The FDA may grant Orphan Drug Designation to biologics intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States or if thea disease or condition that affects more than 200,000 individuals in the United States but there is no reasonable expectation that the cost of developing and making the drugbiologic would be recovered from sales in the United States. In the E.U., the EMA’s Committee for Orphan Medicinal Products grants Orphan Drug Designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the E.U. community. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the E.U. would be sufficient to justify the necessary investment in developing the biologic.
more effective or otherwise clinically superior to the original orphan medicinal product. This period of market exclusivity may be reduced to six years, at the end of the fifth year, if the orphan designation criteria are no longer met, including where it can be demonstrated on the basis of available evidence that the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product during the ten-year period of market exclusivity for the same therapeutic indication at any time if:
Orphan drug designation must be requested before submission of an application for marketing approval or marketing authorization. Orphan drug designation does not convey any advantage in, ornor shorten the duration of the regulatory review and approval process.
FDA may designate a product candidate as a breakthrough therapy if it finds that the product candidate is intended, alone or in combination with one or more other product candidates or approved products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For product candidates designated as breakthrough therapies, more frequent interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development. Product candidates designated as breakthrough therapies by the FDA may also be eligible for priority review.Priority Review. We may apply for breakthrough therapy designation for some of our product candidates. However, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and 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 product candidates considered for approval under conventional FDA procedures and, in any event, 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 the product candidates no longer meet the conditions for designation.
Accelerated approval under FDA regulations allows a product designed to treat a serious or life-threatening disease or condition that provides a meaningful therapeutic advantage over available therapies to be approved on the basis of either an intermediate clinical endpoint or a surrogate endpoint that is reasonably likely to predict clinical benefit. Approvals of this kind typically include requirements for appropriate post-approval Phase 4confirmatory clinical trials to be conducted with due diligence to validate the surrogate endpoint or otherwise confirm clinical benefit and for all promotional materials to be submitted to the FDA for review prior to dissemination.
from FDA filing or 12 months from sponsor submission. Priority reviewReview designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.
applicable brand products to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient products to be covered under Medicare Part D;D (subsequent legislation increased this amount to 70% effective as of January 1, 2019);
or may be amended in the future, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, and new payment methodologies and in additional downward pressure on coverage and payment and the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
Significant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. In the United States and in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a biologic may be separate from the process for setting the price or reimbursement rate that the payor will pay for the biologic. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the products approved by the FDA, Health Canada or comparable foreignnon-US regulatory authorities for a particular indication or if a product is included it may not be listed on the formulary for all the indications or it may be listed on a narrower basis than what is approved by the FDA, Health Canada or comparable foreignnon-US regulatory authorities. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA, Health Canada or other comparable foreignnon-US regulatory authorities’ approvals. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Adequate third partythird-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
Different pricing and reimbursement schemes exist in other countries. In Canada, the Patented Medicines Prices Review Board evaluates and controls excessive pricing of patented products. Further, there are national, provincial and territorial formularies funded by government healthcare systems, in addition to formularies for private payors (private insurers) and hospitals or hospital groups. Listing on the formularies and price depend on evidence and submissions regarding the cost/benefitcost-benefit of the drug and comparison of the cost-effectiveness of a particular product candidate to currently available therapies and is often subject to negotiations.
The outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent authorities of individual E.U.EU Member States. The extent to which pricing and reimbursement decisions are influenced by the HTA of the specific medicinal product vary between E.U. Member States.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third party-payorsthird-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third partythird-party reimbursement rates may change at any time.
Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
On May 31, 2016, ASCO published a framework to assess the value of cancer treatment options. The framework was developed in response to concern that new, expensive cancer treatments may not be supported by adequate medical evidence. The purpose of the framework is to provide a standardized quantification of cancer treatments and assist oncologists and patients in deciding between new cancer treatments and the standard of care. The framework takes into account a medication’s (i) efficacy, (ii) safety and (iii) cost, to derive an overall treatment value.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting some business arrangements from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from federal Anti-Kickback Statute liability. The Affordable Care Act, among other things, clarified that liabilityLiability may be established under the federal Anti-Kickback Statute without proving actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below).The.
Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the statute and to share in any monetary recovery. Recently, several pharmaceuticalPharmaceutical and other healthcare companies have faced enforcement actions under the federal civil False Claims Act for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have faced enforcement actionsproduct and for allegedly causing false claims to be submitted because of the companies’ marketing of the product for unapproved, and thus non-reimbursable, uses. In addition, a claim can be deemed to be false due to failure to comply with legal or regulatory requirements material to the government’s payment decision. False Claims Act liability is potentially significant in the healthcare industry because the statute provides for treble damages and significant mandatory penalties of $5,500 to $11,000 per false claim or statement (and $10,781 to $21,563 per false claim or statement for penalties assessed after August 1, 2016 for violations occurring after November 2, 2015).statement. Pharmaceutical and other healthcare companies also are subject to other federal false claims laws, including, among others, federal criminal healthcare fraud and false statement statutes that extend to non-government health benefit programs.statutes.
The federal Physician Payment Sunshine Act, being implemented as the Open Payments Program, which requires certain pharmaceuticalmanufacturers of drugs, devices, biologics and biological manufacturers to engage in extensive tracking of payments or transfers of value to physicians and teaching hospitals and public reporting of the payment data. Pharmaceutical and biological manufacturers with productsmedical supplies for which payment is available under Medicare, Medicaid or the State Children’s Health Insurance Program are(with certain exceptions) to report annually to CMS information related to direct or indirect payments and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held in our by physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to have started tracking suchreport information regarding payments on August 1, 2013, and must submit a report on or before the 90th daytransfers of each calendar year disclosing reportable payments made in the previous calendar year.value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists and certified nurse-midwives.
Many states have adopted analogous laws and regulations, including state anti-kickback and false claims laws, which may apply to items or services reimbursed under Medicaid and other state programs or, in several states, regardless of the payor. Several states have enacted legislation requiring pharmaceutical companies to, among other things, establish marketing compliance programs,programs; file periodic reports with the state, including reports on gifts and payments to individual healthcare providers; make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities,activities; and/or register their sales representatives, as well as torepresentatives. Some states prohibit pharmacies and other healthcare entities from providing specified physician prescribing data to pharmaceutical companies for use in sales and marketing, and tomarketing. Some states prohibit other specified sales and marketing practices.practices, including the provision of gifts, meals, or other items to certain healthcare providers, and/or offering co-pay support to patients for certain prescription drugs. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws. In addition, in order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in some states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the
In addition, we may be subject to data privacy and security laws and regulations by both the federal government and the states in which we conduct our business. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues which may affect our business. Numerous federal and state laws and regulations, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, including the California Consumer Privacy Act ("CCPA"), govern the collection, use, disclosure, and protection of health-related and other personal information. In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with such laws and regulations could result in government enforcement actions and create liability for us (including the imposition of significant civil or criminal penalties), private litigation and/or adverse publicity that could negatively affect our business.
In the United States, our activities are potentially subject to additional regulation by various federal, state and local authorities in addition to the FDA, including CMS, other divisions of HHS (for example, the Office of Inspector General), the DOJ and individual United States Attorney offices within the DOJ, and state and local governments.
In addition, in order to be eligible to have its products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, a manufacturer also must participate in the Department of Veterans Affairs Federal Supply Schedule or FSS,("FSS") pricing program, established by Section 603 of the Veterans Health Care Act of 1992. Under this program, the manufacturer is obligated to make its “covered drugs” (biologics or innovator drugs) available for procurement on an FSS contract and charge a price to four federal agencies - Department of Veterans Affairs, Department of Defense, Public Health Service and Coast Guard - that is no higher than the statutory federal ceiling price. We also expect to participate in the Tricare Retail Pharmacy Program, under which we would pay quarterly rebates to DoD for prescriptions of innovator drugs dispensed to Tricare beneficiaries through Tricare Retail network pharmacies. The requirements under the 340B and FSS programs could reduce the revenue we may generate from any products that are commercialized in the future and could adversely affect our business and operating results.
Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation by manufacturers, governmental or regulatory agencies, and the courts. The Medicaid rebate amount for each manufacturercovered outpatient drug is computed each quarter based on the manufacturer’s submission to CMS of its current AMP and, in
the case of innovator products, best price figures, for the quarter. If we participate in the Medicaid drug rebate programMDRP and become aware
that our reporting for a prior quarter was incorrect, or has changed, we will be obligated to resubmit the corrected data for a period not to exceed twelve quarters from the quarter in which the data originally were due. Such restatements and recalculations would increase our costs for complying with the laws and regulations governing the Medicaid drug rebate program.MDRP. Any corrections to our rebate calculations could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction. Price recalculations also may affect the ceiling price at which we would be required to offer our products to certain covered entities, such as safety-net providers, under the 340B drug discount program.program, and we may be obligated to issue refunds to covered entities.
We are subject to a variety of federal, provincial and local regulations relating to the use, handling, storage and disposal of hazardous materials, including chemicals and radioactive and biological materials. Our operations involve such hazardous materials and produce such hazardous waste products. Although we believe that our safety procedures for handling
and disposing of these materials comply with the standards prescribed by federal, provincial and local regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. Radioactive materials in Canada come under
federal jurisdiction. Canada’s Nuclear Safety and Control Act 1997 c.9 contains a general prohibition against any activity, including possession of radioactive material, except in accordance with the terms and conditions set out in a federal license issued by the Canadian Nuclear Safety Commission. The Nuclear Substances and Radiation Devices Regulation does however, exempt licensing requirements for small quantities of radioactive substances that either meet concentrations set out in a schedule to the Regulation or, for radioactive substances not set out in the schedule, that meet certain regulatory criteria. Our operations do not currently require a federal license issued by the Canadian Nuclear Safety Commission. Our manufacturing facilityoperations in Winnipeg, Manitoba, Canada is alsomay be subject to license approvals, notification requirements and investigation and enforcement for air and water and waste matters under the Province of Manitoba’s Environment Act CCSM c.E125. For hazardous, including radioactive materials, Manitoba’s Dangerous Goods Handling and Transportation Regulation Man Reg 55/2003 adopts as law the federal Transportation of Dangerous Goods Regulations SOR/2001-286. This federal law addresses the documentation, labeling and packaging of the hazardous material. Finally, for occupational health and safety matters Manitoba’s Workplace Safety and Health Act CCSM c W210 applies.matters.
We were incorporated under the laws of the State of Delaware in 2008. We were formerly known as Denovo Therapeutics, Inc. and Newco LS14, Inc. before changing our name to Eleven Biotherapeutics, Inc. Our principal executive offices are located at 245 First Street, Suite 1800, Cambridge, Massachusetts 02142,in February 2010 and our telephone number is (617) 444-8551.again to Sesen Bio, Inc. in May 2018.
Under the Share Purchase Agreement, we, our affiliates, licensees and subcontractors are required to use commercially reasonable efforts, for the first seven years following the closing of the Viventia Acquisition, to achieve marketing authorizations throughout the world and, during the applicable earn-out period, to commercialize the Purchased Product in the United States, France, Germany, Italy, Spain, United Kingdom, Japan, China and Canada.
We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future.
With the exception of specified regulatory, development and commercial milestones under our License Agreement with Roche,out-licensing and OUS business development partnership agreements, we currently have no source of product revenue and may never become profitable.
We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We are devoting substantial financial resources to our ongoing and planned activities, including a new Phase 3 clinical trial for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, and functions associated with operating as a public company. We expect to continue to spend substantial amounts to continue the clinical development of fundsVicineum for the treatment of non-muscle invasive CIS of the bladder in connectionpatients previously treated with our ongoing activities, particularly as we continue our Phase 3 clinical trial for Vicinium, initiate our Phase 2 clinical trial for Proxinium,adequate or less than adequate BCG, and, continue research and development activities. In addition, if we obtain regulatory approval for any of our product candidates, we would need to devote substantial financial resources to commercialization efforts, including product manufacturing, marketing, sales and distribution.approved, commercialize Vicineum. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.
Future sales and issuances of shares of our common stock or rights to purchase shares of our common stock, including pursuant to our 2014 Stock Incentive Plancommon stock purchase warrants and 2009 Stock Incentive Plan,stock options, could result in additional dilution of the percentage ownership of our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Further, debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
We currently have no products approved for sale and have invested a significant portion of our efforts and financial resources in the development of ViciniumVicineum. On August 13, 2021, we received a CRL from the FDA indicating that the FDA had determined that it could not approve the BLA for Vicineum for the treatment of patients with high-grade non-muscular invasive bladder cancer, orBCG-unresponsive NMIBC and of Proxiniumin its present form. On August 20, 2021, we withdrew our MAA to the EMA for Vysyneum for the treatment of patientsBCG-unresponsive NMIBC in order to pause
If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of our product candidatesVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG could be delayed or prevented.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any product candidatesVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG that we may develop, including:
We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and while we have agreements governing their activities, we have limited influencecontrol over their actual performance. Any delays in completing our clinical trials will increase our costs, slow down our development and regulatory submission process for our product candidatesVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and jeopardize our ability to obtain regulatory approval, commence commercial sales and generate revenues, if our product candidates areVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG is ultimately approved.
Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any of our pre-clinical studies or clinical trials will begin as planned, will need to be restructured or will be completed
on schedule, or at all. Significant pre-clinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidatesVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates.Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of subjectspatients to participate in these trials as required by the FDA or similar non-US regulatory authorities outside the United States, including Health Canada or the EMA.authorities. We have previously experienced difficulties with clinical trial enrollment and retention, which led to the early termination of our Phase 3 trial of ProxiniumVicineum for the treatment of SCCHN in 2008, and we may experience difficulties in subjectpatient enrollment in our clinical trials in the future for a variety of reasons.
Further, our ability to successfully initiate, enroll and complete a clinical trial in any foreign country outside of the United States, should we decide to do so, is subject to numerous risks unique to conducting business in foreignsuch countries, including:
In addition, our clinical trials will compete with other clinical trials for other product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of subjectspatients available to us, because some subjectspatients 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 subjectspatients 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 cancer treatment, potential subjectspatients and their doctors may be inclined to use conventional therapies, such as chemotherapy, rather than enroll subjectspatients in any of our clinical trials.
There were no Grade 4 or Grade 5 serious adverse events that were considered by the clinical investigatorinvestigators to be related to ViciniumVicineum during the Phase 1 and Phase 2 clinical trials. However, theretrials of Vicineum for the treatment of NMIBC. There was one Grade 5 serious adverse event, or death, which was determined by the clinical investigator to be unrelated to Vicinium.Vicineum. The most common reported treatment-related adverse events were an abnormally frequent passage of small amounts of urine, blood in the urine and painful urination, the majority of which were considered to be mild or moderate in severity. No subjectspatients discontinued treatment due to a Vicinium-relatedVicineum-related adverse event during the Phase 1 and Phase 2 clinical trials.
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates, if approved.
our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe our products;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
We may enter into arrangements with third parties to perform sales, marketing and distribution services in markets outside the United States. We may also enter into arrangements with third parties to perform these services in the United States if we do not establish our own sales, marketing and distribution capabilities in the United States or if we determine that such third-party arrangements are otherwise beneficial. Our product revenues and our profitability, if any, under any such third-party sales, marketing or distribution arrangements are likely to be lower than if we were to market, sell and distribute any product candidates ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute any product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing any product candidates for which we may obtain approval.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of new biologics products is highly competitive. We face competition with respect to our product candidates and will face competitionVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with respect to any other product candidates that we may seek to developadequate or commercialize in the future,less than adequate BCG from both large and small pharmaceutical, biopharmaceutical and biotechnology companies, academic institutions and other research organizations; and particularly from companies, institutions and organizations that are actively researching, developing, or marketing products that attach proprietary cell-killing payloads to antibodies for targeted delivery to cancer cells.organizations. There are a number of large pharmaceutical, biopharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of NMIBC. For instance, in January 2020, the respective disease indicationsFDA approved Merck & Co., Inc.'s Keytruda (pembrolizumab) as a systemic monotherapy to treat patients with BCG-unresponsive NMIBC with CIS with or without papillary tumors who are ineligible for which we areor have elected not to undergo cystectomy. In addition, FerGene Inc. is developing our product candidates. We believeAdstiladrin (nadofaragene firadenovec (rAd-IFN/Syn3) for BCG-unresponsive NMIBC for the United States market. On May 17, 2020, the FDA issued a CRL that indicated outstanding questions regarding CMC = issues of Adstiladrin. In September 2020, CG Oncology (CG0070, a significant number of products are currently under development, and may become commercially available in the future,recombinant adenovirus type 5, same type as Adstiladrin) initiated a Phase 3 study for the treatment of conditionsBCG-unresponsive patients with expected primary and study completion dates of December 2022 and December 2024, respectively. In December 2020, ImmunityBio (Anktiva/N-803 in combination with BCG) released preliminary Phase 2 data for the CIS cohort and is expected to file its BLA following a meeting with the FDA in the first quarter of 2022. However, the Phase 2 trial did not include a BCG only control arm. In May 2020, the preliminary results of the Phase 2 study of Tecentriq for the treatment of BCG-unresponsive CIS patients were presented at ASCO by the NCI (National Cancer Institute) which we aresponsored the trial. The data showed that the trial did not meet its primary endpoint and further development of Tecentriq remains uncertain. Finally, another route of administration for checkpoint inhibitors is currently developing, and may try to develop, product candidates.being evaluated by Pfizer with the subcutaneous administration of Sasanlimab (PF-06801591) for the treatment of BCG-unresponsive NMIBC patients. There is intense and rapidly evolving competition in the biotechnology, biopharmaceutical and antibody fragment and immuno-oncology therapeutics fields. Some of these competitive products and therapies are based on scientific approaches that are similar to our approach, and others are based on entirely different approaches. We are aware of several companies that are developing, or have developed cancer immunotherapies and antibody drug conjugates, or ADCs, and we are also aware of several companies developing product candidates that target the same cancer pathways that we are targeting or that are testing product candidates in the same cancer indications that we are testing. For example, there are several companies that have programs that attach proprietary cell-killing payloads to antibodies for targeted delivery to cancer cells.
In addition to competition from alternative treatments, we eventually may also face competition from products that are biosimilar to, and possibly interchangeable with, our product candidates. Even if our product candidates achieve marketing approval, they may be priced at a significant premium over competitive biosimilar products, and insurers or other third-party payors may encourage or even require the use of lower priced biosimilar products. In addition, we may face significant competition upon expiration of our intellectual property protection.
We also face substantial competition with respect to our EBI-031 program. The current standard of care for DME includes anti-VEGF therapies and corticosteroids. Some patients with DME are effectively treated by the current standard of care therapies. Approved anti-VEGF therapies for treating DME include Lucentis (ranibizumab) and Eylea® (aflibercept). Off-label use of Avastin (bevacizumab) is also seen in DME. Approved corticosteroid therapies include Ozurdex (dexamethasone implant) and Iluvien (fluocinolone implant). Laser photocoagulation was historically the standard of care for treating DME, in particular for a subcategory of DME called clinically significant macular edema, and is still used to treat some DME patients. However, anti-VEGF therapy has been proven in clinical trials to have superior efficacy over laser photocoagulation.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than product candidates that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
In addition, our ability to compete may be affected in many cases by insurers or other third-party payors, particularly Medicare, seeking to encourage the use of generic drug products. Generic products are currently being used as part of the standard of care for the indications that we are pursuing, and additional products are expected to become available on a generic basis over the coming years. If any product candidate that we may develop achieves marketing approval, we expect that it will be priced at a significant premium over competitive generic products.
More established companies may have a competitive advantage over us due to their greater size, cash flowresources and institutional experience. Compared to us, many of our competitors may have significantly greater financial, technical and human resources. As a result of these factors, our competitors may obtain regulatory approval of their product candidates before we are able to, which may limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are safer, more effective, more widely used and cheaperless expensive than ours, and may also be more successful than us in manufacturing and marketing their products. These appreciable advantages could render our product candidates obsolete or non-competitive before we can recover the expenses of development and commercialization.
IfOur product candidates may face competition from biosimilar products.
With the value framework publishedenactment of the BPCIA, abbreviated pathways for approval of biosimilar and interchangeable biological products were created. The BPCIA establishes legal authority for the FDA to review and approve biosimilars for marketing, as well as biosimilars that have been designated as “interchangeable” with a previously approved biologic, or reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the ASCO to assessFDA until 12 years after the valuereference product was approved under a full BLA. This period of cancer treatment optionsregulatory exclusivity runs concurrently with, but is adopted and utilized by payors and physicians and we were to receive low ratings, it could adversely affectindependent of, periods of patent protection for the price and reimbursement of our products, if approved, reduce prescriptions and harm our business.reference product.
On May 31, 2016, ASCO published a framework to assess the value of cancer treatment options. The framework was developed in response to concern that new, expensive cancer treatments may not be supported by adequate medical evidence. The purpose of the framework is to provide a standardized quantification of cancer treatments and assist oncologists and patients in deciding between new cancer treatments and the standard of care. The framework takes into account a medication’s (i) efficacy, (ii) safety and (iii) cost, to derive an overall treatment value.
This framework is described by ASCO as providing a basis for a new software tool that doctors can use to assist shared decision-making with their patients. While weWe believe that the safety and efficacy profilesany of our product candidates, are potentially better than thatincluding Vicineum for the treatment of non-muscle invasive CIS of the standardbladder in patients previously treated with adequate or less than adequate BCG, approved as a biological product under a full BLA should qualify for a 12-year period of careexclusivity. However:
•the United States Congress could amend the BPCIA to significantly shorten this exclusivity period as has been previously proposed; and if approved, we intend
•a potential competitor could seek and obtain approval of its own BLA during our exclusivity period instead of seeking approval of a biosimilar version.
The BPCIA is complex and its provisions continue to price our products competitively, we do not know howbe interpreted and implemented by the data will be assessed by ASCO. It is also unknown when ASCO will releaseFDA and United States courts. As a versionresult, the ultimate impact, implementation and implications of the software application relating to the updated framework and whether use of this application could adversely affect the assessment of any of our product candidates. If this framework and software were adopted and utilized by payors and physicians, and if our product candidates were to receive low ratings, this could adversely affect the price and reimbursement of our product candidates, if approved, reduce prescriptions and harm our business.
Even if weBPCIA are able to commercialize any product candidate that we may develop, the products may become subject to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives, whichuncertainty and could harmcompromise the future commercial prospects for our business.
Our ability to commercialize any product candidates that we may develop successfully will depend, in part, onbiological products. Moreover, it is not yet clear the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government healthcare programs, private health insurers, managed care plans 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. A primary trend in the U.S. healthcare industry 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. Coverage and reimbursement may not be available for a product that we commercialize and, even if they are available, the level of reimbursement may not be satisfactory.
Inadequate reimbursement may adversely affect the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for our productsbiosimilar, once approved, may be difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are not available or reimbursement is available only to 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 coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or similar regulatory authorities outside the United States, including Health Canada, or the European Commission. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses. 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 clinical setting in which a drug 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 adequate reimbursement rates from both government-funded and private payorssubstituted for any approvedone of our reference products that we develop would compromise our ability to generate revenues and become profitable.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subjectway that is similar to price regulationstraditional generic substitution for pharmaceutical products; this will depend on a number of marketplace and regulatory factors that delay our commercial launchare still developing at both the federal and state levels of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our
product candidate to other available therapies. 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.
There can be no assurance that our product candidates or any products that we may in-license, if they are approved for sale in the United States or in other countries, will be considered medically reasonable and necessary for a specific indication, that they will be considered cost-effective by third-party payors, that coverage and an adequate level of reimbursement will be available, or that third-party payors’ reimbursement policies will not adversely affect our ability to sell our product candidates profitably. In addition, we are unable to predict what changes in legislation or regulation relating to the health care industry or third-party coverage and reimbursement may be enacted in the future and how such legislation or regulation could impact our business. See the risk factor in this Annual Report on Form 10-K entitled “Current and future legislation may increase the difficulty and cost for us and any collaborators to obtain marketing approval of our product candidates and affect the prices we, or they, may obtain” in this Annual Report on Form 10-K for more information, including with respect to the Affordable Care Act.government.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we develop.Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, if approved.
We face an inherent risk of product liability exposure related to the use of any product candidates that we developVicineum for the treatment of non-muscle invasive CIS of the bladder in human clinical trials and will face an even greater risk if we commercially sell any products that we develop.patients previously treated with adequate or less than adequate BCG. If we cannot successfully defend ourselves against claims that our product candidatesVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or productsless than adequate BCG caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
•decreased demand for any product candidatesVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or products that we develop;less than adequate BCG;
•injury to our reputation and significant negative media attention;
•withdrawal of clinical trial subjects;patients;
•significant costs to defend the related litigation;
•substantial monetary awards to trial subjects or patients;
•loss of revenue;
•reduced time and attention of our management to pursue our business strategy; and
•the inability to commercialize any products that we develop.Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG.
We currently hold $10.0 million CAD in product liability insurance coverage in the aggregate, with a per incident limit of $10.0 million CAD, which may not be adequate to cover all liabilities that we may incur. We would need to increase our insurance coverage if we expand our clinical development activities beyond historical levels. We would need to further increase our insurance coverage if Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG is approved, and we commence commercialization of any product candidate that receives marketing approval.commercialization. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
We conduct certain elements of our business internationally, and the decisions of sovereign governments could have a material adverse effect on our business, financial condition and results of operations.
Viventia was founded as a Canadian company and conducted its business internationally. In addition to our clinical trials in the United States and Canada, Viventia has historically conducted clinical trials in Russia, Brazil and Canada. We intend to, and may, conduct clinical trials in other jurisdictions. Sovereign governments, including Canada, may establish laws or regulations that will be deleterious to our interests or that will affect our ability, to obtain access to regulatory agencies in Russia, Brazil, Canada, and/or other jurisdictions. Governments have also, from time to time, established foreign exchange controls which could have a material adverse effect on our business, financial condition and results of operations. To date, neither our operations nor our financial condition have been materially impacted due to laws or regulations of sovereign governments.
Risks Related to the License Agreement with Roche
We depend on our license agreement with Roche for the development and commercialization of EBI-031.
On June 10, 2016, we entered into the License Agreement with Roche. The License Agreement became effective on August 16, 2016, following stockholder approval. Under the License Agreement, we granted Roche an exclusive, worldwide license, including the right to sublicense, to our patent rights and know-how related to our monoclonal antibody EBI-031 or any other
IL-6 antagonist anti-IL-6 monoclonal antibody, to make, have made, use, have used, register, have registered, sell, have sold, offer for sale, import and export any product containing such an antibody or any companion diagnostic used to predict or monitor response to treatment with such a product, or collectively, Licensed Intellectual Property.
Pursuant to the terms of the License Agreement, Roche is required to continue developing EBI-031 and any other product made from the Licensed Intellectual Property that contains an IL-6 antagonist anti-IL-6 monoclonal antibody, or Licensed Product, at its cost.
Roche paid an up-front license fee of $7.5 million upon effectiveness of the license under the License Agreement, and agreed to pay up to an additional $262.5 million upon the achievement of specified regulatory, development and commercial milestones with respect to up to two unrelated indications. Specifically, an aggregate amount of up to $197.5 million is payable to us for the achievement of specified milestones with respect to the first indication: consisting of $72.5 million in development milestones, $50.0 million in regulatory milestones and $75.0 million in commercialization milestones.
The first development milestone payment equaled $22.5 million as a result of the IND application for EBI-031 becoming effective on or before September 15, 2016, and which was paid to us in September 2016. Additional amounts of up to $65.0 million are payable upon the achievement of specified development and regulatory milestones in a second indication.
In addition, we are entitled to receive royalty payments in accordance with a tiered royalty rate scale, with rates ranging from 7.5% to 15% for net sales of potential future products containing EBI-031 and up to 50% of these rates for net sales of potential future products containing other IL-6 compounds, with each of the royalties subject to reduction under certain circumstances and to the buy-out options of Roche further described below.
The License Agreement provides for two “option periods” during which Roche may elect to make a one-time payment to us and, in turn, terminate its diligence, milestone and royalty payment obligations under the License Agreement. Specifically, (i) Roche may exercise a buy-out option following Initiation in the first Phase 2 study for a Licensed Product until the day before Initiation of the first Phase 3 study for a Licensed Product, in which case Roche is required to pay us $135.0 million within 30 days after Roche’s exercise of such buy-out option and receipt of an invoice from us, or (ii) Roche may exercise a buy-out option following the day after Initiation of the first Phase 3 study for a Licensed Product until the day before the acceptance for review by the FDA or other regulatory authority of a BLA or similar application for marketing approval for a Licensed Product in either the United States or in the E.U., in which case Roche is required to pay us, within 30 days after Roche’s exercise of such buy-out option and receipt of an invoice from us, $265.0 million, which amount would be reduced to $220.0 million if none of our patent rights containing a composition of matter claim covering any compound or Licensed Product has issued in the E.U.
The right to potential future payments under the License Agreement represents a significant portion of the value of the License Agreement to us. We cannot be certain that we will receive any future payments under the License Agreement, which would adversely affect the trading price of our common stock and our business prospects.
Additionally, if Roche were to breach or terminate the License Agreement, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for EBI-031 and will not be able to, or may be delayed in our efforts to, successfully commercialize EBI-031. We may not be able to seek and obtain a viable, alternative collaborator to partner for the development and commercialization of the licensed products on similar terms or at all.
Risks Related to Our Dependence on Third Parties
We will depend on Qilu for the development and commercialization of Vicineum in Greater China.
On July 30, 2020, we entered into the Qilu License Agreement. Under the terms of the Qilu License Agreement, Qilu has an exclusive license to manufacture, develop and commercialize Vicineum in Greater China, including mainland China, Hong Kong, Macau and Taiwan. The timing and amount of any milestone and royalty payments we may receive under the Qilu License Agreement will depend in part on Qilu’s efforts. We will also depend on Qilu to comply with all applicable laws relative to the manufacturing, development and commercialization of Vicineum in Greater China. We do not control the individual efforts of Qilu, and any failure by Qilu to devote sufficient time and effort to the manufacture, development and commercialization of Vicineum could have a material adverse impact on our financial results and operations, such as by a failure of Qilu to meet its obligations to us, including future milestone and royalty payments. In addition, if Qilu were to violate, or was alleged to have violated, any laws or regulations during the performance of its obligations for us, it is possible that we could suffer financial and reputational harm or other negative outcomes, including possible legal consequences.
Any termination, breach or expiration of the Qilu License Agreement could have a material adverse effect on our financial position by reducing or eliminating the potential for us to receive milestones and royalties. In such an event, we may be required to devote additional efforts and to incur additional costs associated with pursuing the manufacture, development and commercialization of Vicineum in Greater China. If we breach our obligations under the Qilu License Agreement and are unable to cure such breach, Qilu may terminate the Qilu License Agreement and retain all rights to manufacture, develop and commercialize Vicineum in Greater China with no obligation to make any additional milestone or royalty payments. Qilu has the right to receive a refund of all amounts paid us in the event the Qilu License Agreement is terminated under certain
circumstances. In addition, the royalty rate is subject to reduction under certain circumstances, including when there is no valid claim of a licensed patent for Vicineum in a particular region or no data or regulatory exclusivity for Vicineum in a particular region.
We have entered into and may enter into collaborationsadditional OUS business development partnerships or licenseout-license agreements with third parties for the developmentcommercialization or commercializationdevelopment of our product candidates. If our collaborationsOUS business development partnerships or licensesout-licenses are not successful, we may not be able to capitalize on the market potential of these product candidates.
We have sought and may seek additional third-party collaboratorspartners or licensees for development and commercialization of our product candidates.candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. Our current and likely collaboratorscommercialization partners or licensees for any sales, marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We are not currently party to any such arrangement, other than the License Agreement with Roche. Our ability to generate revenues from these arrangements depend and will depend on our collaborators’partners' or licensee'slicensees' abilities and efforts to successfully perform the functions assigned to them in these arrangements.
CollaborationsOUS business development partnerships and licenses involving our product candidates including the License Agreement with Roche, pose a number of risks, including the following:
collaborators•partners or licensees have significant discretion in determining the amount and timing of efforts and resources that they will apply to these collaborationspartnerships or licenses;
collaborators•partners or licensees may not perform their obligations as expected;
collaborators or licensees may not pursue development and commercialization of our product candidates that receive marketing approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ or licensees' strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
collaborators•partners or licensees 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;
collaborators•partners or licensees may not pursue commercialization and development of our product candidates that receive marketing approval or may elect not to continue or renew commercialization or development programs based on clinical trial results, changes in any such partner’s or licensee’s strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
•partners or licensees could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaboratorspartners or licensees believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
•product candidates discovered under the collaborationpartnership or license with us may be viewed by our collaboratorspartners or licensees as competitive with their own product candidates or products, which may cause collaboratorspartners or licensees to cease to devote resources to the commercialization of our product candidates;
a collaborator•partners or licenseelicensees 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;
•partners or licensees could become involved in a business combination, which might deemphasize or terminate the commercialization or development of any product candidate licensed to it by us;
•disagreements with collaboratorspartners or licensees, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination 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 divert management attention and resources, be time-consuming and expensive;
collaborators•partners or licensees 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;
collaborators•partners or licensees may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and
collaborations•commercialization partners or licenses may be terminated for the convenience of the collaboratorpartner or licensee and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.
CollaborationOUS business development partnership agreements and licenses may not lead to developmentcommercialization or commercializationdevelopment of product candidates in the most efficient manner, or at all. If any collaborationspartnerships or licenses that we enter into, do not result in the successful developmentcommercialization and commercializationdevelopment of products or if one of our collaboratorspartners or licensees terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaborationpartnership or license. All of the
risks relating to product development, regulatory approval and commercialization described in this Annual Report on Form 10-K would also apply to the activities of any collaboratorscurrent or future OUS business development partners and licensees.
Additionally, subject to its contractual obligations to us, if a collaborator or licensee of ours were to be involved in a business combination, it might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our collaboratorspartners or licensees terminates its agreement with us, we may find it more difficult to attract new collaboratorspartners or licensees and our perception in the business and financial communities could be harmed.
If we are not able to establish additional collaborations, we may have to alter our development and commercialization plans and our business could be adversely affected.
For some of our product candidates, we may decide to collaborate with pharmaceutical or biotechnology companies for the development and potential commercialization of such product candidates. We face significant competition in seeking
appropriate collaborators. Whether we reach a definitive collaboration agreement will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, including Health Canada, or the European Commission, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
If we are unable to reach agreements with suitable collaboratorsnew partners or licensees on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or 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 collaborationspartnerships and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product platform.
We rely on third parties to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates.
We rely on domestic and international third-party CROs to monitor and manage data for our ongoing pre-clinical and clinical programs. We rely on these parties for execution of our pre-clinical studies and clinical trials, and we control only some aspects of their activities. Nevertheless, we are responsible for ensuring that each of our pre-clinical studies and clinical trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We also rely on third parties to assist in conducting our pre-clinical studies in accordance with GLP and the Animal Welfare Act requirements. We and our CROs are required to comply with U.S.US federal regulations and current GCP, which are international standards meant to protect the rights and health of subjectspatients and assure the credibility of clinical trial data that are enforced by the FDA Health Canada, the competent authorities of the E.U. member states and comparable foreignnon-US regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreignnon-US regulatory authorities including Health Canada and the EMA, may require us to perform additional clinical trials before approving our marketing applications.
On October 27, 2021, the FDA published a Warning Letter (the “FDA Warning Letter”) issued to a former clinical investigator in our VISTA trial for Vicineum arising from a 2021 FDA inspection related to the review of our BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. We discontinued use of the clinical site and the clinical investigator over four years ago when we learned of professional misconduct by the clinical investigator that was unrelated to the VISTA trial. The FDA Warning Letter indicated that the clinical investigator did not comply with applicable statutory requirements and applicable regulations regarding conduct of clinical investigations. The clinical investigator's medical license was temporarily suspended on May 29, 2017, due to inaccurate recordkeeping, which was unassociated with Sesen Bio and the patients in the VISTA trial. We notified the FDA of the misconduct at that time. There was no evidence found that patients were harmed by the clinical investigator’s actions. We included the corresponding patient data from the clinical site in the BLA submission to the FDA, which were thoroughly analyzed and discussed during the BLA review.
We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced under cGMP requirements. Failure to comply with these regulations may require us to repeat pre-clinical studies and clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, non-clinical and pre-clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our pre-clinical studies and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.
Because we have relied and will continue to rely on third parties, our internal capacity to perform these functions is limited. Outsourcing these functions involves risk that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our
third-party providers. To the extent we are unable to identify and successfully manage the performance of third-party service
providers in the future, our business may be adversely affected. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.
If we lose our relationships with CROs, our product development efforts could be delayed.
We rely on domestic and international third-party vendors and CROs for pre-clinical studies and clinical trials related to our product development efforts. Switching or adding additional CROs would involve additional cost and requires management time and focus. Our CROs generally have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements and/or research projects with us pursuant to such agreements if it can be reasonably demonstrated that the safety of the subjectspatients participating in our clinical trials warrants such termination in accordance with the reasonable opinion of the relevant CRO. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. In addition, there is a natural transition period when a new CRO commences work and the new CRO may not provide the same type or level of services as the original provider. If any of our relationships with our third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms.
Our experience manufacturing our product candidates is limited to our pre-clinical studies and clinical trials. We have no experience manufacturing our product candidates on a commercial scale. We are dependent on third parties forto formulate and manufacture Vicineum, which exposes us to a number of risks that may delay development, regulatory approval and commercialization of our supply chain, and ifproducts or result in higher product costs.
In September 2017, we experience problems with any such third parties,completed the manufacturing of all Vicineum necessary for our product candidates could be delayed.
We maintain an approximately 31,400 square footVISTA Trial and for our CRADA with the NCI. In conjunction with this achievement, we ended our manufacturing laboratory, warehouse and officeactivities at our facility in Winnipeg Manitoba, Canada. We have three 15 liter fermentors, one 150 liter fermentor, one 500 liter fermentor and one 1,500 liter fermentor. Our classified fermentation suitecompleted the technology transfer process to outsource future Vicineum clinical and post-production processing capabilities are currently dedicatedcommercial to producing our pre-clinical study and clinical trial batches.third-party manufacturers.
Our manufacturing facility has been audited byOn August 13, 2021, we received a third party for compliance with cGMP. The most recent audit was in January 2014 and it did not identify any major impediments to the cGMP manufacturing of product candidates up to and including Phase 3 production. Manufacturing of drugs and product candidates, including Vicinium, Proxinium and VB6-845d, must comply with cGMP standards and other regulations. Methods of manufacture as well as validation of manufacturing procedures and quality control systems are reviewed by regulatory authorities, such as the FDA, Health Canada and the competent authorities of the E.U. Member States, to determine their effect on the quality, purity and potency of product candidates. All such manufacturing procedures, validation programs and quality assessment activities must be properly documented in accordance with regulatory requirements. The FDA, Health Canada and the competent authorities of the E.U. Member States conduct inspections to determine compliance with cGMP to ensure that product candidates used in human testing are adequately characterized in terms of identity, potency and purity. In general, the same cGMP standards expected of marketed drugs apply to the supply of product candidates evaluated in most stages of clinical testing.
Our manufacturing facility is intended to produce multiple product candidates per year, and we believe it will produce sufficient quantities of our product candidates to meet our currently anticipated pre-clinical study and clinical trial needs. In the event we obtain approvalCRL from the FDA to market any of our product candidates, we intend to outsource our commercial scale manufacturing to CMOs. We do not have experience in manufacturing products at commercial scale. Additionally, the facilities used by any CMO to manufacture any of our product candidates must be the subject of a satisfactory inspection beforeindicating that the FDA had determined that it could not approve the BLA for Vicineum in its present form and, among other applicable regulatory authorities approvethings, raised CMC issues pertaining to a BLA or marketing authorizationrecent pre-approval inspection and product quality. At the CMC Type A Meeting held in October 2021, the FDA confirmed that Vicineum manufactured using the proposed commercial process is comparable to Vicineum used in prior clinical trials and that we can utilize Vicineum manufactured during process validation for each of our product candidates manufactured at that facility. We will depend on these third-party manufacturing partners for compliance with the E.U.’s, FDA’s and comparable foreign regulatory authorities’, including Health Canada’s, requirements for the manufacture of our finished products, if and when our product candidates are approved.
Any significant disruption in our supplier relationships could harm our business. Any significant delayany future clinical trials needed to address issues raised in the supply of a product candidate or its key materialsCRL, and that such trials can proceed while addressing CMC issues. Therefore, we have no current plans to re-build internal manufacturing capacity for an ongoing pre-clinical study or clinical trial could considerably delay completion of such pre-clinical study or clinical trial, product testingVicineum and potential regulatory approval of a product candidate. If our CMOs or we are unableexpect to purchase these key materials after regulatory approval has been obtained for a product candidate, the commercial launch of such product candidate would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of such product candidate.
In the event that manufacturing process changes are necessary for the further development of a product candidate, we may not be able to reach agreement with regulatory agencies on the criteria for demonstrating comparability to the original product,
which would require us to repeat clinical trials performed with the original product. This could result in lengthy delays in implementing the new process or site and substantial lost sales as a result of our inability to meet commercial demand. If we reach agreement with regulatory agencies on the criteria for establishing comparability, we may not be able to meet these criteria or may suffer lengthy delays in meeting these criteria. This may result in significant lost sales due to inability to meet commercial demand with the original product. Furthermore, studies to demonstrate comparability, or any other studies on the new process or site such as validation studies, may uncover findings that result in regulatory agencies delaying or refusing to approve the new process or site.
If we encounter difficulties in identifying and/or negotiating a commercial manufacturing agreement with a third party manufacturer of our product candidates, or if we experience problems with the third-party manufacturer, the manufacturing of our product candidates and our product development and commercialization efforts may be delayed, we may not be able to obtain regulatory approval of our product candidates, and our costs may be higher than expected, all of which could have a material adverse effect on our business.
We intendcontinue to rely upon aon third-party manufacturer for the commercial supply of our product candidates. expertise in this area.
Our reliance on a third-party manufacturer will exposemanufacturers exposes us to certain risks that we would not be subject to if we manufactured those productsVicineum ourselves, including:
•The development of commercial-scale manufacturing capabilities to produce clinical supply of Vicineum may require our third-party manufacturermanufacturers to invest substantial additional funds and hire and retain technical personnel who have the necessary manufacturing experience. Our third-party manufacturermanufacturers may fail to devote sufficient time and resources to develop the capabilities to manufacture our product candidates.Vicineum.
•Because of the complex nature of our product candidates,Vicineum, our third party manufacturer,manufacturers, or other third parties we rely on, may encounter difficulties in achieving the volume of production needed to satisfy commercial demand,our clinical supply demands, may not be able to achieve such volume at an acceptable cost, may experience technical issues that impact comparability, quality, or compliance with applicable regulations governing the manufacture of biological products, and may experience shortages of qualified personnel to adequately staff production operations.
•Our third-party manufacturermanufacturers could default on its agreementtheir agreements with us to meet our requirements for commercializationsupply of our product candidates,Vicineum, or itthey may terminate or decide not to renew its agreementtheir agreements with us, based on itstheir own business priorities, at a time that is costly or damaging to us. If our third-party manufacturermanufacturers were to terminate our arrangementarrangements or fail to meet our commercial manufacturing demands, we may be delayed in our ability to obtain and maintain regulatory approval of our product candidatesVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or if approved, commercialize our product candidates.less than adequate BCG.
•It may be difficult or impossible for us to find a replacement manufacturermanufacturers on acceptable terms quickly, or at all. Identifying alternate manufacturers may be difficult because the number of potential manufacturers that have the necessary expertise to produce biologics is limited. Additionally, the FDA must approve any alternative manufacturer before we may use the alternative manufacturer to produce commercialclinical supply of Vicineum.
•If any third-party manufacturer makes improvements in the manufacturing process for Vicineum, we may not own, or may have to share, the intellectual property rights to such improvements.
•A third-party manufacturer may gain knowledge from working with us that could be used to supply one of our competitors with a product candidate, if approved.that competes with ours.
Our reliance on a third party manufacturerthird-party manufacturers reduces our control over our commercialization activitiesproduction and supply of Vicineum but does not relieve us of our responsibility to ensure compliance with applicable legal and regulatory standards. The FDA and other foreign non-US
regulatory authorities require that our product candidates and any products that we may eventually commercialize be manufactured according to cGMP and similar foreignnon-US standards. Methods of manufacture as well as validation of manufacturing procedures and quality control systems are reviewed by regulatory authorities, such as the FDA and other comparable non-US regulatory authorities, to determine their effect on the quality, purity and potency of product candidates. All such manufacturing procedures, validation programs and quality assessment activities must be properly documented in accordance with regulatory requirements. Any failure by our third-party manufacturermanufacturers to comply with cGMP or to scale up manufacturing processes,similar non-US standards, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates. candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. For example, we may be unable to resolve the issues raised in the CRL pertaining to a recent pre-approval inspection and product quality.
In addition, sucha failure by our third-party manufactures to comply with cGMP or similar non-US standards could be the basis for the FDA or any other foreignnon-US regulatory authorities including Health Canada, the European Commission or the competent authorities of the E.U. Member States to issue a warning or untitled letter, withdraw approvals for product candidates previously granted to us, or take other regulatory or legal action, including recall or seizure, total or partial suspension of production, suspension of ongoing clinical trials, refusal to approve pending applications or supplemental applications, detention of product, refusal to permit the import or export of products, injunction, imposing administrative or civil penalties, or pursuing criminal prosecution.
Any contamination in our manufacturing process, shortages of raw materials or failure of any of our key suppliers to deliver necessary components of our TPT platform could result in delays in our timing for clinical development or obtaining marketing approval.
Given the nature of biologics manufacturing, there is a risk of contamination. Any contamination could materially adversely affect our ability to produce our product candidates on schedule and could therefore halt or delay our clinical development programs.
Some of the raw materials required in our manufacturing process are derived from biological sources. Such raw materials are difficult to procure and may also be subject to contamination or recall. A material shortage, contamination, recall, or restriction on the use of biologically derived substances in the manufacture of our product candidates could halt or delay our clinical development programs or disrupt the commercial manufacturing of our product candidates, if approved, which could materially and adversely affect our business.
The successful commercialization and continued development of EBI-031 depends substantially on the License Agreement with Roche. If Roche is unable or unwilling to commercialize or further develop EBI-031, or experiences significant delays in doing so, our business will be materially harmed.
On June 10, 2016, we entered into the License Agreement with Roche for the development and commercialization of EBI-031. Prior to this agreement, we did not have a history of working with Roche. The License Agreement provides for milestone payments to us based on the achievement of specified development, regulatory and commercial milestones, and provides us with royalty-based revenue if EBI-031 is successfully commercialized. We cannot predict the success of the License Agreement.
We are substantially dependent on Roche to develop and commercialize EBI-031. Under the License Agreement, Roche has significant control over the conduct and timing of development and commercialization efforts with respect to EBI-031. We have little control over the amount, timing and quality of resources that Roche devotes to the development or commercialization of EBI-031. If Roche fails to devote sufficient financial and other resources to the future development or commercialization of EBI-031, the development and commercialization of EBI-031 would be delayed or could fail. This would result in a delay in our receiving milestone payments or royalties at all.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our technology and products, or if our licensors are unable to obtain and maintain patent protection for the technology or products that we license from them, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.
Our success depends in large part on our and our licensors’ ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products. We and our licensors have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and product candidates. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If such licensors fail to maintain such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our licensors’ patent rights are highly uncertain. Our and our licensors’ pending and future patent applications may not result in patents being issued which protect our technology or products or which effectively prevent others from commercializing competitive technologies and products. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. 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 know with certainty whether we or our licensors were the first to make the inventions claimed in 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. As a result, the issuance, scope, validity, enforceability and commercial value of our owned or licensed patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. In particular, during prosecution of any patent application, the issuance of any patents based on the application may depend upon our ability to generate additional pre-clinical or clinical data that support the patentability of our proposed claims. We may not be able to generate sufficient additional data on a timely basis, or at all. Moreover, changes in either the patent laws or
interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent Office recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
Moreover, we may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products 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. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of our product candidates and technologies throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws and practices of some foreign countries do not protect
intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our licensors may not be able to prevent third parties from practicing our and our licensors’ inventions in all countries outside the United States, or from selling or importing products made using our and our licensors’ inventions in and into the United States
or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and may export infringing products to territories where we or our licensors have patent protection, but where enforcement is not as strong as in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the 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 or our licensor’s patents or marketing of competing products in violation of our proprietary rights generally in those countries. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our and our licensors’ patents at risk of being invalidated or being interpreted narrowly and put our and our licensors’ patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensors. We or our licensors may not prevail in any
lawsuits that we or our licensors initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.
The laws of certain foreign countries may not protect our rights to the same extent as the laws of the United States, and these foreign laws may also be subject to change. For example, methods of treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Furthermore, generic and/or biosimilar product manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’ patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other proceedings.
Generic or biosimilar product manufacturers may develop, seek approval for, and launch biosimilar versions or generic versions, respectively, of our products. The FDA published draft guidance documents on biosimilar product development. If a biosimilar product is also found to be interchangeable with a reference product, it may be substituted for the reference product.
Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation, which are still being worked out by the FDA. If any of our product candidates are approved by the FDA, the approval of a biologic product biosimilar to or interchangeable with one of our products could have a material impact on our business. In particular, a biosimilar could be significantly less costly to bring to market and priced significantly lower than our products, if approved by the FDA.
Many countries, including E.U. countries, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which
could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our and our licensors’ efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.
We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.
Our future trademark applications may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections from the USPTO or other applicable foreign intellectual property offices. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections, or have to expend additional resources to secure registrations, such as commencing cancellation proceedings against third-party trademark registrations to remove them as obstacles to our trademark applications. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.
We depend on our license agreements with the University of Zurich and Merck KGaA and if we cannot meet the requirements under the agreements we could lose important rights to Vicinium, Proxinium or VB6-845d, which could have material adverse effect on our business.
We have an exclusive license agreement with Zurich. Pursuant to the agreement, we were granted an exclusive license, with the right to sublicense, under certain patents primarily relating, in part, to our targeting agents, EpCAM chimera and immunoconjugates (including aspects of Vicinium and Proxinium) and methods of use, to make, use, sell and import products that would otherwise infringe such patents in the field of the treatment, stasis and palliation of disease in humans. If we fail to meet our obligations under the license agreement, Zurich may have the right to terminate our license, and upon the effective date of such termination, our right to use the licensed Zurich patent rights would end. To the extent such licensed technology or patent rights relate to our product candidates, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to preserve our rights under the patent rights licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the license agreement could result in our loss of rights to practice the patent rights licensed to us under the license agreement, and to the extent such patent rights and other technology relate to our product candidates or other of our compounds, it could have a material adverse effect on our commercialization efforts for our product candidates, including Vicinium and Proxinium.
We also have a license agreement with Merck, which grants us an exclusive license, with the right to sublicense, under certain patents and technology relating to the de-immunization of our cytotoxin Bouganin for therapeutic and in vivo diagnostic purposes in humans. If we fail to meet our obligations under this license agreement, Merck may have the right to terminate our
license, and upon the effective date of such termination, our right to use the licensed Merck patent rights and technology would end. To the extent such licensed technology or patent rights relate to our product candidates, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to preserve our rights under the patent rights and technology licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the license agreement could result in our loss of rights to practice the patent and technology rights licensed to us under the license agreement, and to the extent such patent rights and other technology relate to our product candidates, it could have a material adverse effect on our commercialization efforts for product candidates.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference or derivation proceedings before the USPTO. The risks of being involved in such litigation and proceedings may increase as our product candidates near commercialization and as we gain the greater visibility associated with being a public company. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. We may not be aware of all such intellectual property rights potentially relating to our product candidates and their uses. Thus, we do not know with certainty that any product candidate, or our commercialization thereof, does not and will not infringe or otherwise violate any third party’s intellectual property.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our business.
We are party to a number of license agreements and a collaboration agreement that impose, and, for a variety of purposes, we will likely enter into additional licensing and funding arrangements with third parties that may impose, diligence, development and commercialization timelines and milestone payment, royalty, insurance and other obligations on us. Under certain of our existing licensing agreements, we are obligated to pay royalties or make specified milestone payments on net product sales of product candidates or related technologies to the extent they are covered by the agreement. We also are obligated under certain of our existing license agreements to pay maintenance and other fees. We also have diligence and development obligations under certain of those agreements that we are required to satisfy. If we fail to comply with our obligations under current or future license and collaboration agreements, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product that is covered by these agreements or may face other penalties under the agreements. Such an occurrence could diminish the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements
may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.
We may be subject to claims by third parties asserting that our employees, consultants, independent contractors or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees and our licensors’ employees, including our senior management, were previously employed at universities, medical institutions or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including members of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.
In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
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. The following examples are illustrative:
others may be able to make product candidates that are the same as or similar to our product candidates but that are not covered by the claims of the patents that we own or have licensed;
biosimilar product manufacturers may develop, seek approval for, and launch biosimilar versions of our products, which could be significantly less costly to bring to market and priced significantly lower than our products;
we or our licensors might not have been the first inventor to file patent applications covering certain of our inventions;
others may design around our intellectual property rights or independently develop similar or alternative technologies or duplicate any of our technologies without infringing or misappropriating our intellectual property rights;
it is possible that our pending patent applications will not lead to issued patents with claims that cover our products or even issued patents;
issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;
our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as 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;
we may not develop additional proprietary technologies or product candidates that are patentable; and
the intellectual property rights of others may have an adverse effect on our business.
Risks Related to Regulatory and Marketing Approval of Our Product Candidates and Other Legal Compliance Matters
If we are not able to obtain required regulatory approvals, or there are delays in obtaining approvals, we will not be able to commercialize any product candidate that we may develop, and our ability to generate revenue will be materially impaired. The marketing approval process is expensive, time-consuming and uncertain. As a result, we cannot predict when or if we, or any licensees or collaborators, will obtain marketing approval to commercialize any product candidate.
To date, we have not obtained approval from the FDA or any foreign regulatory authority, including Health Canada and the European Commission, to market or sell any of our product candidates. The failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. The activities associated with the development and commercialization of our product candidates, including design, testing, manufacture, quality, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by the EMA, the competent authorities of the E.U. Member States, Health Canada and similar regulatory authorities outside the United States. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party CROs to assist us in this process.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years, especially if additional clinical trials are required, if approval is obtained at all. Securing marketing approval requires the submission of extensive pre-clinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s quality, safety, and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA, Health Canada, EMA or other regulatory authorities may determine that any product candidate that we may develop is not safe, effective or of appropriate quality, is only moderately effective or has undesirable or unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
The regulatory process can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Moreover, changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable regulatory authorities in other countries, including Health Canada and the European Commission, have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional pre-clinical, clinical or other studies. In addition, varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. In November 2016, the FDA issued draft guidance on developing drugs and biologics for treating BCG-unresponsive NMIBC, which sets forth certain expectations for our development of Vicinium. We
may be unable to satisfy all recommendations contained in the FDA guidance and, even if we do, it is not guaranteed that meeting all such recommendations will be sufficient to obtain marketing approval.
The different requirements and expectations of the EMA and Health Canada compared with the FDA may lengthen the regulatory review process, require us to conduct additional studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these product candidates or lead to significant post approval limitations or restrictions. If we experience delays in obtaining regulatory approvals, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.
Some of our product candidates may qualify for orphan drug designation, and if we obtain approval for these product candidates, orphan drug exclusivity may afford limited protection. If another party obtains orphan drug exclusivity before we do for the same drug for the same indication we are targeting, we may be precluded from commercializing our product candidate in that indication until the other party’s period of exclusivity has ended.
Regulatory authorities in some jurisdictions, including the United States and the E.U., may designate drugs and biologics intended to treat relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a biologic intended to treat a rare disease or condition, which generally means a disease or condition that affects fewer than 200,000 individuals in the United States. The first BLA applicant with an orphan drug designation that receives FDA approval is entitled to a seven-year period of orphan drug exclusivity in the United States, during which the FDA generally may not approve another application for a product with the same principal molecular structural features for the same indication. In the E.U., following the opinion of the EMA’s Committee for Orphan Medicinal Products, the European Commission grants orphan drug designation to a product if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the E.U. when the application is made, or (b) the product, without the incentives derived from orphan medicinal product status, would not generate sufficient return in the E.U. to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the E.U., or if such a method exists, the product will be of significant benefit to those affected by the condition. Once authorized, orphan medicinal products are entitled to ten years of market exclusivity.
We have obtained orphan drug designation from the FDA and the European Commission for Proxinium to treat EpCAM-positive SCCHN, and where appropriate we intend to seek orphan drug designation for our other product candidates. In the U.S., we cannot assure that any or all of our product candidates that receive orphan drug designation will, upon approval, have seven years of orphan drug exclusivity. The FDA may revoke orphan drug designation under certain circumstances, including if the agency determines that the request for orphan drug designation omitted material information or subsequently finds that the biologic had not been eligible for orphan drug designation at the time the request for designation was submitted. Revocation of orphan drug designation suspends the associated orphan drug exclusivity. Also, the FDA may approve another sponsor’s application for the same drug for the same use, prior to the expiration of our product’s orphan drug exclusivity, under certain circumstances, including if we are unable to assure sufficient quantity of our product, or if the other sponsor can demonstrate that its product candidate is clinically superior to ours by showing superior safety or efficacy or a major contribution to patient care. In addition, if a competitor obtains approval and orphan drug exclusivity for a product that is the same as a product candidate we are pursuing for the same indication, approval of our product candidate would be blocked during the period of the competitor’s orphan drug exclusivity, unless we could demonstrate that our product candidate is clinically superior to the approved product. Also, if a competitor obtains approval for a drug that is the same as a product candidate we are pursuing for a different orphan indication, the competitor’s approval may negatively impact the market opportunity for our product candidate, even if our product is granted orphan drug exclusivity.
Products authorized in the E.U. as orphan medicinal products are entitled to ten years of data exclusivity. The products are, in parallel, entitled to ten years of market exclusivity. The ten-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product during the ten-year period of market exclusivity for the same therapeutic indication at any time if:
The second applicant can establish in its application that its product, although similar to the orphan medicinal product already authorized, is safer, more effective or otherwise clinically superior;
The holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application; or
The holder of the marketing authorization for the original orphan medicinal product cannot supply enough orphan medicinal product.
Our product candidates for which we intend to seek approval as biological products may face competition sooner than expected.
With the enactment of the BPCIA, abbreviated pathways for approval of biosimilar and interchangeable biological products were created. The BPCIA establishes legal authority for the FDA to review and approve biosimilars for marketing, as well as biosimilars that have been designated as “interchangeable” with a previously approved biologic, or reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the reference product was approved under a full BLA. This period of regulatory exclusivity runs concurrently with, but is independent of, periods of patent protection for the reference product.
We believe that any of our product candidates approved as a biological product under a full BLA should qualify for a 12-year period of exclusivity. However:
the United States Congress could amend the BPCIA to significantly shorten this exclusivity period as has been previously proposed; and
a potential competitor could seek and obtain approval of its own BLA during our exclusivity period instead of seeking approval of a biosimilar version.
The BPCIA is complex and its provisions continue to be interpreted and implemented by the FDA and U.S. courts. As a result, the ultimate impact, implementation and implications of the BPCIA are subject to uncertainty and could compromise the future commercial prospects for our biological products. Moreover, it is not yet clear the extent to which a biosimilar, once approved, may be substituted for any one of our reference products in a way that is similar to traditional generic substitution for pharmaceutical products; this will depend on a number of marketplace and regulatory factors that are still developing at both the federal and state levels of government.
Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad, and any approval we are granted for our product candidates in the United States would not assure approval of product candidates in foreign jurisdictions.
In order to market and sell any product candidate that we may develop in the E.U., Canada and many other jurisdictions, we or our third-party licensees or collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States it is required that the product be approved for reimbursement before the product can be sold in that country. We or these third parties may not obtain approvals from regulatory authorities outside the United States, including Health Canada, or the European Commission, on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of our product candidates by regulatory authorities in Canada, the E.U. or other jurisdictions, the commercial prospects of our product candidates may be significantly diminished and our business prospects could decline.
Even if we, or our third-party licensees or collaborators, obtain marketing approvals for our product candidates, the terms of those approvals, ongoing regulations and post-marketing restrictions may limit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.
Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation. We, and any collaborators we may have in the future, must therefore comply with requirements concerning advertising and promotion for any of our products for which we or they obtain marketing approval. Promotional communications with respect to prescription products are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, if any product candidate that we may develop receives marketing approval, the accompanying label may limit the approved use of our product, which could limit sales of the product.
In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, our future collaborators and their contract manufacturers will also be subject to other regulatory requirements, including submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements regarding the distribution of samples to physicians, recordkeeping, and potentially costly post-marketing studies or other clinical trials and surveillance to monitor the safety or efficacy of the product such as the requirement to implement a risk evaluation and mitigation strategy.
Accordingly, assuming we receive marketing approval for one or more of our product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we are not able to comply with post-approval regulatory requirements, we could have the marketing approvals for our products withdrawn by regulatory authorities and our ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
Any product candidate for which we obtain marketing approval will be subject to a strict enforcement of post-marketing requirements and we could be subject to substantial penalties, including withdrawal of our product from the market, if we fail to comply with all regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other federal and state regulatory authorities. These requirements include, but are not limited to, restrictions governing promotion of an approved product, submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping. The respective safety and efficacy profiles of our product candidates will continue to be closely monitored by the FDA and comparable foreign regulatory authorities, including Health Canada, if they are approved. If new safety information becomes available after approval of our product candidates, the FDA may require labeling changes or establishment of a REMS, and the FDA or comparable foreign regulatory authorities, including Health Canada, may require a similar strategy, impose significant restrictions on our product candidates’ indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.
The FDA and other federal and state agencies, including the DOJ closely regulate compliance with all requirements governing prescription drug products, including requirements pertaining to marketing and promotion of drugs in accordance with the provisions of the approved labeling and manufacturing of products in accordance with cGMP requirements. Violations of such requirements may lead to investigations alleging violations of the FDCA and other statutes, including the False Claims Act and other federal and state health care fraud and abuse laws as well as state consumer protection laws. In the United States, engaging in impermissible promotion of approved products for off-label uses can also subject us to false claims litigation under federal and state statutes, and other litigation and/or investigation, which can lead to civil and criminal penalties and fines and agreements that materially restrict the manner in which we promote or distribute our drug products. These false claims statutes include the federal civil False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will share in any fines or settlement funds. These False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements based on certain sales practices promoting off-label drug uses. This increasing focus and scrutiny has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, or risk being excluded from the Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote our approved products, we may become subject to such litigation and/or investigation and, if we are not successful in defending against such actions, those actions could compromise our ability to become profitable. Our failure to comply with all regulatory requirements, and later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, may yield various results, including:
litigation involving patients taking our products;
restrictions on such products, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
warning letters or untitled letters;
withdrawal of the products from the market;
refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
damage to relationships with any potential collaborators;
unfavorable press coverage and damage to our reputation;
refusal to permit the import or export of our products;
product seizure or detention; or
injunctions or the imposition of civil or criminal penalties.
The occurrence of any event or penalty described above may inhibit or preclude our ability to commercialize our product candidates and generate revenue.
Non-compliance by us or any future collaborator with regulatory requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties.
Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.
We are subject to U.S. data protection laws and regulations (i.e., laws and regulations that address privacy and data security) at both the federal and state levels. The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues. Numerous federal and state laws, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, govern the collection, use, and disclosure of health-related and other personal information. In addition, we may obtain health information from third parties (e.g., healthcare providers who prescribe our products) that are subject to privacy and security requirements under Health Insurance Portability and Accountability Act of 1996, or HIPAA. Although we are not directly subject to HIPAA-other than potentially with respect to providing certain employee benefits-we could be subject to criminal penalties if we knowingly obtain or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. Finally, a data breach affecting sensitive personal information, including health information, could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.
E.U. Member States, Switzerland and other countries have also adopted data protection laws and regulations, which impose significant compliance obligations. For example, the collection and use of personal health data in the E.U. is governed by the provisions of the E.U. Data Protection Directive, or the Directive. The Directive and the national implementing legislation of the E.U. Member States impose strict obligations and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting. In particular, these obligations and restrictions concern the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. Data protection authorities from the different E.U. Member States may interpret the Directive and national laws differently and impose additional requirements, which add to the complexity of processing personal data in the E.U.
Guidance on implementation and compliance practices are often updated or otherwise revised. For example, the E.U. Data Protection Directive prohibits the transfer of personal data to countries outside of the European Economic Area, or EEA, that are not considered by the European Commission to provide an adequate level of data protection. These countries include the United States.
The judgment by the Court of Justice of the E.U. in the Schrems case (Case C-362/14 Maximillian Schrems v. Data Protection Commissioner) determined the U.S.-E.U. Safe Harbor Framework, which was relied upon by many U.S. entities as a basis for transfer of personal data from the E.U. to the U.S., to be invalid. U.S. entities therefore, had only the possibility to rely on the alternate procedures for such data transfer provided in the E.U. Data Protection Directive.
On February 29, 2016, however, the European Commission announced an agreement with the U.S. Department of Commerce (DOC) to replace the invalidated Safe Harbor framework with a new E.U.-U.S “Privacy Shield”. On July 12, 2016, the European Commission adopted a decision on the adequacy of the protection provided by the Privacy Shield. The Privacy Shield is intended to address the requirements set out by the Court of Justice of the E.U. in its Schrems judgment by imposing more stringent obligations on companies, providing stronger monitoring and enforcement by the DOC and the Federal Trade Commission, and making commitments on the part of public authorities regarding access to information. U.S. companies have been able to certify to the DOC their compliance with the privacy principles of the Privacy Shield since August 1, 2016 and rely on the Privacy Shield certification to transfer of personal data from the E.U. to the U.S.
On September 16, 2016, the Irish privacy advocacy group Digital Rights Ireland brought an action for annulment of the European Commission decision on the adequacy of the Privacy Shield before the Court of Justice of the E.U. (Case T-670/16). Case T-670/16 is still pending. If the Court of Justice of the E.U. invalidates the Privacy Shield, it will no longer be possible to rely on the Privacy Shield certification to transfer personal data from the E.U. to entities in the U.S. Adherence to the Privacy Shield is not, however, mandatory. U.S.-based companies are permitted to rely either on their adherence to the E.U.-US Privacy Shield or on the other authorized means and procedures to transfer personal data provided by the E.U. Data Protection Directive.
In addition, the E.U. Data Protection Regulation, intended to replace the current E.U. Data Protection Directive entered into force on May 24, 2016 and will apply from May 25, 2018. The E.U. Data Protection Regulation will introduce new data protection requirements in the E.U. and substantial fines for breaches of the data protection rules. The E.U. Data Protection Regulation will increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new data protection rules.
Our failure to comply with these laws, or changes in the way in which these laws are implemented, could lead to government enforcement actions and significant penalties against us, and adversely impact our business.
Our relationships with customers and third-party payors may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include:
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;
the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties, currently set at $5,500 to $11,000 per false claim;
HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or knowingly and willfully falsifying, concealing or covering up a material fact or making any
materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry relating to the delivery of or payment for healthcare benefits, items or services;
the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products to report payments and other transfers of value to physicians and teaching hospitals;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations, which imposes obligations, including mandatory contractual terms, on covered healthcare providers, health plans and healthcare clearinghouses, as well as their business associates, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and transparency statutes, 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; 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, security, collection, use and disclosure of health information, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the FTC Act), many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may 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 fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government funded healthcare programs.
Current and future legislation may increase the difficulty and cost for us and any collaborators to obtain marketing approval of our product candidates and affect the prices we, or they, may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability, or the ability of any collaborators, to profitably sell any products for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any collaborators, may receive for any approved products.
In the United States, the Medicare Modernization Act, established the Medicare Part D program and generally authorized prescription drug plan sponsors to impose limits on the number of covered drugs under their plans in a therapeutic class. The Medicare Modernization Act, including its cost reduction initiatives, could decrease the coverage and reimbursement rate that we may receive for any of our product candidates, if approved. CMS, the agency that runs the Medicare program, also may revise reimbursement and implement coverage restrictions. Cost reduction initiatives and changes in coverage could decrease utilization of and reimbursement for any approved products, which would then affect the price we can receive. Private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement from federal legislation or regulation may lead to similar reductions in private payor reimbursement.
In addition, in March 2010, President Obama signed into law the Affordable Care Act. Among the provisions of the Affordable Care Act of potential importance to our business and our product candidates are the following:
an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription products and biologic agents;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
a new methodology by which average manufacturer price is calculated and reported by manufacturers for products that are inhaled, infused, instilled, implanted or injected and not generally dispensed through retail community pharmacies;
expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance;
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 products to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient products to be covered under Medicare Part D;
extension of manufacturers’ Medicaid rebate liability from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well;
expansion of eligibility criteria for Medicaid programs;
expansion of the entities eligible for discounts under the Public Health Service 340B pharmaceutical pricing program;
new requirements to report certain financial arrangements with physicians and teaching hospitals;
a new requirement to annually report product samples that manufacturers and distributors provide to physicians;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;
a new IPAB which has authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription products; and
establishment of the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models.
Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and, due to subsequent legislation, will continue until 2025. In addition, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws 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 regulatory approval is obtained, which could have a material adverse effect on our financial operations.
Additional legislative changes, FDA or CMS regulations, guidance or interpretations could be adopted, which may impact the marketing approvals and reimbursement of our product candidates. For example, in November 2015, the U.S. House of Representatives formed an Affordable Drug Pricing Task Force to advance legislation intended to control pharmaceutical drug costs and investigate pharmaceutical drug pricing, and the U.S. Senate has requested information from certain pharmaceutical companies in connection with an investigation into pharmaceutical drug pricing practices. If healthcare policies or reforms intended to curb healthcare costs are adopted or if we experience negative publicity with respect to pricing of our products or the pricing of pharmaceutical drugs generally, the prices that we charge for any approved products may be limited, our commercial opportunity may be limited and/or our revenues from sales of our products may be negatively impacted.
Legislative and regulatory changes regarding the Affordable Care Act remain possible and appear likely in the 115th United States Congress and under the Trump Administration We expect that the Affordable Care Act, as currently enacted or may be amended in the future, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. Moreover, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted in the U.S. or outside of the U.S., or whether the FDA or CMS
regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be.
If we participate in the Medicaid drug rebate program and fail to comply with our reporting and payment obligations under that or other governmental pricing programs, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
If we participate in the Medicaid drug rebate program, we will have certain price reporting obligations to the Medicaid drug rebate program, and we may have obligations to report ASP figures to the Medicare program. Under the Medicaid drug rebate program, we would be required to pay a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being made available to the states for our drugs under Medicaid and Medicare Part B. Those rebates are based on pricing data reported by us on a monthly and quarterly basis to CMS. These data include AMP and, in the case of innovator products, the best price for each drug which, in general, represents the lowest price available from the manufacturer to any entity in the United States in any pricing structure, calculated to include all sales and associated rebates, discounts and other price concessions.
Federal law also requires that a company that participates in the Medicaid drug rebate program report ASP information each quarter to CMS for certain categories of drugs that are paid under Part B of the Medicare program. Manufacturers calculate ASP based on a statutorily defined formula and interpretations of the statute by CMS. CMS uses these submissions to determine payment rates for drugs under Medicare Part B and the resulting Medicare payment rate.
Federal law requires that any company that participates in the Medicaid drug rebate program also participate in the Public Health Service’s 340B drug pricing program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. In addition, in order to be eligible to have its products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, a manufacturer also must participate in the FSS pricing program, established by Section 603 of the Veterans Health Care Act of 1992. Under this program, the manufacturer is obligated to make its “covered drugs” (biologics or innovator drugs) available for procurement on an FSS contract and charge a price to four federal agencies, Department of Veterans Affairs, Department of Defense, Public Health Service, and Coast Guard, that is no higher than the statutory federal ceiling price. The requirements under the 340B and FSS programs could reduce the revenue we may generate from any products that are commercialized in the future and could adversely affect our business and operating results.
Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation by manufacturers, governmental or regulatory agencies, and the courts. The Medicaid rebate amount for each manufacturer is computed each quarter based on the manufacturer’s submission to CMS of its current AMP and, in the case of innovator products, best price figures, for the quarter. If we participate in the Medicaid drug rebate program and become aware that our reporting for a prior quarter was incorrect, or has changed, we will be obligated to resubmit the corrected data for a period not to exceed twelve quarters from the quarter in which the data originally were due. Such restatements and recalculations would increase our costs for complying with the laws and regulations governing the Medicaid drug rebate program. Any corrections to our rebate calculations could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction. Price recalculations also may affect the ceiling price at which we would be required to offer our products to certain covered entities, such as safety-net providers, under the 340B drug discount program.
If we participate in the Medicaid drug rebate program or our products are covered under Medicare Part B, we will be liable for errors associated with our submission of pricing data. In addition to retroactive rebates and the potential for 340B program refunds, if we are found to have knowingly submitted false AMP, ASP, or best price information to the government, we may be liable for civil monetary penalties per item of false information. If we are found to have made a misrepresentation in the reporting of our ASP, the Medicare statute provides for civil monetary penalties for each misrepresentation for each day in which the misrepresentation was applied. Our failure to submit monthly/quarterly AMP, ASP, and best price data on a timely basis could result in a civil monetary penalty per day for each day the information is late beyond the due date. Such failure also could be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we would participate in the Medicaid program. In the event that CMS terminates our rebate agreement, federal payments may not be available under Medicaid or Medicare Part B for our covered outpatient drugs that we are able to successfully commercialize.
Laws and regulations governing any international operations we may have in the future 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.
If we expand our 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. In addition, the FCPA presents particular 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 Securities and Exchange Commission, or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.
The results of the United Kingdom’s referendum on withdrawal from the E.U. may have a negative effect on global economic conditions, financial markets and our business.
In June 2016, a majority of voters in the United Kingdom elected to withdraw from the E.U. in a national referendum. The government of the United Kingdom is expected to initiate the formal withdrawal procedure by late March 2017. The procedure involves a two-year negotiation period in which the United Kingdom and the E.U. must conclude an agreement setting out the terms of the United Kingdom's withdrawal and the arrangements for the United Kingdom's future relationship with the E.U. This negotiation period could be extended by a unanimous decision of the European Council, in agreement with the United Kingdom. The referendum has created significant uncertainty about the future relationship between the United Kingdom and the E.U., including with respect to the laws and regulations that will apply as the United Kingdom determines which E.U. laws to replace or replicate in the event of a withdrawal. From a regulatory perspective, the United Kingdom's withdrawal could bear significant complexity and risks. A basic requirement related to the grant of a marketing authorization for a medicinal product in the E.U. is that the applicant is established in the E.U. Following the withdrawal of the United Kingdom from the E.U., marketing authorizations previously granted to applicants established in the United Kingdom may no longer be valid. Moreover, depending upon the exact terms of the United Kingdom's withdrawal, there is an arguable risk that the scope of a marketing authorization for a medicinal product granted by the European Commission pursuant to the centralized procedure would not, in the future, include the United Kingdom. In these circumstances, an authorization granted by the United Kingdom's competent authorities would always be required to place medicinal products on the United Kingdom market. In addition, the laws and regulations that will apply after the United Kingdom withdraws from the E.U. would affect the manufacturing sites that hold a manufacturing authorization issued by the United Kingdom competent authorities. Our capability to rely on these manufacturing sites for products intended for the E.U. market would also depend upon the exact terms of the United Kingdom's withdrawal. The referendum has also given rise to calls for the governments of other E.U. Member States to consider withdrawal from the E.U. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could significantly increase the complexity of our activities in the E.U. and in the United Kingdom, could depress our economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our securities.
If we or our third-party manufacturers fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur significant costs.
We and our third-party manufacturers are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Further, with respect to the operations of our third-party contract manufacturers, it is possible that if they fail to operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated with our products, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption in the manufacture and supply of our product candidates or products.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our technology and products, or if our licensors are unable to obtain and maintain patent protection for the technology or products that we license from them, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.
Our success depends in large part on our and our licensors’ ability to obtain and maintain patent protection in the United States and other countries with respect to Vicineum and our other proprietary technology and product candidates. We and our licensors have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and product candidates. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications in jurisdictions of interest 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 before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If such licensors fail to maintain such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our licensors’ patent rights are highly uncertain. Our and our licensors’ pending and future patent applications may not result in patents being issued which protect our technology or products or which effectively prevent others from commercializing competitive technologies and products. In addition, the laws of non-US countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. 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 know with certainty whether we or our licensors were the first to make the inventions claimed in 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. As a result, the issuance, scope, validity, enforceability and commercial value of our owned or licensed patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. In particular, during prosecution of any patent application, the issuance of any patents based on the application may depend upon our ability to generate additional pre-clinical or clinical data that support the patentability of our proposed claims. We may not be able to generate sufficient additional data on a timely basis, or at all. Moreover, changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Moreover, we may be subject to a third-party preissuance submission of prior art to the USPTO or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products 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. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. In addition, invalidation of our patent rights by third parties could jeopardize the anticipated revenue streams from current licensees.
Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on Vicineum and our other product candidates and technologies throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws and practices of countries outside the United States do not protect intellectual property rights to the same extent as federal and state laws in the United States. Moreover, the intellectual property laws of the United States change over time. For example, several United States Supreme Court cases have redefined what is considered to be patentable subject matter. Consequently, we and our licensors may not be able to prevent third parties from practicing our and our licensors’ inventions in all countries inside or outside the United States, or from selling or importing products made using our and our licensors’ inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may export infringing products to territories where we or our licensors have patent protection, but where enforcement is not as strong as in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in non-US 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 or our licensor’s patents or marketing of competing products in violation of our proprietary rights generally in those countries. Proceedings to enforce our patent rights in non-US jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our and our licensors’ patents at risk of being invalidated or being interpreted narrowly and put our and our licensors’ patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensors. We or our licensors may not prevail in any lawsuits that we or our licensors initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful.
The laws of certain countries outside of the US may not protect our rights to the same extent as the laws of the United States, and such laws may also be subject to change. For example, methods of treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Furthermore, generic and/or biosimilar product manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’ patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other proceedings.
Generic or biosimilar product manufacturers may develop, seek approval for, and generic versions or biosimilar versions, respectively, of our products. The FDA has published several guidance documents on biosimilar product development. If a biosimilar product is also found to be interchangeable with a reference product, it may be substituted for the reference product. Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation, which are still being worked out by the FDA. If any of our product candidates are approved by the FDA, the approval of a biologic product biosimilar to or interchangeable with one of our products could have a material impact on our business. In particular, a biosimilar could be significantly less costly to bring to market and priced significantly lower than our products, if approved by the FDA.
Many countries, including EU countries, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our and our licensors’ efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.
We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.
Our future trademark applications may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections from the USPTO or other applicable non-US intellectual property offices. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections, or have to expend additional resources to secure registrations, such as commencing cancellation proceedings against third-party trademark registrations to remove them as obstacles to our trademark applications. In addition, in the USPTO and in comparable agencies in many non-US jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.
We depend on our license agreements with Zurich, Micromet and XOMA, and if we cannot meet the requirements under the agreements, we could lose important rights to Vicineum, which could have material adverse effect on our business.
We have an exclusive license agreement with Zurich. Pursuant to the Zurich License Agreement, we were granted an exclusive license, with the right to sublicense, under certain patents primarily relating, in part, to our targeting agents, EpCAM chimera and immunoconjugates (including aspects of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and Vicineum for the treatment of SCCHN) and methods of use, to make, use, sell and import products that would otherwise infringe such patents in the field of the treatment, stasis and palliation of disease in humans. If we fail to meet our obligations under the Zurich License Agreement, Zurich may have the right to terminate our license, and upon the effective date of such termination, our right to use the licensed Zurich patent rights would end. To the extent such licensed technology or patent rights relate to our product candidates, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to preserve our rights under the patent rights licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the Zurich License Agreement could result in our loss of rights to practice the patent rights licensed to us under the Zurich License Agreement, and to the extent such patent rights and other technology relate to our product candidates or other of our compounds, it could have a material adverse effect on our commercialization efforts for our product candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and Vicineum for the treatment of SCCHN.
We also have a license agreement with Micromet, which grants us non-exclusive rights, with certain sublicense rights, for know-how and patents allowing exploitation of certain single chain antibody products. If we fail to meet our obligations under the Micromet License Agreement, Micromet may have the right to terminate our license, and upon the effective date of such termination, our right to use the licensed Micromet patent rights would end. To the extent such licensed technology or patent rights relate to our product candidates, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to preserve our rights under the patent rights licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the Micromet License Agreement could result in our loss of rights to practice the patent rights licensed to us under the Micromet License Agreement, and to the extent such patent rights and other technology relate to our product candidates or other of our compounds, it could have a material adverse effect on our commercialization efforts for our product candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and Vicineum for the treatment of SCCHN.
We also have a license agreement with XOMA, which grants us non-exclusive rights, with certain sublicense rights, to certain XOMA patent rights and know-how related to certain expression technology, including plasmids, expression strains, plasmid maps and production systems. If we fail to meet our obligations under the XOMA License Agreement, XOMA may have the right to terminate our license, and upon the effective date of such termination, our right to use the licensed XOMA patent rights and related know-how would end. To the extent such licensed technology or patent rights relate to our product candidates, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to preserve our rights under the patent rights licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the XOMA License Agreement could result in our loss of rights to practice the patent rights licensed to us under the XOMA License Agreement, and to the extent such patent rights and other technology relate to our product candidates or other of our compounds, it could have a material adverse effect on our commercialization efforts for our product candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and Vicineum for the treatment of SCCHN.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, trademarks or other intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. In a trademark infringement proceeding, we could be enjoined from continued use of a trademark deemed to be infringing and forced to rebrand product packaging, product inserts, market and advertising materials, resulting in a loss of sales and established goodwill in that name or mark. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a trademark.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability, and the ability of our partners, to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference or derivation proceedings before the USPTO. The risks of being involved in such litigation and proceedings may increase as our product candidates near commercialization and as we gain the greater visibility associated with being a public company. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. We may not be aware of all such intellectual property rights potentially relating to our product candidates and their uses. Thus, we do not know with certainty that any product candidate, or our commercialization thereof, does not and will not infringe or otherwise violate any third party’s intellectual property.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
We may be subject to claims by third parties asserting that our employees, consultants, independent contractors or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees and our licensors’ employees, including our senior management, were previously employed at universities, medical institutions or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including members of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.
In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
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. The following examples are illustrative:
•others may be able to make product candidates that are the same as or similar to our product candidates but that are not covered by the claims of the patents that we own or have licensed;
•biosimilar product manufacturers may develop, seek approval for, and launch biosimilar versions of our products, which could be significantly less costly to bring to market and priced significantly lower than our products;
•we or our licensors might not have been the first inventor to file patent applications covering certain of our inventions;
•others may design around our intellectual property rights or independently develop similar or alternative technologies or duplicate any of our technologies without infringing or misappropriating our intellectual property rights;
•it is possible that our pending patent applications will not lead to issued patents with claims that cover our products or even issued patents;
•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;
•our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as 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;
•we may not develop additional proprietary technologies or product candidates that are patentable; and
•the intellectual property rights of others may have an adverse effect on our business.
Risks Related to Regulatory Compliance
If and when we commercialize, our relationships with customers and third-party payors may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidate for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by United States federal and state governments and by governments in non-US jurisdictions in which we conduct our business.
For a full discussion of these laws, see the subsection titled “Other Healthcare Laws and Compliance Requirements” in Item 1.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may 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 fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government funded healthcare programs.
Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of our product candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, and affect the prices we may obtain.
In the United States and some non-US jurisdictions, there have been, and continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability, or the ability of any commercialization partners, to profitably sell any products for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any commercialization partners, may receive for any approved products.
CMS, the agency that administers the Medicare and Medicaid programs, may revise reimbursement and implement coverage restrictions. Any reduction in reimbursement from Medicare, Medicaid or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.
In addition, in March 2010, President Obama signed into law the ACA. Among the provisions of the ACA of potential importance to our business and our product candidates are the following:
•an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription products and biological products;
•an increase in the statutory minimum rebates a manufacturer must pay under the MDRP to 23.1% for innovator drugs and 13% for non-innovator drugs of the AMP;
•a new methodology by which AMP is calculated and reported by manufacturers for products that are inhaled, infused, instilled, implanted or injected and not generally dispensed through retail community pharmacies;
•expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance;
•a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% (as of January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand products to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient products to be covered under Medicare Part D;
•extension of manufacturers’ Medicaid rebate liability from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well;
•expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals, thereby potentially increasing manufacturers’ Medicaid rebate liability;
•expansion of the entities eligible for discounts under the Public Health Service Act's 340B drug pricing program;
•new requirements to report to CMS annually specifying financial arrangements with physicians and teaching hospitals, as defined in the ACA and its implementing regulations, including reporting any ‘‘payments or other transfers of value’’ made or distributed to prescribers, teaching hospitals, and other healthcare providers and reporting any ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations during the preceding calendar year;
•a new requirement to annually report product samples that manufacturers and distributors provide to physicians;
•a mandatory non-deductible payment for employers with 50 or more full-time employees (or equivalents) who fail to provide certain minimum health insurance coverage for such employees and their dependents;
•establishment of the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models; and
•a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
Certain provisions of the ACA have been subject to judicial challenges, as well as efforts to repeal, replace, or otherwise modify them or to alter their interpretation or implementation. For example, the Tax Cuts and Jobs Act enacted on December 22, 2017, eliminated the tax-based payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Code, commonly referred to as the “individual mandate,” effective January 1, 2019. Further, the Bipartisan Budget Act of 2018 among other things, amended the Medicare statute, effective January 1, 2019, to reduce the coverage gap in most Medicare prescription drug plans, commonly known as the “donut hole,” by raising the manufacturer discount under the Medicare Part D coverage gap discount program to 70%. Additional legislative changes, regulatory changes and judicial challenges related to the ACA remain possible. It is unclear how the ACA and its implementation, as well as efforts to repeal, replace, or otherwise modify, or invalidate, the ACA, or portions thereof, will affect our business.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012, among other things, led to aggregate reductions in Medicare payments for all items and services, including prescription drugs and biologics, to service providers of, on average, 2% per fiscal year beginning April 1, 2013, and due to subsequent legislation, will continue until 2030 (with the exception of a temporary suspension from May 1, 2020 through March 31, 2022). On December 10, 2021, President Biden signed a law that provides for 1% Medicare sequestration in the second quarter of 2022 and allows the full 2% sequestration thereafter until 2030. To offset the temporary suspension during the COVID-19 pandemic, in 2030, the sequestration will be 2.25% for the first half of the year, and 3% in the second half of the year.
The American Taxpayer Relief Act of 2012 also, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws 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 regulatory approval is obtained, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, which could have a material adverse effect on our financial operations.
Additional legislative changes, regulatory changes, or guidance could be adopted, which may impact the marketing approvals and reimbursement for our product candidates. For example, there has been increasing legislative, regulatory, and enforcement interest in the United States with respect to drug pricing practices. There have been several Congressional inquiries and proposed and enacted federal and state legislation and regulatory initiatives designed to, among other things, bring more transparency to product pricing, evaluate the relationship between pricing and manufacturer patient programs, and reform government healthcare program reimbursement methodologies for drug products. For example, Congress is currently considering changes that could affect our overall rebate liability. Changes under consideration include a drug price negotiation program, Medicare Part B and Part D inflation rebates, under which manufacturers would owe rebates if the average sales price
or average manufacturer price of a drug were to increase faster than the pace of inflation, and Part D benefit redesign, including a proposed new manufacturer discount program. If healthcare policies or reforms intended to curb healthcare costs are adopted or if we experience negative publicity with respect to pricing of our products or the pricing of pharmaceutical drugs generally, the prices that we charge for any approved products may be limited, our commercial opportunity may be limited and/or our revenues from sales of our products may be negatively impacted.
It is possible that the ACA, as currently enacted or may be amended in the future, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, and new payment methodologies and in additional downward pressure on coverage and payment and the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products. We cannot be sure whether additional legislative changes will be enacted in the United States or outside of the United States, or whether regulatory changes, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be.
Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.
The regulatory environment surrounding information security, data collection, and privacy is increasingly demanding. In the United States, we are subject to a number of data protection laws and regulations (i.e., laws and regulations that address privacy and data security) at both the federal and state levels. The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues. Numerous federal and state laws, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, such as Section 5 of the Federal Trade Commission Act, govern the collection, use, and disclosure of health-related and other personal information.
In addition, we may obtain health information from third parties (e.g., healthcare providers who prescribe our products) that are subject to privacy and security requirements in the United States under HIPAA. Although we are not directly subject to HIPAA-other than potentially with respect to providing certain employee benefits-we could be subject to criminal penalties if we knowingly obtain, use or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. Finally, a data breach affecting sensitive personal information, including health information, could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.
In addition to US data protection laws and regulations, we also may be subject to European and other international data protection requirements, such as the EU General Data Protection Regulation. Our failure to comply with data privacy and security laws and regulations, or changes in the way in which these laws are implemented, could lead to unfavorable outcomes, including increased compliance costs, delays or impediments in the development of new products, increased operating costs, diversion of management time and attention, regulatory liability as a result of government enforcement actions and significant penalties against us, civil liability as a result of claims initiated by data subjects (including claims initiated as class actions) contracting parties or other third parties as a result of non-compliance with data protection laws and/or contractual obligations, and adverse publicity that could negatively affect our operating results, financial condition and our overall and business. Federal regulators, state attorneys general, and plaintiffs’ attorneys, including class action attorneys, have been and will likely continue to be active in this space. Such liabilities could adversely impact our results of operations, financial condition and our overall business.
Laws and regulations governing any international operations we may have in the future 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.
For our current and future operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we operate. The FCPA prohibits any United States individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any non-US official, political party or candidate for the purpose of influencing any act or decision of the non-US 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 us 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. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered non-US 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-United States 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 United States exchanges for violations of the FCPA’s accounting provisions.
Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk of employee fraud or other misconduct, including intentional failure to comply with FDA regulations or similar regulations of comparable non-U.S.non-United States regulatory authorities, including Health Canada, failure to provide accurate information to the FDA or comparable non-U.S.non-United States regulatory authorities, including Health Canada or the competent authorities of the E.U.EU Member States, failure to comply with manufacturing standards we have established, failure to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable non-U.S.non-United States regulatory authorities, and failure to report financial information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
Risks Related to Employee Mattersour Business and Managing GrowthOperations
The COVID-19 coronavirus could adversely impact our business.
We continue to monitor the effect of the novel strain of coronavirus, COVID-19. The COVID-19 coronavirus has spread and has caused significant disruptions around the world. We may experience disruptions as a result of the COVID-19 pandemic that could severely impact our business, including:
•delays or difficulties related to the continued clinical development of Vicineum for non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, including delays in clinical trial sites receiving the supplies and materials needed to conduct clinical trials, difficulties in recruiting clinical site investigators and clinical site staff and difficulties in enrolling patients or treating patients in active trials;
•difficulties in raising additional capital needed for the continued development of Vicineum for non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and if approved, commercialization for Vicineum due to the long-term negative effects of the pandemic on the financial, banking and capital markets;
•delays in necessary interactions with regulators and other important agencies and contractors due to limitations in employee resources, travel restrictions or forced furlough of government employees;
•interruption of key business activities due to illness and/or quarantine of key individuals and delays associated with recruiting, hiring and training new temporary or permanent replacements for such key individuals, both internally and at our third-party service providers;
•evolving changes in local regulations as part of a response to the COVID-19 outbreak that may require us to change the ways in which operate, which may result in unexpected costs; and
•interruption of key commercialization, manufacturing, and related activities due to limitations on work and travel imposed or recommended by federal or state governments, employers and others.
The global pandemic of COVID-19 continues to evolve. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the virus. The full impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and
initiatives in the expected time frame, will depend on future developments, including the duration of the pandemic and continuing restrictions on travel and transports, and shelter-in-place, social distancing, and similar measures, all of which are uncertain and difficult to predict. The broad-based business and economic disruptions caused by the pandemic could materially affect our business condition, results of operations and cash flows, including our ability to raise additional capital.
Our future success depends on our ability to attract, retain and motivate qualified personnel.
Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. The loss of any member of our senior management team or the inability to hire or retain experienced management personnel could compromise our ability to execute our business plan and harm our operating results. Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors,
to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of December 31, 2016, we had 34 full-time employees and one part-time employee, eight of whom are temporary employees, six hold Ph.D. degrees and one is a medical doctor. As our development and commercialization plans and strategies develop, or as a result of any future acquisitions, we will need additional managerial, operational, sales, marketing, financial and other resources. Our management, personnel and systems that are currently in place may not be adequate to support this future growth. Future growth would impose significant added responsibilities on members of management, including:
managing our clinical trials effectively;
identifying, recruiting, maintaining, motivating and integrating additional employees;
managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
improving our managerial, development, operational and finance systems; and
expanding our facilities.
As our operations expand, we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Our future financial performance and our ability to commercialize our product candidates, if approved, and to compete effectively will depend, in part, on our ability to effectively manage any future growth. To that end, we must be able to effectively manage our development efforts and clinical trials and hire, train and integrate additional management, administrative and sales and marketing personnel. Our failure to accomplish any of these tasks could prevent us from successfully growing our company.
If we expand our development and regulatory capabilities or implement sales, marketing and distribution capabilities, we may encounter difficulties in managing our growth, which could disrupt our operations.
To manage future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harmmaterially adversely affect our abilitybusiness.
In the ordinary course of business, we rely on information technology networks and systems, some of which are provided, hosted or managed by third parties, to operate ourcollect, store, process and transmit electronic data. In addition, we handle certain data, including proprietary business effectively.
information and personal information that is subject to data protection laws and regulations. Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations and could result in a material disruption of our clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
Although we have implemented processes, procedures, and controls to help mitigate the risks associated with a cyber security incident, there can be no assurance that these measures will be sufficient for all possible situations. Even security measures that are appropriate, reasonable, and/or in accordance with applicable legal requirements may not be able to protect the networks, systems and information we maintain and those of third parties with which we contract. Unauthorized parties, whether within or outside our company, may disrupt or gain access to our systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, ransomware, computer viruses or other malicious codes, and similar means of unauthorized and destructive tampering. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted cyber security incidents evolve and generally are not recognized until launched against a target. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, making it impossible for us to entirely mitigate this risk. While we have experienced, and expect to continue to experience, threats and disruptions to our information technology infrastructure, none of them to date has had a material impact on our business or operations. 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 liability and our product research, development and, if approved, commercialization effortsof Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG could be delayed.delayed, or we could be subject to regulatory and other government investigations, enforcement actions, or incur liability, substantial fines or costs, any of which could materially adversely affect our business, our reputation, results of operations and financial condition. Although we maintain insurance coverage for various cyber security risks, there can be no guarantee that all costs or losses incurred will be fully insured.
Our restructuring plan and the associated headcount reduction may not result in anticipated savings, could result in total costs and expenses that are greater than expected and could disrupt our business.
On August 30, 2021, we approved a restructuring plan to reduce operating expenses and better align our workforce with the needs of our business following receipt of the CRL from the FDA regarding our BLA for Vicineum for the treatment of BCG-
unresponsive NMIBC. The restructuring plan included a reduction in our workforce by 18 positions (approximately 35%) as well as additional cost-saving initiatives intended to preserve capital while we continue development of Vicineum. Restructuring expenses for the year ended December 31, 2021 were approximately $5.5 million, consisting primarily of severance and other employee-related costs of $2.8 million and contract termination costs of $2.7 million.
We may not realize, in full or in part, the anticipated benefits, savings and improvements in our cost structure from our restructuring efforts due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the expected operational efficiencies and cost savings from the restructuring, our operating results and financial condition would be adversely affected. Furthermore, our restructuring plan may be disruptive to our operations. For example, our headcount reductions could yield unanticipated consequences, such as increased difficulties in implementing our business strategy, including retention of our remaining employees.
We and certain of our officers have been named as defendants in three pending securities class action lawsuits and three related shareholder derivative lawsuits have been filed. These lawsuits, and potential similar or related lawsuits, could result in substantial damages, divert management’s time and attention from our business, and have a material adverse effect on our results of operations. These lawsuits, and any other lawsuits to which we are subject, will be costly to defend and are uncertain in their outcome.
On August 19, 2021, August 31, 2021 and October 7,2021, three substantially identical securities class action lawsuits captioned Bibb v. Sesen Bio, Inc., et. al., Case No. 1:21-cv-07025, Cizek v. Sesen Bio, Inc., et. al., Case No. 1:21-cv-07309 and Markman v. Sesen Bio, Inc. et al., Case No. 1:21-cv-08308 were filed against us and certain of our officers in the US District Court for the Southern District of New York. The three complaints allege violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder based on statements made by us concerning our BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. The three complaints seek compensatory damages and costs and expenses, including attorneys’ fees. On October 29, 2021, the court consolidated the three cases under the caption In re Sesen Bio, Inc. Securities Litigation, Master File No. 1:21-cv-07025-AKH (the “Securities Litigation”), and appointed Ryan Bibb, Rodney Samaan, Lionel Dreshaj and Benjamin Dreshaj (“Lead Plaintiffs”) collectively as the lead plaintiffs under the Private Securities Litigation Reform Act. On November 1, 2021, two stockholders filed motions to reconsider asking the court to appoint a different lead plaintiff. The court has not ruled on those motions at this time. On November 24, 2021, defendants filed a motion to transfer venue to the US District Court for the District of Massachusetts. That motion was fully briefed as of December 13, 2021, but the court has not yet ruled on that motion. On December 6, 2021, the Lead Plaintiffs filed an amended class action complaint (the “Amended Complaint”). The Amended Complaint alleges the same violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder on the same theory as the prior complaints. Defendants’ response to the Amended Complaint is due to be filed on March 7, 2022.
On September 20, 2021 and September 24, 2021, two substantially similar derivative lawsuits captioned Myers v. Sesen Bio, Inc., et. al., Case No. 1:21-cv-11538 and D’Arcy v. Sesen Bio, Inc., et. al., Case No. 1:21-cv-11577 were filed against our board of directors and certain of our officers in the US District Court for the District of Massachusetts, with Sesen Bio, Inc. named as a nominal defendant. On January 12, 2022, a third derivative complaint captioned Tang v. Sesen Bio, Inc., et al., was filed in Superior Court in Massachusetts against our board of directors and certain of our officers in the US District Court for the District of Massachusetts, with us named as nominal defendant, but no defendant has yet been served. The three derivative complaints allege breach of fiduciary duties, waste of corporate assets, and violations of federal securities laws based on statements made by us concerning our BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. The D’Arcy complaint further alleges unjust enrichment, abuse of control, gross mismanagement and aiding and abetting thereof. The three derivative complaints seek unspecified damages, restitution and disgorgement of profits, benefits and compensation obtained by the defendants and costs and expenses, including attorneys’ fees. On October 18, 2021, the court consolidated the two federal court cases under the caption In re Sesen Bio, Inc. Derivative Litigation, Lead Case No. 1:21-cv-11538 (the “Federal Derivative Litigation”). On December 22, 2021, the court entered a joint stipulation among the parties to stay the Federal Derivative Litigation until after a ruling on any motion to dismiss filed by defendants in the Securities Litigation. Defendants intend to seek a similar stay of the state court derivative litigation in the event any defendant is served.
We believe that these lawsuits are without merit and intend to vigorously defend against these actions. However, whether or not the claims are successful, litigation is often expensive and can divert management’s attention and resources from other business concerns, which could adversely affect our business.
We currently are not able to estimate the possible cost to us from these actions, as the pending lawsuits are currently at an early stage, and we cannot be certain how long it may take to resolve the pending lawsuits or the possible amount of any damages that we may be required to pay. If we are ultimately required to pay significant defense costs, damages or settlement amounts, such payments could adversely affect our operations.
We may be the target of similar litigation in the future. The market price of our common stock has experienced and may continue to experience volatility, and in the past, companies that have experienced volatility in the market price of their stock
have been subject to securities litigation. Any future litigation could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. We maintain liability insurance; however, if any costs or expenses associated with the pending lawsuits or any other litigation exceed our insurance coverage, we may be forced to bear some or all costs and expenses directly, which could adversely affect our business, financial condition, results of operations or stock price.
Risks Related to Ownership of Our Common Stock
If we are unable to regain compliance with the listing requirements of the Nasdaq Global Market, our common stock may be delisted from the Nasdaq Global Market which could have a material adverse effect on our business and could make it more difficult for you to sell your shares.
Our executive officers, directorscommon stock is listed on the Nasdaq Global Market, and principal stockholders, if they choosewe are therefore subject to act together,its continued listing requirements, including requirements with respect to the market value of publicly-held shares, market value of listed shares, minimum bid price per share, and minimum stockholders' equity, among others, and requirements relating to board and committee independence. If we fail to satisfy one or more of the requirements, we may be delisted from the Nasdaq Global Market.
On January 24, 2022, we received notice (the "Notice") from the Nasdaq Stock Market LLC ("Nasdaq") that we are not currently in compliance with the $1.00 minimum bid price requirement for continued listing on the Nasdaq Global Market, as set forth in Nasdaq Listing Rule 5450(a)(1). The Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days, or until July 25, 2022, to regain compliance with the ability to control all matters submitted to stockholders for approval.
As of March 23, 2017, our current executive officers and directors, combined with our stockholders who own more than 5%minimum bid price requirement by having the closing bid price of our outstandingcommon stock meet or exceed $1.00 per share for at least ten consecutive business days. The notification had no immediate effect on the listing of our common stock, and our common stock will continue to trade on the Nasdaq Global Market under the symbol “SESN” at this time.
If we do not regain compliance by July 25, 2022, we may be eligible for an additional 180 calendar day grace period. If we fail to regain compliance during the applicable period, we will receive notification from Nasdaq that our common stock is subject to delisting. At that time, we may then appeal the delisting determination to a Nasdaq hearings panel. Such notification will have no immediate effect on our listing on the Nasdaq Global Market, nor will it have an immediate effect on the trading of our common stock pending such hearing. There can be no assurance, however, that we will be able to regain compliance with Nasdaq’s minimum bid price requirement. If we regain compliance with the Nasdaq’s minimum bid price requirement, there can be no assurance that we will be able to maintain compliance with the continued listing requirements for the Nasdaq Global Market or that our common stock will not be delisted from the Nasdaq Global Market in the future. In addition, we may be unable to meet other applicable listing requirements of the Nasdaq Global Market, including maintaining minimum levels of stockholders’ equity or market values of our common stock in which case, our common stock could be delisted notwithstanding our ability to demonstrate compliance with the aggregate, beneficially owned shares representing 52.1%minimum bid price requirement.
Delisting from the Nasdaq Global Market may adversely affect our ability to raise additional financing through the public or private sale of equity securities, may significantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our capitalcommon stock. Delisting also could have other negative results, including the potential loss of employee confidence, the loss of institutional investors or interest in business development opportunities.
If we are delisted from Nasdaq and we are not able to list our common stock on another exchange, our common stock could be quoted on the OTC Bulletin Board or in the “pink sheets.” As a result, we could face significant adverse consequences including, among others:
•a limited availability of market quotations for our securities;
•a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
•a limited amount of news and little or no analyst coverage for us;
•we would no longer qualify for exemptions from state securities registration requirements, which may require us to comply with applicable state securities laws; and
•a decreased ability to issue additional securities (including pursuant to short-form Registration Statements on Form S-3) or obtain additional financing in the future.
If our common stock becomes subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain our listing on Nasdaq and if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially allprice of our assets.common stock is less than $5.00, our common stock may be deemed a penny stock. The
penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of voting power may:
delay, defer or preventthe receipt of a changerisk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in control;
entrenchthe secondary market for our managementcommon stock, and the board of directors; or
delay or prevent a merger, consolidation, takeover or other business combination involving us on terms that othertherefore stockholders may desire.have difficulty selling their shares.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificateAmended and Restated Certificate of incorporationIncorporation (the "Certificate of Incorporation") and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
•establish a classified board of directors such that only one of three classes of directors is elected each year;
•allow the authorized number of our directors to be changed only by resolution of our board of directors;
•limit the manner in which stockholders can remove directors from our board of directors;
•establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
•require that stockholder actions must be effectedaffected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
•limit who may call stockholder meetings;
•authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
•require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal specified provisions of our certificateCertificate of incorporationIncorporation or bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
We lease a 31,100 square foot manufacturing, laboratory, warehouse and office facility in Winnipeg, Manitoba. We have three 15-liter fermenters, one 30-liter fermenter, one 150-liter fermenter, one 500-liter fermenter and one 1,500-liter fermenter. Our classified fermentation suite and post-production processing capabilities were dedicated to producing our pre-clinical study and clinical trial batches of Vicineum.In September 2017, we completed the manufacturing of all Vicineum necessary for our common stock may not be sustained.
Our shares of common stock began trading on The NASDAQ Global Market on February 6, 2014. Given the limited trading history of our common stock, there is a risk that an active trading market for our shares will not be sustained, which could put downward pressure on the market price of our common stock and thereby affect the ability of our stockholders to sell their shares.
The price of our common stock has been volatile and may fluctuate in the future, which could result in substantial losses for our stockholders.
The trading price of our common stock has and may continue to fluctuate significantly. During the period from January 4, 2016 to March 23, 2017, the closing sales price of our common stock ranged from a high of $5.97 per share to a low of $0.25 per share. Our stock price experienced significant volatility in May 2015 after we announced that we failed to meet either of the
two co-primary endpoints in our Phase 3 clinical trial of isunakinra in patients with moderate to severe dry eye diseaseVISTA Trial and in January 2016 after we announced that we failed to meet the primary endpoint in our Phase 3 clinical trial of isunakinra in patients with allergic conjunctivitis. Furthermore, the stock market in general and the market for smaller biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, our stockholders may not be able to sell their common stock at or above the price at which they purchased their shares. The market price for our common stock may be influenced by many factors, including:
the success of competitive products or technologies;
results of clinical trials of Vicinium, Proxinium or any other product candidate that we may develop;
results of clinical trials of product candidates of our competitors;
regulatory or legal developments in the United States and other countries;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key scientific or management personnel;
the level of expenses related to any of our product candidates or clinical development programs;
the results of our efforts to discover, develop, acquire or in-license additional products, product candidates or technologies for the treatment of ophthalmic diseases, the costs of commercializing any such products and the costs of development of any such product candidates or technologies;
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
variations in our financial results or those of companies that are perceived to be similar to us;
changes in the structure of healthcare payment systems;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry and market conditions; and
the other factors described in this “Risk Factors” section.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. We also may face securities class action litigation if we cannot obtain regulatory approvals for or if we otherwise fail to commercialize Vicinium or Proxinium. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2016, we had U.S. federal net operating loss, or NOL, carryforwards of $111.4 million, state NOL carryforwards of $110.6 million and U.S. federal and state research and development tax credit carryforwards of $1.9 million and $1.1 million, respectively. These U.S. federal and state NOL carryforwards and U.S. federal and state tax credit carryforwards expire at various dates beginning in 2025 through 2036, if not utilized. Utilization of these NOL and tax credit carryforwards may be subject to a substantial limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, and comparable provisions of state, local and foreign tax laws due to changes in ownership of our company that have occurred previously or that could occur in the future. Under Section 382 of the Code and comparable provisions of state, local and foreign tax laws, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes, such as research and development tax credits, to reduce its post-change income may be limited. We have determined that it is more likely than not that our net operating and tax credit amounts disclosed are subject to a material limitation under Section 382. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we generate taxable income, our ability to use our pre-change NOL and tax credits carryforwards to reduce U.S. federal and state taxable income may be subject to limitations, which could result in increased future tax liability to us.
A significant portion of our total outstanding shares are eligible to be sold into the market, which could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of March 23, 2017, we had outstanding 24,700,746 shares of common stock. Of these shares, 8,746,736 shares are restricted securities under Rule 144 under the Securities Act of 1933, as amended, or Securities Act. Any of our remaining shares that are not restricted securities under Rule 144 under the Securities Act may be resold in the public market without restriction unless purchased by our affiliates.
Moreover, holders of an aggregate of 9,795,963 shares of our common stock, including 3,582,328 shares of common stock issued in connectionCRADA with the acquisition of Viventia, have rights, subjectNCI.In conjunction with this achievement, we ended our manufacturing activities at our facility in Winnipeg and completed the technology transfer process to specified conditions,outsource future Vicineum clinical and commercial to require us to file registration statements covering their shares or to include their sharesthird-party manufacturers. We operate our Winnipeg facility under a two-year renewable lease expiring in registration statements that we may file for ourselves or other stockholders. We have filed registration statements on April 9, 2014, March 12, 2015September 2022, and March 31, 2016 registering all shares of common stock that we may issue under our equity compensation plans. As of March 23, 2017, we had outstanding options to purchase an aggregate of 1,717,181 shares of our common stock, of which options to purchase 862,934 shares were vested. These shares can be freely sold in the public market upon issuance, subject to volume, notice and manner of sale limitations applicable to affiliates.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
reduced disclosure obligations regarding executive compensation; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We have taken advantage of reduced reporting burdens in this Annual Report on Form 10-K for the annual period ended December 31, 2016, including reduced disclosure regarding executive compensation related information that would be required if we were not an emerging growth company. We expect to continue, in our public reporting, to take advantage of some or all of the reporting exemptions available to emerging growth companies. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to delay such adoption of new or revised accounting standards, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies.
We incur increased costs as a result of operating as a public company, and our management now is required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and
officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.
We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
For as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies as described in the preceding risk factor. We may remain an emerging growth company until the end of the 2019 fiscal year, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1 billion or more in any fiscal year, we would cease to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an emerging growth company if we issue more than $1 billion of non-convertible debt over a three-year period.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we are engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. As of December 31, 2016 there was a material weakness in our controls over the financial reporting process related to business combinations. As a result of a lack of expertise in our finance and accounting group related to the accounting for business combinations, we lacked sufficient review of assumptions used and conclusions reached from the perspective of a typical market participant used in the acquisition valuation model. If we fail to remedy this material weakness or identify one or more additional material weaknesses in our internal control over financial reporting, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
If we are unable to successfully remediate the existing material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.
In preparing our consolidated financial statements as of December 31, 2016 and 2015 and for the three years ended December 31, 2016, our management concluded that, as of December 31, 2016, we had a material weaknesses in our internal control over financial reporting related to accounting for business combinations. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
The material weakness in our internal control over financial reporting was attributable primarily to our lack of expertise in our finance and accounting group related to the accounting for business combinations. These deficiencies included, but were not limited to, our existing financial reporting and accounting personnel lacking sufficient and appropriate knowledge of U.S. GAAP and SEC rules and regulations related to business combinations. In response to this material weakness, we are currently evaluating the controls and procedures we will design and put in place to address the material weakness and plan to implement appropriate measures as part of this effort. These actions may include adding personnel, which may include one or more employees to our finance and accounting group and/or the engagement of independent consultants to aid us in our review of business combinations. However, we cannot assure you that we will be successful in pursuing these measures or that these measures will significantly improve or remediate the material weakness described above. We also cannot assure you that we have identified all of our existing material weaknesses, or that we will not in the future have additional material weaknesses. We have not yet remediated our material weakness, and the remediation measures that we intend to implement may be insufficient to address our existing material weakness or to identify or prevent additional material weaknesses.
If we are unable to remediate this weakness, or otherwise to conclude that our internal control over financial reporting is effective, or if our independent auditors determine that we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be our stockholders’ sole source of gain.
We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for shares of our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of us, the trading price for shares of our common stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade shares of our common stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for shares of our common stock could decrease, which might cause our stock price and trading volume to decline.
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Item 1B. | Unresolved Staff Comments. |
Not applicable.
Our manufacturing facility is located in Winnipeg, Manitoba, Canada, which we operate under a five-year renewable lease through September 2020 with a right to renew the lease for one subsequent five-yearthree-year term. The manufacturing facility consists of an approximately 31,400 square foot manufacturing, laboratory, warehouse and office facility.
Our U.S. corporate headquarters is located in Cambridge, MA, where we occupy office space under a lease that was executed in October 2016. The initial term of the lease expiresexpired in July 2017, after whichwith the lease will continuenow continuing on a month-to-month basisrenewable four-month term unless terminated by either party with the requisite notice. The lease is currently extended throughJune 2022.
We also have office space in Philadelphia, PA, where we occupy office space under a lease that was executed in September 2015.December 2017. The initial term of the lease expired in August 2016, afterMay 2018, which the lease has continuednow continues on a month-to-month basisrenewable six-month terms unless terminated by either party with the requisite notice. We also have office space in Toronto, Ontario, Canada, where we occupy office space under aThe lease that is on a month-to-month basis unless terminated by either party with the requisite notice. has been extended throughMay 2022.
We believe that our existing facilities are adequate to meet our current needs and that suitable additional alternative spaces will be available in the future on commercially reasonable terms.
Item 3. Legal Proceedings. | |
Item 3. | Legal Proceedings. |
On August 19, 2021, August 31, 2021, and October 7, 2021, three substantially identical securities class action lawsuits captioned Bibb v. Sesen Bio, Inc., et. al., Case No. 1:21-cv-07025, Cizek v. Sesen Bio, Inc., et. al., Case No. 1:21-cv-07309 and Markman v. Sesen Bio, Inc. et al., Case No. 1:21-cv-08308 were filed against us and certain of our officers in the US District Court for the Southern District of New York. The three complaints allege violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, based on statements made by us concerning the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. The three complaints seek compensatory damages and costs and expenses, including attorneys’ fees. On October 29, 2021, the court consolidated the three cases under the caption In re Sesen Bio, Inc. Securities Litigation, Master File No. 1:21-cv-07025-AKH (the “Securities Litigation”), and appointed Ryan Bibb, Rodney Samaan, Lionel Dreshaj and Benjamin Dreshaj (“Lead Plaintiffs”) collectively as the lead plaintiffs under the Private Securities Litigation Reform Act. On November 1, 2021, two stockholders filed motions to reconsider asking the court to appoint a different lead plaintiff. The court has not ruled on those motions at this time. On November 24, 2021, defendants filed a motion to transfer venue to the US District Court for the District of Massachusetts. That motion was fully briefed as of December 13, 2021, but the court has not yet ruled on that motion. On December 6, 2021, the Lead Plaintiffs filed an amended class action complaint (the “Amended Complaint”). The Amended Complaint alleges the same violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder on the same theory as the prior complaints. Defendants’ response to the Amended Complaint is due to be filed on March 7, 2022.
On September 20, 2021 and September 24, 2021, two substantially similar derivative lawsuits captioned Myers v. Sesen Bio, Inc., et. al., Case No. 1:21-cv-11538 and D’Arcy v. Sesen Bio, Inc., et. al., Case No. 1:21-cv-11577 were filed against our board of directors and certain of our officers in the US District Court for the District of Massachusetts, with us named as nominal defendant. On January 12, 2022, a third derivative complaint captioned Tang v. Sesen Bio, Inc., et al., was filed in Superior Court in Massachusetts against our board of directors and certain of our officers in the US District Court for the District of Massachusetts, with us named as nominal defendant, but no defendant has yet been served. The three derivative complaints allege breach of fiduciary duties, waste of corporate assets and violations of federal securities laws, based on statements made by us concerning the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. The D’Arcycomplaint further alleges unjust enrichment, abuse of control, gross mismanagement and aiding and abetting thereof. The three derivative complaints seek unspecified damages, restitution and disgorgement of profits, benefits and compensation obtained by the defendants and costs and expenses, including attorneys’ fees. On October 18, 2021, the court consolidated the two federal court cases under the caption In re Sesen Bio, Inc. Derivative Litigation, Lead Case No. 1:21-cv-11538 (the “Federal Derivative Litigation”). On December 22, 2021, the court entered a joint stipulation among the parties to stay the Federal Derivative Litigation until after a ruling on any motion to dismiss filed by defendants in the Securities Litigation. Defendants intend to seek a similar stay of the state court derivative litigation in the event any defendant is served.
We believe that these lawsuits are not currently subjectwithout merit and intends to anyvigorously defend against them. The lawsuits are in the early stages, and, at this time, no assessment can be made as to the likely outcome or whether the outcome will be material legal proceedings.to us.
67
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Item 4. | Mine Safety Disclosures. |
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Stock Price
Our common stock trades on the NASDAQ Global Market under the symbol “EBIO”. The following table sets forth for the period indicated the high and low sale prices per share for our common stock as reported"SESN" on the NASDAQNasdaq Global Market for the period indicated: Market.
|
| | | | | | | |
| Market Price |
| High | | Low |
First quarter 2015 | $ | 13.50 |
| | $ | 8.92 |
|
Second quarter 2015 | $ | 13.78 |
| | $ | 2.61 |
|
Third quarter 2015 | $ | 8.00 |
| | $ | 2.25 |
|
Fourth quarter 2015 | $ | 3.30 |
| | $ | 2.24 |
|
First quarter 2016 | $ | 3.00 |
| | $ | 0.25 |
|
Second quarter 2016 | $ | 3.80 |
| | $ | 0.31 |
|
Third quarter 2016 | $ | 5.97 |
| | $ | 1.58 |
|
Fourth quarter 2016 | $ | 3.23 |
| | $ | 1.32 |
|
HoldersAs of March 23, 2017, we had 33February 21, 2022, there were 17 holders of record of our common stock. This number does not include beneficial owners whose shares were held in street name.
Dividends
We have never declared or paid, anyand for the foreseeable future do not expect to declare or pay, cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to fundfinance the developmentgrowth and growthdevelopment of our business. We do not expect to pay any cash dividends in the foreseeable future.
RecentUnregistered Sales of Unregistered Securities
During the fiscal year ended December 31, 2016, we had no sales of unregistered securities that have not been previously disclosed in a Current Report on Form 8-K or Quarterly Report on Form 10-Q.None.
PurchasePurchases of Equity Securities by the Issuer
We did not purchase anyNone.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item regarding our equity compensation plans is incorporated herein by reference to Item 12 of our registered equity securities during the period covered byPart III of this Annual Report on Form 10-K.
Item 6. [Reserved.]
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Item 6. | Selected Financial Data. |
You should read the following selected financial data together with our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K and the “Management’sItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Annual Report on Form 10-K. We have derived the consolidated statement of operations and comprehensive income (loss) data for the years ended December 31, 2016, 2015 and 2014 and the consolidated balance sheet data as of December 31, 2016 and 2015 from our audited consolidated financial statements included in this Annual Report on Form 10-K. We derived the consolidated statement of operations and comprehensive income (loss) data for the years ended December 31, 2013 and 2012 and the consolidated balance sheet data as of December 31, 2014, 2013 and 2012 from our audited financial statements that are not included elsewhere in this Annual Report on Form 10-K. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period. With respect to the selected financial data as of and for the year ended December 31, 2016, the following table takes in account the completion of our acquisition of Viventia on September 20, 2016. See Notes 2 and 3 within the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further explanation regarding the effect of the Acquisition.Operations.
|
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| (in thousands, except per share data) |
Consolidated Statement of Operations and Comprehensive Income (Loss) Data: | | | | | | | | | |
Revenue: | | | | | | | | | |
Collaboration revenue | $ | 406 |
| | $ | 490 |
| | $ | 2,243 |
| | $ | 1,334 |
| | $ | — |
|
License revenue | 29,575 |
| | 500 |
| | — |
| | — |
| | — |
|
Total revenue | 29,981 |
| | 990 |
| | 2,243 |
| | 1,334 |
| | — |
|
Operating expenses: | | | | | | | | | |
Research and development | 13,479 |
| | 26,336 |
| | 26,703 |
| | 13,788 |
| | 15,263 |
|
General and administrative | 14,736 |
| | 9,850 |
| | 8,471 |
| | 4,024 |
| | 4,213 |
|
(Gain) loss from change in fair value of contingent consideration | (1,100 | ) | | — |
| | — |
| | — |
| | — |
|
Total operating expenses | 27,115 |
| | 36,186 |
| | 35,174 |
| | 17,812 |
| | 19,476 |
|
Income (loss) from operations | 2,866 |
| | (35,196 | ) | | (32,931 | ) | | (16,478 | ) | | (19,476 | ) |
Other income (expense): | | | | | | | | | |
Other income (expense), net | (723 | ) | | 3,139 |
| | (849 | ) | | (147 | ) | | (13 | ) |
Interest expense | (247 | ) | | (1,395 | ) | | (376 | ) | | (1,400 | ) | | (168 | ) |
Total other income (expense), net | (970 | ) | | 1,744 |
| | (1,225 | ) | | (1,547 | ) | | (181 | ) |
Net income (loss) before income taxes | 1,896 |
| | (33,452 | ) | | (34,156 | ) | | (18,025 | ) | | (19,657 | ) |
Provision for income taxes | 5 |
| | — |
|
| — |
| | — |
| | — |
|
Net income (loss) and comprehensive income (loss) | $ | 1,891 |
| | $ | (33,452 | ) | | $ | (34,156 | ) | | $ | (18,025 | ) | | $ | (19,657 | ) |
Cumulative preferred stock dividends and accretion of preferred stock discount | — |
| | — |
| | (519 | ) | | (3,857 | ) | | (3,111 | ) |
Net income (loss) applicable to common stockholders | $ | 1,891 |
| | $ | (33,452 | ) | | $ | (34,675 | ) | | $ | (21,882 | ) | | $ | (22,768 | ) |
Net income (loss) per share applicable to common stockholders—basic | $ | 0.09 |
| | $ | (1.76 | ) | | $ | (2.37 | ) | | $ | (16.18 | ) | | $ | (22.93 | ) |
Weighted-average number of common shares used in net income (loss) per share applicable to common stockholders—basic | 21,083 |
| | 18,993 |
| | 14,644 |
| | 1,352 |
| | 993 |
|
Net income (loss) per share applicable to common stockholders—diluted | $ | 0.09 |
| | $ | (1.76 | ) | | $ | (2.37 | ) | | $ | (16.18 | ) | | $ | (22.93 | ) |
Weighted-average number of common shares used in net income (loss) per share applicable to common stockholders—diluted | 21,733 |
| | 18,993 |
|
| 14,644 |
| | 1,352 |
| | 993 |
|
See Note 2 within the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of the method used to calculate basic and diluted net income (loss) per share applicable to common stockholders.
|
| | | | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| (in thousands) |
Consolidated Balance Sheet Data: | | | | | | | | | |
Cash and cash equivalents | $ | 25,342 |
| | $ | 36,079 |
| | $ | 54,059 |
| | $ | 7,942 |
| | $ | 7,882 |
|
Working capital | 21,947 |
| | 28,731 |
| | 49,199 |
| | 2,677 |
| | 6,446 |
|
Total assets | 104,097 |
| | 36,825 |
| | 55,000 |
| | 11,237 |
| | 9,503 |
|
Notes payable, net of current portion | — |
| | 9,763 |
| | 9,749 |
| | 2,876 |
| | 1,769 |
|
Warrant liability | 5 |
| | 115 |
| | 3,219 |
| | 297 |
| | 147 |
|
Convertible preferred stock | — |
| | — |
| | — |
| | 56,678 |
| | 45,035 |
|
Accumulated deficit | (123,311 | ) | | (125,202 | ) | | (91,750 | ) | | (57,594 | ) | | (39,569 | ) |
Total stockholders’ equity (deficit) | 38,677 |
| | 18,944 |
| | 36,826 |
| | (54,332 | ) | | (39,296 | ) |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and therelated notes to thosethereto and other financial statements appearinginformation included elsewhere in this Annual Report on Form 10-K. ThisIn addition to historical information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and uncertainties. As a result of many factors, including those factors set forth in Part I, Item IA, “Risk Factors”assumptions. You should review "Item 1A. Risk Factors" of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results couldto differ materially from the results described in or implied by the forward-looking statements.statements contained in the following discussion and analysis.
Overview
We are a biologics oncologylate-stage clinical company primarily focused on designing, engineeringadvancing targeted fusion protein therapeutics ("TFPTs") for the treatment of patients with cancer. We genetically fuse the targeting antibody fragment and developing targeted protein therapeutics. Our TPTs are single-protein therapeutics composed of targeting moieties genetically fused via linker domains tothe cytotoxic protein payloads that arepayload into a single molecule which is produced through our proprietary one-step, microbial manufacturing process. We target tumor cell surface antigens that allowwith limited expression on normal cells. Binding of the target antigen by the TFPT allows for rapid internalization into the targeted cancer cell and have limited expression on normal cells.cell. We have designed our TPTstargeted proteins to overcome the fundamental efficacy and safety challenges inherent in existing antibody drugantibody-drug conjugates or ADCs,("ADCs") where a payload is chemically attached to a targeting antibody.
Our most advanced product candidate, is Vicinium, whichVicineum, also known as VB4-845, is a locally-administered TPT. In the third quartertargeted fusion protein composed of 2015, we, through our recently acquired subsidiary Viventia, commenced in the United States and Canada a Phase 3 clinical trial of Vicinium for the treatment of subjects with high-grade non-muscle invasive bladder cancer, or NMIBC. Our second most advanced product candidate is Proxinium, a locally-administered TPT intended for the treatment of EpCAM positive squamousan anti-epithelial cell carcinoma of the head and neck, or SCCHN. A Phase 1/2a clinical trial will explore the potential of Proxinium in combination with a checkpoint inhibitor for the treatment of SCCHN and is planned to commence enrollment in the second half of 2017. We are also developing cancer therapies for systemic administration utilizing our TPT platform and our proprietary payload deBouganin. We may explore additional therapeutic indications for Vicinium and Proxinium.
Our locally-administered TPTs contain a targeting moiety that is designed to bind to EpCAM, which is a protein over expressed in many cancers. This targeting moiety is genetically fusedadhesion molecule ("EpCAM") antibody fragment tethered to a truncated form of ETA,Pseudomonas exotoxin A for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG.
In December 2020, we submitted our completed BLA for Vicineum for the treatment of BCG-unresponsive NMIBC to the FDA, which is an immunogenic cytotoxic protein payload that is producedwas accepted for filing by the bacterial species, Pseudomonas. These product candidates are designed to bind to EpCAMFDA in February 2021. The FDA granted Priority Review for the BLA and set a target PDUFA date for a decision on the surfaceBLA of cancer cells.August 18, 2021.On August 13, 2021, we received a CRL from the FDA indicating that the FDA had determined that it could not approve the BLA for Vicineum in its present form and provided recommendations specific to additional clinical/statistical data and analyses in addition to CMC issues pertaining to a recent pre-approval inspection and product quality. On August 20, 2021, we withdrew our MAA to the EMA for Vysyneum for the treatment of BCG-unresponsive NMIBC in order to pause our plans to pursue regulatory approval of Vysyneum in the European Union until there is more clarity from the FDA on next steps for Vicineum in the United States. Vysyneum is the proprietary brand name that was conditionally approved by the EMA for oportuzumab monatox in the European Union. In
October 2021, the EMA issued its Withdrawal Assessment Report relating to our MAA for Vysyneum, as is consistent with the EMA’s standard practice when an MAA is withdrawn. The TPT-EpCAM complex is subsequently internalized intoEMA Withdrawal Assessment Report reflects the cellinitial assessment and once insidecorresponding questions from the cell,EMA and identifies major objections in the TPT is cleaved byareas of quality, good clinical practice, efficacy and safety. Due to the high concordance between FDA and European Commission approvals, we believe that the probability of success of future approval in the European Union for Vysyneum increases if FDA approval for Vicineum has already been obtained.
On October 29, 2021, we participated in a cellular enzymeType A Meeting with the FDA to releasediscuss questions related to CMC raised in the cytotoxic protein payload, thus enabling cancer cell-killing.CRL (the “CMC Type A Meeting”). During the CMC Type A Meeting, we and the FDA reviewed issues related to CMC to be further discussed during the review of a BLA for Vicineum upon potential resubmission. We believe we have a clear understanding of what additional information regarding CMC is required for a potential resubmission of a BLA. Additionally, although not an issue raised in the CRL, the FDA confirmed at the CMC Type A Meeting that Vicineum manufactured using the proposed commercial process is comparable to Vicineum used in prior clinical trials. The FDA also confirmed that we can utilize Vicineum manufactured during process validation for any future clinical trials needed to address issues raised in the CRL, and that these potential trials can proceed while addressing CMC issues.
On December 8, 2021, we participated in a Type A Meeting with the FDA to discuss design elements of an additional Phase 3 clinical trial for Vicineum (the “Clinical Type A Meeting”), which the FDA confirmed will be required for a potential resubmission of a BLA. The trial design may include these elements:
•A randomized clinical trial assessing the safety and efficacy of Vicineum compared to investigators’ choice of intravesical chemotherapy;
•Trial may include both patients who have received adequate BCG1 and patients who have received less than adequate BCG;
•The FDA encouraged us to submit the final results from the Phase 3 Vista Trial for Vicineum with a BLA resubmission.
1As per the 2018 FDA guidance on NMIBC, adequate BCG is defined as at least one of the following: (i) at least five of six doses of an initial induction course plus at least two of three doses of maintenance therapy or (ii) at least five of six doses of an initial induction course plus at least two of six doses of a second induction course.
On January 7, 2022, the FDA granted our TPTs designedrequest for local administrationa Type C Meeting to discuss the study protocol for an additional Phase 3 clinical trial that we plan to conduct for potential resubmission of a BLA for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. The Type C Meeting has been scheduled for March 28, 2022.
One of the items we expect to be discussed in the Type C Meeting is the patient population for the additional Phase 3 clinical trial, which may be different than the patient population studied in previous clinical trials for Vicineum for the treatment of NMIBC in two primary ways.
First, the additional Phase 3 clinical trial may include patients with only non-muscle invasive carcinoma in situ (CIS) of the bladder, and may not include patients with only directly kill cancer cells throughpapillary disease of the bladder. This change would lead to a targeted deliverysmaller overall patient population than previously studied, as some of our past clinical trials of Vicineum in NMIBC have included patients with CIS or high-grade papillary disease of the bladder.
Second, the additional Phase 3 clinical trial may include patients who have received less than adequate BCG in addition to those who have received adequate BCG, per the FDA’s guidance. Receipt of less than adequate BCG could be due to (i) failure of, or intolerance to, a cytotoxic protein payload, but also potentiate an anti-cancer therapeutic immune responseBCG therapy prior to reaching the FDA’s definition of adequate BCG or (ii) supply shortages of BCG, among other reasons. This change would lead to a larger patient population than previously studied, as past clinical trials of Vicineum in cancer cells nearNMIBC only included patients who had previously been treated with adequate BCG.
Potential changes related to the siteadditional Phase 3 clinical trial for Vicineum will be discussed at the upcoming Type C Meeting with the FDA scheduled for March 28, 2022.
The single-arm, multi-center, open-label Phase 3 clinical trial (“VISTA Trial”) completed enrollment in April 2018 with a total of administration. This immune response is believed133 patients across three cohorts based on histology and time to disease recurrence after adequate BCG treatment:
•Cohort 1 (n=86): Patients with CIS with or without papillary disease that was determined to be triggered by both the immunogenic cell deathrefractory or recurred within six months of their last course of adequate BCG;
•Cohort 2 (n=7): Patients with CIS with or without papillary disease that recurred after six months, but less than 11 months, after their last course of adequate BCG; and
•Cohort 3 (n=40): Patients with high-risk (Ta or T1) papillary disease without CIS that recurred within six months of their last course of adequate BCG.
The primary endpoints of the VISTA Trial were CRR at 3 months in patients with CIS (with or without papillary disease) whose disease is BCG-unresponsive and duration of response ("DoR") for BCG-unresponsive CIS patients who experience a complete response ("CR").
As of the May 29, 2019 data cutoff date, preliminary primary and secondary endpoint data for each of the trial cohorts were as follows:
Cohort 1 (n=86) Evaluable Population (n=82) Complete Response Rate, for CIS: | | | | | | | | |
Time Point | Evaluable Patients* | Complete Response Rate (95% Confidence Interval) |
3-months | n=82 | 39% (28%-50%) |
6-months | n=82 | 26% (17%-36%) |
9-months | n=82 | 20% (12%-30%) |
12-months | n=82 | 17% (10%-27%) |
*Response-evaluable population includes any mITT patient who completed the induction phase.
Cohort 2 (n=7) Evaluable Population (n=7) Complete Response Rate, for CIS: | | | | | | | | |
Time Point | Evaluable Patients* | Complete Response Rate (95% Confidence Interval) |
3-months | n=7 | 57% (18%-90%) |
6-months | n=7 | 57% (18%-90%) |
9-months | n=7 | 43% (10%-82%) |
12-months | n=7 | 14% (0%-58%) |
*Response-evaluable population includes any mITT patient who completed the induction phase.
Pooled Cohorts 1 and 2 (n=93) Evaluable Population (n=89) Complete Response Rate, for CIS: | | | | | | | | |
Time Point | Evaluable Patients* | Complete Response Rate (95% Confidence Interval) |
3-months | n=89 | 40% (30%-51%) |
6-months | n=89 | 28% (19%-39%) |
9-months | n=89 | 21% (13%-31%) |
12-months | n=89 | 17% (10%-26%) |
*Response-evaluable population includes any mITT patient who completed the induction phase.
Phase 3 Pooled Complete Response Rate vs. Phase 2 Pooled Complete Response Rate: | | | | | | | | |
Time Point | Phase 3 Pooled CRR (95% Confidence Interval) | Phase 2 Pooled CRR (95% Confidence Interval) |
3-months | 40% (30%-51%) | 40% (26%-56%) |
6-months | 28% (19%-39%) | 27% (15%-42%) |
9-months | 21% (13%-31%) | 18% (8%-32%) |
12-months | 17% (10%-26%) | 16% (7%-30%) |
Cohort 3 (n=40) Evaluable Population (n=38) Recurrence-Free Rate†: | | | | | | | | |
Time Point | Evaluable Patients* | Recurrence-Free Rate (95% Confidence Interval) |
3-months | n=38 | 71% (54%-85%) |
6-months | n=38 | 58% (41%-74%) |
9-months | n=38 | 45% (29%-62%) |
12-months | n=38 | 42% (26%-59%) |
†Recurrence-free rate is defined as the percentage of patients that are recurrence-free at the given assessment time point.
*Response-evaluable population includes any mITT patient who completed the induction phase.
Duration of Response:The median DoR for patients in Cohort 1 and Cohort 2 combined (n=93) is 287 days (95% CI, 154-NE), using the Kaplan-Meier method. Additional ad hoc analysis of pooled data for all patients with CIS (Cohorts 1 and 2, n=93) shows that among patients who achieved a complete response at 3 months, 52% remained disease-free for a total of 12 months or longer after starting treatment, using the Kaplan-Meier method. DoR is defined as the time from first occurrence of complete response to documentation of treatment failure or death.
We have conducted additional analyses for secondary endpoints. These additional data include the following:
•Time to Cystectomy:Across all 133 patients treated with Vicineum in the VISTA Trial, greater than 75% of all patients are estimated to remain cystectomy-free at 3 years, using the Kaplan-Meier method. Additional ad hoc analysis shows that approximately 88% of responders are estimated to remain cystectomy-free at 3 years. Time to cystectomy is defined as the time from the date of first dose of study treatment to surgical bladder removal. The first 2018 FDA guidance on treatment of BCG-unresponsive NMIBC patients states that the goal of therapy in such patients is to avoid cystectomy. Therefore, time to cystectomy is a key secondary endpoint in the VISTA Trial.
•Time to Disease Recurrence: High-grade papillary (Ta or T1) NMIBC is associated with high rates of progression and recurrence. The median time to disease recurrence for patients in Cohort 3 (n=40) is 402 days (95% CI, 170-NE), using the Kaplan-Meier method. Time to disease recurrence is defined as the time from the date of the first dose of study treatment to the first occurrence of treatment failure or death on or prior to treatment discontinuation.
•Progression-Free Survival ("PFS"):90% of all 133 patients treated with Vicineum in the VISTA Trial are estimated to remain progression-free for 2 years or greater, using the Kaplan-Meier method. PFS is defined as the time from the date of first dose of study treatment to the first occurrence of disease progression (e.g., T2 or more advanced disease) or death on or prior to treatment discontinuation.
•Event-Free Survival: 29% of all 133 patients treated with Vicineum in the VISTA Trial are estimated to remain event-free at 12 months, using the Kaplan-Meier method. Event-free survival is defined as the time from the date of first dose of study treatment to the first occurrence of disease recurrence, progression or death on or prior to treatment discontinuation.
•Overall Survival ("OS"):96% of all 133 patients treated with Vicineum in the VISTA Trial are estimated to have an overall survival of 2 years or greater, using the Kaplan-Meier method. OS is defined as the time from the date of first dose of study treatment to death from any cause.
Data is as of the May 29, 2019 data cut from the Phase III VISTA trial. The clinical data shown are based on the data submitted in the BLA on December 18, 2020. Final numbersare pending. On August 13, 2021, the FDA issued a CRL for the BLA that included requests for additional clinical and statistical data.
Safety Results
As of the May 29, 2019 data cutoff date, in patients across all cohorts (n=133) of our Phase 3 VISTA Trial of Vicineum for the treatment of BCG-unresponsive NMIBC, 88% experienced at least one adverse event, with 95% of adverse events being Grade 1 or 2. The most commonly reported treatment-related adverse events were dysuria (14%), hematuria (13%) and urinary tract infection (12%) - all of which are consistent with the profile of bladder cancer cellspatients and the use of catheterization for treatment delivery. These adverse events were determined by the clinical investigators to be manageable and reversible, and only four patients (3%) discontinued treatment due to our payloads’ mechanisman adverse event. Serious adverse events, regardless of actiontreatment attribution, were reported in 14% of patients. There were four treatment-related serious adverse events reported in three patients including acute kidney injury (Grade 3), pyrexia (Grade 2), cholestatic hepatitis (Grade 4) and renal failure (Grade 5 or death). There were no age-related increases in adverse events observed in the subsequent release of tumor antigens and the immunologically active setting created by the nature of the cytotoxic protein payloads.VISTA Trial.
Our early pipeline product candidate, VB6-845d, is being developed for systemic administration as a treatment for multipleManufacturing
types of EpCAM-positive solid tumors. VB6-845d is a TPT consisting of an EpCAM targeting Fab genetically linked to deBouganin, a novel plant derived cytotoxic payload that we have optimized for minimal immunogenic potential.
We were incorporated and commenced active operations in early 2008, and our operations to date have been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking pre-clinical studies and conducting clinical trials. To date, we have financed our operations primarily through private placements of our common stock and preferred stock and convertible bridge notes, venture debt borrowings, our IPO, sales effected in an “at-the-market” offering through our agent, Cowen and Company, LLC, or Cowen, from the License Agreement with Roche, and, to a lesser extent, from our former collaboration agreement with ThromboGenics N.V., or ThromboGenics. We have devoted substantially all of our financial resources and efforts to research and development activities. We have not completed development of any of our product candidates. We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year.
License Agreement with Roche
On June 10, 2016,In October 2018, we entered into the Licensea Master Bioprocessing Services Agreement with Roche. UnderFujifilm (the "Fujifilm MSA") for the Licensemanufacturing process and technology transfer of Vicineum drug substance production.
In November 2019, we entered into a Commercial Manufacturing and Supply Agreement with Baxter for the manufacturing process and technology transfer of Vicineum drug product production.
In August 2020, we completed manufacturing of the drug substance process performance qualification (“PPQ”) batches at Fujifilm and in September 2020, we successfully completed the drug product PPQ batches at Baxter. All of the completed drug substance PPQ batches and drug product PPQ batches met all quality acceptance criteria.
In December 2020, we received and analyzed all of the analytical comparability test results from the drug substance and drug product PPQ batches. For analytical comparability, we conducted testing across four categories: release testing, biophysical characterization, forced degradation studies, and stability studies. This approach is in alignment with requirements of the FDA, the EMA and the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use. The test results for Vicineum produced by Fujifilm and Baxter were found to be highly comparable to supply of Vicineum at our Winnipeg facility.
In June 2021, we entered into a Global Supply Agreement with Qilu pursuant to which Qilu will be part of the manufacturing network for, if approved, global commercial supply of Vicineum drug substance and drug product.
On October 29, 2021, at the CMC Type A Meeting, the FDA confirmed that Vicineum manufactured using the proposed commercial process is comparable to Vicineum used in prior clinical trials and confirmed that we can utilize Vicineum manufactured during process validation for any future clinical trials needed to address issues raised in the CRL regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC, and that any of these future trials can proceed while addressing CMC issues raised in the CRL.
In January 2022, we signed a Scope of Work ("SOW #11") with Fujifilm under the Fujifilm MSA for the manufacturing of commercial batches of Vicineum in 2022 and 2023.
We intend to use Vicineum produced by Fujifilm and Baxter for any future clinical trials of Vicineum and, if approved, for commercial supply.
Outside of United States ("OUS") Business Development Partnering
Greater China
On July 30, 2020, we and our wholly-owned subsidiary, Viventia Bio, Inc., entered into an exclusive license agreement with Qilu Pharmaceutical, Co., Ltd. ("Qilu") pursuant to which we granted RocheQilu an exclusive, worldwidesublicensable, royalty-bearing license, under certain intellectual property owned or exclusively licensed by us, to develop, manufacture and commercialize Vicineum for the treatment of BCG-unresponsive NMIBC and other types of cancer in China, Hong Kong, Macau and Taiwan ("Greater China"). We also granted Qilu a non-exclusive, sublicensable, royalty-bearing sublicense, under certain other intellectual property licensed by us to develop, manufacture and commercialize at its cost, our monoclonal antibody EBI-031Vicineum in Greater China. We retain (i) development and all other IL-6 antagonist antibody technology owned by us.
Roche paid an upfront license fee of $7.5 million and a development milestone payment of $22.5 million as a resultcommercialization rights in the rest of the IND application for EBI-031 becoming effective. Roche hasworld excluding Greater China, the Middle East and North Africa region (“MENA”) and Turkey and (ii) manufacturing rights with respect to Vicineum in the rest of the world excluding Greater China.
During 2020, we received a total of $10 million in net proceeds associated with the Qilu License Agreement. We are also agreedentitled to payreceive up to an additional $240.0$23 million upon the achievement of specified regulatory,certain technology transfer, development and commercial milestones. In addition, we are entitled to receiveregulatory milestones, as well as a 12% royalty payments in accordance with a tiered royalty rate scale, with rates ranging from 7.5% to 15% forbased upon annual net sales of potential future products containing EBI-031Vicineum in Greater China. The royalties are payable upon the first commercial sale of Vicineum in a region and up to 50%continuing until the latest of these rates for net sales(i) twelve years after the first commercial sale of potential future products containing other IL-6 compounds, with eachVicineum in such region, (ii) the expiration of the royaltieslast valid patent claim covering or claiming the composition of matter, method of treatment, or method of manufacture of Vicineum in such region, and (iii) the expiration of regulatory or data exclusivity for Vicineum in such region. The royalty rate is subject to reduction under certain circumstances, andincluding when there is no valid claim of a licensed patent that covers Vicineum in a particular region or no data or regulatory exclusivity of Vicineum in a particular region.
The Investigational New Drug application ("IND") for Vicineum submitted by Qilu to the buy-out optionsCenter for Drug Evaluation of Roche.the China National Medical Products Administration was accepted for review in January 2021 and approved in March 2021, resulting in a $3 million milestone payment from Qilu, the first milestone payment out of the $23 million in potential milestone payments. We recorded $2.8 million (net of VAT) as license revenue during the three-month period ended March 31, 2021.
Liquidity
Since inception,In June 2021, the Qilu License Agreement was recognized by Shandong Province, Bureau of Science and Technology as "Technology Transfer". An agreement that is designated as a Technology Transfer shall be entitled to a tax incentive of value-added tax ("VAT") recovery. As such, we have incurred significant operating losses and expect to continue to incur operating losses for the foreseeable future. We had net income of $1.9 million for the year ended December 31, 2016 due to the $29.6recorded $0.9 million of revenue during the three months ended June 30, 2021, for additional purchase price resulting from the License Agreement; however, we have incurred net lossesQilu's obligation to pay Sesen an amount equal to its recovery of $33.5 million for the year ended December 31, 2015 and $34.2 million for the year ended December 31, 2014. As of December 31, 2016, we had an accumulated deficit of $123.3 million.
VAT. We dowill not know when, or if, we will generate any revenue from the sale of our product candidates as we seek regulatory approval for, and potentially begin to commercialize, any of our product candidates. We anticipate that we will continue to incur losses for the next several years, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We arebe subject to allVAT on future potential milestone payments to Qilu.
On July 20, 2021 we and Qilu announced the enrollment of the risks commonfirst patient in China in a Phase 3 clinical trial to assess the developmentefficacy and safety of new products,Vicineum in patients with BCG-unresponsive NMIBC. The open-label, single-arm, multi-center bridging trial will evaluate the efficacy and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Until we can generate substantial revenue from commercial sales, if ever, we expect to seek additional capital through a combinationsafety of private and public equity offerings, debt financings, strategic collaborations and alliances and licensing arrangements. To the extent that we raise additional capital through the saleVicineum in approximately 53 patients with carcinoma in situ (CIS) with or without papillary disease, high-grade Ta papillary disease or T1 papillary disease of equity or convertible debt securities, the ownership interests of existing shareholdersany grade. Patients will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing shareholders. Debt financing, if available, may involve agreements that include liens or other restrictive covenants limiting our ability to take important actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic collaborations and alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminatehave failed previous treatment with BCG for inclusion in the trial. The primary endpoints are the complete response rate (for CIS patients)
and the recurrence-free rate (for papillary patients) at six months, with the complete response rate and the recurrence-free rate at three months, safety and tolerability as the secondary endpoints. Based on the Qilu License Agreement, the trial is being run at the sole cost of Qilu.
MENA
On November 30, 2020, we and our development or commercialization efforts or grant rightswholly owned subsidiary, Viventia Bio, Inc., entered into an exclusive license agreement with Hikma Pharmaceuticals LLC, to develop and market our technologies that we would otherwise prefercommercialize Vicineum for the treatment of BCG-unresponsive NMIBC in MENA region (20 countries in Middle East and North Africa) (the “MENA License Agreement”). In consideration for the rights granted by us, Hikma agreed to developpay to us an upfront payment, sales related milestones payments, and market ourselves.
Our future capital requirements will dependroyalties on many factors, including:
net sales in the scope, initiation, progress, timing, costs and results of pre-clinical development and laboratory testing and clinical trialsMENA region for our product candidates;
our ability to establish collaborations on favorable terms, if at all, particularly manufacturing, marketing and distribution arrangements for our product candidates;
the costs and timingterm of the implementation of commercial-scale manufacturing activities;Hikma License Agreement.
the costs and timing of establishing sales, marketing and distribution capabilities for our product candidates;Turkey
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
our obligation to make milestone, royalty and other payments to third-party licensors under our licensing agreements;
the extentOn August 5, 2021, we entered into an exclusive license agreement with EİP Eczacıbaşı İlaç Pazarlama A.Ş., (“EIP”) pursuant to which we in-license or acquire rightsgranted EIP an exclusive license to other products, product candidates or technologies;
the outcome, timingregister and cost of regulatory review by the FDA and comparable foreign regulatory authorities, including the potentialcommercialize Vicineum for the FDA or comparable foreign regulatory authorities, including Health Canada, to require that we perform more studies or clinical trials than those that we currently expect;
our ability to achieve certain future regulatory, developmenttreatment of BCG-unresponsive NMIBC in Turkey and commercialization milestones under the License Agreement with Roche;
the effect of competing technological and market developments; and
the revenue, if any, received from commercial sales of any product candidates for which we receive regulatory approval.
Accordingly, until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operations through public or private equity or debt financings or other sources. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.
We believe that our cash and cash equivalents of $25.3 million as of December 31, 2016 will be sufficient to fund our current operating plan into early 2018; however, we have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Financial Operations Overview
Revenue
To date, we have not generated any revenues from the sale of products. Substantially all of our revenue to date has been derived from a license agreement and, to a lesser extent, from a collaboration. We do not expect to generate significant product revenue unless and until we obtain marketing approval for, and commercialize our product candidates.
Northern Cyprus. Under the terms of the License Agreement with Roche, Roche paidlicensing agreement, we are entitled to receive an upfront payment of $1.5 million. We are in the process of amending the license feeagreement to defer payment of $7.5the upfront payment to coincide with the potential FDA approval of Vicineum. We are also eligible to receive additional regulatory and commercial milestone payments of $2.0 million and are entitled to receive a development milestone payment30% royalty on net sales in Turkey and Northern Cyprus.
Internal Review
In September 2021 we disclosed that our Board of $22.5 million asDirectors (the “Board”) initiated an independent internal review conducted by outside counsel with the assistance of subject matter experts focusing on the conduct of, and data generated from, the clinical trials of Vicineum for the treatment of BCG-unresponsive NMIBC, and the overall safety of Vicineum (the “Review”). The Review took place over the course of five months, involved full cooperation from our management team, a review of more than 600,000 documents, and 39 interviews of current and former employees and consultants. It is now complete. As a result of the IND applicationReview, the Board continues to fully support our current management team and believes no changes or amendments relating to our prior disclosures to the Securities and Exchange Commission (“SEC”) or the FDA relating to Vicineum, the Phase 3 VISTA trial for EBI-031 becoming effective.Vicineum for the treatment of BCG-unresponsive NMIBC, or the BLA for Vicineum are warranted. We intend to work cooperatively with the FDA in preparing for an additional Phase 3 clinical trial for Vicineum.
We also have generatedComponents of Our Results of Operations
License Revenue
License revenue consists of revenue recognized pursuant to our commercialization partnership agreements, including the Qilu License Agreement, which is assessed under ASC Topic 606, Revenue ("ASC 606"). In the future, we may generate revenue from our collaborationa combination of up-front payments, milestone payments and license agreement with ThromboGenics, which we entered intoroyalties in May 2013. Under the agreement, we and ThromboGenics collaborated to seek to identify protein or peptide therapeutics that directly modulate any of a specified set of targets in a novel pathway in retinal disease. In connection with our commercialization partnership agreements, including the agreement, ThromboGenics paid us an upfront technology licensing fee of $1.75 million and paid us to perform activities under the agreement at a set rate per full-time equivalent person working on collaboration activities. On August 1, 2016, we received notice from ThromboGenics of ThromboGenics’s termination, effective as of October 31, 2016, of the agreement.Qilu License Agreement.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates,Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, which include:
•employee-related expenses, including salaries, benefits, travel and stock-basedshare-based compensation expense;
•expenses incurred under agreements with CROs,contract research organizations ("CROs") and investigative sites that conduct our clinical trials;trials, including the additional Phase 3 clinical trial for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG;
•expenses associated with developing manufacturing capabilities;
•expenses associated with transferring manufacturing capabilities andto contract manufacturing clinical trial materials;organizations ("CMOs") for commercial-scale production;
•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and
•expenses associated with pre-clinical, clinicalregulatory activities; and regulatory activities.
•expenses associated with license milestone fees.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.
The successful development and commercialization of any product candidateVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
•the scope, progress, outcome and costs of our clinical trials, including the additional Phase 3 clinical trial, and other research and development activities;
•the efficacy and potential advantages of our product candidatesVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG compared to alternative treatments, including any standard of care;
•the market acceptance of our product candidates;Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG;
•the cost and timing of the implementation of commercial-scale manufacturing of our product candidates;Vicineum;
•obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
•significant and changing government regulation;
•the impact of the COVID-19 pandemic; and
•the timing, receipt and terms of any marketing approvals.
A change in the outcome of any of these variables with respect to the development of any product candidateVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG could mean a significant change in the costs and timing associated with the development of that product candidate.Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently contemplate will be required for the completion of clinical development of any product candidate,Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or if we experience significant delays in enrollment in any of our clinical trials,less than adequate BCG, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG.
We allocate direct research and development expenses, consisting principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and costs related to manufacturing or purchasing clinical trial materials and technology transfer and license milestone fees, to specific product programs. We do not allocate employee and contractor-related costs, costs associated with our platform and facility expenses, including depreciation or other indirect costs, to specific product programs because these costs aremay be deployed across multiple product programs under research and development and, as such, are separately classified. The table below provides research and development expenses incurred for our Vicinium, EBI-031 and isunakinra product programsVicineum for the treatment of BCG-unresponsive NMIBC and other expenses by category. FollowingWe have deferred further development of Vicineum for the acquisitiontreatment of Viventia,SCCHN and VB6-845d in order to focus our researchefforts and our resources on our ongoing development expensesand, if approved, commercialization of Vicineum for Vicinium and Proxinium will materially increase during subsequent periods. the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG.
We did not allocate research and development expenses to Proxinium or any other specific product programsprogram during the periods presented:presented (in thousands):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
Programs: | | | | | |
Vicineum for the treatment of BCG-unresponsive NMIBC | $ | 15,110 | | | $ | 22,234 | | | $ | 16,023 | |
Total direct program expenses | 15,110 | | | 22,234 | | | 16,023 | |
Personnel and other expenses: | | | | | |
Employee and contractor-related expenses | 8,977 | | | 5,775 | | | 6,513 | |
Platform-related lab expenses | 172 | | | 303 | | | 513 | |
Facility expenses | 524 | | | 442 | | | 442 | |
Other expenses | 529 | | | 437 | | | 1,172 | |
Total personnel and other expenses | 10,202 | | | 6,957 | | | 8,640 | |
Total Research and Development | $ | 25,312 | | | $ | 29,191 | | | $ | 24,663 | |
|
| | | | | | | | | | | |
| Year ended December 31, |
| 2016 | | 2015 | | 2014 |
| (in thousands) |
Programs: | | | | | |
Vicinium (1) | $ | 1,564 |
| | $ | — |
| | $ | — |
|
EBI-031 (2) | 2,996 |
| | 5,384 |
| | — |
|
Isunakinra/EBI-005 (3) | 1,653 |
| | 14,455 |
| | 19,820 |
|
Total direct program expenses | 6,213 |
| | 19,839 |
| | 19,820 |
|
Personnel and other expenses: | |
Employee and contractor-related expenses | 5,863 |
| | 4,762 |
| | 4,620 |
|
Platform-related lab expenses | 479 |
| | 620 |
| | 855 |
|
Facility expenses | 561 |
| | 536 |
| | 473 |
|
Other expenses | 363 |
| | 579 |
| | 935 |
|
Total personnel and other expenses | 7,266 |
| | 6,497 |
| | 6,883 |
|
Total research and development expenses | $ | 13,479 |
| | $ | 26,336 |
| | $ | 26,703 |
|
(1) Our development activities for Vicinium will increase significantly during subsequent periods.
(2) Beginning August 16, 2016, Roche is responsible for all development costs for EBI-031.
(3) Our development activities for isunakinra are no longer ongoing as of December 31, 2016.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-basedshare-based compensation and benefits, in executive, operational, finance, business development and human resource functions. Other general and administrative expenses include facility-related costs, and professional fees for legal, insurance, investment banking fees, patent, consulting and accounting services.services, pre-commercial United States market research and pre-launch market readiness for the potential commercial launch of Vicineum.
Restructuring Charge
On August 30, 2021, we approved a restructuring plan to reduce operating expenses and better align our workforce with the needs of our business following receipt of the CRL from the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC (the “Restructuring Plan”). The Restructuring Plan included a reduction in our workforce by 18 positions (or approximately 35% of our workforce) as well as additional cost-saving initiatives intended to preserve capital while we continue development of Vicineum. Restructuring costs related to the Restructuring Plan were recorded in operating expenses in our Consolidated Statements of Operations and Comprehensive Loss.
Intangibles Impairment Charge
Our intangible assets consist of indefinite-lived, acquired in-process research and development ("IPR&D") worldwide product rights to Vicineum as a result of the acquisition of Viventia in 2016. IPR&D assets acquired in a business combination are considered indefinite-lived until the completion or abandonment of the associated research and development efforts. We recognize an impairment loss when and to the extent that the estimated fair value of an intangible asset is less than its carrying value. In addition, on a quarterly basis, we perform a qualitative review of our business operations to determine whether events or changes in circumstances have occurred which could indicate that the carrying value of our intangible assets was not recoverable. If an impairment indicator is identified, an interim impairment assessment is performed. The fair value of the acquired intangible assets for the US and EU rights of Vicineum is determined using a risk-adjusted discounted cash flow approach, which includes probability adjustments for projected revenues and operating expenses based on the success rates assigned to each stage of development for each geographical region as well as discount rates applied to the projected cash flows.
Change in Fair Value of Contingent Consideration
In connection with the Viventia Acquisition in September 2016, we recorded contingent consideration pertaining to the amounts potentially payable to Viventia's shareholders pursuant to the terms of the Share Purchase Agreement among us, Viventia and the other signatories thereto and are based on regulatory approval in certain markets and future revenue levels. The fair value of contingent consideration is assessed at each balance sheet date and changes, if any, to the fair value are recognized in earnings (or loss) for the period.
Other Income, (Expense), Net
Other income, and expensenet consists primarily of interest income earned on cash and cash equivalents interestand, to a lesser extent, any gains or losses on foreign exchange.
Provision for Income Taxes
Benefit for income taxes is driven by the intangible impairment charge, changing the value of deferred tax liabilities. Provision for income taxes consists of income taxes incurred to non-US jurisdictions pursuant to our OUS business development partnership agreements, including the Qilu License Agreement.
Our Results of Operations
Comparison of the Years ended December 31, 2021 and 2020
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase/(Decrease) |
| 2021 | | 2020 | | Dollars | | Percentage |
| (in thousands, except percentages) |
Revenue: | | | | | | | |
License and related revenue | $ | 26,544 | | | $ | 11,236 | | | $ | 15,308 | | | 136 | % |
Total revenue | 26,544 | | | 11,236 | | | 15,308 | | | 136 | % |
Operating expenses: | | | | | | | |
Research and development | $ | 25,312 | | | $ | 29,191 | | | $ | (3,879) | | | (13) | % |
General and administrative | 29,393 | | | 14,302 | | | 15,091 | | | 106 | % |
Restructuring charge | 5,528 | | | — | | | 5,528 | | | — | % |
Intangibles impairment charge | 31,700 | | | — | | | 31,700 | | | — | % |
Change in fair value of contingent consideration | (56,840) | | | (11,180) | | | (45,660) | | | 408 | % |
Total operating expenses | 35,093 | | | 32,313 | | | 2,780 | | | 9 | % |
Loss from Operations | (8,549) | | | (21,077) | | | 12,528 | | | (59) | % |
Other (expense) income: | | | | | | | |
Other (expense) income, net | (60) | | | 125 | | | (185) | | | (148) | % |
Net Loss and Comprehensive Loss Before Taxes | (8,609) | | | (20,952) | | | 12,343 | | | (59) | % |
Benefit (provision) for income taxes | 8,273 | | | (1,445) | | | 9,718 | | | (673) | % |
Net Loss and Comprehensive Loss After Taxes | $ | (336) | | | $ | (22,397) | | | $ | 22,061 | | | (98) | % |
License Revenue
Revenue for the year ended December 31, 2021 was $26.5 million, primarily due to the $20 million milestone achieved pursuant to the Roche License Agreement upon initiating a Phase II clinical trial, $5.0 million related to the Qilu License Agreement (achievement of the IND milestone, clinical supply revenue, and license revenue for additional purchase price due to the recovery of VAT), and $1.5 million upfront milestone revenue achieved pursuant to the MENA License Agreement. Revenue for the year ended December 31, 2020 was $11.2 million, which was due to the recognition of revenue pursuant to the Qilu License Agreement.
Research and Development
Research and development expenses were $25.3 million for the year ended December 31, 2021, compared to $29.2 million for the year ended December 31, 2020. The decrease of $3.9 million was primarily due to lower costs associated with technology transfer and manufacturing ($7.4 million). This was partially offset by increases in employee-related compensation driven by increased headcount as part of the commercial build and the retention program implemented after receipt of the CRL in August 2021 ($2.1 million), regulatory and clinical consulting fees ($1.0 million)and certain other R&D expense, on outstanding debt,none of which were individually material ($0.5 million). We anticipate that R&D expenses will increase beginning in 2022 due to additional clinical trial activity costs related to our plans to conduct an additional Phase 3 clinical trial for Vicineum.
General and Administrative
General and administrative expenses were $29.4 million for the gain year ended December 31, 2021, compared to $14.3 million for the year ended December 31, 2020. The increase of $15.1 million was primarily due to increases in employee-related compensation ($5.0 million), legal costs ($4.8 million), and marketing and commercial expenses ($4.1 million) driven by preparation for the commercial launch of Vicineum prior to the issuance of the CRL in August 2021. Additionally, increases in accounting services ($0.4 million), insurance expenses ($0.4 million), IT expenses ($0.3 million) and others ($0.1 million) contributed to the increase.
Restructuring Charge
On August 30, 2021, we approved a restructuring plan to reduce operating expenses and better align our workforce with the needs of our business following receipt of the CRL from the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC (the “Restructuring Plan”). The Restructuring Plan included a reduction in our workforce by 18 positions
(or lossapproximately 35% of our workforce) as well as additional cost-saving initiatives intended to preserve capital while we continue development of Vicineum.
Restructuring expenses were $5.5 million for the year ended December 31, 2021, compared to no restructuring expenses for the year ended December 31, 2020. The increase was due to one-time costs associated with the Restructuring Plan implemented in response to the CRL for severance and other employee-related costs ($2.8 million) and termination of certain contracts ($2.7 million).
Intangibles Impairment Charge
We recorded an intangibles impairment charge of $31.7 million during the year ended December 31, 2021. We did not record any impairment charges during the year ended December 31, 2020. In August 2021, we received a CRL from the FDA regarding our BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. The impairment charge of $31.7 million for the year ended December 31, 2021 relates to the full impairment of our US in-process research and development asset due to expected delays in the start of commercialization and lower probabilities of success, combined with higher operating expenses expected to be incurred prior to commercialization, resulting in lower expected future cash flows estimated in the US market at this time.
Change in Fair Value of Contingent Consideration
The non-cash change in fair value of contingent consideration was income of $56.8 million for the year ended December 31, 2021, compared to income of $11.2 million for the year ended December 31, 2020. The decrease in the fair value of our common and preferred stock warrant liability that were carried at fair value,contingent consideration of $45.7 million from the loss on extinguishment of debt and the expense relatedyear ended December 31, 2020 to the issuance costs allocated to warrants measured at fair value.
Critical Accounting Policies and Significant Judgments and Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses, stock-based compensation, fair value of warrants to purchase common stock, fair value of intangible assets and goodwill, income taxes including the valuation allowance for deferred tax assets, contingent consideration and going concern considerations. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition and evaluate multiple-element arrangements based on the guidance in ASC Topic 605-25, Revenue Recognition-Multiple-Element Arrangements, or ASC 605-25. Revenues from license arrangements are recognized when persuasive evidence of an arrangement exists, delivery of goods or services has occurred, including title to the product, and associated risk of loss has passed to the customer, the price is fixed or determinable, collection from the customer has been reasonably assured, all performance obligations have been met, and any associated reductions of revenue can be reasonably estimated. We license
certain rights to our product candidates to third parties. Activities under licensing agreements are evaluated to determine if
they represent a multiple element arrangement. We identify the deliverables included within the agreement and
evaluate which deliverables represent separate units of accounting. We account for those components as separate
units of accounting if the following two criteria are met:
the delivered item or items have stand-alone value to the customer; and
delivery or performance of the undelivered item(s) is considered probable and substantially in our control, and the arrangement includes a general right of return relative to the delivered item(s).
Factors considered in this determination include, among other things, whether any other vendors sell the items separately and if the licensee could use the delivered item for its intended purpose withoutyear ended December 31, 2021, was driven by the receipt of a CRL from the remaining deliverables. The consideration that is fixed or determinable is allocatedFDA, regarding our BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. Due to the separate units of accounting based on the relative selling prices of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods and services are delivered. The amount allocable to the delivered units of accounting is limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions.
We determine the selling price on the basis of vendor-specific objective evidence, orVSOE, third party evidence, or best estimate of selling price. VSOE is the price charged for a deliverable when it is sold separately. Third party evidence is the price that we or vendors charge for a similar deliverable when sold separately. Best estimate is the price at which we would sell the deliverable if the deliverable were sold by us regularly on a stand-alone basis.
In the case of our License Agreement with Roche, we concluded that the License Agreement contains the following deliverables: 1) an exclusive, worldwide license, including the right to sublicense, to its patent and know-how related to our monoclonal antibody EBI-031 or any other IL-6 antagonist anti-IL-6 monoclonal antibody; 2) IND regulatory clearance activities; 3) conduct a tissue cross-reactivity study; 4) transfer pre-clinical inventory, and 5) perform de minimus post-effective date services. We determined that the License Agreement contains four units of accounting. The de minimis post-effective date services were not determined to be substantive, and thus were not considered units of accounting. The $29.9 million of allocable arrangement consideration was allocated to each of the units of accounting using the relative selling price method based on our best estimate of selling price of each of the units of accounting. The best estimate of selling price of the license was calculated using a discounted cash flow model that included the following key assumptions: the development timeline of EBI-031, future revenue forecast for EBI-031, and an appropriate discount rate to discount the related cash flows and probability of successful development. The best estimate of selling price of the remaining deliverables was based on estimated costs plus a reasonable margin. The allocation of arrangement consideration was not particularly sensitive to changes in our best estimate of selling price given the significant value ascribed to the license deliverable.
When multiple deliverables are combined and accounted for as a single unit of accounting, we base our revenue recognition on the last element to be delivered using the straight-line or proportional performance method depending on our ability to estimate the timing of the delivery of the performance obligation. Amounts received or recorded as receivable prior to satisfying the associated revenue recognition criteria are recorded as deferred revenueinherent uncertainty in the consolidated balance sheets. Amounts not expected to be recognized within one year followingpath forward for Vicineum at this time, we reassessed the balance sheet date are classified as non-current deferred revenue.
If a future milestone payment under a license agreement is contingent upon the achievement of a substantive milestone, license revenue is recognized in its entirety in the period in which the milestone is achieved. Non-substantive milestone payments that are paid based on the passage of time or as a result of the licensee’s performance are allocated to the units of accounting within the arrangement and recognized as revenue when those deliverables are satisfied. A milestone is substantive if:
it can only be achieved based in whole or in part on either our performance or the occurrence of a specific outcome resulting from our performance;
there is substantive uncertainty at the date an arrangement is entered into that the event will be achieved; and
it would result in additional payments being due to us.
Options are considered substantive if, at the inception of the arrangement, we are at risk as to whether the licensee will choose to exercise the option. Factors that we consider in evaluating whether an option is substantive include the overall objective of the arrangement, the benefit the licensee might obtain from the arrangement without exercising the option, the cost to exercise the option and the likelihood that the option will be exercised. For arrangements under which an option is considered substantive, we do not consider the item underlying the option to be a deliverable at the inception of the arrangement and the associated option fees are not included in allocable arrangement consideration, assuming the option is not priced at a significant and incremental discount. Conversely, for arrangements under which an option is not considered substantive or if an option is priced at a significant and incremental discount, we would consider the item underlying the option to be a deliverable at the inception of the arrangement and a corresponding amount would be included in allocable arrangement consideration.
Commercial milestone and royalty payments received under license agreements are recognized as license revenue when they are earned.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotes and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and
development expenses are related to fees paid to CROs and other vendors in connection with research and development activities for which we have not yet been invoiced.
We base our expenses related to CROs on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepayment expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in our reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented.
Stock-based Compensation
We account for all stock-based compensation payments to employees, directors and non-employees using an option pricing model for estimating fair value. Accordingly, stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. We recognize stock-based compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line method. In accordance with authoritative guidance, we remeasure the fair value of non-employee stock-based awards as the awards vest, and recognize the resulting value, if any, as expense during the period the related services are rendered.
Significant Factors, Assumptions and Methodologies Used in Determining Fair Value
We apply the fair value recognition provisions of ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Determining the amount of stock-based compensation to be recorded requires usassumptions used to develop estimates of the fair value of stock options as of their grant date. We recognize stock-based compensation expense for service-based awards ratably overrevenue projections upon which the requisite service period, which in most cases is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make highly subjective assumptions.
We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the expected term of our stock options, the risk free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. As a new public company, we do not have sufficient history to estimate the volatility of our common stock price or the expected life of the options. We calculate expected volatility based on reported data for similar publicly traded companies for which historical information is available and will continue to do so until the historical volatility of our common stock is sufficient to measure expected volatility for future option grants. During the periods we were a privately held company with a limited operating history, we utilized data from a representative group of public companies to estimate expected stock price volatility. We selected companies from the biopharmaceutical industry with similar characteristics to us, including those at a similar stage of development and with a similar therapeutic focus.
We use the “simplified method” to estimate the expected term of stock option grants to employees. Under this approach, the weighted-average expected life is presumed to be the average of the contractual term (ten years) and the vesting term (generally four years) of our stock options, taking into consideration multiple vesting tranches. We utilize this method due to a lack of historical exercise data and the plain-vanilla nature of our share-based awards. We have never paid, and do not anticipate paying, any cash dividends in the foreseeable future, and therefore use an expected dividend yield of zero in the option-pricing model. The risk-free rate is based on the yield curve of U.S. Treasury securities with periods commensurate with the expected term of the options being valued. The fair value of each stock option granted to employees and directors is estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions noted in the following table:
|
| | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Risk-free interest rate | 1.23-2.38% | | 1.42-1.92% | | 1.67-2.02% |
Expected dividend yield | —% | | —% | | —% |
Expected term (in years) | 5.5-6 | | 5.75-6 | | 5.75-6 |
Expected volatility | 71.44-92.09% | | 69.06-74.11% | | 60.00-69.58% |
We are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates are revised. Stock-based compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest.
Business Combinations
On September 20, 2016, we completed our acquisition of Viventia for total consideration of $59.7 million, consisting of common stock consideration of $13.5 million and contingent consideration with an estimated fair value of $46.2 million. Future changes in our estimates of contingent consideration may impact research and development expense in future periods. The estimated fair value of the contingent consideration is based uponbased. The most significant and impactful assumptions regardingin our revenue projection models are timing of product launch and probabilities of successful achievementclinical and regulatory success POS; we expect delays in the start of related milestones, the estimated timing in which the milestones are achievedcommercialization and discount rates. The estimated fair value could materially differ from actual values or fair values determined using different assumptions.
This transaction was accounted forestimate lower POS as a business combination under the purchase method of accounting. Accordingly, the tangible assets and identifiable intangible assets acquired and liabilities assumed were recorded at fair value asdirect result of the dateCRL and our withdrawal of acquisition,the MAA. We will need to conduct an additional clinical trial, which will lead to delays in the start of commercialization globally. We have assessed a range of commercialization timeline assumptions and applied a probability to each outcome based on management’s best estimate. In addition, we now assume a lower POS in achieving certain clinical and regulatory milestones in the range of approximately 45% to 55% globally. We participated in Type A Meetings with the remaining purchase price recorded as goodwill. The estimated fair values of acquired assetsFDA on October 29, 2021 and assumed liabilities were determined using the methods discussedDecember 8, 2021 to discuss questions related to CMC and clinical issues raised in the following paragraphs and require significant judgmentCRL. Both meetings helped us determine the appropriate path forward for Vicineum. Any changes in these assumptions and estimates which could materially differ from actual values and fair values determined using different methods or assumptions.
The purchase accounting for our acquisition of Viventia is preliminary and subject to completion upon obtaining the necessary remainingother information which principally includes information with respect to the market for Vicinium outside the U.S. We are in the process of obtaining this information and will update the valuation for the changes as the information is obtained. Changes to these assumptions could cause an impact to (1) the valuation of contingent consideration, (2) the identification and valuation of assets acquired, including intangible assets and related goodwill and (3) the related tax impacts of the acquisition. We have preliminarily valued the acquired assets and liabilities based on their estimated fair value. The preliminary fair values included in the consolidated balance sheet as of December 31, 2016 are based on our best estimates. Any adjustments to the preliminary fair values will be made as such information becomes available, but no later than September 19, 2017.
Goodwill
Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net
assets when accounted for using the purchase method of accounting. Goodwill is not amortized, but is reviewed for impairment. We test our goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairmentobtained, may have occurred, by comparing its carrying value to its implied fair value in accordance with ASC Topic 350, Intangibles - Goodwill and Other, or ASC 350. Impairment may result from, among other things, deterioration in the performance of the acquired asset, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If we determine that an impairment has occurred, a write-down of the carrying value and an impairment charge to operating expenses in the period the determination is made is recorded. In evaluating the carrying value of goodwill, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantlysignificant impact those judgments in the future and require an adjustment to the recorded balances. We have not recognized any impairment charges related to goodwill.
Indefinite-Lived Intangible Assets
In accordance with ASC 350, during the period that an asset is considered indefinite-lived, such as in-process research and development, or IPR&D, it will not be amortized. Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the net cash flows to present value. The revenue and costs projections used to value acquired IPR&D are, as applicable, reduced based on the probabilityremeasurement of success of developing a new drug. Additionally, the projections consider the relevant market sizes and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by us and our competitors. The rates utilized to discount the net cash flows to their present value are commensurate with the stage of development of the projects and uncertainties in the economic estimates used in the projections. Upon the acquisition of IPR&D, we complete an assessment of whether its acquisition constitutes the purchase of a single asset or a group of assets. Multiple factors are considered in this assessment, including the nature of the technology acquired, the presence or absence of separate cash flows, the development process and stage of completion, quantitative significance and the rationale for entering into the transaction. Indefinite-lived assets are maintained on our consolidated
balance sheet until either the project underlying it is completed or the asset becomes impaired. Indefinite-lived assets are tested for impairment on an annual basis, or whenever events or changes in circumstances indicate the reduction in the fair value of the IPR&D asset is below its respective carrying amount. If we determine that an impairment has occurred, a write-down of the carrying value and an impairment charge to operating expenses in the period the determination is made is recorded. When development of an IPR&D asset is complete the associated asset would be deemed finite-lived and would then be amortized based on its respective estimated useful life at that point.
Contingent Consideration
Each reporting period, we revalue the contingent consideration obligations associated with business combinations to their fair value and record increases in their fair value as contingent consideration expense and decreasesliability in the fair value as contingent consideration income. Changes in contingent consideration result from changes in the assumptions regarding probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales are expected to be achieved, the level of commercial sales of Vicinium, and discount rates used to estimate the fair value of the liability. Significant changes in any of these assumptions would result in a significantly higher or lower fair value measurement.future
Recently Issued Accounting Pronouncements
See Note 2 within the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a discussion on recently issued accounting pronouncements.
Emerging Growth Company Status
The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.
Results of Operations
Comparison of the Years Ended December 31, 2016 and 2015
|
| | | | | | | | | | | |
| Year ended December 31, | | |
| 2016 | | 2015 | | Change |
| (in thousands) |
Revenue: | | | | | |
Collaboration revenue | $ | 406 |
| | $ | 490 |
| | $ | (84 | ) |
License revenue | 29,575 |
| | 500 |
| | 29,075 |
|
Total revenue | 29,981 |
| | 990 |
| | 28,991 |
|
Operating expenses: | | | | | |
Research and development | 13,479 |
| | 26,336 |
| | (12,857 | ) |
General and administrative | 14,736 |
| | 9,850 |
| | 4,886 |
|
(Gain) loss from change in fair value of contingent consideration | (1,100 | ) | | — |
| | (1,100 | ) |
Total operating expenses | 27,115 |
| | 36,186 |
| | (9,071 | ) |
Income (loss) from operations | 2,866 |
| | (35,196 | ) | | 38,062 |
|
Other income (expense), net | (970 | ) | | 1,744 |
| | (2,714 | ) |
Net income (loss) before income taxes | 1,896 |
| | (33,452 | ) | | 35,348 |
|
Provision for income taxes | 5 |
| | — |
|
| 5 |
|
Net income (loss) and comprehensive income (loss) | $ | 1,891 |
| | $ | (33,452 | ) |
| $ | 35,343 |
|
Revenue. Revenue was $30.0 million for the year ended December 31, 2016 compared to $1.0 million for the year ended December 31, 2015. The increase was due primarily to revenue recognized related the fees and a milestone payment received
from Roche under the License Agreement, which was partially offset by reduced fees under our former collaboration agreement with ThromboGenics.
Research and development expenses. Research and development expenses were $13.5 million for the year ended December 31, 2016 compared to $26.3 million for the year ended December 31, 2015. The decrease of $12.9 million was due primarily to a decrease of $12.8 million of isunakinra-related development expenses, which development activities are no longer ongoing, as well as decreases in EBI-031 related development expenses of $2.4 million due to the License Agreement with Roche. These decreases were partially offset by increases in Vicinium related development expenses since September 20, 2016, the date of acquisition, of $1.6 million. In addition, employee and contractor-related expenses, including stock-based compensation and severance, were $5.9 million for the year ended December 31, 2016 compared to $4.8 million for the year ended December 31, 2015.
General and administrative expenses. General and administrative expenses were $14.7 million for the year ended December 31, 2016 compared to $9.9 million for the year ended December 31, 2015. The increase of $4.9 million was due primarily to increased severance, retention and stock-based compensation expenses and professional fees related to the License Agreement with Roche, our review of strategic alternatives and the acquisition of Viventia.
(Gain) loss from change in fair value of contingent consideration. The change in fair value of contingent consideration was $(1.1)income of $11.2 million for the year ended December 31, 2016 due2020. This was primarily attributable to the increase in thesignificantly higher discount rate. There was no change in the fair valuerates as a result of the contingent consideration forfinancial market conditions as of the year ended December 31, 2015.2020, offset by changes to the competitive landscape.
Other (expense) income, (expense), net.
Other income (expense),expense, net was $(1.0)$0.1 million for the year ended December 31, 20162021, compared to $1.7other income of $0.1 million for the year ended December 31, 2015.2020. The change of $(2.7)$0.2 million was due primarily to lower interest income.
Provision for Income Taxes
For the decrease intwelve months ended December 31, 2021, we recorded a benefit from income taxes of $8.3 million. In the change inthird quarter of 2021, we determined that the fair value of our warrantthe Vicineum United States in-process research and development asset was zero, which resulted in an impairment charge of $31.7 million. In connection with this impairment charge, in the third quarter of 2021, we wrote-down the associated deferred tax liability from $3.1by $8.6 million in 2015as a benefit. Please refer to $0.1 million in 2016. In addition, there wasNote 8, "Intangible Assets and Goodwill," for further information regarding the impairment charge. For the twelve months ended December 31, 2020, we recorded a loss on extinguishmentprovision for income taxes of debt in 2016 of $0.9 million associated with the prepayment of the loan with Silicon Valley Bank, or SVB. These changes were partially offset by a decrease in interest expense from $1.4 million in 2015. This provision consisted of income taxes paid to $0.2 million in 2016.non-US jurisdictions pursuant to our commercialization partnership agreements.
Comparison of the Years Endedended December 31, 20152020 and 20142019
|
| | | | | | | | | | | |
| Year ended December 31, | | |
| 2015 | | 2014 | | Change |
| (in thousands) |
Revenue: | | | | | |
Collaboration revenue | $ | 490 |
| | $ | 2,243 |
| | $ | (1,753 | ) |
License revenue | 500 |
| | — |
| | 500 |
|
Total revenue | 990 |
| | 2,243 |
| | (1,253 | ) |
Operating expenses: | | | | | |
Research and development | 26,336 |
| | 26,703 |
| | (367 | ) |
General and administrative | 9,850 |
| | 8,471 |
| | 1,379 |
|
Total operating expenses | 36,186 |
| | 35,174 |
| | 1,012 |
|
Loss from operations | (35,196 | ) | | (32,931 | ) | | (2,265 | ) |
Other income (expense), net | 1,744 |
| | (1,225 | ) | | 2,969 |
|
Net loss and comprehensive loss | $ | (33,452 | ) | | $ | (34,156 | ) | | $ | 704 |
|
Revenue. Revenue was $1.0 millionFor a comparison of our results of operations for the years ended December 31, 2020 and 2019, see "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 compared to $2.2 million for the year ended
December 31, 2014. The decrease of $1.3 million was due largely to less revenue recognized pursuant to the ThromboGenics
collaboration agreement. The decrease was partially offset by $0.5 million of revenue recognized from a license agreement entered into in December 2015.
Research and development expenses. Research and development expenses were $26.3 million for the year ended December 31, 2015 compared to $26.7 million for the year ended December 31, 2014. The decrease of $0.4 million was due primarily to a one-time license fee paid in 2014, in connection2020, filed with the license agreement with The Schepens Eye Research Institute. In addition, there was a decrease of $5.4 million of isunakinra-related development expenses, basedUnited States Securities and Exchange Commission ("SEC") on our decision to discontinue development of isunakinra due to results obtained in our two Phase 3 clinical trials in patients with dry eye disease and allergicMarch 15, 2021.
conjunctivitis. This decrease in isunakinra-related development expenses was offset by increases in EBI-031 related development expenses of $5.4 million during the year ended December 31, 2015, which were incurred as part of our chemistry, manufacturing, and controls development work and nonclinical safety studies to support the submission of an IND to the FDA.
General and administrative expenses. General and administrative expenses were $9.9 million for the year ended December 31, 2015 compared to $8.5 million for the year ended December 31, 2014. The increase of $1.4 million was due primarily to increased operating costs as a result of our continued transition from a private company to a public company, including legal, accounting, insurance and investor relations expenses. In addition, we incurred professional fees related to our pursuit of collaborative or
other strategic opportunities during the year ended December 31, 2015.
Other income (expense), net. Other income (expense), net was $1.7 million for the year ended December 31 2015 compared to
$(1.2) million for the year ended December 31, 2014. The change of $3.0 million was due primarily to the decrease in the fair
value of our warrant liability partially offset by an increase in interest expense associated with additional borrowings from
SVB.
Liquidity and Capital Resources
SourcesOverview
As of LiquidityDecember 31, 2021, we had cash and cash equivalents of $162.6 million, net working capital of $194.0 million and an accumulated deficit of $316.3 million. We incurred negative cash flows from operating activities of $68.9 million, $30.8 million and $37.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. We believe that our cash and cash equivalents of $162.6 million as of December 31, 2021, are sufficient to fund our operating plan into 2024.
Since our inception, we have incurred significantreceived no revenue from sales of our products, and we anticipate that operating losses and expect towill continue to incur operating losses for the foreseeable future. Substantially allfuture as we seek to address the issues raised in the CRL we received for our BLA for Vicineum for the treatment of our revenue to date has beenBCG-unresponsive NMIBC and the concerns identified in the EMA Withdrawal Assessment Report, complete an additional Phase 3 clinical trial for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, and seek marketing approval from the License AgreementFDA and to a lesser extent, from our former collaboration agreement with ThromboGenics. To date, wethe European Commission and, if approved, commercialize Vicineum. We have financed our operations to date primarily through private placements of our common stock, preferred stock, common stock warrants and convertible bridge notes, convertible into our preferred stock, venture debt borrowings, our IPO, follow-on public offerings, sales effected in an “at-the-market” offering throughATM offerings, our agent, Cowen, the License Agreement with RocheOUS business development partnerships and license agreements and, to a lesser extent, from our former collaboration agreement with ThromboGenics.a collaboration.
In June 2016,November 2019, we entered into an Open Market Sale Agreement (the "Sale Agreement") with Jefferies LLC ("Jefferies"), under which we may issue and sell shares of our common stock, par value $0.001 per share from time to time for an aggregate sales price of up to $35 million through Jefferies (the "ATM Offering"). In October 2020 and February 2021, we entered into Amendments No. 1 and No. 2 to the LicenseSale Agreement, with Rocherespectively. Amendments No. 1 and receivedNo.2 modified the Sale Agreement to reflect that we may issue and sell shares of our common stock from time to time for an up-front license feeaggregate sales price of $7.5 million and up to an additional $262.5$50.0 million uponand $34.5 million, respectively. In June 2021, we entered into Amendment No. 3 to the achievementSale Agreement, which modified the Sale Agreement to remove the maximum dollar amount of specified regulatory, developmentshares of common stock that may be sold pursuant to the Sale Agreement. In June and commercial milestonesJuly 2021, we filed prospectus supplements with respect to up to two unrelated indications. Specifically, an aggregate amountthe SEC in connection with the offer and sale of up to $197.5an aggregate of $200 million is payable to us for the achievement of specified milestones with respectour common stock pursuant to the first indication: consistingSale Agreement. Sale of $72.5 millioncommon stock under the Sale Agreement are made by any method that is deemed to be an ATM offering as defined in development milestones, $50.0 million in regulatory milestones and $75.0 million in commercialization milestones. We received the first development milestone payment of $22.5 million as a resultRule 415(a)(4) of the INDSecurities Act of 1933, including but not limited to sales made directly on or through the Nasdaq Global Market or any other existing trading market for EBI-031 becoming effective. In addition, we are entitled to receive royalty payments in accordance with a tiered royalty rate scale, with rates ranging from 7.5% to 15% for net sales of potential future products containing EBI-031 and at up to 50% of these rates for net sales of potential future products containing other IL-6 compounds, with each of the royalties subject to reduction under certain circumstances and to the buy-out options of Roche.
Cash Flows
our common stock. As of December 31, 2016,2021, we had cashhave $97.8 million in available ATM capacity.We may sell shares of our common stock efficiently from time to time but have no obligation to sell any of our common stock and cash equivalentsmay at any time suspend offers under the Sale Agreement or terminate the Sale Agreement. Subject to the terms and conditions of $25.3 million. Cash in excessthe Sale Agreement, Jefferies will use its commercially reasonable efforts to sell common stock from time to time, as the sales agent, based upon our instructions, which include a prohibition on sales below a minimum price set by us from time to time. We have provided Jefferies with customary indemnification rights, and Jefferies is entitled to a commission at a fixed rate equal to 3.0% of immediate requirements is invested in accordance with our investment policy, with a view primarily to liquidity and capital preservation.
The following table sets forth the primary sources and uses of cashgross proceeds for each sale of common stock under the periods set forth below:
|
| | | | | | | | | | | |
| Year ended December 31, |
| 2016 | | 2015 | | 2014 |
| (in thousands) |
Net cash provided by (used in): | | | | | |
Operating activities | $ | 2,622 |
| | $ | (34,529 | ) | | $ | (29,307 | ) |
Investing activities | 461 |
| | (287 | ) | | (137 | ) |
Financing activities | (13,820 | ) | | 16,836 |
| | 75,561 |
|
Net (decrease) increase in cash and cash equivalents | $ | (10,737 | ) | | $ | (17,980 | ) | | $ | 46,117 |
|
Operating activities. Net cash provided by operating activities was $2.6Sale Agreement. We raised $175.0 million of net proceeds from the sale of 56.9 million shares of common stock at a weighted-average price of $3.17 per share during the year ended December 31, 2021. We raised $38.0 million of net proceeds from the sale of 33.4 million shares of common stock at a weighted-average price of $1.17 per share during the year ended December 31, 2020. Share issue costs, including sales agent commissions, related to the ATM Offering totaled $5.4 million and $1.2 million for the year ended December 31, 2016,2021 and consisted primarily of a net income of $1.9 million adjusted for non-cash items, including stock-based compensation expense of $4.0 million, depreciation expense of $0.2 million, a net change of $(0.1) million inDecember 31, 2020, respectively.
We continue to monitor the fair valueeffect of the warrant liability,outbreak of COVID-19. We are proactively executing risk mitigation strategies to attenuate the impact of COVID-19 on us, and at this time, we have not yet experienced any business disruptions as a
net change of $(1.1) million in the fair value result of the contingent consideration, $0.2 million losspandemic. We are continually assessing the effect of the COVID-19 pandemic on extinguishmentour operations, and we are monitoring the spread of debtCOVID-19 and a net change in operating assetsthe actions implemented to combat the virus throughout the world.
Funding Requirements
Our future success is dependent on our ability to develop and, liabilities of $(2.5) million.
Net cash used in operating activities was $34.5 millionif approved, commercialize our product candidates, including Vicineum for the year ended December 31, 2015, and consisted primarilytreatment of a net loss of $33.5 million adjusted for non-cash items, including stock-based compensation expense of $2.5 million, depreciation expense of $0.4 million, a net change of $(3.1) million in the fair valuenon-muscle invasive CIS of the warrant liabilitybladder in patients previously treated with adequate or less than adequate BCG, and ultimately upon our ability to attain profitable operations. In order to commercialize our product candidates, including Vicineum, we need to complete clinical development and comply with comprehensive regulatory requirements. We are subject to a net change in operating assetsnumber of risks similar to other late-stage clinical companies, including, but not limited to, successful discovery and liabilitiesdevelopment of $(1.0) million.
Net cash used in operating activities was $29.3 millionour product candidates, raising additional capital, development and commercialization by our competitors of new technological innovations, protection of proprietary technology and market acceptance of our products. The successful discovery, development and, if approved, commercialization of product candidates, including Vicineum for the year ended December 31, 2014,treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, requires substantial working capital, and consisted primarily of a net
loss of $34.2 million adjusted for non-cash items, including stock-based compensation expense of $2.4 million, loss on extinguishment ofwe expect to seek additional funds through equity or debt of $0.5 million, depreciation expense of $0.4 million, expense relatedfinancings or through additional OUS business development partnerships, collaborations, licensing transactions or other sources. We may be unable to the issuance costs allocatedobtain equity or debt financings or enter into additional OUS business development partnerships, collaborations, or licensing transactions at favorable terms, or at all, and, if necessary, we may be required to
warrants measured at fair value of $0.3 million, change in fair value of warrant liability of $0.1 million and a net change in
operating assets and liabilities of $1.1 million.
Investing activities. Net cash provided by (used in) investing activities consists of sales and purchases of property and
equipment. For the year ended December 31, 2016, we had cash proceeds from the sale of property and equipment of $0.3 million. We also acquired $0.1 million of cash from the acquisition of Viventia. For the year ended December 31, 2015, we purchased $0.3 million of property and equipment. For the year ended December 31, 2014, we purchased $0.1 million of property and equipment.
Financing activities. Net cash used in financing activities for the year ended December 31, 2016 was $13.8 million and consisted primarily of repayment of outstanding debt obligations. On March 1, 2016, we prepaid all outstanding amounts
owed to SVB and terminated our loan agreement with SVB. This was partially offset by proceeds from the exercise of stock options of $0.3 million.
Net cash provided by financing activities for the year ended December 31, 2015 was $16.8 million and consisted primarily of net proceeds of $12.7 million from the issuance of common stock in connection with sales effected in an “at-the-market” offering through our agent, Cowen, and $5.0 million from additional borrowings under our loan with SVB. These amounts were partially offset by payments of notes payable of $0.9 million.
Net cash provided by financing activities for the year ended December 31, 2014 was $75.6 million and consisted primarily of net proceeds from our IPO and the net proceeds from the private placement of common stock completed in December 2014. We received aggregate net proceeds from the IPO of $50.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by us, of which $1.3 million were paid in 2013. We received aggregate net proceeds from the private placement of $18.2 million, after deducting placement agent’s fees and other offering expenses payable by us, of which $1.3 million were paid in 2014.
Funding Requirements implement cost reduction strategies.
We will incur substantial expenses if and as we:
•address the issues identified in the CRL we received from the FDA for our plannedBLA for Vicineum for the treatment of BCG-unresponsive NMIBC and the concerns identified in the EMA Withdrawal Assessment Report, including the completion of an additional Phase 3 clinical trial for Vicinium and initiate our Phase 2 clinical trial for Proxinium;trial;
continue the research and pre-clinical and clinical development of our other product candidates;
seek to discover and develop additional product candidates;
in-license or acquire the rights to other products, product candidates or technologies;
•seek marketing approvals for any product candidates that successfully complete clinical trials;Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG;
•establish and implement sales, marketing and distribution capabilities and scale up and validate external manufacturing capabilities (including completing the manufacturing process and technology transfer to any third-party manufacturers) to commercialize any product candidatesVicineum for which we may obtain marketing approval;the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, if approved;
•maintain, expand and protect our intellectual property portfolio;
•add equipment and physical infrastructure to support our research and development;
•hire additional clinical, regulatory, quality control, scientific and management personnel; and
•expand our operational, financial and management systems and personnel.personnel;
•conduct research and pre-clinical and clinical development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and our other product candidates;
We believe that our cash•seek to discover and cash equivalents of $25.3 million as of December 31, 2016 will be sufficientdevelop additional product candidates; and
•in-license or acquire the rights to fund our current operating plan into early 2018; however, we have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.other products, product candidates or technologies.
Our future capital requirements will depend on many factors, including:
•the scope, initiation, progress, timing, costs and results of clinical trials for our product candidates;
the scope, progress, results and costs of pre-clinical development and laboratory testing and clinical trials for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and our pre-clinicalother product candidates;candidates, including an additional Phase 3 clinical trial for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG;
•the ongoing COVID-19 pandemic and its impact on our business
•our ability to establish additional OUS business development partnerships, collaborations,or licensing arrangements on favorable terms, if at all, particularly manufacturing, marketing and distribution arrangements for our product candidates;
•the costs and timing of the implementation of commercial-scale manufacturing activities;
•the costs and timing of establishing and implementing sales, marketing and distribution capabilities for any product candidatesVicineum for which we may receive regulatory approval;the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, if approved;
•the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
•our obligation to make milestone, royalty and other payments to third partythird-party licensors under our licensing agreements;
•the extent to which we in-license or acquire rights to other products, product candidates or technologies;
•the outcome, timing and cost of regulatory review by the FDA, EMA, and comparable foreignnon-US regulatory authorities for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, including the potential for the FDA or comparable foreignnon-US regulatory authorities including Health Canada, to require that we perform more studies or clinical trials than those that we currently expect;expect to perform;
•our ability to achieve certain future regulatory, development and commercialization milestones under the License Agreement with Roche;our out-license and commercialization OUS business development partnership agreements;
•the effect of competing technological and market developments; and
•the revenue, if any, received from commercial sales of any product candidatesVicineum for which we receive regulatory approval.the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, if approved.
Until such time, if ever, as we can generate substantial product revenues from commercial sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, collaborations, strategic OUS business development partnerships,alliances, licensing arrangements and marketing and distributionlicensing arrangements. We do not have any committed external source of funds other than the amounts payable under the License Agreement with Roche.our out-license and OUS business development partnership agreements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’the ownership interestinterests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’the rights as holders of our common stock.existing stockholders. Debt financing and equity financing, if available, may involve agreements that include liens or
other restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, collaborations, strategic OUS business development partnerships, alliances licensing arrangements or marketing and distributionlicensing arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
The COVID-19 pandemic has negatively impacted the global economy, disrupted business operations and created significant volatility and disruption to financial markets. Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations, and on the global economy as a whole. The extent and duration of the pandemic could continue to disrupt global markets and may affect our ability to raise additional capital in the future.
Contractual Obligations and CommitmentsOther Obligations
For information related to our cash requirements from known contractual and other obligations, see the description of Contingent Consideration in Note 5 “Fair Value Measure and Financial Instruments,” as well as the description of our leases in Note 7 “Property and Equipment”, and the description of our license agreement and collaborations in Note 17, “License Agreements” of Part IV - Item 15. Exhibits and Financial Statements - Notes to Consolidated Financial Statements.
Cash Flows
The following table summarizessets forth a summary of our contractual obligations atcash flows for the years ended December 31, 2016:2021, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
Net Cash Used in Operating Activities | $ | (68,878) | | | $ | (30,837) | | | $ | (37,521) | |
Net Cash Used in Investing Activities | (4) | | | (8) | | | (136) | |
Net Cash Provided by Financing Activities | 176,129 | | | 38,113 | | | 35,356 | |
Net Increase in Cash, Cash Equivalents and Restricted Cash | $ | 107,247 | | | $ | 7,268 | | | $ | (2,301) | |
|
| | | | | | | | | | | | | | | | | | | |
| Total | | Less than 1 Year | | 1 to 3 Years | | 3 to 5 Years | | More than 5 Years |
| (in thousands) |
Operating lease obligations(1) | $ | 1,138 |
| | $ | 324 |
| | $ | 592 |
| | $ | 222 |
| | $ | — |
|
License maintenance fees(2) | 1,329 |
| | 180 |
| | 360 |
| | 360 |
| | 429 |
|
Total fixed contractual obligations | $ | 2,467 |
| | $ | 504 |
| | $ | 952 |
| | $ | 582 |
| | $ | 429 |
|
Net Cash Used in Operating Activities
(1) We lease our manufacturing facility locatedNet cash used in Winnipeg, Manitoba Canada,operating activities was $68.9 million for the year ended December 31, 2021 and consisted primarily of a net loss of $0.3 million, which consistsincludes $26.5 million of an approximately 31,400 square foot manufacturing, laboratory, warehouse and office facility, underrevenue recognized pursuant to the Roche License Agreement upon Roche initiating a five-year renewable lease through September 2020. The monthly rent for this office space is approximately $25,000 per month. We entered into a short-term lease for our corporate headquarters in Cambridge, Massachusetts in October 2016 and the initial termPhase II clinical trial, achievement of the lease is through July 2017. The monthly rentIND milestone in China pursuant to the Qilu License Agreement, clinical supply revenue resulting from the delivery of drug product to Qilu, our OUS partner for this office space is approximately $4,000 per month.
(2) We have entered into variousGreater China, and license agreements that, upon successful clinicalrevenue for additional purchase price due to the recovery of VAT by our OUS business development contingently trigger payments upon achievementpartner for Greater China, adjusted for non-cash items, including share-based compensation of certain milestones, royalties and other such payments. See ‘‘License Agreements’’ below. Because the achievement of these milestones are uncertain, the amounts have not been included.
We enter into agreements$5.1 million, a decrease in the normal coursefair value of business with CROscontingent consideration of $56.8 million, impairment charge of $31.7 million and a net decrease in operating assets and liabilities of $48.6 million.
Net cash used in operating activities was $30.8 million for clinical trialsthe year ended December 31, 2020 and with vendorsconsisted primarily of a net loss of $22.4 million, adjusted for pre-clinical studies, license agreements and other services and products for operating purposes which are cancelable by us, upon prior written notice. We have an agreement withnon-cash items, including depreciation of $0.1 million, share-based compensation of $1.8 million, a CRO that may be terminated at any time with 30 days’ notice; however, upon termination, we would be required to pay all costs incurred bychange in the CRO up to the termination date, plus an additional fee, which
is calculated as an amount equal to either (a) 5%fair value of the unearned feescontingent consideration of $11.2 million and a net increase in operating assets and liabilities of $0.9 million.
Net cash used in operating activities was $37.5 million for services as providedthe year ended December 31, 2019 and consisted primarily of a net loss of $107.5 million, adjusted for non-cash items, including depreciation of $0.2 million, share-based compensation of $1.2 million, a change in the budget if we have paid 50%fair value of contingent consideration of $71.6 million and a net decrease in operating assets and liabilities of $3.1 million.
Net Cash Used in Investing activities
Net cash used in investing activities consisted of de minimis purchases and sales or moreproperty and equipment during each of the total fees for services as specified in the work order or (b) 3% of the amount of fees we have paid for services as of the date of termination if we have paid less than 50% of the total fees for services as specified in the work order. As ofyears ended December 31, 2016, we have been invoiced $3.12021, and 2020 and $0.1 million for the year ended December 31, 2019.
Net Cash Provided by Financing activities
Net cash provided by financing activities was $176.1 million for the year ended December 31, 2021 and consisted of $175.0 million in fees for servicesnet proceeds from this CRO, which is less than 50% of the total fees for services as specified in the current work order with this CRO. Therefore, as of December 31, 2016, we would have been required to pay a termination fee of 3% of the amount of fees as of the date of termination of this agreement, which would have equaled $94,000 as of December 31, 2016. Amounts owed to such CRO were not included in the ‘‘Contractual Obligations and Commitments’’ table above as it was considered a contingent payment as of December 31, 2016.
We also lease office space in Philadelphia, PA, where we occupy office space under a lease that was executed in September 2015. The initial term of the lease expired in August 2016, after which the lease has continued on a month-to-month basis unless terminated by either party by giving the requisite notice. The monthly rent for this office space is approximately $5,000 per month. We also occupy office space in Toronto, Ontario, Canada with rent of approximately $2,000 per month, on a month-to-month lease, which can be terminated by either party by giving 30 days written notice. These payments are not included in the ‘‘Contractual Obligations and Commitments’’ table above.
In connection with the acquisition of Viventia, we are obligated to pay to the sellers certain post-closing contingent cash payments upon the achievement of specified milestones and based upon net sales, in each case subject to the terms and conditions set forth in the acquisition agreement, including: (i) a one-time milestone payment of $12.5 million payable upon the first sale of Vicinium or any variant or derivative thereof, other than Proxinium, in the United States; (ii) a one-time milestone payment of $7.0 million payable upon the first sale of the Purchased Product in any one of certain specified European countries; (iii) a one-time milestone payment of $3.0 million payable upon the first sale of the Purchased Product in Japan; and (iv) and quarterly earn-out payments equal to two percent (2%) of net sales of the Purchased Product during specified earn-out periods. Such earn-out payments are payable with respect to net sales in a country beginning on the date of the first sale in such country and ending on the earlier of (i) December 31, 2033 and (ii) fifteen years after the date of such sale, subject to early termination in certain circumstances if a biosimilar product is on the market in the applicable country. Because the achievement of these milestones is uncertain, the amounts have not been included in the ‘‘Contractual Obligations and Commitments’’ table above.
License Agreements
License Agreement with the University of Zurich
We have a license agreement with Zurich, which grants us exclusive license rights, with the right to sublicense, to make, have made, use and sell under certain patents primarily directed to our targeting agent, including EpCAM chimera and related immunoconjugates and methods of use and manufacture of the same. These patents cover some key aspects of our product candidates Vicinium and Proxinium.
Under the terms of the agreement, we may be obligated to pay $0.8 million in milestone payments, for the first product candidate that achieves applicable clinical development milestones. Based on current clinical status, we anticipate that these milestones may be triggered by Vicinium’s clinical development pathway. As part of the consideration, we will also be obligated to pay up to a 4% royalty on the net product sales for products covered by or manufactured using a method covered by a valid claim in the Zurich patent rights. We have the right to reduce the amount of royalties owed to Zurich if the total royalty rate owed by us to Zurich and any other third party is 10% or greater, provided that the royalty rate may not be less than 2% of net sales. The obligation to pay royalties in a particular country expires upon the expiration or termination of the last of
the Zurich patent rights that covers the manufacture, use or sale of a product. There is no obligation to pay royalties in a country if there is no valid claim that covers the product or a method of manufacturing the product.
License Agreement with Merck KGaA
We have a license agreement with Merck, which grants us an exclusive license, with the right to sublicense, under certain patents and technology relating to the de-immunization of our cytotoxin Bouganin for therapeutic and in vivodiagnostic purposes in humans. The de-immunized cytotoxin is known as deBouganin and has been incorporated in to our product candidates, VB6-845d. We have the worldwide exclusive right, with the right to sublicense,common stock under the licensed patents and technology to, among other things, make, have made, use or sell products incorporating deBouganin.
Under the agreement, we may be obligated to make milestone payments in respect of certain stages of regulatory approval reached by a product candidate generated by this technology or covered by a licensed patent, as well as royalties calculated with respect to net sales of these products.
Net Operating Loss Carryforwards
As of December 31, 2016, we had $111.4 million of U.S. federal NOL carryforwards, state NOL carryforwards of $110.6 million and U.S. federal and state research and development tax credit carryforwards of $1.9 millionATM Offering and $1.1 million respectively, availablein proceeds from the exercise of common stock warrants.
Net cash provided by financing activities was $38.1 million for the year ended December 31, 2020 and consisted of $38.0 million net proceeds from the sale of common stock under the ATM Offering and $0.1 million in proceeds from the exercise of common stock warrants.
Net cash provided by financing activities was $35.4 million for the year ended December 31, 2019 and consisted primarily of $27.8 million in net proceeds from our June 2019 Financing, $5.5 million from the exercise of outstanding warrants to reduce future taxable income. Due topurchase our historycommon stock and $1.9 million in net proceeds from our ATM Offering.
Critical Accounting Policies and Use of losses and lack of other positive evidence, we have determined that it is more likely than not that our deferred tax assets will not be realized, and therefore, the deferred tax assets were fully reduced by a valuation allowance. These U.S. federal and state NOL carryforwards and U.S. federal and state tax credit carryforwards expire at various dates beginning in 2025 through 2036, if not utilized. Utilization of the NOLs and general business tax credits carryforwards may be subject to a substantial limitation under Sections 382 and 383 of the Internal Revenue Code of 1986 as amended, which we refer to as the Code, due to changes in ownershipEstimates
The preparation of our company that have occurred previously or that could occurconsolidated financial statements in the future. These ownership changes may limit the amount of NOLsaccordance with GAAP and general business tax credits carryforwards that can be utilized annually to reduce future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 of the Code, results from transactions increasing the ownership of “5-percent Shareholders” (as defined in the Code) in the stock of a corporation by more than 50 percentage points over a three-year period. We have determined that it is more likely than not that our net operating and tax credit amounts disclosed above are subject to a material limitation under Section 382. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we generate taxable income, our ability to use our pre-change NOL and tax credits carryforwards to reduce U.S. federal and state taxable income may be subject to limitations, which could result in increased future tax liability to us.
Off-balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.SEC require the use of estimates and assumptions, based on complex judgments considered reasonable, and affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Our critical accounting policies are those policies which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Management has determined that our most critical accounting policies are those relating to the fair value of indefinite-lived intangible assets, goodwill; contingent consideration; revenue recognition; development and regulatory milestone payments and other costs; and research and development costs.
Fair Value of Indefinite-Lived Intangible Assets | |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
WeOur intangible assets consist of indefinite-lived, acquired in-process research and development ("IPR&D") worldwide product rights to Vicineum as a result of the acquisition of Viventia in 2016. IPR&D assets acquired in a business combination are exposedconsidered indefinite-lived until the completion or abandonment of the associated research and development efforts. Amortization over the estimated useful life will commence at the time of Vicineum's commercial launch in the respective markets, if approved. If regulatory approval to market riskVicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG is not obtained, we will immediately expense the related capitalized cost.
Indefinite-lived intangible assets are quantitatively tested for impairment at least annually during the fourth quarter of the fiscal year, or more often if indicators of impairment are present. Impairment testing of indefinite-lived intangible assets requires management to estimate the future discounted cash flows of an asset using assumptions believed to be reasonable, but which are unpredictable and inherently uncertain. Actual future cash flows may differ from the estimates used in impairment testing. We recognize an impairment loss when and to the extent that the estimated fair value of an intangible asset is less than its carrying value. In addition, on a quarterly basis, we perform a qualitative review of our business operations to determine whether events or changes in interest rates. Ascircumstances have occurred which could indicate that the carrying value of our intangible assets was not recoverable. If an impairment indicator is identified, an interim impairment assessment is performed.
In August 2021, we received a CRL from the FDA regarding our BLA for Vicineum for the treatment of NMIBC, our lead product candidate. In the CRL, the FDA determined that it could not approve the BLA for Vicineum in its present form and provided recommendations specific to additional clinical/statistical data and analyses in addition to CMC issues pertaining to a recent pre-approval inspection and product quality. Given the inherent uncertainty in the development plans for Vicineum as a result of the CRL and our withdrawal of the MAA, an impairment analysis was conducted in the third quarter of 2021, which concluded that the carrying value of our intangible asset of Vicineum United States rights was fully impaired as of September 30, 2021. The $31.7 million of impairment charges are due to delays in the expected start of commercialization and lower probabilities of success, combined with higher operating expenses expected to be incurred prior to commercialization, resulting in lower expected future cash flows estimated in the US market. At this time, we have assessed that the carrying value of the Vicineum EU rights is not at significant risk of impairment in the future within the current range of commercialization timelines and POS assumptions. This is primarily due to the fact that we expect the Vicineum sales outside of the US to be two to three times the expected sales volume in the US, based on our reassessment of the total addressable global market for high-risk NMIBC during the quarter ended June 30, 2019, wherein we determined that both the global market size and the estimated potential Vicineum commercial sales within the global market were likely higher than the Company's previous estimate. In addition, the EU asset is burdened with significantly less expense than the US asset, as our strategic operating plan is to sublicense Vicineum to business development partners in all regions outside the US, including the EU, with it earning a potential combination of upfront, milestone, and royalty payments, and the business development partner bearing the majority of regulatory and commercialization costs.
In October and December 2021, we participated in a CMC Type A Meeting and a Clinical Type A Meeting, respectively, with the FDA to discuss issues raised in the CRL and to discuss design elements of an additional Phase 3 clinical trial for Vicineum, which the FDA confirmed will be required for a potential resubmission of a BLA. Following these Type A Meetings, we believe we have greater clarity of the requirements for potential resubmission of a BLA. We have a Type C Meeting scheduled with the FDA for March 28, 2022, in which we expect to discuss the study protocol for the additional Phase 3 clinical trial that we plan to conduct for potential resubmission of our a BLA for Vicineum for the treatment of non-muscle invasive CIS of the
bladder in patients previously treated with adequate or less than adequate BCG. We performed the annual impairment test, which incorporated the impact of the CRL and the subsequent Type A Meetings in the fourth quarter of 2021 and concluded that the carrying value of our intangible asset of Vicineum EU rights was not impaired as of December 31, 2021.
Goodwill
Goodwill on our consolidated balance sheets is the result of our acquisition of Viventia in September 2016 and represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired under the acquisition method of accounting. Goodwill is not amortized; rather than recording periodic amortization, goodwill is quantitatively tested for impairment at least annually during the fourth quarter of the fiscal year, or more often if indicators of impairment are present. Impairment testing of goodwill requires management to estimate the future discounted cash flows of a reporting unit using assumptions believed to be reasonable, but which are unpredictable and inherently uncertain. Actual future cash flows may differ from the estimates used in impairment testing. If the fair value of the equity of a reporting unit exceeds the reporting unit’s carrying value, including goodwill, then goodwill is considered not to be impaired. We recognize a goodwill impairment when and to the extent that the fair value of the equity of a reporting unit is less than the reporting unit's carrying value, including goodwill. We have only one reporting unit. In addition, on a quarterly basis, we had cash and cash equivalentsperform a qualitative review of $25.3 million, primarily money market mutual funds consisting of U.S. government-backed securities. Our primary exposureour business operations to market risk is interest rate sensitivity, which is affected bydetermine whether events or changes in circumstances have occurred which could have a material adverse effect on the estimated fair value of each reporting unit and thus indicate a potential impairment of the goodwill carrying value. If an impairment indicator is identified, an interim impairment assessment is performed. Given the inherent uncertainty in the development plans for Vicineum as a result of the CRL and our withdrawal of the MAA, an impairment analysis was conducted in the third quarter of 2021. While an impairment was recognized in one of our intangible assets, Vicineum US Rights, we concluded that the carrying value of our goodwill of $13.1 million was not impaired as of September 30, 2021. In October and December 2021, we participated in a CMC Type A Meeting and a Clinical Type A Meeting, respectively, with the FDA to discuss issues raised in the CRL and to discuss design elements of an additional Phase 3 clinical trial for Vicineum, which the FDA confirmed will be required for a potential resubmission of a BLA. Following these Type A Meetings, we believe we have greater clarity of the requirements for potential resubmission of a BLA. We have a Type C Meeting scheduled with the FDA for March 28, 2022, in which we expect to discuss the study protocol for the additional Phase 3 clinical trial that we plan to conduct for potential resubmission of our a BLA for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. We performed the annual goodwill impairment test, which incorporated the impact of the CRL and the subsequent Type A Meetings in the fourth quarter of 2021 and concluded that there was no goodwill impairment as of December 31, 2021. While our stock price has declined since December 31, 2021, this is consistent with the general levelbiotech sector overall, as world economic conditions continue to be impacted by the highly contagious Omicron variant. We believe that we have sufficient future cash flows from additional geographic regions outside the US to support the value of U.S. interest rates, particularly because our investments areits goodwill. We project future cash flows based on various timeline assumptions and applies a probability to each outcome based on management’s best estimate. In addition, probabilities of success in short-term securities. Due to the short-term duration of our investment portfolioachieving certain clinical and the low risk profile of our investments, an immediate 100 basis point change in interest rates would notregulatory success can also have a material effect on the estimated fair market value of our portfolio.
As our functional currency is the U.S. dollar, we face foreign exchange rate riskequity of its reporting unit as a result of entering into transactions denominated in Canadian dollars. As a result, our primary foreign currency exposure is to fluctuations in the Canadian dollar relative to the U.S. dollar. A hypothetical 10% change in the average foreign currency exchange rates during any of the preceding periods presented would not have a material effect on our net income (loss). Foreign exchange ratesimpairment assessment date. We will continue to evaluate timelines for commercialization and probability of success of development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG.
Contingent Consideration
Contingent consideration on our consolidated balance sheets is the result of our acquisition of Viventia in September 2016 and represents the discounted present value of future commercial launch milestones and net sales royalties due to the former shareholders of Viventia pursuant to the Share Purchase Agreement. For additional information on how contingent consideration has changed over the relevant period, see "Part IV - Item 15. Financial Statements - Notes to Consolidated Financial Statements - Note 1. Description of Business" of this Annual Report on Form 10-K. Contingent consideration is measured at its estimated fair value on a recurring basis at each reporting period, with fluctuations in value resulting in a non-cash charge to earnings (or loss) during the period. The estimated fair value measurement is based on significant unobservable inputs (Level 3 within the fair value hierarchy), including internally developed financial forecasts, probabilities of success and timing of certain milestone events and achievements, which are unpredictable and inherently uncertain. Actual future cash flows may differ from the assumptions used to estimate the fair value of contingent consideration. The valuation of contingent consideration requires the use of significant assumptions and judgments, which management believes are consistent with those that would be made by a factormarket participant. Management reviews its assumptions and judgments on an ongoing basis as additional market and other data is obtained, and any future changes in the assumptions and judgments utilized by management may cause the estimated fair value of contingent consideration to fluctuate materially, resulting in earnings volatility. In October and December 2021, we participated in a CMC Type A Meeting and a Clinical Type A Meeting, respectively, with the FDA to discuss issues raised in the CRL and to discuss design elements of an additional Phase 3 clinical trial for Vicineum, which the FDA confirmed will be required for a potential resubmission of a BLA. Following these Type A Meetings, we believe we have greater clarity of the requirements for potential resubmission of a BLA. We have a Type C Meeting scheduled with the FDA for March 28, 2022, in which we expect to discuss the study protocol for the additional Phase 3 clinical trial that
we plan to conduct for potential resubmission of our a BLA for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. We reassessed the underlying assumptions used to develop the revenue projections upon which the fair value of its contingent consideration is based. The most significant and impactful assumptions in our revenue projection models are timing of product launch and probabilities of clinical and regulatory success (POS); we expect delays in the start of commercialization and estimate lower POS as a direct result of the CRL. We plan to conduct an additional clinical trial, which will lead to delays in the start of commercialization globally and any significant changes or delays could have a significant impact on the fair value of contingent consideration. We have assessed a range of commercialization timeline assumptions and applied a probability to each outcome based on management’s best estimate. In addition, we now assume a lower POS in achieving certain clinical and regulatory milestones in the range of approximately 45% to 55% globally. Any changes in these assumptions and estimates, or other information obtained, may have a significant impact on the remeasurement of the contingent consideration liability in the future. The fair value of the Company’s contingent consideration is determined based on the present value of projected future cash flows associated with sales-based milestones and earnouts on net sales and is heavily dependent on discount rates to estimate the fair value at each reporting period. Earnouts are determined using an earnout rate of 2% on all commercial net sales of Vicineum through December 2033. The discount rate applied to the 2% earnout is derived from the Company’s estimated weighted-average cost of capital (“WACC”), which has fluctuated from 8.8% as of December 31, 2020, to 7.8% as of March 31, 2021, 6.8% as of June 30, 2021, 8.6% as of September 30, 2021, and 9.3% as of December 31, 2021. Milestone payments constitute debt-like obligations, and therefore a high-yield debt index rate is applied to the milestones in order to determine the estimated fair value. This index rate changed from 8.4% as of December 31, 2020, to 7.4% as of March 31, 2021, 6.6% as of June 30, 2021, 7.5% as of September 30, 2021, and 8.0% as of December 31, 2021.
Development and Regulatory Milestones and Other Payments
At the inception of an arrangement that includes development milestone payments, we evaluate whether the development milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated development milestone value is included in the transaction price. Development milestone payments that are not within our control or the licensee's control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. For payments pursuant to sales milestones and royalty payments, we will note recognize revenue until the subsequent sale of a licensed product occurs. For arrangements with one than one performance obligations, the milestones are generally allocated entirely to the license performance obligation, as (1) the terms of milestone and royalty payments relate specifically to the license and (2) allocating milestones and royalties to the license performance obligation is consistent with the overall allocation objective, because management’s estimate of milestones and royalties approximates the standalone selling price of the license.
Research and Development Costs
Research and development activities are expensed in the period incurred. Research and development expenses consist of both internal and external costs associated with all basic research activities, clinical development activities and technical efforts required to develop a product candidate. Internal research and development consist primarily of personnel costs, including salaries, benefits and share-based compensation, facilities leases, research-related overhead, pre-approval regulatory and clinical trial costs, manufacturing and other contracted services, license fees and other external costs.
In certain circumstances, we are required to make advance payments to vendors for goods or services that will be received in the future periodsfor use in research and development activities. In such circumstances, the advance payments are recorded as we continueprepaid assets and expensed when the activity has been performed or when the goods have been received.
Recently Issued Accounting Standards
Recently issued accounting standards are discussed in "Part IV - Item 15. Exhibits and Financial Statements - Notes to expandConsolidated Financial Statements - Note 4. Recent Accounting Pronouncements" in our consolidated financial statements, which begin on page F-1 of this Annual Report on Form 10-K.
Item 7A. Quantitative and grow our business.Qualitative Disclosures About Market Risk.
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Item 8. | Financial Statements and Supplementary Data. |
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements, together with the report of our independent registered public accounting firm, appear in the Index to Financial Statements beginning on pagespage F-1 through F-34 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
There has been no change of accountants nor any disagreements with accountants on any matter of accounting principles or practices or financial disclosure required to be reported under this Item.
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Item 9A. | Controls and Procedures. |
Evaluation of Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), that are designed to ensure information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principle financial officer, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are achieved. Further, the design of a control system must be balanced against resource constraints, and therefore, the benefits of controls must be considered relative to their costs. Given the inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with the policies and procedures may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of controls, financial statement misstatements due to error or fraud may occur and may not be detected. Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of achieving their objectives. We conduct periodic evaluations of our system of controls to enhance, where necessary, our control policies and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as the end of December 31, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosedperiod covered by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.this Annual Report on Form 10-K. Based on theupon this evaluation, of our disclosure controls and procedures as of December 31, 2016, our Chief Executive Officer and Chief Financial Officer concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.level as of December 31, 2021.
Management’s AnnualManagement Report on Internal Control Over Financial Reporting
Our managementManagement is responsible for establishing and maintaining adequate internal control over financial reporting ("ICFR"), as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under, to provide reasonable assurance regarding the Exchange Act. Ourreliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. ICFR includes our policies and procedures, such as our Code of Conduct, which (i) require our employees, officers and directors to adhere to certain ethical standards; (ii) require the maintenance of records, in reasonable detail, to help to ensure that our transactions, assets and liabilities are accurately and fairly recorded; (iii) provide reasonable assurance that transactions are authorized by our management and directors and are recorded as necessary to allow for the accurate preparation of financial statements in accordance with GAAP; and (iv) provide reasonable assurance regarding the safeguarding of our assets and the prevention or timely detection of the unauthorized acquisition, use or disposition of our assets, which could have a material effect on the financial statements. ICFR includes the controls themselves, management's monitoring of those controls, actions taken to correct any deficiencies identified and oversight of our internal control environment by the audit committee of our board of directors. Any system of internal control has inherent limitations and therefore may not prevent or detect misstatements. Projections of any evaluation of the effectiveness of ICFR to future periods are subject to the risk that controls may become inadequate over time because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our ICFR as of the end of our fiscal year 2021 and has reviewed the results of this assessment with the audit committee of our board of directors. Management based its assessment on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that our ICFR was effective as of December 31, 2021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
The effectiveness of our ICFR as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included immediately below.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Sesen Bio, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Sesen Bio Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Sesen Bio, Inc. (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ (deficit) equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated February 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to ourthe maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and our boarddirectors of directorsthe company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the preparation and fair presentation of publishedcompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. ProjectionsAlso, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Our management has excluded from its assessment of, and its conclusion on the effectiveness of internal control over financial reporting the internal controls of Viventia Bio, Inc. and its subsidiaries which were acquired September 20, 2016 and is included in our 2016 consolidated financial statements included in this Annual Report on Form 10-K. Viventia Bio, Inc. constituted $0.9 million of our total assets as of December 31, 2016 and $0 of our revenues for the year then ended.
As of December 31, 2016 there was a material weakness in our controls over the financial reporting process related to business combinations. As a result of a lack of expertise in our finance and accounting group related to the accounting for business combinations, we lacked sufficient review of assumptions used and conclusions reached from the perspective of a typical market participant used in the acquisition valuation model. As a result, our management concluded that our internal control over financial reporting was not effective as of December 31, 2016./s/ Ernst & Young LLP
We are committed to remediating the control deficiency that constituted the above material weakness by implementing changes to our internal control over financial reporting. Our management is responsible for implementing changes and improvements in the internal control over financial reporting and for remediating the control deficiency that gave rise to the above material weakness. To remediate the material weaknesses described above, we are currently evaluating the controls and procedures we will design and put in place to address the material weakness and plan to implement appropriate measures as part of this effort. These actions may include adding personnel, which may include one or more employees to our finance and accounting group and/or the engagement of independent consultants to aid our review of business combinations.
Any actions we have taken or may take to remediate the above material weaknesses is subject to continued management review supported by testing, as well as oversight by the audit committee of our board of directors. We cannot assure, in any way, even if we add one or more employees to our finance and accounting group and/or engage an independent consultant, that material weaknesses or significant deficiencies will not occur in the future and that we will be able to remediate such weaknesses or
Boston, Massachusetts
deficiencies in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows.February 28, 2022
This annual report does not include an attestation report of our registered independent public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit emerging growth companies, which we are, to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
Except as described above, there was no changeThere have not been changes 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 monthsquarter ended December 31, 20162021 that hashave materially affected or isare reasonably likely to materially affect our internal control over financial reporting.
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Item 9B. | Other Information. |
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
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Item 10. | Item 10. Directors, Executive Officers and Corporate Governance. |
Board of Directors
Members of Our Board of Directors
The following table sets forth the name and age as of March 24, 2017 of each of our directors.
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Name | | Age | | Position |
Stephen A. Hurly | | 49 | | President and Chief Executive Officer and Director |
Wendy Dixon Ph.D.(1)(2) | | 61 | | Chair of the Board of Directors |
Abbie C. Celniker, Ph.D.(3) | | 58 | | Director |
Paul G. Chaney(2) | | 59 | | Director |
Leslie L. Dan, B.Sc., Phm., M.B.A., C.M | | 87 | | Director |
Jay S. Duker, M.D. | | 58 | | Director |
Barry J. Gertz, M.D., Ph.D. | | 65 | | Director |
Jane V. Henderson(1)(3) | | 51 | | Director |
Daniel S. Lynch(1)(2)(3) | | 58 | | Director |
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(1) | Member of the Audit Committee. |
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(2) | Member of the Compensation Committee. |
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(3) | Member of the Nominating and Corporate Governance Committee. |
Stephen A. Hurly has served as our President and Chief Executive Officer since September 2016. Mr. Hurly brings nearly two decades of leadership experience in the life sciences industry. Prior to his role as our President and Chief Executive Officer, he served as the President and Chief Executive Officer of Viventia Bio Inc., or Viventia, a specialty pharmaceutical company, from March 2014 through our acquisition of Viventia in September 2016. Previously, Mr. Hurly was the Chief Executive Officer of Burrill & Co.'s Merchant Banking Division, a finance business for life science companies, from 2011 to 2014. Prior to that, Mr. Hurly was the head of the Life Sciences Investment Banking Practice at Boenning & Scattergood, a securities asset management and investment banking firm, from 2008 to 2011. Mr. Hurly has more than 15 years of experience in the investment banking business. Mr. Hurly currently serves on the board of directors of PHusis Therapeutics Inc., a private targeted small molecule therapeutics company, since May 2011. He graduated from Swarthmore College with a B.A. degree in Engineering and earned an M.B.A. from the University of Chicago. We believe that Mr. Hurly is qualified to serve on our board because of his extensive knowledge of our business based on his service as our President and Chief Executive Officer and previously as the President and Chief Executive Officer of Viventia.
Wendy L. Dixon, Ph.D. has served as the Chair of our board since December 2016 and as a member of our board since October 2014. Dr. Dixon has been the President of Great Meadow Consulting, L.L.C., a life science consulting firm, since July 2009. Additionally, Dr. Dixon has been an advisor to the Mellon Group since August 2014 and was a Senior Advisor to The Monitor Group, now Deloitte Consulting LLP, a consulting firm, from November 2010 to January 2012. Dr. Dixon has also been a member of the Industry Advisory Board of Longitude Capital, a venture capital firm, since March 2015. From 2001 to 2009, Dr. Dixon was the Chief Marketing Officer and President, Global Marketing for Bristol-Myers Squibb, where she served on the Executive Committee. From 1996 to 2001, she was the Senior Vice President, Marketing at Merck and Co., and prior to that, she held executive management positions at West Pharmaceuticals, Inc., Osteotech, Inc. (subsequently acquired by Medtronic Inc.) and Centocor Biotech, Inc. (now Janssen Biotech, Inc.) and various positions at SmithKline and French (now GlaxoSmithKline) in marketing, regulatory affairs, project management and as a biochemist. Dr. Dixon has served on the board of directors of Alkermes plc (NASDAQ: ALKS) since January 2011, Incyte Corporation (NASDAQ: INCY) since May 2010, bluebird bio (NASDAQ: BLUE) since May 2013, and Voyager Therapeutics, Inc. (NASDAQ: VYGR) since January 2017, and was formerly on the boards of Ardea Biosciences, when Ardea was acquired by AstraZeneca plc, Furiex Pharmaceuticals, when Furiex was acquired by Actavis plc, Dentsply International and Orexigen Therapeutics, Inc. (NASDAQ: OREX). Dr. Dixon received a B.S. and a M.S. in Natural Science and a Ph.D. in Biochemistry from the University of Cambridge (UK). We believe that Dr. Dixon is qualified to serve on our board because of her extensive executive leadership experience in and knowledge of the life sciences industry, as well as her extensive corporate governance experience from serving on numerous boards of directors in the life sciences industry.
Abbie C. Celniker, Ph.D. has served as a member of our board since September 2011 and previously as our President and Chief Executive Officer from September 2011 to September 2016. Since October 2016, Dr. Celniker has served as a partner of Third Rock Ventures, a venture capital firm, and as the interim chief executive officer at Goldfinch Biopharma, Inc., a private biotechnology company. Previously, Dr. Celniker served as the Executive Vice President, Translational Medicine of Alexion Pharmaceuticals, Inc., a biopharmaceutical company, from January 2011 to August 2011. Prior to joining Alexion Pharmaceuticals, Dr. Celniker served as the President and Chief Executive Officer and as a member of the board of directors of Taligen Therapeutics, Inc., a biotechnology company, from July 2008 to January 2011, when Taligen Therapeutics was acquired by Alexion Pharmaceuticals. Previously, Dr. Celniker served as the Global Head of Biologics of Novartis AG, the Senior Vice President of Research and Development Strategy and Operations of Millennium Pharmaceuticals, Inc. and the Vice President Protein Technologies of the Wyeth Research facilities in Cambridge, Massachusetts. Dr. Celniker formerly served on the board of directors of Dyax Corp. when it was acquired by Shire plc. Dr. Celniker received a B.A. in Biology from the University of California, San Diego, and a Ph.D. in Molecular Biology from the University of Arizona. We believe that Dr. Celniker is qualified to serve on our board because of her extensive experience in the development of biologics, her extensive executive leadership experience in the life sciences industry and her extensive knowledge of our company based on her prior experience as our President and Chief Executive Officer.
Paul G. Chaney has served as a member of our board since February 2014. Mr. Chaney is a co-founder of PanOptica, Inc., a private biopharmaceutical company focused on developing innovative ophthalmic therapeutics, and has served as its President and Chief Executive Officer since 2009. Prior to co-founding PanOptica, Mr. Chaney was executive vice president of OSI Pharmaceuticals, Inc. and president of (OSI) Eyetech, Inc., OSI Pharmaceutical’s wholly-owned eyecare subsidiary. Mr. Chaney joined Eyetech Pharmaceuticals as Chief Operating Officer in 2003. Prior to joining Eyetech, Mr. Chaney held a variety of senior management positions at Pharmacia Corporation, including Vice President of the Global Ophthalmology Business and Vice President of Global Pharmaceutical Ophthalmology. Mr. Chaney also serves as the chairman of the board of directors of Eyegate Pharmaceuticals, Inc. (NASDAQ: EYEG) since August 2008. He began his career as a sales representative for The Upjohn Company in 1980. Mr. Chaney earned a dual degree in Biological Sciences and English from the University of Delaware. We believe that Mr. Chaney is qualified to serve on our board because of his extensive executive leadership experience in the life sciences industry and at pharmaceutical company business units for over 20 years.
Leslie L. Dan, B.Sc. Phm., M.B.A., C.M. has served as a member of our board since September 2016 and is the founder of Viventia Bio, Inc. He was appointed the chair of Viventia’s board of directors in January 2013 and served as Viventia’s President and Secretary from 2012 to 2015. Mr. Dan also founded Novopharm (now known as Teva Canada Limited) in 1964, now a wholly-owned subsidiary of Teva Pharmaceuticals Industries Limited, and has served on Teva Canada’s board of directors as Chairman since 2000. Mr. Dan also served on the board of directors of Draxis Health Inc. (now known as Draxis Specialty Pharmaceuticals Inc.), a provider of sterile products, non-sterile products and radiopharmaceuticals, from 1993 to 2003, and on the board of directors of Teva Israel from 2001 to 2007. Mr. Dan graduated from the University of Toronto with a B.Sc. Phm. and an M.B.A. He has also received honorary doctorates from the University of British Columbia, Dalhousie University, York University and the University of Toronto. We believe that Mr. Dan is qualified to serve on our board because of his extensive executive leadership experience in and knowledge of the life sciences industry, as well as his extensive knowledge of our business as a founder of Viventia.
Jay S. Duker, M.D., has served as a member of our board since January 2015. Dr. Duker has served in varying capacities at the New England Eye Center (NEEC) since January 1992, most recently as Director since 2001. He has also served as Professor and Chairman of the Department of Ophthalmology at Tufts Medical Center and the Tufts University School of Medicine since 2003. He has published more than 185 journal articles, with his major research interests including retinal imaging, in particular optical coherence tomography (OCT), retinal vascular diseases, and drug delivery to the posterior segment. His book, Yanoff and Duker’s Ophthalmology, is one of the bestselling ophthalmic texts over the past decade. Dr. Duker is the co-founder of three companies, including Hemera Biosciences, a biotech start-up whose focus is a gene therapy based treatment for age-related macular degeneration. Dr. Duker has served on the board of directors of pSivida Corp. (NASDAQ: PSDV) since September 2016. Dr. Duker received an A.B. from Harvard University and a M.D. from the Jefferson Medical College at Thomas Jefferson University. We believe that Dr. Duker is qualified to serve on our board because of his extensive clinical and academic experience, his medical knowledge and as a co-founder of other life sciences companies.
Barry J. Gertz, M.D., Ph.D. has served as a member of our board since January 2015. Since October 2014, Dr. Gertz has served as a venture partner at Clarus Ventures, a venture capital firm. Prior to his time with Clarus Ventures, Dr. Gertz served in varying roles at Merck & Co., Inc., a pharmaceutical company, from 1986 until July 2014, including as Senior Vice President and Head of Global Clinical Development from 2002 to 2014. Dr. Gertz has co-authored over 100 scientific publications and has been a contributor to the evaluation and approval of more than 26 new drugs or vaccines. Dr. Gertz received a B.A. in chemistry from the University of Pennsylvania. He subsequently received M.D. and Ph.D. degrees in the Medical Scientist Training Program at the University of Pennsylvania, School of Medicine with a Ph.D. in the Department of Pharmacology. We
believe that Dr. Gertz is qualified to serve on our board because of his extensive executive leadership experience in a pharmaceutical company, his experience in clinical development, his knowledge of the life sciences industry and his insight into financial and investment matters from his experience in private equity investing in life sciences companies.
Jane V. Henderson has served as a member of our board since October 2013. Since January 2017, Ms. Henderson has served as the Chief Financial Officer of Voyager Therapeutics, Inc., a biopharmaceutical company. Prior to joining Voyager Therapeutics, Ms. Henderson served as the Senior Vice President, Chief Financial and Business Officer of Kolltan Pharmaceuticals, Inc., a biopharmaceutical company, from February 2013 to November 2016, when Kolltan Pharmaceuticals was acquired by Celldex Therapeutics, Inc. Prior to joining Kolltan Pharmaceuticals, Ms. Henderson served as the Vice President, Business Development of ISTA Pharmaceuticals, Inc., an eye care company, from June 2010 to June 2012, when ISTA Pharmaceuticals was acquired by Bausch + Lomb Incorporated. Prior to joining ISTA Pharmaceuticals, Ms. Henderson served as the Executive Vice President, Chief Financial Officer and Head of Business Development of Axerion Pharmaceuticals, Inc., a pharmaceutical company, from September 2009 to June 2010, provided independent consulting services from February 2009 to September 2009 and served as the Executive Vice President, Chief Financial Officer and Chief Business Officer of Panacos Pharmaceuticals, Inc., a pharmaceutical company, from January 2008 to February 2009. Prior to that, Ms. Henderson served in a variety of senior investment banking roles at HSBC Holdings plc, Canadian Imperial Bank of Commerce, Lehman Brothers and Salomon Brothers. Ms. Henderson received a B.S. in Psychology from Duke University. We believe that Ms. Henderson is qualified to serve on our board because of her extensive executive leadership experience in and knowledge of the life sciences industry and her extensive finance background as a chief financial officer for over five years and as an investment banker for over 20 years.
Daniel S. Lynch has served as a member of our board since December 2013 and as the Chair of our board from December 2013 to December 2016. Mr. Lynch has served as a venture partner at Third Rock Ventures, a venture capital firm, since May 2013 and as an entrepreneur-in-residence from May 2011 to May 2013. Since 2005, Mr. Lynch has served on the boards of directors of several life sciences companies, including on the board of directors of bluebird bio, Inc. (NASDAQ: BLUE) since 2011 and as chairman of the board of directors for Blueprint Medicines Corp. (NASDAQ: BPMC) since 2012. Previously, Mr. Lynch served on the board of directors of DNIB Unwind, Inc. (formerly BIND Therapeutics, Inc.) from 2012 until its acquisition by Pfizer Inc. Prior to that, Mr. Lynch served as the Chief Financial Officer and then the Chief Executive Officer of ImClone Systems Inc. Mr. Lynch received a B.A. in Mathematics from Wesleyan University and a M.B.A. from the Darden Graduate School of Business Administration at the University of Virginia. We believe that Mr. Lynch is qualified to serve on our board because of his senior leadership experience, his experience in private equity investing in life sciences companies and his extensive corporate governance experience through service on the boards of directors of other life sciences companies.
Executive Officers
Executive Officers
The following table sets forth the name and age as of March 24, 2017 of each of our directors.
|
| | | | | |
Name | | Age | | Position |
Stephen A. Hurly | | 49 |
| | President and Chief Executive Officer and Director |
John J. McCabe, C.P.A. | | 49 |
| | Chief Financial Officer |
Arthur DeCillis, M.D. | | 60 |
| | Chief Medical Officer |
In addition to the biographical information for Mr. Hurly, which is set forth above, under “Board of Directors—Members of Our Board of Directors,” set forth below is certain biographical information about Mr. McCabe and Dr. DeCillis:
John J. McCabe, C.P.A. has served as our Chief Financial Officer since January 2016 and as our Treasurer since September 2012 and previously served as our Senior Vice President of Finance from August 2015 to January 2016, our Vice President of Finance and Business Operations from June 2013 through August 2015, and our Senior Director of Finance from April 2012 through June 2013. Prior to joining us, Mr. McCabe provided independent financial and accounting consulting services from June 2011 to April 2012. Prior to that, Mr. McCabe served as Vice President of Finance at Clinical Data, Inc., a drug developer that was acquired by Forest Laboratories, from December 2010 to June 2011 and as the Senior Director of Financial Reporting of Clinical Data from August 2007 to December 2010. Prior to that, Mr. McCabe served in several financial roles at Interleukin Genetics, Inc., a genetics-focused personalized health company, and SatCon Technology Corporation, a developer of innovative power conversion solutions. He began his career working for the accounting firm of Coopers & Lybrand LLP, now known as PricewaterhouseCoopers LLP. Mr. McCabe received a B.S. in Business Administration from the University of Vermont and is also a Certified Public Accountant.
Arthur DeCillis, M.D. has served as our Chief Medical Officer since September 2016. Previously, Dr. DeCillis served as the Chief Medical Officer of Viventia from September 2015 until September 2016. Prior to joining Viventia, Dr. DeCillis served as the Vice President of Medical Affairs at Exelixis, Inc., a biotechnology company which discovered, develops and commercializes small molecules for the treatment of cancer, from 2011 to 2015. Earlier at Exelixis, Dr. DeCillis served as the company’s Vice President of Clinical Research from 2007 to 2011. Prior to that, Dr. Decillis served as a Senior Director and Executive Director at Novartis Pharmaceutical Corp. from 2005 to 2007. Previously, he held positions of increasing responsibility in Oncology Global Clinical Research at Bristol-Myers Squibb Company, culminating as group director. He graduated from Lehigh University with a Bachelor’s degree in Mathematics, received his Doctor of Medicine degree from the University of Rochester School of Medicine and Dentistry and received a M.S. degree in Intelligent Systems from the University of Pittsburgh. He completed his internship and residency in Internal Medicine at the Medical College of Virginia and a Fellowship in Medical Informatics at the University of Pittsburgh. He is Board Certified in Internal Medicine.
No Family Relationships
There are no family relationships between any of our officers and directors.
Board Committees
Our board has established an audit committee, a compensation committee, and a nominating and corporate governance committee, each of which operates under a charter that has been approved by our board. Copies of the committee charters are posted on the Investor Relations section of our website, which is located at ir.elevenbio.com.
Audit Committee
The members of our audit committee are Ms. Henderson, Dr. Dixon and Mr. Lynch. Ms. Henderson chairs our audit committee. Our audit committee’s responsibilities include:
appointing, approving the compensation of, and assessing the independence of, our registered public accounting firm;
overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports and other communications from such firm;
reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures;
monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;
overseeing our internal audit function;
overseeing our risk assessment and risk management policies;
establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns;
meeting independently with our internal auditing staff, our independent registered public accounting firm and management;
reviewing and approving or ratifying any related person transactions; and
preparing the audit committee report required by SEC rules.
All audit and non-audit services, other than de minimis non-audit services, to be provided to us by our independent registered public accounting firm must be approved in advance by our audit committee.
Our board has determined that each of Ms. Henderson and Mr. Lynch is an “audit committee financial expert” as defined in applicable SEC rules and that each qualifies as independent as defined under the applicable NASDAQ rules.
The audit committee met seven times during 2016.
Compensation Committee
The members of our compensation committee are Dr. Dixon, Messrs. Lynch and Chaney. Dr. Dixon chairs our compensation committee. Our compensation committee’s responsibilities include:
reviewing and approving, or making recommendations to our board with respect to, the compensation of our chief executive officer and our other executive officers;
overseeing an evaluation of our senior executives;
overseeing and administering our cash and equity incentive plans;
retaining the services, following the determination of independence under applicable NASDAQ and Exchange Act rules, of our compensation consultant, as well as overseeing and considering the recommendations of our compensation consultant;
reviewing and making recommendations to our board with respect to director compensation;
reviewing and discussing annually with management our compensation disclosure required by SEC rules; and
preparing the compensation committee report required by SEC rules.
The processes and procedures followed by our compensation committee in considering and determining executive and director compensation are described below under “—Board Processes—Executive and Director Compensation Processes.” In addition to the board’s independence determination, our board has determined that each member of our compensation committee is a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act, and an “outside director” for purposes of Section 162(m) of the Internal Revenue Code.
The compensation committee met seven times during 2016.
Nominating and Corporate Governance Committee
The members of our nominating and corporate governance committee are Mr. Lynch, Dr. Celniker and Ms. Henderson. Mr. Lynch chairs our nominating and corporate governance committee. Our nominating and corporate governance committee’s responsibilities include:
identifying individuals qualified to become members of our board;
recommending to our board the persons to be nominated for election as directors and to each of our board’s committees;
reviewing and making recommendations to our board with respect to our board leadership structure;
reviewing and making recommendations to our board with respect to management succession planning;
developing and recommending to our board corporate governance principles; and
overseeing a periodic evaluation of our board.
The nominating and corporate governance committee met one time during 2016.
At the 2017 Annual Meeting, stockholders will be asked to consider the election of Dr. Celniker, Ms. Henderson and Mr. Lynch, each of whom has been nominated for election as a director for the first time since the completion of our initial public offering in March 2014.
During 2011, Dr. Celniker was appointed by our board as a new director.
During 2013, Ms. Henderson and Mr. Lynch were each appointed by our board as a new director. Ms. Henderson and Mr. Lynch were each originally proposed to our nominating and corporate governance committee by Dr. Celniker, our former chief executive officer, and were each subsequently appointed as a director by our board.
Director Nomination Process
The process followed by our nominating and corporate governance committee to identify and evaluate director candidates may include requests to board members and others for recommendations, evaluation of the performance on our board and its committees of any existing directors being considered for nomination, consideration of biographical information and background material relating to potential candidates and, particularly in the case of potential candidates who are not then serving on our board, interviews of selected candidates by members of our nominating and corporate governance committee and our board.
In considering whether to recommend any particular candidate for inclusion in our board’s slate of recommended director nominees, our nominating and corporate governance committee applies the criteria set forth in our corporate governance guidelines described below under “—Corporate Governance Guidelines”. Consistent with these criteria, our nominating and corporate governance committee expects every nominee to have the following attributes or characteristics, among others: integrity, honesty, adherence to high ethical standards, business acumen, good judgment and a commitment to understand our business and industry.
Each of the director nominees is currently a member of our board. The nominee biographies under “—Board of Directors—Members of Our Board of Directors” indicate the experience, qualifications, attributes and skills of each of our current directors that led our nominating and corporate governance committee and our board to conclude he or she should continue to serve as a
member of our board. Our nominating and corporate governance committee and our board believe that each of the nominees has the individual attributes and characteristics required of each of our directors, and that the nominees as a group possess the skill sets and specific experience desired of our board as a whole.
Our nominating and corporate governance committee considers the value of diversity when selecting nominees, and believes that our board, taken as a whole, should embody a diverse set of skills, experiences and abilities. The committee does not make any particular weighting of diversity or any other characteristic in evaluating nominees and directors.
Stockholders may recommend individuals for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials, and information with respect to the stockholder or group of stockholders making the recommendation, including the number of shares of common stock owned by such stockholder or group of stockholders, to our Corporate Secretary at Eleven Biotherapeutics, Inc. 245 First Street, Suite 1800 Cambridge, MA 02142, Attention: Corporate Secretary. The specific requirements for the information that is required to be provided for such recommendations to be considered are specified in our by-laws and must be received by us no later than the requisite dates set forth under our by-laws and Rule 14a-8 promulgated under the Exchange Act. Assuming that appropriate biographical and background material has been provided on a timely basis, the nominating and corporate governance committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.
Stockholders also have the right under our by-laws to directly nominate director candidates, without any action or recommendation on the part of the nominating and corporate governance committee or our board, by following the procedures set forth in our by-laws.
Code of Business Conduct and Ethics
We haveOur Board has adopted a written Code of Business Conduct and Ethics that appliesapplicable to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Business Conduct and Ethics covers fundamental ethical and compliance-related principles and practices such as accurate accounting records and financial reporting, avoiding conflicts of interest, the protection and use of our property and information and compliance with legal and regulatory requirements. A current copy of the code is posted on the Corporate Governance section of our website, which is located at http://www.elevenbio.com. If we makewww.sesenbio.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any substantive amendmentsamendment to, or grant any waiverswaiver from, a provision of this Code and by posting such information on the Codewebsite address and location specified above.
The additional information required by this item will be set forth in our 2022 Proxy Statement to be filed with the SEC within 120 days of Business ConductDecember 31, 2021 and Ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a Currentis incorporated by reference into this Annual Report on Form 8-K to the extent10-K.
Item 11. Executive Compensation.
The information required by applicable law, the rules ofthis item will be set forth in our 2022 Proxy Statement to be filed with the SEC or the rules of the NASDAQ Global Market.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on our review of copies of reports filed by individuals and entities required to make filings pursuant to Section 16(a) of the Exchange Act or written representations from such individuals or entities, we believe that during 2016 all filings required to be made by such individuals or entities were timely made in accordance with the Exchange Act.
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Item 11. | Executive Compensation. |
This section describes the material elements of compensation awarded to, earned by or paid to each of our named executive officers in 2016. Our named executive officers for 2016 are Stephen A. Hurly, our President and Chief Executive Officer, John J. McCabe, C.P.A., our Chief Financial Officer, Arthur DeCillis, M.D., our Chief Medical Officer, Abbie C. Celniker, Ph.D., our former Chief Executive Officer, and Karen Tubridy, Pharm.D, our former Chief Development Officer. This section also provides qualitative information regarding the manner and context in which compensation is awarded to and earned by our executive officers and is intended to place in perspective the data presented in the tables and narrative that follow.
Summary Compensation Table
The following table sets forth information regarding compensation awarded to, earned by or paid to each of our named executive officers for the years ended December 31, 2016 and 2015.
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| | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary ($) | | Bonus ($)(6) | | Stock-based awards ($)(7) | | Option awards ($)(7) | | All other compensation ($) | | Total ($) |
Stephen A. Hurly(1) | | 2016 | | 119,093 |
| | — |
| | — |
| | 755,511 |
| | — |
| | 874,604 |
|
President and Chief Executive Officer | | 2015 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Abbie C. Celniker, Ph.D.(2) | | 2016 | | 325,137 |
| | — |
| | — |
| | 51,385 |
| | 675,000 |
| (8) | 1,051,522 |
|
Former President and Chief Executive Officer | | 2015 | | 430,000 |
| | 150,500 |
| | 236,722 |
| | 976,898 |
| | 4,000 |
| (9) | 1,798,120 |
|
John J. McCabe, C.P.A.(3) | | 2016 | | 305,000 |
| | 75,000 |
| | — |
| | 227,846 |
| | — |
| | 607,846 |
|
Chief Financial Officer | | 2015 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Arthur DeCillis, M.D.(4) | | 2016 | | 116,855 |
| | — |
| | — |
| | 215,860 |
| | — |
| | 332,715 |
|
Chief Medical Officer | | 2015 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Karen Tubridy, Pharm.D.(5) | | 2016 | | 233,889 |
| | — |
| | — |
| | 24,652 |
| | 323,710 |
| (10) | 582,251 |
|
Former Chief Development Office | | 2015 | | 312,000 |
| | 65,525 |
| | 103,187 |
| | 437,920 |
| | 4,000 |
| (9) | 922,632 |
|
| |
(1) | Mr. Hurly has served as our President and Chief Executive Officer since September 20, 2016. |
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(2) | Dr. Celniker resigned as our President and Chief Executive Officer on September 20, 2016. All compensation reported with respect to her status as a named executive officer reflects amounts paid prior to September 20, 2016. See “Director Compensation” for all fees earned by Dr. Celniker as a non-employee director after September 20, 2016. |
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(3) | Mr. McCabe has served as our Chief Financial Officer effective January 1, 2016. |
| |
(4) | Dr. DeCillis has served as our Chief Medical Officer since September 20, 2016. |
| |
(5) | Ms. Tubridy resigned as or Chief Development Officer on September 20, 2016. |
| |
(6) | The amounts reported in the "Bonus" column reflect discretionary cash bonuses payable to our named executive officers for their performance in a given year. |
| |
(7) | The amounts reported in the “Stock-based awards” and "Options awards" columns reflect the aggregate grant date fair value of stock-based compensation awarded during the year computed in accordance with the provisions of Financial Accounting Standards Board Accounting Standard Codification, or ASC, Topic 718. See Note 12 to our financial statements appearing at the end of our Annual Report on Form 10-K for the year ended December 31, 2016 regarding assumptions underlying the valuation of equity awards. |
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(8) | All other compensation includes $450,000 paid to Dr. Celniker, pursuant to a Separation and Release Agreement, which is an amount equal to her base salary for 12 months, and $225,000, which is an amount equal to her target bonus payment for 2016. |
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(9) | All other compensation includes a discretionary employer 401(k) matching contribution. |
| |
(10) | All other compensation includes $323,710 paid to Ms Tubridy, pursuant to a Separation and Release Agreement, which is an amount equal to her base salary for 12 months. |
Narrative to Summary Compensation Table
In 2016, we paid annual base salaries of $425,000 to Mr. Hurly, $305,000 to Mr. McCabe and $417,011 to Dr. DeCillis. Base salaries are used to recognize the experience, skills, knowledge and responsibilities required of all our employees, including our named executive officers. None of our named executive officers is currently party to an employment agreement or other agreement or arrangement that provides for automatic or scheduled increases in base salary.
From time to time, our board has approved discretionary annual cash bonuses to our named executive officers with respect to their prior year performance. Our board did not approve discretionary cash bonus to any of the named executives for 2016 performance.
Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, or any formal equity ownership guidelines applicable to them, we believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives and our stockholders. In addition, we believe that equity grants with a time-based vesting feature promote executive retention by incenting our executive officers to remain in our employment during the vesting period. Accordingly, our board periodically reviews the equity incentive compensation of our named executive officers and from time to time may grant equity incentive awards to them in the form of stock options or restricted stock units, or RSUs.
In February 2016, based upon our overall performance, we granted Dr. Celniker options to purchase 113,250 shares of our common stock, Mr. McCabe, options to purchase 28,313 shares of our common stock, and Ms. Tubridy options to purchase 60,400 shares of our common stock, in each case at an exercise price of $0.28 per share. These options vest over four years in equal quarterly installments, with the first installment vesting on March 31, 2016. Also in February 2016, for retention purposes, we granted Dr. Celniker options to purchase 180,000 shares of our common stock, Mr. McCabe options to purchase 40,000 shares of our common stock, and Ms. Tubridy options to purchase 40,000 shares of our common stock, in each case at an exercise price of $0.28 per share. 50% of these options vest over two years in equal monthly installments, with the first installment vesting on March 25, 2016. The remaining 50% will vest upon the achievement of certain milestones.
In September 2016, we granted Mr. Hurly options to purchase 350,000 shares of our common stock, Mr. McCabe options to purchase 100,000 shares of our common stock and Dr. DeCillis options to purchase 100,000 shares of our common stock, in each case at an exercise price of $3.37 per shares. These options vest over four years, with 25% of the shares underlying the options vesting on September 20, 2017 and 6.25% of the shares underlying the options vesting quarterly thereafter. The options granted to each of Messrs. Hurly and DeCillis were granted outside our 2014 Stock Incentive Plan as inducement awards in connection with their acceptance of employment in accordance with NASDAQ Stock Market Rule 5635(c)(4).
Separation Agreements
In connection with their terminations of employment, on September 20, 2016, each of Dr. Celniker and Ms. Tubridy entered into a Separation and Release of Claims Agreement with us, collectively referred to herein as the “Separation Agreements.” Each Separation Agreement sets forth the terms of each officer’s resignation, effective as of September 20, 2016, including a general release of claims against us arising out of her employment with or resignation from the company.
Under the Separation Agreement with Dr. Celniker, we (i) paid Dr. Celniker $450,000, which is an amount equal to her base salary for 12 months, (ii) paid Dr. Celniker $225,000, which is an amount equal to her target bonus payment for 2016, (iii) accelerated in full the vesting of all of Dr. Celniker’s outstanding equity awards (other than certain equity awards forfeited by Dr. Celniker to the extent necessary to eliminate any “excess parachute payments” within the meaning of Sections 280G and 4999 of the Code, (iv) provided that all stock options granted to Dr. Celniker under our Amended and Restated 2009 Stock Incentive Plan shall continue to be exercisable based on her continued service as a non-employee member of the board and, (v) continued to provide Dr. Celniker and certain of her dependents with group health and dental insurance for a period of one month.
Under the Separation Agreement with Ms. Tubridy, we (i) paid Ms. Tubridy $323,710, which is an amount equal to her base salary for 12 months, (ii) accelerated in full the vesting of all of Ms. Tubridy’s outstanding equity awards and, (iii) continued to provide Ms. Tubridy and certain of her dependents with group health and dental insurance for a period of 12 months. Under the Separation Agreement, all of Ms. Tubridy’s outstanding equity awards expired on December 19, 2016.
Outstanding Equity Awards at December 31, 2016
The following table sets forth information regarding all outstanding stock options and RSUs held by each of our named executive officers as120 days of December 31, 2016.2021 and is incorporated by reference into this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
| | | | | | | | | | | | | | | | | | |
| Option Awards | | Stock Awards | |
Name | Number of securities underlying unexercised options (#) exercisable | | Number of securities underlying unexercised options (#) unexercisable | | Option exercise price ($) | | Option expiration date | | Number of shares or units of stock that have not vested (#) | | Market value of shares or units of stock that have not vested ($) | |
Stephen A. Hurly | — |
| | 350,000 |
| (1 | ) | 3.37 |
| | 9/19/2026 | | | |
|
| |
Abbie C. Celniker(2) | 90,551 |
| | — |
| | 0.83 |
| | 3/14/2023 | | | | | |
| 47,243 |
| | — |
| | 7.37 |
| | 10/30/2023 | | | | | |
| 145,000 |
| | — |
| | 10.40 |
| | 2/25/2025 | | | | | |
| 110,405 |
| | — |
| | 0.28 |
| | 2/24/2026 | | | | | |
John J. McCabe | 21,496 |
| | — |
| | 0.76 |
| | 5/16/2022 | | | |
|
| |
| 3,690 |
| | 247 |
| (3 | ) | 0.83 |
| | 2/13/2013 | | | | | |
| 7,677 |
| | 2,559 |
| (4 | ) | 7.37 |
| | 10/30/2023 | | | | | |
| 10,719 |
| | 13,781 |
| (5 | ) | 10.40 |
| | 2/25/2025 | | | | | |
| 19,396 |
| | 5,104 |
| (6 | ) | 3.10 |
| | 5/20/2025 | | | | | |
| 6,250 |
| | 13,750 |
| (7 | ) | 4.09 |
| | 8/11/2025 | | | | | |
| 5,309 |
| | 23,004 |
| (8 | ) | 0.28 |
| | 2/24/2026 | | | | | |
| 20,000 |
| | — |
| | 0.28 |
| | 2/24/2026 | | | | | |
| 8,333 |
| | 11,667 |
| (9 | ) | 0.28 |
| | 2/24/2026 | | | | | |
| — |
| | 100,000 |
| (1 | ) | 3.37 |
| | 9/19/2026 | | | | | |
| | | | | | | | | 3,333 |
| (10) | 6,366 |
| (11) |
Arthur DeCillis | — |
| | 100,000 |
| (1 | ) | 3.37 |
| | 9/19/2026 | | | | | |
| |
(1) | Vests over four years, with 25% of the shares underlying the option to vest on September 20, 2017 and 6.25% of the shares underlying the option vesting quarterly thereafter. |
| |
(2) | All of Dr. Celniker’s equity awards fully vested on September 20, 2016 pursuant to her Separation Agreement. |
| |
(3) | Vests over four years in equal quarterly installments, with the first installment vested January 1, 2013. |
| |
(4) | Vests over four years in equal quarterly installments, with the first installment vesting on January 1, 2014. |
| |
(5) | Vests over four years in equal quarterly installments, with the first installment vesting on March 31, 2015. |
| |
(6) | Vests over two years in equal quarterly installments, with the first installment vesting on June 21, 2015. |
| |
(7) | Vests over four years in equal quarterly installments, with the first installment vesting on November 1, 2015. |
| |
(8) | Vests over four years in equal quarterly installments, with the first installment vesting on April 1, 2016. |
| |
(9) | Vests over two years in equal quarterly installments, with the first installment vesting on March 25, 2016. |
| |
(10) | Vests over eighteen-months in equal installments every six months, with the first installment vesting on February 12, 2016. |
| |
(11) | The market value of these shares is based on the last reported sales price on December 31, 2016. |
Employment Agreements with Current Executive Officers
In August 2015, we entered into an employment agreement with Mr. McCabeThe information required by this item will be set forth in connection with his promotionour 2022 Proxy Statement to Senior Vice President of Finance. In addition, in September 2016, we entered into employment agreements with Mr. Hurly and Dr. DeCillis. Each of these agreements provides that employment will continue until either we or the executive officer provides notice of termination in accordancebe filed with the termsSEC within 120 days of December 31, 2021 and is incorporated by reference into this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be set forth in our 2022 Proxy Statement to be filed with the agreement. In addition, we have enteredSEC within 120 days of December 31, 2021 and is incorporated by reference into non-competition, non-solicitation, confidentialitythis Annual Report on Form 10-K.
Item 14. Principal Accountant Fees and assignment agreementsServices.
The information required by this item will be set forth in our 2022 Proxy Statement to be filed with eachthe SEC within 120 days of our executive officers which prohibit them from competing with us, soliciting our employeesDecember 31, 2021 and customersis incorporated by reference into this Annual Report on Form 10-K.
PART IV
Item 15. Exhibits and disclosing confidential information duringFinancial Statement Schedules.
(a)(1) Consolidated Financial Statements
The consolidated financial statements listed in the termIndex to Financial Statements beginning on page F-1 are filed as part of their employment and for a specified time thereafter.this Annual Report on Form 10-K.
Pursuant(a)(2) Financial Statement Schedules
The financial statement schedule listed in the Index to their respective employment agreements, eachFinancial Statements on page F-1 is filed as part of our executive officers is entitled to receive an annual base salarythis Annual Report on Form 10-K.
(a)(3) Exhibits
The exhibits filed as follows: Mr. Hurly, $425,000; Mr. McCabe, $265,000; and Dr. DeCillis, $417,000. In February 2016, our board approved a merit based salary increase retroactively effective to January 1, 2016 for Mr. McCabe, whose annual base salary was increased to $305,000.
In addition, pursuant to their respective employment agreements, eachpart of our executive officers is eligible to receive an annual cash bonus, which is basedthis Annual Report on Form 10-K are set forth on the achievement of individualExhibit Index immediately preceding such exhibits and corporate performance objectives, calculated as a percentage of the executive’s annual base salary, and which will be determinedare incorporated herein by our board, in its sole discretion, as follows: Mr. Hurly 50%, Mr. McCabe 25% and Dr. DeCillis 30%. In connection with Mr. McCabe’s promotion to Chief Financial Officer, the Board approved an increase to the target bonus for Mr. McCabe from 25% of his annual base salary in 2015 to 30% of his annual base salary in 2016.reference.
In connection with the Acquisition, we also entered into a retention letter agreement with Mr. McCabe, who continued to serve as our Chief Financial Officer following the closing of the Acquisition. The retention letter agreement, as subsequently amended on March 5, 2017, provides that Mr. McCabe: (i) would receive a $75,000 bonus at the closing of the Acquisition, (ii) is eligible for an additional $75,000 retention bonus payable in twelve months or earlier if his employment is terminated without cause or for good reason (each as defined in his employment agreement); (iii) may voluntarily resign without good reason (as defined in his employment agreement) within the twelve-month period following the closing of the Acquisition and receive the post-change in control severance benefits under his employment agreement, provided however, in such case, Mr. McCabe would forego the above described retention bonus, and (iv) would receive options to purchase 100,000 shares of our common stock at an exercise price of $3.37 per share.
Potential Payments to Named Executive Officers Upon Termination or Change in Control Transaction
Upon execution and effectiveness of a release of claims, each of our named executive officers will be entitled to severance payments if his employment is terminated under specified circumstances.
Mr. Hurly. If we terminate Mr. Hurly’s employment without cause, as defined in his employment agreement, or if Mr. Hurly terminates his employment with us for good reason, as defined in his employment agreement, absent a change in control transaction, as defined in his employment agreement, we are obligated to (i) pay Mr. Hurly’s base salary for a period of 12 months, paid in accordance with our then-current payroll practices, (ii) pay Mr. Hurly an amount equal to his target bonus payment for the year in which the termination of employment occurs, prorated for the portion of the year in which he was employed, and, (iii) to the extent allowed by applicable law and the applicable plan documents, continue to provide Mr. Hurly and certain of his dependents with group health and dental insurance for a period of 12 months.
If we terminate Mr. Hurly’s employment without cause or if Mr. Hurly terminates his employment with us for good reason, in each case within 18 months following a change in control transaction, as defined in his employment agreement, we are obligated to (i) pay Mr. Hurly an amount equal to his base salary for 12 months, paid in accordance with our then-current payroll practices, (ii) pay Mr. Hurly an amount equal to his target bonus payment for the year in which the termination of employment occurs, (iii) accelerate in full the vesting of all of Mr. Hurly’s outstanding equity awards and, (iv) to the extent allowed by applicable law and the applicable plan documents, continue to provide Mr. Hurly and certain of his dependents with group health and dental insurance for a period of 12 months.
In addition, we have agreed to indemnify Mr. Hurly in any action or proceeding arising out of his service to us, unless he initiates such action or proceeding. These indemnification obligations may require us, among other things, to indemnify Mr. Hurly for certain expenses, including attorneys’ fees that are incurred by him, and to advance to Mr. Hurly such expenses upon request.
Other named executive officers. If we terminate Mr. McCabe's or Dr. DeCillis's employment without cause, as defined in their respective employment agreements, or if Mr. McCabe or Dr. DeCillis terminates his employment with us for good reason, as defined in their respective employment agreements, absent a change in control transaction, as defined in their respective employment agreements, we are obligated to (i) pay Mr. McCabe's or Dr. DeCillis's base salary for a period of 12 months, paid in accordance with our then-current payroll practices and, (ii) to the extent allowed by applicable law and the applicable plan documents, continue to provide Mr. McCabe or Dr. DeCillis and certain of his dependents with group health and dental insurance for a period of 12 months.
If we terminate Mr. McCabe's or Dr. DeCillis's employment without cause or if Mr. McCabe or Dr. DeCillis terminates his employment with us for good reason, in each case within 12 months following a change in control transaction, as defined in their respective employment agreements, we are obligated to (i) pay Mr. McCabe or Dr. DeCillis an amount equal to his base salary for 12 months, paid in accordance with our then-current payroll practices, (ii) accelerate in full the vesting of all of Mr. McCabe's or Dr. DeCillis's outstanding equity awards and, (iii) to the extent allowed by applicable law and the applicable plan documents, continue to provide Mr. McCabe or Dr. DeCillis and certain of his dependents with group health and dental insurance for a period of 12 months.
Taxation. To the extent that any severance or other compensation payment to any of Messrs. Hurly and McCabe or Dr. DeCillis pursuant to his employment agreement or any other agreement constitutes an “excess parachute payment” within the meaning of Sections 280G and 4999 of the Code, then such executive officer will receive the full amount of such severance and other payments, or a reduced amount intended to avoid the application of Sections 280G and 4999, whichever provides the executive with the highest amount on an after-tax basis.
401(k) Plan
We maintain a defined contribution employee retirement plan for our employees. Our 401(k) plan is intended to qualify as a tax-qualified plan under Section 401 of the Code so that contributions to our 401(k) plan, and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan. Our 401(k) plan provides that each participant may contribute up to 75% of his or her pre-tax compensation, up to a statutory limit, which was $18,000 for 2016. Participants who are at least 50 years old can also make “catch-up” contributions, which in 2016 was up to an additional $6,000 above the statutory limit. Under our 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee, subject to participants’ ability to give investment directions by following certain procedures. We can make discretionary contributions or matching contributions to our 401(k) plan based on a percentage of contributions made by the employee. We may limit the amount of discretionary contributions up to a specified percentage or dollar amount. Viventia sponsored a 401(k) retirement plan for its U.S.-based employees. Participants may contribute a percentage of their annual compensation to this plan, subject to statutory limitations.
Executive and Director Compensation Processes
Our executive compensation program is administered by the compensation committee of our board, subject to the oversight and approval of our full board. Our compensation committee reviews our executive compensation practices on an annual basis and based on this review makes recommendations to our board for approval, which has full discretion to approve or modify the recommendations of the compensation committee.
In designing our executive compensation program, our compensation committee considers publicly available compensation data for national and regional companies in the biotechnology/pharmaceutical industry to help guide its executive compensation decisions at the time of hiring and for subsequent adjustments in compensation. Our compensation committee has also retained the services of Radford, an independent compensation consultant, to provide it with additional comparative data on executive compensation practices in our industry and to advise it on our executive compensation program generally. Although the compensation committee considers Radford’s advice and recommendations about our executive compensation program, the compensation committee ultimately makes its own decisions about these matters.
None of the compensation committee members and none of our executive officers or directors have any relationship with Radford or the individual consultants employed by Radford. Radford has not provided any other services to our board or management other than compensation consulting services to the compensation committee. The compensation committee has determined that no conflicts of interest exist between Radford and our company, our directors or our executive officers. The compensation committee is directly responsible for the appointment and oversight of any compensation consultants and other advisors it retains.
Our director compensation program is administered by the compensation committee of our board, subject to the oversight and approval of our full board. The compensation committee conducts periodic reviews of director compensation and makes recommendations to the board with respect thereto.
Limitation of Liability and Indemnification
Our certificate of incorporation limits the personal liability of directors for breach of fiduciary duty to the maximum extent permitted by the DGCL, and provides that no director will have personal liability to us or to our stockholders for monetary damages for breach of fiduciary duty as a director. However, these provisions do not eliminate or limit the liability of any of our directors:
for any breach of the director’s duty of loyalty to us or our stockholders;
for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
for voting for or assenting to unlawful payments of dividends, stock repurchases or other distributions; or
for any transaction from which the director derived an improper personal benefit.
Any amendment to or repeal of these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to such amendment or repeal. If the DGCL is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the DGCL.
In addition, our certificate of incorporation provides that we must indemnify our directors and officers and we must advance expenses, including attorneys’ fees, to our directors and officers in connection with legal proceedings, subject to very limited exceptions.
We maintain a general liability insurance policy that covers specified liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers. In addition, we have entered into indemnification agreements with all of our directors and executive officers. These indemnification agreements may require us, among other things, to indemnify each such director and executive officer for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by him in any action or proceeding arising out of his or her service as one of our directors or executive officers.
Some of our non-employee directors may, through their relationships with their employers, be insured or indemnified against specified liabilities incurred in their capacities as members of our board.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, or the Securities Act, may be permitted to directors, executive officers or persons controlling us, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Director Compensation
Our non-employee directors are compensated for their services on our board as follows:
|
| | |
Compensation | | |
Annual Board Cash Retainer | | $35,000 |
Additional Retainer for Non-Executive Chair of the Board | | $47,500 |
Additional Retainers for Committee Chairs | | |
● Audit | | $15,000 |
● Compensation | | $10,000 |
● Nominating and Corporate Governance | | $7,500 |
Additional Retainers for Committee Members | | |
● Audit | | $7,500 |
● Compensation | | $6,000 |
● Nominating and Corporate Governance | | $3,750 |
Annual Equity Award | | 8,072 shares of common stock |
Initial Equity Award | | 16,143 shares of common stock |
The stock options granted to our non-employee directors will have an exercise price equal to the fair market value of our common stock on the date of grant and will expire ten years after the date of grant. The initial stock options granted to our non-employee directors will, subject to the director’s continued service on our board, vest monthly in equal amounts over a three-year period following the grant date. The annual stock options granted to our non-employee directors will, subject to the director’s continued service on our board, vest monthly in equal amounts over a one-year period following the grant date.
Each annual cash fee will be payable in arrears in four equal quarterly installments on the last day of each quarter, provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our board.
Each member of our board will also be entitled to reimbursement for reasonable travel and other expenses incurred in connection with attending meetings of the board and any committee on which he or she serves.
The table below shows all compensation to our non-employee directors during 2016.
|
| | | | | | | | | |
Name | | Fees Earned or Paid in Cash ($) | | Option Awards ($)(1) | | Total ($) |
Wendy L. Dixon(2) | | 47,687 |
| | 9,246 |
| | 56,933 |
|
David A. Berry, M.D., Ph.D.(3) | | 25,625 |
| | 9,246 |
| | 34,871 |
|
Abbie C. Celniker, Ph.D.(4) | | 9,701 |
| | — |
| | 9,701 |
|
Paul G. Chaney(2) | | 41,000 |
| | — |
| | 41,000 |
|
Leslie L. Dan(5) | | 9,701 |
| | 34,568 |
| | 44,269 |
|
Jay Duker, M.D.(2) | | 35,000 |
| | 9,246 |
| | 44,246 |
|
Barry Gertz, M.D.(2) | | 35,000 |
| | 9,246 |
| | 44,246 |
|
Jane V. Henderson(2) | | 53,750 |
| | 9,246 |
| | 62,996 |
|
Daniel S. Lynch(2) | | 104,435 |
| | 9,246 |
| | 113,681 |
|
Cary G. Pfeffer, M.D.(6) | | 28,010 |
| | 9,246 |
| | 37,256 |
|
| |
(1) | The amounts reported in the “Option Awards” column reflect the aggregate grant date fair value of stock-based compensation awarded during the year computed in accordance with the provisions of Financial Accounting Standards Board ASC Topic 718. See Note 12 to our financial statements appearing at the end of our Annual Report on Form 10-K for the year ended December 31, 2016 regarding assumptions underlying the valuation of equity awards. |
| |
(2) | Immediately following the annual meeting of stockholders held on June 8, 2016, Dr. Dixon, Dr. Berry, Mr. Chaney, Dr. Duker, Dr. Gertz, Ms. Henderson, Mr. Lynch and Dr. Pfeffer each received an option to purchase 8,072 shares of common stock at an exercise price of $1.83 per share. These stock options vest over twelve months, with 1/12th of the shares underlying the option vesting at the end of each one-month period following June 8, 2016. |
| |
(3) | Dr. Berry resigned from our board on August 15, 2016. |
| |
(4) | Dr. Celniker became a non-employee director on September 20, 2016. All fees reported as director compensation reflect amounts paid after September 20, 2016. |
| |
(5) | In connection with the election of Mr. Dan as a member of our board, in September 2016, our board granted Mr. Dan an option to purchase 16,143 shares of our common stock at an exercise price of $3.37 per share. This stock option vests over three years, with 1/36th of the shares underlying the option vesting at the end of each one-month period following September 20, 2016. |
| |
(6) | Dr. Pfeffer resigned from our board on September 20, 2016. |
During 2016, we did not provide any additional compensation to Mr. Hurly, our President and Chief Executive Officer, for his service as a director. Mr. Hurly’s compensation as a named executive officer is set forth above under “Executive Compensation—Summary Compensation Table.”
The table below shows all stock options held by each of our directors at the end of 2016.
|
| | | | | |
NameExhibit No. | Description |
2.1 | Stock Options Outstanding
|
Wendy L. Dixon3.1 | | | | 32,287 |
|
David A. Berry, M.D., Ph.D.(1)3.2 | | | | — |
|
Abbie C. Celniker, Ph.D.3.3 | | | | 506,449 |
|
Paul G. Chaney3.4 | | | | 32,287 |
|
Leslie L. Dan4.1* | | | | 16,143 |
|
Jay Duker, M.D.4.2 | | | | 24,215 |
|
Barry Gertz, M.D.4.3 | | | | 24,215 |
|
Jane V. Henderson4.4 | | | | 45,277 |
|
Daniel S. Lynch4.5 | | | | 106,695 |
|
Cary G. Pfeffer, M.D.(2)4.6 | |
4.7 | |
10.1+ | | — |
|
| | | | | |
(1)10.2+ | Dr. Berry resigned from |
10.3+ | |
10.4+ | |
10.5+ | |
10.6+ | |
10.7+ | |
10.8* | |
10.9+ | |
10.10†
| |
10.11†
| |
10.12† | |
10.13† | |
10.14+ | |
10.15 | |
10.16 | |
10.17+ | |
10.18† | |
10.19+ | |
10.20+ | |
| | | | | |
10.21+ | |
10.22+ | |
10.23 | |
10.24 | |
10.25† | |
10.26 | |
10.27+ | |
10.28+ | |
10.29 | |
10.30*+ | |
10.31*+ | |
21.1* | |
23.1* | |
31.1* | |
31.2* | |
32.1* | |
32.2* | |
101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
101 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| |
(2) | Dr. Pfeffer resigned from our board on September 20, 2016. |
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board or our compensation committee. None of the members of our compensation committee is, or has ever been, an officer or employee of our company.
| |
* | Filed herewith. |
+ | This exhibit is a compensatory plan or arrangement in which our executive officers or directors participate. |
† | Portions of this exhibit have been omitted in compliance with Item 12. | Security Ownership601 of Certain Beneficial Owners and Management and Related Stockholder Matters.Regulation S-K. |
The following table sets forth information with respect
Item 16. Form 10-K Summary.
Not applicable.
SIGNATURES
Pursuant to the beneficial ownershiprequirements of our common stock asSection 13 or 15(d) of March 24, 2017 by:
each of our directors;
each of our named executive officers;
all of our directors and executive officers as a group; and
each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock based on currently available Schedules 13D and 13G filed with the Securities and Exchange Commission.
The column entitled “Percentage of Shares Beneficially Owned” is based on a total of 24,700,746 shares of our common stock outstanding as of March 24, 2017.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of our common stock subject to options and warrants that are currently exercisable or exercisable within 60 days after March 24, 2017 are considered outstanding and beneficially owned by the person holding the options or warrants for the purpose of calculating the percentage ownership of that person but not for the purpose of calculating the percentage ownership of any other person. Except as otherwise noted, the persons and entities in this table have sole voting and investing power with respect to all of the shares of our common stock beneficially owned by them, subject to community property laws, where applicable. Except as otherwise set forth below, the address of each beneficial owner is c/o Eleven Biotherapeutics, Inc., 245 First Street, Suite 1800, Cambridge, Massachusetts 02142.
|
| | | | | | |
Name and Address of Beneficial Owner | | Number of shares beneficially owned | | Percentage of shares beneficially owned |
5% Stockholders: | | | | |
Clairmark Investments Ltd.(1) | | 3,582,328 |
| | 14.5 | % |
Entities affiliated with Flagship Ventures Management, Inc.(2) | | 1,400,944 |
| | 5.7 | % |
JAFCO Super V3 Investment Limited Partnership(3) | | 1,449,337 |
| | 5.9 | % |
Third Rock Ventures, L.P.(4) | | 4,841,591 |
| | 19.6 | % |
Directors and Named Executive Officers: | | | | |
Wendy L. Dixon, Ph.D.(5) | | 29,372 |
| | * |
|
Abbie C. Celniker, Ph.D.(6) | | 916,364 |
| | 3.6 | % |
Paul G. Chaney(7) | | 31,614 |
| | * |
|
Leslie L. Dan(1)(8) | | 3,585,915 |
| | 14.5% |
|
Jay S. Duker, M.D.(9) | | 19,955 |
| | * |
|
Barry J. Gertz, M.D., Ph.D.(9) | | 19,955 |
| | * |
|
Jane V. Henderson(10) | | 41,979 |
| | * |
|
Daniel S. Lynch(11) | | 176,901 |
| | * |
|
Stephen A. Hurly(12) | | 398,031 |
| | 1.6 | % |
John J. McCabe, C.P.A. (13) | | 127,865 |
| | * |
|
Arthur DeCillis, M.D. | | — |
| | * |
|
Karen Tubridy, Pharm.D.(14) | | 32,753 |
| | * |
|
All current executive officers and directors as a group (11 persons)(15) | | 5,347,951 |
| | 20.9 | % |
| |
(1) | Based on information reported by Clairmark Investments Ltd. on Schedule 13D filed (1) with the SEC on September 26, 2016. Clairmark is the beneficial owner of the 3,582,328 shares of common stock issued to Clairmark as consideration for the Acquisition of Viventia. Of these shares, 358,232 are being held in escrow for indemnification purposes related to the Acquisition. The address of each of the reporting persons is Clairmark Investments Ltd., 305 Milner Avenue, Suite 914, Toronto, Ontario M1B 3V4. |
| |
(2) | Based on information reported by Flagship Ventures Fund 2007, L.P. on Schedule 13D/A filed with the SEC on November 30, 2016. Flagship Ventures Fund 2007, L.P., or Flagship 2007 Fund, Flagship Ventures Fund IV, L.P., or Flagship IV Fund, and Flagship Ventures Fund Iv-Rx, L.P., or Flagship IV-Rx Fund, directly hold 1,090,887 shares, 247,550 shares and 62,507 shares of common stock, respectively. Flagship Ventures 2007 General Partner LLC, or Flagship 2007 GP, as the general partner of Flagship 2007 Fund, may be deemed to beneficially own the shares directly held by Flagship 2007 Fund. Flagship Ventures Fund IV General Partner LLC, or Flagship IV GP, as the general partner of Flagship IV Fund and Flagship IV-Rx Fund, may be deemed to beneficially own the shares directly held by Flagship IV Fund and Flagship IV-Rx Fund. Dr. Afeyan and Mr. Kania, as the managers of Flagship 2007 GP and Flagship IV GP, may be deemed to beneficially own the shares directly held by Flagship 2007 Fund, Flagship IV Fund and Flagship IV-Rx Fund. Dr. Afeyan and Mr. Kania hereby disclaim beneficial ownership of the shares of common stock held by Flagship 2007 Fund, Flagship IV Fund, and Flagship IV-Rx Fund, except to the extent of their pecuniary interest therein. The address of each of the reporting persons is Flagship Ventures, One Memorial Drive, 7th Floor, Cambridge, MA 02142. |
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(3) | Based on information reported by JAFCO Super V3 Investment Limited Partnership, or JAFCO Super V3, and JAFCO Co., Ltd. on Schedule 13G/A filed with the SEC on February 9, 2016. JAFCO Super V3 directly holds 1,449,337 shares of common stock. JAFCO Co., Ltd., as the general partner of JAFCO Super V3, may be deemed to have sole power to vote and sole power to dispose of shares of the issuer directly owned by JAFCO Super V3. The address of each of the reporting persons is Otemachi First Square West Tower 11F, 1-5-1, Otemachi Chiyoda-Ku, Tokyo, Japan 100-0004. |
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(4) | Based on information reported by Third Rock Ventures, L.P., or TRV L.P., on Schedule 13D filed with the SEC on February 21, 2014. TRV L.P. directly holds 4,841,591 shares of common stock. Each of Third Rock Ventures GP L.P., or TRV GP, as sole general partner of TRV L.P., and Third Rock Ventures GP, LLC, or TRV GP LLC, as sole general partner of TRV GP, may be deemed to share voting and dispositive power with respect to all shares held by TRV L.P. Each of Mark J. Levin, Kevin Starr, and Dr. Robert I. Tepper, as a manager of TRV LLC, may also be deemed to share voting and dispositive power with respect to all shares held by TRV L.P. Each of the reporting persons disclaims beneficial ownership of the TRV Shares other than those shares which such person owns of record. The address of each of the reporting persons is Third Rock Ventures, 29 Newbury Street, 3rd Floor, Boston, MA 02116. |
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(5) | Consists of 29,372 shares of common stock issuable upon the exercise of options exercisable within 60 days after March 24, 2017. |
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(6) | Consists of (i) 409,915 shares of common stock and (ii) 506,449 shares of common stock issuable upon the exercise of options exercisable within 60 days after March 24, 2017. |
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(7) | Consists of 31,614 shares of common stock issuable upon the exercise of options exercisable within 60 days after March 24, 2017. |
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(8) | Includes 3,587 shares of common stock issuable upon the exercise of options exercisable within 60 days after March 24, 2017. |
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(9) | Consists of 19,955 shares of common stock issuable upon the exercise of options exercisable within 60 days after March 24, 2017. |
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(10) | Consists of 41,979 shares of common stock issuable upon the exercise of options exercisable within 60 days after March 24, 2017. |
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(11) | Consists of (i) 70,879 shares of restricted common stock and (ii) 106,022 shares of common stock issuable upon the exercise of options exercisable within 60 days after March 24, 2017. |
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(12) | Consists of 398,031 shares of common stock issued to Mr. Hurly as consideration for the Acquisition (as defined below). Of these shares, 39,803 are being held in escrow for indemnification purposes related to the Acquisition. |
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(13) | Consists of (i) 5,930 shares of common stock and (ii) 121,935 shares of common stock issuable upon the exercise of options exercisable within 60 days after March 24, 2017. |
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(14) | Based upon information set forth in the Form 4 filed on Jun 29, 2016. Ms. Tubridy resigned as or Chief Development Officer on September 20, 2016. |
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(15) | Consists of (i) 4,467,083 shares of common stock and (ii) 880,868 shares of common stock issuable upon the exercise of options exercisable within 60 days after March 24, 2017. |
Securities Authorized for Issuance under Equity Incentive Plans
The following table sets forth information concerning the awards that may be issued under our 2014 Stock Incentive Plan or under separate inducement awards as of December 31, 2016.
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| | | | | | | | | | | |
Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights (1) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
Equity compensation plans approved | | | | | | | |
by security holders | | 1,377,801 |
| (2) | $ | 4.90 |
| | 1,088,303 |
| |
Equity compensation plans not approved | | | | | | | |
by security holders | | 650,000 |
| (3) | 3.37 |
| | — |
| (4) |
Total | | 2,027,801 |
| | $ | 4.41 |
| | 1,088,303 |
| |
|
| |
(1) | Represents the weighted-average exercise price of outstanding stock options only. As restricted stock units have no exercise price, they are excluded from the weighted-average exercise price calculation. |
|
| |
(2) | Consists of outstanding (i) options to purchase 1,374,468 shares of common stock and (ii) restricted stock units covering an aggregate of 3,333 shares of common stock. Shares in settlement of vested restricted stock units are deliverable within 30 days of the vesting date. |
(3) | Reflects option grants that were “inducement grants” as defined under NASDAQ Listing Rule 5635(c)(4). Each of the inducement grants expires on the day preceding the tenth anniversary of the grant date and vests over four years, with 25% of the original number of shares subject to the option vesting on the one year anniversary of the date of grant of the option and an additional 6.25% of the shares subject to the option vesting at the end of each successive three-month period following the one-year anniversary of the date of grant of the option, subject to the recipient’s continued service with us through the applicable vesting dates. |
(4) | Our board of directors has not established any specific number of shares that could be issued without stockholder approval. Inducement grants to new key employees are determined on a case-by-case basis. Other than possible inducement grants, we expect that all equity awards will be made under stockholder-approved plans. |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Director Independence
Our board observes all applicable criteria for independence established by the NASDAQ Stock Market Rules and other governing laws and applicable regulations, including the requirement that a majority of our directors be independent as defined under the NASDAQ Stock Market Rules. Under Rule 5605(a)(2) of the NASDAQ Stock Market Rules, a director will only qualify as an “independent director” if, in the opinion of our board, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our board has determined that all of our directors with the exceptions of Messrs. Hurly and Dan and Dr. Celniker are independent as defined under the NASDAQ Stock Market Rules.
In addition, the NASDAQ Stock Market Rules require that, subject to specified exceptions, (i) each member of our audit and compensation committees be independent, (ii) each member of our audit committee satisfy independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act; and (iii) each member of our compensation committee satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act. In orderregistrant has duly caused this report to be considered independent for purposes of Rule 10A-3, a member of our audit committee may not, other than in his or her capacity as a membersigned on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | | SESEN BIO, INC. |
| | | (Registrant) |
| | | |
Date: | February 28, 2022 | By: | /s/ Thomas R. Cannell, D.V.M. |
| | Name: | Thomas R. Cannell, D.V.M. |
| | Title: | President and Chief Executive Officer |
| | | (Principal Executive Officer and Duly Authorized Officer) |
Pursuant to the requirements of the audit committee, the board, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from us or any of our subsidiaries; or (2) be an affiliated person of us or any of our subsidiaries. In addition, Rule 10C-1 under theSecurities and Exchange Act requires that,of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | |
Signature | Capacity | Date |
/s/ Thomas R. Cannell, D.V.M. | President, Chief Executive Officer and Director (Principal Executive Officer) | February 28, 2022 |
Thomas R. Cannell, D.V.M. | | |
/s/ Monica Forbes | Chief Financial Officer (Principal Financial Officer) | February 28, 2022 |
Monica Forbes | | |
/s/ Elly Ryu | Corporate Controller (Principal Accounting Officer) | February 28, 2022 |
Elly Ryu | | |
/s/ Jay S. Duker, M.D. | Chair of the Board of Directors | February 28, 2022 |
Jay S. Duker, M.D. | | |
/s/ Carrie L. Bourdow | Director | February 28, 2022 |
Carrie L. Bourdow | | |
/s/ Jason A. Keyes | Director | February 28, 2022 |
Jason A. Keyes | | |
/s/ Peter K Honig, M.D. | Director | February 28, 2022 |
Peter K Honig, M.D. | | |
/s/ Michael A.S. Jewett, M.D. | Director | February 28, 2022 |
Michael A.S. Jewett, M.D. | | |
INDEX TO FINANCIAL STATEMENTS
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| Page |
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) | |
Consolidated Balance Sheets | |
Consolidated Statements of Operations and Comprehensive Loss | |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | |
Consolidated Statements of Cash Flows | |
Notes to Consolidated Financial Statements | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Sesen Bio, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sesen Bio, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the independence of each member of our compensation committee, our board consider all factors specifically relevant to determining whether a director has a relationshipCompany in accordance with us which is material to that director’s ability to be independent from management in connection with his or her duties as a compensation committee member, including, but not limited to: (1) the source of his or her compensation as a director, including any consulting, advisory or other compensatory fee paid by us to him or her;U.S. federal securities laws and (2) whether he or she is affiliated with us or any of our subsidiaries or affiliates.
Our board has also determined that: (i) Ms. Henderson, Dr. Dixon and Mr. Lynch who comprise our audit committee; and (ii) Messrs. Lynch and Chaney and Dr. Dixon who comprise our compensation committee, each satisfy the independence standards for those committees established by the applicable rules and regulations underof the Securities and Exchange ActCommission and the NASDAQ Stock Market Rules. In addition,PCAOB.
We conducted our audits in accordance with the exceptionstandards of Dr. Celniker, each memberthe PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our nominating and corporate governance committee is independent as defined underaudits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the NASDAQ Stock Market Rules. In making such determination, our board consideredcurrent period audit of the relationshipsfinancial statements that each such non-employee director has with us and all other facts and circumstances our board deemed relevant in determining independence.
Related Person Transactions Policy
Our board has adopted written policies and procedures for the review of any transaction, arrangementwere communicated or relationship in which our company is a participant, the amount involved exceeds $120,000 and one of our executive officers, directors, director nominees or 5% stockholders, or their immediate family members, each of whom we refer to as a “related person,” has a direct or indirect material interest. As a smaller reporting company, we are also required to review and approve any transaction, arrangement or relationship in which our company is a participant, the amount involved exceeds the lesser of $120,000 and or one percent of the average of our total assets at year-end for the last two completed fiscal years, and a related person has a direct or indirect material interest. Because one percent of our average total assets for the past two fiscal years has exceeded $120,000, our board has continuedbe communicated to apply the $120,000 threshold under our policy.
If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our principal accounting officer. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our audit committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chair of the audit committee and that: (1) relates to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the audit committee at its next meeting. Any related person transactionsaccounts or disclosures that are ongoingmaterial to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in nature will be reviewed annually.any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
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| | Fair Value of Contingent Consideration |
Description of the Matter | | As discussed in Notes 3 and 5 to the consolidated financial statements under the caption “Contingent Consideration,” the Company uses a discounted cash flow model to estimate the fair value of the contingent consideration liability each reporting period, which represents the present value of projected future cash flows associated with regulatory approval milestones and royalties on net sales due to the selling shareholders of Viventia Bio Inc. Fluctuations in the fair value of the liability result in a charge to earnings (or loss) during the period. As of December 31, 2021, the Company estimated the fair value of the contingent consideration liability as $52.0 million and recorded the change in fair value of $56.8 million as operating income for the year ended December 31, 2021.
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| | Auditing the fair value of the contingent consideration liability required significant auditor judgment due to the high degree of subjectivity in evaluating certain assumptions used to estimate the fair value. In particular, the fair value measurement was sensitive to the significant assumptions underlying the projected commercial sales of Vicineum and probabilities of success and timing of certain milestone events and achievements. |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the development of the significant assumptions over the Company’s process to estimate the fair value of the contingent consideration liability. This included testing controls over management’s review of the significant estimation assumptions and methods used to develop the fair value estimate, the accuracy of the calculations included within the fair value model, and the underlying data used in the model. |
| | To test the estimated fair value of the contingent consideration liability, our audit procedures included, among others, assessing the terms of the arrangement, evaluating the methodology used and testing the key inputs and significant assumptions discussed above. We evaluated the significant assumptions in light of observable industry and economic trends and standards, external data sources, probability of success benchmarks, and regulatory factors. Our procedures included evaluating the data sources used by management in determining its significant assumptions and included an evaluation of available information that either corroborated or contradicted management’s conclusions. In addition, we involved our valuation professionals to assess the methodology used to determine the fair value of the contingent consideration liability, which included performing corroborative fair value calculations. |
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| | Impairment Evaluation of Goodwill and Indefinite-Lived Intangible Assets |
Description of the Matter | | As discussed in Notes 3 and 8 to the consolidated financial statements under the captions “Indefinite-Lived Intangible Assets” and “Goodwill,” the Company’s intangible assets consist of indefinite-lived, acquired in-process research and development (IPR&D) worldwide product rights to Vicineum as a result of the acquisition of Viventia in 2016. Goodwill on the Company's consolidated balance sheets is the result of the Company’s acquisition of Viventia in September 2016 and represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired under the acquisition method of accounting. Indefinite-lived intangible assets are quantitatively tested for impairment at least annually during the fourth quarter of the fiscal year, or more often if indicators of impairment are present. Goodwill is quantitatively tested for impairment at least annually during the fourth quarter of the fiscal year, or more often if indicators of impairment are present. Impairment testing of IPR&D requires management to estimate the future discounted cash flows of the underlying asset. Impairment testing of goodwill requires management to estimate the future discounted cash flows of the Company’s one reporting unit. |
| | Auditing management’s impairment assessments required significant auditor judgment due to the high degree of subjectivity in evaluating certain assumptions used to estimate the fair value of the reporting unit for and the IPR&D. In particular, the fair value estimates of goodwill and of IPR&D were sensitive to the significant assumptions underlying the projected commercial sales of Vicineum. |
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the development of the significant assumptions over the Company’s goodwill and indefinite-lived intangible asset impairment review processes. This included testing controls over management’s review of the quantitative impairment analyses of goodwill and IPR&D, including the significant estimation assumptions and methods used, the accuracy of the calculations included within the valuation models, and the underlying data used in those models.
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| | To test the impairment evaluations over goodwill and IPR&D assets, our audit procedures included, among others, evaluating the methodology and valuation models used and testing the key inputs and significant assumptions discussed above. We evaluated the significant assumptions in light of observable industry and economic trends and standards, external data sources, probability of success benchmarks, and regulatory factors. Our procedures included evaluating the data sources used by management in determining its significant assumptions and included an evaluation of available information that either corroborated or contradicted management’s conclusions. In addition, we inspected the Company’s reconciliation of the fair value of the reporting unit to the market capitalization of the Company and assessed the results. We involved our valuation professionals to assess the methodology and valuation of the discounted cash flow models, including evaluating the reasonableness of certain significant assumptions. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010.
Boston, Massachusetts
February 28, 2022
SESEN BIO, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 162,636 | | | $ | 52,389 | |
Accounts receivables | 21,011 | | | — | |
Other receivables | 3,482 | | | — | |
Prepaid expenses and other current assets | 18,476 | | | 7,478 | |
Restricted Cash | — | | | 3,000 | |
Total current assets | 205,605 | | | 62,867 | |
| | | |
Non-current assets: | | | |
Restricted cash | 20 | | | 20 | |
Property and equipment, net | 43 | | | 123 | |
Intangible assets | 14,700 | | | 46,400 | |
Goodwill | 13,064 | | | 13,064 | |
Long term prepaid expenses | 7,192 | | | — | |
Other assets | 123 | | | 349 | |
Total non-current assets | $ | 35,142 | | | $ | 59,956 | |
Total Assets | $ | 240,747 | | | $ | 122,823 | |
| | | |
Liabilities and Stockholders’ Equity (Deficit) | | | |
Current liabilities: | | | |
Accounts payable | $ | 2,853 | | | $ | 3,102 | |
Accrued expenses | 8,255 | | | 3,973 | |
Deferred revenue | — | | | 1,500 | |
Contingent consideration | — | | | 8,985 | |
Other current liabilities | 460 | | | 489 | |
Total current liabilities | 11,568 | | | 18,049 | |
| | | |
Non-current liabilities: | | | |
Contingent consideration, net of current portion | 52,000 | | | 99,855 | |
Deferred tax liability | 3,969 | | | 12,528 | |
Deferred revenue, net of current portion | 1,500 | | | 1,500 | |
Other non-current liabilities | — | | | 118 | |
Total non-current liabilities | 57,469 | | | 114,001 | |
Total Liabilities | 69,037 | | | 132,050 | |
| | | |
Stockholders’ Equity (Deficit): | | | |
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at December 31, 2021 and 2020; no shares issued and outstanding at December 31, 2021 and 2020 | — | | | — | |
Common stock, $0.001 par value per share; 400,000,000 and 200,000,000 shares authorized at December 31, 2021 and 2020; 199,463,645 and 140,449,647 shares issued and outstanding at December 31, 2021 and 2020, respectively | 199 | | | 140 | |
Additional paid-in capital | 487,768 | | | 306,554 | |
Accumulated deficit | (316,257) | | | (315,921) | |
Total Stockholders’ Equity (Deficit) | 171,710 | | | (9,227) | |
Total Liabilities and Stockholders’ Equity | $ | 240,747 | | | $ | 122,823 | |
The accompanying notes are an integral part of these consolidated financial statements.
SESEN BIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data) | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
Revenue: | | | | | |
License and related revenue | $ | 26,544 | | | $ | 11,236 | | | $ | — | |
Total Revenue | 26,544 | | | 11,236 | | | — | |
| | | | | |
Operating expenses: | | | | | |
Research and development | 25,312 | | | 29,191 | | | 24,663 | |
General and administrative | 29,393 | | | 14,302 | | | 12,208 | |
Restructuring charge | 5,528 | | | — | | | — | |
Intangibles impairment charge | 31,700 | | | — | | | — | |
Change in fair value of contingent consideration | (56,840) | | | (11,180) | | | 71,620 | |
Total operating expenses | 35,093 | | | 32,313 | | | 108,491 | |
| | | | | |
Loss from Operations | $ | (8,549) | | | $ | (21,077) | | | $ | (108,491) | |
Other (expense) income, net | (60) | | | 125 | | | 991 | |
Loss Before Taxes | $ | (8,609) | | | $ | (20,952) | | | $ | (107,500) | |
Benefit (provision) from income taxes | $ | 8,273 | | | $ | (1,445) | | | $ | — | |
Net Loss and Comprehensive Loss After Taxes | $ | (336) | | | $ | (22,397) | | | $ | (107,500) | |
| | | | | |
Deemed dividend on adjustment of exercise price of certain warrants | $ | — | | | $ | (147) | | | $ | — | |
| | | | | |
Net loss attributable to common stockholders - basic and diluted | $ | (336) | | | $ | (22,544) | | | $ | (107,500) | |
Net loss per common share - basic and diluted | $ | — | | | $ | (0.19) | | | $ | (1.18) | |
Weighted-average common shares outstanding - basic and diluted | $ | 182,323 | | | $ | 118,221 | | | $ | 90,929 | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
SESEN BIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Stockholders’ Equity (Deficit) |
| Shares | | Amount | |
Balance at December 31, 2018 | 77,456,180 | | | $ | 77 | | | $ | 230,154 | | | $ | (186,024) | | | $ | 44,207 | |
Net loss | — | | | — | | | — | | | (107,500) | | | (107,500) | |
Share-based compensation | — | | | — | | | 1,237 | | | — | | | 1,237 | |
Exercises of stock options and vesting of RSAs | 89,812 | | | — | | | 98 | | | — | | | 98 | |
Sales of common stock under 2014 ESPP | 10,283 | | | — | | | 8 | | | — | | | 8 | |
Issuance of common stock and common stock warrants, net of issuance costs of $2.2 million | 20,410,000 | | | 21 | | | 27,812 | | | — | | | 27,833 | |
Exercises of common stock warrants | 6,772,928 | | | 7 | | | 5,474 | | | — | | | 5,481 | |
Issuance of common stock under ATM Offering, net of issuance costs of $0.2 million | 2,062,206 | | | 2 | | | 1,934 | | | — | | | 1,936 | |
Balance at December 31, 2019 | 106,801,409 | | | 107 | | | 266,717 | | | (293,524) | | | (26,700) | |
Net loss | — | | | — | | | — | | | (22,397) | | | (22,397) | |
Share-based compensation | — | | | — | | | 1,757 | | | — | | | 1,757 | |
Exercises of stock options | 12,000 | | | — | | | 13 | | | — | | | 13 | |
Sales of common stock under 2014 ESPP | 28,186 | | | — | | | 11 | | | — | | | 11 | |
Exercises of common stock warrants | 238,110 | | | — | | | 131 | | | — | | | 131 | |
Issuance of common stock under ATM Offering, net of issuance costs of $1.2 million | 33,369,942 | | | 33 | | | 37,925 | | | | | 37,958 | |
Balance at December 31, 2020 | 140,449,647 | | | 140 | | | 306,554 | | | (315,921) | | | (9,227) | |
Net loss | — | | | — | | | — | | | $ | (336) | | | (336) | |
Share-based compensation | — | | | — | | | 5,143 | | | — | | | 5,143 | |
Exercises of stock options | 33,610 | | | — | | | 42 | | | — | | | 42 | |
| | | | | | | | | |
Exercises of common stock warrants | 2,048,059 | | | 2 | | | 1,124 | | | — | | | 1,126 | |
Issuance of common stock under ATM Offering, net of issuance costs of $5.4 million | 56,932,329 | | | 57 | | | 174,905 | | | — | | | 174,962 | |
Balance at December 31, 2021 | 199,463,645 | | | $ | 199 | | | $ | 487,768 | | | $ | (316,257) | | | $ | 171,710 | |
The accompanying notes are an integral part of these consolidated financial statements.
SESEN BIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
Cash Flows from Operating Activities: | | | | | |
Net loss | $ | (336) | | | $ | (22,397) | | | $ | (107,500) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
Depreciation | 85 | | | 122 | | | 219 | |
Share-based compensation | 5,143 | | | 1,757 | | | 1,237 | |
Change in fair value of contingent consideration | (56,840) | | | (11,180) | | | 71,620 | |
| | | | | |
Intangibles impairment charge | 31,700 | | | — | | | — | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable (net) | (24,493) | | | — | | | — | |
Prepaid expenses and other assets | (17,964) | | | (1,304) | | | (5,188) | |
| | | | | |
Accounts payable | (249) | | | 1,200 | | | 535 | |
Accrued expenses and other liabilities | (4,424) | | | (2,035) | | | 1,556 | |
Deferred revenue | (1,500) | | | 3,000 | | | — | |
Net cash used in operating activities | (68,878) | | | (30,837) | | | (37,521) | |
Cash Flows from Investing Activities: | | | | | |
Purchases of equipment | (4) | | | (8) | | | (136) | |
Net cash used in investing activities | (4) | | | (8) | | | (136) | |
Cash Flows from Financing Activities: | | | | | |
Proceeds from issuance of common stock and common stock warrants, net of issuance costs | — | | | — | | | 27,833 | |
Proceeds from exercises of common stock warrants | 1,126 | | | 131 | | | 5,481 | |
Proceeds from issuance of common stock under ATM Offering, net of issuance costs | 174,962 | | | 37,958 | | | 1,936 | |
Proceeds from exercises of stock options | 42 | | | 13 | | | 98 | |
Proceeds from sale of common stock pursuant to ESPP | — | | | 11 | | | 8 | |
Net cash provided by financing activities | 176,129 | | | 38,113 | | | 35,356 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 107,247 | | | 7,268 | | | (2,301) | |
Cash, cash equivalents and restricted cash - beginning of period | 55,409 | | | 48,141 | | | 50,442 | |
Cash, cash equivalents and restricted cash - end of period | $ | 162,656 | | | $ | 55,409 | | | $ | 48,141 | |
| | | | | |
Reconciliation of cash, cash equivalents and restricted cash: | | | | | |
Cash and cash equivalents | $ | 162,636 | | | $ | 52,389 | | | $ | 48,121 | |
Short term restricted cash | — | | | 3,000 | | | — | |
Long term restricted cash | 20 | | | 20 | | | 20 | |
Total cash, cash equivalents and restricted cash | $ | 162,656 | | | $ | 55,409 | | | $ | 48,141 | |
| | | | | |
Supplemental cash flow disclosure: | | | | | |
Cash paid for amounts included in the measurement of lease liabilities | $ | 174 | | | $ | 154 | | | $ | 153 | |
Supplemental disclosure of non-cash operating activities: | | | | | |
Right-of-use assets related to the adoption of ASC 842 | $ | — | | | $ | — | | | $ | 236 | |
Right-of-use assets obtained in exchange for lease obligations | $ | — | | | $ | 290 | | | $ | — | |
| | | | | |
Supplemental disclosure of non-cash financing activities: | | | | | |
Deemed Dividend on adjustment of exercise price on certain warrants | $ | — | | | $ | 147 | | | $ | — | |
The accompanying notes are an integral part of these consolidated financial statements.
SESEN BIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Sesen Bio, Inc. ("Sesen" or the “Company”), a Delaware corporation formed in February 2008, is a late-stage clinical company advancing targeted fusion protein therapeutics ("TFPTs") for the treatment of patients with cancer. The Company’s most advanced product candidate, VicineumTM, also known as VB4-845, is a locally-administered targeted fusion protein composed of an anti-epithelial cell adhesion molecule ("EpCAM") antibody fragment tethered to a truncated form of Pseudomonas exotoxin A related person transaction reviewed underfor the policy will be considered approved or ratified if it is authorized by the audit committee after full disclosuretreatment of non-muscle invasive CIS of the related person’s interestbladder in patients previously treated with bacillus Calmette-Guérin ("BCG"). The Company has an ongoing single-arm, multi-center, open-label Phase 3 VISTA clinical trial of Vicineum as a monotherapy in patients with BCG-unresponsive NMIBC (the "VISTA Trial"). The VISTA Trial completed enrollment in April 2018 with a total of 133 patients. On December 18, 2020, the Company submitted its completed Biologics License Application (the "BLA") for Vicineum for the treatment of BCG-unresponsive NMIBC to the United States Food and Drug Administration ("FDA"). On February 12, 2021, the FDA notified the Company that it has accepted for filing the BLA. The FDA also granted Priority Review for the BLA and set a target Prescription Drug User Fee Act ("PDUFA") date for a decision on the BLA of August 18, 2021. On July 13, 2021, the Company participated in a productive Late-Cycle Meeting with the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. In the meeting, the FDA confirmed that there was no Advisory Committee meeting planned at that time, and that no post-marketing requirements, including a confirmatory trial, had been identified at that time. Also in the transaction. As appropriatemeeting, the Company and the FDA discussed remaining questions related to manufacturing facilities inspection, product quality information requests and additional information related to chemistry, manufacturing and controls (“CMC”), and a timeline to submit additional supporting information was agreed upon. On August 13, 2021, the Company received a complete response letter (“CRL”) from the FDA indicating that the FDA had determined that it could not approve the BLA for Vicineum in its present form and provided recommendations specific to additional clinical/statistical data and analyses in addition to CMC issues pertaining to a recent pre-approval inspection and product quality.
The Company participated in Type A Meetings with the circumstances, the audit committee will reviewFDA on October 29, 2021 and consider:
theDecember 8, 2021 to discuss questions related person’s interestto CMC and clinical issues raised in the related person transaction;
CRL. Both meetings helped the approximate dollar valueCompany determine the appropriate path forward for Vicineum. Any changes in these assumptions and estimates or other information obtained, may have a significant impact on the remeasurement of the amount involvedcontingent consideration liability in the related person transaction;
the approximate dollar valuefuture. The Company believes it has a clear understanding of the amountwhat additional information regarding CMC is required for resubmission of the related person’s interesta BLA. Additionally, although not an issue raised in the transaction without regardCRL, the FDA confirmed that Vicineum manufactured using the proposed commercial process is comparable to Vicineum used in prior clinical trials. The FDA also confirmed that the amount ofCompany can utilize Vicineum manufactured during process validation for any profit or loss;
whether the transaction was undertakenfuture clinical trials needed to address issues raised in the ordinary course of our business;
whether the terms of the transaction are no less favorable to us than termsCRL, and that could have been reached with an unrelated third party;
the purpose of, and thethese potential benefits to us of, the transaction; andtrials can proceed while addressing CMC issues.
any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.
Our audit committee may approve or ratify the transaction only if it determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, our best interests. Our audit committee may impose any conditions on the related person transaction that it deems appropriate.
In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, our board has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:
interests arising solely from the related person’s position as an executive officer of another entity, whether or not the person is also a director of the entity, that is a participant in the transaction where the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction and the amount involved in the transaction is less than the greater of $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction; and
a transaction that is specifically contemplated by provisions of our certificate of incorporation or by-laws.
The policy provides that transactions involving the compensation of executive officers shall be reviewed and approved by our compensation committee in the manner specified in the compensation committee’s charter.
Certain Relationships and Related Party Transactions
Since January 1, 2016, we have engaged in the following transactions with our directors, executive officers, holders of more than 5% of our voting securities, and affiliates or immediate family members of our directors, executive officers, and holders of more than 5% of our voting securities. We believe that all of these transactions were on terms as favorable as could have been obtained from unrelated third parties.
Viventia AcquisitionCONSOLIDATED BALANCE SHEETS
On September 20, 2016, we entered into a Share Purchase Agreement with Viventia, the Selling Shareholders(In thousands, except share and solely in its capacity as seller representative, Clairmark, an affiliate of Leslie Dan, one of our directors, pursuant to which we agreed to and simultaneously completed the acquisition of all of the outstanding capital stock of Viventia from the Selling Shareholders. The Selling Shareholders included Clairmark and Mr. Hurly, our chief executive officer. In connection with the closing of the Acquisition, we issued 4,013,431 shares of our common stock to the Selling Shareholders according to their pro rataper share of Viventia’s then-outstanding common shares, which represented approximately 19.9% of our voting power as of immediately prior to the issuance of such shares of our common stock.data)
In connection with the closing of the Acquisition, we entered into a registration rights agreement with Clairmark, pursuant to which Clairmark, has rights, subject to specific conditions, to require us to file registration statements covering the 3,582,328 shares it acquired in the Acquisition or to include such shares in registration statements that we may file for ourselves or other stockholders.
In connection with the forgiveness of certain debt held by Viventia immediately preceding the Acquisition, Viventia irrevocably assigned and set over the right to receive up to $814,000 in the form of research and development investment tax credits to and in favor of Clairmark. In October 2016, we received $697,000 in research and development investment tax credits and in November 2016, we remitted the same amount to Clairmark.
Manufacturing and Office Leases
We lease a manufacturing, laboratory, and office facility in Winnipeg, Manitoba, from an affiliate of Mr. Dan, under a five-year renewable lease through September 2020 with a right to renew the lease for one subsequent five-year term. We have an annual minimum rent obligation of $296,000 for this facility. During the year ended December 31, 2016, we incurred $86,000 in rent expense for this facility.
We also lease an office facility in Toronto, Ontario from an affiliate of Mr. Dan. The lease is on a month-to-month basis unless terminated by either party by giving the requisite notice. We pay approximately $2,000 per month for this office facility. During the year ended December 31, 2016, we incurred $5,000 in rent expense for this facility.
Protoden License
We are party to an intellectual property license agreement under which we pay fees to Protoden Technologies Inc., or Protoden, a company owned by Clairmark. Pursuant to the agreement, we have an exclusive, perpetual, irrevocable and non-royalty bearing license, with the right to sublicense, under certain patents and technology to make, use and sell products that utilize such patents and technology. The annual fee is $100,000. Beginning on January 1, 2025, the licenses granted to us will require no further payments to Protoden. During the year ended December 31, 2016, we paid $28,000 to Protoden under this license agreement.
| |
Item 14. | Principal Accountant Fees and Services. |
Audit Fees and Services
Ernst & Young LLP provided audit and tax services to us consisting of the audit of our 2016 and 2015 financial statements and tax compliance services. The following table summarizes the fees for Ernst & Young LLP services to us for the last two fiscal years.
|
| | | | | | | | |
Fee Category | | Fiscal Year 2016 | | Fiscal Year 2015 |
Audit Fees(1) | | $ | 453,200 |
| | $ | 473,860 |
|
Audit-Related Fees(2) | | 157,500 |
| | — |
|
Tax Fees(3) | | 87,500 |
| | 8,500 |
|
All Other Fees(4) | | — |
| | — |
|
Total Fees | | $ | 698,200 |
| | $ | 482,360 |
|
| |
(1) | Audit fees consist of fees for the audit of our annual financial statements. |
| |
(2) | Audit-related fees for fiscal year 2016 were incurred in connection with the Roche License Agreement and Acquisition of Viventia. There were no audit-related fees for fiscal year 2015. |
| |
(3) | Tax fees for fiscal years 2016 and 2015 consist of fees for tax compliance services. In addition, in 2016 we incurred tax fees in connection with a Section 382 study and the Acquisition of Viventia. Tax compliance services relate primarily to the preparation of our U.S. and Massachusetts tax returns. |
| |
(4) | There were no other fees for fiscal years 2016 and 2015. |
In 2014, the audit committee adopted a formal policy concerning approval of audit and non-audit services to be provided to us by our independent registered public accounting firm, Ernst & Young LLP. The policy requires that all services to be provided by Ernst & Young LLP, including audit services and permitted audit-related and non-audit services, be preapproved by the audit committee, provided that de minimis non-audit services may instead be approved in accordance with applicable SEC rules. The board pre-approved all audit and non-audit services provided by Ernst & Young LLP during fiscal year 2016 and 2015.
PART IV
| |
Item 15. | Exhibits and Financial Statement Schedules. |
(a) Financial Statements
The following financial statements and supplementary data are included in Item 8 of this Annual Report on Form 10-K.
(b) Exhibits
The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index immediately preceding such exhibits, and are incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
| | |
ELEVEN BIOTHERAPEUTICS, INC. |
|
By: | | /s/ Stephen A. Hurly |
| | Stephen A. Hurly |
| | President and Chief Executive Officer |
March 24, 2017
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | |
/s/ Stephen A. Hurly | | Director, President and Chief Executive Officer (Principal Executive Officer) | March 24, 2017 |
Stephen A. Hurly | | | |
| | | |
/s/ John J. McCabe | | Chief Financial Officer (Principal Financial and Accounting Officer) | March 24, 2017 |
John J. McCabe | | | |
| | | |
/s/ Wendy L. Dixon, Ph.D. | | Chair of the Board of Directors | March 24, 2017 |
Wendy L. Dixon, Ph.D. | | | |
| | | |
/s/ Abbie C. Celniker | | Director | March 24, 2017 |
Abbie C. Celniker, Ph.D. | | | |
| | | |
/s/ Paul G. Chaney | | Director | March 24, 2017 |
Paul G. Chaney | | | |
| | | |
/s/ Leslie Dan, B.Sc. Phm,. M.B.A., C.M. | | Director | March 24, 2017 |
Leslie Dan, B.Sc. Phm,. M.B.A., C.M. | | | |
| | | |
/s/ Jay S. Duker, M.D. | | Director | March 24, 2017 |
Jay S. Duker, M.D. | | | |
| | | |
/s/ Barry J. Gertz, M.D., Ph.D. | | Director | March 24, 2017 |
Barry J. Gertz, M.D., Ph.D. | | | |
| | | |
/s/ Jane V. Henderson | | Director | March 24, 2017 |
Jane V. Henderson | | | |
| | | |
/s/ Daniel S. Lynch | | Director | March 24, 2017 |
Daniel S. Lynch | | | |
EXHIBIT INDEX
|
| | |
Exhibit
No.
| | Description |
| |
2.1 | | Share Purchase Agreement, effective as of September 20, 2016, by and between Eleven Biotherapeutics, Inc., Viventia Bio Inc. and Clairmark Investments Ltd., as representative of the selling shareholders (we hereby agree to furnish supplementally a copy of any omitted schedules to the SEC upon request). Incorporated herein by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296). |
| | |
3.1 | | Restated Certificate of Incorporation of Eleven Biotherapeutics, Inc. Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on February 18, 2014 (File No. 001-36296). |
| |
3.2 | | Amended and Restated By-laws of Eleven Biotherapeutics, Inc. Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on April 16, 2015 (File No. 001-36296). |
| |
4.1 | | Specimen Stock Certificate evidencing the shares of common stock. Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1/A filed with the SEC on January 23, 2014 (Reg. No. 333-193131). |
| |
4.2 | | Amended and Restated Investors’ Rights Agreement of Eleven Biotherapetics, Inc. Incorporated by reference to Exhibit 4.2 to our Registration Statement on Form S-1/A filed with the SEC on January 23, 2014 (Reg. No. 333-193131). |
| |
4.3 | | Registration Rights Agreement, dated as of September 20, 2016 by and among Eleven Biotherapeutics, Inc. and the shareholders named therein. Incorporated herein by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296).
|
| | |
4.4 | | Form of Warrant to Purchase Common Stock, by and between Eleven Biotherapeutics, Inc. and the persons party thereto. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on December 1, 2014 (File No. 001-36296). |
| | |
4.5 | | Form of Warrant issued to Silicon Valley Bank and Life Science Loans, LLC dated November 25, 2014. Incorporated by reference to Exhibit 10.23 to our Registration Statement on Form S-1 filed with the SEC on December 19, 2014 (Reg. No. 333-201176). |
| | |
10.1+ | | Amended and Restated 2009 Stock Incentive Plan. Incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-1 filed with the SEC on December 30, 2013 (Reg. No. 333-193131). |
| |
10.2+ | | Form of Incentive Stock Option Agreement under the Amended and Restated 2009 Stock Incentive Plan. Incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-1 filed with the SEC on December 30, 2013 (Reg. No. 333-193131). |
| |
10.3+ | | Form of Non-statutory Stock Option Agreement under the Amended and Restated 2009 Stock Incentive Plan. Incorporated by reference to Exhibit 10.3 to our Registration Statement on Form S-1 filed with the SEC on December 30, 2013 (Reg. No. 333-193131). |
| |
10.4+ | | Form of Restricted Stock Agreement under the Amended and Restated 2009 Stock Incentive Plan. Incorporated by reference to Exhibit 10.4 to our Registration Statement on Form S-1 filed with the SEC on December 30, 2013 (Reg. No. 333-193131). |
| |
10.5+ | | 2014 Stock Incentive Plan. Incorporated by reference to Exhibit 10.5 to our Registration Statement on Form S-1/A filed with the SEC on January 23, 2014 (Reg. No. 333-193131). |
| |
10.6+ | | Form of Incentive Stock Option Agreement under 2014 Stock Incentive Plan. Incorporated by reference to Exhibit 10.6 to our Registration Statement on Form S-1/A filed with the SEC on January 23, 2014 (Reg. No. 333-193131). |
| |
10.7+ | | Form of Non-statutory Stock Option Agreement under 2014 Stock Incentive Plan. Incorporated by reference to Exhibit 10.7 to our Registration Statement on Form S-1/A filed with the SEC on January 23, 2014 (Reg. No. 333-193131). |
| | |
10.8+ | | Form of Restricted Stock Unit Agreement under 2014 Stock Incentive Plan. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 29, 2015 (File No. 001-36296). |
| | |
|
| | |
10.9 | | Form of Indemnification Agreement by and between Eleven Biotherapeutics, Inc. and each of its directors and executive officers. Incorporated by reference to Exhibit 10.12 to our Registration Statement on Form S-1/A filed with the SEC on January 23, 2014 (Reg. No. 333-193131). |
| | |
10.10+ | | 2014 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.13 to our Registration Statement on Form S-1/A filed with the SEC on January 23, 2014 (Reg. No. 333-193131). |
| | |
10.11+ | | Employment Agreement, dated August 28, 2015, by and between Eleven Biotherapeutics, Inc. and John J. McCabe. Incorporated herein by reference to Exhibit 10.17 to our Annual Report on Form 10-K filed on March 24, 2016 (File No. 001-36296). |
| | |
10.12+ | | Form of Director Restricted Stock Agreement under 2014 Stock Incentive Plan. Incorporated by reference to Exhibit 10.18 to our Registration Statement on Form S-1/A filed with the SEC on January 23, 2014 (Reg. No. 333-193131). |
| |
10.13†
| | License Agreement, dated as of June 10, 2016, by and among Eleven Biotherapeutics, Inc., F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. Incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on August 12, 2016 (File No. 001-36296). |
| | |
10.14†
| | License Agreement, effective January 13, 2003, as amended and restated on October 14, 2015, by and between The University of Zurich and Viventia Bio Inc. Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296). |
| | |
10.15†
| | Amended & Restated Exclusive License Agreement, dated October 14, 2015, by and between Merck KGaA and Viventia Bio Inc. Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296).
|
| | |
10.16 | | Amended and Restated License Agreement, dated October 17, 2014, by and between Clairmark Investments Ltd. (successor in interest of Protoden Technologies Inc.) and Viventia Bio Inc. Incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296). |
| | |
10.17 | | Indenture, dated March 31, 2000, between 131-149 Hamelin Street Leaseholds Limited (successor in interest of Almad Investments Limited) and Viventia Bio Inc. (successor in interest of Viventia Biotech Inc.), as amended by Lease Amending Agreement, dated June 26, 2003, as further amended by Lease Amending Agreement, dated January 26, 2004, and as further amended by Letter Agreement, dated June 25, 2008, and as further amended by Lease Amending Agreement, September 16, 2015. Incorporated herein by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296). |
| | |
10.18+ | | Separation Agreement dated September 20, 2016 between Eleven Biotherapeutics, Inc. and Abbie C. Celniker. Incorporated herein by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296). |
| | |
10.19+ | | Separation Agreement dated September 20, 2016 between Eleven Biotherapeutics, Inc. and Karen L. Tubridy. Incorporated herein by reference to Exhibit 10.6 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296). |
| | |
10.20+ | | Retention Letter Agreement dated September 20, 2016 between Eleven Biotherapeutics, Inc. and John J. McCabe. Incorporated herein by reference to Exhibit 10.7 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296). |
| | |
10.21+ | | Amendment to Retention Letter Agreement, dated March 5, 2017, by and between Eleven Biotherapeutics, Inc. and John J. McCabe. Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 6, 2017 (File No. 001-36296).
|
| | |
10.22+ | | Employment Agreement dated September 20, 2016 between Eleven Biotherapeutics, Inc. and Stephen A. Hurly. Incorporated herein by reference to Exhibit 10.8 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296). |
| | |
10.23+ | | Employment Agreement dated September 20, 2016 between Eleven Biotherapeutics, Inc. and Arthur P. DeCillis. Incorporated herein by reference to Exhibit 10.9 to our Current Report on Form 8-K filed on September 21, 2016 (File No. 001-36296). |
| | |
10.24 | | Agreement for Termination of Lease and Voluntary Surrender of Premises, dated October 14, 2016, between Eleven Biotherapeutics, Inc. and ARE-MA Region No. 38, LLC. Incorporated herein by reference to Exhibit 10.10 to our Quarterly Report on Form 10-Q filed on November 14, 2016 (File No. 001-36296). |
| | |
21.1* | | Subsidiaries of Eleven Biotherapeutics, Inc. |
| | |
23.1* | | Consent of Ernst & Young LLP |
| |
|
| | |
31.1* | | Rule 13a-14(a) Certification of Principal Executive Officer |
| |
31.2* | | Rule 13a-14(a) Certification of Principal Financial Officer |
| |
32.1* | | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350 |
| |
101.INS* | | XBRL Instance Document |
| |
101.SCH* | | XBRL Taxonomy Extension Schema Document |
| | |
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| |
* | Filed herewith. |
+ | This exhibit is a compensatory plan or arrangement in which our executive officers or directors participate. |
† | Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission. |
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Eleven Biotherapeutics, Inc.
We have audited the accompanying consolidated balance sheets of Eleven Biotherapeutics, Inc. (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive income (loss), convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Eleven Biotherapeutics, Inc. at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016 in conformity with U.S. generally accepted accounting principles. | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 162,636 | | | $ | 52,389 | |
Accounts receivables | 21,011 | | | — | |
Other receivables | 3,482 | | | — | |
Prepaid expenses and other current assets | 18,476 | | | 7,478 | |
Restricted Cash | — | | | 3,000 | |
Total current assets | 205,605 | | | 62,867 | |
| | | |
Non-current assets: | | | |
Restricted cash | 20 | | | 20 | |
Property and equipment, net | 43 | | | 123 | |
Intangible assets | 14,700 | | | 46,400 | |
Goodwill | 13,064 | | | 13,064 | |
Long term prepaid expenses | 7,192 | | | — | |
Other assets | 123 | | | 349 | |
Total non-current assets | $ | 35,142 | | | $ | 59,956 | |
Total Assets | $ | 240,747 | | | $ | 122,823 | |
| | | |
Liabilities and Stockholders’ Equity (Deficit) | | | |
Current liabilities: | | | |
Accounts payable | $ | 2,853 | | | $ | 3,102 | |
Accrued expenses | 8,255 | | | 3,973 | |
Deferred revenue | — | | | 1,500 | |
Contingent consideration | — | | | 8,985 | |
Other current liabilities | 460 | | | 489 | |
Total current liabilities | 11,568 | | | 18,049 | |
| | | |
Non-current liabilities: | | | |
Contingent consideration, net of current portion | 52,000 | | | 99,855 | |
Deferred tax liability | 3,969 | | | 12,528 | |
Deferred revenue, net of current portion | 1,500 | | | 1,500 | |
Other non-current liabilities | — | | | 118 | |
Total non-current liabilities | 57,469 | | | 114,001 | |
Total Liabilities | 69,037 | | | 132,050 | |
| | | |
Stockholders’ Equity (Deficit): | | | |
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at December 31, 2021 and 2020; no shares issued and outstanding at December 31, 2021 and 2020 | — | | | — | |
Common stock, $0.001 par value per share; 400,000,000 and 200,000,000 shares authorized at December 31, 2021 and 2020; 199,463,645 and 140,449,647 shares issued and outstanding at December 31, 2021 and 2020, respectively | 199 | | | 140 | |
Additional paid-in capital | 487,768 | | | 306,554 | |
Accumulated deficit | (316,257) | | | (315,921) | |
Total Stockholders’ Equity (Deficit) | 171,710 | | | (9,227) | |
Total Liabilities and Stockholders’ Equity | $ | 240,747 | | | $ | 122,823 | |
The accompanying notes are an integral part of these consolidated financial statementsstatements.
SESEN BIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data) | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
Revenue: | | | | | |
License and related revenue | $ | 26,544 | | | $ | 11,236 | | | $ | — | |
Total Revenue | 26,544 | | | 11,236 | | | — | |
| | | | | |
Operating expenses: | | | | | |
Research and development | 25,312 | | | 29,191 | | | 24,663 | |
General and administrative | 29,393 | | | 14,302 | | | 12,208 | |
Restructuring charge | 5,528 | | | — | | | — | |
Intangibles impairment charge | 31,700 | | | — | | | — | |
Change in fair value of contingent consideration | (56,840) | | | (11,180) | | | 71,620 | |
Total operating expenses | 35,093 | | | 32,313 | | | 108,491 | |
| | | | | |
Loss from Operations | $ | (8,549) | | | $ | (21,077) | | | $ | (108,491) | |
Other (expense) income, net | (60) | | | 125 | | | 991 | |
Loss Before Taxes | $ | (8,609) | | | $ | (20,952) | | | $ | (107,500) | |
Benefit (provision) from income taxes | $ | 8,273 | | | $ | (1,445) | | | $ | — | |
Net Loss and Comprehensive Loss After Taxes | $ | (336) | | | $ | (22,397) | | | $ | (107,500) | |
| | | | | |
Deemed dividend on adjustment of exercise price of certain warrants | $ | — | | | $ | (147) | | | $ | — | |
| | | | | |
Net loss attributable to common stockholders - basic and diluted | $ | (336) | | | $ | (22,544) | | | $ | (107,500) | |
Net loss per common share - basic and diluted | $ | — | | | $ | (0.19) | | | $ | (1.18) | |
Weighted-average common shares outstanding - basic and diluted | $ | 182,323 | | | $ | 118,221 | | | $ | 90,929 | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
SESEN BIO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Stockholders’ Equity (Deficit) |
| Shares | | Amount | |
Balance at December 31, 2018 | 77,456,180 | | | $ | 77 | | | $ | 230,154 | | | $ | (186,024) | | | $ | 44,207 | |
Net loss | — | | | — | | | — | | | (107,500) | | | (107,500) | |
Share-based compensation | — | | | — | | | 1,237 | | | — | | | 1,237 | |
Exercises of stock options and vesting of RSAs | 89,812 | | | — | | | 98 | | | — | | | 98 | |
Sales of common stock under 2014 ESPP | 10,283 | | | — | | | 8 | | | — | | | 8 | |
Issuance of common stock and common stock warrants, net of issuance costs of $2.2 million | 20,410,000 | | | 21 | | | 27,812 | | | — | | | 27,833 | |
Exercises of common stock warrants | 6,772,928 | | | 7 | | | 5,474 | | | — | | | 5,481 | |
Issuance of common stock under ATM Offering, net of issuance costs of $0.2 million | 2,062,206 | | | 2 | | | 1,934 | | | — | | | 1,936 | |
Balance at December 31, 2019 | 106,801,409 | | | 107 | | | 266,717 | | | (293,524) | | | (26,700) | |
Net loss | — | | | — | | | — | | | (22,397) | | | (22,397) | |
Share-based compensation | — | | | — | | | 1,757 | | | — | | | 1,757 | |
Exercises of stock options | 12,000 | | | — | | | 13 | | | — | | | 13 | |
Sales of common stock under 2014 ESPP | 28,186 | | | — | | | 11 | | | — | | | 11 | |
Exercises of common stock warrants | 238,110 | | | — | | | 131 | | | — | | | 131 | |
Issuance of common stock under ATM Offering, net of issuance costs of $1.2 million | 33,369,942 | | | 33 | | | 37,925 | | | | | 37,958 | |
Balance at December 31, 2020 | 140,449,647 | | | 140 | | | 306,554 | | | (315,921) | | | (9,227) | |
Net loss | — | | | — | | | — | | | $ | (336) | | | (336) | |
Share-based compensation | — | | | — | | | 5,143 | | | — | | | 5,143 | |
Exercises of stock options | 33,610 | | | — | | | 42 | | | — | | | 42 | |
| | | | | | | | | |
Exercises of common stock warrants | 2,048,059 | | | 2 | | | 1,124 | | | — | | | 1,126 | |
Issuance of common stock under ATM Offering, net of issuance costs of $5.4 million | 56,932,329 | | | 57 | | | 174,905 | | | — | | | 174,962 | |
Balance at December 31, 2021 | 199,463,645 | | | $ | 199 | | | $ | 487,768 | | | $ | (316,257) | | | $ | 171,710 | |
The accompanying notes are an integral part of these consolidated financial statements.
SESEN BIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
Cash Flows from Operating Activities: | | | | | |
Net loss | $ | (336) | | | $ | (22,397) | | | $ | (107,500) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
Depreciation | 85 | | | 122 | | | 219 | |
Share-based compensation | 5,143 | | | 1,757 | | | 1,237 | |
Change in fair value of contingent consideration | (56,840) | | | (11,180) | | | 71,620 | |
| | | | | |
Intangibles impairment charge | 31,700 | | | — | | | — | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable (net) | (24,493) | | | — | | | — | |
Prepaid expenses and other assets | (17,964) | | | (1,304) | | | (5,188) | |
| | | | | |
Accounts payable | (249) | | | 1,200 | | | 535 | |
Accrued expenses and other liabilities | (4,424) | | | (2,035) | | | 1,556 | |
Deferred revenue | (1,500) | | | 3,000 | | | — | |
Net cash used in operating activities | (68,878) | | | (30,837) | | | (37,521) | |
Cash Flows from Investing Activities: | | | | | |
Purchases of equipment | (4) | | | (8) | | | (136) | |
Net cash used in investing activities | (4) | | | (8) | | | (136) | |
Cash Flows from Financing Activities: | | | | | |
Proceeds from issuance of common stock and common stock warrants, net of issuance costs | — | | | — | | | 27,833 | |
Proceeds from exercises of common stock warrants | 1,126 | | | 131 | | | 5,481 | |
Proceeds from issuance of common stock under ATM Offering, net of issuance costs | 174,962 | | | 37,958 | | | 1,936 | |
Proceeds from exercises of stock options | 42 | | | 13 | | | 98 | |
Proceeds from sale of common stock pursuant to ESPP | — | | | 11 | | | 8 | |
Net cash provided by financing activities | 176,129 | | | 38,113 | | | 35,356 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 107,247 | | | 7,268 | | | (2,301) | |
Cash, cash equivalents and restricted cash - beginning of period | 55,409 | | | 48,141 | | | 50,442 | |
Cash, cash equivalents and restricted cash - end of period | $ | 162,656 | | | $ | 55,409 | | | $ | 48,141 | |
| | | | | |
Reconciliation of cash, cash equivalents and restricted cash: | | | | | |
Cash and cash equivalents | $ | 162,636 | | | $ | 52,389 | | | $ | 48,121 | |
Short term restricted cash | — | | | 3,000 | | | — | |
Long term restricted cash | 20 | | | 20 | | | 20 | |
Total cash, cash equivalents and restricted cash | $ | 162,656 | | | $ | 55,409 | | | $ | 48,141 | |
| | | | | |
Supplemental cash flow disclosure: | | | | | |
Cash paid for amounts included in the measurement of lease liabilities | $ | 174 | | | $ | 154 | | | $ | 153 | |
Supplemental disclosure of non-cash operating activities: | | | | | |
Right-of-use assets related to the adoption of ASC 842 | $ | — | | | $ | — | | | $ | 236 | |
Right-of-use assets obtained in exchange for lease obligations | $ | — | | | $ | 290 | | | $ | — | |
| | | | | |
Supplemental disclosure of non-cash financing activities: | | | | | |
Deemed Dividend on adjustment of exercise price on certain warrants | $ | — | | | $ | 147 | | | $ | — | |
The accompanying notes are an integral part of these consolidated financial statements.
SESEN BIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Sesen Bio, Inc. ("Sesen" or the “Company”), a Delaware corporation formed in February 2008, is a late-stage clinical company advancing targeted fusion protein therapeutics ("TFPTs") for the treatment of patients with cancer. The Company’s most advanced product candidate, VicineumTM, also known as VB4-845, is a locally-administered targeted fusion protein composed of an anti-epithelial cell adhesion molecule ("EpCAM") antibody fragment tethered to a truncated form of Pseudomonas exotoxin A for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with bacillus Calmette-Guérin ("BCG"). The Company has an ongoing single-arm, multi-center, open-label Phase 3 VISTA clinical trial of Vicineum as a monotherapy in patients with BCG-unresponsive NMIBC (the "VISTA Trial"). The VISTA Trial completed enrollment in April 2018 with a total of 133 patients. On December 18, 2020, the Company submitted its completed Biologics License Application (the "BLA") for Vicineum for the treatment of BCG-unresponsive NMIBC to the United States Food and Drug Administration ("FDA"). On February 12, 2021, the FDA notified the Company that it has accepted for filing the BLA. The FDA also granted Priority Review for the BLA and set a target Prescription Drug User Fee Act ("PDUFA") date for a decision on the BLA of August 18, 2021. On July 13, 2021, the Company participated in a productive Late-Cycle Meeting with the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. In the meeting, the FDA confirmed that there was no Advisory Committee meeting planned at that time, and that no post-marketing requirements, including a confirmatory trial, had been identified at that time. Also in the meeting, the Company and the FDA discussed remaining questions related to manufacturing facilities inspection, product quality information requests and additional information related to chemistry, manufacturing and controls (“CMC”), and a timeline to submit additional supporting information was agreed upon. On August 13, 2021, the Company received a complete response letter (“CRL”) from the FDA indicating that the FDA had determined that it could not approve the BLA for Vicineum in its present form and provided recommendations specific to additional clinical/statistical data and analyses in addition to CMC issues pertaining to a recent pre-approval inspection and product quality.
The Company participated in Type A Meetings with the FDA on October 29, 2021 and December 8, 2021 to discuss questions related to CMC and clinical issues raised in the CRL. Both meetings helped the Company determine the appropriate path forward for Vicineum. Any changes in these assumptions and estimates or other information obtained, may have been prepared assuminga significant impact on the remeasurement of the contingent consideration liability in the future. The Company believes it has a clear understanding of what additional information regarding CMC is required for resubmission of a BLA. Additionally, although not an issue raised in the CRL, the FDA confirmed that Vicineum manufactured using the proposed commercial process is comparable to Vicineum used in prior clinical trials. The FDA also confirmed that the Company will continue as a going concern. As discussedcan utilize Vicineum manufactured during process validation for any future clinical trials needed to address issues raised in Note 1 to the financial statements, the Company has recurring losses from operationsCRL, and insufficient cash resources that raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.potential trials can proceed while addressing CMC issues.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 24, 2017
ELEVEN BIOTHERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(inIn thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 162,636 | | | $ | 52,389 | |
Accounts receivables | 21,011 | | | — | |
Other receivables | 3,482 | | | — | |
Prepaid expenses and other current assets | 18,476 | | | 7,478 | |
Restricted Cash | — | | | 3,000 | |
Total current assets | 205,605 | | | 62,867 | |
| | | |
Non-current assets: | | | |
Restricted cash | 20 | | | 20 | |
Property and equipment, net | 43 | | | 123 | |
Intangible assets | 14,700 | | | 46,400 | |
Goodwill | 13,064 | | | 13,064 | |
Long term prepaid expenses | 7,192 | | | — | |
Other assets | 123 | | | 349 | |
Total non-current assets | $ | 35,142 | | | $ | 59,956 | |
Total Assets | $ | 240,747 | | | $ | 122,823 | |
| | | |
Liabilities and Stockholders’ Equity (Deficit) | | | |
Current liabilities: | | | |
Accounts payable | $ | 2,853 | | | $ | 3,102 | |
Accrued expenses | 8,255 | | | 3,973 | |
Deferred revenue | — | | | 1,500 | |
Contingent consideration | — | | | 8,985 | |
Other current liabilities | 460 | | | 489 | |
Total current liabilities | 11,568 | | | 18,049 | |
| | | |
Non-current liabilities: | | | |
Contingent consideration, net of current portion | 52,000 | | | 99,855 | |
Deferred tax liability | 3,969 | | | 12,528 | |
Deferred revenue, net of current portion | 1,500 | | | 1,500 | |
Other non-current liabilities | — | | | 118 | |
Total non-current liabilities | 57,469 | | | 114,001 | |
Total Liabilities | 69,037 | | | 132,050 | |
| | | |
Stockholders’ Equity (Deficit): | | | |
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at December 31, 2021 and 2020; no shares issued and outstanding at December 31, 2021 and 2020 | — | | | — | |
Common stock, $0.001 par value per share; 400,000,000 and 200,000,000 shares authorized at December 31, 2021 and 2020; 199,463,645 and 140,449,647 shares issued and outstanding at December 31, 2021 and 2020, respectively | 199 | | | 140 | |
Additional paid-in capital | 487,768 | | | 306,554 | |
Accumulated deficit | (316,257) | | | (315,921) | |
Total Stockholders’ Equity (Deficit) | 171,710 | | | (9,227) | |
Total Liabilities and Stockholders’ Equity | $ | 240,747 | | | $ | 122,823 | |
The accompanying notes are an integral part of these consolidated financial statements.
|
| | | | | | | |
| December 31, |
| 2016 | | 2015 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 25,342 |
| | $ | 36,079 |
|
Prepaid expenses and other current assets | 585 |
| | 232 |
|
Total current assets | 25,927 |
| | 36,311 |
|
Property and equipment, net | 796 |
| | 407 |
|
Restricted cash | 10 |
| | 94 |
|
Intangible assets | 60,500 |
| | — |
|
Goodwill | 16,864 |
| | — |
|
Other assets | — |
| | 13 |
|
Total assets | $ | 104,097 |
| | $ | 36,825 |
|
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 1,667 |
| | $ | 1,246 |
|
Accrued expenses | 1,774 |
| | 1,794 |
|
Notes payable, current portion | — |
| | 4,134 |
|
Deferred revenue, current portion | 425 |
| | 406 |
|
Due to related party | 114 |
|
| — |
|
Total current liabilities | 3,980 |
| | 7,580 |
|
Other liabilities | — |
| | 423 |
|
Notes payable, net of current portion | — |
| | 9,763 |
|
Warrant liability | 5 |
| | 115 |
|
Deferred tax liability | 16,335 |
| | — |
|
Contingent consideration | 45,100 |
| | — |
|
Commitments and contingencies (Note 9) |
| |
|
Stockholders’ equity: | | | |
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at December 31, 2016 and 2015 and no shares issued and outstanding at December 31, 2016 and 2015 | — |
| | — |
|
Common stock, $0.001 par value per share; 200,000,000 shares authorized at December 31, 2016 and 2015 and 24,531,964 and 19,619,124 shares issued and outstanding at December 31, 2016 and 2015, respectively | 25 |
| | 20 |
|
Additional paid-in capital | 161,963 |
| | 144,126 |
|
Accumulated deficit | (123,311 | ) | | (125,202 | ) |
Total stockholders’ equity | 38,677 |
| | 18,944 |
|
Total liabilities and stockholders’ equity | $ | 104,097 |
| | $ | 36,825 |
|
See accompanying notes.
ELEVEN BIOTHERAPEUTICS,SESEN BIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)LOSS
(inIn thousands, except per share data) | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
Revenue: | | | | | |
License and related revenue | $ | 26,544 | | | $ | 11,236 | | | $ | — | |
Total Revenue | 26,544 | | | 11,236 | | | — | |
| | | | | |
Operating expenses: | | | | | |
Research and development | 25,312 | | | 29,191 | | | 24,663 | |
General and administrative | 29,393 | | | 14,302 | | | 12,208 | |
Restructuring charge | 5,528 | | | — | | | — | |
Intangibles impairment charge | 31,700 | | | — | | | — | |
Change in fair value of contingent consideration | (56,840) | | | (11,180) | | | 71,620 | |
Total operating expenses | 35,093 | | | 32,313 | | | 108,491 | |
| | | | | |
Loss from Operations | $ | (8,549) | | | $ | (21,077) | | | $ | (108,491) | |
Other (expense) income, net | (60) | | | 125 | | | 991 | |
Loss Before Taxes | $ | (8,609) | | | $ | (20,952) | | | $ | (107,500) | |
Benefit (provision) from income taxes | $ | 8,273 | | | $ | (1,445) | | | $ | — | |
Net Loss and Comprehensive Loss After Taxes | $ | (336) | | | $ | (22,397) | | | $ | (107,500) | |
| | | | | |
Deemed dividend on adjustment of exercise price of certain warrants | $ | — | | | $ | (147) | | | $ | — | |
| | | | | |
Net loss attributable to common stockholders - basic and diluted | $ | (336) | | | $ | (22,544) | | | $ | (107,500) | |
Net loss per common share - basic and diluted | $ | — | | | $ | (0.19) | | | $ | (1.18) | |
Weighted-average common shares outstanding - basic and diluted | $ | 182,323 | | | $ | 118,221 | | | $ | 90,929 | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Revenue: | | | | | |
Collaboration revenue | $ | 406 |
| | $ | 490 |
| | $ | 2,243 |
|
License revenue | 29,575 |
| | 500 |
| | — |
|
Total revenue | 29,981 |
| | 990 |
| | 2,243 |
|
Operating expenses: | | | | | |
Research and development | 13,479 |
| | 26,336 |
| | 26,703 |
|
General and administrative | 14,736 |
| | 9,850 |
| | 8,471 |
|
(Gain) loss from change in fair value of contingent consideration | (1,100 | ) | | — |
|
| — |
|
Total operating expenses | 27,115 |
| | 36,186 |
| | 35,174 |
|
Income (loss) from operations | 2,866 |
| | (35,196 | ) | | (32,931 | ) |
Other income (expense): | | | | | |
Other income (expense), net | (723 | ) | | 3,139 |
| | (849 | ) |
Interest expense | (247 | ) | | (1,395 | ) | | (376 | ) |
Total other income (expense), net | (970 | ) | | 1,744 |
| | (1,225 | ) |
Net income (loss) before income taxes | 1,896 |
| | (33,452 | ) |
| (34,156 | ) |
Provision for income taxes | 5 |
| | — |
|
| — |
|
Net income (loss) and comprehensive income (loss) | $ | 1,891 |
| | $ | (33,452 | ) |
| $ | (34,156 | ) |
Cumulative preferred stock dividends and accretion of preferred stock discount | — |
| | — |
| | (519 | ) |
Net income (loss) applicable to common stockholders | $ | 1,891 |
| | $ | (33,452 | ) | | $ | (34,675 | ) |
Net income (loss) per share applicable to common stockholders—basic | $ | 0.09 |
| | $ | (1.76 | ) | | $ | (2.37 | ) |
Weighted-average number of common shares used in net income (loss) per share applicable to common stockholders—basic | 21,083 |
| | 18,993 |
| | 14,644 |
|
Net income (loss) per share applicable to common stockholders-diluted | $ | 0.09 |
| | $ | (1.76 | ) |
| $ | (2.37 | ) |
Weighted-average number of common shares used in net income (loss) per share applicable to common stockholders—diluted | 21,733 |
| | 18,993 |
|
| 14,644 |
|
See accompanying notes.
ELEVEN BIOTHERAPEUTICS,SESEN BIO, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK ANDCHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Stockholders’ Equity (Deficit) |
| Shares | | Amount | |
Balance at December 31, 2018 | 77,456,180 | | | $ | 77 | | | $ | 230,154 | | | $ | (186,024) | | | $ | 44,207 | |
Net loss | — | | | — | | | — | | | (107,500) | | | (107,500) | |
Share-based compensation | — | | | — | | | 1,237 | | | — | | | 1,237 | |
Exercises of stock options and vesting of RSAs | 89,812 | | | — | | | 98 | | | — | | | 98 | |
Sales of common stock under 2014 ESPP | 10,283 | | | — | | | 8 | | | — | | | 8 | |
Issuance of common stock and common stock warrants, net of issuance costs of $2.2 million | 20,410,000 | | | 21 | | | 27,812 | | | — | | | 27,833 | |
Exercises of common stock warrants | 6,772,928 | | | 7 | | | 5,474 | | | — | | | 5,481 | |
Issuance of common stock under ATM Offering, net of issuance costs of $0.2 million | 2,062,206 | | | 2 | | | 1,934 | | | — | | | 1,936 | |
Balance at December 31, 2019 | 106,801,409 | | | 107 | | | 266,717 | | | (293,524) | | | (26,700) | |
Net loss | — | | | — | | | — | | | (22,397) | | | (22,397) | |
Share-based compensation | — | | | — | | | 1,757 | | | — | | | 1,757 | |
Exercises of stock options | 12,000 | | | — | | | 13 | | | — | | | 13 | |
Sales of common stock under 2014 ESPP | 28,186 | | | — | | | 11 | | | — | | | 11 | |
Exercises of common stock warrants | 238,110 | | | — | | | 131 | | | — | | | 131 | |
Issuance of common stock under ATM Offering, net of issuance costs of $1.2 million | 33,369,942 | | | 33 | | | 37,925 | | | | | 37,958 | |
Balance at December 31, 2020 | 140,449,647 | | | 140 | | | 306,554 | | | (315,921) | | | (9,227) | |
Net loss | — | | | — | | | — | | | $ | (336) | | | (336) | |
Share-based compensation | — | | | — | | | 5,143 | | | — | | | 5,143 | |
Exercises of stock options | 33,610 | | | — | | | 42 | | | — | | | 42 | |
| | | | | | | | | |
Exercises of common stock warrants | 2,048,059 | | | 2 | | | 1,124 | | | — | | | 1,126 | |
Issuance of common stock under ATM Offering, net of issuance costs of $5.4 million | 56,932,329 | | | 57 | | | 174,905 | | | — | | | 174,962 | |
Balance at December 31, 2021 | 199,463,645 | | | $ | 199 | | | $ | 487,768 | | | $ | (316,257) | | | $ | 171,710 | |
The accompanying notes are an integral part of these consolidated financial statements.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Series A Convertible Preferred Stock | | Series B Convertible Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Stockholders’ Equity (Deficit) |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| (in thousands, except share data) |
Balance at December 31, 2013 | 45,250,000 |
| | $ | 45,035 |
| | 7,203,845 |
| | $ | 11,643 |
| | 1,636,137 |
| | $ | 2 |
| | $ | 3,260 |
| | $ | (57,594 | ) | | $ | (54,332 | ) |
Initial public offering, net of issuance costs of $7.3 million | (45,250,000 | ) | | (45,035 | ) | | (7,203,845 | ) | | (11,643 | ) | | 14,010,424 |
| | 14 |
| | 106,868 |
| | — |
| | 106,882 |
|
Issuance of common stock, net of issuance costs of $1.5 million | — |
| | — |
| | — |
| | — |
| | 1,743,680 |
| | 2 |
| | 15,417 |
| | — |
| | 15,419 |
|
Exercise of stock options and vesting of restricted stock awards | — |
| | — |
| | — |
| | — |
| | 190,701 |
| | — |
| | 65 |
| | — |
| | 65 |
|
Exercise of warrants | — |
| | — |
| | — |
| | — |
| | 352,318 |
| | — |
| | 15 |
| | — |
| | 15 |
|
Conversion of preferred stock warrant to common stock warrant | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 247 |
| | — |
| | 247 |
|
Issuance of common stock warrants in connection with notes payable | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 254 |
| | — |
| | 254 |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,432 |
| | — |
| | 2,432 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (34,156 | ) | | (34,156 | ) |
Balance at December 31, 2014 | — |
| | — |
| | — |
| | — |
| | 17,933,260 |
| | 18 |
| | 128,558 |
| | (91,750 | ) | | 36,826 |
|
Issuance of common stock, net of issuance costs of $819,000 | — |
| | — |
| | — |
| | — |
| | 1,446,781 |
| | 2 |
| | 12,648 |
| | — |
| | 12,650 |
|
Exercise of stock options and vesting of restricted stock awards | — |
| | — |
| | — |
| | — |
| | 239,083 |
| | — |
| | 63 |
| | — |
| | 63 |
|
Issuance of common stock warrants in connection with notes payable | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 328 |
| | — |
| | 328 |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,529 |
| | — |
| | 2,529 |
|
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (33,452 | ) | | (33,452 | ) |
Balance at December 31, 2015 | — |
| | — |
| | — |
| | — |
| | 19,619,124 |
| | 20 |
| | 144,126 |
| | (125,202 | ) | | 18,944 |
|
Exercise of stock options and vesting of restricted stock awards | — |
| | — |
| | — |
| | — |
| | 810,538 |
| | 1 |
| | 268 |
| | — |
| | 269 |
|
Issuance of common stock pursuant to the ESPP | — |
| | — |
| | — |
| | — |
| | 88,871 |
| | — |
| | 35 |
| | — |
| | 35 |
|
Issuance of common stock in connection with the acquisition of Viventia | — |
| | — |
| | — |
| | — |
| | 4,013,431 |
| | 4 |
| | 13,521 |
| | — |
| | 13,525 |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,013 |
| | — |
| | 4,013 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,891 |
| | 1,891 |
|
Balance at December 31, 2016 | — |
| | $ | — |
| | — |
| | $ | — |
| | 24,531,964 |
| | $ | 25 |
| | $ | 161,963 |
| | $ | (123,311 | ) | | $ | 38,677 |
|
See accompanying notes.
ELEVEN BIOTHERAPEUTICS,SESEN BIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(inIn thousands)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
Cash Flows from Operating Activities: | | | | | |
Net loss | $ | (336) | | | $ | (22,397) | | | $ | (107,500) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
Depreciation | 85 | | | 122 | | | 219 | |
Share-based compensation | 5,143 | | | 1,757 | | | 1,237 | |
Change in fair value of contingent consideration | (56,840) | | | (11,180) | | | 71,620 | |
| | | | | |
Intangibles impairment charge | 31,700 | | | — | | | — | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable (net) | (24,493) | | | — | | | — | |
Prepaid expenses and other assets | (17,964) | | | (1,304) | | | (5,188) | |
| | | | | |
Accounts payable | (249) | | | 1,200 | | | 535 | |
Accrued expenses and other liabilities | (4,424) | | | (2,035) | | | 1,556 | |
Deferred revenue | (1,500) | | | 3,000 | | | — | |
Net cash used in operating activities | (68,878) | | | (30,837) | | | (37,521) | |
Cash Flows from Investing Activities: | | | | | |
Purchases of equipment | (4) | | | (8) | | | (136) | |
Net cash used in investing activities | (4) | | | (8) | | | (136) | |
Cash Flows from Financing Activities: | | | | | |
Proceeds from issuance of common stock and common stock warrants, net of issuance costs | — | | | — | | | 27,833 | |
Proceeds from exercises of common stock warrants | 1,126 | | | 131 | | | 5,481 | |
Proceeds from issuance of common stock under ATM Offering, net of issuance costs | 174,962 | | | 37,958 | | | 1,936 | |
Proceeds from exercises of stock options | 42 | | | 13 | | | 98 | |
Proceeds from sale of common stock pursuant to ESPP | — | | | 11 | | | 8 | |
Net cash provided by financing activities | 176,129 | | | 38,113 | | | 35,356 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 107,247 | | | 7,268 | | | (2,301) | |
Cash, cash equivalents and restricted cash - beginning of period | 55,409 | | | 48,141 | | | 50,442 | |
Cash, cash equivalents and restricted cash - end of period | $ | 162,656 | | | $ | 55,409 | | | $ | 48,141 | |
| | | | | |
Reconciliation of cash, cash equivalents and restricted cash: | | | | | |
Cash and cash equivalents | $ | 162,636 | | | $ | 52,389 | | | $ | 48,121 | |
Short term restricted cash | — | | | 3,000 | | | — | |
Long term restricted cash | 20 | | | 20 | | | 20 | |
Total cash, cash equivalents and restricted cash | $ | 162,656 | | | $ | 55,409 | | | $ | 48,141 | |
| | | | | |
Supplemental cash flow disclosure: | | | | | |
Cash paid for amounts included in the measurement of lease liabilities | $ | 174 | | | $ | 154 | | | $ | 153 | |
Supplemental disclosure of non-cash operating activities: | | | | | |
Right-of-use assets related to the adoption of ASC 842 | $ | — | | | $ | — | | | $ | 236 | |
Right-of-use assets obtained in exchange for lease obligations | $ | — | | | $ | 290 | | | $ | — | |
| | | | | |
Supplemental disclosure of non-cash financing activities: | | | | | |
Deemed Dividend on adjustment of exercise price on certain warrants | $ | — | | | $ | 147 | | | $ | — | |
The accompanying notes are an integral part of these consolidated financial statements.
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Operating activities | | | | | |
Net income (loss) | $ | 1,891 |
| | $ | (33,452 | ) | | $ | (34,156 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
Depreciation and amortization | 178 |
| | 366 |
| | 410 |
|
Non-cash interest expense | 26 |
| | 108 |
| | 36 |
|
Stock-based compensation expense | 4,013 |
| | 2,529 |
| | 2,432 |
|
Change in fair value of warrant liability | (110 | ) | | (3,104 | ) | | 123 |
|
(Gain) loss from change in fair value of contingent consideration | (1,100 | ) | | — |
| | — |
|
Loss on extinguishment of debt | 221 |
| | — |
| | 459 |
|
Gain on sale of equipment | (24 | ) | | — |
| | — |
|
Expense related to issuance costs allocated to warrants measured at fair value | — |
| | — |
| | 276 |
|
Changes in operating assets and liabilities: | | | | | |
Prepaid expenses and other assets | 800 |
| | 110 |
| | (259 | ) |
Restricted cash | 84 |
| | — |
| | — |
|
Accounts payable | (742 | ) | | (1,212 | ) | | 1,021 |
|
Accrued expenses | (1,936 | ) | | 226 |
| | 1,315 |
|
Deferred revenue | 19 |
| | (100 | ) | | (964 | ) |
Due to related party | (698 | ) | | — |
| | — |
|
Net cash provided by (used in) operating activities | 2,622 |
| | (34,529 | ) | | (29,307 | ) |
Investing activities | | | | | |
Cash acquired in acquisition | 136 |
| | — |
| | — |
|
Sale (purchases) of property and equipment | 325 |
| | (287 | ) | | (137 | ) |
Net cash provided by (used in) investing activities | 461 |
| | (287 | ) | | (137 | ) |
Financing activities | | | | | |
Proceeds from issuance of notes payable, net of debt issuance costs | — |
| | 5,000 |
| | 9,883 |
|
Payments on equipment financing and notes payable | (14,124 | ) | | (877 | ) | | (4,633 | ) |
Proceeds from issuance of common stock and common stock warrants, net of issuance costs | — |
| | 12,650 |
| | 70,237 |
|
Proceeds from exercise of common stock options and common stock warrants | 269 |
| | 63 |
| | 74 |
|
Proceeds from sale of common stock pursuant to ESPP | 35 |
| | — |
| | — |
|
Net cash (used in) provided by financing activities | (13,820 | ) | | 16,836 |
| | 75,561 |
|
Net (decrease) increase in cash and cash equivalents | (10,737 | ) | | (17,980 | ) | | 46,117 |
|
Cash and cash equivalents at beginning of period | 36,079 |
| | 54,059 |
| | 7,942 |
|
Cash and cash equivalents at end of period | $ | 25,342 |
| | $ | 36,079 |
| | $ | 54,059 |
|
Supplemental non-cash investing and financing activities | | | | | |
Common stock issued in connection with the acquisition (Note 3) | 13,525 |
| | — |
| | — |
|
Fair value of assets acquired and liabilities assumed in the acquisition (Note 3): | | | | | |
Fair value of assets acquired in the acquisition, excluding cash | $ | 79,366 |
| | $ | — |
| | $ | — |
|
Fair value of liabilities assumed in the acquisition | $ | 19,777 |
| | $ | — |
| | $ | — |
|
Conversion of Series A and Series B preferred stock into 8,260,444 shares of common stock | $ | — |
| | $ | — |
| | $ | 56,678 |
|
Conversion of preferred stock warrants into common stock warrants | $ | — |
| | $ | — |
| | $ | 247 |
|
Issuance of warrants to purchase common stock | $ | — |
| | $ | 328 |
| | $ | 3,300 |
|
Supplemental cash flow information | | | | | |
Cash paid for interest | $ | 663 |
| | $ | 930 |
| | $ | 335 |
|
See accompanying notes.
ELEVEN BIOTHERAPEUTICS,SESEN BIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of PresentationDESCRIPTION OF BUSINESS
Eleven Biotherapeutics,Sesen Bio, Inc. (the("Sesen" or the “Company”), a Delaware corporation formed onin February 25, 2008, is a biologics oncologylate-stage clinical company primarily focused on designing, engineering and developingadvancing targeted fusion protein therapeutics ("TPTs"TFPTs"). for the treatment of patients with cancer. The Company's TPTs are singleCompany’s most advanced product candidate, VicineumTM, also known as VB4-845, is a locally-administered targeted fusion protein therapeutics composed of targeting moieties genetically fused via linker domainsan anti-epithelial cell adhesion molecule ("EpCAM") antibody fragment tethered to cytotoxic protein payloads that are produced througha truncated form of Pseudomonas exotoxin A for the Company's proprietary one-step manufacturing process. The Company targets tumor cell surface antigens that allow for rapid internalization intotreatment of non-muscle invasive CIS of the targeted cancer cell and have limited expression on normal cells.bladder in patients previously treated with bacillus Calmette-Guérin ("BCG"). The Company has designedan ongoing single-arm, multi-center, open-label Phase 3 VISTA clinical trial of Vicineum as a monotherapy in patients with BCG-unresponsive NMIBC (the "VISTA Trial"). The VISTA Trial completed enrollment in April 2018 with a total of 133 patients. On December 18, 2020, the Company submitted its TPTscompleted Biologics License Application (the "BLA") for Vicineum for the treatment of BCG-unresponsive NMIBC to overcome the fundamental efficacyUnited States Food and safety challenges inherentDrug Administration ("FDA"). On February 12, 2021, the FDA notified the Company that it has accepted for filing the BLA. The FDA also granted Priority Review for the BLA and set a target Prescription Drug User Fee Act ("PDUFA") date for a decision on the BLA of August 18, 2021. On July 13, 2021, the Company participated in existing antibody drug conjugates ("ADCs"a productive Late-Cycle Meeting with the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. In the meeting, the FDA confirmed that there was no Advisory Committee meeting planned at that time, and that no post-marketing requirements, including a confirmatory trial, had been identified at that time. Also in the meeting, the Company and the FDA discussed remaining questions related to manufacturing facilities inspection, product quality information requests and additional information related to chemistry, manufacturing and controls (“CMC”), whereand a payload is chemically attachedtimeline to submit additional supporting information was agreed upon. On August 13, 2021, the Company received a complete response letter (“CRL”) from the FDA indicating that the FDA had determined that it could not approve the BLA for Vicineum in its present form and provided recommendations specific to additional clinical/statistical data and analyses in addition to CMC issues pertaining to a targeting antibody.recent pre-approval inspection and product quality.
The Company participated in Type A Meetings with the FDA on October 29, 2021 and December 8, 2021 to discuss questions related to CMC and clinical issues raised in the CRL. Both meetings helped the Company determine the appropriate path forward for Vicineum. Any changes in these assumptions and estimates or other information obtained, may have a significant impact on the remeasurement of the contingent consideration liability in the future. The Company believes it has a clear understanding of what additional information regarding CMC is required for resubmission of a BLA. Additionally, although not an issue raised in the CRL, the FDA confirmed that Vicineum manufactured using the proposed commercial process is comparable to Vicineum used in prior clinical trials. The FDA also confirmed that the Company can utilize Vicineum manufactured during process validation for any future clinical trials needed to address issues raised in the CRL, and that these potential trials can proceed while addressing CMC issues.
Viventia Acquisition
In September 2016, the Company entered into a Share Purchase Agreement with Viventia Bio, Inc., a corporation incorporated under the laws of the Province of Ontario, Canada ("Viventia"), the shareholders of Viventia named therein (the “Selling Shareholders”) and, solely in its capacity as seller representative, Clairmark Investments Ltd., a corporation incorporated under the laws of the Province of Ontario, Canada (“Clairmark”) (the “Share Purchase Agreement”), pursuant to which the Company agreed to and simultaneously completed the acquisition of all of the outstanding capital stock of Viventia from the Selling Shareholders (the “Viventia Acquisition”). In connection with the closing of the Viventia Acquisition, the Company issued 4.0 million shares of its common stock to the Selling Shareholders, which at that time represented approximately 19.9% of the voting power of the Company as of immediately prior to the issuance of such shares. Clairmark is an affiliate of Leslie L. Dan, a director of the Company until his retirement in July 2019.
In addition, under the Share Purchase Agreement, the Company is obligated to pay to the Selling Shareholders certain post-closing contingent cash payments upon the achievement of specified milestones and based upon net sales, in each case subject to the terms and conditions set forth in the Share Purchase Agreement, including: (i) a one-time milestone payment of $12.5 million payable upon the first sale of Vicineum (the “Purchased Product”), in the United States; (ii) a one-time milestone payment of $7.0 million payable upon the first sale of the Purchased Product in any one of certain specified European countries; (iii) a one-time milestone payment of $3.0 million payable upon the first sale of the Purchased Product in Japan; and (iv) quarterly earn-out payments equal to 2% of net sales of the Purchased Product during specified earn-out periods. Such earn-out payments are payable with respect to net sales in a country beginning on the date of the first sale in such country and ending on the earlier of (i) December 31, 2033, and (ii) fifteen years after the date of such sale, subject to early termination in certain circumstances if a biosimilar product is on the market in the applicable country. Under the Share Purchase Agreement, the Company, its affiliates, licensees and subcontractors are required to use commercially reasonable efforts, for the first seven
years following the closing of the Viventia Acquisition, to achieve marketing authorizations throughout the world and, during the applicable earn-out period, to commercialize the Purchased Product in the United States, France, Germany, Italy, Spain, United Kingdom, Japan, China and Canada. Certain of these payments are payable to individuals or affiliates of individuals that became employees or members of the Company's board of directors. However, as of December 31, 2021, none of these individuals are active employees or members of the Company's board of directors.
Liquidity and Capital Resources
As of December 31, 2021, the Company had cash and cash equivalents of $162.6 million and an accumulated deficit of $316.3 million. The Company incurred negative cash flows from operating activities of $68.9 million, $30.8 million and $37.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Since the Company’s inception, it has received no revenue from sales of its products, and the Company anticipates that operating losses will continue for the foreseeable future as it seeks to address the issues raised in the CRL it received for a BLA for Vicineum for the treatment of BCG unresponsive NMIBC and the concerns identified in the EMA Withdrawal Assessment Report, complete the follow-up stage of the ongoing Phase 3 VISTA Trial of Vicineum for the treatment of BCG-unresponsive NMIBC, complete any additional clinical trials for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, and seek marketing approval from the FDA and the European Commission and, if approved, commercialize Vicineum.The Company has financed its operations to date primarily through private placements of its common stock, and preferred stock, common stock warrants and convertible bridge notes, venture debt borrowings, its initial public offering ("IPO"), follow-on public offerings, sales effected in an "at-the-market" offering through its agent, Cowen("ATM") offerings, commercialization partnership and Company, LLC, andout-license agreements. See “Note 12. Stockholders’ Equity” below for information regarding the License Agreement. As of December 31, 2016,Company’s recently completed equity financings. Management believes that the Company hadCompany’s cash and cash equivalents totaling approximately $25.3 million, net working capitalas of $21.9 million and an accumulated deficit of $123.3 million.
In August 2014, FASB issued ASU 2014‑15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s AbilityDecember 31, 2021 will be sufficient to Continue as a Going Concern ("ASU 2015-14"). Underfund the new standard, management must evaluate whether there are conditions or events, considered inCompany's current operating plan for at least the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year afternext twelve months from the date that thethese consolidated financial statements arewere issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and(2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved by the Company’s board of directors ("Board") before the date that the financial statements are issued. This standard was adopted by the Company at December 31, 2016.
Funding Requirements
The Company’s future success of the Company is dependent on its ability to develop, and if approved, commercialize its product candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, and ultimately upon its ability to attain profitable operations. In order to commercialize its product candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, the Company needs to complete clinical development and comply with comprehensive regulatory requirements. The Company is subject to a number of risks similar to other early-stage life sciencelate-stage clinical companies, including, but not limited to, successful discovery and development of its product candidates, raising additional capital, with favorable terms, development and commercialization by its competitors of new technological innovations, protection of proprietary technology and market acceptance of the Company’sits products. The successful discovery, development and, developmentif approved, commercialization of product candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, requires substantial working capital, which may not be available toand the Company on favorable terms.
To date, the Company has no revenue from product sales and management expects continuing operating losses in the future. As of December 31, 2016, the Company had available cash and cash equivalents of $25.3 million, which it believes is not sufficient to fund the Company’s current operating plan through March 24, 2018, which is twelve months after the date the financial statements are issued. Management expects to seek additional funds through equity or debt financings or through additional collaborationoutside of United States (“OUS”) business development partnerships, collaborations, licensing transactions or licensing transactions.other sources. The Company may be unable to obtain equity or debt financings or enter into additional collaborationOUS business development partnerships, collaborations or licensing transactions at favorable terms, or at all, and, if necessary, the Company willmay be required to implement cost reduction strategies. These
The Company will incur substantial expenses if and as it:
•addresses the issues identified in the CRL it received from the FDA for its BLA for Vicineum for the treatment of BCG-unresponsive NMIBC and the concerns identified in the European Medicines Agency’s (“EMA”) Withdrawal Assessment Report, which the Company expects will include the completion of an additional Phase 3 clinical trial;
•seeks marketing approvals for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG;
•establishes and implement sales, marketing and distribution capabilities and scale up and validate external manufacturing capabilities to commercialize Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, if approved;
•maintains, expands and protects its intellectual property portfolio;
•hires additional clinical, regulatory, quality control, scientific and management personnel;
•expands its operational, financial and management systems and personnel;
•conducts research and pre-clinical and clinical development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, and its other product candidates;
•seeks to discover and develop additional product candidates; and
•in-licenses or acquires the rights to other products, product candidates or technologies.
The Company's future capital requirements will depend on many factors, raise substantial doubt about including:
•the scope, initiation, progress, timing, costs and results of laboratory testing and clinical trials for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and its other product candidates;
•the ongoing COVID-19 pandemic and its impact on the Company’s business;
•the Company’s ability to continueestablish additional OUS business development partnerships, collaborations or licensing arrangements on favorable terms, if at all, particularly manufacturing, marketing and distribution arrangements for its product candidates;
•the costs and timing of the implementation of commercial-scale manufacturing activities, including those associated with the manufacturing process and technology transfer to third-party manufacturers to facilitate such commercial-scale manufacturing of Vicineum;
•the costs and timing of establishing and implementing sales, marketing and distribution capabilities for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, if approved;
•the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing its intellectual property rights and defending any intellectual property-related claims;
•the Company’s obligation to make milestone, royalty and other payments to third-party licensors under its licensing agreements;
•the extent to which the Company in-licenses or acquires rights to other products, product candidates or technologies;
•the outcome, timing and cost of regulatory review by the FDA, EMA and comparable non-US regulatory authorities for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, including the potential for the FDA, EMA or comparable non-US regulatory authorities to require that the Company perform more studies or clinical trials than those that it currently expects to perform;
•the Company’s ability to achieve certain future regulatory, development and commercialization milestones under its out-license and OUS business development partnership agreements
•the effect of competing technological and market developments; and
•the revenue, if any, received from commercial sales of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, if approved.
Until such time, if ever, as the Company can generate substantial product revenues from commercial sales, the Company expects to finance its cash needs through a combination of equity offerings, debt financings, government or other third-party funding, strategic collaborations, OUS business development partnership agreements, partnerships, alliances, and licensing arrangements. The Company does not have any committed external source of funds other than the amounts payable under the license agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (collectively, “Roche”) and the license agreement with Qilu Pharmaceutical, Co., Ltd. (“Qilu”). To the extent the Company raises additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include liens or other restrictive covenants limiting the Company’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the Company raises additional funds through government or other third-party funding, strategic OUS business development partnerships, collaborations, alliances or licensing arrangements, the Company may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to the Company. If the Company is unable to raise additional funds when needed, the Company may be required to delay, limit, reduce or terminate its product development or future commercialization efforts or grant rights to develop and market products or product candidates that the Company would otherwise prefer to develop and market itself.
The COVID-19 pandemic has negatively impacted the global economy, disrupted business operations and created significant volatility and disruption to financial markets. Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on the Company’s operations, and on the global economy as a going concern.whole. The extent and duration of the pandemic could continue to disrupt global markets and may affect the Company’s ability to raise additional capital in the future.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP"). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the ASC and Accounting Standards Updates ("ASUs"), promulgated by the Financial Accounting Standards Board ("FASB").
Use of Estimates
The preparation of financial statements in accordance with GAAP and the rules and regulations of the SEC requires the use of estimates and assumptions, based on a going concern basis,judgments considered reasonable, which contemplatesaffect the realizationreported amounts of assets and satisfactionliabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although management believes its estimates and assumptions are reasonable when made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary, makes adjustments. Due to the risks and uncertainties involved in the ordinary courseCompany’s business and evolving market conditions, and given the subjective element of business.the estimates and assumptions made, actual results may differ from estimated results. The consolidated financial statements do not include any adjustments relating tomost significant estimates and judgments impact the recoverabilityfair value of intangible assets, goodwill and classification of recorded asset amounts orcontingent consideration; income taxes (including the amountsvaluation allowance for deferred tax assets); research and classification of liabilities that might result from the outcome of this uncertainty.development expenses; and going concern considerations.
ELEVEN BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)