are aware that Merck’s PD-1 antagonist, Keytruda, has been approved in advanced cervical cancer. We are also aware of industry sponsored clinical trials, including exploratory studies, that are underway in this setting. Clinical stage competitors include, but are not limited to, Regeneron (anti-PD-1), BMS (anti-PD-1 alone or in combination with CTLA-4), Seattle Genetics and Genmab (antibody drug conjugate targeting Tissue Factor), Iovance Biotherapeutics (autologous TILs), Merck KgaA (anti-PD-L1/TGFb), Roche (anti-PD-L1 alone or in combination with anti-TIGIT), Vaccibody (HPV vaccine in combination with anti-PD-L1), Biocad (anti-PD-1), Genor Biopharma (anti-PD-1), Gloria Biosciences (Anti-PD-1), Shanghai Henlius Biotech (anti-PD-1 in combination with albumin bound paclitaxel), Akeso Bio (anti-PD-1/CTLA-4 bispecific) and Lee Pharmaceuticals (anti-PD-L1).
We have autologous vaccine programs in clinical development including our Prophage vaccine in clinical development for GBM. We are aware of other therapeutic options in GBM that could compete with our vaccine, including but not limited to the following: Merck markets temozolomide for treatment of patients with ndGBM and refractory astrocytoma. Other companies are developing vaccines for the treatment of patients with ndGBM, including, but not limited to, Northwest Biotherapeutics (DC-Vax), Mimivax Inc. (SurVaxM) and Annias Immunotherapeutics (CMV Vaccine). Other companies may begin development programs as well. There are companies advancing neoantigen vaccines that compete with our HSP based vaccines including, but not limited to: Gritstone Oncology, BioNTech, Moderna/Merck, Genocea Biosciences, ISA Pharmaceuticals, Nouscom, and Vaccibody. In addition, and prior to regulatory approval, if ever, our vaccines and our other product candidates may compete for access to patients with other products in clinical development, with products approved for use in the indications we are studying, or with off-label use of products in the indications we are studying. We anticipate that we will face increased competition in the future as new companies enter markets we seek to address and scientific developments surrounding immunotherapy and other traditional cancer therapies continue to accelerate.
Our subsidiary company, AgenTus Therapeutics, is advancing invariant natural killer T cell (iNKT) therapy. We are aware of competitors advancing NKT therapies, including but not limited to, Kuur Therapeutics and BrightPath Biotherapeutics.
Several other vaccine adjuvants are in development or in use and could compete with QS-21 Stimulon for inclusion in vaccines. These adjuvants may include but are not limited to: (1) oligonucleotides, under development by Pfizer, Idera, and Dynavax, (2) MF59, under development by Novartis, (3) IC31, under development by Intercell (now part of Valneva), (4) MPL, under development by GSK, (5) Matrix-MTM, under development by Novavax, (6) AS03, under development by GSK, and (7) TQL 1055, under development by Adjuvance Technologies. In the past, we have provided QS-21 Stimulon to other entities under materials transfer arrangements. In at least one instance, it is possible that this material was used without our permission to develop synthetic formulations and/or derivatives of QS-21. In addition, companies such as CSL Limited as well as academic institutions and manufacturers of saponin extracts, are developing saponin adjuvants, including derivatives and synthetic formulations. These sources may be competitive to our ability to execute future partnering and licensing arrangements involving QS-21 Stimulon. The existence of products developed by these and other competitors, or other products of which we are not aware, or which other companies may develop in the future, may adversely affect the marketability of products developed or sold using QS-21 Stimulon.
We are also aware of a third party that manufactures pre-clinical material purporting to be comparable to QS-21 Stimulon. The claims being made by this third party may create marketplace confusion and have an adverse effect on the goodwill generated by us and our partners with respect to QS-21 Stimulon. We are also aware of other manufacturers of QS-21. Any diminution of this goodwill may have an adverse effect on our ability to commercialize future products, if any, incorporating this technology, either alone or with a third party.
Even if we obtain regulatory approval to market our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.
Even if our product candidates receive marketing approval, we, or others, may subsequently discover that such product is less effective than previously believed or causes undesirable side effects that were not previously identified and our ability to market such product will be compromised.
Clinical trials of our product candidates are conducted in carefully defined subsets of patients who have agreed to enter into such clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If one or more of our
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product candidates receives regulatory approval, and we, or others, later discover that they are less effective than previously believed, or cause undesirable side effects, a number of potentially significant negative consequences could result, including:
•withdrawal or limitation by regulatory authorities of approvals of such product;
•seizure of the product by regulatory authorities;
•recall of the product;
•restrictions on the marketing of the product or the manufacturing process for any component thereof;
•requirement by regulatory authorities of additional warnings on the label, such as a “black box” warning or contraindication;
•requirement that we implement a risk evaluation and mitigation strategy or create a medication guide outlining the risks of such side effects for distribution to patients;
•commitment to expensive additional safety studies prior to approval or post-marketing studies required by regulatory authorities of such product;
•the product may become less competitive;
•initiation of regulatory investigations and government enforcement actions;
•initiation of legal action against us to hold us liable for harm caused to patients; and
•harm to our reputation and resulting harm to physician or patient acceptance of our products.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, financial condition and results of operations.
Even if our product candidates receive marketing approval, such products may fail to achieve the degree of market acceptance by physicians, patients, third- party payors and others in the medical community necessary for commercial success.
If balstilimab and zalifrelimab or any other future product candidates receive marketing approval, whether as single agents or in combination with other therapies, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current approved immunotherapies, and other cancer treatments like chemotherapy and radiation therapy, are well established in the medical community, and doctors could continue to rely on these therapies. If balstilimab and zalifrelimab or any other future product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of balstilimab and zalifrelimab or any future products, if approved for commercial sale, will depend on a number of factors, including:
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efficacy and potential advantages compared to alternative treatments; |
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the ability to offer our products, if approved, for sale at competitive prices; |
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convenience and ease of administration compared to alternative treatments; |
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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; |
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sufficient third-party coverage or reimbursement, including of combination therapies; |
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adoption of a companion diagnostic and/or complementary diagnostic; and |
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the prevalence and severity of any side effects. |
Even if we are able to commercialize any product candidates, such products may not receive coverage or may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, all of which would harm our business.
The legislation and regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many
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countries, the pricing review period begins after marketing or drug licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. In the United States, approval and reimbursement decisions are not linked directly, but there is increasing scrutiny from the Congress and regulatory authorities of the pricing of pharmaceutical products. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product candidate, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product candidate in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.
Significant uncertainty exists as to the coverage and reimbursement status of our product candidates for which we seek regulatory approval. Our ability to commercialize any drugs successfully will depend, in part, on the extent to which reimbursement for these drugs and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. Obtaining and maintaining adequate reimbursement for our product candidates, if approved, may be difficult. Moreover, the process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing the reimbursement rate that such a payor will pay for the product. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for our products, if they are approved, by third-party payors.
A primary trend in the healthcare industry in the United States and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Third-party payors may also seek, with respect to an approved product, additional clinical evidence that goes beyond the data required to obtain marketing approval. They may require such evidence to demonstrate clinical benefits and value in specific patient populations or they may call for costly pharmaceutical studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies before covering our products. Accordingly, we cannot be sure that reimbursement will be available for any drug that we commercialize and, if reimbursement is available, we cannot be sure as to the level of reimbursement and whether it will be adequate. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.
There may be significant delays in obtaining reimbursement for newly-approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or comparable regulatory authorities outside of the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and our overall financial condition.
The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small, and our estimates of the prevalence of our target patient populations may be inaccurate.
Cancer and autoimmune therapies are sometimes characterized as first-line, second-line, third-line and even fourth-line, and the FDA often approves new therapies initially only for last-line use. Initial approvals for new cancer and autoimmune therapies are often restricted to later lines of therapy, and in the case of cancer specifically, for patients with advanced or metastatic disease. Indeed, the BLAs that we intend to file for balstilimab and zalifrelimab target second-line cervical cancer. This will limit the number of cervical cancer patients who may be eligible to use balstilimab and zalifrelimab, if approved.
Our projections of both the number of people who have the diseases we are targeting, as well as the subset of people with these diseases in a position to receive our therapies, if approved, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, input from key opinion leaders, patient foundations, or secondary
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market research databases, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates. For instance, we expect our product candidates targeting cervical cancer to target the smaller patient populations that suffer from the respective diseases we seek to treat. Furthermore, regulators and payors may further narrow the therapy-accessible treatment population. Even if we obtain significant market share for our product candidates, because certain of the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications.
We are currently building marketing, sales and commercial compliance functions, and as a company, we have no experience in marketing, selling and distributing products or performing commercial compliance. If we are unable to establish such capabilities or enter into agreements with third parties to perform such functions, we may not be able to generate product revenue.
We currently have a small number of employees that are tasked with building our marketing, sales and commercial compliance functions, and we currently have no sales, marketing, distribution or commercial compliance capabilities and have no experience as a company performing such tasks. Developing an in-house marketing team, sales force and commercial compliance function will require significant capital expenditures, management resources and time and may ultimately prove to be unsuccessful. In the event we develop and deploy these capabilities, we will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain personnel qualified to perform these tasks. If we fail to market and sell our approved products in compliance with applicable laws and regulations, we may be subject to fines or other penalties.
In addition to establishing internal sales, marketing and distribution capabilities, we may pursue collaborative arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.
Risks Related to Manufacturing and Supply
Our product candidates are uniquely manufactured. If we or any of our third-party manufacturers encounter difficulties in manufacturing our product candidates, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
The manufacturing process used to produce certain of our product candidates is complex and novel and has not yet been validated for commercial production. As a result of these complexities, the cost to manufacture certain of our product candidates is potentially higher than traditional antibodies and the manufacturing process is less reliable and is more difficult to reproduce. Furthermore, our manufacturing process for certain of our product candidates has not been scaled up to commercial production. The actual cost to manufacture and process certain of our product candidates could be greater than we expect and could materially and adversely affect the commercial viability of such product candidates.
Our manufacturing process may be susceptible to logistical issues associated with the collection of materials sourced from various suppliers as well as shipment of the final product to clinical centers, manufacturing issues associated with interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error, inconsistency in production batches, and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, lot failures, product defects, product recalls, product liability claims and other supply disruptions. If microbial, viral, or other contaminations are discovered in our product candidates or in our manufacturing facilities in which our product candidates are made, production at such manufacturing facilities may be interrupted for an extended period of time to investigate and remedy the contamination. Further, as we transition from late-stage clinical trials toward approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, 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, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.
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Although we continue to optimize our manufacturing process for our antibody product candidates, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for commercialization, including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency, and timely availability of reagents and/or raw materials. We ultimately may not be successful in transferring our in-house clinical scale production system to any commercial scale manufacturing facilities that we establish ourselves, or establish at a contract manufacturing organization (“CMO”). If we are unable to adequately validate or scale-up the manufacturing process for our product candidates with our contracted CMO, we will need to transfer to another manufacturer and complete the manufacturing validation process, which can be lengthy. If we are able to adequately validate and scale-up the manufacturing process for our product candidates with a contract manufacturer, we will still need to negotiate with such contract manufacturer an agreement for commercial supply and it is not certain we will be able to come to agreement on terms acceptable to us for all product candidates. As a result, we may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are commercialized.
The manufacturing process for any products that we may develop is subject to the FDA and foreign regulatory authority approval process, and we will need to contract with manufacturers who can meet all applicable FDA and foreign regulatory authority requirements on an ongoing basis. If we or our CMOs are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates, impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects. Our future success depends on our ability to manufacture our products on a timely basis with acceptable manufacturing costs, while at the same time maintaining good quality control and complying with applicable regulatory requirements, and an inability to do so could have a material adverse effect on our business, financial condition, and results of operations. In addition, we could incur higher manufacturing costs if manufacturing processes or standards change, and we could need to replace, modify, design, or build and install equipment, all of which would require additional capital expenditures. Specifically, because our product candidates may have a higher cost of goods than conventional therapies, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater.
We own and operate our own clinical scale manufacturing facility and infrastructure in addition to or in lieu of relying on CMOs for the manufacture of clinical supplies of our product candidates. This is costly and time-consuming.
In 2015, we secured our own internal antibody manufacturing capabilities with the purchase of a manufacturing pilot plant from XOMA Corporation in Berkeley, California, and this facility supplies our antibody drug substance requirements for clinical proof-of-concept studies. Any performance failure on the part of our existing facility could delay clinical development or marketing approval of our antibody programs.
To date, we have manufactured our Prophage vaccines in our Lexington, MA facility. Manufacturing of the Prophage vaccines is complex, and various factors could cause delays or an inability to supply the vaccine. Deviations in the processes controlling manufacture or deficiencies in size or quality of source material could result in production failures. Specific vulnerabilities in the process may exist in tumor types in which quality or quantity of tissue is limited. In addition, regulatory bodies may require us to make our manufacturing facility a single product facility. In such an instance, we may elect to manufacture another product candidate in our current facility and would no longer have the ability to manufacture Prophage vaccines as well.
We have given our corporate QS-21 Stimulon licensee, GSK, manufacturing rights for QS-21 Stimulon for use in their product programs. We have retained the right to manufacture QS-21 for ourselves and third parties, although no other such programs are anticipated to bring us substantial revenues in the near future, if ever. Although we have the right to secure certain quantities of QS-21 from GSK and we have some internal supply in-house, we currently do not have an alternative long-term supply partner for this adjuvant. In January 2019, we announced that the Bill & Melinda Gates Foundation awarded us a grant to develop an alternative, plant cell culture-based manufacturing process with the goal of ensuring the continuous future supply of QS-21 Stimulon adjuvant. There is no guarantee that we will be successful in these development efforts.
We also may encounter problems hiring and retaining the experienced scientific, quality-control and manufacturing personnel
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needed to operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements.
Any problems in our manufacturing process or facilities, or that of our licensees and suppliers, could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive development programs.
The FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA, the EMA or other foreign regulatory authorities may require that we not distribute a lot until the relevant agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. Problems in our manufacturing process could restrict our ability to meet market demand for our products.
We are dependent on suppliers for some of our components and materials used to manufacture our product candidates.
We currently depend on suppliers for some of the components necessary for our product candidates. We cannot be sure that these suppliers will remain in business, that they will be able to meet our supply needs, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to produce these materials for our intended purpose. There are, in general, relatively few alternative sources of supply for these components. These suppliers may be unable or unwilling to meet our future demands for our clinical trials or commercial sale. Establishing additional or replacement suppliers for these components could take a substantial amount of time and it may be difficult to establish replacement suppliers who meet regulatory requirements. Any disruption in supply from a supplier or manufacturing location could lead to supply delays or interruptions which would damage our business, financial condition, results of operations and prospects. If we are able to find a replacement supplier, the replacement supplier would need to be qualified and may require additional regulatory authority approval, which could result in further delay. While we seek to maintain adequate inventory of the materials used to manufacture our products, any interruption or delay in the supply of materials, or our inability to obtain materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders. In addition, as part of the FDA’s approval of our product candidates, we will also require FDA approval of the individual components of our process, which include the manufacturing processes and facilities of our suppliers. Our reliance on these suppliers subjects us to a number of risks that could harm our business, and financial condition, including, among other things: interruption of product candidate or commercial supply resulting from modifications to or discontinuation of a supplier’s operations; delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a component; a lack of long-term supply arrangements for key components with our suppliers; inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms; difficulty and cost associated with locating and qualifying alternative suppliers for our components and precursor cells in a timely manner; production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications; delay in delivery due to our suppliers prioritizing other customer orders over ours; and fluctuation in delivery by our suppliers due to changes in demand from us or their other customers. If any of these risks materialize, our manufacturing costs could significantly increase and our ability to meet clinical and commercial demand for our products could be impacted.
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We rely on third parties for the manufacture of clinical supplies of certain of our product candidates and expect to rely on third parties for commercial supplies of any approved product candidates. This reliance on third parties increases the risk that we will not have sufficient quantities of our drug candidates or drugs or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We expect to rely on third-party manufacturers for the manufacture of commercial supplies of our drug candidates. At present, we do not have long-term supply agreements with all of the vendors needed to produce our product candidates for commercial sale and we may be unable to establish such agreements with third-party manufacturers or do so on acceptable terms.
The agreements that we do have in place with our third-party manufacturers obligate us to make significant non-refundable deposits to reserve manufacturing slots prior to the receipt of marketing approval for our product candidates. Additionally, if our product candidates are approved, we will be required to make minimum purchases and will have limited ability to purchase product in excess of our forecasted needs. As a result, if product sales fall below our minimum purchase obligations, we will be obligated to purchase more product than we can successfully sell, and if product demand exceeds the amount that we can purchase from our manufacturers, we will have to forgo some product sales. Either of these events may materially harm our financial prospects. Finally, reliance on third-party manufacturers entails additional risks, including:
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reliance on the third party for regulatory compliance and quality assurance; |
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the possible breach of the manufacturing agreement by the third party; |
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the possible failure of the third party to manufacture our drug candidate according to our schedule, or at all, including if the third-party manufacturer gives greater priority to the supply of other drugs over our drug candidates, or otherwise does not satisfactorily perform according to the terms of the manufacturing agreement; |
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equipment malfunctions, power outages, natural or man-made calamities or other general disruptions experienced by our third-party manufacturers to their respective operations and other general problems with a multi-step manufacturing process; |
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the possible misappropriation or disclosure by the third party or others of our proprietary information, including our trade secrets and know-how; and |
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the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. |
The agreements that we have in place with our third-party suppliers and manufacturers significantly limit the liability of such suppliers and manufacturers for failing to supply or manufacture, as applicable, our product candidates pursuant to the terms of our agreements, or as required by applicable regulation or law. As a result, if we suffer losses due to our suppliers or manufacturers failure to perform, we will have limited remedies available against such suppliers and manufacturers and are unlikely to be able to recover such losses from them.
Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside of the United States. Facilities used by our third-party manufacturers must be inspected by the FDA after we submit an BLA and before potential approval of the drug candidate. Similar regulations apply to manufacturers of our drug candidates for use or sale in foreign countries. We will not control the manufacturing process and will be completely dependent on our third-party manufacturers for compliance with the applicable regulatory requirements for the manufacture of our drug candidates. If our manufacturers cannot successfully manufacture material that conforms to the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they will not be able to secure the applicable approval for their manufacturing facilities. If these facilities are not approved for commercial manufacture, we may need to find alternative manufacturing facilities, which could result in delays in obtaining approval for the applicable drug candidate as alternative qualified manufacturing facilities may not be available on a timely basis or at all. In addition, our manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. Failure by any of our manufacturers to comply with applicable cGMPs or other regulatory requirements could result in sanctions being imposed on us or the contract manufacturer, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could significantly and adversely affect supplies of our drug candidates and have a material adverse impact on our business, financial condition and results of operations. Any drugs that we may develop may compete with other drug candidates and drugs for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.
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Our anticipated future dependence upon others for the commercial manufacture of our drug candidates or drugs may adversely affect our future profit margins and our ability to commercialize any drugs that receive marketing approval on a timely and competitive basis.
Risks Related to Our Reliance on Third Parties
We are dependent upon our collaborations with Gilead, Incyte and Betta Pharmaceuticals Co., Ltd. (“Betta Pharmaceuticals”) to further develop and commercialize certain of our antibody programs. If we or Gilead, Incyte or Betta Pharmaceuticals fail to perform as expected, the potential for us to generate future revenues under such collaborations could be significantly reduced, the development and/or commercialization of these antibodies may be terminated or substantially delayed, and our business could be adversely affected.
In December 2018, we entered into a series of agreements with Gilead to collaborate on the development and commercialization of up to five novel I-O therapies. Pursuant to the collaboration agreements, Gilead received (i) worldwide exclusive rights to AGEN1423 (now GS-1423), a bispecific antibody, (ii) the exclusive option to license exclusively AGEN1223, a bispecific antibody, and AGEN2373, a monospecific antibody, and (iii) the right of first negotiation for two additional, undisclosed programs. Gilead has the exclusive right to develop and commercialize GS-1423, and we are eligible to receive potential development and commercial milestones of up to $552.5 million in the aggregate, as well as tiered royalty payments on aggregate net sales ranging from the high single digit to mid-teen percent, subject to certain reductions under certain circumstances. Accordingly, the timely and successful completion by Gilead of clinical development and commercialization activities will significantly affect the timing and amount of any milestones or royalties we may receive for this program. Gilead’s activities will be influenced by, among other things, the efforts and allocation of resources by Gilead, which we cannot control. With respect to the option programs, we are responsible for developing each program up to the option decision point, at which time Gilead may acquire exclusive rights to each program on option exercise. During the option period, we are eligible to receive milestones of up to $30.0 million in the aggregate. If Gilead exercises an option, it would be required to pay an upfront license exercise fee of $50.0 million for each option that is exercised. Following any option exercise, we would be eligible to receive additional development and commercial milestones of up to $520.0 million in the aggregate for each such option program, as well as tiered royalty payments on aggregate net sales ranging from the high single digit to mid-teen percent, subject to certain reductions under certain circumstances. For either, but not both, of the option programs, we will have the right to opt-in to share Gilead’s development and commercialization costs in the United State for such option program in exchange for a profit (loss) share on a 50:50 basis and revised milestone payments. There is no guarantee that we will receive any fees, milestones or royalties from Gilead. Similarly, there is no guarantee that we will be able to successfully advance the option programs to the option decision point, and, even if we do, there is no guarantee that Gilead will exercise its option for either program. If Gilead does not exercise its option for either of the option programs, there is no guarantee that we will be able to advance any such program ourselves or with another partner. If we wanted to partner either of the programs that are subject to a right of first negotiation with a third party other than Gilead, such discussions could be delayed and ultimately terminated as a result of Gilead’s right of first negotiation. Accordingly, we may not be able to partner either of these programs with a third party other than Gilead on attractive terms, if at all.
In addition, our collaboration with Gilead may be unsuccessful due to other factors, including, without limitation, the following:
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Gilead may terminate any of the agreements for convenience upon 90 days’ notice; |
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Gilead has control over the development of GS-1423, and it will have control over the option programs if and when it exercises its options; |
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Gilead may change the focus of its development and commercialization efforts or prioritize other programs more highly and, accordingly, reduce the efforts and resources allocated to GS-1423 or the option programs (if exercised); and |
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Gilead may choose not to develop and commercialize GS-1423 or the option programs (if exercised) in all relevant markets or for one or more indications, if at all. |
In February 2017, we amended the terms of our collaboration agreement with Incyte to, among other things, convert the GITR and OX40 programs from profit-share programs, where we and Incyte shared all costs and profits on a 50:50 basis, to royalty-bearing programs, where Incyte funds 100% of the costs and we are eligible for potential milestones and royalties. In addition, the profit-share programs relating to TIGIT and one undisclosed target were removed from the collaboration, with TIGIT reverting to Agenus and the undisclosed target reverting to Incyte, each with a potential 15% royalty to the other party on any global net sales. The remaining three royalty-bearing programs in the collaboration targeting TIM-3, LAG-3 and one undisclosed target remain unchanged, and there are no more profit-share programs under the collaboration. For each program in the collaboration, we serve as the lead for pre-clinical
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development activities through the filing of an IND, and Incyte has exclusive rights and all decision-making authority for manufacturing, clinical development and commercialization. Accordingly, the timely and successful completion by Incyte of clinical development and commercialization activities will significantly affect the timing and amount of any royalties or milestones we may receive under the collaboration agreement. In addition, in March 2017 we transferred manufacturing responsibilities to Incyte for antibodies under that collaboration. Any delays or weaknesses in the ability of Incyte to successfully manufacture could have an adverse impact on those programs. Incyte’s activities will be influenced by, among other things, the efforts and allocation of resources by Incyte, which we cannot control. If Incyte does not perform in the manner we expect or fulfill its responsibilities in a timely manner, or at all, the clinical development, manufacturing, regulatory approval, and commercialization efforts related to antibodies under the collaboration could be delayed or terminated. There can be no assurance that any of the development, regulatory or sales milestones will be achieved, or that we will receive any future milestone or royalty payments under the collaboration agreement. In September 2018, we sold to XOMA a portion of the royalties and milestones we are entitled to receive from Incyte.
In addition, our collaboration with Incyte may be unsuccessful due to other factors, including, without limitation, the following:
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Incyte may terminate the agreement or any individual program for convenience upon 12 months’ notice; |
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Incyte has control over the development of assets in the collaboration; |
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Incyte may change the focus of its development and commercialization efforts or prioritize other programs more highly and, accordingly, reduce the efforts and resources allocated to our collaboration; |
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Incyte may choose not to develop and commercialize antibody products, if any, in all relevant markets or for one or more indications, if at all; and |
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If Incyte is acquired during the term of our collaboration, the acquirer may have competing programs or different strategic priorities that could cause it to reduce its commitment to our collaboration. |
If Incyte terminates our collaboration agreement, we may need to raise additional capital and may need to identify and come to agreement with another collaboration partner to advance certain of our antibody programs. Even if we are able to find another partner, this effort could cause delays in our timelines and/or additional expenses, which could adversely affect our business prospects and the future of our antibody product candidates under the collaboration.
In June 2020, we entered into a license and collaboration agreement with Betta Pharmaceuticals to collaborate on the development and commercialization of balstilimab and zalifrelimab in greater China. Pursuant to the license and collaboration agreement, Betta Pharmaceuticals received an exclusive license to develop, manufacture and commercialize zalifrelimab and balstilimab in all fields (other than intravesical delivery) in greater China. Under the agreement, Betta Pharmaceuticals is responsible for all of the development, regulatory approval, manufacturing and commercialization costs in greater China. As part of the collaboration, Betta Pharma made an upfront cash payment of $15.0 million and agreed to make up to $100.0 million in aggregate milestone payments plus tiered royalties on net sales of zalifrelimab and balstilimab. Royalties range from mid-single digit to low-twenties percent, subject to certain reductions under certain circumstances. Accordingly, the timely and successful completion by Betta Pharmaceuticals of development, regulatory approval, manufacturing and commercialization activities will significantly affect the timing and amount of any milestones or royalties we may receive from Betta Pharmaceuticals. Betta Pharmaceuticals’ activities will be influenced by, among other things, the efforts and allocation of resources by Betta Pharmaceuticals, which we cannot control.
In addition, our collaboration with Betta Pharmaceuticals may be unsuccessful due to other factors, including, without limitation, that Betta Pharmaceuticals:
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may terminate any of the license and collaboration agreement for convenience upon 90 days’ notice; |
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has control over the development, regulatory approval, manufacturing and commercialization of balstilimab and zalifrelimab in greater China; |
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may change the focus of its business efforts or prioritize other programs more highly and, accordingly, reduce the efforts and resources allocated to balstilimab and zalifrelimab; and |
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may choose not to develop and commercialize balstilimab and zalifrelimab in all markets within greater China or for one or more indications, if at all. |
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Additionally, the US-China relationship has deteriorated in recent years and, further deterioration may impact the ability of Agenus and Betta Pharmaceuticals to successfully collaborate.
Failure to enter into and/or maintain additional significant licensing, distribution and/or collaboration agreements in a timely manner and on favorable terms to us may hinder or cause us to cease our efforts to develop and commercialize our product candidates, increase our development timelines, and/or increase our need to rely on partnering or financing mechanisms, such as sales of debt or equity securities, to fund our operations and continue our current and anticipated programs. Even if we enter into and maintain such agreements, they may not prove successful, and/or we may not receive significant payments from agreements.
Part of our strategy is to develop and commercialize many of our product candidates by continuing or entering into arrangements with academic, government, or corporate collaborators and licensees. Our success depends on our ability to negotiate such agreements on favorable terms and on the success of the other parties in performing research, pre-clinical and clinical testing, completing regulatory applications, and commercializing product candidates. Our research, development, and commercialization efforts with respect to antibody candidates from our technology platforms are, in part, contingent upon the participation of institutional and corporate collaborators. For example, in February 2015, we began a broad collaboration with Incyte to pursue the discovery and development of antibodies, and in December 2018 we entered into a partnership with Gilead relating to five of our antibody programs. Furthermore, we have a collaboration arrangement with Recepta for balstilimab and zalifrelimab, giving Recepta rights to certain South American countries and requiring us to agree upon development plans for these product candidates. Disagreements or the failure of either party to perform satisfactorily could have an adverse impact on these programs.
The Brain Tumor Trials Collaborative, through the NCI, is sponsoring a Phase 2 clinical trial of our Prophage vaccine candidate in combination with Merck’s pembrolizumab in patients with glioma. When our licensees or third-party collaborators sponsor clinical trials using our product candidates, we cannot control the timing of enrollment, data readout, or quality of such trials or related activities.
Our ability to advance our antibody programs depends in part on such collaborations. In addition, from time to time we engage in efforts to enter into licensing, distribution and/or collaboration agreements with one or more pharmaceutical or biotechnology companies to assist us with development and/or commercialization of our other product candidates. Any licensing, distribution and/or collaborations agreements, we enter into, including those with Gilead and Incyte, may pose a number of risks, including the following:
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collaborators have significant discretion in determining the efforts and resources that they will apply; |
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collaborators may not perform their obligations as expected; |
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collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs or license arrangements based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as a strategic transaction that may divert resources or create competing priorities; |
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; |
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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products and product candidates if the collaborators believe that the competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; |
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product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; |
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collaborators may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution or marketing of a product candidate or product; |
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collaborators with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products; |
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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or terminations of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; |
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; |
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collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; |
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if a collaborator of ours is involved in a business combination, the collaborator might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us; and |
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collaborations may be terminated by the collaborator, and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates. |
If our current or future collaborations do not result in the successful discovery, development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of our technology and product candidates could be delayed and we may need additional resources to develop product candidates and our technology. All of the risks relating to product development, regulatory approval and commercialization described in this Annual Report on Form 10-K also apply to the activities of our therapeutic collaborators.
Additionally, if one of our collaborators, such as Gilead, Incyte or Recepta, terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception in the business and financial communities could be adversely affected.
Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms, or at all. If we fail to enter into collaborations or do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates, bring them to market and generate revenue from sales of drugs or continue to develop our technology, and our business may be materially and adversely affected.
We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval of or commercialize any potential product candidates.
We depend upon third parties, including independent investigators, to conduct our clinical trials under agreements with universities, medical institutions, CROs, strategic partners and others. Such reliance obligates us to negotiate budgets and contracts with CROs and trial sites, which may result in delays to our development timelines and increased costs.
We rely heavily on third parties over the course of our clinical trials, and, as a result, have limited control over the clinical investigators and limited visibility into their day-to-day activities, including with respect to their compliance with the approved clinical protocol. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, clinical investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to suspend or terminate these trials or perform additional nonclinical studies or clinical trials before approving our marketing applications. We cannot be certain that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the GCP requirements. In addition, our clinical trials must be conducted with biologic product produced under cGMP requirements and may require a large number of patients.
Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
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The persons engaged by third parties conducting our clinical trials are not our employees and, except for remedies that may be available to us under our agreements with such third parties, we cannot control whether or not such persons devote sufficient time and resources to our ongoing pre-clinical and clinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.
If any of our relationships with these third-party CROs or others terminate, we may not be able to enter into arrangements with alternative CROs or other third parties or to do so on commercially reasonable terms. Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO begins work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.
Risks Related to Government Regulations
The regulatory approval process for our product candidates in the United States, European Union and other jurisdictions is currently uncertain and will be lengthy, time-consuming and inherently unpredictable and we may experience significant delays in the clinical development and regulatory approval, if any, of our product candidates.
The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products, including biologics, are subject to extensive regulation by the FDA in the United States and regulatory authorities in states and other countries. We are not permitted to market any biological product in the United States for commercial use until we receive a biologics license from the FDA. We have not previously submitted a BLA to the FDA, or similar marketing application to comparable foreign authorities, except for our application related to Prophage. A BLA must include extensive nonclinical and clinical data and supporting information to establish that the product candidate is safe, pure and potent for each desired indication. The BLA must also include significant information regarding the chemistry, manufacturing and controls for the product, and the manufacturing facilities must complete a successful pre-license inspection. We expect the novel nature of our product candidates to create further challenges in obtaining regulatory approval. Accordingly, the regulatory approval pathway for our product candidates may be uncertain, complex, expensive and lengthy, and we may never obtain regulatory approval for our product candidates.
The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support approval. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain approval of any product candidates that we develop based on the completed clinical trials.
The FDA may disagree with our regulatory plan and we may fail to obtain regulatory approval of our product candidates.
Although the regulatory framework for approving immunotherapy products is evolving, the general approach for FDA approval of a new biologic or drug has historically been to provide dispositive data from two well-controlled, Phase 3 clinical trials of the relevant biologic or drug in the relevant patient population. Phase 3 clinical trials typically involve hundreds of patients, have significant costs and take years to complete. We intend to utilize an accelerated approval approach for our product candidates given the limited alternatives for cancer treatments, but the FDA may not agree with our plans.
In addition, our clinical trial results may also not support approval of our product candidates. Our product candidates could fail to receive regulatory approval for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials; |
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe and effective for any of their proposed indications; |
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval; |
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we may be unable to demonstrate that our product candidates’ clinical and other benefits outweigh their safety risks; |
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical studies or clinical trials; |
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the data collected from clinical trials of our product candidates may be deemed by the FDA or comparable foreign regulatory authorities to be insufficient to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere; |
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the FDA or comparable foreign regulatory authorities may fail to approve or find deficiencies with the manufacturing processes and controls or facilities of third-party manufacturers with which we contract for clinical and commercial supplies or any facilities that we may own in the future; and |
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner that could render our clinical data insufficient for approval. |
The FDA, the EMA and other regulatory authorities may implement additional regulations or restrictions on the development and commercialization of our product candidates, which may be difficult to predict.
The FDA, the EMA and regulatory authorities in other countries have each expressed interest in further regulating biotechnology products, such as antibodies, vaccines, adjuvants and adoptive cell therapies. Agencies at both the federal and state level in the United States, as well as the U.S. Congressional committees and other governments or governing agencies, have also expressed interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of our product candidates. Adverse developments in clinical trials of antibodies, vaccines, adjuvants or adoptive cell therapies products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our product candidates. Similarly, the EMA governs the development of antibodies, vaccines, adjuvants and adoptive cell therapies in the European Union and may issue new guidelines concerning the development and marketing authorization for such products and require that we comply with these new guidelines. These regulatory review agencies and committees and the new requirements or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory agencies and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and could negatively impact our ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all.
Breakthrough Therapy Designation, Fast Track Designation or Regenerative Medicine Advanced Therapy Designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development, regulatory review or approval process, and it does not increase the likelihood that any of our product candidates will receive marketing approval in the United States.
We may seek a Breakthrough Therapy Designation for some of our product candidates. A breakthrough therapy is defined as a therapy that is intended, alone or in combination with one or more other therapies, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For therapies that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Therapies designated as breakthrough therapies by the FDA may also be eligible for priority review and accelerated approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval compared to therapies considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
We have received Fast Track Designation for investigation of balstilimab in combination with zalifrelimab for the treatment of patients with relapsed or refractory metastatic cervical cancer and balstilimab alone for the treatment of cervical cancer, and we intend to apply for such designation for our other product candidates in the future. If a therapy is intended for the treatment of a serious or life-threatening condition and the therapy demonstrates the potential to address unmet medical needs for this condition, the therapy sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation; we cannot assure our stockholers that the FDA would
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decide to grant it. We may not experience a faster development process, review or approval compared to conventional FDA procedures for the product candidate for which we have received, or may receive in the future, Fast Track Designation. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program. Fast Track Designation alone does not guarantee qualification for the FDA’s priority review procedures.
We may seek Regenerative Medicine Advanced Therapy (“RMAT”) designation for some of our product candidates including our allogeneic cell therapies. In 2017, the FDA established the RMAT designation as part of its implementation of the 21st Century Cures Act to expedite review of any drug that meets the following criteria: it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. Like Breakthrough Therapy Designation, RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. RMAT-designated products that receive accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical trials, patient registries, or other sources of real world evidence, such as electronic health records; through the collection of larger confirmatory data sets; or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy. There is no assurance that we will be able to obtain RMAT designation for any of our product candidates. RMAT designation does not change the FDA’s standards for product approval, and there is no assurance that such designation will result in expedited review or approval or that the approved indication will not be narrower than the indication covered by the designation. Additionally, RMAT designation can be revoked if the criteria for eligibility cease to be met as clinical data emerges.
We may seek priority review designation for one or more of our other product candidates, but we might not receive such designation, and even if we do, such designation may not lead to a faster development or regulatory review or approval process.
If the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. We may request priority review for our product candidates. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not necessarily result in expedited development or regulatory review or approval process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month review cycle or at all.
We may not be able to obtain or maintain orphan drug designations from the FDA for our current and future product candidates, as applicable.
Our strategy includes filing for orphan drug designation where available for our product candidates, but thus far, our applications for orphan drug designation with respect to balstilimab and zalifrelimab have been rejected.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full new drug application, or NDA, or BLA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the original manufacturer is unable to assure sufficient product quantity.
In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the orphan- designated disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product
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from competition because different drugs with different active moieties may receive and be approved for the same condition, and only the first applicant to receive approval will receive the benefits of marketing exclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval process. In addition, while we may again seek orphan drug designation for our product candidates, we may never receive such designations.
Our relationships with healthcare providers and physicians and third-party payors will be subject to applicable anti- kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products. Arrangements with third-party payors and customers can expose pharmaceutical manufactures to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act (the “FCA”), which may constrain the business or financial arrangements and relationships through which such companies sell, market and distribute pharmaceutical products. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self- dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. The applicable federal, state and foreign healthcare laws and regulations laws that may affect our ability to operate include, but are not limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity can be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, 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 FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution; |
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federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by, Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery; |
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the federal anti-inducement law, prohibits, among other things, the offering or giving of remuneration, which includes, without limitation, any transfer of items or services for free or for less than fair market value (with limited exceptions), to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services reimbursable by a federal or state governmental program; |
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the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or |
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device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it; |
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their respective implementing regulations, which impose, among other things, requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their respective business associates that perform services for them that involve the use or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; |
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the federal Physician Payment Sunshine Act, created under the Patient Protection and Affordable Care Act, and its implementing regulations, which require manufacturers of drugs, devices, biologicals 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 United States Department of Health and Human Services (“HHS”), information related to payments or 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 physicians and their immediate family members; |
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the U.S. Federal Food, Drug, and Cosmetic Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; |
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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; 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 sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and may be broader in scope than their federal equivalents; state and foreign 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; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. |
The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company’s financial resources and management’s attention away from the business.
On January 31, 2019, the HHS and HHS Office of Inspector General proposed an amendment to one of the existing Anti- Kickback safe harbors (42 C.F.R. 1001.952(h)) which would prohibit certain pharmaceutical manufacturers from offering rebates to pharmacy benefit managers (“PBMs”), in the Medicare Part D and Medicaid managed care programs. The proposed amendment would remove protection for “discounts” from Anti-Kickback enforcement action and would include criminal and civil penalties for knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or reward the referral of business reimbursable under federal health care programs. At the same time, HHS also proposed to create a new safe harbor to protect point-of-sale discounts that drug manufacturers provide directly to patients, and adds another safe harbor to protect certain administrative fees
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paid by manufacturers to PBMs. If this proposal is adopted, in whole or in part, it could affect the pricing and reimbursement for any products for which we receive approval in the future.
The failure to comply with any of these laws or regulatory requirements subjects entities to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation in federal and state funded healthcare programs, contractual damages and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Any action for violation of these laws, even if successfully defended, could cause a pharmaceutical manufacturer to incur significant legal expenses and divert management’s attention from the operation of the business. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect business in an adverse way.
We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
Even if we receive regulatory approval of any product candidates or therapies, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.
If any of our product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, export, import, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities. In addition, we will be subject to continued compliance with cGMP and GCP requirements for any clinical trials that we conduct post- approval.
Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any BLA, other marketing application, and previous responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a risk evaluation and mitigation strategies, or REMS, program as a condition of approval of our product candidates, which could entail requirements for long-term patient follow-up, a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, we will have to comply with requirements including submissions of safety and other post-marketing information and reports and registration.
The FDA may impose consent decrees or withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market or voluntary or mandatory product recalls; |
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fines, warning letters or holds on clinical trials; |
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals; |
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product seizure or detention or refusal to permit the import or export of our product candidates; and |
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injunctions or the imposition of civil or criminal penalties. |
The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses and a company that is found to have improperly promoted off-label uses may be subject to significant liability. The policies of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained which would adversely affect our business, prospects and ability to achieve or sustain profitability.
We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the current administration may impact our business and industry. Namely, the current administration has taken several executive actions, including the issuance of a number of executive orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities, such as implementing statutes through rulemaking, issuance of guidance and review and approval of marketing applications. It is difficult to predict how these executive actions, including any executive orders, will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
Healthcare insurance coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, if approved, which could make it difficult for us to sell any product candidates or therapies profitably.
The success of our product candidates, if approved, depends on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our product candidates represent new approaches to the treatment of the diseases they target, we cannot be sure that coverage and reimbursement will be available for, or accurately estimate the potential revenue from, our product candidates or assure that coverage and reimbursement will be available for any product that we may develop.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:
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a covered benefit under its health plan; |
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safe, effective and medically necessary; |
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appropriate for the specific patient; |
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cost-effective; and |
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neither experimental nor investigational. |
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time- consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost- effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Further, even if one payor provides coverage for a given product, other payors may not provide coverage for that product. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of product candidates. Patients are unlikely to
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use our product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates. Because our product candidates may have a higher cost of goods than conventional therapies, and may require long-term follow-up evaluations, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater. There is significant uncertainty related to insurance coverage and reimbursement of newly approved products. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
Payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, the Middle Class Tax Relief and Job Creation Act of 2012 required that the Centers for Medicare & Medicaid Services, the agency responsible for administering the Medicare program (“CMS”) reduce the Medicare clinical laboratory fee schedule by 2% in 2013, which served as a base for 2014 and subsequent years. In addition, effective January 1, 2014, CMS also began bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatient setting. Additional state and federal healthcare reform measures are expected to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for certain pharmaceutical products or additional pricing pressures.
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 the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. For example, in October 2017, California became the first state to pass legislation requiring pharmaceutical manufacturers to announce planned drug price increases. While this legislation does not directly affect drug prices, it puts further pressure on pharmaceutical manufacturers in setting prices. At least one state, Oregon, has recently passed a similar law, requiring pharmaceutical manufacturers to disclose cost components, and other states are likely to follow. Additionally, the Trump administration recently released a “Blueprint”, or plan, to reduce the cost of drugs. The Trump administrations’ Blueprint contains certain measures that the U.S. Department of Health and Human Services is already working to implement. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, cost containment initiatives and additional legislative changes.
Ongoing healthcare legislative and regulatory reform measures may have a material adverse effect on our business and results of operations.
Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act (“ACA”), was passed, which substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare
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providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. On June 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12 billion in ACA risk corridor payments to third-party payors who argued were owed to them. The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and potentially our business, are not yet known.
Moreover, on May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to that policy. We expect that additional foreign, federal and state healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in limited coverage and reimbursement and reduced demand for our products, once approved, or additional pricing pressures.
These laws, and future state and federal healthcare reform measures may be adopted in the future, any of which may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
European Union drug marketing and reimbursement regulations may materially affect our ability to market and receive coverage for our products in the European member states.
We intend to seek approval to market our product candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the European Union, the pricing of pharmaceutical products is subject to governmental control and other market regulations which could put pressure on the pricing and usage of our product candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our product candidates and may be affected by existing and future healthcare reform measures.
Much like the Anti-Kickback Statute prohibition in the United States, the provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the European Union. The provision of benefits or advantages to physicians is governed by the national anti-bribery laws of European Union Member States. Infringement of these laws could result in substantial fines and imprisonment.
Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
In addition, in most foreign countries, including the European Economic Area, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. In some countries, we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of any of our product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries.
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If pricing is set at unsatisfactory levels or if reimbursement of our products is unavailable or limited in scope or amount, our revenues from sales by us or our strategic partners and the potential profitability of any of our product candidates in those countries would be negatively affected.
European data collection is governed by restrictive regulations governing the use, processing, and cross-border transfer of personal information.
The collection and use of personal health data in the European Union (“EU”), was previously governed by the provisions of the Data Protection Directive, which has been replaced by the General Data Protection Regulation 2016/679 (“GDPR”) as of May 2018.
The GDPR imposes a broad range of strict requirements on companies subject to the GDPR, such as us, including requirements relating to having legal bases for processing personal information relating to identifiable individuals and transferring such information outside the European Economic Area, (“EEA”), including to the United States, providing details to those individuals regarding the processing of their personal information, keeping personal information secure, having data processing agreements with third parties who process personal information, responding to individuals’ requests to exercise their rights in respect of their personal information, reporting security breaches involving personal data to the competent national data protection authority and affected individuals, appointing data protection officers, conducting data protection impact assessments, and record-keeping. The GDPR substantially increases the penalties to which we could be subject in the event of any non-compliance, including fines of up to 10 million Euros or up to 2% of our total worldwide annual turnover for certain comparatively minor offenses, or up to 20 million Euros or up to 4% of our total worldwide annual turnover for more serious offenses. Given the new law, we face uncertainty as to the exact interpretation of the new requirements, and we may be unsuccessful in implementing all measures required by data protection authorities or courts in interpretation of the new law.
In particular, national laws of member states of the EU are in the process of being adapted to the requirements under the GDPR, thereby implementing national laws which may partially deviate from the GDPR and impose different obligations from country to country, so that we do not expect to operate in a uniform legal landscape in the EU. Also, in the field of handling genetic data, the GDPR specifically allows national laws to impose additional and more specific requirements or restrictions, and European laws have historically differed quite substantially in this field, leading to additional uncertainty.
With respect to our clinical trials in the EEA, we must also ensure that we maintain adequate safeguards to enable the transfer of personal data outside of the EEA, in particular to the United States in compliance with European data protection laws including the GDPR. We expect that we will continue to face uncertainty as to whether our efforts to comply with our obligations under European privacy laws will be sufficient. If we are investigated by a European data protection authority, we may face fines and other penalties. Any such investigation or charges by European data protection authorities could have a negative effect on our existing business and on our ability to attract and retain new clients or pharmaceutical partners. We may also experience hesitancy, reluctance, or refusal by European or multi-national clients or pharmaceutical partners to continue to use our products and solutions due to the potential risk exposure as a result of the current (and, in particular, future) data protection obligations imposed on them by certain data protection authorities in interpretation of current law, including the GDPR. Such clients or pharmaceutical partners may also view any alternative approaches to compliance as being too costly, too burdensome, too legally uncertain, or otherwise objectionable and therefore decide not to do business with us. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.
Laws and regulations governing any international operations may preclude us from developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.
Because we have operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. We, directly or through our CROs, are conducting clinical trials in countries that Transparency International has identified as “perceived as more corrupt”, including, Brazil, Chile, Georgia, Russia and Ukraine. In addition, the FCPA presents particular
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challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.
We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.
Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations, which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities to increase in time. We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities.
Inadequate funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, statutory, regulatory, and policy changes and the impact of crises that hinder its operations, such as COVID-19. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including most recently from December 22, 2018 to January 25, 2019, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
If we do not comply with environmental laws and regulations, we may incur significant costs and potential disruption to our business.
We use or may use hazardous, infectious, and radioactive materials, and recombinant DNA in our operations, which have the potential of being harmful to human health and safety or the environment. We store these hazardous (flammable, corrosive, toxic), infectious, and radioactive materials, and various wastes resulting from their use, at our facilities pending use and ultimate disposal. We are subject to a variety of federal, state, and local laws and regulations governing use, generation, storage, handling, and disposal of these materials. We may incur significant costs complying with both current and future environmental health and safety laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health Administration, the Environmental Protection Agency, the Drug Enforcement Agency, the Department of Transportation, the Centers for Disease Control and Prevention,
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the National Institutes of Health, the International Air Transportation Association, and various state and local agencies. At any time, one or more of the aforementioned agencies could adopt regulations that may affect our operations. We are also subject to regulation under the Toxic Substances Control Act and the Resource Conservation Development programs.
Although we believe that our current procedures and programs for handling, storage, and disposal of these materials comply with federal, state, and local laws and regulations, we cannot eliminate the risk of accidents involving contamination from these materials. Although we have a workers’ compensation liability policy, we could be held liable for resulting damages in the event of an accident or accidental release, and such damages could be substantially in excess of any available insurance coverage and could substantially disrupt our business.
If we or our employees, independent contractors, consultants, commercial partners and vendors fail to comply with laws or regulations, it could adversely impact our reputation, business and stock price.
We are exposed to the risk of employee fraud or other misconduct our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by employees could include intentional and/or negligent failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state health care fraud and abuse, transparency, and/or data privacy laws and regulations (including the California Consumer Privacy Act) and security laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices; to promote transparency; and to protect the privacy and security of patient data. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. If we obtain FDA approval of any of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and education programs.
While we have adopted a corporate compliance program, we may not be able to protect against all potential issues of noncompliance. Efforts to ensure that our business complies with all applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, or case law involving applicable laws and regulations.
Employee misconduct could also involve the improper use or disclosure of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. In addition, during the course of our operations, our directors, executives and employees may have access to material, nonpublic information regarding our business, our results of operations or potential transactions we are considering. We may not be able to prevent a director, executive or employee from trading in our common stock on the basis of, or while having access to, material, nonpublic information. If a director, executive or employee was to be investigated, or an action was to be brought against a director, executive or employee for insider trading, it could have a negative impact on our reputation and our stock price. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert the attention of our management team.
Risks associated with doing business internationally could negatively affect our business.
We currently have research and development operations in the United Kingdom (“UK”) and clinical operations in eastern Europe, and we expect to pursue pathways to develop and commercialize our product candidates in both U.S. and ex-U.S. jurisdictions. Various risks associated with foreign operations may impact our success. Possible risks of foreign operations include fluctuations in the value of foreign and domestic currencies, requirements to comply with various jurisdictional requirements such as data privacy regulations, disruptions in the import, export, and transportation of patient tumors and our products or product candidates, the product and service needs of foreign customers, difficulties in building and managing foreign relationships, the performance of our licensees or collaborators, geopolitical instability, unexpected regulatory, economic, or political changes in foreign and domestic markets, including without limitation any resulting from the UK’s planned or actual withdrawal from the EU or our current political regime, and limitations on the flexibility of our operations and costs imposed by local labor laws.
The exit of the UK from the European Union may materially affect the regulatory regime that governs our handling of EU personal data and expose us to legal and business risks under European data privacy and protection law.
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On January 31, 2020, the UK exited the EU, commonly known as Brexit. Pursuant to the Withdrawal Agreement that has been ratified by both the UK and EU, EU law, including GDPR will continue to apply in the UK until December 31, 2020. The Withdrawal Agreement provides that the UK and EU can elect to extend such transition period by up to two years.
On and after, January 1, 2021, any transfers of personal data to the United Kingdom will then be subject to the requirements of Chapter V of the GDPR and of the Law Enforcement Directive and absent an adequacy finding under GDPR, transfers of personal data from the EU to the UK, including to our facility in Cambridge, UK, would be illegal without adequate safeguards provided for under EC-approved mechanisms, such as current standard contractual clauses or, if approved in the future, an EU-UK privacy shield similar to the current framework in place between the EU and the United States. The extensive authority of UK intelligence and law enforcement agencies, including to conduct surveillance on personal data flows, could reduce the likelihood that the EC would give the UK an adequacy finding and reduce the likelihood that the EC would approve an EU-UK privacy shield. Accordingly, we would be exposed to legal risk for any of our EU-UK personal data transfers, including those that involve sensitive data such as patient and genetic data. Given the uncertainties surrounding the UK’s departure from the EU, it is difficult to precisely identify or quantify the risks described above.
Additionally, it is possible that, over time, the UK Data Protection Act could become less aligned with the GDPR, which could require us to implement different compliance measures for the UK and the European Union and result in potentially enhanced compliance obligations for EU personal data.
As a result, Bexit adds legal risk, uncertainty, complexity and cost to our handling of EU personal information and our privacy and data security compliance programs. If we do not successfully manage such risk, our prospects may be materially harmed.
Comprehensive tax reform legislation could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (the “TCJA”) that significantly reformed the Internal Revenue Code of 1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. Our net deferred tax assets and liabilities were revalued at the newly enacted U.S. corporate rate. We did not recognize any tax expense in the year of enactment as our net deferred tax assets have a full valuation allowance recorded.
Our ability to use net operating losses and research and development credits to offset future taxable income may be subject to certain limitations.
As of December 31, 2019, we had U.S. federal and state net operating loss, or NOL, carryforwards of $646.3 million and $184.9 million, respectively, which may be available to offset future taxable income. The federal NOLs include $607.7 million which expire at various dates through 2037 and $38.6 million which carryforward indefinitely. The state NOLs expire at various dates through 2038. As of December 31, 2019, we also had U.S. federal and state research and development tax credit carryforwards of $8.8 million and $9.4 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2020 and 2033, respectively. In addition, in general, under Sections 382 and 383 of the Code and corresponding provisions of state law, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards or tax credits, or NOLs or credits, to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Our existing NOLs or credits may be subject to limitations arising from previous ownership changes, including in connection with our recent private placements, IPO and other transactions. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code and our ability to utilize NOLs or credits may be impaired. Our NOLs or credits may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs or credits. Furthermore, our ability to utilize our NOLs or credits is conditioned upon our attaining profitability and generating U. S. federal and state taxable income. As described above under “Risk factors—Risks Related to Our Financial Position and Need for Additional Capital,” we have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; and therefore, we do not know whether or when we will generate the U.S. federal or state taxable income necessary to utilize our NOLs or credits that are subject to limitation by Sections 382 and 383 of the Code. The reduction of the corporate tax rate under the TCJA caused a reduction in the economic benefit of our net operating loss carryforwards and other deferred tax assets available to us. Under the TCJA, net operating loss carryforwards generated after December 31, 2017 will not be subject to expiration.
Risks Related to Our Intellectual Property
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If we are unable to obtain and enforce patent protection for our product candidates and related technology, our business could be materially harmed.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our product candidates and technology. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to duplicate or surpass our technological achievements, eroding our competitive position in the market. Our patent applications may not result in issued patents, and, even if issued, the patents may be challenged and invalidated. Moreover, our patents and patent applications may not be sufficiently broad to prevent others from practicing our technologies or developing competing products. We also face the risk that others may independently develop similar or alternative technologies or may design around our proprietary property.
Issued patents may be challenged, narrowed, invalidated or circumvented. In addition, court decisions may introduce uncertainty in the enforceability or scope of patents owned by biotechnology companies. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not allow us to protect our inventions with patents to the same extent as the laws of the United States. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the enforceability and scope of our patents in the United States and in foreign countries cannot be predicted with certainty and, as a result, any patents that we own, or license may not provide sufficient protection against competitors. We may not be able to obtain or maintain patent protection from our pending patent applications, from those we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection may be of insufficient scope to achieve our business objectives.
Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time. Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its effective filing date. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Without patent protection for our product candidates, we may be open to competition from biosimilar or generic versions of our product candidates. Furthermore, the product development timeline for biotechnology products is lengthy and it is possible that our issued patents covering our product candidates in the United States and other jurisdictions may expire prior to commercial launch. For example, if we encounter delays in our development efforts, including our clinical trials, the period of time during which we could market our product candidates under patent protection could be reduced.
Our strategy depends on our ability to identify and seek patent protection for our discoveries. This process is expensive and time consuming, and we and our current or future licensors or licensees 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 jurisdictions where protection may be commercially advantageous. It is also possible that we or our current licensors or licensees, or any future licensors or licensees, may not identify patentable aspects of inventions made in the course of development and commercialization activities in time to obtain patent protection on them. Therefore, these and any of our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, etc. If we or our current licensors or licensees, or any future licensors or licensees, fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our current licensors or licensees, or any future licensors or licensees, are not fully cooperative or disagree with us 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 or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. The issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
The patent landscapes in the fields of antibody, vaccine, adjuvant and adoptive cell therapy development, manufacture and commercialization are crowded. For example, we are aware of third party patents directed to methods for identifying and producing therapeutic products such as antibodies, vaccines, adjuvants and adoptive cell therapies. We are also aware of third party patents directed to products targeting numerous antigens for which we also seek to identify, develop, and commercialize products. For
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example, some patents claim products based on competitive binding with existing products, some claim products based on specifying sequence or other structural information, and some claim various methods of discovery, production, or use of such products.
These or other third-party patents could impact our freedom to operate in relation to our technology platforms, as well as in relation to development and commercialization of products identified by us as therapeutic candidates. As we discover and develop our candidates, we will continue to conduct analyses of these third-party patents to determine whether we believe we might infringe them, and if so, whether they would be likely to be deemed valid and enforceable if challenged. If we determine that a license for a given patent or family of patents is necessary or desirable, there can be no guarantee that a license would be available on favorable terms, or at all. Inability to obtain a license on favorable terms, should such a license be determined to be necessary or desirable, could, without limitation, result in increased costs to design around the third-party patents, delay product launch, or result in cancellation of the affected program or cessation of use of the affected technology.
Third parties may also seek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.
Through our acquisitions of 4-AB, PhosImmune and certain assets of Celexion, we own, co-own, or have exclusive rights to a number of patents and patent applications directed to various methods and compositions, including methods for identifying therapeutic antibodies and product candidates arising out of such entities’ technology platforms. In particular, we own patents and patent applications relating to our Retrocyte DisplayTM technology platform, a high throughput antibody expression platform for the identification of fully-human and humanized monoclonal antibodies. This patent family is projected to expire between 2029 and 2031. Through our acquisition of PhosImmune, we own, co-own, or have exclusive rights to patents and patent applications directed to various methods and compositions, including a patent directed to methods for identifying phosphorylated proteins using mass spectrometry. This patent is projected to expire in 2023. In addition, as we advance our research and development efforts with our institutional and corporate collaborators, we are seeking patent protection for newly identified therapeutic antibodies and product candidates. We can provide no assurance that any of our patents, including the patents that we acquired or in-licensed in connection with our acquisitions of 4-AB, PhosImmune and certain assets of Celexion, will have commercial value, or that any of our existing or future patent applications, including the patent applications that we acquired or in-licensed in connection with our acquisitions of 4-AB, PhosImmune and certain assets of Celexion, will result in the issuance of valid and enforceable patents.
Our issued patents covering Prophage vaccine and methods of use thereof, alone or in combination with other agents, expired or will expire at various dates between 2015 and 2024. In particular, our issued U.S. patents covering Prophage composition of matter expired in 2015. In addition, our issued patents covering QS-21 Stimulon composition of matter expired in 2008. We continue to explore means of extending the life cycle of our patent portfolio.
The patent position of biopharmaceutical, pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards which the USPTO and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in biopharmaceutical, pharmaceutical or biotechnology patents. The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries. Outside the United States, patent protection must be sought in individual jurisdictions, further adding to the cost and uncertainty of obtaining adequate patent protection outside of the United States. Accordingly, we cannot predict whether additional patents protecting our technology will issue in the United States or in foreign jurisdictions, or whether any patents that do issue will have claims of adequate scope to provide competitive advantage. Moreover, we cannot predict whether third parties will be able to successfully obtain claims or the breadth of such claims. The allowance of broader claims may increase the incidence and cost of patent interference proceedings, opposition proceedings, post-grant review, inter partes review, and/or reexamination proceedings, the risk of infringement litigation, and the vulnerability of the claims to challenge. On the other hand, the allowance of narrower claims does not eliminate the potential for adversarial proceedings and may fail to provide a competitive advantage. Our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive advantage.
If any of our owned or in-licensed patent applications do not issue as patents in any jurisdiction, we may not be able to compete effectively.
Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our
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intellectual property or narrow the scope of our owned and licensed patents. With respect to our patent portfolio, as of the date of this filing, we own, co-own or have exclusive rights to approximately 20 issued United States patents and approximately 25 issued foreign patents. We also own, co-own or have exclusive rights to approximately 40 pending United States patent applications and approximately 280 pending foreign patent applications. Our patent positions, and those of other biopharmaceutical, pharmaceutical and biotechnology companies, are generally uncertain and involve complex legal, scientific, and factual questions. The standards which the United States Patent and Trademark Office (“USPTO”) uses to grant patents, and the standards which courts use to interpret patents, are not always applied predictably or uniformly and can change, particularly as new technologies develop. Consequently, the level of protection, if any, that will be provided by our patents if we attempt to enforce them and they are challenged, is uncertain. In addition, the type and extent of patent claims that will be issued to us in the future is uncertain. Any patents that are issued may not contain claims that permit us to stop competitors from using similar technology. With respect to both in- licensed and owned intellectual property, we cannot predict whether the patent applications we and our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.
The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patents and patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, contract research organizations, contract 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 our ability to seek patent protection. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in any of our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.
If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar or identical technology and product candidates would be adversely affected.
The patent position of biotechnology and pharmaceutical 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 our patent rights are highly uncertain. Our approximately 40 pending United States patent applications and approximately 280 pending foreign patent applications may not result in patents being issued which protect our product candidates or patents which effectively prevent others from commercializing competitive technologies and product candidates.
No consistent policy regarding the scope of claims allowable in patents in the biotechnology field has emerged in the United States. The patent situation outside of the United States is even more uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions and enforce our intellectual property rights, and more generally could affect the value of our intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions and improvements. With respect to both licensed and company-owned intellectual property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our products and the methods used to manufacture those products. Moreover, even our issued patents do not guarantee us the right to practice our technology in relation to the commercialization of our products. The area of patent and other intellectual property rights in biotechnology is an evolving one with many risks and uncertainties, and third parties may have blocking patents that could be used to prevent us from commercializing our patented product candidates and practicing our proprietary technology. Our issued patent and those that may issue in the future may be challenged, invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or limit the length of the term of patent protection that we may have for our product candidates. In addition, the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies. For these reasons, we may have competition for our product candidates. Moreover, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any particular product candidate can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.
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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 we own or license issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patents that we own or in-license may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, we do not know whether our product candidates will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect our business, financial condition, results of operations and prospects.
The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and patents that we own or license may be challenged in the courts or patent offices in the United States and abroad. We or our licensors may be subject to a third party preissuance submission of prior art to the USPTO or to foreign patent authorities or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review, or interference proceedings or other similar proceedings challenging our owned or licensed patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our owned or in-licensed patent rights, allow third parties to commercialize our product candidates, and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, we, or one of our licensors, may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge our or our licensor’s priority of invention or other features of patentability with respect to our owned or in-licensed patents and patent applications. Such challenges may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our product candidates. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.
In addition, given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may in the future co-own patent rights relating to future product candidates with third parties. Some of our in-licensed patent rights are, and may in the future be, co-owned with third parties. In addition, our licensors may co-own the patent rights we in-license with other third parties with whom we do not have a direct relationship. Our exclusive rights to certain of these patent rights are dependent, in part, on inter-institutional or other operating agreements between the joint owners of such patent rights, who are not parties to our license agreements. If our licensors do not have exclusive control of the grant of licenses under any such third-party co-owners’ interest in such patent rights or we are otherwise unable to secure such exclusive rights, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co- owners of our patent rights in order to enforce such patent rights against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important to our business.
We are currently party to various intellectual property license agreements. These license agreements impose, and we expect that future license agreements may impose, various diligence, milestone payment, royalty, insurance and other obligations on us. These licenses typically include an obligation to pay an upfront payment, yearly maintenance payments and royalties on sales. If we fail to comply with our obligations under the licenses, the licensors may have the right to terminate their respective license agreements, in which event we might not be able to market any product that is covered by the agreements. Termination of the license agreements or reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms, which could adversely affect our competitive business position and harm our business.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing countries. For example, China has a heightened requirement for patentability, and specifically requires a detailed description of medical uses of a claimed drug. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the United States.
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Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement on infringing activities is inadequate. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, certain countries in Europe and certain developing countries, including India and China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to our patents to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. Finally, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
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 our patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside counsel or service providers 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. We employ reputable law firms and other professionals to help us comply, and 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 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, it could have a material adverse effect on our business. In addition, we are responsible for the payment of patent fees for patent rights that we have licensed from other parties.
If any licensor of these patents does not itself elect to make these payments, and we fail to do so, we may be liable to the licensor for any costs and consequences of any resulting loss of patent rights.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity, and therefore, is costly, time-consuming and inherently uncertain. In addition, the United States has enacted and implemented wide-ranging patent reform legislation. Further, recent U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.
For our U.S. patent applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law. In September 2011, AIA was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted and also affect patent litigation. The USPTO has developed regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA. It is not clear what other, if any, impact the AIA will have on the operation of our business. Moreover, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
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An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-inventor-to- file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This requires us to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to either (i) file any patent application related to our product candidates or (ii) invent any of the inventions claimed in our patents or patent applications.
Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.
If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.
In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. Thus, despite such agreement, such inventions may become assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all.
Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery.
Depending upon the nature of the product and the specifics of the related FDA marketing approval, data exclusivity under the Biologics Price Competition and Innovation Act (BPCIA) or related laws in the U.S. or certain foreign countries and territories may be available for our products. The BPCIA provides that FDA shall not approve certain biosimilars from the date of first licensure of a reference product for 12 years, subject to certain restrictions. However, we may not obtain or be eligible for data exclusivity because of, for example, the nature of the product with respect to other products on the market, our relationships with our partners (including our licensors and licensees), failing to claim the exclusivity at the appropriate time or otherwise failing to satisfy applicable requirements. If we are unable to obtain data exclusivity, our competitors may obtain earlier approval of competing products, and our business, financial condition, results of operations and prospects could be materially harmed.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We may have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biopharmaceutical, biotechnology or pharmaceutical companies. We may be subject to claims that we or
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our employees, consultants or independent contractors have inadvertently or otherwise improperly used or disclosed confidential information of these third parties or our employees’ former employers. Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. We may also be subject to claims that former employees, consultants, independent contractors, collaborators or other third parties have an ownership interest in our patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging our right to and use of confidential and proprietary information. If we fail in defending any such claims, in addition to paying monetary damages, we may lose our rights therein. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position. In particular, the patent landscapes around the discovery, development, manufacture and commercial use of our product candidates are crowded.
Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain a license to any technology that we require may materially harm our business, financial condition and results of operations. Moreover, our failure to maintain a license to any technology that we require may also materially harm our business, financial condition, and results of operations. Furthermore, we would be exposed to a threat of litigation.
In the biopharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual property rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:
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we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not infringe those third parties’ patents; |
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if our competitors file patent applications that claim technology also claimed by us or our licensors or licensees, we or our licensors or licensees may be required to participate in interference, derivation or other proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position; |
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if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings; and |
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if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings. |
These lawsuits would be costly and could affect our results of operations and divert the attention of our management and scientific personnel. There is a risk that a court would decide that we or our collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our collaborators may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court will order us or our collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.
The biopharmaceutical industry has produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform or predictable. If we are sued for patent infringement, we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing
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these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.
The cost of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.
We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent which might adversely affect our ability to develop and market our product candidates.
We cannot guarantee that any of our or our licensors’ patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending patent application in the United States and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction. For example, U.S. patent applications filed before November 29, 2000 and certain U.S. patent applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidates could have been filed by third parties without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our product candidates or the use of our product candidates. The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our product candidates. We may incorrectly determine that our product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our product candidates.
If we fail to identify and correctly interpret relevant patents, we may be subject to infringement claims. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we fail in any such dispute, in addition to being forced to pay damages, which may be significant, we may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign product candidates so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business and could adversely affect our business, financial condition, results of operations and prospects.
We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
Third parties may infringe or misappropriate our intellectual property, including our existing patents, patents that may issue to us in the future, or the patents of our licensors or licensees to which we have a license. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. Further, we may not be able to prevent, alone or with our licensors or licensees, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.
If we or one of our licensors or licensees were to initiate legal proceedings against a third party to enforce a patent covering our product candidates, the defendant could counterclaim that the patent covering our product candidates is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent.
In addition, within and outside of the United States, there has been a substantial amount of litigation and administrative proceedings, including interference and reexamination proceedings before the USPTO or oppositions and other comparable
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proceedings in various foreign jurisdictions, regarding patent and other intellectual property rights in the biopharmaceutical industry. Notably, the Leahy-Smith America Invents Act, or the American Invents Act (“AIA”), introduced new procedures, including inter partes review and post grant review. These procedures may be used by competitors to challenge the scope and/or validity of our patents, including those patents perceived by our competitors as blocking entry into the market for their products, and the outcome of such challenges.
Even after they have been issued, our patents and any patents which we license may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other companies may be better able to develop products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition.
The following are non-exclusive examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents or patents licensed to us:
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we or our collaborators may initiate litigation or other proceedings against third parties to enforce our patent rights; |
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third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or patents licensed to us; |
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third parties may initiate opposition proceedings, post-grant review, inter partes review, or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or our collaborators and/or licensors or licensees to participate in such proceedings to defend the validity and scope of our patents; |
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there may be a challenge or dispute regarding inventorship or ownership of patents currently identified as being owned by or licensed to us; |
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the USPTO may initiate an interference or derivation proceeding between patents or patent applications owned by or licensed to us and those of our competitors, requiring us or our collaborators and/or licensors or licensees to participate in an interference or derivation proceeding to determine the priority of invention, which could jeopardize our patent rights; or |
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third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents owned by or licensed to us, requiring us to defend our patents, including by filing lawsuits alleging patent infringement. |
These lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial and scientific personnel. There is a risk that a court or administrative body could decide that our patents are invalid or not infringed by a third party’s activities, or that the scope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents could limit our ability to assert our patents against these or other competitors, affect our ability to receive royalties or other licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. An adverse outcome may also put our pending patent applications at risk of not issuing, or issuing with limited and potentially inadequate scope to cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. Additionally, it is also possible that prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, may, nonetheless, ultimately be found by a court of law or an administrative panel to affect the validity or enforceability of a claim, for example, if a priority claim is found to be improper. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we could lose at least part, and perhaps all, of the patent protection on our relevant product candidates. Such a loss of patent protection could have a material adverse impact on our business.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, during the course of litigation or administrative proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed. Any of these occurrences could adversely affect our competitive business position, business prospects, and financial condition.
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Intellectual property rights do not necessarily address all potential threats to our competitive advantage. The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents; |
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others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents; |
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we might not have been the first to make the inventions covered by patents or pending patent applications; |
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we might not have been the first to file patent applications for these inventions; |
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any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or |
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we may not develop additional proprietary technologies that are patentable. |
If we do not obtain patent term extension and/or data exclusivity for any product candidates we may develop, our business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of our owned or in-licensed U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent term extension of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar extensions as compensation for patent term lost during regulatory review processes are also available in certain foreign countries and territories, such as in Europe under a Supplementary Patent Certificate. However, we may not be granted an extension in the United States and/or foreign countries and territories 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 we request. If we are unable to obtain patent term extension or the term of any such extension is shorter than what we request, our competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patent rights, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our licensors’ ownership of our owned or in-licensed patent rights, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. We also have partners who may market or refer to our trademarks or trade names and may use the trademarks or trade names is ways that impair our branding strategy. Recepta and Betta Pharmaceuticals have rights to balstilimab and zalifrelimab in certain South American countries and greater China, respectively, and each may adopt a marketing strategy, including use or registration of trademarks and tradenames, that could impair our brand identity or strategy and possibly cause market confusion. If we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the
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party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and prospects.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
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others may be able to make products that are similar to our product candidates or utilize similar technology but that are not covered by the claims of the patents that we license or may own; |
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we, or our current or future licensors or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or own now or in the future; |
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we, or our current or future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; |
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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or licensed intellectual property rights; |
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it is possible that our current or future pending owned or licensed patent applications will not lead to issued patents; |
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issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties; |
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our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
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we may not develop additional proprietary technologies that are patentable; |
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the patents of others may harm our business; and |
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we may choose not to file a patent in order to maintain 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, they could have a material adverse effect on our business, financial condition, results of operations and prospects.
Risks Related to Business Operations, Employee Matters and Managing Growth
We have undergone significant growth across multiple locations over the past few years, and are focusing on further enhancing core areas and capabilities as we move toward commercialization. In addition, we have consolidated certain sites while expanding others to focus on our core priorities and future needs. We may encounter difficulties in managing these growth and/or consolidation efforts, either of which could disrupt our operations.
Over the past few years we have more than tripled our headcount, in part through various acquisitions and the expansion of our research and development activities both nationally and internationally. While we have restructured our organization over the past few years, we expect to continue increasing our headcount in certain core areas as we continue to build our development, manufacturing and commercialization capabilities and integrate our acquired technology platforms. To manage these organizational changes, we must continue to implement and improve our managerial, operational and financial systems and continue to recruit, train and retain
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qualified personnel. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our timelines may be delayed, our ability to generate revenue could be reduced, and we may not be able to implement our business strategy.
As part of our efforts to optimize efficiency across our organization, we previously closed offices in Germany and Switzerland and consolidated these operations in the UK. In January 2020, our subsidiary AgenTus closed its Waterloo, Belgium office and consolidated those operations in our Lexington, MA facility. In March 2020, as a result of the COVID-19 pandemic, we completed a company-wide reduction in force. If these transition efforts prove to be unsuccessful, or if we identify management or operational gaps in connection with our changes, it could cause delays in discovery timelines and increased costs for certain of our internal and partnered programs, which also could have an adverse effect on our business, financial condition and results of operations. We are still in the process of liquidating 4-AB and transferring intellectual property rights from Switzerland to the United States or elsewhere. There could be adverse tax consequences resulting from this migration of intellectual property rights, which could have an adverse effect on our business and operations.
Product liability and other claims against us may reduce demand for our products and/or result in substantial damages.
We face an inherent risk of product liability exposure related to testing our product candidates in human clinical trials and manufacturing antibodies in our Berkeley, CA facility and may face even greater risks if we ever sell products commercially. An individual may bring a product liability claim against us if one of our product candidates causes, or merely appears to have caused, an injury. Product liability claims may result in:
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regulatory investigations; |
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injury to our reputation; |
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withdrawal of clinical trial volunteers; |
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costs of related litigation; |
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substantial monetary awards to plaintiffs; and |
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decreased demand for any future products. |
We manufacture the Prophage vaccines from a patient’s cancer cells, and medical professionals must inject the vaccines into the same patient from which they were manufactured. A patient may sue us if a hospital, a shipping company, or we fail to receive the removed cancer tissue or deliver that patient’s vaccine. We do not have any other insurance that covers loss of or damage to the Prophage vaccines or tumor material, and we do not know whether such insurance will be available to us at a reasonable price or at all. We have limited product liability coverage for use of our product candidates. Our product liability policy provides $10.0 million aggregate coverage and $10.0 million per occurrence coverage. This limited insurance coverage may be insufficient to fully cover us for future claims.
We are also subject to laws generally applicable to businesses, including but not limited to, federal, state and local wage and hour, employee classification, mandatory healthcare benefits, unlawful workplace discrimination and whistle-blowing. Any actual or alleged failure to comply with any regulation applicable to our business or any whistle-blowing claim, even if without merit, could result in costly litigation, regulatory action or otherwise harm our business, results of operations, financial condition, cash flow and future prospects.
We are highly reliant on certain members of our management team. In addition, we have limited internal resources and if we fail to recruit and/or retain the services of key employees and external consultants as needed, we may not be able to achieve our strategic and operational objectives.
Both Garo H. Armen, Ph.D., the Chairman of our Board of Directors and our Chief Executive Officer who co-founded the Company in 1994, and Jennifer Buell, Ph.D., our President and Chief Operating Officer, are integral to building our company and developing our technology. If either Dr. Armen or Dr. Buell is unable or unwilling to continue his or her relationship with Agenus, our business may be adversely impacted. We have employment agreements with Dr. Armen and Dr. Buell. They both play an important role in our day-to-day activities, and we do not carry key employee insurance policies for Dr. Armen, Dr. Buell or any other employee. The loss of the services of Dr. Armen or Dr. Buell, other key employees, and other scientific and medical advisors, and our inability to find suitable replacements could result in delays in product development and harm our business.
The bulk of our operations are conducted at our facilities in Cambridge, UK, Lexington, MA and Berkeley, CA. The Cambridge, New England and Northern California regions are headquarters to many other biopharmaceutical companies and many
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academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.
Our future growth success depends to a significant extent on the skills, experience and efforts of our executive officers and key members of our clinical and scientific staff. We face intense competition for qualified individuals from other pharmaceutical, biopharmaceutical and biotechnology companies, as well as academic and other research institutions. To attract and retain employees at our company, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Employment of our key employees is at-will, which means that any of our employees could leave our employment at any time, with or without notice. We may be unable to retain our current personnel or attract or assimilate other highly qualified management and clinical personnel in the future on acceptable terms. The loss of any or all of these individuals could harm our business and could impair our ability to support our collaboration partners or our growth generally.
Our internal computer systems, or those of our third-party CROs, CMOs, licensees, collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption in our business and operations or could subject us to sanctions and penalties that could have a material adverse effect on our reputation or financial condition.
Despite the implementation of security measures, our internal computer systems and those of our current and future CROs, CMOs, licensees, collaborators and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Potential vulnerabilities can also be exploited from inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. In July 2020, the United States Government charged a pair of Chinese hackers working on behalf of China’s intelligence service in relation to the hacking of U.S. based biotechnology companies researching COVID-19 vaccines. In addition to the extraction of sensitive information, such attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. In addition, the prevalent use of mobile devices increases the risk of data security incidents. While we are not aware of any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed, on-going or future clinical trials could result in delays in our regulatory approval efforts and significant costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture certain of our drug candidates and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development and commercialization of our product candidates could be delayed. We do not maintain cyber liability insurance, and would therefore have no coverage for any losses resulting from any data security incident.
We use and store customer, vendor, employee and business partner and, in certain instances patient, personally identifiable information in the ordinary course of our business. We are subject to various domestic and international privacy and security regulations, including but not limited to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent than HIPAA. Failure to comply with these standards, or a computer security breach or cyber-attack that affects our systems or results in the unauthorized release of proprietary or personally identifiable information, could subject us to criminal penalties and civil sanctions, and our reputation could be materially damaged, and our operations could be impaired. We may also be exposed to a risk of loss or litigation and potential liability, which could have a material adverse effect on our business, results of operations and financial condition.
Natural or man-made calamities, or public health crises, could disrupt our business and materially adversely affect our operations and those of our strategic partners.
Our operations, and those of our CROs, CMOs, and other contractors and consultants together with regulatory agencies such as the FDA or EMA, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes,
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typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. The occurrence of any of these business disruptions could prevent us, or our collaborators and business partners or regulators, from using all or a significant portion of our, or their, facilities or disrupt our supply chain, and, it may be difficult or, in certain cases, impossible for us to continue certain activities, such as for example our manufacturing capabilities, for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses and delays as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business. We rely in part on third-party manufacturers to produce and process some of our product candidates. Our ability to obtain some of our clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption.
We own an antibody pilot plant manufacturing facility and lease additional office space in Berkeley, CA. This location is in an area of seismic activity near active earthquake faults and active wildfire activity. In October 2019, Pacific Gas and Electric Company (“PG&E”), the utility supplier for our Berkeley, CA facility provided notice to all residents and businesses in Almeda County (where Berkeley, CA is located) that it would shut off power to the county for a multiday period due to the risk of wildfires. The emergency backup generators located at our Berkeley, CA facility are not able to power the entire facility and only have enough fuel capacity to provide emergency power for a few hours. We have plans in place to maintain the fuel supply of our generators in the event of an extended power interruption, but there is no guarantee that such plans will be adequate to maintain emergency power at our Berkeley, CA facility. In addition, many of our employees reside in Alameda County and may be unable to leave home for the duration of any power shut off. While PG&E did not shut off power to our facility in October 2019, PG&E may do so in the future on short notice.
In March 2020, we put in place a number of protective measures in response to the COVID-19 pandemic. These measures include cancelling all commercial business travel, requesting employees to limit non-essential personal travel, asking some employees to self-quarantine at home, adjusting our facilities janitorial and sanitary policies, encouraging employees to work from home to the extent their job function enables them to do so, staggering the working hours of employees that are unable to perform their duties remotely and reconfiguring our facilities for physical distancing. We are revisiting these measures on a regular basis as the pandemic evolves, and we are likely to take additional action as we learn more and as instruction is provided by national, state and local governmental agencies. These measures have resulted, and any future actions are likely to result, in a disruption to our business. Our employees are also impacted by the closures of their children’s schools for lengthy periods of time. For instance, in both California and Massachusetts, all public and private elementary and secondary schools were closed for the duration of the 2019-2020 academic year, leaving many of our employees with no choice but to work from home while also caring for their children, which caused a loss in employee productivity. We expect this state of affairs to continue at least into 2021 as many schools have announced plans for a partially, or fully, remote 2020-2021 academic year. In addition, in March 2020, the United States government announced that it would suspend air travel between the United States and parts of Europe for a 30-day period and subsequently revised this suspension to include the UK, where we have an office and employees. In July 2020, the European Union banned entry by Americans, and, at present, the U.K. is requiring Americans to self-quarantine for 14-days after arrival. In the event the governments in Massachusetts, California or the UK further extend their shelter in place orders, travel bans, or otherwise prohibit employees from going to work for a longer period of time, our business will be disrupted and our programs and timelines are likely to be delayed, depending on the ultimate length and severity of the mandate. Not all of our employees are able to perform their duties or function remotely.
The operations of our strategic partners could also be impacted by calamities or public health crises, which could materially adversely affect our cash resources and operations. At the beginning of 2020, we projected receipt of approximately $60.0 million of cash milestone payments from existing partners before the end of the year. Although we did receive $15.1 million of this in the first half of 2020, as a result of the impact of COVID-19 on our partner’s programs and trials, the remaining $45.0 million is now delayed and unlikely to be received this year, which impacts our cash runway and ability to fund our operations. Additional delays resulting from COVID-19 or other crises are likely to materially adversely affect our business.
Failure to realize the anticipated benefits of our strategic acquisitions and licensing transactions could adversely affect our business, operations and financial condition.
An important part of our business strategy has been to identify and advance a pipeline of product candidates by acquiring and in-licensing product candidates, technologies and businesses that we believe are a strategic fit with our existing business. Since we acquired 4-AB in 2014, we have completed numerous additional strategic acquisitions and licensing transactions. The ultimate success of these strategic transactions entails numerous operational and financial risks, including:
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higher than expected development and integration costs; |
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difficulty in combining the technologies, operations and personnel of acquired businesses with our technologies, operations and personnel; |
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exposure to unknown liabilities; |
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difficulty or inability to form a unified corporate culture across multiple office sites both nationally and internationally; |
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inability to retain key employees of acquired businesses; |
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disruption of our business and diversion of our management’s time and attention; and |
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difficulty or inability to secure financing to fund development activities for such acquired or in-licensed product candidates, technologies or businesses. |
We have limited resources to integrate acquired and in-licensed product candidates, technologies and businesses into our current infrastructure, and we may fail to realize the anticipated benefits of our strategic transactions. Any such failure could have an adverse effect on our business, operations and financial condition.
We intend to advance our cell therapy business through our subsidiary, AgenTus Therapeutics, eventually with separate funding. Moving intellectual property assets into AgenTus Therapeutics in foreign jurisdictions could have adverse tax consequences, and there is no guarantee that we will be able to attract external funding. Moreover, even if the business is funded, there is no guarantee that it will be successful.
We are currently in the process of pursuing external funding and partnership opportunities to advance AgenTus Therapeutics, but Agenus is currently funding such operations. There is no guarantee that external funding will be available. If funding is available, there is no guarantee that it will be on attractive or acceptable terms, or that it will be adequate to advance the business to an inflection point for additional funding, including any potential initial public offering. Similarly, there is no guarantee that partnership opportunities will be available on attractive terms, if at all. If external funding is not available, we may be forced to either retire these programs or continue to use internal resources to advance them. In addition, our cell therapy assets are pre-clinical. Even if adequate funding and partnership opportunities are available, there is no guarantee that we or AgenTus Therapeutics will be successful in advancing one or more product candidates into and through clinical development. In addition, most of the efforts being made on behalf of AgenTus Therapeutics are being led by a separate AgenTus chief executive officer, utilizing several members of Agenus’ management team and Agenus’ internal general and administrative resources. The current structure could distract management and divert Agenus resources from Agenus’ own core pipeline and programs.
The cell therapy assets necessary to enable AgenTus Therapeutics are currently owned or controlled by Agenus in the United States and Switzerland. In connection with capitalizing AgenTus Therapeutics, these assets will be transferred or licensed to new legal entities within the United States and Europe and potentially others. Transferring these assets or licensing them on an exclusive basis would require that taxes be paid based on the fair market value of the assets. We may not have adequate net operating losses to offset any tax liabilities in the relevant jurisdictions. Moreover, we have previously disclosed our interest in potentially issuing a tax-free dividend to Agenus’ stockholders in the form of stock of AgenTus Therapeutics. There is no guarantee that any such dividend will be tax-free or that it will be issued at all, or the timing thereof. If we issue a dividend in the form of stock, there could be adverse tax consequences for certain of our stockholders.
Risks Related to our Common Stock
Our stock has historically had low trading volume, and its public trading price has been volatile.
During the period from our initial public offering on February 4, 2000 to June 30, 2020, and the six months ended June 30, 2020, the closing price of our common stock has fluctuated between $1.59 (or $0.27 pre-reverse stock split) and $315.78 (or $52.63 pre-reverse stock split) per share and $1.92 and $4.39 per share, respectively. The average daily trading volume for the six months ended June 30, 2020 was approximately 2,677,035 shares, while the average daily trading volume for the year ended December 31, 2019 was approximately 1,191,940 shares. The market may experience significant price and volume fluctuations that are often unrelated to the operating performance of individual companies. In addition to general market volatility, many factors may have a significant adverse effect on the market price of our stock, including:
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continuing operating losses, which we expect over the next several years as we continue our development activities; |
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announcements of decisions made by public officials or delays in any such announcements; |
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results of our pre-clinical studies and clinical trials or delays in anticipated timing; |
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delays in our regulatory filings or those of our partners; |
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announcements of new collaboration agreements with strategic partners or developments by our existing collaboration partners; |
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announcements of acquisitions; |
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announcements of technological innovations, new commercial products, failures of products, or progress toward commercialization by our competitors or peers; |
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failure to realize the anticipated benefits of acquisitions; |
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developments concerning proprietary rights, including patent and litigation matters; |
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publicity regarding actual or potential results with respect to product candidates under development; |
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quarterly fluctuations in our financial results, including our average monthly cash used in operating activities; |
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variations in the level of expenses related to any of our product candidates or clinical development programs; |
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additions or departures of key management or scientific personnel; |
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conditions or trends in the biopharmaceutical, biotechnology and pharmaceutical industries generally; |
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other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events; |
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changes in accounting principles; |
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general economic and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies; and |
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sales of common stock by us or our stockholders in the future, as well as the overall trading volume of our common stock. |
In the past, securities class action litigation has often been brought against a company following a significant decline in the market price of its securities. This risk is especially relevant for us because many biopharmaceutical, biotechnology and pharmaceutical companies experience significant stock price volatility.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock, or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
We do not intend to pay cash dividends on our common stock and, consequently your ability to obtain a return on your investment will depend on appreciation in the price of our common stock.
We have never declared or paid any cash dividend on our common stock and do not intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business. Therefore, the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or maintain their current value.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and to comply with changing regulation of corporate governance and public disclosure could have a material adverse effect on our operating results and the price of our common stock.
The Sarbanes-Oxley Act of 2002 and rules adopted by the SEC and Nasdaq have resulted in significant costs to us. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations regarding the required assessment of our internal control over financial reporting, and our independent registered public accounting firm’s audit of internal control over financial reporting, have required commitments of significant management time. We expect these commitments to continue.
Our internal control over financial reporting (as defined in Rules 13a-15 of the Exchange Act) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S. GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all deficiencies or weaknesses in our financial reporting. While our management has concluded that there were no material weaknesses in our internal control over financial reporting as of December 31, 2019, our procedures are subject to the risk
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that our controls may become inadequate because of changes in conditions or as a result of a deterioration in compliance with such procedures. No assurance is given that our procedures and processes for detecting weaknesses in our internal control over financial reporting will be effective.
Changing laws, regulations and standards relating to corporate governance and public disclosure, are creating uncertainty for companies. Laws, regulations and standards are subject to varying interpretations in some cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided, which could result in continuing uncertainty regarding compliance matters and higher costs caused by ongoing revisions to disclosure and governance practices. If we fail to comply with these laws, regulations and standards, our reputation may be harmed, and we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our operating results and the market price of our common stock.
The sale of a significant number of shares could cause the market price of our stock to decline.
The sale by us or the resale by stockholders of a significant number of shares of our common stock could cause the market price of our common stock to decline. As of August 3, 2020, we had 183,442,653 shares of common stock outstanding. Except for the 4,962,779 shares of common stock recently issued to Betta Pharmaceuticals, substantially all of these shares are eligible for sale on Nasdaq, although certain of the shares are subject to sales volume and other limitations. We have filed registration statements to permit the sale of approximately 36,000,000 shares of common stock under our equity incentive plans, and to permit the sale of 1,500,000 shares of common stock under our 2015 Inducement Equity Plan. We have also filed registration statements to permit the sale of approximately 667,000 shares of common stock under our Employee Stock Purchase Plan, to permit the sale of 425,000 shares of common stock under our Directors’ Deferred Compensation Plan, to permit the sale of approximately 31,100,319 shares of common stock pursuant to various private placement agreements and to permit the sale of up to 100,000,000 shares of our common stock pursuant to our At Market Issuance Sales Agreement. As of August 3, 2020, an aggregate of approximately 132,745,356 of these shares remained available for sale. In October 2018, we completed a private placement of 18,459 shares of Series C-1 convertible preferred stock, convertible into 18,459,000 shares of common stock. The resale of all 18,459,000 shares of common stock underlying the 18,459 shares of Series C-1 convertible preferred stock was registered with the SEC pursuant to a Registration Statement on Form S-3 filed with the SEC on November 8, 2018 and declared effective on December 10, 2018. As part of our collaboration with Betta Pharmaceuticals, we completed a private placement of 4,962,779 shares of common stock in July 2020, the resale of which must be registered with the SEC by June 2021. As part of our collaboration with Gilead, we completed a private placement of 11,111,111 shares of common stock in January 2019, and on October 25, 2019, we filed a Registration Statement on Form S-3 to register the resale of these shares by Gilead, as required under our agreement. In connection with our acquisition of 4-AB in February 2014, we are obligated to make contingent milestone payments to the former shareholders of 4-AB, payable in cash or shares of our common stock at our option, as follows (i) $10.0 million upon our market capitalization exceeding $750.0 million for 30 consecutive trading days prior to the earliest of (a) February 12, 2024, (b) the sale of 4-AB or (c) the sale of Agenus and (ii) $10.0 million upon our market capitalization exceeding $1.0 billion for 30 consecutive trading days prior to the earliest of (a) February 12, 2024, (b) the sale of 4-AB or (c) the sale of Agenus. In connection with our acquisition of PhosImmune in December 2015, we issued 1,631,521 shares of our common stock to the shareholders of PhosImmune and other third parties having a fair market value of approximately $7.4 million at closing. In addition, we may be obligated in the future to pay certain contingent milestones payments, payable at our election in cash or shares of our common stock of up to $35.0 million in the aggregate. If we elect to pay any of these contingent milestones in shares, we are obligated to file registration statements covering any such shares. The market price of our common stock may decrease based on the expectation of such sales.
As of June 30, 2020, warrants to purchase approximately 1,950,000 shares of our common stock with a weighted average exercise price per share of $4.89 were outstanding.
As of June 30, 2020, options to purchase 26,079,300 shares of our common stock with a weighted average exercise price per share of $3.69 were outstanding. These options are subject to vesting that occurs over a period of up to four years following the date of grant. As of June 30, 2020, we had 12,863,425 vested options and 872,530 non-vested shares outstanding.
As of June 30, 2020, our outstanding shares of Series A-1 Convertible Preferred Stock were convertible into 333,333 shares of our common stock.
As of June 30, 2020, our outstanding shares of Series C-1 Convertible Preferred Stock were convertible into 12,459,000 shares of our common stock.
We may issue additional common stock, preferred stock, restricted stock units, or securities convertible into or exchangeable for our common stock. Furthermore, substantially all shares of common stock for which our outstanding stock options or warrants are exercisable are, once they have been purchased, eligible for immediate sale in the public market. The issuance of additional common stock, preferred stock, restricted stock units, or securities convertible into or exchangeable for our common stock or the exercise of
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stock options or warrants would dilute existing investors and could adversely affect the price of our securities. In addition, such securities may have rights senior to the rights of securities held by existing investors.
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.
Our certificate of incorporation and bylaws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. Our certificate of incorporation provides for a staggered board and removal of directors only for cause. Accordingly, stockholders may elect only a minority of our Board at any annual meeting, which may have the effect of delaying or preventing changes in management. In addition, under our certificate of incorporation, our Board of Directors may issue additional shares of preferred stock and determine the terms of those shares of stock without any further action by our stockholders. Our issuance of additional preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock and thereby effect a change in the composition of our Board of Directors. Our certificate of incorporation also provides that our stockholders may not take action by written consent. Our bylaws require advance notice of stockholder proposals and director nominations and permit only our president or a majority of the Board of Directors to call a special stockholder meeting. These provisions may have the effect of preventing or hindering attempts by our stockholders to replace our current management. In addition, Delaware law prohibits a corporation from engaging in a business combination with any holder of 15% or more of its capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction. Our Board of Directors may use this provision to prevent changes in our management. Also, under applicable Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future.
These anti-takeover provisions and other provisions in our certificate of incorporation and bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for our stockholders and other stockholders to elect directors of their choosing or cause us to take other corporate actions they desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
We have broad discretion in the use of our existing cash, cash equivalents and investments and may not use them effectively.
Our management has broad discretion in the application of our cash, cash equivalents and investments. Because of the number and variability of factors that will determine our use of our cash, cash equivalents and investments, their ultimate use may vary substantially from their currently intended use. Our management might not apply our cash, cash equivalents and investments in ways that ultimately increase the value of our stockholders investment. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest our cash in short-term, investment- grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not use our resources in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
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Item 6. |
Exhibits |
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Exhibit No. |
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Description |
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4.1 |
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10.1(1) |
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31.1 |
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31.2 |
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32.1 |
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101.INS |
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XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)
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(1) Certain material contained in this exhibit has been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K of the Securities Act of 1933.
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AGENUS INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: |
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August 10, 2020 |
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AGENUS INC. |
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/s/ CHRISTINE M. KLASKIN |
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Christine M. Klaskin VP, Finance, Principal Financial Officer, Principal Accounting Officer |
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Exhibit 4.1
Execution Version
stock PURCHASE AGREEMENT
This Stock Purchase Agreement (this “Agreement”) is dated as of June 20, 2020, by and between Agenus Inc., a Delaware corporation (the “Company”), Betta Investment (Hong Kong) Limited (貝達投資(香港)有限公司), a limited liability company established under the laws of Hong Kong (“Purchaser”), and Betta Pharmaceuticals Co., Ltd. (贝达药业股份有限公司), a limited liability company established under the laws of PRC, and the sole stockholder and owner of Purchaser (“Parent”).
WHEREAS, the Company and Parent entered into that certain License and Collaboration Agreement dated as of the date hereof (the “License Agreement”); and
WHEREAS, in connection with the execution of the License Agreement, the Company desires to sell to Purchaser, and Purchaser desires to purchase from the Company, shares of Common Stock in the amount and upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person. For the purposes of this definition, “control” refers to any of the following: (a) direct or indirect ownership of fifty percent (50%) or more of the voting securities entitled to vote for the election of directors in the case of a corporation, or of fifty percent (50%) or more of the equity interest with the power to direct management in the case of any other type of legal entity; (b) status as a general partner in any partnership; or (c) any other arrangement where an entity possesses, directly or indirectly, the power to direct the management or policies of another entity, whether through ownership of voting securities, by contract or otherwise.
“Applicable Health Laws” has the meaning ascribed to such term in Section 3.1(x).
“Authorizations” has the meaning ascribed to such term in Section 3.1(x).
“Board of Directors” means the board of directors of the Company.
“Bylaws” has the meaning ascribed to such term in Section 3.1(f).
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“Business Day” means a day other than a Saturday or Sunday or a federal holiday in New York, New York, USA, a public holiday in Hong Kong, or a national holiday in the People’s Republic of China.
“Certificate” has the meaning ascribed to such term in Section 3.1(f).
“Change in Control” means, with respect to the Company: (a) any transaction or series of related transactions pursuant to which a third party that does not, itself or together with its Affiliates, prior thereto beneficially own more than fifty percent (50%) of the voting power of the outstanding securities of the Company acquires or otherwise becomes the beneficial owner of securities of the Company representing more than fifty percent (50%) of the voting power of the then outstanding securities of the Company with respect to the election of directors; or (b) a merger (including a reverse triangular merger), reorganization, consolidation, share exchange, or similar transaction involving the Company in which the holders of voting securities of the Company outstanding immediately prior thereto and their Affiliates cease to hold voting securities that represent at least fifty percent (50%) of the combined voting power of the surviving entity immediately after such merger, reorganization, consolidation, share exchange, or similar transaction; or (c) the Company sells all or substantially all of its assets to a third party.
“Closing” means the closing of the purchase and sale of the Shares pursuant to Section 2.1.
“Closing Date” means the Trading Day on which all conditions precedent to (i) Purchaser’s obligation to pay the Purchase Price and (ii) the Company’s obligation to deliver the Shares, in each case, have been satisfied or waived, but in no event later than two (2) Trading Days following receipt of the PRC Approval.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the common stock of the Company, par value $0.01 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Company Counsel” means Ropes & Gray LLP, with offices located at Prudential Tower, 800 Boylston Street, Boston, MA 02199.
“Company Intellectual Property” has the meaning ascribed to such term in Section 3.1(i).
“Company Product” has the meaning ascribed to such term in Section 3.1(x).
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“Cut Back Shares” has the meaning ascribed to such term in Section 4.2.
“Disclosure Schedules” means the schedules attached to this Agreement, as they may be updated pursuant to Section 2.3(a).
“Effectiveness Date” has the meaning ascribed to such term in Section 3.2(f)(ii).
“Effectiveness Deadline” has the meaning ascribed to such term in Section 4.1.
“Effectiveness Failure” has the meaning ascribed to such term in Section 4.5.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.
“FDA” means the U.S. Food and Drug Administration.
“Filing Deadline” has the meaning ascribed to such term in Section 4.1.
“Filing Failure” has the meaning ascribed to such term in Section 4.5.
“GAAP” has the meaning ascribed to such term in Section 3.1(g).
“Governmental Authority” means any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or entity and any court or other tribunal); or (d) self-regulatory organization (including the Nasdaq Global Market and, the Nasdaq Global Select Market).
“Grace Period” has the meaning ascribed to such term in Section 4.5.
“Intellectual Property” means patents, patent applications, trademarks, trademark applications, service marks, trade names, trade dress, trade secrets, inventions and discoveries and invention disclosures whether or not patented, copyrights in both published and unpublished works, including without limitation all compilations, data bases and computer programs, materials and other documentation, licenses, internet domain names and other intellectual property rights and similar rights.
“knowledge of the Company” and similar phrases, means, the knowledge, after making reasonable due inquiry, of the Chief Executive Officer, President and Chief Operating Officer, Vice President and General Counsel and Vice President, Finance.
“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
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“Lock-Up Period” has the meaning assigned to such term in Section 5.1(a).
“Losses” has the meaning ascribed to such term in Section 4.7.
“Maintenance Failure” has the meaning ascribed to such term in Section 4.5.
“Material Adverse Effect” means any (i) material adverse effect on the legality, validity or enforceability of this Agreement, (ii) event, occurrence, fact, condition, change or development that has had or has individually or together with other events, occurrences, facts, conditions, changes or developments, material adverse effect on the operations, assets, business, or liabilities or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or (iii) material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under this Agreement.
“Material Contract” means any written or oral contract, agreement, deed, mortgage, lease, sublease, license, instrument, note, commitment, commission, undertaking, arrangement or understanding which is required to be filed as an exhibit by the Company with the Commission pursuant to Items 601(b)(1), 601(b)(2), 601(b)(4), 601(b)(9) or 601(b)(10) of Regulation S-K promulgated by the Commission.
“MOFCOM” means the Ministry of Commerce of the PRC or its competent local counterparts.
“Nasdaq” means the Nasdaq Capital Market (or any successor thereto).
“Party” means any party to this Agreement.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“PRC” means the People’s Republic of China, but solely for purposes of this Agreement, excluding the Hong Kong Special Administrative Region, the Macau Special Administrative Region and the Islands of Taiwan.
“PRC Approval” means the issuance of a certificate of outbound investment by enterprises by MOFCOM, the National Development and Reform Commission of the PRC and State Administration of Foreign Exchange of the PRC with respect to the consummation of the transactions contemplated hereby.
“Purchase Price” has the meaning ascribed to such term in Section 2.1.
“Purchaser Indemnified Party” has the meaning ascribed to such term in Section 4.7.
“Registration Delay Payments” has the meaning ascribed to such term in Section 4.5.
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“Registration Statement” means the registration statement on Form S-3 (or any successor form related to secondary offerings) required to be filed hereunder as contemplated by ARTICLE IV, including the prospectus, amendments and supplements to such registration statement or prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
“Reporting Period” means the period commencing on the Closing Date and ending on the earliest of: (i) the date as of which Purchaser may sell all of the Shares under Rule 144 without volume or manner-of-sale restrictions and without the requirement for the Company to be in compliance with the current public information requirements under Rule 144(c)(1) (or any successor thereto) promulgated under the Securities Act; (ii) the second anniversary of the Closing Date, and (iii) the date on which such Purchaser shall have sold all of the Shares pursuant to a Registration Statement.
“Representatives” means directors, officers, employees, consultants, financial advisors, counsel, accountants or other agents of a Person.
“Restriction Termination Date” has the meaning ascribed to such term in Section 4.2.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“SEC Reports” has the meaning ascribed to such term in Section 3.1(g).
“SEC Restrictions” has the meaning ascribed to such term in Section 4.2.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Shares” has the meaning ascribed to such term in Section 2.1.
“Staff” has the meaning ascribed to such term in Section 4.2.
“Subsidiary” means the Company’s subsidiaries, as set forth on Schedule 1.1.
“Trading Day” means a day on which Nasdaq is open for trading.
“Transfer Agent” means American Stock Transfer & Trust Company, LLC, the current transfer agent of the Company, with a mailing address of 6201 15th Avenue, Brooklyn, NY 11219 and a facsimile number of (718) 236-4588, and any successor transfer agent of the Company.
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2.1Purchase and Sale of Shares; Closing. Subject to the terms and conditions of this Agreement, the Company agrees to sell to Purchaser at the Closing, and Purchaser agrees to purchase from the Company at the Closing, 4,962,779 shares of Common Stock (the “Shares”) at a price per share equal to $4.03, or $19,999,999.37 in the aggregate (the “Purchase Price”). Upon satisfaction or waiver of the covenants and conditions set forth in Sections 2.3 and 2.4, the Closing shall occur at the offices of Company Counsel or such other location as the Parties shall mutually agree.
2.2Condition Precedent. The obligation of the Company, Parent and Purchaser to enter into this Agreement is subject to the Company and Parent having executed and delivered the License Agreement on or prior to the date hereof.
2.3Deliveries at Closing. At the Closing, subject to the terms and conditions of this Agreement:
(a)the Company shall deliver to Purchaser updated Disclosure Schedules that update the Disclosure Schedules delivered as of the date hereof for any matter or fact that arises at any time after the date hereof and prior to the Closing Date that, if such matter or fact had been in existence or had occurred at or before the date hereof, would have made a representation or warranty of the Company in Section 3.1 untrue had it not been set forth or described in the Disclosure Schedules delivered on the date hereof;
(b)the Company shall deliver to Purchaser a copy of the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver the Shares to Purchaser, provided that the Company shall use its commercially reasonable efforts to cause the Transfer Agent to deliver evidence of issuance as promptly as practicable following the Closing Date;
(c)the Company Counsel shall deliver to Purchaser a legal opinion, in the form reasonably acceptable to Purchaser; and
(d)Purchaser shall pay to the Company, by wire transfer of immediately available funds to an account or accounts designated by the Company, the Purchase Price.
2.4Closing Conditions.
(a)The obligation of the Company to sell the Shares to Purchaser at the Closing is subject to the following conditions being met or waived in writing by the Company:
(i)the representations and warranties of Parent and Purchaser contained in Section 3.2 shall be true and correct as of the date hereof and as of the Closing Date;
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(ii)Parent and Purchaser shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that they are required to perform or comply with on or before the Closing;
(iii)Parent and Purchaser shall deliver to the Company a certificate executed by an authorized officer of Purchaser confirming the conditions set forth in Sections 2.4(a)(i), (ii) (iv) and (v) have been duly satisfied;
(iv)the License Agreement shall continue to be in full force and effect;
(v)the PRC Approval shall have been obtained; and
(vi)Purchaser shall have delivered the Purchase Price.
(b)The obligation of Purchaser to purchase the Shares at the Closing is subject to the following conditions being met or waived in writing by Purchaser:
(i)the representations and warranties of the Company contained in Section 3.1 shall be true and correct as of the date hereof and in all material respects as of the Closing Date (unless a representation or warranty speaks as of the date hereof or another specific date, in which case such representation or warranty shall be true and correct as of the date hereof or such other specific date);
(ii)the Company shall have performed and complied with all covenants, agreements, obligations and conditions contained in this Agreement that it is required to perform or comply with on or before the Closing;
(iii)the Company shall deliver to Purchaser a certificate executed by an authorized officer of the Company confirming the conditions set forth in Sections 2.4(b)(i), (ii) and (vi) - (xi) have been duly satisfied, and certifying and attaching the Certificate, the Bylaws and authorizing Board of Directors resolutions with respect to this Agreement, and the transactions contemplated hereby;
(iv)the License Agreement shall continue to be in full force and effect;
(v)the Company shall have delivered the items set forth in Section 2.3(a)-(c) of this Agreement;
(vi)the offer and sale of the Shares to Purchaser pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act and the registration and/or qualification requirements of all applicable state securities laws;
(vii)on the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or Nasdaq, nor shall a banking moratorium have been declared either by the United States or New York State authorities;
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(viii)all authorizations, approvals or permits, if any, of any Governmental Authority that are required in connection with the lawful issuance and sale of the Shares pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the Closing;
(ix)the Shares will be duly authorized for listing on Nasdaq, subject to official notice of issuance;
(x)no preliminary or permanent injunction or other binding order, decree or ruling issued by a Governmental Authority shall be in effect that shall have the effect of preventing the consummation of the transactions contemplated by this Agreement;
(xi)there shall be no Material Adverse Effect with respect to the Company existing as of the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, the Company hereby represents and warrants to Purchaser as of the date hereof and as of the Closing Date (unless specifically made as of another date, in which case as of such other date) as follows:
(a)Capitalization. The capitalization of the Company as of May 31, 2020 is as set forth on Schedule 3.1(a). The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than (i) pursuant to the exercise of stock options under the Company’s stock option plans, (ii) the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans or the Company’s 2019 Equity Incentive Plan, (iii) the issuance of shares of Common Stock pursuant to the Company’s at-the-market sales agreement or (iv) pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement. Except as disclosed in the SEC Reports or in Schedule 3.1(a), with respect to awards issued under the Company’s equity incentive plans or as a result of the purchase and sale of the Shares, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Shares will not obligate the Company to issue shares of Common Stock or other securities to any Person and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. There are no stockholders agreements, voting agreements or other
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similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
(b)Litigation. There are no actions, suits, proceedings or, to the knowledge of the Company, any investigations, pending or currently threatened against the Company that questions the validity of this Agreement or the issuance of the Shares contemplated hereby or would, if there were an unfavorable decision, have or could reasonably be expected to result in a Material Adverse Effect on the Company. As of the date hereof, there is no other material action, suit, or proceeding pending or, to the knowledge of the Company, currently threatened in writing against the Company. As of the date hereof, there are no material outstanding consents, orders, decrees or judgments of any Governmental Authority naming the Company. Neither the Company, nor, to the knowledge of the Company, any director or officer thereof, is the subject of any action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. To the knowledge of the Company, there is no pending or contemplated investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Exchange Act or the Securities Act.
(c)Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and carry on its business as now conducted. The Company is duly qualified and is in good standing as a foreign corporation in each jurisdiction in which the properties owned, leased or operated, or the business conducted, by it requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate, would not have a Material Adverse Effect.
(d)Authorization. All corporate actions on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and for the issuance of the Shares have been taken. The Company has the requisite corporate power to enter into this Agreement and to carry out and perform its obligations hereunder. This Agreement has been duly authorized, executed and delivered by the Company and, upon due execution and delivery by Purchaser, will be a valid and binding agreement of the Company, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or by equitable principles.
(e)Subsidiaries. Except as would not reasonably be expected to result in a Material Adverse Effect, each Subsidiary (i) has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its incorporation or organization, has corporate or similar power and authority to own, lease and operate its properties and to conduct its business as presently conducted, and (ii) is duly qualified to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of
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business. All of the issued and outstanding shares of capital stock of each Subsidiary are, where applicable, validly issued, fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. Other than the Subsidiaries, the Company does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited liability company, association, or other business entity. Except as disclosed in the SEC Reports, the Company is not a participant in any material joint venture, partnership or similar arrangement.
(f)No Conflict With Other Instruments. Neither the execution, delivery nor performance of this Agreement, nor the issuance of the Shares contemplated hereby will result in (i) any violation of, be in conflict with, cause any acceleration or any increased payments under, or constitute a default under, with or without the passage of time or the giving of notice: (a) any provision of the Company’s certificate of incorporation (the “Certificate”) or bylaws (the “Bylaws”); (b) any provision of any judgment, decree or order to which the Company is a party or by which it is bound; (c) any law, rule or regulation applicable to the Company; or (d) any note, mortgage, material contract, material agreement, license, waiver, exemption, order or permit; or (ii) the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of the Company or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party or by which it is bound or to which any of the material property or assets of the Company is subject.
(g)Disclosure Documents. For the two years preceding the date hereof, the Company has filed, on a timely basis or has received a valid extension as of such time of filing and has thereafter made such filings prior to the expiration of any such extension, all reports, schedules, forms, statements and other documents required to be filed by the Company with the Commission under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”), and the Company has paid all fees and assessments due and payable in connection with the SEC Reports. As of their respective dates, the SEC Reports complied in all material respects with all statutes and applicable rules and regulations of the Commission, including the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP and fairly present in
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all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. There are no material unconsolidated subsidiaries of the Company or any material off-balance sheet arrangements of any type (including any off balance sheet arrangements required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K promulgated under the Securities Act) that have not been so described in the SEC Reports filed prior to the date hereof, nor any obligations to enter into any such arrangements. As of the date hereof, there are no outstanding or unresolved comments in comment letters received from the Commission or the Staff. The Common Stock is listed on Nasdaq, and the Company has taken no action designed to, or which would be reasonably likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from Nasdaq. The Company has not received any notification that, and has no knowledge that, the Commission or Nasdaq is contemplating terminating such listing or registration. To the Company’s knowledge, no stop order or suspension of trading of the Common Stock has been imposed by Nasdaq, the Commission or any other Governmental Authority and remains in effect.
(h)Absence of Certain Events and Changes. Except as otherwise disclosed in the SEC Reports or in Schedule 3.1(h), since the date of the Company’s Quarterly Report on Form 10-Q for the quarter ended on March 31, 2020: (i) the Company has conducted its business in the ordinary course consistent with past practice, (ii) there has not been any event, change or development which, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect, (iii) the Company has not incurred any material liabilities (contingent or otherwise) other than expenses incurred in the ordinary course of business consistent with past practice, (iv) the Company has not altered its method of accounting in any material respect; and (v) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock.
(i)Intellectual Property. The Company owns, or has the right pursuant to a valid, written license agreement to use and exploit, all Intellectual Property used in or necessary for the conduct of the business of the Company and that is material to the business of the Company as currently conducted (the “Company Intellectual Property”). To the knowledge of the Company, (i) all issued patents and registered trademarks that are Company Intellectual Property and that are owned by the Company are valid and enforceable and are currently in compliance with formal legal requirements (including without limitation, as applicable, payment of filing, examination and maintenance fees, proofs of working or use, timely post registration filing of affidavits of use and incontestability and renewal applications), and (ii) there is no existing infringement or misappropriation by another Person of any of the Company Intellectual Property. Except as disclosed in the SEC Reports, since January 1, 2017, no claims have been asserted by a third party in writing (a) alleging that the conduct of the business of the Company has infringed or misappropriated any Intellectual Property rights of such third party, or (b) challenging or questioning the validity or effectiveness of any Intellectual Property right
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of the Company, and, to the Company’s knowledge, there is no valid basis for any such claim. No loss or early expiration of any of the Company’s material Intellectual Property is pending, or, to the Company’s knowledge, threatened. The Company has taken reasonable steps in accordance with standard industry practices to protect its rights in the Company Intellectual Property and at all times has maintained the confidentiality of all information used in connection with the business that constitutes or constituted a trade secret of the Company.
(j)Compliance. The Company has all material permits, licenses, franchises, authorizations, orders and approvals of (collectively, “Permits”), and has made all filings, applications and registrations with, Governmental Authorities that are required in order to permit the Company to own or lease its properties and assets and to carry on its business as presently conducted. Neither the sale of the Shares hereunder nor the performance of the Company’s other obligations under this Agreement will result in the suspension, revocation, impairment, forfeiture or nonrenewal of any Permit applicable to the Company, its businesses or operations or any of its assets or properties. The Company and the Subsidiaries have complied, and are in compliance, in all material respects with all Permits, statutes, laws, regulations, rules, judgments, orders and decrees of all Governmental Authorities applicable to it that relate to its business. The Company has not received any notice from any Governmental Authority alleging noncompliance, and, to the knowledge of the Company, the Company is not under investigation with respect to, or threatened to be charged with, any material violation of any applicable statutes, laws, regulations, rules, judgments, orders or decrees of any Governmental Authority. The Company has not received any notice of proceedings relating to the revocation or modification of any Permit. No Permit is subject to termination as a result of the execution of this Agreement or consummation of the transactions contemplated hereby. Except as disclosed in the SEC Reports, since January 1, 2017, the Company has not entered into or been subject to any judgment, consent decree, compliance order or administrative order with respect to any aspect of the business, affairs, properties or assets of the Company or received any formal or informal complaint or claim from any regulatory agency with respect to any aspect of the business, affairs, properties or assets of the Company.
(k)Valid Issuance of Shares. The Shares are duly authorized and, when issued and paid for in accordance with this Agreement, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company, and, based in part on the representations of Purchaser in Section 3.2 of this Agreement, will be issued in compliance with all applicable federal and state securities laws. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Shares by any form of general solicitation or general advertising. The Company has offered the Shares for sale only to Purchaser. The sale and issuance of the Shares pursuant to, and Company’s performance of its obligations under, this Agreement will not (i) result in the creation or imposition of any liens, charges, claims or other encumbrances upon the Shares, except those arising under federal and state securities laws, or any of the assets of Company, or (ii) entitle the holders of any outstanding shares of capital stock of Company to preemptive or other rights to subscribe to or acquire the Shares or other securities of Company.
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(l)Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for notices required or permitted to be filed with certain state and federal securities commissions, which notices will be filed on a timely basis.
(m)No Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based on arrangements made by the Company.
(n)No Undisclosed Liabilities. Except as disclosed in the SEC Reports or in Schedule 3.1(n), the Company does not have any liabilities (contingent or otherwise), except for (i) liabilities reflected or reserved against in financial statements of the Company (or otherwise disclosed in the accompanying footnotes) included in the SEC Reports filed with the Commission prior to the date of this Agreement, (ii) liabilities incurred in the ordinary course of business or otherwise disclosed in the SEC Reports and (iii) liabilities that have not been and would not reasonably be expected to be material.
(o)Internal Controls. The Company has implemented and maintains a system of internal control over financial reporting (as required by Rule 13a-15(a) under the Exchange Act) that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, and, to the knowledge of the Company, such system of internal control over financial reporting is effective. For purposes of this Section 3.1(o), “knowledge of the Company” means the actual knowledge of the Chief Executive Officer and the Vice President, Finance of the Company. The Company has implemented and maintains disclosure controls and procedures (as required by Rule 13a-15(a) of the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the timeframes specified by the Commission’s rules and forms (and such disclosure controls and procedures are effective), and has disclosed, based on its most recent evaluation of its system of internal control over financial reporting prior to the date of this Agreement, to the Company’s outside auditors and the audit committee of the Board of Directors (i) any significant deficiencies and material weaknesses known to it in the design or operation of its internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that would reasonably be expected to adversely affect the Company’s ability to record, process, summarize and report financial information and (ii) any fraud known to it, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
(p)Company Not An “Investment Company.” The Company is not, and immediately after receipt of payment for the Shares will not be, an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
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(q)Solvency. The Company has not: (i) made a general assignment for the benefit of creditors; (ii) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by its creditors; (iii) suffered the appointment of a receiver to take possession of all, or substantially all, of its assets; (iv) suffered the attachment or other judicial seizure of all, or substantially all, of its assets; (v) admitted in writing its inability to pay its debts as they come due; or (vi) made an offer of settlement, extension or composition to its creditors generally.
(r)No Integrated Offering. Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Shares to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated.
(s)Foreign Corrupt Practices. Since January 1, 2017, none of the Company, the Subsidiaries or, to the knowledge of the Company, any director, officer, agent, or employee of the Company or any of the Subsidiaries has taken any action, directly or indirectly, that is in violation by such persons of the FCPA, including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA or any applicable similar laws in foreign jurisdictions in which the Company is currently, or has previously, conducted its business.
(t)Office of Foreign Assets Control. Neither the Company nor, to the Company’s knowledge, any Subsidiary (if applicable), director, officer, agent, employee or Affiliate of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department.
(u)Shell Company. As of the date hereof and the Closing Date, the Company is not a “shell company” nor a former “shell company” (as defined in Rule 405 of the Securities Act) and has never been a “shell company.”
(v)Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Shares, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Shares, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company.
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(w)Whistleblowers. To the knowledge of the Company, as of the date hereof, no employee of the Company or any of the Subsidiaries has provided since January 1, 2017 or is providing information to any law enforcement agency regarding the violation of any applicable law of the type described in Section 806 of the Sarbanes-Oxley Act by the Company or its Subsidiaries. Neither the Company nor its Subsidiaries have discharged, demoted or suspended an employee of the Company or its Subsidiaries in the terms and conditions of employment because of any lawful act of such employee described in Section 806 of the Sarbanes-Oxley Act.
(x)Health Laws and FDA Compliance. Except as would not, individually or in the aggregate, result in a Material Adverse Effect: (i) each of the Company and each of its Subsidiaries is and has been in compliance with statutes, laws, ordinances, rules and regulations applicable to the Company or its Subsidiaries for the ownership, testing, development, manufacture, packaging, processing, use, labeling, storage, or disposal of any product manufactured by or on behalf of the Company and its Subsidiaries or out-licensed by the Company and its Subsidiaries (each a “Company Product”), including without limitation, the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301, et seq., the Public Health Service Act, 42 U.S.C. § 262, similar (collectively, “Applicable Health Laws”); (ii) the Company and its Subsidiaries possess all licenses, certificates, approvals, authorizations, permits and supplements or amendments thereto required by any such Applicable Health Laws and/or for the ownership of their properties or the conduct of their business as it relates to a Company Product and as described in the Company SEC Documents (collectively, “Authorizations”) and such Authorizations are valid and in full force and effect and neither the Company nor any of its Subsidiaries is in violation of any term of any such Authorizations; (iii) neither the Company nor any of its Subsidiaries has received any written notice of adverse finding, warning letter or other written correspondence or notice from the FDA or any other Governmental Authority alleging or asserting noncompliance with any Applicable Health Laws or Authorizations relating to a Company Product; (iv) neither the Company nor any of its Subsidiaries has received written notice of any ongoing claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Governmental Authority or third party alleging that any Company Product, operation or activity related to a Company Product is in violation of any Applicable Health Laws or Authorizations; and (v) neither the Company nor any of its Subsidiaries has received written notice that any Governmental Authority has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations.
(y)Tests and Preclinical and Clinical Trials. The studies, tests and preclinical and clinical trials conducted by or, to the Company’s knowledge, on behalf of the Company that are described in the SEC Reports were and, if still pending, are being, conducted in all material respects in accordance with any applicable protocols submitted to the FDA or any Governmental Authority exercising comparable authority, procedures and controls pursuant to, where applicable, accepted professional and scientific standards, and all applicable laws, rules and regulations; the descriptions of the studies, tests and preclinical and clinical trials conducted by or, to the Company’s knowledge, on behalf of the Company, and the results thereof, contained in the SEC Reports are accurate and complete in all material respects; to the Company’s knowledge, there are no subsequent
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studies, tests or preclinical and clinical trials, the results described in the SEC Reports of which call into question the results; and the Company has not received any notices or correspondence from the FDA, any Governmental Authority exercising comparable authority or any Institutional Review Board requiring the termination, suspension, material modification or clinical hold of any studies, tests or preclinical or clinical trials conducted by or on behalf of the Company.
(z)Taxes. (i) The Company and its Subsidiaries have filed all tax returns that are required to have been be filed by each of them or has requested extensions of the filing date thereof and (ii) the Company and its Subsidiaries have paid all taxes required to be paid by any of them and any other assessment, fine or penalty levied against any of them, to the extent that any of the foregoing is due and payable, except in the case of clause (i) and (ii), for any such assessment, fine or penalty that is currently being contested in good faith or as would not have a Material Adverse Effect, whether or not arising from transactions in the ordinary course of business and (iii) there are no tax audits ongoing of which the Company has received written notice.
(aa)Insurance. The Company and each Subsidiary maintains in full force and effect insurance coverage that is customary for a company (i) in the businesses and location in which the Company is engaged, (ii) with the resources of the Company, and (iii) at a similar stage of development as the Company, and the Company reasonably believes such insurance coverage to be adequate against all liabilities, claims and risks against which it is customary for comparably situated companies to insure.
(bb)Related Party Transactions. As of the date hereof, no director or Affiliate of the Company, nor any family member of any officer, director or Affiliate of the Company, has entered into any transaction with the Company or any of the Subsidiaries that would be required to be disclosed under Item 404 of Regulation S-K that has not been disclosed in the Company SEC Documents as required by the rules and regulations of the Commission.
(cc)Material Contracts. Each Material Contract is the legal, valid and binding obligation of the Company or a Subsidiary, as the case may be, enforceable against the Company or such Subsidiary, as the case may be, in accordance with its terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. The Company and each Subsidiary, as the case may be, is in compliance with all material terms of the Material Contracts to which it is party, and there has not occurred any breach, violation or default or any event that, with the lapse of time, the giving of notice or the election of any Person, or any combination thereof, would constitute a breach, violation or default by the Company or any Subsidiary under any such Material Contract or, to the knowledge of the Company and each Subsidiary, by any other Person to any such contract except where such breach, violation or default would not have a Material Adverse Effect. Neither the Company nor any Subsidiary has been notified that any party to any Material Contract intends to cancel, terminate, not renew or exercise an option
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under any Material Contract, whether in connection with the transactions contemplated hereby or otherwise.
3.2Representations and Warranties of Parent and Purchaser. Parent and Purchaser hereby represent and warrant to the Company as of the date hereof and as of the Closing Date (unless specifically made as of another date, in which case as of such other date) as follows:
(a)Legal Power. Each of Parent and Purchaser has the requisite corporate power to enter into this Agreement and to carry out and perform its obligations hereunder.
(b)Due Execution. All corporate actions on the part of Parent and Purchaser, and their respective officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and payment of the Purchase Price have been taken, or will be taken prior to the Closing. This Agreement has been duly authorized, executed and delivered by Parent and Purchaser, and, upon due execution and delivery by the Company, will constitute a valid and legally binding obligation of Parent and Purchaser, enforceable against Parent and Purchaser in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or by equitable principles.
(c)Investment Representations. In connection with the offer, purchase and sale of the Shares, Purchaser makes the following representations:
(i)Purchaser is acquiring the Shares for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, and has no present intention to effect, or any present or contemplated plan, agreement, undertaking, arrangement, obligation, indebtedness, or commitment providing for, any distribution of the Shares.
(ii)Purchaser has carefully reviewed the representations concerning the Company contained in this Agreement and has made detailed inquiry concerning the Company, its business and its personnel.
(iii)Purchaser understands that the Shares have not been registered under the Securities Act or any applicable state securities laws and, consequently, Purchaser may have to bear the risk of owning the Shares for an indefinite period of time because the Shares may not be transferred unless (x) the resale of the Shares is registered pursuant to an effective registration statement under the Securities Act; (y) Purchaser has delivered to the Company an opinion of counsel (in form, substance and scope customary for opinions of counsel in comparable transactions and satisfactory to the Company) to the effect that the Shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; or (z) the Shares are sold or transferred pursuant to Rule 144.
(iv)Purchaser has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares to be purchased hereunder.
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(v)Purchaser is an “accredited investor” as defined in Rule 501(a) of the rules and regulations promulgated under the Securities Act.
(d)Certain Fees. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based on arrangements made by Parent or Purchaser.
(e)Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Authority on the part of Purchaser is required in connection with the consummation of the transactions contemplated by this Agreement, except for the PRC Approval.
(f)Legends.
(i)In connection with the issuance and sale of the Shares, Purchaser understands that each of the Shares, whether certificated or in book-entry form, will be endorsed with the following legend:
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.”
(ii)Notwithstanding the foregoing, the Company shall use its commercially reasonable efforts to cause the Transfer Agent to remove the foregoing legend within three (3) Business Days after the Company’s receipt of a written request for legend removal by Purchaser, which request may be made following the expiration of the Lock-Up Period and: (x) any time after the date on which the Registration Statement is declared effective by the Commission (the “Effectiveness Date”), (y) upon any sale of such securities effected in accordance with Rule 144, or (z) at such time as when the Shares may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information required under Rule 144(c)(1) under the Securities Act and without volume or manner-of-sale restrictions. In the case of clauses (y) and (z) above, Purchaser’s written request for legend removal shall be accompanied by such evidence as reasonably requested by the Company or Transfer Agent that a public sale or transfer of such Shares may be made without registration under the Securities Act. To the extent that the foregoing legend is being removed pursuant to the foregoing clause (x) and prior to a sale of the legended securities, Purchaser covenants that it will only sell, transfer or otherwise dispose of such securities pursuant to the Registration Statement and subject to the limitations set forth in Article IV.
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The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in the License Agreement or any other document or instrument executed and/or delivered in connection with this Agreement or the License Agreement or the consummation of the transactions contemplated hereby.
ARTICLE IV.
REGISTRATION RIGHTS
4.1Registration of the Shares. The Company shall file with the Commission, as soon as practicable but in no event later than 90 days prior to the first anniversary of the Closing Date (the “Filing Deadline”), a Registration Statement covering the resale of the full amount of the Shares to the public by Purchaser. The Company shall use commercially reasonable efforts to cause the Registration Statement covering the Shares to be declared effective by the Commission as soon as practicable, but in no event later than the date (the “Effectiveness Deadline”), which shall be either: (i) in the event that the Commission does not review the Registration Statement, 90 days after the Closing Date (but in any event, no later than three Business Days following the Commission indicating a “no-review” decision on the Registration Statement), or (ii) in the event that the Commission reviews the Registration Statement or notifies the Company that the Registration Statement cannot be declared effective prior to the resolution of any comments related to filings made by the Company with the Commission or confidential treatment requests made by the Company, 120 days after the Closing Date (but in any event, no later than three Business Days following the Commission indicating that it has no further comments on the Registration Statement). Notwithstanding the above, if the Company has received comments from the Commission or the Staff regarding the Registration Statement, then the Company shall use its reasonable best efforts to resolve any such comments as promptly as practicable. The Company shall cause such Registration Statement to remain effective under the Securities Act until all Shares covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144. The Company shall promptly notify Purchaser of the effectiveness of such Registration Statement after the Company confirms effectiveness with the Commission. The Company hereby covenants and agrees to use reasonable commercial efforts to maintain its eligibility to make filings with the Commission on Form S-3 until one or more registrations statements covering the resale of all of the Shares shall have been filed with, and declared effective by, the Commission pursuant to the terms and conditions of this Agreement.
4.2Rule 415; Cutback. If at any time the staff of the Commission (the “Staff”) takes the position that the offering of some or all of the Shares in a Registration Statement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under the Securities Act or requires any Purchaser to be named as an “underwriter,” the Company shall use its reasonable best efforts to persuade the Commission that the offering contemplated by the Registration Statement is a valid secondary offering and not an offering “by or on behalf of the issuer” as defined in Rule 415 and that Purchaser is not an “underwriter.” For the avoidance of doubt, “reasonable best efforts” shall not require the Company to institute or maintain any action, suit or proceeding against the Commission or any member of the Staff. In the event that, despite the Company’s reasonable best efforts and compliance with the terms of this Section 4.2, the Staff refuses to alter its position, the Company shall: (a) remove from the Registration Statement
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such portion of the Shares (the “Cut Back Shares”) and/or (b) agree to such restrictions and limitations on the registration and resale of the Shares as the Staff may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”); provided, however, that the Company shall not agree to name any Purchaser as an “underwriter” in such Registration Statement without the prior written consent of such Purchaser. No liquidated damages shall accrue as to any Cut Back Shares until such date as the Company is able to effect the registration of such Cut Back Shares in accordance with any SEC Restrictions (such date, the “Restriction Termination Date” of such Cut Back Shares). From and after the Restriction Termination Date applicable to any Cut Back Shares, all of the provisions of this ARTICLE IV (including the liquidated damages provisions) shall again be applicable to such Cut Back Shares; provided, however, that (x) the Filing Deadline for the Registration Statement including such Cut Back Shares shall be ten Business Days after such Restriction Termination Date and (y) the Effectiveness Deadline with respect to such Cut Back Shares shall be the 90th day immediately after the Restriction Termination Date or the 120th day if the Staff reviews such Registration Statement (but in any event no later than three Business Days from the Staff indicating it has no further comments on such Registration Statement).
4.3Registration Covenant. Purchaser covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of the Shares pursuant to a Registration Statement. The Company shall comply in all material respects with all applicable rules and regulations of the Commission applicable to the filing of a Registration Statement.
4.4Rule 144. With a view to making available to Purchaser the benefits of Rule 144, the Company agrees to:
(a)use its reasonable best efforts to make and keep public information available, as those terms are understood and defined in Rule 144, during the Reporting Period;
(b)use its reasonable best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Exchange Act; and
(c)furnish to Purchaser, so long as Purchaser owns Shares, promptly upon request during the Reporting Period: (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act; and (ii) a statement of how many shares of Common Stock are then issued and outstanding.
4.5Effect of Failure to File and Obtain and Maintain Effectiveness of Registration Statement.
(a)Subject to Section 4.2, if either: (a) a Registration Statement covering all of the Shares required to be covered thereby and required to be filed by the Company pursuant to this Agreement is: (i) not filed with the Commission on or before the Filing Deadline (a “Filing Failure”), or (ii) not declared effective by the Commission on or
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before the Effectiveness Deadline (an “Effectiveness Failure”), or (b) on any day during the Reporting Period and after the Effectiveness Date, sales of all of the Shares required to be included on such Registration Statement cannot be made (other than (i) during a Grace Period or (ii) if the Registration Statement is on Form S-1, for a period of 15 days following the date the Company files a post-effective amendment to incorporate the Company’s Annual Report on Form 10-K) (a “Maintenance Failure”), then, in satisfaction of the damages to any holder of Shares by reason of any such delay in or reduction of its ability to sell the underlying shares of Common Stock, the Company shall pay to Purchaser relating to such Registration Statement an amount in cash equal to 1.0% of the Purchase Price on each of the following dates: (x) the day of a Filing Failure and on every thirtieth day (prorated for periods totaling less than 30 days) thereafter until such Filing Failure is cured; (y) the day of an Effectiveness Failure and on every thirtieth day (prorated for periods totaling less than 30 days) thereafter until such Effectiveness Failure is cured; and (z) the initial day of a Maintenance Failure and on every thirtieth day (prorated for periods totaling less than 30 days) thereafter until such Maintenance Failure is cured. The payments to which Purchaser shall be entitled pursuant to this Section 4.5 are referred to herein as “Registration Delay Payments”; provided that no Registration Delay Payments shall be required following the termination of the Reporting Period, and, provided, further, that in no event shall the aggregate Registration Delay Payments accruing under this Section 4.5 exceed 6.0% of Purchaser’s interest in the aggregate Purchase Price (i.e., corresponding to a total delay of six months). The first such Registration Delay Payment shall be paid within three Business Days after the event or failure giving rise to such Registration Delay Payment occurred and all other Registration Delay Payments shall be paid on the earlier of (I) the last day of the calendar month during which such Registration Delay Payments are incurred and (II) the third Business Day after the event or failure giving rise to the Registration Delay Payments is cured.
(b)Notwithstanding anything to the contrary herein, at any time after the Effectiveness Date, the Company may delay the disclosure of material, non-public information concerning the Company that would be required to be made in a registration statement filed with the Commission so that such registration statement does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading the disclosure of which at the time is not, in the good faith opinion of the Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the Company, would not be required to be made at such time but for the continued use of such registration statement (a “Grace Period”); provided, that the Company shall promptly: (i) notify Purchaser in writing of the existence of material, non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material, non-public information to Purchaser) and the date on which the Grace Period will begin, and (ii) notify Purchaser in writing of the date on which the Grace Period ends; and, provided further, that the Grace Periods shall not exceed an aggregate of 30 Trading Days during any 365-day period and the first day of any Grace Period must be at least 15 days after the last day of any prior Grace Period. For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date Purchaser receives the notice referred to in clause: (i) and shall end on and include the later of the
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date Purchaser receives the notice referred to in clause (ii) and the date referred to in such notice. Upon expiration of the Grace Period, the Company shall again be bound by Section 4.6(c) with respect to the information giving rise thereto unless such material, non-public information is no longer applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of Purchaser in accordance with the terms of this Agreement in connection with any sale of Registrable Securities with respect to which a Purchaser has entered into a contract for sale, and delivered a copy of the prospectus included as part of the applicable Registration Statement (unless an exemption from such prospectus delivery requirement exists), prior to Purchaser’s receipt of the notice of a Grace Period and for which Purchaser has not yet settled.
4.6Registration Procedures.
(a)In connection with the filing by the Company of a Registration Statement covering the Shares, the Company shall furnish to Purchaser (i) a copy of the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act and (ii) such other documents as Purchaser may reasonably request, in order to facilitate the public sale or other disposition of the Shares.
(b)The Company shall use commercially reasonable efforts to register or qualify the Shares covered by a Registration Statement under the securities laws of each state of the United States as Purchaser shall reasonably request; provided, however, that the Company shall not be required in connection with this subsection (b) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction.
(c)If the Company has delivered preliminary or final prospectuses to Purchaser and after having done so the prospectus is amended or supplemented to comply with the requirements of the Securities Act, the Company shall promptly notify Purchaser and, if requested by the Company, Purchaser shall immediately cease making offers or sales of the Shares covered by a Registration Statement and return all prospectuses to the Company. The Company shall promptly provide Purchaser with revised or supplemented prospectuses and, following receipt of the revised or supplemented prospectuses, Purchaser shall be free to resume making offers and sales of the Shares under such Registration Statement.
(d)The Company shall be entitled to include in a Registration Statement the shares of Common Stock held by other shareholders of the Company, provided such other shares of Common Stock are excluded first from such Registration Statement in order to comply with any applicable laws or request from any Governmental Authority, or in the case of an underwritten offering, in order to comply with a cutback request of any underwriter.
(e)The Company shall pay all expenses incurred in connection with the preparation and filing of such Registration Statement pursuant to this ARTICLE IV, including all registration and filing fees and printer, legal and accounting fees related thereto, but excluding (i) any brokerage fees, selling commissions or underwriting
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discounts incurred by Purchasers in connection with sales under any Registration Statement covering the Shares and (ii) the fees and expenses of counsel retained by Purchaser.
(f)The Company shall use commercially reasonable efforts to avoid the issuance of any order suspending the effectiveness of a Registration Statement, or any suspension of the qualifications (or exemption from qualification) of any of the Shares covered by a Registration Statement for sale in any jurisdiction. The Company shall advise Purchaser promptly after it shall receive notice of any stop order or issuance of any order by the Commission delaying or suspending the effectiveness of a Registration Statement covering the Shares or of the initiation of any proceeding for that purpose, and it will promptly use commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued.
4.7Indemnification.
(a)The Company agrees to indemnify and hold harmless Purchaser and its respective shareholder, directors, officers, and Affiliates (collectively, the “Purchaser Indemnified Party”) from and against any losses, claims, damages, liabilities, judgments, fines, obligations, and reasonable expenses, including but not limited to any investigative, legal and other expenses reasonably incurred in connection with, and any amounts paid in settlement of, any pending legal action or proceeding (collectively, “Losses”) arise out of, or are based on (i) any breach of any representation or warranty of the Company contained in this Agreement; (ii) any violation or nonperformance, partial or total, of any covenant or agreement of the Company contained in this Agreement; or (iii) any untrue statement or alleged misstatement of a material fact contained in any Registration Statement covering the Shares or in any preliminary prospectus or final prospectus contained in such Registration Statement, or any amendment or supplement to such Registration Statement, or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement, preliminary prospectus or prospectus, or any amendment or supplement in reliance upon and in conformity with written information furnished to the Company by or on behalf of Purchasers or controlling person specifically for use in the preparation thereof or any statement or omission in any prospectus that is corrected in any subsequent prospectus that was delivered to Purchaser prior to the pertinent sale or sales by Purchaser.
(b)Purchaser agrees to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company, from and against any Losses, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based on (i) any breach of any representation or warranty of the Purchaser or the Parent contained in this Agreement; (ii) any violation or nonperformance, partial or total,
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of any covenant or agreement of the Purchaser or the Parent contained in this Agreement; or (iii) any untrue statement or alleged misstatement of a material fact contained in any Registration Statement covering the Shares or in any preliminary prospectus, final prospectus contained in such Registration Statement, or any amendment or supplement to such Registration Statement or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if such untrue statement or omission was made in reliance upon and in conformity with written information furnished by or on behalf of Purchaser specifically for use in preparation of the Registration Statement, prospectus, amendment or supplement; provided, however, that Purchaser’s obligation to indemnify the Company shall be limited to the Purchase Price.
(c)Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 4.7, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 4.7 (except to the extent that such omission materially and adversely affects the indemnifying party’s ability to defend such action). Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof; provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any Affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided, however, that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding.
(d)If the indemnification provided for in this Section 4.7 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in
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respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and Purchaser on the other hand, in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Company on the one hand or Purchaser on the other hand and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Company and Purchasers agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), Purchaser shall not be required to contribute any amount in excess of the amount by which the net amount received by Purchaser from the sale of the Shares to which such loss relates exceeds the amount of any damages which Purchaser has otherwise been required to pay by reason of such untrue statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(e)The rights and obligations of the Company and Purchaser under this Section 4.7 shall survive the termination of this Agreement.
ARTICLE V.
COVENANTS AND ADDITIONAL AGREEMENTS
5.1Stock Ownership Governance.
(a)Lock-Up Period. Excluding any transfers of Shares between Purchaser and any of its Affiliates, during the twelve (12) months immediately following the Closing Date (the “Lock-Up Period”), Purchaser shall not, and shall not cause any other holder of the Shares to, without the prior written consent of the Company, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any Shares or enter into a transaction which would have the same effect; provided that, if the Company undergoes a Change in Control the Board of Directors has recommended that the Company’s shareholder accept or a tender offer made by a third party, Purchaser shall not be excluded and shall be entitled to participate in such Change in Control or tender offer as a shareholder of the Company.
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(b)Market Stand-Off Agreement. During the Lock-Up Period, Purchaser agrees that in connection with any registration of the Company’s securities that, upon the request of the Company or the underwriters managing any underwritten offering of the Company’s securities, Purchaser will not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares without the prior written consent of the Company or such underwriters, as the case may be, for such period of time within the Lock-Up Period from the effective date of such registration as the Company or the underwriters may specify.
(c)Remedies. Without prejudice to the rights and remedies otherwise available to the Parties, the Company shall be entitled to equitable relief by way of injunction if Purchaser breaches any of the provisions of this Section 5.1.
5.2Voting. During the Lock-Up Period, Purchaser shall vote, or cause to be voted, all shares of Common Stock then beneficially owned by Purchaser, in accordance with the recommendation of the Board of Directors on any matters presented to the Company’s stockholders with respect to any of the Company’s equity incentive plans or compensation matters, in each case, that apply to employees of the Company generally.
5.3Non-Public Information. Except as contemplated by the License Agreement, the Company covenants and agrees that, following the Closing, neither it, nor any other Person acting on its behalf, will provide Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and use of such information. The Company understands and confirms that Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
5.4Use of Proceeds. The Company shall use the net proceeds from the sale of the Shares hereunder for working capital purposes and shall not use such proceeds: (a) for the redemption of any Common Stock or Common Stock Equivalents, (b) for the settlement of any outstanding litigation, or (c) in violation of FCPA or regulations of the Office of Foreign Assets Control of the U.S. Treasury Department.
5.5Listing of Common Stock, No Integrated Offerings. The Company shall take no action designed to, or which to the knowledge of the Company is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act. The Company hereby agrees to use commercially reasonable efforts to maintain the listing of the Common Stock, including the Shares, on Nasdaq. The Company further agrees, if the Company applies to have the Common Stock traded on any other trading market, it will include in such application all of the Shares, and will take such other action as is necessary to cause all of the Shares to be listed on such other trading market as promptly as possible. The Company will take all action reasonably necessary to continue the listing and trading of its Common Stock, including the Shares, on Nasdaq and will comply in all material respects with the Company’s reporting, filing and other obligations under the Bylaws or rules of Nasdaq. The Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from Nasdaq nor has the Company received in the past twelve (12) months any notification that the Commission
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or Nasdaq is contemplating terminating such registration or listing. The Company currently meets the continuing eligibility requirements for listing on Nasdaq. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Shares, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Shares, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company. The Company agrees to file with the Commission in a timely manner all reports and other filings required of the Company under the Securities Act and the Exchange Act. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Shares in a manner that would require the registration under the Securities Act of the sale of the Shares to Purchaser or that would be integrated with the offer or sale of the Shares for purposes of the rules and regulations of Nasdaq.
5.6Conduct of Business Prior to the Closing. From the date hereof until the Closing, except as otherwise provided in this Agreement or consented to in writing by Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed), the Company shall use its reasonable best efforts to (x) conduct the Company’s business in the ordinary course of business consistent with past practice; and (y) maintain and preserve intact the current organization and business of the Company and to preserve the rights, franchises, goodwill and relationships of its employees, collaborators, regulators and others having business relationships with the Company. Without limiting the foregoing, from the date hereof until the Closing Date, the Company shall not:
(a)authorize or effect any amendment or change to the Certificate or the Bylaws, including any amendment to the Certificate that has the effect of splitting, combining, reclassifying, recapitalizing, or modifying the terms of any equity interests of the Company;
(b)declare, set aside or pay any cash dividend on, or make any other cash distribution in respect of outstanding equity securities of the Company or any of its Subsidiaries, except for cash dividends by any Subsidiary to the Company;
(c)sell, transfer, abandon, allow to lapse, license or otherwise encumber any Company Intellectual Property, except in the ordinary course of business consistent with past practice or that would not reasonably be expected to have an adverse effect on the transactions contemplated in the License Agreement;
(d)except as disclosed in Schedule 5.6(d), adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its Subsidiaries; or
(e)authorize, or commit or agree to take, any of the foregoing actions.
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5.7Commission Filings. The Company will timely make all filings with the Commission that are required by the Company in connection with its entrance into this Agreement and the offer and sale of the Shares.
5.8Notices of Certain Events. The Company shall as promptly as reasonably practicable notify Purchaser of: (i) any notice or other communication of which the Company has knowledge from any Person alleging that the consent of such Person (or another Person) is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication of which the Company has knowledge from any Governmental Authority in connection with the transactions contemplated by this Agreement; (iii) any actions commenced or, to the knowledge of the Company, threatened against, relating to or involving or otherwise affecting the Company or any of its Subsidiaries that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 3.1(b) or which relate to the consummation of the transactions contemplated by this Agreement; and (iv) any fact or occurrence between the date of this Agreement and the Closing Date of which it has knowledge that makes any of its representations contained in this Agreement untrue in any material respect or causes any material breach of its obligations under this Agreement.
5.9PRC Approval. Parent and Purchaser shall, as promptly following the date hereof (but in any event within seven (7) Business Days), file all documentation necessary to be filed with MOFCOM or any other Governmental Authority in connection with the PRC Approval, and Parent and Purchaser shall take all actions required by law and otherwise reasonably necessary to obtain the PRC Approval as promptly as practicable.
ARTICLE VI.
MISCELLANEOUS
6.1Termination. This Agreement may be terminated at any time prior to Closing:
(a)by mutual written consent of Purchaser and the Company;
(b)by Purchaser or the Company:
(i)if there shall be any statute, law, regulation or rule that makes consummating the transactions contemplated hereby illegal or if any Governmental Authority shall have issued a judgment, order, decree or ruling, or shall have taken such other action restraining, enjoining or otherwise prohibiting the issuance of the Shares contemplated hereby and such judgment, order, decree or ruling shall have become final and non-appealable;
(ii)if the PRC Approval shall not have been obtained on or before the date that is sixty (60) Business Days after the date of this Agreement; provided that Purchaser cannot terminate this Agreement pursuant to this Section 6.1(b)(ii) unless Purchaser has complied in all respects with its obligations under Section 5.9 of this Agreement.
(c)by Purchaser:
(i)if the Company shall have (A) failed to perform any of its material obligations contained herein, or (B) breached any of its material representations or warranties
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contained herein, provided that Purchaser gives the Company written notice of such failure to perform or breach and the Company does not cure such failure to perform or breach within thirty (30) days after its receipt of such written notice;
(ii)if the Common Stock shall no longer be listed for trading on Nasdaq or another national securities exchange or automated quotation system;
(iii)if the License Agreement shall have been terminated; or
(iv)if any of the conditions set forth in Section 2.4(b) shall become impossible to fulfill (other than as a result of any breach by Purchaser of the terms of this Agreement) and shall not have been waived in accordance with the terms of this Agreement.
(d)by the Company:
(i)if Parent or Purchaser shall have (A) failed to perform any of its material obligations contained herein, or (B) breached any of its material representations or warranties contained herein, provided that the Company gives Parent or Purchaser written notice of such failure to perform or breach and Parent or Purchaser, as applicable, does not cure such failure to perform or breach within thirty (30) days after its receipt of such written notice; or
(ii)if any of the conditions set forth in Section 2.4(a) shall become impossible to fulfill (other than as a result of any breach by the Company of the terms of this Agreement) and shall not have been waived in accordance with the terms of this Agreement.
(e)If this Agreement is terminated and the transactions contemplated hereby are not consummated as described above, this Agreement shall become void and of no further force and effect, provided, however, that (i) none of the Parties hereto shall have any liability in respect of a termination of this Agreement pursuant to Section 6.1(a), 6.1(b), and (ii) nothing shall relieve any of the Parties from liability for actual damages resulting from a termination of this Agreement pursuant to Section 6.1(c) or 6.1(d); and provided, further, that none of the Parties hereto shall have any liability for speculative, indirect, unforeseeable or consequential damages or lost profits resulting from any legal action relating to any termination of this Agreement.
6.2Publicity. Except as required by judicial order or applicable Law, or as set forth below, no Party shall make any public announcement concerning this Agreement without the prior written consent of the other Parties, which consent shall not be unreasonably withheld or delayed. The Party preparing any such public announcement shall provide the other Party with a draft thereof at least three (3) Business Days prior to the date on which such Party would like to make the public announcement. No Party shall use the name, trademark, trade name or logo of the other Parties or their employees, in any publicity or news release relating to this Agreement or its subject matter, without the prior express written permission of the other Parties. Notwithstanding the terms of this Section 6.2, each Party shall be permitted to disclose the existence and terms of this Agreement to the extent required, based on the advice of such Party’s legal counsel, to comply with applicable Laws, including the rules and regulations promulgated by the Commission, its PRC counterparts or any other governmental authority. Any Party may also disclose the existence and terms of this Agreement in confidence to its attorneys and
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advisors, and to potential acquirors (and their respective professional advisors), in connection with a potential merger, acquisition or reorganization and to existing and potential investors or lenders of such Party, as a part of their due diligence investigations, in each case under an agreement to keep the terms of this Agreement confidential under terms of confidentiality and non-use substantially no less rigorous than the terms contained in this Agreement and to use such information solely for the purpose permitted pursuant to this Section 6.2.
For purposes of clarity, any Party may issue a press release or public announcement or make such other disclosure if the content of such press release, public announcement or disclosure has previously been made public other than through a breach of this Agreement by the issuing Party or its Affiliates.
6.3Fees and Expenses. Each Party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such Party incident to the negotiation, preparation, execution, delivery and performance of this Agreement, The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any exercise notice delivered by Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Shares to Purchaser.
6.4Entire Agreement. This Agreement, together with the exhibits and schedules hereto, contains the entire understanding of the Parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the Parties acknowledge have been merged into this Agreement.
6.5Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be sent to the address below and will be (a) given in person, (b) sent by registered or certified mail, return receipt requested, postage prepaid, (c) sent by a reputable international overnight courier service or (d) sent by electronic mail. Any such communication, notice, instruction or consent will be deemed to have been delivered: (i) on receipt if given in person; (ii) three (3) Business Days after it is sent by registered or certified airmail, return receipt requested, postage prepaid within the same country or region as the recipient’s address or five (5) Business Days after it is sent by registered or certified airmail, return receipt requested, postage prepaid from another country or region; (iii) one (1) Business Day after it is sent via a reputable international overnight courier service; or (iv) upon confirmation of receipt if sent by electronic mail.
If to the Company:
Agenus Inc.
3 Forbes Road
Lexington, Massachusetts 02421-7305, USA
Attention: General Counsel
E-mail address: [REDACTED]
with a copy to (which will not constitute notice):
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Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199, USA
Attention: Zachary Blume
E-mail address: [REDACTED]
If to Purchaser:
Betta Pharmaceuticals Co. Ltd.
No. 355 Xingzhong Rd. Yuhang District. Hangzhou.
PRC 311100
Attention: Chairman & CEO
Email: [REDACTED]
Telephone: [REDACTED]
with a copy to (which will not constitute notice):
PacGate Law Group
55th Floor, Fortune Financial Center, Suite 5501, 5 East 3rd Ring Rd.
Chaoyang District,
Beijing, China 100020
Email: [REDACTED]
Tel: [REDACTED]
6.6Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed by the Company and Purchaser. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair the exercise of any such right.
6.7Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
6.8Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of Purchaser (other than by merger). Purchaser may assign any or all of its rights under this Agreement to any Person to whom Purchaser assigns or transfers any Shares, provided that such transferee agrees in writing to be bound, with respect to the transferred Shares, by the provisions of this Agreement that apply to “Purchaser.”
6.9No Third-Party Beneficiaries. This Agreement is intended for the benefit of the Parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
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6.10Governing Law; Jurisdiction.
(a)This Agreement shall in all respects be governed by and construed in accordance with the laws of the State of New York, USA, including all matters of construction, validity and performance, in each case without reference to any conflict of law rules that might lead to the application of the laws of any other jurisdiction.
(b)Any dispute, controversy or claim arising out of or relating to this Agreement, including the existence, negotiation, validity, formation, interpretation, breach, performance or application of this Agreement will be settled by binding arbitration administered by the AAA in accordance with its Commercial Arbitration Rules (or the AAA International Arbitration Rules, if recommended under the AAA guidelines), as such rules may be modified by this Section 6.10(b) or otherwise by subsequent written agreement of the Parties. The number of arbitrators will be three (3), of whom the Parties will select one (1) each. The two arbitrators so selected will select the third (3rd) and final arbitrator. If the arbitrators selected by the Parties are unable or fail to agree upon the third arbitrator, the AAA will select the third arbitrator. The place of arbitration will be New York City, New York, and all proceedings and communications will be in English. The Parties will have the right to be represented by counsel. Any judgment or award rendered by the arbitrators will be final and binding on the Parties. The Parties agree that such judgment or award may be enforced in any court of competent jurisdiction.
6.11Survival of Representation and Warranties. The representations and warranties contained herein shall survive the Closing and the delivery of the Shares.
6.12Execution in Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered to each other Parties, it being understood that the Parties need not sign the same counterpart. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof.
6.13Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the Parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the Parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
6.14Replacement of Securities. If any certificate or instrument evidencing any of the Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in
32
exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Shares.
6.15Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, Purchaser and the Company will be entitled to seek specific performance under this Agreement. The Parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in this Agreement and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
6.16Saturdays, Sundays, Holidays, etc.If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
6.17Construction. The Parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise this Agreement and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting Party shall not be employed in the interpretation of this Agreement or any amendments hereto. In addition, each and every reference to share prices and shares of Common Stock in this Agreement shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
6.18WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. |
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AGENUs inc.
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By:_/s/ Garo H. Armen Name: Garo H. Armen Title: Chief Executive Officer
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BETTA PHARMACEUTICALS CO. LTD. (贝达药业股份有限公司)
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By: /s/ Lieming Ding Name: Lieming Ding Title: Chairman & CEO
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Betta Investment (Hong Kong) Limited (貝達投資(香港)有限公司)
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By: /s/ Lieming Ding Name: Lieming Ding Title: Chairman
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34
Exhibit 10.1
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS EXHIBIT, MARKED BY [*], HAS BEEN OMITTED BECAUSE Agenus INC., HAS DETERMINED such INFORMATION (I) IS NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO AGENUS INC., IF PUBLICLY DISCLOSED.
LICENSE AND COLLABORATION AGREEMENT
This LICENSE AND COLLABORATION AGREEMENT (this “Agreement”) is made as of June 20, 2020 (the “Effective Date”) by and between Agenus Inc., a Delaware corporation with offices at 3 Forbes Road, Lexington, Massachusetts 02421, USA (“Agenus”), and Betta Pharmaceuticals Co., Ltd., having an address at No. 355 Xingzhong Road, Yuhang Economic and Technological Development Area, Hangzhou, China (“Betta”). Agenus and Betta may each be referred to herein individually as a “Party” or, collectively, as the “Parties”.
WHEREAS, Agenus owns or controls certain intellectual property rights with respect to its proprietary molecules known as Balstilimab and Zalifrelimab (each as defined below);
WHEREAS, Betta is a pharmaceutical company focused on the development and commercialization of innovative drug candidates and desires to obtain from Agenus certain license rights to develop and commercialize Balstilimab and Zalifrelimab into commercial products in the Field and in the Territory (each as defined below); and
WHEREAS, simultaneously with entering into this Agreement, Agenus, Betta and an Affiliate of Betta are entering into a stock purchase agreement, pursuant to which Agenus will issue, and such Affiliate of Betta will purchase, shares of capital stock of Agenus on the terms and conditions set forth therein.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants set forth herein, the Parties, intending to be legally bound, hereby agree as follows:
Capitalized terms used but not otherwise defined in the body of this Agreement will have the meanings set forth in this ARTICLE 1.
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1.1 |
“Accounting Standards” means, as applicable (a) U.S. generally accepted accounting principles, consistently applied, (b) the PRC generally accepted accounting principles, consistently applied, or (c) International Financial Reporting Standards as issued by the International Accounting Standards Board, consistently applied. |
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1.3 |
“Agenus Manufacturing Technology” means the Manufacturing Materials and the Manufacturing Process for each Licensed Antibody. |
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1.7 |
“Antibody” means one (1) or more molecules, or one (1) or more genes encoding such molecule(s), which comprises or consists [*]. |
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1.10 |
“Balstilimab” means the Antibody targeting PD-1 identified by Chemical Abstract Service Registry Number 2148321-77-9 and internally referenced by Agenus as “AGEN2034.” |
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1.11 |
“Betta IP” means (a) Betta Improvements and Betta Improvement Patent Rights and (b) Know-How and Patent Rights [*] related to the Licensed Antibody or Licensed Products [*] for the exercise of the Retained Rights. |
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1.12 |
“Betta Other Component” means any Other Component that is Controlled by Betta or any of its Affiliates as of the Effective Date or during the Term. |
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1.15 |
“Bi-specific Licensed Products” means any Licensed Product that contains two (2) or more antigen-recognition sequences where [*] one is a Licensed Antibody [*]. |
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1.17 |
“Business Day” means a day other than a Saturday or Sunday or a federal holiday in New York, New York, USA, or a public holiday in Hong Kong, or a national holiday in the People’s Republic of China. |
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3
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1.33 |
“FTE” means the equivalent of the work of a full-time individual for a twelve (12) month period. |
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1.34 |
“Fully Burdened Manufacturing Costs” means the cost of Manufacturing the Licensed Product. [*]. |
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1.39 |
“Government Official” means any Person employed by or acting on behalf of a Governmental Body, government-controlled entity or public international organization. |
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1.43 |
“IND” means an investigational new drug application filed with the NMPA, or the equivalent in other jurisdictions in the Territory, for the authorization to commence Clinical Trials. |
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1.47 |
“Licensed Know-How” means, subject to Section 14.3(b)(ii), all Know-How that (a) are Controlled by Agenus or any of its Affiliates, as of the Effective Date or during the Term; and (b) [*] Develop, Manufacture or Commercialize any Licensed Antibody or Licensed Product in the Field in the Territory. |
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1.54 |
“Net Sales” means, [*]. |
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1.55 |
“NMPA” mean the National Medical Product Administrations of the PRC, or its successor entity(ies) or authority thereto having substantially the same function. |
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1.56 |
“OFAC” means the Office of Foreign Assets Control of the U.S. Department of Treasury. |
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1.57 |
“Other Component” means, with respect to [*]. |
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extension or restoration mechanisms, including patent term extensions and supplementary protection certificates. |
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1.59 |
“Person” means any individual, partnership, limited liability company, firm, corporation, association, trust, unincorporated organization or other entity. |
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1.60 |
“PRC” means the People’s Republic of China, which for purposes of this Agreement only, excludes Hong Kong, Macau and Taiwan. |
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1.64 |
“Regulatory Approval” means, with respect to a Licensed Product in a country or region, all approvals that are necessary for the commercial sale of such Licensed Product for use in the Field in such country or region, excluding any pricing and reimbursement approvals, except to the extent required by Applicable Law to sell the Licensed Product in such country or region. |
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1.67 |
“Regulatory Submissions” means any filing, application or submission with any Regulatory Authority, including authorizations, approvals or clearances arising from the foregoing, including Regulatory Approvals and any pricing or reimbursement approvals, as applicable, and in each case any and all supporting documents (including documents arising in the course of Clinical Trials), and all correspondence or communication with or from the relevant Regulatory Authority, as well as minutes of any meetings, telephone conferences or discussions with the relevant Regulatory Authority, in each case, with respect to a Licensed Antibody and/or a Licensed Product. |
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1.68 |
“Representatives” means a Party, its Affiliates, and their respective sublicensees, employees, officers, contractors, consultants or agents. |
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1.69 |
“Results” means all data (including all raw data), results, final clinical study reports and documentation [*]. |
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1.73 |
“Territory” means the PRC, Hong Kong, Macau and Taiwan, each of which will be considered a region under this Agreement. |
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1.77 |
“Value” means cash or cash equivalents invoiced or received, or in the event that in-kind, equity interests or other non-cash consideration is promised or received, the fair market value thereof. |
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Section |
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Abandoned Commercialization |
4.10 |
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Abandoned Development |
4.10 |
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Annual Net Sales |
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[*] |
[*] |
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Agenus |
Preamble |
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Agenus Indemnitees |
13.1 |
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Agenus Improvements |
8.1(a) |
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Agenus Improvement Patent Rights |
8.1(a) |
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Agenus Product Mark |
6.2(b)(i) |
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Agreement |
Preamble |
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Betta |
Preamble |
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[*] |
[*] |
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Betta Indemnitees |
13.2 |
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Betta Improvements |
8.1(b) |
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Betta Improvements Patent Rights |
8.1(b) |
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Betta Product Mark |
6.2(b)(i) |
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Chinese Trademarks |
6.2(b)(i) |
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CMO |
1.34 |
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Commercial Milestone |
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Commercial Milestones Notice |
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Cure Period |
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Disclosing Party |
9.1(a) |
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Effective Date |
Preamble |
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Executive Officers |
3.3(a) |
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Force Majeure Event |
14.6 |
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General Distributor |
6.3(b) |
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Global Branding Strategy |
6.2(a) |
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Initial Payment |
7.1 |
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Insolvency Event |
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Joint Improvements |
8.1(a) |
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8.1(a) |
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JSC |
3.1(a) |
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Liabilities |
13.1 |
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License |
2.1 |
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Licensed Patent Right Challenge |
8.6 |
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[*] |
[*] |
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[*] |
[*] |
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Manager |
3.1(b) |
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5.2(e) |
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Manufacturing Technology Transfer Completion |
5.2(b) |
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Milestone Payment |
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[*] |
[*] |
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New Trademark |
6.2(b)(i) |
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Other Product |
1.20 |
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Party(ies) |
Preamble |
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Permissible Deviation |
6.2(a) |
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Price Difference |
6.3(b)(ii) |
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Prior Agreements |
14.4 |
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Product Invention |
8.1(a) |
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Product Invention Patent Rights |
8.1(a) |
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Product Marks |
6.2(b)(i) |
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Product Trademarks |
6.2(b)(i) |
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Promotional Materials |
6.2(c) |
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Public Official |
11.6(b)(vi) |
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Recipient |
9.1(a) |
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Records |
5.2(d) |
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Remaining Inventory |
10.3(c) |
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Retained Rights |
2.3 |
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Right of Reference |
4.7(g) |
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Royalty Payment Statement |
7.5(b) |
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Royalty Term |
7.4(a) |
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SDEA |
4.6 |
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SEC |
9.2(b) |
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[*] |
[*] |
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[*] |
[*] |
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Specifications |
5.2(c) |
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Sublicensee |
2.5(a) |
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Sublicensee Breach |
2.5(c) |
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Sublicensee Obligation |
2.5(c) |
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Supply Agreement |
5.1 |
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Tech Transfer Agreement |
5.2(b) |
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Tech Transfer Fee |
7.2 |
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Tech Transfer Notice |
5.2(b) |
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Tech Transfer Plan |
5.2(b) |
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Territory Development Plan |
4.1 |
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Term |
10.1 |
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Termination Date |
10.3(b) |
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(d) |
Copy of Sublicense Agreement. Betta will deliver to Agenus a true, complete and correct copy of each sublicense agreement (i) with respect to Betta Sublicensee, in the form entered |
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2.8 |
Non-Compete. |
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(a) |
By Betta. During the Term, except for the Licensed Antibodies and Licensed Products as expressly contemplated under this Agreement, Betta will not, and Betta will cause Betta Parties to not, [*]. |
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(b) |
By Agenus. During the Term, except as required to perform the obligations provided in this Agreement and performance of this Agreement, Agenus will not, and Agenus will cause its Affiliates to not, [*]. |
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ARTICLE 3. |
GOVERNANCE |
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(d) |
Subcommittees. The JSC may establish and disband subcommittees as deemed necessary by the JSC in order to coordinate and expedite the Development, Manufacture or Commercialization of the Licensed Antibodies and the Licensed Products in the Field in the Territory. The Parties will have the right to appoint equal numbers of representatives to each subcommittee. No subcommittee established by the JSC will have the authority to bind the Parties hereunder and any such subcommittee will report to, and any decisions will be made by, the JSC. |
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(i) |
Subject to Section 3.3(a)(ii) below, Betta will have the final decision-making authority over [*]; and |
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(ii) |
Agenus will have the final decision-making authority over the matter if [*]. |
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(b) |
Exceptions. Notwithstanding the foregoing, neither Party may exercise its right to finally resolve a dispute: (i) in a manner that expands such Party’s rights or excuses such Party from any of its obligations under this Agreement; or (ii) in a manner that would require the other Party to perform any act that it [*]believes to be inconsistent with any Applicable Law or any approval, order, policy or guidelines of a Regulatory Authority in its Territory. |
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such tasks are known or can reasonably be ascertained. Betta will Develop each Licensed Antibody and Licensed Product in the Field and in the Territory in accordance with the applicable Territory Development Plan. Betta will be solely responsible for all costs and expenses in connection with the Development of Licensed Antibodies and Licensed Products in the Field and in the Territory. |
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forms, investigator reports, raw data and any analyses thereof. To the extent permitted by Applicable Laws (including the requirements of applicable Regulatory Authorities), Betta will [*] ensure that any agreement any Betta Party enters into with any Person regarding the Licensed Product will include data sharing obligations for such Persons consistent with this Section 4.5(a). [*]. |
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(c) |
All data and information disclosed by one Party to the other under this Agreement shall be deemed Confidential Information of the disclosing Party. |
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Regulatory Approval for Betta’s benefit, (ii) will appoint Betta as its exclusive agent to handle all regulatory activities for the Licensed Product in the Field in the Territory, and (iii) will promptly transfer such Regulatory Approval to Betta or its designee when allowed by Applicable Laws; further provided that in the event and during any period that Agenus holds such Regulatory Approval for Betta’s benefit, (A) Agenus will not be obligated to perform any activities, bear any obligations, or bear any costs, in each case, in addition to the activities set forth in this Agreement due to Agenus or its Affiliate holding such Regulatory Approval; (B) Agenus will not assume any liability in connection with Agenus holding such Regulatory Approval; (C) should Agenus incur any costs or expenses related to holding or transferring any such Regulatory Approval, Betta will reimburse Agenus or its Affiliates for any and all costs and expenses incurred by Agenus in holding or transferring such Regulatory Approval; and (D) Betta will indemnify and hold Agenus Indemnitees from and against any and all Liabilities to the extent arising from Agenus holding such Regulatory Approval in the Field in the Territory as set forth in ARTICLE 13. |
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(c) |
Agenus’ Responsibilities. Agenus will [*] cooperate with Betta in obtaining any Regulatory Approvals and any pricing or reimbursement approvals, as applicable, for a Licensed Product in the Field and in the Territory including by providing reasonable access to clinical data, and other data, information, and documentation for Licensed Products in the Field that is included in the Licensed Know-How, including any Regulatory Approvals or Regulatory Submissions for the Licensed Products in the Field in the Territory and, as applicable, and subject to any Third Party obligations, outside the Territory. |
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(ii) |
Agenus will provide Betta with copies in the original language of sections relating to clinical results, efficacy, safety, dosage, and any other sections reasonably requested by Betta of (A) all Regulatory Submissions actually submitted (including in the original language thereof) in the United States; and (B) all Regulatory Approvals obtained or denied in the United States, in each case of (A) and (B), to the extent solely related to a Licensed Antibody in a monotherapy setting or in combination with the other Licensed Antibody, but excluding combinations of either or both Licensed Antibodies with any Other Component. |
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4.2, and to audit the study records of such Persons for data-sharing purposes as set forth in Section 4.5. Such audits will take place during normal business hours [*], unless significant non-compliance identified warrants further assessment or any Regulatory Authority reasonably requires additional time. Such audits will be conducted in a manner that minimizes interruption of Betta’s or the study site’s operations and will be at Agenus’ sole cost and expense. Persons auditing the facilities, books or records will be required to enter into separate confidentiality agreements, if not expressly covered by this Agreement, and will abide by the safety protocols and standard operating procedures of the audited facility while on site. |
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(a) |
The Parties agree that the Supply Agreement should be consistent with the following principle: prior to the Manufacturing Technology Transfer Completion pursuant to Section |
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5.2(b), Agenus will [*] supply the Licensed Antibodies in a [*] drug product format in final form to Betta for the Field in the Territory at [*] of Agenus’ Fully Burdened Manufacturing Costs (or the Fully Burdened Manufacturing Costs of its Affiliate, Sublicensee or Third Party Manufacturer, as applicable), plus all logistics, shipping, and any VAT or other applicable transfer taxes, subject to (i) reasonable forecasting and other typical supply terms and (ii) Betta’s procurement of all import permits and other approvals needed for such Development and Commercialization in the Field in the Territory where such supply is intended for use. |
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permits and other approvals needed for such development and commercialization outside of the Territory where such supply is intended for use. [*]. |
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5.3 |
Quality Agreement. Prior to commencement of any Clinical Trial or Commercialization of a Licensed Product by the Betta Parties, Agenus and Betta will enter into a quality agreement setting forth the responsibilities of the Parties with respect to compliance with GMP in connection with Development, Manufacturing and Commercialization of Licensed Products in the Field and in the Territory and may include additional compliance requirements related to non-clinical and clinical operations. |
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6.2 |
Global Branding. |
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(ii) |
Betta will reasonably cooperate with Agenus to enable Agenus to ascertain that all uses of all of the Product Marks, as permitted hereunder, meet the quality standards set by Agenus in connection with its existing uses of each of such Product Mark, including by allowing Agenus and its representatives to make periodic inspection of Betta’s packaging, inserts, records, documents and other materials that contain any such Product Mark. |
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6.3 |
Sales and Distribution. |
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(a) |
Betta Responsibilities. Betta will be responsible for booking sales and will warehouse and distribute Licensed Products in the Territory at its sole cost. Betta will be solely responsible for handling all returns of Licensed Products sold in the Territory, as well as all aspects of Licensed Product order processing, invoicing and collection, distribution, inventory and receivables of Licensed Products sold in the Territory. |
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(iii) |
Betta will, and Betta will cause all Betta Parties to, provide to Agenus all reasonable assistance, facilitation and support for the distribution of the Licensed Products in the applicable Provinces to comply with the Two-Invoice Policy. For the avoidance of doubt, in the case that Betta and the General Distributor directly make an agreement in accordance with this Section 6.3(b), such agreement will conform to the terms and conditions of this Agreement. |
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Development Milestone Event |
Payment |
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(i)[*] |
[*] |
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If the Development milestone event described in clauses 7.3(a)(i) is not achieved, but the Development milestone event described in clause 7.3(a)(ii) is achieved, then such earlier skipped Milestone Payment will then be due and payable together with the Milestone Payment due for the achieved milestone event. [*] after the achievement of each Development milestone event, Betta will notify Agenus of such achievement. Agenus will invoice Betta for the Development Milestone Payment for each Development milestone event achieved following its receipt of such notice and Betta will make the Milestone Payment [*]following receipt of such invoice.
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Payment |
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(i)[*] |
[*] |
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(ii)[*] |
[*] |
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(iii)[*] |
[*] |
[*] after the end of each calendar year, Betta will notify Agenus if any Commercial Milestones are achieved (“Commercial Milestones Notice”), provided that Betta will provide the unaudited Net Sales within [*] after the end of each calendar year. Agenus will invoice Betta for each Commercial Milestone Payment for each Commercial milestone achieved following its receipt of the Commercial Milestones Notice and Betta will make the Milestone Payment within [*] following receipt of such invoice. For clarity, Betta shall only be obligated to make payment once for the first time when a Commercial Milestone is achieved and Betta has no obligation to make further payment if such Commercial Milestone is achieved again.
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7.4 |
Running Royalties. Betta will pay to Agenus running royalties on Net Sales of all Licensed Products in the Territory at the applicable royalty rates, as set forth in the following table: |
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(i) |
the expiration of the last-to-expire Licensed Patent in such region having a Valid Claim that Covers such Licensed Product; |
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(ii) |
the expiration of all Regulatory Exclusivity Periods that apply to such Licensed Product in such region; or |
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(iii) |
the tenth (10th) anniversary of the First Commercial Sale of such Licensed Product in the Territory. |
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(b) |
Additional Provisions Regarding Royalties. Betta’s royalty obligations under this Section 7.4 will be subject to the following conditions: |
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(i) |
only one royalty will be due and payable with respect to the same unit of Licensed Product; |
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(ii) |
royalties when owed or paid hereunder will be non-refundable and non-creditable and not subject to set-off, except as expressly set forth herein; |
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(iv) |
no royalties will accrue on the disposition of Licensed Products by the Betta Parties for use in clinical studies conducted by the Betta Parties; and |
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(v) |
no royalty anti-stacking, offsets, or reductions of any kind will apply. Betta will be responsible for [*] ensure non-infringement of the Licensed Products under third party rights in the Territory in the Field. |
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7.5 |
Payment Terms. Unless otherwise stated below, this Section 7.5 will apply to all payments to be made by one Party to the other hereunder. |
29
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all royalty payments due to Agenus pursuant to Section 7.4 (“Royalty Payment Statement”) for the relevant calendar quarter including: |
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|
(i) |
the gross amount invoiced by the Betta Parties to any Third Party for the sale to such Third Party of Licensed Products; |
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(ii) |
the calculation of Net Sales, including the applicable royalty rate and the type and amount of all deductions and offsets allocated with respect to such Net Sales; |
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(iii) |
if applicable, the exchange rate, as defined in Section 7.5(a) used for calculating any royalties; and |
|
|
(iv) |
such other particulars as are reasonably necessary for an accurate accounting of the payments due pursuant to this Agreement. |
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(c) |
Royalty Invoicing. |
|
|
(i) |
Agenus will invoice Betta for all royalties payable under this Agreement [*] following receipt of each Royalty Payment Statement for the applicable calendar quarter. |
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(ii) |
With respect to any royalty payment by Betta to Agenus under Section 7.4, Betta will pay each invoice for such royalty payment [*] after delivery of such invoice to Betta by Agenus. |
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(d) |
Overdue Payments. Any overdue payments to Agenus by Betta under this Agreement will accrue interest [*] (or the maximum legal interest rate allowed by Applicable Law, if less) from and after such date and Betta will be responsible for reasonable legal fees and expenses incurred by Agenus in connection with the collection thereof. |
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deducted amounts such that, after deducting and withholding such amounts (including for taxes on the additional amounts payable), Agenus receives amounts equal to the amounts set forth hereunder before any withholdings and deductions; provided that, in the event that Agenus actually recovers any such withheld or deducted amounts paid by Betta to the applicable taxing authority, Agenus shall return, refund, reimburse, or credit any such recovered amounts to Betta. Betta will submit to Agenus appropriate proof of payment of the withheld or deducted taxes as well as the official receipts within a reasonable period of time. Each Party will, upon request, provide the other Party with reasonable assistance in order to assist such Party in seeking the benefit of any present or future tax exemptions and/or treaties against double taxation which may apply to any payments due Agenus under this Agreement. |
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(c) |
For clarity, (i) all Product Inventions, Product Invention Patent Rights, Agenus Improvements, Agenus Improvement Patent Rights, Joint Improvements and Joint Improvement Patent Rights [*] for the Development, Manufacture or Commercialization of the Licensed Product in the Field in the Territory will be included in the Licensed IP and licensed to Betta under the License; and (ii) all Betta Improvements and Betta Improvement Patent Rights [*] will be included in the Betta IP and licensed to Agenus under the license granted by Betta to Agenus under Section 2.4. |
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(d) |
Each Party shall promptly notify the other Party of any Invention arising in connection with this Agreement, including Inventions made by Affiliates or sublicensees of the Party. |
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8.2 |
Ownership Disputes. The Parties will attempt [*] to resolve any disputes regarding ownership of Inventions, and all Patent Rights and any other intellectual property rights therein. In the event the Parties are unable to resolve such dispute through escalation to Executive Officers of the Party, such dispute will be resolved [*]. |
31
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(d) |
With respect to the Licensed IP in the Territory or any Betta Improvement Patent Right included within the license granted to Agenus under Section 2.4, the Party responsible for Prosecution will consult with and keep the other Party fully informed of material issues relating to the Prosecution of such Patent Rights, [*]. |
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8.5 |
Cooperation. Each Party hereby agrees to provide to the other Party all reasonable assistance and cooperation reasonably necessary to enable such other Party to undertake Prosecution, enforcement and defense of Patent Rights as contemplated by this Agreement, including: (a) to cause its employees, and to use reasonable efforts to cause its licensees, sublicensees, independent contractors, agents and consultants, to be reasonably available to the other Party (or to the other Party’s authorized attorneys, agents or representatives); (b) to endeavor [*] to coordinate its efforts with the other Party to minimize or avoid interference with the Prosecution, enforcement and defense of the other Party’s Patent Rights that are subject to this Agreement; (c) to provide any necessary powers of attorney and executing any other required documents or instruments required to give effect to the terms of this Agreement; and (d) to cause its employees, and to use reasonable efforts to cause its licensees, sublicensees, independent contractors, agents and consultants, to provide any and all information required for the other Party to comply with its relevant duties of disclosure as required by Applicable Law in the United States or any other jurisdiction. |
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exercise its right to direct and control the defense of an Infringement Action, then Betta shall have such right; [*]. |
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(d) |
Notwithstanding the obligations in Section 9.1(a) and 9.1(c), the Recipient may disclose (and, in connection therewith, use) Confidential Information of the Disclosing Party, if such disclosure: |
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(ii) |
consists entirely of Confidential Information previously approved by the Disclosing Party for public disclosure by the Recipient; or |
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(e) |
Each Recipient will be responsible for any breach of the obligations of this Section 9.1 by any Person to whom such Recipient or its Affiliate disclosed the Disclosing Party’s Confidential Information. |
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9.2 |
Publicity; Attribution; Terms of this Agreement; Non-Use of Names. |
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(a) |
Except as required by judicial order or Applicable Law, or as set forth below, neither Party may make any public announcement concerning this Agreement without the prior written consent of the other Party, which consent may not be unreasonably withheld or delayed. The Party preparing any such public announcement will provide the other Party with a draft thereof at least [*] prior to the date on which such Party would like to make the public announcement. Neither Party may use the name, trademark, trade name or logo of the other Party, its employees, or of [*], in any press release, advertising or promotional materials without the prior express written permission of the other Party or, as applicable, [*]. |
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(d) |
For purposes of clarity, either Party may issue a press release or public announcement or make such other disclosure if the content of such press release, public announcement or disclosure has previously been made public other than through a breach of this Agreement by the issuing Party or its Affiliates. |
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9.3 |
Publications. The Betta Parties will have the right to make disclosures pertaining to a Licensed Antibody and/or Licensed Product in recognized scientific publications or at scientific conferences in accordance with the following procedure: [*]. |
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(B) |
the Cure Period will be [*] in the event that a Party materially breaches any of its payment obligations to the other Party; provided, however, the failure to make the Initial Payment pursuant to Section 7.1 will be deemed an incurable material breach of a material provision of this Agreement and Agenus will have the right to terminate this Agreement in its entirety with immediate effect; |
provided that, in each case of (A) and (B) (other than with respect to the Initial Payment), the breaching Party may remedy such breach during such [*] Cure Period. If the breaching Party is Betta and the breach relates to Betta’s failure to enforce any material provisions of a Sublicensee, then following the Cure Period and operation of the applicable provisions of this Section 10.2(c), Agenus may terminate this Agreement in whole or in part, or at its option, solely with respect to such sublicense, and Betta will within [*] of such termination provide written confirmation to Agenus that such sublicense has been terminated.
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(i) |
Either Party will have the right to terminate this Agreement in connection with a Force Majeure Event asserted by the other Party, in accordance with Section 14.6. |
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(iii) |
[*]. |
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11.1 |
Mutual Representations and Warranties. Each Party represents, warrants, and covenants to the other Party that as of the Effective Date: |
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(a) |
It is duly organized, validly existing, and in good standing as a corporation or other entity as represented herein under the laws and regulations of its jurisdiction of incorporation, organization, or chartering; |
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(b) |
it has the full right, power, and authority to enter into this Agreement and to perform its obligations hereunder; |
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(c) |
the execution of this Agreement by its representative whose signature is set forth at the end hereof has been duly authorized by all necessary corporate action of the Party and shall not violate (i) such Party’s organizational documents; (ii) any agreement, instrument or contractual obligation to which such Party is a party or by which it is bound; (iii) any requirement of any Applicable Law; or (iv) any order, writ, judgment, injunction, decree, determination or award of any court or any Governmental Body presently in effect applicable to such Party; |
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(d) |
when executed and delivered by such Party, this Agreement will constitute the legal, valid, and binding obligation of that Party, enforceable against that Party in accordance with its |
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terms except as enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium or other laws relating to or affecting creditor’s rights generally and by general equitable principles; |
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(e) |
as of the Effective Date, it is not currently bound by any agreement with any Third Party, or by any outstanding order, judgment, or decree of any court or administrative agency that restricts it from granting to such other Party the rights and licenses as set forth in this Agreement; and |
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(f) |
such Party has valid and sufficient arrangements and agreements with its directors, officers and employees (which term shall include agents, consultants and subcontractors) such that ownership of intellectual property rights in and to any Inventions made by its directors, officers and employees vests in such Party. |
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11.2 |
Betta’s Representations and Warranties. Betta represents and warrants to Agenus that: |
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(b) |
As of the Effective Date, to Betta’s knowledge there is no pending litigation against Betta or any of its Affiliates relating to, and neither Betta nor any of its Affiliates has received any written notice from any Third Party asserting, an allegation that the Development, Manufacturing or Commercialization activities of Betta or its Affiliates exceed the scope of any license granted by a Third Party pursuant to an agreement to which Betta or its Affiliates are currently bound. |
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11.3 |
Agenus’ Representations and Warranties. Agenus represents and warrants to Betta that as of the Effective Date: |
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(a) |
Agenus Controls the Licensed IP, and Agenus has executed the Amendment to Inter-Company Agreements; |
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(b) |
Agenus has the full rights, power and authority to grant the License granted herein, and is not prohibited from doing so by the terms of any agreement to which it is a party [*], and has the full right, power and authority to deliver the Licensed IP to Betta, and is not prohibited from doing so by the terms of any agreement to which it is a party, [*]; |
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(c) |
The Upstream License Agreements include all agreements between Agenus or its Affiliates and a Third Party under which Agenus or its Affiliates have licensed or sublicensed the Licensed IP from a Third Party, and Agenus has provided Betta with a copy of each Upstream License Agreement, which copy has been redacted to remove any provisions or terms not necessary to determine Betta’s rights under the License. |
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(d) |
[*]; |
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(e) |
Agenus’ performance of its obligations under this Agreement does not or will not cause any breach of any Upstream License Agreements; |
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(f) |
Agenus’ right, title and interest to all the Licensed IP are free of any lien or security interest; |
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(h) |
there are no written licenses or other agreements to which Agenus or any of its Affiliates is a party that relate in any material respect to any Licensed Antibody and/or Licensed Product in the Territory or any Licensed IP relating thereto, and Agenus has not granted any right or license to any Third Party relating to any of the intellectual property rights it Controls, which would conflict or interfere with any of the rights or licenses granted to Betta hereunder; |
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(i) |
neither the execution and delivery of this Agreement nor the performance hereof by Agenus requires Agenus to obtain any permits, authorizations or consents from any Governmental Body or from any other person, firm or corporation, and such execution, delivery and performance will not result in the breach of or give rise to any right of termination, rescission, renegotiation or acceleration under, or trigger any other rights under, any agreement or contract to which Agenus is a party or to which it may be subject that relates to the Licensed IP or the Licensed Antibody and/or Licensed Product; and |
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(j) |
there is no written action, suit, proceeding (other than routine patent office and regulatory matters), arbitration, or litigation of any nature, civil, criminal, regulatory or otherwise, in law or in equity, pending, or to its knowledge, threatened, against Agenus or any of its Affiliates, in each case in connection with the Licensed IP or the Licensed Antibodies and/or Licensed Products. |
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(b) |
Betta will perform, and will cause Betta Parties to perform, their responsibilities and exercise their rights under this Agreement in compliance with this Agreement (including Section 11.6(b)) and all Applicable Laws, including all GCP, GLP, GDP, GMP, Anti-Corruption Laws and Data Privacy Laws; |
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(c) |
Betta will not, and will not permit Betta Parties to, ship or otherwise make available Licensed Antibodies or Licensed Products outside of the Territory; |
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(d) |
Betta will, and will cause Betta Parties to, maintain complete and accurate Records, and will ensure that no Records, including any Clinical Trial records or Manufacturing batch records, are tampered with or improperly modified; |
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use by Agenus or its Affiliates or sublicensees of Clinical Trial data and records, and provide Agenus with copies of such record filings, licenses, approvals, and permits; |
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(f) |
all employees and officers of Betta or Betta Parties working under this Agreement shall be under the obligation to assign all right, title and interest in and to their Inventions, whether or not patentable, if any, to Betta as the sole owner thereof, and under the obligation to maintain as confidential the Confidential Information of Betta; and |
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(ii) |
The Betta Parties shall not enable, authorize or license any Third Party to take any action that would have the effect of allowing such Third Party to take any action relating to the Betta Existing IP that would be prohibited by this Section 11.4(g) if taken by a Betta Party. |
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(iii) |
If any Betta Party asserts any claim or counterclaim or otherwise participates in any action, suit or proceeding that would be prohibited by this Section 11.4(g), then Betta shall, and shall use reasonable efforts to cause such Affiliate or other Betta Party to, (A) withdraw, file a dismissal with prejudice, or take all actions having similar effect, with respect to any such claim, counterclaim, action, suit or proceeding [*] of the earlier of (1) Agenus’s written request, or (2) Betta learning of such claim, counterclaim, action, suit or proceeding, and (B) if obtained, deliver a copy of such withdrawal or dismissal with prejudice, or reasonable documentary evidence of any similar action having similar effect, to Agenus within such [*] period. |
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(a) |
Agenus will perform its responsibilities under this Agreement in compliance with this Agreement (including Section 11.6(b)) and all Applicable Laws, including all Anti-Corruption Laws; |
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(b) |
all employees and officers of Agenus or its Affiliates working under this Agreement shall be under the obligation to assign all right, title and interest in and to their Inventions, whether or not patentable, if any, to Agenus as the sole owner thereof, and under the obligation to maintain as confidential the Confidential Information of Agenus; |
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(ii) |
Agenus and its Affiliates shall not enable, authorize or license any Third Party to take any action that would have the effect of allowing such Third Party to take any action relating to the [*] that would be prohibited by this Section 11.5(e) if taken by Agenus or its Affiliates. |
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(iii) |
If Agenus or any Affiliate asserts any claim or counterclaim or otherwise participates in any action, suit or proceeding that would be prohibited by this Section 11.5(e), then Agenus shall, and shall use reasonable efforts to cause such Affiliate to, (A) withdraw, file a dismissal with prejudice, or take all actions having similar effect, with respect to any such claim, counterclaim, action, suit or proceeding [*] of the earlier of (1) Betta’s written request, or (2) Agenus learning of such claim, counterclaim, action, suit or proceeding, and (B) if obtained, deliver a copy of such withdrawal or dismissal with prejudice, or reasonable documentary evidence of any similar action having similar effect, to Betta [*] period. |
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(a) |
No Debarment. Each Party hereby represents, warrants and covenants (on behalf of itself and its Affiliates) that it nor any of its Affiliates will not and has not employed or otherwise used in any capacity the services of any person debarred in performing any activities under or in connection with this Agreement under Section 335a of Title 21 of United States Code or by the FDA, or under any analogous laws under the Applicable Laws or by any Regulatory Authority in the Territory. Each Party will immediately notify the other Party in writing if any such debarment occurs or comes to its attention, and will, with respect to any person or entity so debarred, promptly remove such person or entity from performing any activities related to or in connection with the Territory Development Plans or this Agreement. |
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(ii) |
Each Party understands and agrees that it has complied and will continue to comply with all applicable Anti-Corruption Laws in connection with this Agreement in all material respects. |
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(iii) |
To its best knowledge, each Party represents, warrants and covenants that no payments of money or anything of value have been or will be offered, promised, or paid, whether directly or indirectly, by any of its directors, officers, employees, Affiliates, or Third Party representatives to any Government Official in connection with this Agreement: (A) to influence any official act or decision of any Government Official; (B) to induce any Government Official to do or omit to do any act in violation of lawful duty; (C) to secure any improper business advantage; (D) to obtain or retain business for, or otherwise direct business to, any Party; or (E) otherwise in violation of Anti-Corruption Laws, in each case, in connection with this Agreement. |
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(iv) |
To its best knowledge, each Party warrants, represents and covenants that, in connection with this Agreement, the Party, its Affiliates, directors, officers, employees, and Third Party representatives: (A) have not and will not request, accept, offer, promise, or give any bribe, kickback, or other corrupt payment to any person, including any representative of any commercial entity, in violation of any applicable Anti-Corruption Law; and (B) have not and will not request, offer, promise, or give any financial or other advantage to induce another person to perform a function or activity in order to obtain or retain an improper business advantage, in each case (A) and (B), in any way relating to this Agreement. |
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(vi) |
Each Party represents and warrants that no formal or informal proceeding, investigation, or inquiries by or before any Governmental Body involving such |
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Party or its Affiliates or, to the best knowledge of such Party, with respect to any Anti-Corruption Laws is pending or, to the knowledge of such Party, is threatened. |
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(vii) |
Each Party covenants that it will promptly inform the other Party if such Party, or any of its directors, officers, employees, Affiliates, Third Party representatives, or sublicensees becomes subject to any investigation relating to any actual or potential violation of any applicable Anti-Corruption Law in connection with this Agreement, including any meeting, interview, inspection, or audit requested by any Governmental Body, upon such Party becoming aware of the foregoing. |
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(viii) |
Each Party will, and will cause its Affiliates performing activities under this Agreement to, provide reasonable cooperation in connection with any good faith investigation conducted by the other Party into potential violations of applicable Anti-Corruption Laws in connection with this Agreement; provided that such Party will provide the other Party with a written notice at least [*] before the initiation of such investigation. |
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(x) |
On an annual basis following the execution of this Agreement, or as reasonably requested [*] by Agenus, Betta agrees to submit a compliance certificate to Agenus which restates the representations, warranties and covenants that are set forth in this Section 11.6(b) and provides certification by Betta that it and its Affiliates performing activities under this Agreement has adhered, during the period covered by the compliance certificate, to such representations, warranties and covenants. |
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(xii) |
Upon request by Agenus, Betta agrees to, and will cause any Affiliate performing activities under this Agreement to, participate in periodic anti-corruption training (including but not limited to Anti-Corruption Law training) conducted by Agenus or persons selected by Agenus. |
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(xiii) |
Betta has received, understands and shall comply, and Betta will ensure that its Affiliates performing activities under this Agreement have received, understand |
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(c) |
Export Controls. Betta acknowledges that the Licensed IP is subject to the export control laws of the United States. Betta shall not, and will cause its Affiliates not to, export, report, or otherwise transfer the Licensed IP in violation of applicable export control laws. Neither Betta Parties nor any of their directors, officers, employees, or Affiliates is a Restricted Party. In relation to the activities contemplated by this Agreement, Betta Parties shall not (a) engage in any dealings or transactions, directly or indirectly, with or for the benefit of any Restricted Party; (b) violate applicable economic sanctions or export control laws; or (c) take, or refrain from taking, any action that foreseeably would cause Agenus to be in violation of applicable sanctions or export control laws. |
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NEGLIGENCE), STRICT LIABILITY, PRODUCT LIABILITY, OR OTHERWISE (INCLUDING THE ENTRY INTO, PERFORMANCE, OR BREACH OF THIS AGREEMENT), REGARDLESS OF WHETHER SUCH LOSS OR DAMAGE WAS FORESEEABLE OR THE PARTY AGAINST WHOM SUCH LIABILITY IS CLAIMED HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE, AND NOTWITHSTANDING THE FAILURE OF ANY AGREED OR OTHER REMEDY OF ITS ESSENTIAL PURPOSE. |
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(a) |
Neither Party may assign its rights and obligations under this Agreement without the prior written consent of the other Party, except that either Party may make such assignment, in whole or in party, without the prior written consent of the other Party to an Affiliate (so long as such Affiliate remains an Affiliate of such Party). The assigning Party will remain jointly and severally liable with such Affiliate with respect to all obligations so assigned. Any purported assignment in contravention of this Section 14.3 will, at the option of the non-assigning Party, be null and void and of no effect. No assignment will release either Party from responsibility for the performance of any accrued obligation of such Party hereunder. This Agreement will be binding upon and enforceable against the successor to or any permitted assignee from either of the Parties. |
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(b) |
Each Party agrees that, notwithstanding any provisions of this Agreement to the contrary, including the definition of “Affiliate” in Section 1.2: |
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(i) |
Agenus may assign this Agreement in whole or in part to a Third Party in connection with a Change in Control, subject to Section 14.3(b)(ii). |
Notices to Betta will be addressed to:
50
Betta Pharmaceuticals Co. Ltd.
No. 355 Xingzhong Rd. Yuhang District. Hangzhou.
PRC 311100
Attention: Chief Executive Officer
Telephone: [REDACTED]
with a copy to (which will not constitute notice):
PacGate Law Group
Suite 5501, 55th Floor, Fortune Financial Center, 5 East 3rd Ring Rd., Chaoyang District,
Beijing, 100020, China
Attention: Eric He
E-mail address: [REDACTED]
Notices to Agenus will be addressed to:
Agenus Inc.
3 Forbes Road
Lexington, Massachusetts 02421-7305, USA
Attention: Chief Executive Officer
Copy to: Legal Department
E-mail address: [REDACTED]
with a copy to (which will not constitute notice):
Ropes & Gray LLP
36F, Park Place 1601 Nanjing Road West
Shanghai 200040, China
Attention: Geoffrey Lin
E-mail address: [REDACTED]
provided, however, that if either Party will have designated a different address by notice to the other Party in accordance with this Section 14.5, then to the last address so designated.
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CoV-2 / COVID-19 pandemic will not constitute a Force Majeure Event with respect to Betta’s obligation to pay Agenus [*]. |
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14.8 |
Independent Contractors. It is understood and agreed that the relationship between the Parties is that of independent contractors and that nothing in this Agreement will be construed to create a joint venture or any relationship of employment, agency or partnership between the Parties to this Agreement. Neither Party is authorized to make any representations, commitments or statements of any kind on behalf of the other Party or to take any action that would bind the other Party. Furthermore, none of the transactions contemplated by this Agreement will be construed as a partnership for any tax purposes. |
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14.9 |
No Implied Waivers; Rights Cumulative. No failure on the part of a Party to exercise, and no delay by either Party in exercising, any right, power, remedy or privilege under this Agreement, or provided by statute or at law or in equity or otherwise, will impair, prejudice or constitute a waiver of any such right, power, remedy or privilege by such Party or be construed as a waiver of any breach of this Agreement or as an acquiescence therein by such Party, nor will any single or partial exercise of any such right, power, remedy or privilege by a Party preclude any other or further exercise thereof or the exercise of any other right, power, remedy or privilege. |
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14.11 |
Execution In Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, and all of which together will constitute one and the same instrument. Signatures provided by facsimile transmission or in Adobe™ Portable Document Format (.pdf) sent by electronic mail will be deemed to be original signatures. |
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14.13 |
Performance by Affiliates. Either Party may use one or more of its Affiliates to perform its obligations and duties hereunder and Affiliates of a Party are expressly granted certain rights herein; provided that each such Affiliate will be bound by the corresponding obligations of such Party and the Parties will remain liable hereunder for the prompt payment and performance of all their respective obligations hereunder. |
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14.14 |
Exhibits. In the event of inconsistencies between this Agreement and any exhibit hereto, the terms of this Agreement will control. |
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14.16 |
Construction. In construing this Agreement, unless expressly specified otherwise: |
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(a) |
headings and titles are for convenience only and do not affect the interpretation of this Agreement; |
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(b) |
any list or examples following the word “including” will be interpreted without limitation to the generality of the preceding words; |
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(c) |
the terms “hereof”, “hereto”, “hereby”, “herein” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement; |
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(d) |
references to a Person are also to its successors, heirs and permitted assigns; |
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(e) |
except if Business Days are specified, “day” refers to a calendar day; |
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(f) |
if a period of time is specified and dates from a given day or Business Day, or the day or Business Day of an act or event, it is to be calculated exclusive of that day or Business Day; |
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(g) |
references to a law include any amendment or modification to such law and any rules or regulations issued thereunder, whether such amendment or modification is made, or issuance of such rules or regulations occurs, before or, only with respect to events or developments occurring or actions taken or conditions existing after the date of such amendment, modification or issuance, after the Effective Date, but only to the extent such amendment or modification, to the extent it occurs after the date hereof, does not have a retroactive effect; |
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(h) |
all references to “Dollars” or “$” herein will mean U.S. Dollars; |
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(i) |
the word “will”, when used to indicate an obligation of a Person, will be construed to have the same meaning and effect as the word “shall” and |
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(j) |
each Party represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting hereof. In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption will apply against the Party which drafted such terms and provisions. |
[signature page follows]
53
IN WITNESS WHEREOF the Parties, intending to be bound hereby, have caused their duly authorized representatives to execute this Agreement as of the Effective Date.
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BETTA PHARMACEUTICALS CO. LTD.
/s/ Lieming Ding Name: Lieming Ding
AGENUS INC.
/s/ Garo H. Armen Name: Garo H. Armen Title: Chairman & CEO
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Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended
I, Garo H. Armen, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Agenus Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
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4. |
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
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a. |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles; |
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c. |
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
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5. |
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function): |
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a. |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
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b. |
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
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Date: August 10, 2020 |
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/s/ GARO H. ARMEN, PH.D. |
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Garo H. Armen, Ph.D. |
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Chief Executive Officer and Principal Executive Officer |
Certification Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended
I, Christine M. Klaskin, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Agenus Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
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4. |
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
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a. |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles; |
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c. |
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
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5. |
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function): |
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a. |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
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any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
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Date: August 10, 2020 |
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/s/ CHRISTINE M. KLASKIN |
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Christine M. Klaskin |
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VP, Finance and Principal Financial Officer |
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Certification
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Agenus Inc. (the “Company”) for the quarterly period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned to his/her knowledge hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
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(i) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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(ii) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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/s/ GARO H. ARMEN, PH.D. |
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Garo H. Armen, Ph.D. |
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Chief Executive Officer and Principal Executive Officer |
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/s/ CHRISTINE M. KLASKIN |
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Christine M. Klaskin |
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VP, Finance and Principal Financial Officer |
Date: August 10, 2020
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and should not be considered filed as part of the Report.